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the preparation of financial statements in conformity with gaap requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses . our estimates are based on information available to management at the time of preparation of the consolidated financial statements , including the result of historical analysis , our understanding and experience of the company 's operations , our knowledge of the industry and market-participant data available to us . actual results have historically been in line with management 's estimates and judgments used in applying each of the accounting policies described below and management periodically re-evaluates accounting estimates and assumptions . actual results could 36 differ from these estimates and materially impact our consolidated financial statements . however , the company does not expect our assessments and assumptions below to materially change in the future . a summary of our significant accounting policies is presented in note 2 to our consolidated financial statements , which appear in part ii , item 8 . “ financial statements and supplementary data . ” the following is a summary of our accounting policies that are most affected by judgments , estimates and assumptions . impairment of property and equipment real estate and long-lived assets are tested for potential impairment when changes in circumstances indicate the carrying amount of the assets , or other appropriate grouping of assets , may not be fully recoverable . indicators of impairment include material adverse changes in the projected revenues and expenses , significant underperformance relative to historical or projected future operating results , and significant negative industry or economic trends . an impairment is determined to have occurred if the future net undiscounted cash flows expected to be generated is less than the carrying value of an asset . the impairment is measured as the difference between the carrying value and the fair value . significant judgment is required both in determining impairment and in estimating the fair value . we may use assumptions and estimates derived from a review of our operating results , business projections , expected growth rates , discount rates , and tax rates . we also make certain assumptions about future economic conditions , interest rates , and other market data . many of the factors used in these assumptions and estimates are outside the control of management , and can change in future periods . impairment of intangible assets we assess the potential impairment of our intangible assets with indefinite lives on an annual basis or if an event occurs or circumstances change between annual tests that indicate that it is more likely than not that the asset is impaired . we perform our impairment test by comparing the fair value of the intangible asset with its carrying amount . if the carrying amount exceeds its fair value , an impairment loss will be recognized in an amount equal to that excess . we assess the potential impairment of our intangible assets with definite lives , when changes in circumstances indicate the carrying amount of the assets , or other appropriate grouping of assets , may not be fully recoverable . the assessment of recoverability is based on comparing management 's estimates of the sum of the estimated undiscounted cash flows generated by the underlying asset , or other appropriate grouping of assets , to its carrying value to determine whether an impairment existed at its lowest level of identifiable cash flows . factors leading to impairment include significant under-performance relative to historical or projected results , significant changes in the manner of use of the acquired assets or the strategy for our overall business and significant negative industry or economic trends . membership deposit liabilities in our traditional golf business , private country club members generally pay an advance initiation fee deposit upon their acceptance as a member to the respective country club . initiation fee deposits are refundable 30 years after the date of acceptance as a member . the difference between the initiation fee deposit paid by the member and the present value of the refund obligation is deferred and recognized into revenue in the consolidated statements of operations on a straight-line basis over the expected life of an active membership , which is estimated to be seven years . the present value of the refund obligation is recorded as a membership deposit liability in the consolidated balance sheets and accretes over a 30-year nonrefundable term using the effective interest method . this accretion is recorded as interest expense , net in the consolidated statements of operations . the determination of the estimated average expected life of an active membership is based on company-specific historical data and involves judgment and estimation . valuation of securities fair value of securities may be based upon broker quotations , counterparty quotations or pricing services quotations , which provide valuation estimates based upon reasonable market order indications or a good faith estimate thereof and are subject to significant variability based on market conditions , such as interest rates , credit spreads and market liquidity . our non-agency rmbs security is categorized as a level 3 asset . if we were forced to sell this asset in a short period to meet liquidity needs , the price we receive could be substantially less than the recorded fair value . see note 11 to our consolidated financial statements in part ii , item 8 . “ financial statements and supplementary data ” for information regarding the fair value of our investments , and respective estimation methodologies , as of december 31 , 2017 . 37 our estimation of the fair value of securities valued using internal models involves significant judgment . the inputs to our models include discount rates , prepayment speeds , default rates and severity assumptions . story_separator_special_tag impairment impairment of $ 6.2 million was recorded for the year ended december 31 , 2016 due to a $ 3.6 million impairment on one golf property when we reclassified the property to held-for-sale and a $ 2.6 million impairment charge related to two golf properties . there was no impairment recorded during the year ended december 31 , 2017 . realized and unrealized ( gain ) loss on investments realized and unrealized gain on investments decreased by $ 0.5 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to losses recorded on the interest rate cap for our traditional golf term loan . interest and investment income there was no significant change in interest and investment income during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . interest expense , net interest expense , net increased by $ 2.8 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to : ( i ) a $ 3.7 million increase related to the term loan obtained in june 2016 , ( ii ) a $ 0.6 million increase in membership deposit liability interest accretion due to more members and ( iii ) a $ 0.2 million increase due to additional capital leases , partially offset by ( iv ) a $ 1.7 million decrease related to the repurchase agreement exited in june 2016. loss on extinguishment of debt loss on extinguishment of debt decreased by $ 0.5 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to fewer liability write-offs in 2017. other loss , net other loss , net decreased by $ 0.9 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 due to : ( i ) lower lease disposition costs incurred in 2017 for leases exited in 2017 and 2016 and ( ii ) an increase in other liability write-offs in 2017 , partially offset by a loss on disposal for a golf property in oregon in 2017 . 46 comparison of traditional golf results of operations for the years ended december 31 , 2016 and 2015 ( a ) replace_table_token_15_th ( a ) we own , lease or manage 78 and 86 golf properties as of december 31 , 2016 and 2015 , respectively . n.m. – not meaningful revenues from golf course operations revenues from golf course operations increased by $ 1.8 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily due to : ( i ) a $ 5.5 million increase in net driving range revenues at public golf properties as a result of the continued growth of the players club program , ( ii ) a $ 2.0 million increase due to additional initiation fees from new member sales and higher membership dues rates , partially offset by ( iii ) a $ 3.4 million decrease in green fee and cart rental revenue as a result of unfavorable conditions , especially in california , ( iv ) a $ 1.9 million decrease in greens and cart fees and merchandise sales from properties that were exited in 2016 and ( v ) a $ 0.4 million decrease in sales of merchandise due to unfavorable conditions , especially in california . sales of food and beverages sales of food and beverages increased by $ 1.2 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily due to a $ 2.2 million increase in private event revenues and packaged round and beverage offers to the players club members , partially offset by a $ 1.0 million decrease from properties that were exited in 2016. operating expenses there was no significant change in operating expenses during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 . 47 cost of sales - food and beverages cost of sales - food and beverages decreased by $ 1.0 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily due to : ( i ) a $ 0.8 million decrease as a result of increased vendor rebates in 2016 , ( ii ) a $ 0.4 million decrease from properties that were exited in 2016 , partially offset by ( iii ) a $ 0.2 million increase due to additional food and beverage sales . general and administrative expense ( including acquisition and transaction expense ) there was no significant change in general and administrative expense during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 . depreciation and amortization depreciation and amortization decreased by $ 2.2 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily due to certain assets being fully depreciated in 2015 and 2016 from scheduled lease expirations partially offset by an increase in depreciation from additional capital leases . impairment impairment increased by $ 6.2 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 due to a $ 3.6 million impairment on one golf property when we reclassified the property to held-for-sale and a $ 2.6 million impairment charge related to two golf properties . realized and unrealized ( gain ) loss on investments realized and unrealized ( gain ) loss on investments increased by $ 0.3 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 due to a gain recorded on the interest rate cap on our golf term loan . interest and investment income there was no significant change in interest and investment income during the
| loss on extinguishment of debt the loss on extinguishment of debt decreased by $ 0.5 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 due to fewer write-offs of traditional golf liabilities . gain on deconsolidation the gain on deconsolidation of $ 82.1 million during the year ended december 31 , 2016 is related to the deconsolidation of cdo vi . there were no deconsolidations during the year ended december 31 , 2017 . other income ( loss ) , net other income ( loss ) , net increased by $ 3.5 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 due in part to a $ 2.9 million writedown on our equity method investment during the year ended december 31 , 2016 and a decrease of $ 0.9 million in disposal related expenses in the traditional golf business during the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 , offset by a $ 0.2 million decrease in collateral management fee income and a $ 0.1 million decrease from the disposal of legacy assets . replace_table_token_13_th n.m. – not meaningful 42 revenues from golf course operations revenues from golf course operations increased by $ 1.8 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily due to : ( i ) a $ 5.5 million increase in net driving range revenues at public golf properties as a result of the continued growth of the players club program , ( ii ) a $ 2.0 million increase due to additional initiation fees from new member sales and higher membership dues rates , partially offset by ( iii ) a $ 3.4 million decrease in green fee and cart rental revenue as a result of unfavorable conditions , especially in california , ( iv ) a $ 1.9 million decrease in greens and cart fees and merchandise sales from properties that were exited in 2016 and ( v ) a $ 0.4 million decrease in sales of merchandise due to unfavorable conditions , especially in california .
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sales to international distributors are made on open credit terms or letters of credit and are currently denominated in u.s. dollars and accordingly , are not subject to risks associated with currency fluctuations . however , increases in the value of the u.s. dollar against any local currencies could cause our products to become relatively more expensive to customers in a particular country or region , leading to reduced revenue or profitability in that country or region . cost of revenues consists primarily of the cost of components and sub-systems , assembling , packaging , shipping and testing components at our facility , direct labor and associated overhead , warranty , royalty and amortization of intangible assets and depot service costs . research and development expenses consist primarily of personnel costs , materials to support new product development and research support provided to clinicians at medical institutions developing new applications which utilize our products and regulatory expenses . research and development costs have been expensed as incurred . sales and marketing expenses consist primarily of costs of personnel , sales commissions , travel expenses , advertising and promotional expenses . general and administrative expenses consist primarily of costs of personnel , legal , accounting and other public company costs , insurance and other expenses not allocated to other departments . results of operations - 2017 , 2016 and 2015 our fiscal year ends on the saturday closest to december 31. fiscal 2017 ended on december 30 , 2017 , fiscal 2016 ended on december 31 , 2016 and fiscal 2015 ended on january 2 , 2016. fiscal years 2017 , 2016 and 2015 each included 52 weeks of operations . 33 the following table sets forth certain operating data as a percentage of revenue for the periods indicated . replace_table_token_6_th comparison of 2017 and 2016 revenues . our total revenues decreased $ 4.6 million or 10.0 % from $ 46.2 million in 2016 to $ 41.6 million in 2017. the decrease was due primarily from a decrease in our domestic systems revenues , international systems revenues , and recurring revenues of $ 2.3 million , $ 2.0 million and $ 0.3 million respectively . the decrease in domestic systems revenues was primarily due to a decrease in sales of our retina products and an increase in our sales return reserve related to our voluntary recall of 104 trufocus lio premiere laser indirect ophthalmoscopes ( “ lio ” ) . for further information about the lio recall , see footnote 17 “ subsequent events ” of item 8 “ financial statements and supplementary data ” of this report . the decrease in international systems revenues was primarily due to a decrease in sales of our retina products . the decrease in recurring revenues was due to a decrease in sales of our legacy probes that was partially offset by an increase in our g6 related probes . in 2017 we implemented the laser advantage program ( “ lap ” ) that some of our domestic customers have utilized . under the lap , we ship a g6 laser along with an initial purchase of g6 probes and an agreement to purchase additional g6 probes . ownership on the console is transferred to the customer after they purchase the additional required number of probes on or before the end of a specified period . as title on the console does not transfer until the earlier of when the additional required probes are purchased or at the end of the term , in accordance with the multiple element arrangement guidance under asc 605 , the company has determined that revenue from lap sales of g6 lasers should be recognized only when that uncertainty is resolved and title of the console passes to the customers . replace_table_token_7_th gross profit . gross profit was $ 15.5 million in 2017 compared with $ 20.8 million in 2016 , a decrease of $ 5.3 million or 25.5 % . gross margin , which is defined as gross profit as a percentage of revenues , was 37.3 % in 2017 compared with 45.1 % in 2016 , a decrease of 7.8 percentage points . gross margin decreased primarily due to additional costs related to our lio product recall , unfavorable product and geographic mix changes , lower selling price for our retina products , and an increase in manufacturing variances . 34 gross margins are expected to continue t o fluctuate due to changes in the relative proportions of domestic and international sales , the product mix of sales , manufacturing variances , total unit volume changes that lead to greater or lesser production efficiencies , sales return and a variety of o ther factors . research and development . r & d expenses increased $ 0.4 million or 6.8 % from $ 5.4 million in 2016 to $ 5.7 million in 2017. the increase was attributable primarily to an increase in non-cash stock compensation and an increase in patent expenses . sales and marketing . sales and marketing expenses increased $ 4.3 million or 41.4 % , from $ 10.3 million in 2016 to $ 14.5 million in 2017. the increase was attributable primarily to an increase in headcount and associated costs , an increase in commission expense , an increase in trade shows , as well as an increase in other general selling and marketing expenses . general and administrative . general and administrative expenses increased $ 0.6 million or 8.1 % , from $ 7.6 million in 2016 to $ 8.3 million in 2017. the increase in spending was attributable primarily to an increase in headcount and associated costs , an increase in accounting , audit and tax expenses , and an increase in other public company reporting and compliance expenses , partially offset by a decrease in severance costs and legal expense . story_separator_special_tag the asu provides alternative methods of initial adoption and is effective for annual and interim periods beginning after december 15 , 2017. the fasb has issued several updates to the standard which i ) defer the original effective date from january 1 , 2017 to january 1 , 2018 , while allowing for early adoption as of january 1 , 2017 ( asu 2015-14 ) ; ii ) clarify the application of the principal versus agent guidance ( asu 2016-08 ) ; iii ) clarify the guidance on inconsequential and perfunctory promises and licensing ( asu 2016-10 ) ; and ( iv ) clarify the guidance on certain sections of the guidance providing technical corrections and improvements ( asu 2016-10 ) . in may 2016 , the fasb issued asu 2016-12 , “ revenue from contracts with customers ( topic 606 ) narrow-scope improvements and practical expedients ” , to address certain narrow aspects of the guidance including collectibility criterion , collection of sales taxes from customers , noncash consideration , contract modifications and completed contracts . this issuance does not change the core principle of the guidance in the initial topic issued in may 2014. we will be adopting the standard using the modified retrospective method . the adoption of this standard in fiscal year 2018 is not expected to have a material impact on our consolidated financial statements . in july 2015 , the fasb issued asu 2015-11 , “ simplifying the measurement of inventory . ” under this asu , inventory will be measured at the “ lower of cost and net realizable value ” and options that currently exist for “ market value ” will be eliminated . the asu defines net realizable value as the “ estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . ” no other changes were made to the current guidance on inventory measurement . asu 2015-11 is effective for interim and annual periods beginning after december 15 , 2016. early application is permitted and should be applied prospectively . the adoption of this standard in fiscal year 2017 did not have a material impact on our consolidated financial statements . in february 2016 , the fasb issued asu 2016-02 , `` leases , `` amending asc 842. this asu requires us to recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases with terms of more than twelve months . this asu also requires disclosures enabling the users of financial statements to understand the amount , timing and uncertainty of cash flows arising from leases . this new standard will become effective for annual periods beginning after december 15 , 2018 ( including interim reporting periods within those periods ) . early adoption is permitted as of the beginning of an interim or annual reporting period . we are currently evaluating the impact of this new standard on our consolidated financial statements . in march 2016 , the fasb issued asu no . 2016-09 , “ improvements to employee share-based payment accounting ” as part of its simplification initiative , which involves several aspects of accounting for share-based payment transactions , including the income tax consequences , classification of awards as either equity or liabilities , and classification on the statement of cash flows . the asu is effective for annual periods beginning after december 15 , 2016 , and interim periods within those annual periods . prior to asu 2016-09 , tax benefits in excess of compensation cost ( “ windfalls ” ) were recorded in equity , and tax deficiencies ( “ shortfalls ” ) were recorded in equity to the extent of previous windfalls , and then to the income statement . while the simplification reduces some of the administrative complexities by eliminating the need to track a “ windfall pool , ” it increases the volatility of income tax expense . the asu also removes the requirement to delay recognition of a windfall tax benefit until it reduces current taxes payable . under the new guidance , the benefit is recorded 40 when it arises , subject to normal valuatio n allowance considerations . under the new guidance , entities are permitted to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards . forfeitures can be estimated or recognized when the y occur . estimates of forfeitures are still required in certain circumstances , such as at the time of modification of an award or issuance of a replacement award in a business combination . as of january 1 , 2017 , the company adopted asu 2016-09 on a modifie d retrospective basis for the income statement impact of forfeitures and income taxes . accordingly , the company did not change forfeiture method as of january 1 , 2017 , therefore , there was no retained earnings impact . as of january 1 , 2017 , the company al so recognized an excess windfall , net of operating loss carryforwards that were converted into deferred tax net operating losses , of $ 1.39 million , with a corresponding increase in valuation allowance of $ 1.39 million . in august 2016 , the fasb issued asu 2016-15 `` statement of cash flows ( topic 230 ) : classification of certain cash receipts and cash payments `` . the amendment gives guidance and reduces diversity in practice with respect to certain types of cash flows . this asu is effective for fiscal years beginning after december 15 , 2017 , and interim periods within those fiscal years . early adoption is permitted , including adoption in an interim period . if an entity early adopts the amendments in an interim period , any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period . an entity that elects early adoption must
| loss on extinguishment of debt the loss on extinguishment of debt decreased by $ 0.5 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 due to fewer write-offs of traditional golf liabilities . gain on deconsolidation the gain on deconsolidation of $ 82.1 million during the year ended december 31 , 2016 is related to the deconsolidation of cdo vi . there were no deconsolidations during the year ended december 31 , 2017 . other income ( loss ) , net other income ( loss ) , net increased by $ 3.5 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 due in part to a $ 2.9 million writedown on our equity method investment during the year ended december 31 , 2016 and a decrease of $ 0.9 million in disposal related expenses in the traditional golf business during the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 , offset by a $ 0.2 million decrease in collateral management fee income and a $ 0.1 million decrease from the disposal of legacy assets . replace_table_token_13_th n.m. – not meaningful 42 revenues from golf course operations revenues from golf course operations increased by $ 1.8 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily due to : ( i ) a $ 5.5 million increase in net driving range revenues at public golf properties as a result of the continued growth of the players club program , ( ii ) a $ 2.0 million increase due to additional initiation fees from new member sales and higher membership dues rates , partially offset by ( iii ) a $ 3.4 million decrease in green fee and cart rental revenue as a result of unfavorable conditions , especially in california , ( iv ) a $ 1.9 million decrease in greens and cart fees and merchandise sales from properties that were exited in 2016 and ( v ) a $ 0.4 million decrease in sales of merchandise due to unfavorable conditions , especially in california .
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sales to international distributors are made on open credit terms or letters of credit and are currently denominated in u.s. dollars and accordingly , are not subject to risks associated with currency fluctuations . however , increases in the value of the u.s. dollar against any local currencies could cause our products to become relatively more expensive to customers in a particular country or region , leading to reduced revenue or profitability in that country or region . cost of revenues consists primarily of the cost of components and sub-systems , assembling , packaging , shipping and testing components at our facility , direct labor and associated overhead , warranty , royalty and amortization of intangible assets and depot service costs . research and development expenses consist primarily of personnel costs , materials to support new product development and research support provided to clinicians at medical institutions developing new applications which utilize our products and regulatory expenses . research and development costs have been expensed as incurred . sales and marketing expenses consist primarily of costs of personnel , sales commissions , travel expenses , advertising and promotional expenses . general and administrative expenses consist primarily of costs of personnel , legal , accounting and other public company costs , insurance and other expenses not allocated to other departments . results of operations - 2017 , 2016 and 2015 our fiscal year ends on the saturday closest to december 31. fiscal 2017 ended on december 30 , 2017 , fiscal 2016 ended on december 31 , 2016 and fiscal 2015 ended on january 2 , 2016. fiscal years 2017 , 2016 and 2015 each included 52 weeks of operations . 33 the following table sets forth certain operating data as a percentage of revenue for the periods indicated . replace_table_token_6_th comparison of 2017 and 2016 revenues . our total revenues decreased $ 4.6 million or 10.0 % from $ 46.2 million in 2016 to $ 41.6 million in 2017. the decrease was due primarily from a decrease in our domestic systems revenues , international systems revenues , and recurring revenues of $ 2.3 million , $ 2.0 million and $ 0.3 million respectively . the decrease in domestic systems revenues was primarily due to a decrease in sales of our retina products and an increase in our sales return reserve related to our voluntary recall of 104 trufocus lio premiere laser indirect ophthalmoscopes ( “ lio ” ) . for further information about the lio recall , see footnote 17 “ subsequent events ” of item 8 “ financial statements and supplementary data ” of this report . the decrease in international systems revenues was primarily due to a decrease in sales of our retina products . the decrease in recurring revenues was due to a decrease in sales of our legacy probes that was partially offset by an increase in our g6 related probes . in 2017 we implemented the laser advantage program ( “ lap ” ) that some of our domestic customers have utilized . under the lap , we ship a g6 laser along with an initial purchase of g6 probes and an agreement to purchase additional g6 probes . ownership on the console is transferred to the customer after they purchase the additional required number of probes on or before the end of a specified period . as title on the console does not transfer until the earlier of when the additional required probes are purchased or at the end of the term , in accordance with the multiple element arrangement guidance under asc 605 , the company has determined that revenue from lap sales of g6 lasers should be recognized only when that uncertainty is resolved and title of the console passes to the customers . replace_table_token_7_th gross profit . gross profit was $ 15.5 million in 2017 compared with $ 20.8 million in 2016 , a decrease of $ 5.3 million or 25.5 % . gross margin , which is defined as gross profit as a percentage of revenues , was 37.3 % in 2017 compared with 45.1 % in 2016 , a decrease of 7.8 percentage points . gross margin decreased primarily due to additional costs related to our lio product recall , unfavorable product and geographic mix changes , lower selling price for our retina products , and an increase in manufacturing variances . 34 gross margins are expected to continue t o fluctuate due to changes in the relative proportions of domestic and international sales , the product mix of sales , manufacturing variances , total unit volume changes that lead to greater or lesser production efficiencies , sales return and a variety of o ther factors . research and development . r & d expenses increased $ 0.4 million or 6.8 % from $ 5.4 million in 2016 to $ 5.7 million in 2017. the increase was attributable primarily to an increase in non-cash stock compensation and an increase in patent expenses . sales and marketing . sales and marketing expenses increased $ 4.3 million or 41.4 % , from $ 10.3 million in 2016 to $ 14.5 million in 2017. the increase was attributable primarily to an increase in headcount and associated costs , an increase in commission expense , an increase in trade shows , as well as an increase in other general selling and marketing expenses . general and administrative . general and administrative expenses increased $ 0.6 million or 8.1 % , from $ 7.6 million in 2016 to $ 8.3 million in 2017. the increase in spending was attributable primarily to an increase in headcount and associated costs , an increase in accounting , audit and tax expenses , and an increase in other public company reporting and compliance expenses , partially offset by a decrease in severance costs and legal expense . story_separator_special_tag the asu provides alternative methods of initial adoption and is effective for annual and interim periods beginning after december 15 , 2017. the fasb has issued several updates to the standard which i ) defer the original effective date from january 1 , 2017 to january 1 , 2018 , while allowing for early adoption as of january 1 , 2017 ( asu 2015-14 ) ; ii ) clarify the application of the principal versus agent guidance ( asu 2016-08 ) ; iii ) clarify the guidance on inconsequential and perfunctory promises and licensing ( asu 2016-10 ) ; and ( iv ) clarify the guidance on certain sections of the guidance providing technical corrections and improvements ( asu 2016-10 ) . in may 2016 , the fasb issued asu 2016-12 , “ revenue from contracts with customers ( topic 606 ) narrow-scope improvements and practical expedients ” , to address certain narrow aspects of the guidance including collectibility criterion , collection of sales taxes from customers , noncash consideration , contract modifications and completed contracts . this issuance does not change the core principle of the guidance in the initial topic issued in may 2014. we will be adopting the standard using the modified retrospective method . the adoption of this standard in fiscal year 2018 is not expected to have a material impact on our consolidated financial statements . in july 2015 , the fasb issued asu 2015-11 , “ simplifying the measurement of inventory . ” under this asu , inventory will be measured at the “ lower of cost and net realizable value ” and options that currently exist for “ market value ” will be eliminated . the asu defines net realizable value as the “ estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . ” no other changes were made to the current guidance on inventory measurement . asu 2015-11 is effective for interim and annual periods beginning after december 15 , 2016. early application is permitted and should be applied prospectively . the adoption of this standard in fiscal year 2017 did not have a material impact on our consolidated financial statements . in february 2016 , the fasb issued asu 2016-02 , `` leases , `` amending asc 842. this asu requires us to recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases with terms of more than twelve months . this asu also requires disclosures enabling the users of financial statements to understand the amount , timing and uncertainty of cash flows arising from leases . this new standard will become effective for annual periods beginning after december 15 , 2018 ( including interim reporting periods within those periods ) . early adoption is permitted as of the beginning of an interim or annual reporting period . we are currently evaluating the impact of this new standard on our consolidated financial statements . in march 2016 , the fasb issued asu no . 2016-09 , “ improvements to employee share-based payment accounting ” as part of its simplification initiative , which involves several aspects of accounting for share-based payment transactions , including the income tax consequences , classification of awards as either equity or liabilities , and classification on the statement of cash flows . the asu is effective for annual periods beginning after december 15 , 2016 , and interim periods within those annual periods . prior to asu 2016-09 , tax benefits in excess of compensation cost ( “ windfalls ” ) were recorded in equity , and tax deficiencies ( “ shortfalls ” ) were recorded in equity to the extent of previous windfalls , and then to the income statement . while the simplification reduces some of the administrative complexities by eliminating the need to track a “ windfall pool , ” it increases the volatility of income tax expense . the asu also removes the requirement to delay recognition of a windfall tax benefit until it reduces current taxes payable . under the new guidance , the benefit is recorded 40 when it arises , subject to normal valuatio n allowance considerations . under the new guidance , entities are permitted to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards . forfeitures can be estimated or recognized when the y occur . estimates of forfeitures are still required in certain circumstances , such as at the time of modification of an award or issuance of a replacement award in a business combination . as of january 1 , 2017 , the company adopted asu 2016-09 on a modifie d retrospective basis for the income statement impact of forfeitures and income taxes . accordingly , the company did not change forfeiture method as of january 1 , 2017 , therefore , there was no retained earnings impact . as of january 1 , 2017 , the company al so recognized an excess windfall , net of operating loss carryforwards that were converted into deferred tax net operating losses , of $ 1.39 million , with a corresponding increase in valuation allowance of $ 1.39 million . in august 2016 , the fasb issued asu 2016-15 `` statement of cash flows ( topic 230 ) : classification of certain cash receipts and cash payments `` . the amendment gives guidance and reduces diversity in practice with respect to certain types of cash flows . this asu is effective for fiscal years beginning after december 15 , 2017 , and interim periods within those fiscal years . early adoption is permitted , including adoption in an interim period . if an entity early adopts the amendments in an interim period , any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period . an entity that elects early adoption must
| liquidity and capital resources liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments . in addition , liquidity includes the ability to obtain appropriate financing or to raise capital . comparison of 2017 and 2016 as of december 30 , 2017 , we had cash and cash equivalents of $ 21.7 million , no debt and working capital of $ 29.1 million compared to cash and cash equivalents of $ 23.7 million , no debt and working capital of $ 37.7 million as of december 31 , 2016. during 2017 , net cash of $ 3.6 million was used in operating activities , primarily from our net loss of $ 12.9 million , partially offset by a change in operating assets and liabilities which generated $ 6.4 million net cash and the add back of non-cash items of $ 2.9 million . the $ 6.4 million generated by the change in operating assets and liabilities was a result primarily of a decrease in accounts receivable of $ 2.2 million , a decrease in inventory of $ 2.1 million , an increase in accrued warranty of $ 1.1 million and an increase in deferred revenue of $ 1.1 million . the add back of non-cash items consisted mainly of a decrease in stock-based compensation of $ 1.9 million and depreciation and amortization of $ 0.9 million . we used $ 0.8 million net cash in investing activities , primarily due to $ 0.6 million on capital expenditures and $ 0.4 million to pay a contingent earn-out liability arising from our past acquisition , partially offset by net proceeds received from the sale of an intellectual property of $ 0.2 million .
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we have observed some degree of seasonality in our business , as there tends to be a lower number of procedures that use our products during the three months ending september 30. interventional procedure volume usually grows throughout the course of the fiscal year , with the quarter ending june 30 usually representing the highest volume of cases and , therefore , the highest amount of revenue generated by us during the course of the fiscal year . cost of goods sold . we assemble the single-use catheter with components purchased from third-party suppliers , as well as with components manufactured in-house . balloons , guide wires , and certain catheters are purchased from third-party suppliers . our cost of goods sold consists primarily of raw materials , direct labor , manufacturing overhead , and purchased finished goods . selling , general and administrative expenses . selling , general and administrative expenses include compensation for executive , sales , marketing , finance , information technology , human resources and administrative personnel , including stock-based compensation and facilities overhead . other significant expenses include bad debt expense , travel , marketing costs , professional fees and professional education . research and development expenses . research and development expenses include costs associated with the design , development , testing , enhancement and regulatory approval of our products . research and development expenses include employee compensation including stock-based compensation , supplies and materials , patent expenses , consulting expenses , travel and facilities overhead . we also incur significant expenses to operate clinical trials , including trial design , third-party fees , clinical site reimbursement , data management and travel expenses . all research and development expenses are expensed as incurred . approved patent applications are capitalized and amortized using the straight-line method over their remaining estimated lives . patent amortization begins at the time of patent application approval and does not exceed 20 years . other ( income ) and expense , net . other ( income ) and expense , net primarily includes interest expense from amounts owed under the lease of our headquarters facility and doj settlement and interest income from money market funds and other investments in marketable securities . net operating loss carryforwards . we have established valuation allowances to fully offset our deferred tax assets due to the uncertainty about our ability to generate the future taxable income necessary to realize these deferred assets , particularly in light of our historical losses . the future use of net operating loss carryforwards is dependent on us attaining profitable operations and will be limited in any one year under internal revenue code section 382 due to significant ownership changes ( as defined in section 382 ) resulting from our equity financings . at june 30 , 2019 , we had net operating loss carryforwards for federal and state income tax reporting purposes of approximately $ 269.4 million , which will expire at various dates through fiscal 2037. critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of our consolidated financial statements requires us to make estimates , assumptions and judgments that affect amounts reported in those statements . our estimates , assumptions and judgments , including those related to revenue recognition , deferred revenue and stock-based compensation , are updated as appropriate at least quarterly . we use authoritative pronouncements , our technical accounting knowledge , cumulative business experience , valuation specialists , judgment and other factors in the selection and application of our accounting policies . while we believe that the estimates , assumptions and judgments that we use in preparing our consolidated financial statements are appropriate , these estimates , assumptions and judgments are subject to factors and uncertainties regarding their outcome . therefore , actual results may materially differ from these estimates . some of our significant accounting policies require us to make subjective or complex judgments or estimates . an accounting estimate is considered to be critical if it meets both of the following criteria : ( 1 ) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made , and ( 2 ) different estimates that reasonably could have been used , or changes in the estimate that are reasonably likely to occur from period to period , would have a material impact on the presentation of our financial condition , results of operations , or cash flows . 31 revenue recognition . we sell our peripheral and coronary products to customers through a direct sales force in the united states and through distributors internationally . we have no material concentration of credit risk or significant payment terms extended to customers and , therefore , we do not adjust the promised amount of consideration for the effects of a significant financing component . sales , use , value-added , and other excise taxes are not recognized in revenue . we have elected to present revenue net of sales taxes and other similar taxes . performance obligations the majority of our revenues are from customer arrangements containing a single performance obligation to transfer peripheral and coronary products , and thus revenue is recognized at a point in time when control is transferred . this generally occurs upon shipment or upon delivery to the customer site , based on the contract terms . shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation . story_separator_special_tag off-balance sheet arrangements since inception , we have not engaged in any off-balance sheet arrangements as defined in item 303 ( a ) ( 4 ) of regulation s-k. recent accounting pronouncements in february 2016 , the fasb issued accounting standards update ( “ asu ” ) 2016-02 , “ leases . ” the guidance requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet . asu 2016-02 is effective for annual periods beginning after december 15 , 2018 , including interim periods within those annual periods , and should be applied using a modified retrospective approach . the guidance was effective for us on july 1 , 2019. we have elected the prospective transition method with the effects of adoption recognized as a cumulative effect adjustment to the opening balance of retained earnings in our fiscal 2020 financial statements , with no restatement of comparative periods . we have also elected the package of three practical expedients permitted under the transition guidance within the new standard , which among other things , allows us to carry forward the historical lease classification . we have assessed the impact of adopting this guidance on our consolidated financial statements and related disclosures and do not expect a material impact to our results of operations and cash flows . we will record our operating leases on our consolidated balance sheet as right of use assets and lease liabilities , but due to the makeup of our current operating lease portfolio , we do not expect a material amount to be recognized on the consolidated balance sheet . in june 2016 , the fasb issued asu 2016-13 , “ measurement of credit losses on financial instruments , ” which revises guidance for the accounting for credit losses on financial instruments within its scope . the new standard introduces an approach , based on expected losses , to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities . the new approach to estimating credit losses ( referred to as the current expected credit losses model ) applies to most financial assets measured at amortized cost and certain other instruments , including trade and other receivables , loans , held-to-maturity debt securities , net investments in leases and off-balance-sheet credit exposures . asu 2016-13 is effective for annual periods beginning after december 15 , 2019 , including interim periods within those fiscal years . early adoption is permitted and should be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted . the guidance is effective for us on july 1 , 2020. we do not anticipate a material impact on our financial statements upon adoption . private securities litigation reform act the private securities litigation reform act of 1995 provides a “ safe harbor ” for forward-looking statements . such “ forward-looking ” information is included in this form 10-k and in other materials filed or to be filed by us with the securities and exchange commission ( as well as information included in oral statements or other written statements made or to be made by the company ) . forward-looking statements include all statements based on future expectations . this form 10-k contains forward-looking statements that involve risks and uncertainties , including , but not limited to , ( i ) the expectation of selling our products , including recently approved products , future products and products we distribute , domestically and internationally in the future , the timing and structure of our plans to do so , and the specific countries and products to be sold , either by us or through distributors ; ( ii ) our strategy ; ( iii ) the competitive benefits of our products ; ( iv ) potential strategic acquisitions and partnerships ; ( v ) the expected timing of the manufacturing transfer and commercialization of the wirion system ; ( vi ) our products in development ; ( vii ) seasonality in our business ; ( viii ) reimbursement of our products ; ( ix ) our intention to expand our product portfolio through internal development and external relationships ; ( x ) our plan to balance revenue growth with a pathway to profitability and positive cash flow ; ( xi ) our current and anticipated clinical studies , including the results and timing of such studies ; ( xii ) our expectation that our revenue will increase ; ( xiii ) our expectation of increased selling , general and administrative expenses and the rate of such growth ; ( xiv ) our expectation that gross margin in fiscal 2020 will decrease slightly compared to fiscal 2019 ; ( xv ) our expectation that our current facilities will be adequate for the foreseeable future ; ( xvi ) our plans to continue to expand our sales and marketing efforts as well as our product portfolio and clinical studies ; ( xvii ) our intention to file additional patents and our efforts to protect our intellectual property ; ( xviii ) our expectation that we will incur research and development expenses in fiscal 2020 higher than the amounts incurred for fiscal 2019 ; ( xix ) our belief that our current cash and cash equivalents will be sufficient to fund working capital requirements , capital expenditures and operations for the foreseeable future , as well as to fund certain other anticipated expenses ; ( xx ) our intention to retain any future earnings to support operations and to finance the growth and development of our business ; ( xxi ) our dividend expectations ; ( xxii ) our ability to obtain regulatory approvals to market our products ; ( xxiii ) our plan not to borrow under our loan and security agreement ; and ( xxiv ) the anticipated impact of adoption of recent accounting pronouncements on our financial
| liquidity and capital resources liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments . in addition , liquidity includes the ability to obtain appropriate financing or to raise capital . comparison of 2017 and 2016 as of december 30 , 2017 , we had cash and cash equivalents of $ 21.7 million , no debt and working capital of $ 29.1 million compared to cash and cash equivalents of $ 23.7 million , no debt and working capital of $ 37.7 million as of december 31 , 2016. during 2017 , net cash of $ 3.6 million was used in operating activities , primarily from our net loss of $ 12.9 million , partially offset by a change in operating assets and liabilities which generated $ 6.4 million net cash and the add back of non-cash items of $ 2.9 million . the $ 6.4 million generated by the change in operating assets and liabilities was a result primarily of a decrease in accounts receivable of $ 2.2 million , a decrease in inventory of $ 2.1 million , an increase in accrued warranty of $ 1.1 million and an increase in deferred revenue of $ 1.1 million . the add back of non-cash items consisted mainly of a decrease in stock-based compensation of $ 1.9 million and depreciation and amortization of $ 0.9 million . we used $ 0.8 million net cash in investing activities , primarily due to $ 0.6 million on capital expenditures and $ 0.4 million to pay a contingent earn-out liability arising from our past acquisition , partially offset by net proceeds received from the sale of an intellectual property of $ 0.2 million .
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we have observed some degree of seasonality in our business , as there tends to be a lower number of procedures that use our products during the three months ending september 30. interventional procedure volume usually grows throughout the course of the fiscal year , with the quarter ending june 30 usually representing the highest volume of cases and , therefore , the highest amount of revenue generated by us during the course of the fiscal year . cost of goods sold . we assemble the single-use catheter with components purchased from third-party suppliers , as well as with components manufactured in-house . balloons , guide wires , and certain catheters are purchased from third-party suppliers . our cost of goods sold consists primarily of raw materials , direct labor , manufacturing overhead , and purchased finished goods . selling , general and administrative expenses . selling , general and administrative expenses include compensation for executive , sales , marketing , finance , information technology , human resources and administrative personnel , including stock-based compensation and facilities overhead . other significant expenses include bad debt expense , travel , marketing costs , professional fees and professional education . research and development expenses . research and development expenses include costs associated with the design , development , testing , enhancement and regulatory approval of our products . research and development expenses include employee compensation including stock-based compensation , supplies and materials , patent expenses , consulting expenses , travel and facilities overhead . we also incur significant expenses to operate clinical trials , including trial design , third-party fees , clinical site reimbursement , data management and travel expenses . all research and development expenses are expensed as incurred . approved patent applications are capitalized and amortized using the straight-line method over their remaining estimated lives . patent amortization begins at the time of patent application approval and does not exceed 20 years . other ( income ) and expense , net . other ( income ) and expense , net primarily includes interest expense from amounts owed under the lease of our headquarters facility and doj settlement and interest income from money market funds and other investments in marketable securities . net operating loss carryforwards . we have established valuation allowances to fully offset our deferred tax assets due to the uncertainty about our ability to generate the future taxable income necessary to realize these deferred assets , particularly in light of our historical losses . the future use of net operating loss carryforwards is dependent on us attaining profitable operations and will be limited in any one year under internal revenue code section 382 due to significant ownership changes ( as defined in section 382 ) resulting from our equity financings . at june 30 , 2019 , we had net operating loss carryforwards for federal and state income tax reporting purposes of approximately $ 269.4 million , which will expire at various dates through fiscal 2037. critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of our consolidated financial statements requires us to make estimates , assumptions and judgments that affect amounts reported in those statements . our estimates , assumptions and judgments , including those related to revenue recognition , deferred revenue and stock-based compensation , are updated as appropriate at least quarterly . we use authoritative pronouncements , our technical accounting knowledge , cumulative business experience , valuation specialists , judgment and other factors in the selection and application of our accounting policies . while we believe that the estimates , assumptions and judgments that we use in preparing our consolidated financial statements are appropriate , these estimates , assumptions and judgments are subject to factors and uncertainties regarding their outcome . therefore , actual results may materially differ from these estimates . some of our significant accounting policies require us to make subjective or complex judgments or estimates . an accounting estimate is considered to be critical if it meets both of the following criteria : ( 1 ) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made , and ( 2 ) different estimates that reasonably could have been used , or changes in the estimate that are reasonably likely to occur from period to period , would have a material impact on the presentation of our financial condition , results of operations , or cash flows . 31 revenue recognition . we sell our peripheral and coronary products to customers through a direct sales force in the united states and through distributors internationally . we have no material concentration of credit risk or significant payment terms extended to customers and , therefore , we do not adjust the promised amount of consideration for the effects of a significant financing component . sales , use , value-added , and other excise taxes are not recognized in revenue . we have elected to present revenue net of sales taxes and other similar taxes . performance obligations the majority of our revenues are from customer arrangements containing a single performance obligation to transfer peripheral and coronary products , and thus revenue is recognized at a point in time when control is transferred . this generally occurs upon shipment or upon delivery to the customer site , based on the contract terms . shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation . story_separator_special_tag off-balance sheet arrangements since inception , we have not engaged in any off-balance sheet arrangements as defined in item 303 ( a ) ( 4 ) of regulation s-k. recent accounting pronouncements in february 2016 , the fasb issued accounting standards update ( “ asu ” ) 2016-02 , “ leases . ” the guidance requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet . asu 2016-02 is effective for annual periods beginning after december 15 , 2018 , including interim periods within those annual periods , and should be applied using a modified retrospective approach . the guidance was effective for us on july 1 , 2019. we have elected the prospective transition method with the effects of adoption recognized as a cumulative effect adjustment to the opening balance of retained earnings in our fiscal 2020 financial statements , with no restatement of comparative periods . we have also elected the package of three practical expedients permitted under the transition guidance within the new standard , which among other things , allows us to carry forward the historical lease classification . we have assessed the impact of adopting this guidance on our consolidated financial statements and related disclosures and do not expect a material impact to our results of operations and cash flows . we will record our operating leases on our consolidated balance sheet as right of use assets and lease liabilities , but due to the makeup of our current operating lease portfolio , we do not expect a material amount to be recognized on the consolidated balance sheet . in june 2016 , the fasb issued asu 2016-13 , “ measurement of credit losses on financial instruments , ” which revises guidance for the accounting for credit losses on financial instruments within its scope . the new standard introduces an approach , based on expected losses , to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities . the new approach to estimating credit losses ( referred to as the current expected credit losses model ) applies to most financial assets measured at amortized cost and certain other instruments , including trade and other receivables , loans , held-to-maturity debt securities , net investments in leases and off-balance-sheet credit exposures . asu 2016-13 is effective for annual periods beginning after december 15 , 2019 , including interim periods within those fiscal years . early adoption is permitted and should be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted . the guidance is effective for us on july 1 , 2020. we do not anticipate a material impact on our financial statements upon adoption . private securities litigation reform act the private securities litigation reform act of 1995 provides a “ safe harbor ” for forward-looking statements . such “ forward-looking ” information is included in this form 10-k and in other materials filed or to be filed by us with the securities and exchange commission ( as well as information included in oral statements or other written statements made or to be made by the company ) . forward-looking statements include all statements based on future expectations . this form 10-k contains forward-looking statements that involve risks and uncertainties , including , but not limited to , ( i ) the expectation of selling our products , including recently approved products , future products and products we distribute , domestically and internationally in the future , the timing and structure of our plans to do so , and the specific countries and products to be sold , either by us or through distributors ; ( ii ) our strategy ; ( iii ) the competitive benefits of our products ; ( iv ) potential strategic acquisitions and partnerships ; ( v ) the expected timing of the manufacturing transfer and commercialization of the wirion system ; ( vi ) our products in development ; ( vii ) seasonality in our business ; ( viii ) reimbursement of our products ; ( ix ) our intention to expand our product portfolio through internal development and external relationships ; ( x ) our plan to balance revenue growth with a pathway to profitability and positive cash flow ; ( xi ) our current and anticipated clinical studies , including the results and timing of such studies ; ( xii ) our expectation that our revenue will increase ; ( xiii ) our expectation of increased selling , general and administrative expenses and the rate of such growth ; ( xiv ) our expectation that gross margin in fiscal 2020 will decrease slightly compared to fiscal 2019 ; ( xv ) our expectation that our current facilities will be adequate for the foreseeable future ; ( xvi ) our plans to continue to expand our sales and marketing efforts as well as our product portfolio and clinical studies ; ( xvii ) our intention to file additional patents and our efforts to protect our intellectual property ; ( xviii ) our expectation that we will incur research and development expenses in fiscal 2020 higher than the amounts incurred for fiscal 2019 ; ( xix ) our belief that our current cash and cash equivalents will be sufficient to fund working capital requirements , capital expenditures and operations for the foreseeable future , as well as to fund certain other anticipated expenses ; ( xx ) our intention to retain any future earnings to support operations and to finance the growth and development of our business ; ( xxi ) our dividend expectations ; ( xxii ) our ability to obtain regulatory approvals to market our products ; ( xxiii ) our plan not to borrow under our loan and security agreement ; and ( xxiv ) the anticipated impact of adoption of recent accounting pronouncements on our financial
| net cash used in investing activities was $ 54.4 million for the year ended june 30 , 2019 , primarily due to purchases of available-for-sale debt securities made with our excess cash balance . also contributing to cash flows used in investing activities was a combined $ 3.6 million related to capital expenditures and patent costs and an additional $ 3.1 million equity investment . net cash used in investing activities was $ 5.1 million for the year ended june 30 , 2018. contributing to this was a combined $ 3.1 million of capital expenditures and patent costs and a $ 2.5 million equity investment made in june 2018 , partially offset by the collection of a note receivable . financing activities net cash provided by financing activities was $ 2.1 million for the year ended june 30 , 2019 , primarily from proceeds of $ 3.8 million from the employee stock purchase plan and a small amount of cash proceeds from stock option exercises . these amounts were partially offset by $ 1.8 million of payroll tax payments we made on behalf of our employees , associated with the vesting of employee restricted stock . net cash provided by financing activities was $ 3.8 million for the year ended june 30 , 2018 , primarily from proceeds of $ 3.8 million from the employee stock purchase plan and a small amount of cash proceeds from stock option exercises . our future liquidity and capital requirements will be influenced by numerous factors , including the extent and duration of future operating losses , the level and timing of future sales and expenditures , the results and scope of ongoing research and product development programs , working capital required to support our business operations , the receipt of and time required to obtain regulatory clearances and approvals , our sales and marketing programs , the continuing acceptance of our products in the marketplace , competing technologies , market and regulatory developments , ongoing facility requirements , potential strategic transactions ( including the potential acquisition of , or investments in , businesses , technologies and products ) , international expansion , and the existence , defense and resolution of legal proceedings .
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financial operations revenue we expect that revenues we generate from the sales of our products will fluctuate from quarter to quarter . between 2008 and 2012 , we entered into joint development and collaboration agreements with animas and tandem , as well as other third parties under agreements that have since expired , under which we recognized development grant and other revenue received pursuant to that agreement ratably over the term of the development period . we recognize development milestones associated with each agreement as revenue upon achievement of each milestone if the milestone is considered substantive . cost of sales product cost of sales includes direct labor and materials costs related to each product sold or produced , including assembly , test labor and scrap , as well as factory overhead supporting our manufacturing operations . factory overhead includes facilities , material procurement and control , manufacturing engineering , quality assurance , supervision and management . these costs are primarily salary , fringe benefits , share-based compensation , facility expense , supplies and purchased services . a large portion of our costs are currently fixed due to our moderate level of production volumes compared to our potential capacity . all 47 of our manufacturing costs are included in product cost of sales . development and other cost of sales consists primarily of salaries , fringe , facilities , and supplies directly attributable to our development contracts . research and development our research and development expenses primarily consist of engineering and research expenses related to our continuous glucose monitoring technology , clinical trials , regulatory expenses , quality assurance programs , materials and products for clinical trials . research and development expenses are primarily related to employee compensation , including salary , fringe benefits , share-based compensation , and temporary employee expenses . we also incur significant expenses to operate our clinical trials including clinical site reimbursement , clinical trial product and associated travel expenses . our research and development expenses also include fees for design services , contractors and development materials . selling , general and administrative our selling , general and administrative expenses primarily consist of salary , fringe benefits and share-based compensation for our executive , financial , sales , marketing and administrative functions . other significant expenses include trade show expenses , sales samples , insurance , professional fees for our outside legal counsel and independent auditors , litigation expenses , patent application expenses and consulting expenses . results of operations fiscal year ended december 31 , 2013 compared to december 31 , 2012 revenue , cost of sales and gross profit product revenue increased $ 64.1 million to $ 157.1 million for the twelve months ended december 31 , 2013 , compared to $ 93.0 million for the twelve months ended december 31 , 2012 based primarily on increased sales volume , due , in part , to the commercial launch in october 2012 of the g4 platinum system . product cost of sales increased $ 9.8 million to $ 58.1 million for the twelve months ended december 31 , 2013 , compared to $ 48.3 million for the twelve months ended december 31 , 2012 primarily due to increased sales volume . the product gross profit of $ 99.0 million for the twelve months ended december 31 , 2013 increased $ 54.3 million compared to $ 44.7 million for the same period in 2012 , primarily due to increased revenue , and the greater sales mix of our higher margin g4 platinum system compared to our seven plus system . development grant and other revenues decreased $ 4.0 million to $ 2.9 million for the twelve months ended december 31 , 2013 , compared to $ 6.9 million for the twelve months ended december 31 , 2012 . development and other cost of sales decreased $ 3.2 million to $ 1.8 million for the twelve months ended december 31 , 2013 , compared to $ 5.0 million for the twelve months ended december 31 , 2012 . the decrease in revenues associated with development was primarily due to the termination of the roche agreement in february 2013 , and the completion of development activities under the collaboration agreement with edwards in the fourth quarter of 2012. the decrease in costs associated with development was primarily due to fewer development obligations during the period with respect to our collaboration and development arrangements . research and development . research and development expense increased $ 6.5 million to $ 44.8 million for the twelve months ended december 31 , 2013 , compared to $ 38.3 million for the twelve months ended december 31 , 2012 . the increase in research and development expense was primarily due to increased development efforts for our ambulatory products . significant elements of increased research and development expense included $ 3.0 million in additional salaries , bonus , and payroll related costs and $ 2.5 million in additional share-based compensation . selling , general and administrative . selling , general and administrative expense increased $ 20.2 million to $ 84.2 million for the twelve months ended december 31 , 2013 , compared to $ 64.0 million for the twelve months ended december 31 , 2012 . the increase was primarily due to higher selling and information technology costs to support revenue growth and the continued commercialization of our products . significant elements of increased selling , general , and administrative expenses included $ 7.3 million in additional salaries , bonus , and payroll related costs , $ 3.4 million in additional share-based compensation costs , $ 3.2 million in additional sales commissions , and $ 1.5 million in additional bad debt expense . interest expense . interest expense increased to $ 0.9 million for the twelve months ended december 31 , 2013 , compared to $ 0.2 million for the twelve months ended december 31 , 2012 . story_separator_special_tag revenue on product sales to distributors is generally recognized at the time of shipment , which is when title and risk of loss have been transferred to the distributor and there are no other post-shipment obligations . revenue is recognized based on contracted prices and invoices are either paid by check following the issuance of a 52 purchase order or letter of credit , or they are paid by wire at the time of placing the order . terms of distributor orders are generally freight on board ( “ fob ” ) shipping point ( free carrier ( “ fca ” ) shipping point for international orders ) . distributors do not have rights of return per their distribution agreement outside of our standard warranty . the distributors typically have a limited time frame to notify us of any missing , damaged , defective or non-conforming products . for any such products , we shall either , at our option , replace the portion of defective or non-conforming product at no additional cost to the distributor or cancel the order and refund any portion of the price paid to us at that time for the sale in question . we shipped product directly to certain distributors ' customers and recognized $ 23.4 million , $ 15.9 million and $ 14.5 million in revenue from these direct shipments , which represents 15 % , 16 % and 19 % of our total revenues for the twelve months ended december 31 , 2013 , 2012 and 2011 , respectively . with respect to other distributors that stock inventory of our product and fulfill orders from their inventory , we shipped product to these distributors and recognized $ 70.5 million , $ 30.7 million and $ 17.7 million in revenue from these arrangements , which represents 44 % , 31 % and 23 % of our total revenues for the twelve months ended december 31 , 2013 , 2012 and 2011 , respectively . we monitor shipments to , and on-hand inventory levels of , these distributors , and at december 31 , 2013 , these distributors had limited amounts of our product in their inventory . we have collaborative license and development arrangements with strategic partners for the development and commercialization of products utilizing our technologies . the terms of these agreements typically include multiple deliverables by us ( for example , license rights , provision of research and development services and manufacture of clinical materials ) in exchange for consideration to us of some combination of non-refundable license fees , funding of research and development activities , payments based upon achievement of clinical development milestones and royalties in the form of a designated percentage of product sales or profits . with the exception of royalties , these types of consideration are classified as development grant and other revenue in our consolidated statements of operations and are generally recognized over the service period except for substantive milestone payments , which are generally recognized when the milestone is achieved . in determining whether each milestone is substantive , we considered whether the consideration earned by achieving the milestone should ( i ) be commensurate with either ( a ) our performance to achieve the milestone or ( b ) the enhancement of value of the item delivered as a result of a specific outcome resulting from our performance to achieve the milestone , ( ii ) relate solely to past performance and ( iii ) be reasonable relative to all deliverables and payment terms in the arrangement . we recognize royalties as product revenue in the period in which we obtain the royalty report , which is necessary to determine the amount of royalties we are entitled to receive . non-refundable license fees are recognized as revenue when we have a contractual right to receive such payment , the contract price is fixed or determinable , the collection of the resulting receivable is reasonably assured and we have no further performance obligations under the license agreement . multiple element arrangements , such as license , development and other multiple element service arrangements , are analyzed to determine how the arrangement consideration should be allocated among the separate units of accounting , or whether they must be accounted for as a single unit of accounting . for transactions containing multiple element arrangements , we consider deliverables as separate units of accounting and recognize deliverables as revenue upon delivery only if ( i ) the deliverable has standalone value and ( ii ) if the arrangement includes a general right of return relative to the delivered item ( s ) , delivery or performance of the undelivered item ( s ) is probable and substantially controlled by us . we allocate consideration to the separate units of accounting using the relative selling price method , in which allocation of consideration is based on vendor-specific objective evidence ( “ vsoe ” ) if available , third-party evidence ( “ tpe ” ) , or if vsoe and tpe are not available , management 's best estimate of a standalone selling price for elements . we use judgment in estimating the value allocable to the deliverables in an agreement based on our estimate of the fair value or relative selling price attributable to the related deliverables and the consideration from such an agreement is typically recognized as product revenue or development grant and other revenue . for arrangements that are accounted for as a single unit of accounting , total payments under the arrangement are recognized as revenue on a straight-line basis over the period we expect to complete our performance obligations . we review the estimated period of our performance obligations on a periodic basis and update the recognition period as appropriate . the cumulative amount of revenue earned is limited to the cumulative amount of payments we are entitled to as of the period ending date . if we can not reasonably estimate when our
| net cash used in investing activities was $ 54.4 million for the year ended june 30 , 2019 , primarily due to purchases of available-for-sale debt securities made with our excess cash balance . also contributing to cash flows used in investing activities was a combined $ 3.6 million related to capital expenditures and patent costs and an additional $ 3.1 million equity investment . net cash used in investing activities was $ 5.1 million for the year ended june 30 , 2018. contributing to this was a combined $ 3.1 million of capital expenditures and patent costs and a $ 2.5 million equity investment made in june 2018 , partially offset by the collection of a note receivable . financing activities net cash provided by financing activities was $ 2.1 million for the year ended june 30 , 2019 , primarily from proceeds of $ 3.8 million from the employee stock purchase plan and a small amount of cash proceeds from stock option exercises . these amounts were partially offset by $ 1.8 million of payroll tax payments we made on behalf of our employees , associated with the vesting of employee restricted stock . net cash provided by financing activities was $ 3.8 million for the year ended june 30 , 2018 , primarily from proceeds of $ 3.8 million from the employee stock purchase plan and a small amount of cash proceeds from stock option exercises . our future liquidity and capital requirements will be influenced by numerous factors , including the extent and duration of future operating losses , the level and timing of future sales and expenditures , the results and scope of ongoing research and product development programs , working capital required to support our business operations , the receipt of and time required to obtain regulatory clearances and approvals , our sales and marketing programs , the continuing acceptance of our products in the marketplace , competing technologies , market and regulatory developments , ongoing facility requirements , potential strategic transactions ( including the potential acquisition of , or investments in , businesses , technologies and products ) , international expansion , and the existence , defense and resolution of legal proceedings .
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financial operations revenue we expect that revenues we generate from the sales of our products will fluctuate from quarter to quarter . between 2008 and 2012 , we entered into joint development and collaboration agreements with animas and tandem , as well as other third parties under agreements that have since expired , under which we recognized development grant and other revenue received pursuant to that agreement ratably over the term of the development period . we recognize development milestones associated with each agreement as revenue upon achievement of each milestone if the milestone is considered substantive . cost of sales product cost of sales includes direct labor and materials costs related to each product sold or produced , including assembly , test labor and scrap , as well as factory overhead supporting our manufacturing operations . factory overhead includes facilities , material procurement and control , manufacturing engineering , quality assurance , supervision and management . these costs are primarily salary , fringe benefits , share-based compensation , facility expense , supplies and purchased services . a large portion of our costs are currently fixed due to our moderate level of production volumes compared to our potential capacity . all 47 of our manufacturing costs are included in product cost of sales . development and other cost of sales consists primarily of salaries , fringe , facilities , and supplies directly attributable to our development contracts . research and development our research and development expenses primarily consist of engineering and research expenses related to our continuous glucose monitoring technology , clinical trials , regulatory expenses , quality assurance programs , materials and products for clinical trials . research and development expenses are primarily related to employee compensation , including salary , fringe benefits , share-based compensation , and temporary employee expenses . we also incur significant expenses to operate our clinical trials including clinical site reimbursement , clinical trial product and associated travel expenses . our research and development expenses also include fees for design services , contractors and development materials . selling , general and administrative our selling , general and administrative expenses primarily consist of salary , fringe benefits and share-based compensation for our executive , financial , sales , marketing and administrative functions . other significant expenses include trade show expenses , sales samples , insurance , professional fees for our outside legal counsel and independent auditors , litigation expenses , patent application expenses and consulting expenses . results of operations fiscal year ended december 31 , 2013 compared to december 31 , 2012 revenue , cost of sales and gross profit product revenue increased $ 64.1 million to $ 157.1 million for the twelve months ended december 31 , 2013 , compared to $ 93.0 million for the twelve months ended december 31 , 2012 based primarily on increased sales volume , due , in part , to the commercial launch in october 2012 of the g4 platinum system . product cost of sales increased $ 9.8 million to $ 58.1 million for the twelve months ended december 31 , 2013 , compared to $ 48.3 million for the twelve months ended december 31 , 2012 primarily due to increased sales volume . the product gross profit of $ 99.0 million for the twelve months ended december 31 , 2013 increased $ 54.3 million compared to $ 44.7 million for the same period in 2012 , primarily due to increased revenue , and the greater sales mix of our higher margin g4 platinum system compared to our seven plus system . development grant and other revenues decreased $ 4.0 million to $ 2.9 million for the twelve months ended december 31 , 2013 , compared to $ 6.9 million for the twelve months ended december 31 , 2012 . development and other cost of sales decreased $ 3.2 million to $ 1.8 million for the twelve months ended december 31 , 2013 , compared to $ 5.0 million for the twelve months ended december 31 , 2012 . the decrease in revenues associated with development was primarily due to the termination of the roche agreement in february 2013 , and the completion of development activities under the collaboration agreement with edwards in the fourth quarter of 2012. the decrease in costs associated with development was primarily due to fewer development obligations during the period with respect to our collaboration and development arrangements . research and development . research and development expense increased $ 6.5 million to $ 44.8 million for the twelve months ended december 31 , 2013 , compared to $ 38.3 million for the twelve months ended december 31 , 2012 . the increase in research and development expense was primarily due to increased development efforts for our ambulatory products . significant elements of increased research and development expense included $ 3.0 million in additional salaries , bonus , and payroll related costs and $ 2.5 million in additional share-based compensation . selling , general and administrative . selling , general and administrative expense increased $ 20.2 million to $ 84.2 million for the twelve months ended december 31 , 2013 , compared to $ 64.0 million for the twelve months ended december 31 , 2012 . the increase was primarily due to higher selling and information technology costs to support revenue growth and the continued commercialization of our products . significant elements of increased selling , general , and administrative expenses included $ 7.3 million in additional salaries , bonus , and payroll related costs , $ 3.4 million in additional share-based compensation costs , $ 3.2 million in additional sales commissions , and $ 1.5 million in additional bad debt expense . interest expense . interest expense increased to $ 0.9 million for the twelve months ended december 31 , 2013 , compared to $ 0.2 million for the twelve months ended december 31 , 2012 . story_separator_special_tag revenue on product sales to distributors is generally recognized at the time of shipment , which is when title and risk of loss have been transferred to the distributor and there are no other post-shipment obligations . revenue is recognized based on contracted prices and invoices are either paid by check following the issuance of a 52 purchase order or letter of credit , or they are paid by wire at the time of placing the order . terms of distributor orders are generally freight on board ( “ fob ” ) shipping point ( free carrier ( “ fca ” ) shipping point for international orders ) . distributors do not have rights of return per their distribution agreement outside of our standard warranty . the distributors typically have a limited time frame to notify us of any missing , damaged , defective or non-conforming products . for any such products , we shall either , at our option , replace the portion of defective or non-conforming product at no additional cost to the distributor or cancel the order and refund any portion of the price paid to us at that time for the sale in question . we shipped product directly to certain distributors ' customers and recognized $ 23.4 million , $ 15.9 million and $ 14.5 million in revenue from these direct shipments , which represents 15 % , 16 % and 19 % of our total revenues for the twelve months ended december 31 , 2013 , 2012 and 2011 , respectively . with respect to other distributors that stock inventory of our product and fulfill orders from their inventory , we shipped product to these distributors and recognized $ 70.5 million , $ 30.7 million and $ 17.7 million in revenue from these arrangements , which represents 44 % , 31 % and 23 % of our total revenues for the twelve months ended december 31 , 2013 , 2012 and 2011 , respectively . we monitor shipments to , and on-hand inventory levels of , these distributors , and at december 31 , 2013 , these distributors had limited amounts of our product in their inventory . we have collaborative license and development arrangements with strategic partners for the development and commercialization of products utilizing our technologies . the terms of these agreements typically include multiple deliverables by us ( for example , license rights , provision of research and development services and manufacture of clinical materials ) in exchange for consideration to us of some combination of non-refundable license fees , funding of research and development activities , payments based upon achievement of clinical development milestones and royalties in the form of a designated percentage of product sales or profits . with the exception of royalties , these types of consideration are classified as development grant and other revenue in our consolidated statements of operations and are generally recognized over the service period except for substantive milestone payments , which are generally recognized when the milestone is achieved . in determining whether each milestone is substantive , we considered whether the consideration earned by achieving the milestone should ( i ) be commensurate with either ( a ) our performance to achieve the milestone or ( b ) the enhancement of value of the item delivered as a result of a specific outcome resulting from our performance to achieve the milestone , ( ii ) relate solely to past performance and ( iii ) be reasonable relative to all deliverables and payment terms in the arrangement . we recognize royalties as product revenue in the period in which we obtain the royalty report , which is necessary to determine the amount of royalties we are entitled to receive . non-refundable license fees are recognized as revenue when we have a contractual right to receive such payment , the contract price is fixed or determinable , the collection of the resulting receivable is reasonably assured and we have no further performance obligations under the license agreement . multiple element arrangements , such as license , development and other multiple element service arrangements , are analyzed to determine how the arrangement consideration should be allocated among the separate units of accounting , or whether they must be accounted for as a single unit of accounting . for transactions containing multiple element arrangements , we consider deliverables as separate units of accounting and recognize deliverables as revenue upon delivery only if ( i ) the deliverable has standalone value and ( ii ) if the arrangement includes a general right of return relative to the delivered item ( s ) , delivery or performance of the undelivered item ( s ) is probable and substantially controlled by us . we allocate consideration to the separate units of accounting using the relative selling price method , in which allocation of consideration is based on vendor-specific objective evidence ( “ vsoe ” ) if available , third-party evidence ( “ tpe ” ) , or if vsoe and tpe are not available , management 's best estimate of a standalone selling price for elements . we use judgment in estimating the value allocable to the deliverables in an agreement based on our estimate of the fair value or relative selling price attributable to the related deliverables and the consideration from such an agreement is typically recognized as product revenue or development grant and other revenue . for arrangements that are accounted for as a single unit of accounting , total payments under the arrangement are recognized as revenue on a straight-line basis over the period we expect to complete our performance obligations . we review the estimated period of our performance obligations on a periodic basis and update the recognition period as appropriate . the cumulative amount of revenue earned is limited to the cumulative amount of payments we are entitled to as of the period ending date . if we can not reasonably estimate when our
| liquidity and capital resources we are in the early commercialization stage and have incurred losses since our inception in may 1999. as of december 31 , 2013 , we had an accumulated deficit of $ 475.4 million and had working capital of $ 61.0 million . our cash , cash equivalents and short-term marketable securities totaled $ 54.6 million , excluding $ 1.0 million in restricted cash . to date , we have funded our operations primarily through offerings of equity securities and debt . in july 2013 , we were awarded a $ 4.0 million grant ( the `` helmsley grant '' ) from the leona m. and harry b. helmsley charitable trust ( the `` helmsley trust '' ) to accelerate the development of the sixth generation of our advanced glucose-sensing technologies ( the `` gen 6 sensor '' ) . the funding is milestone based and is contingent upon our meeting specific development milestones related to the gen 6 sensor over the next several years . upon the successful commercialization of the gen 6 sensor , we are obligated to either ( 1 ) make royalty payments of up to $ 2.0 million per year for four years , or ( 2 ) at our sole election , make a one-time $ 6.0 million royalty payment . net cash provided by/used in operating activities .
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this chart provides guidance to hcps and patients as to which options exist , and to payers ( including pharmacy benefit managers ) as to which methods they need to cover . in june 2020 , medi-span and first databank , two major drug information databases that payers consult for pricing and product information , granted phexxi a new classification in their databases and pricing compendia as the first and only “ vaginal ph modulator . ” we believe that a new category of contraception should be established for vaginal ph modulators such as phexxi to reflect this unique mechanism of action , and are working with the office of women 's health under the health resources and services administration to have the birth control chart updated accordingly . phexxi 's listing with medi-span and first databank , coupled with our timely response to payer clinical requests and our clinical presentation , enabled us to achieve coverage for 55 % of commercial lives at launch in september 2020. as of february 2021 , we have coverage for approximately 55.1 % of u.s. commercial lives , including approximately 8 million lives covered at no out-of-pocket cost and approximately 13.7 million lives covered under our december 2020 contract award from the u.s. department of veterans affairs . we continue to work to increase the number of lives covered . 74 additionally , on january 1 , 2021 , the u.s. medicaid population gained access to phexxi through evofem 's participation in the centers for disease control and prevention 's ( cdc ) medicaid national drug rebate program . medicaid provides health coverage to approximately 68 million members . we continue to monitor various non-financial metrics that we believe may be relevant in assessing our commercialization strategies for phexxi . these metrics include unit shipments from our warehouse to wholesale distributors , our wholesale distributors ' shipments to retail pharmacies , the number of hcps prescribing phexxi , the number of phexxi prescriptions and an increase in overall awareness of phexxi measured by monthly surveys conducted by an independent third-party research group among women at risk for pregnancy . available prescription data as of and through the week of february 12 , 2021 , indicates that more than 2,650 unique hcps have prescribed phexxi since its commercial launch , with approximately 4,250 prescriptions for the year ended december 31 , 2020 and approximately 2,900 prescriptions from january 1 , 2021 through february 12 , 2021. from commercial launch in september 2020 through january 2021 , monthly prescriptions for phexxi and the number of hcps prescribing phexxi have increased by an average of approximately 58 % and 50 % , respectively , on a monthly basis . additionally , during the year ended december 31 , 2020 and from january 1 , 2021 through february 26 , 2021 , approximately 6,350 and 6,430 units , respectively , were distributed by wholesalers to retail pharmacies . from february 1 , 2021 through february 26 , 2021 , we sold approximately 3,800 units of phexxi , our highest monthly sales figure since launch . evo100 : our sti preventive product candidate our lead product candidate , evo100 , is an antimicrobial vaginal gel under evaluation for the prevention of chlamydia and gonorrhea in women - two of the most pervasive stis in the united states . currently , there are no fda‑approved prescription products for the prevention of either of these commonly reported sexually transmitted infections ( stis ) . in december 2019 , we reported positive top-line results from our clinical trial amprevence . the trial enrolled 860 women at 50 sites in the united states for a four-month intervention period followed by a one-month follow-up period . amprevence met both its primary and secondary endpoints of reducing the risk of chlamydia and gonorrhea infection , respectively . in this landmark trial , the infection rate of chlamydia among women who used evo100 for the four-month study period was 4.9 % ( n=14/288 ) compared to 9.8 % among those who used placebo for four months ( n=28/287 ) ( p=0.024 ) , a relative risk reduction of 50 % in the primary endpoint . among the reported cases of gonorrhea infection , the infection rate was 0.7 % in the evo100 arm ( n=2/280 ) , compared to 3.2 % in the placebo arm ( n=9/277 ) ( p=0.03 ) , a relative risk reduction of 78 % in the secondary endpoint . the study further demonstrated that evo100 was generally safe and well tolerated . the number of adverse events was similar across both arms ( 7.2 % for evo100 and 7.5 % for placebo ) and no serious treatment-related adverse events were reported . in october 2020 , we initiated the phase 3 evoguard clinical trial . this randomized , placebo-controlled pivotal trial is designed to enroll 1,730 women with a prior chlamydia or gonorrhea infection and who are at risk for future infection . participants are enrolled for a 16-week interventional phase followed by a one-month follow-up period . we expect to complete enrollment in the fourth quarter of 2021 , and to report top-line evoguard results in mid-2022 . according to the cdc , any sexually active person can be infected with chlamydia and or gonorrhea , and many are asymptomatic . despite the cdc recommendation for condom use to prevent stis , u.s. rates of infection with chlamydia and gonorrhea climbed in 2018 for the fifth consecutive year . based on these reports , an estimated 78 million women 18-65 years of age who are sexually active in the united states could be at a risk for one of these stis . in december 2020 , the cdc updated its treatment guidelines for gonorrhea infections due to data demonstrating increasing resistance to the antibiotic azithromycin . the need for expanded preventive measures is clear . story_separator_special_tag the fair value of the baker notes issued , and the change in fair value of the baker notes at the reporting date , were determined using a monte carlo simulation-based model . monte carlo simulation was used to take into account several embedded features and factors including the future value of our common stock , a potential change of control event , the maturity term of the baker notes , the probability of an event of voluntary conversion of the baker notes , exercise of the put right , and exercise of our call right . fair value of stock options and warrants 79 the fair value of stock options and warrants issued in various financing transactions in connection with the merger and post- merger , the change in fair value of warrants as a result of modifications to these instruments , and mark-to-market adjustments for liability classified warrants were determined using the black-scholes option-pricing model based on the applicable assumptions , which include the exercise price of these options and warrants , time to expiration , expected volatility of our peer group of companies , risk-free interest rate and expected dividend . fair value of purchase rights the fair value of the rights granted to the purchasers to optionally purchase from the company up to $ 10.0 million of baker notes ( the baker purchase rights ) at the purchasers ' discretion at any time prior to the company receiving at least $ 100.0 million in aggregate gross proceeds from one or more sales of equity securities issued in connection with the baker bros. purchase agreement , as described in note 5- convertible notes , and the change in fair value of baker purchase rights upon exercise of such rights , was determined as the maximum of ( i ) the fair value of rights to purchase the additional $ 10.0 million baker notes and ; ( ii ) the fair value of the shares of on as-if converted basis , which was determined by the lattice model . the fair value of rights to purchase the accompanying 2,049,180 baker warrants ( as defined below ) was valued using a geske option-pricing model . the geske model was based on the applicable assumptions , including the underlying stock price , warrant exercise price , the exercise price of the rights to purchase the baker warrants , the term of the baker warrants , the term of the rights to purchase the baker warrants , expected volatility of the company 's peer group , risk-free interest rate and expected dividend . the fair value of the rights provided to the 2019 purchasers ( as defined below ) to optionally purchase from the company to issue and sell to each 2019 purchaser the shares of common stock and warrants as specified in the securities purchase agreement , dated april 10 , 2019 , with pdl biopharma , inc. , a delaware corporation ( pdl ) , funds discretionally managed by invesco ltd. ( invesco ) and funds managed by woodford investment management ltd. ( wim , collectively with invesco and pdl , the 2019 purchasers ) during the period beginning on april 11 , 2019 and ending on june 10 , 2019 ( the private placement purchase rights ) , and the change in fair value of the private placement purchase rights on june 5 , 2019 , was determined using a combination of a lattice model and black-scholes option-pricing model . the lattice model was used to determine the future value of our common stock . the black-scholes option-pricing model was based on the applicable assumptions , including the future value of the company 's common stock as determined by the lattice model , warrant exercise price , time to expiration , expected volatility of our peer group , risk-free interest rate and expected dividend . inventories inventories , consisting of purchased materials , direct labor and manufacturing overheads , are stated at the lower of cost , or net realizable value . cost is determined on a first-in , first-out basis . net realizable value is the estimated selling price in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . at each balance sheet date , we evaluate ending inventories for excess quantities , obsolescence , or shelf-life expiration . the evaluation includes an analysis of our current and future strategic plans , anticipated future sales , the price projections of future demand , and the remaining shelf life of goods on han d. to the extent that we determine there are excess or obsolete inventory or quantities with a shelf life that is too near its expiration for us to reasonably expect that it can sell those products prior to their expiration , we adjust the carrying value to estimated net realizable value . results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 ( in thousands ) : net product sales replace_table_token_2_th phexxi was approved in may 2020 , and commercially launched in september 2020. net product sales were $ 0.4 million for the year ended december 31 , 2020 . 80 cost of goods sold replace_table_token_3_th cost of goods sold was $ 0.5 million for the year ended december 31 , 2020 , which includes a $ 0.1 million one-time charge related to product labelling rework recorded as scrap costs . research and development expenses replace_table_token_4_th the overall decrease in research and development expenses was due to a $ 3.7 million reduction in outside services associated with the phexxi new drug application for the prevention of pregnancy that was resubmitted to the fda in the fourth quarter of 2019 and a $ 3.5 million reduction in clinical trial costs associated with the completion of the clinical phases of ampower and amprevence in december 2018 and 2019 , respectively . these aggregated decreases are partially offset by a $ 0.8
| liquidity and capital resources we are in the early commercialization stage and have incurred losses since our inception in may 1999. as of december 31 , 2013 , we had an accumulated deficit of $ 475.4 million and had working capital of $ 61.0 million . our cash , cash equivalents and short-term marketable securities totaled $ 54.6 million , excluding $ 1.0 million in restricted cash . to date , we have funded our operations primarily through offerings of equity securities and debt . in july 2013 , we were awarded a $ 4.0 million grant ( the `` helmsley grant '' ) from the leona m. and harry b. helmsley charitable trust ( the `` helmsley trust '' ) to accelerate the development of the sixth generation of our advanced glucose-sensing technologies ( the `` gen 6 sensor '' ) . the funding is milestone based and is contingent upon our meeting specific development milestones related to the gen 6 sensor over the next several years . upon the successful commercialization of the gen 6 sensor , we are obligated to either ( 1 ) make royalty payments of up to $ 2.0 million per year for four years , or ( 2 ) at our sole election , make a one-time $ 6.0 million royalty payment . net cash provided by/used in operating activities .
| 0 |
this chart provides guidance to hcps and patients as to which options exist , and to payers ( including pharmacy benefit managers ) as to which methods they need to cover . in june 2020 , medi-span and first databank , two major drug information databases that payers consult for pricing and product information , granted phexxi a new classification in their databases and pricing compendia as the first and only “ vaginal ph modulator . ” we believe that a new category of contraception should be established for vaginal ph modulators such as phexxi to reflect this unique mechanism of action , and are working with the office of women 's health under the health resources and services administration to have the birth control chart updated accordingly . phexxi 's listing with medi-span and first databank , coupled with our timely response to payer clinical requests and our clinical presentation , enabled us to achieve coverage for 55 % of commercial lives at launch in september 2020. as of february 2021 , we have coverage for approximately 55.1 % of u.s. commercial lives , including approximately 8 million lives covered at no out-of-pocket cost and approximately 13.7 million lives covered under our december 2020 contract award from the u.s. department of veterans affairs . we continue to work to increase the number of lives covered . 74 additionally , on january 1 , 2021 , the u.s. medicaid population gained access to phexxi through evofem 's participation in the centers for disease control and prevention 's ( cdc ) medicaid national drug rebate program . medicaid provides health coverage to approximately 68 million members . we continue to monitor various non-financial metrics that we believe may be relevant in assessing our commercialization strategies for phexxi . these metrics include unit shipments from our warehouse to wholesale distributors , our wholesale distributors ' shipments to retail pharmacies , the number of hcps prescribing phexxi , the number of phexxi prescriptions and an increase in overall awareness of phexxi measured by monthly surveys conducted by an independent third-party research group among women at risk for pregnancy . available prescription data as of and through the week of february 12 , 2021 , indicates that more than 2,650 unique hcps have prescribed phexxi since its commercial launch , with approximately 4,250 prescriptions for the year ended december 31 , 2020 and approximately 2,900 prescriptions from january 1 , 2021 through february 12 , 2021. from commercial launch in september 2020 through january 2021 , monthly prescriptions for phexxi and the number of hcps prescribing phexxi have increased by an average of approximately 58 % and 50 % , respectively , on a monthly basis . additionally , during the year ended december 31 , 2020 and from january 1 , 2021 through february 26 , 2021 , approximately 6,350 and 6,430 units , respectively , were distributed by wholesalers to retail pharmacies . from february 1 , 2021 through february 26 , 2021 , we sold approximately 3,800 units of phexxi , our highest monthly sales figure since launch . evo100 : our sti preventive product candidate our lead product candidate , evo100 , is an antimicrobial vaginal gel under evaluation for the prevention of chlamydia and gonorrhea in women - two of the most pervasive stis in the united states . currently , there are no fda‑approved prescription products for the prevention of either of these commonly reported sexually transmitted infections ( stis ) . in december 2019 , we reported positive top-line results from our clinical trial amprevence . the trial enrolled 860 women at 50 sites in the united states for a four-month intervention period followed by a one-month follow-up period . amprevence met both its primary and secondary endpoints of reducing the risk of chlamydia and gonorrhea infection , respectively . in this landmark trial , the infection rate of chlamydia among women who used evo100 for the four-month study period was 4.9 % ( n=14/288 ) compared to 9.8 % among those who used placebo for four months ( n=28/287 ) ( p=0.024 ) , a relative risk reduction of 50 % in the primary endpoint . among the reported cases of gonorrhea infection , the infection rate was 0.7 % in the evo100 arm ( n=2/280 ) , compared to 3.2 % in the placebo arm ( n=9/277 ) ( p=0.03 ) , a relative risk reduction of 78 % in the secondary endpoint . the study further demonstrated that evo100 was generally safe and well tolerated . the number of adverse events was similar across both arms ( 7.2 % for evo100 and 7.5 % for placebo ) and no serious treatment-related adverse events were reported . in october 2020 , we initiated the phase 3 evoguard clinical trial . this randomized , placebo-controlled pivotal trial is designed to enroll 1,730 women with a prior chlamydia or gonorrhea infection and who are at risk for future infection . participants are enrolled for a 16-week interventional phase followed by a one-month follow-up period . we expect to complete enrollment in the fourth quarter of 2021 , and to report top-line evoguard results in mid-2022 . according to the cdc , any sexually active person can be infected with chlamydia and or gonorrhea , and many are asymptomatic . despite the cdc recommendation for condom use to prevent stis , u.s. rates of infection with chlamydia and gonorrhea climbed in 2018 for the fifth consecutive year . based on these reports , an estimated 78 million women 18-65 years of age who are sexually active in the united states could be at a risk for one of these stis . in december 2020 , the cdc updated its treatment guidelines for gonorrhea infections due to data demonstrating increasing resistance to the antibiotic azithromycin . the need for expanded preventive measures is clear . story_separator_special_tag the fair value of the baker notes issued , and the change in fair value of the baker notes at the reporting date , were determined using a monte carlo simulation-based model . monte carlo simulation was used to take into account several embedded features and factors including the future value of our common stock , a potential change of control event , the maturity term of the baker notes , the probability of an event of voluntary conversion of the baker notes , exercise of the put right , and exercise of our call right . fair value of stock options and warrants 79 the fair value of stock options and warrants issued in various financing transactions in connection with the merger and post- merger , the change in fair value of warrants as a result of modifications to these instruments , and mark-to-market adjustments for liability classified warrants were determined using the black-scholes option-pricing model based on the applicable assumptions , which include the exercise price of these options and warrants , time to expiration , expected volatility of our peer group of companies , risk-free interest rate and expected dividend . fair value of purchase rights the fair value of the rights granted to the purchasers to optionally purchase from the company up to $ 10.0 million of baker notes ( the baker purchase rights ) at the purchasers ' discretion at any time prior to the company receiving at least $ 100.0 million in aggregate gross proceeds from one or more sales of equity securities issued in connection with the baker bros. purchase agreement , as described in note 5- convertible notes , and the change in fair value of baker purchase rights upon exercise of such rights , was determined as the maximum of ( i ) the fair value of rights to purchase the additional $ 10.0 million baker notes and ; ( ii ) the fair value of the shares of on as-if converted basis , which was determined by the lattice model . the fair value of rights to purchase the accompanying 2,049,180 baker warrants ( as defined below ) was valued using a geske option-pricing model . the geske model was based on the applicable assumptions , including the underlying stock price , warrant exercise price , the exercise price of the rights to purchase the baker warrants , the term of the baker warrants , the term of the rights to purchase the baker warrants , expected volatility of the company 's peer group , risk-free interest rate and expected dividend . the fair value of the rights provided to the 2019 purchasers ( as defined below ) to optionally purchase from the company to issue and sell to each 2019 purchaser the shares of common stock and warrants as specified in the securities purchase agreement , dated april 10 , 2019 , with pdl biopharma , inc. , a delaware corporation ( pdl ) , funds discretionally managed by invesco ltd. ( invesco ) and funds managed by woodford investment management ltd. ( wim , collectively with invesco and pdl , the 2019 purchasers ) during the period beginning on april 11 , 2019 and ending on june 10 , 2019 ( the private placement purchase rights ) , and the change in fair value of the private placement purchase rights on june 5 , 2019 , was determined using a combination of a lattice model and black-scholes option-pricing model . the lattice model was used to determine the future value of our common stock . the black-scholes option-pricing model was based on the applicable assumptions , including the future value of the company 's common stock as determined by the lattice model , warrant exercise price , time to expiration , expected volatility of our peer group , risk-free interest rate and expected dividend . inventories inventories , consisting of purchased materials , direct labor and manufacturing overheads , are stated at the lower of cost , or net realizable value . cost is determined on a first-in , first-out basis . net realizable value is the estimated selling price in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . at each balance sheet date , we evaluate ending inventories for excess quantities , obsolescence , or shelf-life expiration . the evaluation includes an analysis of our current and future strategic plans , anticipated future sales , the price projections of future demand , and the remaining shelf life of goods on han d. to the extent that we determine there are excess or obsolete inventory or quantities with a shelf life that is too near its expiration for us to reasonably expect that it can sell those products prior to their expiration , we adjust the carrying value to estimated net realizable value . results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 ( in thousands ) : net product sales replace_table_token_2_th phexxi was approved in may 2020 , and commercially launched in september 2020. net product sales were $ 0.4 million for the year ended december 31 , 2020 . 80 cost of goods sold replace_table_token_3_th cost of goods sold was $ 0.5 million for the year ended december 31 , 2020 , which includes a $ 0.1 million one-time charge related to product labelling rework recorded as scrap costs . research and development expenses replace_table_token_4_th the overall decrease in research and development expenses was due to a $ 3.7 million reduction in outside services associated with the phexxi new drug application for the prevention of pregnancy that was resubmitted to the fda in the fourth quarter of 2019 and a $ 3.5 million reduction in clinical trial costs associated with the completion of the clinical phases of ampower and amprevence in december 2018 and 2019 , respectively . these aggregated decreases are partially offset by a $ 0.8
| cash flows from operating activities . during the year ended december 2020 and 2019 , the primary use of cash , cash equivalents and restricted cash has been to fund development and commercialization of our lead product , phexxi , and to support selling and marketing , and general and administrative operations . cash flows from investing activities . during the year ended december 2020 , the change in net cash , cash equivalents and restricted cash provided by investing activities was primarily due to an $ 8.2 million cash inflow from maturities of short-term investments offset by $ 2.3 million in purchases of property and equipment . net cash , cash equivalents and restricted cash used in investing activities for the year ended december 2019 was primarily the purchase of short-term investments of $ 8.2 million . 83 cash flows from financing activities . during the year ended december 2020 , the primary source of cash , cash equivalents and restricted cash was provided from the sale of an aggregate of 31,700,000 shares of common stock for net proceeds of approximately $ 103.7 million , net of underwriting commissions , gross proceeds of $ 50.0 million from issuance of convertible notes and warrants , the sale of 676,656 shares of common stock under the at-the-market program for net proceeds of approximately $ 3.8 million in cash and cash equivalents ( including $ 0.3 million that was included in otherreceivables in the consolidated balance sheet at december 31 , 2019 ) , net of commissions , and the issuance of 150,353 shares of our common stock under the 2019 employee stock purchase plan ( espp ) and exercise of stock options with aggregate proceeds of $ 0.4 million .
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included in the purchase price was approximately $ 0.5 million of additional consideration estimated to be paid the former owner of d. kratt based on a percentage of revenues generated through december 2012. d. kratt is a full service international freight forwarding and customs house brokerage firm based in chicago , il . d. kratt also provides extensive domestic and international logistics and warehousing functions , as well as comprehensive documentary and cargo insurance services . d. kratt operates as universal logistics solutions international , inc. in january 2010 , we acquired cavalry transportation , llc and cavalry logistics , llc , or cavalry , based in nashville , tennessee , through a membership interest purchase agreement for approximately $ 2.7 million . 24 cavalry offers fully integrated transportation resources designed to maximize value for its customers through logistic solutions in intermodal , truckload , and less-than-truckload transportation options . cavalry operates as a wholly-owned subsidiary of universal truckload services , inc. in january 2010 , we acquired certain assets of tsd transportation l.p. , or tsd , based in texarkana , texas , through a limited asset purchase agreement for approximately $ 0.7 million . included in the purchase price was approximately $ 0.4 million of additional consideration estimated to be paid to the former owners of tsd based on a percentage of revenues generated through december 31 , 2011. tsd operates as part of louisiana transportation , inc. in march 2011 , we acquired certain assets of hart transportation , inc. , or hart , based in jacksonville , florida through a limited asset purchase agreement for approximately $ 1.4 million . hart is primarily a regional provider of van and flatbed services throughout the southeastern united states . included in the purchase price is approximately $ 0.4 million of additional consideration estimated to be paid to the former owner of hart based on a percentage of revenues generated through march 31 , 2014. hart operates as part of universal am-can , ltd. revenues and expenses operating revenues . we generate substantially all of our revenues through fees charged to customers for the transportation of freight . we also derive revenue from fuel surcharges , loading and unloading activities , equipment detention , container storage and other services . our historical revenue growth has been primarily driven by increases in the volume of freight shipped . generally , we are paid by the mile for our services . the main factors that affect our shipping rates are competition , available truck capacity , and economic market conditions . we recognize our revenues at the time of delivery to the receiver 's location . for service arrangements , we recognize revenue after the related services have been rendered . purchased transportation . purchased transportation represents the amount we pay our owner-operators or other third party equipment providers to haul freight and includes the amount of fuel surcharges that we pass through to our owner-operators . the amount of the purchased transportation we pay to our owner-operators is primarily based on a contractually agreed-upon percentage of our revenue for each load hauled . purchased transportation is the largest component of our costs and increases or decreases proportionately with changes in the amount of revenue generated by our owner-operators and other third party providers . we recognize purchased transportation expenses at the time we recognize the associated revenue . commissions expense . commissions expense represents the amount we pay our agents for generating shipments on our behalf . the commissions we pay to our agents are generally established through informal oral agreements and are based on a percentage of revenue generated by each load hauled . traditionally , commissions increase or decrease in proportion to the revenues generated through our agents . we recognize commission expenses at the time we recognize the associated revenue . other operating expense . other operating expenses represent the repair , tires and parts expenses primarily related to the maintenance of company owned/leased trailers and lift equipment , and operating taxes and licenses , net of the rental income we receive from leasing our trailers to our owner-operators . we recognize these expenses as they are incurred and the rental income as it is earned . selling , general and administrative . employee compensation and benefits historically have accounted for over 60 % of our selling , general and administrative expense . other components of selling , general and administrative expense include allowance for doubtful customer accounts , communications and rent expense . insurance and claims . insurance and claims expense represents our insurance premiums and the accruals we make for claims within our self-insured retention amounts . our insurance premiums are generally calculated based on a percentage of line-haul revenue . our accruals have primarily related to cargo and property damage 25 claims . we may also make accruals for personal injuries and property damage to third parties , physical damage to our equipment , and workers ' compensation claims if we experience a claim in excess of our insurance coverage . to reduce our exposure to non-trucking use liability claims ( claims incurred while the vehicle is being operated without a trailer attached or is being operated with an attached trailer which does not contain or carry any cargo ) , we require our owner-operators to maintain non-trucking use liability coverage , which we refer to as deadhead bobtail coverage , of $ 2.0 million per occurrence . our exposure to liability associated with accidents incurred by other third party providers who haul freight on our behalf is reduced by various factors including the extent to which they maintain their own insurance coverage . our insurance expense varies primarily based upon the frequency and severity of our accident experience , insurance rates , our coverage limits and our self-insured retention amounts . depreciation and amortization . story_separator_special_tag allowance for uncollectible receivables the allowance for potentially uncollectible receivables is based on a combination of historical data , cash payment trends , specific customer issues , write-off trends , general economic conditions and other factors . management continuously monitors these factors to arrive at the estimate of accounts receivable that may be ultimately uncollectible . the receivables analyzed include trade receivables , as well as loans and advances made to owner-operators . all other balances are reviewed on a pooled basis . this analysis requires us to make significant estimates . changes in the facts and circumstances that these estimates are based upon and changes in the general economic environment could result in a material change to the allowance for uncollectible receivables . these changes include , but are not limited to , deterioration of customers ' financial position , changes in our relationships with our customers , agents and owner-operators and unforeseen issues relating to individual receivables . insurance and claim costs we maintain auto liability , workers compensation and general liability insurance with licensed insurance carriers . we are self-insured for all cargo and equipment damage claims . insurance and claims expense represents premiums paid by us and the accruals made for claims within our self-insured retention amounts . a liability is recognized for the estimated cost of all self-insured claims including an estimate of incurred but not reported claims based on historical experience and for claims expected to exceed our policy limits . in addition , legal expenses related to auto liability claims are covered under our policy . we are responsible for all other legal expenses related to claims . as of december 31 , 2011 , we did not have any reserves for workers ' compensation or general liability claims . we do establish reserves for anticipated losses and expenses related to cargo and equipment damage claims and auto liability claims . the reserves consist of specific reserves for all known claims and an estimate for claims incurred but not reported , and losses arising from known claims ultimately settling in excess of insurance coverage using loss development factors based upon industry data and past experience . in determining the reserves , we specifically review all known claims and record a liability based upon our best estimate of the amount to be paid . in making our estimate , we consider the amount and validity of the claim , as well as our past experience with similar claims . in establishing the reserve for claims incurred but not reported , we consider our past claims history , including the length of time it takes for claims to be reported to us . based on our past experience , the time between when a claim occurs and when it is reported to us is short . as a result , we believe that the number of incurred but not reported claims at any given point in time is small . these reserves are periodically reviewed and adjusted to reflect our experience and updated information relating to specific claims . if we experience claims that are not covered by our insurance or that exceed our estimated claim reserve , it could increase the volatility of our earnings and have a materially adverse effect on our financial condition , results of operations or cash flows . 32 valuation of long-lived asset , including goodwill and intangible assets we are required to test goodwill for impairment annually or more frequently , whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit with goodwill below its carrying amount . we annually test goodwill impairment as of the last day of our 2nd fiscal quarter . goodwill represents the excess purchase price over the fair value of assets acquired in connection with our acquisitions . we continually assess whether any indicators of impairment exist , which requires a significant amount of judgment . such indicators may include a sustained significant decline in our share price and market capitalization ; a decline in our expected future cash flows ; a significant adverse change in legal factors or in the business climate ; unanticipated competition ; overall weaknesses in our industry ; and slower growth rates . adverse changes in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our consolidated financial statements . the company has the option to first assess qualitative factors to determine whether or not it is necessary to perform a two-step quantitative goodwill impairment test . if the company chooses that option , it would not be required perform step 1 of the test unless we determine that , based on a qualitative assessment , it is more likely than not that the fair value of a reporting unit is less than its carrying value . if the company determines that it is more likely than not , or if the company chooses not to perform a qualitative assessment , then it may then proceed with step 1 of the two-step impairment test . under the first step , we compare the fair value of each of the company 's reporting units with goodwill to their related carrying values . if the fair value of a reporting unit is less than its carrying value , an indication of goodwill impairment exists for the reporting unit and we must perform step two of the impairment test . under step two , an impairment loss is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the implied fair value of that goodwill . determining the fair value of a reporting unit requires the use of significant estimates and assumptions . the company estimates the fair value of its reporting units utilizing the income approach through the application of a discounted cash flow analysis . key assumptions used to determine the fair value of
| cash flows from operating activities . during the year ended december 2020 and 2019 , the primary use of cash , cash equivalents and restricted cash has been to fund development and commercialization of our lead product , phexxi , and to support selling and marketing , and general and administrative operations . cash flows from investing activities . during the year ended december 2020 , the change in net cash , cash equivalents and restricted cash provided by investing activities was primarily due to an $ 8.2 million cash inflow from maturities of short-term investments offset by $ 2.3 million in purchases of property and equipment . net cash , cash equivalents and restricted cash used in investing activities for the year ended december 2019 was primarily the purchase of short-term investments of $ 8.2 million . 83 cash flows from financing activities . during the year ended december 2020 , the primary source of cash , cash equivalents and restricted cash was provided from the sale of an aggregate of 31,700,000 shares of common stock for net proceeds of approximately $ 103.7 million , net of underwriting commissions , gross proceeds of $ 50.0 million from issuance of convertible notes and warrants , the sale of 676,656 shares of common stock under the at-the-market program for net proceeds of approximately $ 3.8 million in cash and cash equivalents ( including $ 0.3 million that was included in otherreceivables in the consolidated balance sheet at december 31 , 2019 ) , net of commissions , and the issuance of 150,353 shares of our common stock under the 2019 employee stock purchase plan ( espp ) and exercise of stock options with aggregate proceeds of $ 0.4 million .
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included in the purchase price was approximately $ 0.5 million of additional consideration estimated to be paid the former owner of d. kratt based on a percentage of revenues generated through december 2012. d. kratt is a full service international freight forwarding and customs house brokerage firm based in chicago , il . d. kratt also provides extensive domestic and international logistics and warehousing functions , as well as comprehensive documentary and cargo insurance services . d. kratt operates as universal logistics solutions international , inc. in january 2010 , we acquired cavalry transportation , llc and cavalry logistics , llc , or cavalry , based in nashville , tennessee , through a membership interest purchase agreement for approximately $ 2.7 million . 24 cavalry offers fully integrated transportation resources designed to maximize value for its customers through logistic solutions in intermodal , truckload , and less-than-truckload transportation options . cavalry operates as a wholly-owned subsidiary of universal truckload services , inc. in january 2010 , we acquired certain assets of tsd transportation l.p. , or tsd , based in texarkana , texas , through a limited asset purchase agreement for approximately $ 0.7 million . included in the purchase price was approximately $ 0.4 million of additional consideration estimated to be paid to the former owners of tsd based on a percentage of revenues generated through december 31 , 2011. tsd operates as part of louisiana transportation , inc. in march 2011 , we acquired certain assets of hart transportation , inc. , or hart , based in jacksonville , florida through a limited asset purchase agreement for approximately $ 1.4 million . hart is primarily a regional provider of van and flatbed services throughout the southeastern united states . included in the purchase price is approximately $ 0.4 million of additional consideration estimated to be paid to the former owner of hart based on a percentage of revenues generated through march 31 , 2014. hart operates as part of universal am-can , ltd. revenues and expenses operating revenues . we generate substantially all of our revenues through fees charged to customers for the transportation of freight . we also derive revenue from fuel surcharges , loading and unloading activities , equipment detention , container storage and other services . our historical revenue growth has been primarily driven by increases in the volume of freight shipped . generally , we are paid by the mile for our services . the main factors that affect our shipping rates are competition , available truck capacity , and economic market conditions . we recognize our revenues at the time of delivery to the receiver 's location . for service arrangements , we recognize revenue after the related services have been rendered . purchased transportation . purchased transportation represents the amount we pay our owner-operators or other third party equipment providers to haul freight and includes the amount of fuel surcharges that we pass through to our owner-operators . the amount of the purchased transportation we pay to our owner-operators is primarily based on a contractually agreed-upon percentage of our revenue for each load hauled . purchased transportation is the largest component of our costs and increases or decreases proportionately with changes in the amount of revenue generated by our owner-operators and other third party providers . we recognize purchased transportation expenses at the time we recognize the associated revenue . commissions expense . commissions expense represents the amount we pay our agents for generating shipments on our behalf . the commissions we pay to our agents are generally established through informal oral agreements and are based on a percentage of revenue generated by each load hauled . traditionally , commissions increase or decrease in proportion to the revenues generated through our agents . we recognize commission expenses at the time we recognize the associated revenue . other operating expense . other operating expenses represent the repair , tires and parts expenses primarily related to the maintenance of company owned/leased trailers and lift equipment , and operating taxes and licenses , net of the rental income we receive from leasing our trailers to our owner-operators . we recognize these expenses as they are incurred and the rental income as it is earned . selling , general and administrative . employee compensation and benefits historically have accounted for over 60 % of our selling , general and administrative expense . other components of selling , general and administrative expense include allowance for doubtful customer accounts , communications and rent expense . insurance and claims . insurance and claims expense represents our insurance premiums and the accruals we make for claims within our self-insured retention amounts . our insurance premiums are generally calculated based on a percentage of line-haul revenue . our accruals have primarily related to cargo and property damage 25 claims . we may also make accruals for personal injuries and property damage to third parties , physical damage to our equipment , and workers ' compensation claims if we experience a claim in excess of our insurance coverage . to reduce our exposure to non-trucking use liability claims ( claims incurred while the vehicle is being operated without a trailer attached or is being operated with an attached trailer which does not contain or carry any cargo ) , we require our owner-operators to maintain non-trucking use liability coverage , which we refer to as deadhead bobtail coverage , of $ 2.0 million per occurrence . our exposure to liability associated with accidents incurred by other third party providers who haul freight on our behalf is reduced by various factors including the extent to which they maintain their own insurance coverage . our insurance expense varies primarily based upon the frequency and severity of our accident experience , insurance rates , our coverage limits and our self-insured retention amounts . depreciation and amortization . story_separator_special_tag allowance for uncollectible receivables the allowance for potentially uncollectible receivables is based on a combination of historical data , cash payment trends , specific customer issues , write-off trends , general economic conditions and other factors . management continuously monitors these factors to arrive at the estimate of accounts receivable that may be ultimately uncollectible . the receivables analyzed include trade receivables , as well as loans and advances made to owner-operators . all other balances are reviewed on a pooled basis . this analysis requires us to make significant estimates . changes in the facts and circumstances that these estimates are based upon and changes in the general economic environment could result in a material change to the allowance for uncollectible receivables . these changes include , but are not limited to , deterioration of customers ' financial position , changes in our relationships with our customers , agents and owner-operators and unforeseen issues relating to individual receivables . insurance and claim costs we maintain auto liability , workers compensation and general liability insurance with licensed insurance carriers . we are self-insured for all cargo and equipment damage claims . insurance and claims expense represents premiums paid by us and the accruals made for claims within our self-insured retention amounts . a liability is recognized for the estimated cost of all self-insured claims including an estimate of incurred but not reported claims based on historical experience and for claims expected to exceed our policy limits . in addition , legal expenses related to auto liability claims are covered under our policy . we are responsible for all other legal expenses related to claims . as of december 31 , 2011 , we did not have any reserves for workers ' compensation or general liability claims . we do establish reserves for anticipated losses and expenses related to cargo and equipment damage claims and auto liability claims . the reserves consist of specific reserves for all known claims and an estimate for claims incurred but not reported , and losses arising from known claims ultimately settling in excess of insurance coverage using loss development factors based upon industry data and past experience . in determining the reserves , we specifically review all known claims and record a liability based upon our best estimate of the amount to be paid . in making our estimate , we consider the amount and validity of the claim , as well as our past experience with similar claims . in establishing the reserve for claims incurred but not reported , we consider our past claims history , including the length of time it takes for claims to be reported to us . based on our past experience , the time between when a claim occurs and when it is reported to us is short . as a result , we believe that the number of incurred but not reported claims at any given point in time is small . these reserves are periodically reviewed and adjusted to reflect our experience and updated information relating to specific claims . if we experience claims that are not covered by our insurance or that exceed our estimated claim reserve , it could increase the volatility of our earnings and have a materially adverse effect on our financial condition , results of operations or cash flows . 32 valuation of long-lived asset , including goodwill and intangible assets we are required to test goodwill for impairment annually or more frequently , whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit with goodwill below its carrying amount . we annually test goodwill impairment as of the last day of our 2nd fiscal quarter . goodwill represents the excess purchase price over the fair value of assets acquired in connection with our acquisitions . we continually assess whether any indicators of impairment exist , which requires a significant amount of judgment . such indicators may include a sustained significant decline in our share price and market capitalization ; a decline in our expected future cash flows ; a significant adverse change in legal factors or in the business climate ; unanticipated competition ; overall weaknesses in our industry ; and slower growth rates . adverse changes in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our consolidated financial statements . the company has the option to first assess qualitative factors to determine whether or not it is necessary to perform a two-step quantitative goodwill impairment test . if the company chooses that option , it would not be required perform step 1 of the test unless we determine that , based on a qualitative assessment , it is more likely than not that the fair value of a reporting unit is less than its carrying value . if the company determines that it is more likely than not , or if the company chooses not to perform a qualitative assessment , then it may then proceed with step 1 of the two-step impairment test . under the first step , we compare the fair value of each of the company 's reporting units with goodwill to their related carrying values . if the fair value of a reporting unit is less than its carrying value , an indication of goodwill impairment exists for the reporting unit and we must perform step two of the impairment test . under step two , an impairment loss is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the implied fair value of that goodwill . determining the fair value of a reporting unit requires the use of significant estimates and assumptions . the company estimates the fair value of its reporting units utilizing the income approach through the application of a discounted cash flow analysis . key assumptions used to determine the fair value of
| liquidity and capital resources our primary sources of liquidity are funds generated by operations , our ability to borrow on margin against our marketable securities held at ubs , proceeds from the sales of marketable securities , and our revolving unsecured line of credit with keybank . we employ a primarily asset-light operating strategy . substantially all of the tractors and more than 50 % of the trailers utilized in our business are provided by our owner-operators and we have no capital expenditure requirements relating to this equipment . as a result , our capital expenditure requirements are limited in comparison to most large trucking companies which maintain sizable fleets of owned tractors and trailers , requiring significant capital expenditures . the company continues to expand its domestic intermodal operations through the acquisition of 53 ' containers . during 2011 , the company added 400 53 ' containers to its fleet to provide for expansion in this business line . we expect to have limited capital expenditure requirements relating to the maintenance of this equipment ; however , we will continue to acquire additional containers to meet our business needs . 29 in 2011 , we have made capital expenditures totaling $ 21.0 million . these expenditures primarily consisted of tractors , trailers , containers and computer , office , and miscellaneous equipment . in 2012 , exclusive of acquisitions , we expect to incur capital expenditures of $ 1.0 million to $ 1.6 million relating to real property acquisitions and improvements to our existing facilities and terminal yards . we also expect to incur capital expenditures of $ 16.7 million to $ 17.7 million for tractors , trailers , containers , chassis , and other equipment . we expect that our working capital and available borrowings will be sufficient to meet our capital commitments and fund our operational needs for at least the next twelve months . based on the availability under our line of credit , against our marketable security portfolio and other financing sources and assuming the continuation of our current level of profitability , we do not expect that we will experience any liquidity constraints in the foreseeable future .
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specifically , we provide integrated national preferred provider organization , also known as ppo , network access , electronic claims repricing , and network and data management to healthcare payers , including self-insured employers , medical insurance carriers , ppos and third party administrators . we believe we are uniquely positioned in the marketplace to make a contribution that our competitors do not . the differentiators include our open electronic network for electronic transactions with no equity ownership in businesses engaged in the front-end ( i.e . , physician practice management software system vendors and other physician desk top vendors ) or in the back-end ( i.e . , payers , laboratories and pharmacies ) . with our neutral position , we believe that we can better attract both front-end and back-end partners who may be more comfortable doing business with a non-competitive partner . another competitive differentiator is our presence in the clinical market . with the nation 's largest clinical laboratories as long-time customers , we have worked in partnership with them to develop customized laboratory communication tools and services that are unparalleled in the industry . we also have the oldest and most established e-prescribing network in the nation , offering connectivity to over 30,000 pharmacies nationwide . our e-prescribing solutions improve efficiency by eliminating the need to process prescriptions and refill authorizations via paper . we offer both a front-end desktop solution , prescribe tm , and online refill authorization via www.medavanthealth.com . combined , we process more than 400,000 prescriptions or refills per month . acquisitions on december 31 , 2002 , we acquired all of the outstanding stock of medunite , inc. for $ 10 million in cash and the issuance of an aggregate of $ 13.4 million principal amount of 4 % convertible promissory notes . in addition , we paid approximately $ 6.7 million in transaction and exit related costs . interest on the convertible promissory notes is payable in cash on a quarterly basis . the convertible promissory notes ( now currently payable at a maturity value of $ 13.1 million after a claim setoff against the escrow in december 2003 ) are payable in full on december 31 , 2008 , and are convertible into an aggregate of 716,968 shares ( originally 731,322 shares before the claim setoff ) of our common stock if our revenues resulting from business with the former medunite owners exceed certain thresholds over a three and one-half year period from the date of acquisition . we do not anticipate that the former medunite owners will meet all of the thresholds defined in the promissory note . on march 2 , 2004 , we acquired planvista , a company that provides medical cost containment and business process outsourcing solutions for the medical insurance and managed care industries , as well as services for healthcare providers , including individual providers , preferred provider organizations and other provider groups for 3,600,000 shares of our common stock issued to planvista shareholders valued at $ 59.8 million ( based on the average closing price of our common stock for the day of and the two days before and after december 8 , 2003 , the date of the announcement of the definitive agreement ) . we also assumed debt and other liabilities of planvista , totaling $ 46.4 million and paid $ 1.3 million in acquisition-related costs . additionally , we raised $ 24.1 million in a private placement sale of 1,691,227 shares of our common stock to investment entities affiliated with general atlantic llc , commonwealth associates and other parties to partially fund repayment of certain of planvista 's debts and other obligations outstanding at the time of the acquisition . the acquisition has enabled us to become the only entity in healthcare that offers a nationwide clearinghouse and a nationwide ppo network , delivering end-to-end services to our customers . upon completion of the acquisition , each share of planvista 's outstanding common stock was cancelled and converted into 0.08271 shares of our common stock and each holder of planvista series c preferred stock received 51.5292 shares of our common stock in exchange for each share of planvista series c preferred stock , 24 representing approximately 23 % of our common stock on a fully converted basis , and the holders of our outstanding stock , options and warrants retained approximately 77 % of the company following the transaction . planvista 's operations are included in our transaction services segment commencing march 2004. on february 14 , 2006 , we acquired substantially all the assets and operations of zeneks , inc. , a privately held bill negotiation services company based in tampa , florida , for $ 225,000 plus assumed liabilities . zeneks was incorporated in 1998 and was established as a medical cost containment company . they have relationships with numerous providers throughout the country . we expect to integrate the zeneks operations into our current bill negotiation system by the end of the first quarter of fiscal 2006. sale of assets on june 30 , 2004 , we sold certain assets and liabilities of our laboratory communication solutions segment that were used in our non-core contract manufacturing business to a new entity owned by a former executive of the company for $ 4.5 million in cash . under terms of the sale agreement , we received $ 3.5 million in cash at closing and received the balance of $ 1.0 million in cash in july and august 2004 following the presentation of the final accounting . as part of the disposition , we agreed to purchase certain component parts from the new entity for use in our laboratory communication solutions business on a non-exclusive basis at a fixed price deemed to be at fair market value by management . story_separator_special_tag consolidated sg & a increased for 2004 by $ 12.2 million , or 34 % , to $ 48.0 million from consolidated sg & a of $ 35.8 million for 2003. consolidated sg & a expenses as a percentage of consolidated revenues increased to 53 % in 2004 from 50 % in 2003. sg & a expenses classified by our reportable segments are as follows : replace_table_token_13_th transaction services segment sg & a expenses for the year ended december 31 , 2004 increased by $ 13.3 million , or 44 % over 2003. the primary cause of the increase was the addition of sg & a expenses from planvista for ten months in the 2004 period ( increase of $ 10.5 million ) . additionally , while we achieved significant reductions in expenses from our medunite acquisition over the course of 2003 , these savings have been offset by increased expenditures related to our ongoing efforts to comply with the sarbanes-oxley act of 2002 during 2004 ( increase of $ 1.7 million ) . laboratory communications solutions segment sg & a expenses for 2004 decreased by $ 1.1 million , or 20 % from 2003 and segment sg & a expenses as a percentage of segment net revenues increased to 23 % in 2004 from 22 % in 2003. the decreases in dollars are primarily due to a reduction in expenses related to the sale our contract manufacturing assets on june 30 , 2004. depreciation and amortization . consolidated depreciation and amortization increased by $ 3.4 million to $ 9.8 million for 2004 from $ 6.3 million for 2003. this increase was primarily due to approximately $ 3.5 million for the amortization of intangible assets acquired in the planvista acquisition in the transaction services segment ; offset by a decrease in depreciation expense in the laboratory communication solutions segment due to the sale of our manufacturing assets . depreciation and amortization classified by our reportable segments is as follows : replace_table_token_14_th loss on disposal of assets . in 2004 , we recorded a consolidated loss of disposal asset $ 47,000. this loss is related to the disposition of contract manufacturing assets in our laboratory communication solutions segment that were sold to a new entity formed by a former executive on june 30 , 2004 of $ 68,000 ; and $ 5,000 of miscellaneous items offset by $ 26,000 in gains on vehicles and other equipment sold . as a result of the consolidation of the proxymed and medunite offices in atlanta in february 2003 , we recorded $ 0.1 million in losses during 2003 primarily related to the disposition of certain assets owned and leased that were acquired in the acquisition of mdp corporation in 2001. litigation settlement . in december 2004 , we settled an outstanding preacquisition contingency related to planvista for $ 0.2 million , net of insurance reimbursement and is recorded in our transaction services segment . 30 operating income ( loss ) . as a result of the foregoing , the consolidated operating loss for 2004 was $ 2.0 million compared to an operating loss of $ 3.6 million for 2003. operating loss classified by our reportable segments is as follows : replace_table_token_15_th other income ( expense ) , net . during 2004 , we settled a long-term liability assumed in the acquisition of medunite for $ 0.8 million . the liability was being carried at its present value of $ 0.9 million . the resulting gain of $ 0.1 million is reflected as other income . additionally , in conjunction with our distribution and marketing agreement with planvista for claims repricing services signed in june 2003 , we received a warrant to purchase up to 15 % of planvista common stock that expired in december 2003. the warrant was initially valued at $ 0.5 million and recorded as an asset . upon expiration of the warrant in december 2003 , we recorded an impairment loss in the amount of $ 0.5 million ( representing the original value of the warrant ) for the 2003 year . interest expense , net . consolidated net interest expense for the 2004 was $ 1.9 million compared to $ 0.9 million for the same period last year . this increase in expense is primarily due to the assumption of debt in conjunction with the planvista acquisition ( increase of $ 1.2 million ) . interest expense for the future is expected to be at levels above those in 2004 due to the senior debt assumed from planvista . net loss . as a result of the foregoing , consolidated net loss for 2004 was $ 3.8 million compared to consolidated net loss of $ 5.0 million for 2003. story_separator_special_tag million in a private placement sale of our common stock and drew down $ 4.4 million on our then asset-based line of credit . these funds , along with available cash resources , were used to satisfy $ 27.4 million of planvista 's debt and other obligations outstanding as of the effective time of the acquisition . at the time of its acquisition by the company , planvista was involved in various lawsuits and threatened litigation . to date , a significant number of these cases have been settled or dismissed and resulted in $ 0.7 million charged to goodwill and $ 0.2 million charged to expense in 2004 . 32 in 2003 , net cash provided by operating activities totaled $ 1.5 million . cash used for investing activities totaled $ 9.6 million and consisted primarily of payments of costs related to the acquisition of medunite , capital expenditures and capitalized software . cash used in financing activities totaled $ 3.0 million mainly due to repayments of notes payable , other long-term debt , and payments related to capital leases . in december 2003 , we closed on a $ 12.5 million asset-based line of credit with our commercial bank . borrowing under such facility was subject to eligible
| liquidity and capital resources our primary sources of liquidity are funds generated by operations , our ability to borrow on margin against our marketable securities held at ubs , proceeds from the sales of marketable securities , and our revolving unsecured line of credit with keybank . we employ a primarily asset-light operating strategy . substantially all of the tractors and more than 50 % of the trailers utilized in our business are provided by our owner-operators and we have no capital expenditure requirements relating to this equipment . as a result , our capital expenditure requirements are limited in comparison to most large trucking companies which maintain sizable fleets of owned tractors and trailers , requiring significant capital expenditures . the company continues to expand its domestic intermodal operations through the acquisition of 53 ' containers . during 2011 , the company added 400 53 ' containers to its fleet to provide for expansion in this business line . we expect to have limited capital expenditure requirements relating to the maintenance of this equipment ; however , we will continue to acquire additional containers to meet our business needs . 29 in 2011 , we have made capital expenditures totaling $ 21.0 million . these expenditures primarily consisted of tractors , trailers , containers and computer , office , and miscellaneous equipment . in 2012 , exclusive of acquisitions , we expect to incur capital expenditures of $ 1.0 million to $ 1.6 million relating to real property acquisitions and improvements to our existing facilities and terminal yards . we also expect to incur capital expenditures of $ 16.7 million to $ 17.7 million for tractors , trailers , containers , chassis , and other equipment . we expect that our working capital and available borrowings will be sufficient to meet our capital commitments and fund our operational needs for at least the next twelve months . based on the availability under our line of credit , against our marketable security portfolio and other financing sources and assuming the continuation of our current level of profitability , we do not expect that we will experience any liquidity constraints in the foreseeable future .
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specifically , we provide integrated national preferred provider organization , also known as ppo , network access , electronic claims repricing , and network and data management to healthcare payers , including self-insured employers , medical insurance carriers , ppos and third party administrators . we believe we are uniquely positioned in the marketplace to make a contribution that our competitors do not . the differentiators include our open electronic network for electronic transactions with no equity ownership in businesses engaged in the front-end ( i.e . , physician practice management software system vendors and other physician desk top vendors ) or in the back-end ( i.e . , payers , laboratories and pharmacies ) . with our neutral position , we believe that we can better attract both front-end and back-end partners who may be more comfortable doing business with a non-competitive partner . another competitive differentiator is our presence in the clinical market . with the nation 's largest clinical laboratories as long-time customers , we have worked in partnership with them to develop customized laboratory communication tools and services that are unparalleled in the industry . we also have the oldest and most established e-prescribing network in the nation , offering connectivity to over 30,000 pharmacies nationwide . our e-prescribing solutions improve efficiency by eliminating the need to process prescriptions and refill authorizations via paper . we offer both a front-end desktop solution , prescribe tm , and online refill authorization via www.medavanthealth.com . combined , we process more than 400,000 prescriptions or refills per month . acquisitions on december 31 , 2002 , we acquired all of the outstanding stock of medunite , inc. for $ 10 million in cash and the issuance of an aggregate of $ 13.4 million principal amount of 4 % convertible promissory notes . in addition , we paid approximately $ 6.7 million in transaction and exit related costs . interest on the convertible promissory notes is payable in cash on a quarterly basis . the convertible promissory notes ( now currently payable at a maturity value of $ 13.1 million after a claim setoff against the escrow in december 2003 ) are payable in full on december 31 , 2008 , and are convertible into an aggregate of 716,968 shares ( originally 731,322 shares before the claim setoff ) of our common stock if our revenues resulting from business with the former medunite owners exceed certain thresholds over a three and one-half year period from the date of acquisition . we do not anticipate that the former medunite owners will meet all of the thresholds defined in the promissory note . on march 2 , 2004 , we acquired planvista , a company that provides medical cost containment and business process outsourcing solutions for the medical insurance and managed care industries , as well as services for healthcare providers , including individual providers , preferred provider organizations and other provider groups for 3,600,000 shares of our common stock issued to planvista shareholders valued at $ 59.8 million ( based on the average closing price of our common stock for the day of and the two days before and after december 8 , 2003 , the date of the announcement of the definitive agreement ) . we also assumed debt and other liabilities of planvista , totaling $ 46.4 million and paid $ 1.3 million in acquisition-related costs . additionally , we raised $ 24.1 million in a private placement sale of 1,691,227 shares of our common stock to investment entities affiliated with general atlantic llc , commonwealth associates and other parties to partially fund repayment of certain of planvista 's debts and other obligations outstanding at the time of the acquisition . the acquisition has enabled us to become the only entity in healthcare that offers a nationwide clearinghouse and a nationwide ppo network , delivering end-to-end services to our customers . upon completion of the acquisition , each share of planvista 's outstanding common stock was cancelled and converted into 0.08271 shares of our common stock and each holder of planvista series c preferred stock received 51.5292 shares of our common stock in exchange for each share of planvista series c preferred stock , 24 representing approximately 23 % of our common stock on a fully converted basis , and the holders of our outstanding stock , options and warrants retained approximately 77 % of the company following the transaction . planvista 's operations are included in our transaction services segment commencing march 2004. on february 14 , 2006 , we acquired substantially all the assets and operations of zeneks , inc. , a privately held bill negotiation services company based in tampa , florida , for $ 225,000 plus assumed liabilities . zeneks was incorporated in 1998 and was established as a medical cost containment company . they have relationships with numerous providers throughout the country . we expect to integrate the zeneks operations into our current bill negotiation system by the end of the first quarter of fiscal 2006. sale of assets on june 30 , 2004 , we sold certain assets and liabilities of our laboratory communication solutions segment that were used in our non-core contract manufacturing business to a new entity owned by a former executive of the company for $ 4.5 million in cash . under terms of the sale agreement , we received $ 3.5 million in cash at closing and received the balance of $ 1.0 million in cash in july and august 2004 following the presentation of the final accounting . as part of the disposition , we agreed to purchase certain component parts from the new entity for use in our laboratory communication solutions business on a non-exclusive basis at a fixed price deemed to be at fair market value by management . story_separator_special_tag consolidated sg & a increased for 2004 by $ 12.2 million , or 34 % , to $ 48.0 million from consolidated sg & a of $ 35.8 million for 2003. consolidated sg & a expenses as a percentage of consolidated revenues increased to 53 % in 2004 from 50 % in 2003. sg & a expenses classified by our reportable segments are as follows : replace_table_token_13_th transaction services segment sg & a expenses for the year ended december 31 , 2004 increased by $ 13.3 million , or 44 % over 2003. the primary cause of the increase was the addition of sg & a expenses from planvista for ten months in the 2004 period ( increase of $ 10.5 million ) . additionally , while we achieved significant reductions in expenses from our medunite acquisition over the course of 2003 , these savings have been offset by increased expenditures related to our ongoing efforts to comply with the sarbanes-oxley act of 2002 during 2004 ( increase of $ 1.7 million ) . laboratory communications solutions segment sg & a expenses for 2004 decreased by $ 1.1 million , or 20 % from 2003 and segment sg & a expenses as a percentage of segment net revenues increased to 23 % in 2004 from 22 % in 2003. the decreases in dollars are primarily due to a reduction in expenses related to the sale our contract manufacturing assets on june 30 , 2004. depreciation and amortization . consolidated depreciation and amortization increased by $ 3.4 million to $ 9.8 million for 2004 from $ 6.3 million for 2003. this increase was primarily due to approximately $ 3.5 million for the amortization of intangible assets acquired in the planvista acquisition in the transaction services segment ; offset by a decrease in depreciation expense in the laboratory communication solutions segment due to the sale of our manufacturing assets . depreciation and amortization classified by our reportable segments is as follows : replace_table_token_14_th loss on disposal of assets . in 2004 , we recorded a consolidated loss of disposal asset $ 47,000. this loss is related to the disposition of contract manufacturing assets in our laboratory communication solutions segment that were sold to a new entity formed by a former executive on june 30 , 2004 of $ 68,000 ; and $ 5,000 of miscellaneous items offset by $ 26,000 in gains on vehicles and other equipment sold . as a result of the consolidation of the proxymed and medunite offices in atlanta in february 2003 , we recorded $ 0.1 million in losses during 2003 primarily related to the disposition of certain assets owned and leased that were acquired in the acquisition of mdp corporation in 2001. litigation settlement . in december 2004 , we settled an outstanding preacquisition contingency related to planvista for $ 0.2 million , net of insurance reimbursement and is recorded in our transaction services segment . 30 operating income ( loss ) . as a result of the foregoing , the consolidated operating loss for 2004 was $ 2.0 million compared to an operating loss of $ 3.6 million for 2003. operating loss classified by our reportable segments is as follows : replace_table_token_15_th other income ( expense ) , net . during 2004 , we settled a long-term liability assumed in the acquisition of medunite for $ 0.8 million . the liability was being carried at its present value of $ 0.9 million . the resulting gain of $ 0.1 million is reflected as other income . additionally , in conjunction with our distribution and marketing agreement with planvista for claims repricing services signed in june 2003 , we received a warrant to purchase up to 15 % of planvista common stock that expired in december 2003. the warrant was initially valued at $ 0.5 million and recorded as an asset . upon expiration of the warrant in december 2003 , we recorded an impairment loss in the amount of $ 0.5 million ( representing the original value of the warrant ) for the 2003 year . interest expense , net . consolidated net interest expense for the 2004 was $ 1.9 million compared to $ 0.9 million for the same period last year . this increase in expense is primarily due to the assumption of debt in conjunction with the planvista acquisition ( increase of $ 1.2 million ) . interest expense for the future is expected to be at levels above those in 2004 due to the senior debt assumed from planvista . net loss . as a result of the foregoing , consolidated net loss for 2004 was $ 3.8 million compared to consolidated net loss of $ 5.0 million for 2003. story_separator_special_tag million in a private placement sale of our common stock and drew down $ 4.4 million on our then asset-based line of credit . these funds , along with available cash resources , were used to satisfy $ 27.4 million of planvista 's debt and other obligations outstanding as of the effective time of the acquisition . at the time of its acquisition by the company , planvista was involved in various lawsuits and threatened litigation . to date , a significant number of these cases have been settled or dismissed and resulted in $ 0.7 million charged to goodwill and $ 0.2 million charged to expense in 2004 . 32 in 2003 , net cash provided by operating activities totaled $ 1.5 million . cash used for investing activities totaled $ 9.6 million and consisted primarily of payments of costs related to the acquisition of medunite , capital expenditures and capitalized software . cash used in financing activities totaled $ 3.0 million mainly due to repayments of notes payable , other long-term debt , and payments related to capital leases . in december 2003 , we closed on a $ 12.5 million asset-based line of credit with our commercial bank . borrowing under such facility was subject to eligible
| liquidity and capital resources during the years ended december 31 , 2005 and 2004 , net cash provided by operating activities totaled $ 5.2 million and $ 1.8 million , respectively . the 2004 amounts included $ 4.0 million to pay certain acquisition-related expenses of planvista outstanding as of the effective date of the acquisition . cash ( used in ) provided by investing activities for the years ended december 31 , 2005 and 2004 totaled ( $ 2.8 ) million and $ 0.7 million , respectively . the 2005 amounts relate primarily to the funding of capital expenditures for our technical infrastructure , administrative systems and capitalization of internally developed systems , while the 2004 amounts consisted primarily of $ 0.8 million in net cash acquired from planvista and $ 4.5 million received from the sale of our contract manufacturing assets , offset by $ 0.9 million in costs related to the acquisitions of planvista and medunite and $ 4.3 million in capital expenditures and capitalized software . cash ( used in ) provided by financing activities for the years ended december 31 , 2005 and 2004 , totaled ( $ 9.2 ) million and $ 4.5 million , respectively . the 2005 amounts consist primarily of repayment of notes payable , other long term debt and capital leases , offset by proceeds from the sale of our common stock to our chief executive officer during the second quarter of 2005 and borrowings on our lines of credit and notes payable . the 2004 amounts consisted of a $ 24.1 million private placement of our common stock , and proceeds from the exercise of stock options and warrants for $ 8.8 million , offset by $ 28.3 million in repayments of notes payable , other long-term debt , and payments related to capital leases ( including $ 27.4 million for the retirement of debts and other obligations of planvista upon the consummation of the acquisition ) . on april 18 , 2005 , we closed a three year , $ 15.0 million senior asset based facility which was secured by all assets of the combined entities with wachovia bank , n.a .
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we have structured our business and our business development efforts around four related but separate approaches to deploying our technology . in our most basic approach , we act as a supplier , selling our equipment , software , and related technology to a customer . as an example , in ghana , we sold a complete ueps to the central bank , which owns and operates the resulting transaction settlement system . the revenue and costs associated with this approach are reflected in our hardware , software and related technology sales segment . 36 we have found that we have greater revenue and profit opportunities , however , by acting as a service provider instead of a supplier . in this approach we own and operate the ueps ourselves , charging one-time and on-going fees for the use of the system either on a fixed or ad valorem basis . this is the case in south africa , where we distribute welfare grants on behalf of the south african government and wages on behalf of employers on a fixed fee basis , but charge a fee on an ad valorem basis for goods and services purchased using our smart card . the revenue and costs associated with this approach are reflected in our smart card accounts , south african transaction-based activities and financial services segments . because our smart cards are designed to enable the delivery of more advanced services and products , we are also willing to supply those services and products directly where the business case is compelling . for instance , we provide short-term ueps-based loans to our smart card holders . this is an example of the third approach that we have taken . here we can act as the principal in operating a business that can be better delivered through our ueps . we can also act as an agent , for instance , in the provision of insurance policies . in both cases , the revenue and costs associated with this approach are reflected in our financial services segment . through ksnet , we earn most of our revenue from payment processing services we provide to approximately 220,000 merchants and to card issuers in korea through our value-added-network . in the us , we earn transaction fees from our customers utilizing our xeorules on-line real-time management system for healthcare transactions . we also generate fees from our customers who utilize our vcpay technology to generate a unique , one-time use prepaid virtual card number to securely purchase goods and services or perform bill payments in any card-not-present environment . the revenue and costs at ksnet , xeohealth and vcpay as well as those from our expired iraqi contracts to february 2013 , are reflected in our international transaction-based activities segment . in south africa , we also generate fees from debit and credit card transaction processing , the provision of value-added services such as bill payments , mobile top-up and pre-paid utility sales , transaction processing for both funders and providers of healthcare and from providing a payroll transaction management service . the revenue and costs associated with these services are reflected in our south african transaction-based activities segment . finally , we have entered into business partnerships or joint ventures to introduce our ueps and vtu solutions to new markets such as namibia and colombia . in these situations , we take an equity position in the business while also acting as a supplier of technology . in evaluating these types of opportunities , we seek to maintain a highly disciplined approach , carefully selecting partners , participating closely in the development of the business plan and remaining actively engaged in the management of the new business . in most instances , the joint venture or partnership has a license to use the ueps in the specific territory , including the back-end system . we account for our equity investments using the equity method . when we equity-account these investments , we are required under us gaap to eliminate our share of the net income generated from sales of hardware and software to the investee . we recognize this net income from these equity-accounted investments during the period in which the hardware and software is utilized in the investee 's operations , or has been sold to third-party customers , as the case may be . we believe that this flexible approach enables us to drive adoption of our solution while capturing the value created by the implementation of our technology . business developments during fiscal 2013 south africa sassa we commenced the second phase of the enrollment process in early july 2012 and completed the bulk enrollment by april 30 , 2013 , in accordance with the implementation plan agreed with sassa . under our agreement with sassa , we have to enroll both the grant recipient cardholders ( those individuals who receive the actual payment and are issued with our ueps/emv smart card ) , as well as the grant beneficiaries ( those individuals who have qualified for the social grant , but are not necessarily the recipient cardholder of the grant ) . by way of example , a parent who has three children and receives a grant for all three children is the grant recipient cardholder , while the three children are each classified individually as grant beneficiaries . in this case , we capture the personal and biometric information of the parent and three children , but only the parent is issued with an ueps/emv smart card . our monthly service fee is calculated on the number of grant recipient cardholders . while the number of grant recipient cardholders on a national basis has consistently been quantified by sassa at approximately 9.4 million individuals , the number of beneficiaries was revised higher by sassa from an initial estimate of approximately 15.5 million , to the revised estimate of approximately 21.6 million . story_separator_special_tag the fair value of stock options is affected by the assumptions selected . net stock-based compensation expense from continuing operations was $ 3.9 million , $ 2.8 million and $ 1.7 million for fiscal 2013 , 2012 and 2011 , respectively . net stock-based compensation expense for fiscal 2011 , includes a reversal of $ 3.5 million related to a portion of the restricted stock granted in august 2007 that did not vest as the performance condition prescribed in the terms of the awards was not met . equity instrument we recorded $ 14.2 million of expense associated with the issuance of equity instruments as part of the bee transaction during fiscal 2012 as such awards were fully vested during the period . the option expired unexercised in fiscal 2013 , however , the expense recorded during fiscal 2012 was not reversed during fiscal 2013 because the option had vested in full on the grant date in 2012. accounts receivable and allowance for doubtful accounts receivable we maintain an allowance for doubtful accounts receivable related to our hardware , software and related technology sales and international transaction-based activities segments as a result of sales or rental of hardware , support and maintenance services provided ; or sale of licenses to customers ; or the provision of transaction processing services to our customers . 41 our policy is to regularly review the aging of outstanding amounts due from customers and adjust the provision based on management 's estimate of the recoverability of the amounts outstanding . management considers factors including period outstanding , creditworthiness of the customers , past payment history and the results of discussions by our credit department with the customer . we consider this policy to be appropriate taking into account factors such as historical bad debts , current economic trends and changes in our customer payment patterns . additional provisions may be required should the ability of our customers to make payments when due deteriorate in the future . a significant amount of judgment is required to assess the ultimate recoverability of these receivables , including on-going evaluation of the creditworthiness of each customer . research and development accounting standards require product development costs to be charged to expenses as incurred until technological feasibility is attained . technological feasibility is attained when our software has completed system testing and has been determined viable for its intended use . the time between the attainment of technological feasibility and completion of software development has been short . accordingly , we did not capitalize any development costs during the years ended june 30 , 2013 , 2012 or 2011 , particularly because the main part of our development is the enhancement and upgrading of existing products . costs to develop software for our internal use is expensed as incurred , except to the extent that these costs are incurred during the application development stage . all other costs including those incurred in the project development and post-implementation stages are expensed as incurred . a significant amount of judgment is required to separate research costs , new development costs and ongoing development costs based as the transition between these stages . a multitude of factors need to be considered by management , including an assessment of the state of readiness of the software and the existence of markets for the software . the possibility of capitalizing development costs in the future may have a material impact on the group 's profitability in the period when the costs are capitalized , and in subsequent periods when the capitalized costs are amortized . recent accounting pronouncements recent accounting pronouncements adopted refer to note 2 of our consolidated financial statements for a full description of recent accounting pronouncements , including the expected dates of adoption and effects on financial condition , results of operations and cash flows . recent accounting pronouncements not yet adopted as of june 30 , 2013 refer to note 2 of our consolidated financial statements for a full description of recent accounting pronouncements not yet adopted as of june 30 , 2013 , including the expected dates of adoption and effects on financial condition , results of operations and cash flows . currency exchange rate information actual exchange rates the actual exchange rates for and at the end of the periods presented were as follows : replace_table_token_5_th ( 1 ) krw : $ average , highest and lowest exchange rates are from november 1 , 2010 ( ksnet acquisition date ) to june 30 , 2011 . 42 43 translation exchange rates we are required to translate our results of operations from zar to us dollars on a monthly basis . thus , the average rates used to translate this data for the years ended june 30 , 2013 , 2012 and 2011 , vary slightly from the averages shown in the table above . the translation rates we use in presenting our results of operations are the rates shown in the following table : replace_table_token_6_th results of operations the discussion of our consolidated overall results of operations is based on amounts as reflected in our audited consolidated financial statements which are prepared in accordance with us gaap . we analyze our results of operations both in us dollars , as presented in the consolidated financial statements , and supplementally in zar , because zar is the functional currency of the entities which contribute the majority of our profits and is the currency in which the majority of our transactions are initially incurred and measured . due to the significant impact of currency fluctuations between the us dollar and zar on our reported results and because we use the us dollar as our reporting currency , we believe that the supplemental presentation of our results of operations in zar is useful to investors to understand the changes in the underlying trends of our business . fiscal 2013 results include smartswitch botswana from december 1 , 2012 and pbel from
| liquidity and capital resources during the years ended december 31 , 2005 and 2004 , net cash provided by operating activities totaled $ 5.2 million and $ 1.8 million , respectively . the 2004 amounts included $ 4.0 million to pay certain acquisition-related expenses of planvista outstanding as of the effective date of the acquisition . cash ( used in ) provided by investing activities for the years ended december 31 , 2005 and 2004 totaled ( $ 2.8 ) million and $ 0.7 million , respectively . the 2005 amounts relate primarily to the funding of capital expenditures for our technical infrastructure , administrative systems and capitalization of internally developed systems , while the 2004 amounts consisted primarily of $ 0.8 million in net cash acquired from planvista and $ 4.5 million received from the sale of our contract manufacturing assets , offset by $ 0.9 million in costs related to the acquisitions of planvista and medunite and $ 4.3 million in capital expenditures and capitalized software . cash ( used in ) provided by financing activities for the years ended december 31 , 2005 and 2004 , totaled ( $ 9.2 ) million and $ 4.5 million , respectively . the 2005 amounts consist primarily of repayment of notes payable , other long term debt and capital leases , offset by proceeds from the sale of our common stock to our chief executive officer during the second quarter of 2005 and borrowings on our lines of credit and notes payable . the 2004 amounts consisted of a $ 24.1 million private placement of our common stock , and proceeds from the exercise of stock options and warrants for $ 8.8 million , offset by $ 28.3 million in repayments of notes payable , other long-term debt , and payments related to capital leases ( including $ 27.4 million for the retirement of debts and other obligations of planvista upon the consummation of the acquisition ) . on april 18 , 2005 , we closed a three year , $ 15.0 million senior asset based facility which was secured by all assets of the combined entities with wachovia bank , n.a .
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we have structured our business and our business development efforts around four related but separate approaches to deploying our technology . in our most basic approach , we act as a supplier , selling our equipment , software , and related technology to a customer . as an example , in ghana , we sold a complete ueps to the central bank , which owns and operates the resulting transaction settlement system . the revenue and costs associated with this approach are reflected in our hardware , software and related technology sales segment . 36 we have found that we have greater revenue and profit opportunities , however , by acting as a service provider instead of a supplier . in this approach we own and operate the ueps ourselves , charging one-time and on-going fees for the use of the system either on a fixed or ad valorem basis . this is the case in south africa , where we distribute welfare grants on behalf of the south african government and wages on behalf of employers on a fixed fee basis , but charge a fee on an ad valorem basis for goods and services purchased using our smart card . the revenue and costs associated with this approach are reflected in our smart card accounts , south african transaction-based activities and financial services segments . because our smart cards are designed to enable the delivery of more advanced services and products , we are also willing to supply those services and products directly where the business case is compelling . for instance , we provide short-term ueps-based loans to our smart card holders . this is an example of the third approach that we have taken . here we can act as the principal in operating a business that can be better delivered through our ueps . we can also act as an agent , for instance , in the provision of insurance policies . in both cases , the revenue and costs associated with this approach are reflected in our financial services segment . through ksnet , we earn most of our revenue from payment processing services we provide to approximately 220,000 merchants and to card issuers in korea through our value-added-network . in the us , we earn transaction fees from our customers utilizing our xeorules on-line real-time management system for healthcare transactions . we also generate fees from our customers who utilize our vcpay technology to generate a unique , one-time use prepaid virtual card number to securely purchase goods and services or perform bill payments in any card-not-present environment . the revenue and costs at ksnet , xeohealth and vcpay as well as those from our expired iraqi contracts to february 2013 , are reflected in our international transaction-based activities segment . in south africa , we also generate fees from debit and credit card transaction processing , the provision of value-added services such as bill payments , mobile top-up and pre-paid utility sales , transaction processing for both funders and providers of healthcare and from providing a payroll transaction management service . the revenue and costs associated with these services are reflected in our south african transaction-based activities segment . finally , we have entered into business partnerships or joint ventures to introduce our ueps and vtu solutions to new markets such as namibia and colombia . in these situations , we take an equity position in the business while also acting as a supplier of technology . in evaluating these types of opportunities , we seek to maintain a highly disciplined approach , carefully selecting partners , participating closely in the development of the business plan and remaining actively engaged in the management of the new business . in most instances , the joint venture or partnership has a license to use the ueps in the specific territory , including the back-end system . we account for our equity investments using the equity method . when we equity-account these investments , we are required under us gaap to eliminate our share of the net income generated from sales of hardware and software to the investee . we recognize this net income from these equity-accounted investments during the period in which the hardware and software is utilized in the investee 's operations , or has been sold to third-party customers , as the case may be . we believe that this flexible approach enables us to drive adoption of our solution while capturing the value created by the implementation of our technology . business developments during fiscal 2013 south africa sassa we commenced the second phase of the enrollment process in early july 2012 and completed the bulk enrollment by april 30 , 2013 , in accordance with the implementation plan agreed with sassa . under our agreement with sassa , we have to enroll both the grant recipient cardholders ( those individuals who receive the actual payment and are issued with our ueps/emv smart card ) , as well as the grant beneficiaries ( those individuals who have qualified for the social grant , but are not necessarily the recipient cardholder of the grant ) . by way of example , a parent who has three children and receives a grant for all three children is the grant recipient cardholder , while the three children are each classified individually as grant beneficiaries . in this case , we capture the personal and biometric information of the parent and three children , but only the parent is issued with an ueps/emv smart card . our monthly service fee is calculated on the number of grant recipient cardholders . while the number of grant recipient cardholders on a national basis has consistently been quantified by sassa at approximately 9.4 million individuals , the number of beneficiaries was revised higher by sassa from an initial estimate of approximately 15.5 million , to the revised estimate of approximately 21.6 million . story_separator_special_tag the fair value of stock options is affected by the assumptions selected . net stock-based compensation expense from continuing operations was $ 3.9 million , $ 2.8 million and $ 1.7 million for fiscal 2013 , 2012 and 2011 , respectively . net stock-based compensation expense for fiscal 2011 , includes a reversal of $ 3.5 million related to a portion of the restricted stock granted in august 2007 that did not vest as the performance condition prescribed in the terms of the awards was not met . equity instrument we recorded $ 14.2 million of expense associated with the issuance of equity instruments as part of the bee transaction during fiscal 2012 as such awards were fully vested during the period . the option expired unexercised in fiscal 2013 , however , the expense recorded during fiscal 2012 was not reversed during fiscal 2013 because the option had vested in full on the grant date in 2012. accounts receivable and allowance for doubtful accounts receivable we maintain an allowance for doubtful accounts receivable related to our hardware , software and related technology sales and international transaction-based activities segments as a result of sales or rental of hardware , support and maintenance services provided ; or sale of licenses to customers ; or the provision of transaction processing services to our customers . 41 our policy is to regularly review the aging of outstanding amounts due from customers and adjust the provision based on management 's estimate of the recoverability of the amounts outstanding . management considers factors including period outstanding , creditworthiness of the customers , past payment history and the results of discussions by our credit department with the customer . we consider this policy to be appropriate taking into account factors such as historical bad debts , current economic trends and changes in our customer payment patterns . additional provisions may be required should the ability of our customers to make payments when due deteriorate in the future . a significant amount of judgment is required to assess the ultimate recoverability of these receivables , including on-going evaluation of the creditworthiness of each customer . research and development accounting standards require product development costs to be charged to expenses as incurred until technological feasibility is attained . technological feasibility is attained when our software has completed system testing and has been determined viable for its intended use . the time between the attainment of technological feasibility and completion of software development has been short . accordingly , we did not capitalize any development costs during the years ended june 30 , 2013 , 2012 or 2011 , particularly because the main part of our development is the enhancement and upgrading of existing products . costs to develop software for our internal use is expensed as incurred , except to the extent that these costs are incurred during the application development stage . all other costs including those incurred in the project development and post-implementation stages are expensed as incurred . a significant amount of judgment is required to separate research costs , new development costs and ongoing development costs based as the transition between these stages . a multitude of factors need to be considered by management , including an assessment of the state of readiness of the software and the existence of markets for the software . the possibility of capitalizing development costs in the future may have a material impact on the group 's profitability in the period when the costs are capitalized , and in subsequent periods when the capitalized costs are amortized . recent accounting pronouncements recent accounting pronouncements adopted refer to note 2 of our consolidated financial statements for a full description of recent accounting pronouncements , including the expected dates of adoption and effects on financial condition , results of operations and cash flows . recent accounting pronouncements not yet adopted as of june 30 , 2013 refer to note 2 of our consolidated financial statements for a full description of recent accounting pronouncements not yet adopted as of june 30 , 2013 , including the expected dates of adoption and effects on financial condition , results of operations and cash flows . currency exchange rate information actual exchange rates the actual exchange rates for and at the end of the periods presented were as follows : replace_table_token_5_th ( 1 ) krw : $ average , highest and lowest exchange rates are from november 1 , 2010 ( ksnet acquisition date ) to june 30 , 2011 . 42 43 translation exchange rates we are required to translate our results of operations from zar to us dollars on a monthly basis . thus , the average rates used to translate this data for the years ended june 30 , 2013 , 2012 and 2011 , vary slightly from the averages shown in the table above . the translation rates we use in presenting our results of operations are the rates shown in the following table : replace_table_token_6_th results of operations the discussion of our consolidated overall results of operations is based on amounts as reflected in our audited consolidated financial statements which are prepared in accordance with us gaap . we analyze our results of operations both in us dollars , as presented in the consolidated financial statements , and supplementally in zar , because zar is the functional currency of the entities which contribute the majority of our profits and is the currency in which the majority of our transactions are initially incurred and measured . due to the significant impact of currency fluctuations between the us dollar and zar on our reported results and because we use the us dollar as our reporting currency , we believe that the supplemental presentation of our results of operations in zar is useful to investors to understand the changes in the underlying trends of our business . fiscal 2013 results include smartswitch botswana from december 1 , 2012 and pbel from
| cash flows from operating activities cash flows from operating activities for fiscal 2013 increased to $ 55.9 million ( zar 513.7 million ) from $ 20.4 million ( zar 157.5 million ) for fiscal 2012. excluding the impact of interest paid under our korean debt facility and taxes presented in the table below , the increase in cash provided by operating activities resulted from a more favorable trading environment , notwithstanding the significant implementation costs paid in fiscal 2013 , an increase in accounts payable and a decrease in prefunding to merchants participating in our merchant acquiring system . these increases to operating cash flows were offset by a moderate increase in accounts receivable and inventory and lower other payables and taxes which all decrease operating cash flow . during fiscal 2013 , we paid interest of $ 7.1 million under our korean debt facility . cash flows from operating activities for fiscal 2012 decreased to $ 20.4 million ( zar 157.5 million ) from $ 66.2 million ( zar 463.4 million ) for fiscal 2011. excluding the impact of interest paid under our korean debt and taxes , the decrease in cash provided by operating activities resulted from the timing of receipts of accounts receivable in our south african transaction-based activities operating segment and an increase in prefunding to merchants participating in our merchant acquiring system . we also incurred implementation costs related to our sassa contract and , due to the timing of the opening of the july 2012 pay cycle , we did not have any significant amounts due to non-prefunded merchants participating in our merchant acquiring system as of june 30 , 2012. during fiscal 2012 , we paid interest of $ 8.7 million under our korean debt facility . during fiscal 2013 , we made a first provisional tax payment of $ 6.8 million ( zar 58.7 million ) , a second provisional tax payment of $ 7.2 million ( zar 72.5 million ) related to our 2013 tax year in south africa and paid dividend withholding taxes of $ 1.6 million ( zar 14.9 million ) related to cross-border intercompany dividends paid .
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the total capital expenditures on these two facilities were approximately $ 10.0 million through fiscal 2010 of which approximately $ 7.5 million occurred during fiscal 2009 and approximately $ 2.5 million occurred in the first six months of fiscal 2010. we opened two new branches for our water treatment group in fiscal 2011 and one new branch in fiscal 2010 and expect to continue to invest in existing and new branches to expand our water treatment group 's geographic coverage . the cost of these branch expansions is not expected to be material . in addition , we have selectively added route sales personnel to certain existing water treatment group branch offices to spur growth within our existing geographic coverage area . in february 2009 , we agreed to sell our inventory and entered into a marketing agreement regarding the business of our pharmaceutical segment , which provided pharmaceutical chemicals to retail pharmacies and small-scale pharmaceutical manufacturers . the transaction closed in may 2009 and we have no significant obligations to fulfill under the agreement . the results of the pharmaceutical segment have been reported as discontinued operations in our consolidated financial statements for all periods presented in this annual report on form 10-k. our financial performance in fiscal 2011 was highlighted by : sales from continuing operations of $ 297.6 million , a 15.8 % increase from fiscal 2010 ; gross profit from continuing operations of $ 61.9 million or 20.8 % of sales , a $ 2.5 million decrease in gross profit dollars from fiscal 2010 ; net cash provided by operating activities of $ 28.5 million ; and cash and cash equivalents and investments available for sale were $ 37.4 million as of the end of fiscal 2011 after expending $ 25.5 million related to the vertex acquisition during fiscal 2011 . 14 we seek to maintain relatively constant gross profit dollars on each of our products as the cost of our raw materials increase or decrease . since we expect that we will continue to experience fluctuations in our raw material costs and resulting prices in the future , we believe that gross profit dollars is the best measure of our profitability from the sale of our products . if we maintain relatively stable profit dollars on each of our products , our reported gross profit percentage will decrease when the cost of the product increases and will increase when the cost of the product decreases . we use the last in , first out ( lifo ) method of valuing hawkins ' inventory , which causes the most recent product costs to be recognized in our income statement . the valuation of lifo inventory for interim periods is based on our estimates of fiscal year-end inventory levels and costs . the lifo inventory valuation method and the resulting cost of sales are consistent with our business practices of pricing to current commodity chemical raw material prices . our lifo reserve increased by $ 3.9 million in fiscal 2011 due to rising costs and higher inventory volumes on hand at year-end maintained to meet customer requirements during an anticipated flood . the increased reserve decreased our reported gross profit for the year . our lifo reserve decreased by $ 12.6 million in fiscal 2010 due to rapidly declining costs . this decrease in the reserve increased our reported gross profit in fiscal 2010. vertex 's inventory cost , which represents approximately 18 % of the consolidated first-in , first-out ( fifo ) inventory balance at april 3 , 2011 , is determined using the fifo method . our raw material costs fluctuated dramatically during fiscal 2009 and fiscal 2010. the costs of the majority of our primary raw materials began to increase rapidly and substantially in the first quarter of fiscal 2009 due to high demand and , in some cases , constrained supply . we continued to experience those cost trends through the third quarter of fiscal 2009. the costs for these raw materials leveled off in the fourth quarter of fiscal 2009 , before declining significantly during fiscal 2010 , with the costs at the end of fiscal 2010 substantially lower than they were in the at the end of fiscal 2009. our raw material costs have been generally increasing throughout fiscal 2011 , although they have been significantly more stable than in fiscal years 2009 and 2010. current raw material costs are at levels significantly below the peak that occurred during the third and fourth quarters of fiscal 2009. results of operations the following table sets forth certain items from our statement of income as a percentage of sales from period to period : replace_table_token_4_th 15 fiscal 2011 compared to fiscal 2010 sales sales increased $ 40.5 million , or 15.8 % , to $ 297.6 million for fiscal 2011 , as compared to sales of $ 257.1 million for fiscal 2010. the sales increase was primarily driven by higher sales of manufactured and specialty chemical products and somewhat higher selling prices for bulk chemicals due to increasing commodity chemical costs . sales of these bulk products were approximately 20 % of sales compared to approximately 19 % in the previous year . additionally , the acquisition of vertex , which closed in the fourth quarter of fiscal 2011 , contributed $ 9.2 million in revenue . industrial segment . industrial segment sales increased $ 33.8 million , or 19.3 % , to $ 208.7 million for fiscal 2011. the sales increase was primarily attributable to higher sales of manufactured and specialty chemical products and somewhat higher selling prices for commodity bulk chemicals due to increased commodity chemical costs . in addition , vertex revenues of $ 9.2 million are included in fiscal 2011 industrial segment sales . water treatment segment . story_separator_special_tag the increase in gross profit as a percentage of sales was primarily driven by our ability to maintain relatively stable margin dollars on lower selling prices compared to the prior year , in addition to an increase in sales of higher margin manufactured and specialty chemical products and the lifo reserve adjustments . industrial segment . gross profit for the industrial segment was $ 37.3 million , or 21.3 % of sales , for fiscal 2010 , as compared to $ 41.5 million , or 20.6 % of sales , for fiscal 2009. in fiscal 2009 , the gross profit dollars were significantly higher than historical levels due to the sale of lower-cost inventory on hand during that period of rapidly escalating commodity chemical prices as well as an increase in profits realized on certain products where we had inventory available to meet escalated demand during a period of constrained supply . by contrast , in fiscal 2010 , market conditions returned to levels more in line with our historical experience and , as a result , our gross profit dollars were lower for that period . increased operational overhead costs , primarily related to the two new facilities , also contributed to the lower gross profit levels in the industrial segment . the reductions were partially offset by higher profits realized from the sale of manufactured and specialty chemical products . the increase in gross profit margin as a percent of sales was primarily driven by our ability to maintain relatively stable margin dollars on lower selling prices compared to the prior year . the lifo method of valuing inventory positively impacted gross profit in this segment by $ 10.2 million in fiscal 2010 , as compared to negatively impacting gross profit by $ 6.9 million in fiscal 2009 . 17 water treatment segment . gross profit for the water treatment segment was $ 27.2 million , or 33.0 % of sales , for fiscal 2010 , as compared to $ 21.0 million , or 25.3 % of sales , for fiscal 2009. the higher gross profit dollars were primarily driven by a favorable product mix change as sales of higher-margin manufactured and specialty chemical products increased , and we experienced favorable weather conditions in the first quarter of fiscal 2010 as compare to the first quarter of fiscal 2009. the increase in gross profit margin as a percent of sales was primarily driven by our ability to maintain relatively stable margin dollars on lower selling prices compared to the prior year . additionally , the lifo method of valuing inventory positively impacted gross profit in this segment by $ 2.4 million in fiscal 2010 , as compared to negatively impacting gross profit by $ 3.1 million in fiscal 2009. selling , general and administrative expenses sg & a expenses were $ 25.6 million , or 10.0 % of sales , for fiscal 2010 , as compared to $ 25.1 million , or 8.8 % of sales , for fiscal 2009. the increase in sg & a expenses was primarily the result of higher equity incentive plan , variable pay plan and medical insurance costs partially offset by lower bad debt expense . the increase as a percentage of sales was primarily the result of the decrease in sales from fiscal 2009. operating income operating income was $ 38.8 million , or 15.1 % of sales , for fiscal 2010 , as compared to $ 37.3 million , or 13.1 % of sales , for fiscal 2009. a $ 6.1 million increase in operating income for the water treatment segment , which was driven by higher sales volumes for manufactured and specialty chemical products , was partially offset by a $ 4.6 million decrease in operating income for the industrial segment . both segments benefited from the lifo method of valuing inventory in fiscal 2010. investment income investment income was $ 0.3 million for fiscal 2010 and fiscal 2009. investment income remained flat year-over-year primarily due to lower yields on investments as compared to the prior year . provision for income taxes our effective income tax rate was 39.3 % for fiscal 2010 compared to 37.8 % for fiscal 2009. the higher effective tax rate for fiscal 2010 was primarily due to decreased permanent tax differences that served to reduce the effective tax rate in fiscal 2009. story_separator_special_tag there is evidence that the customer has agreed to purchase the product , the price and terms of the sale are fixed , the product has shipped and title passes to our customer , performance has occurred , and collection of the receivable is reasonably assured . inventories inventories are valued at the lower of cost or market . on a quarterly basis , management assesses the inventory quantities on hand to estimated future usage and sales and , if necessary , writes down to net realizable the value of inventory deemed obsolete or excess . though management considers these reserves adequate and proper , changes in sales volumes due to unexpected economic or competitive conditions are among the factors that could materially affect the adequacy of this reserve . lifo reserve inventories , with the exception of vertex inventories , are primarily valued at the lower of cost or market with cost being determined using the lifo method . we may incur significant fluctuations in our gross margins due primarily to changes in the cost of a single , large-volume component of inventory . the price of this inventory component may fluctuate depending on the balance between supply and demand . management reviews the lifo reserve on a quarterly basis . vertex inventories are valued at the lower of cost or market with cost being determined using the fifo method . impairment of long-lived assets we review the recoverability of long-lived assets to be held and used , such as property , plant and equipment and intangible assets subject to amortization , when events or changes in
| cash flows from operating activities cash flows from operating activities for fiscal 2013 increased to $ 55.9 million ( zar 513.7 million ) from $ 20.4 million ( zar 157.5 million ) for fiscal 2012. excluding the impact of interest paid under our korean debt facility and taxes presented in the table below , the increase in cash provided by operating activities resulted from a more favorable trading environment , notwithstanding the significant implementation costs paid in fiscal 2013 , an increase in accounts payable and a decrease in prefunding to merchants participating in our merchant acquiring system . these increases to operating cash flows were offset by a moderate increase in accounts receivable and inventory and lower other payables and taxes which all decrease operating cash flow . during fiscal 2013 , we paid interest of $ 7.1 million under our korean debt facility . cash flows from operating activities for fiscal 2012 decreased to $ 20.4 million ( zar 157.5 million ) from $ 66.2 million ( zar 463.4 million ) for fiscal 2011. excluding the impact of interest paid under our korean debt and taxes , the decrease in cash provided by operating activities resulted from the timing of receipts of accounts receivable in our south african transaction-based activities operating segment and an increase in prefunding to merchants participating in our merchant acquiring system . we also incurred implementation costs related to our sassa contract and , due to the timing of the opening of the july 2012 pay cycle , we did not have any significant amounts due to non-prefunded merchants participating in our merchant acquiring system as of june 30 , 2012. during fiscal 2012 , we paid interest of $ 8.7 million under our korean debt facility . during fiscal 2013 , we made a first provisional tax payment of $ 6.8 million ( zar 58.7 million ) , a second provisional tax payment of $ 7.2 million ( zar 72.5 million ) related to our 2013 tax year in south africa and paid dividend withholding taxes of $ 1.6 million ( zar 14.9 million ) related to cross-border intercompany dividends paid .
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the total capital expenditures on these two facilities were approximately $ 10.0 million through fiscal 2010 of which approximately $ 7.5 million occurred during fiscal 2009 and approximately $ 2.5 million occurred in the first six months of fiscal 2010. we opened two new branches for our water treatment group in fiscal 2011 and one new branch in fiscal 2010 and expect to continue to invest in existing and new branches to expand our water treatment group 's geographic coverage . the cost of these branch expansions is not expected to be material . in addition , we have selectively added route sales personnel to certain existing water treatment group branch offices to spur growth within our existing geographic coverage area . in february 2009 , we agreed to sell our inventory and entered into a marketing agreement regarding the business of our pharmaceutical segment , which provided pharmaceutical chemicals to retail pharmacies and small-scale pharmaceutical manufacturers . the transaction closed in may 2009 and we have no significant obligations to fulfill under the agreement . the results of the pharmaceutical segment have been reported as discontinued operations in our consolidated financial statements for all periods presented in this annual report on form 10-k. our financial performance in fiscal 2011 was highlighted by : sales from continuing operations of $ 297.6 million , a 15.8 % increase from fiscal 2010 ; gross profit from continuing operations of $ 61.9 million or 20.8 % of sales , a $ 2.5 million decrease in gross profit dollars from fiscal 2010 ; net cash provided by operating activities of $ 28.5 million ; and cash and cash equivalents and investments available for sale were $ 37.4 million as of the end of fiscal 2011 after expending $ 25.5 million related to the vertex acquisition during fiscal 2011 . 14 we seek to maintain relatively constant gross profit dollars on each of our products as the cost of our raw materials increase or decrease . since we expect that we will continue to experience fluctuations in our raw material costs and resulting prices in the future , we believe that gross profit dollars is the best measure of our profitability from the sale of our products . if we maintain relatively stable profit dollars on each of our products , our reported gross profit percentage will decrease when the cost of the product increases and will increase when the cost of the product decreases . we use the last in , first out ( lifo ) method of valuing hawkins ' inventory , which causes the most recent product costs to be recognized in our income statement . the valuation of lifo inventory for interim periods is based on our estimates of fiscal year-end inventory levels and costs . the lifo inventory valuation method and the resulting cost of sales are consistent with our business practices of pricing to current commodity chemical raw material prices . our lifo reserve increased by $ 3.9 million in fiscal 2011 due to rising costs and higher inventory volumes on hand at year-end maintained to meet customer requirements during an anticipated flood . the increased reserve decreased our reported gross profit for the year . our lifo reserve decreased by $ 12.6 million in fiscal 2010 due to rapidly declining costs . this decrease in the reserve increased our reported gross profit in fiscal 2010. vertex 's inventory cost , which represents approximately 18 % of the consolidated first-in , first-out ( fifo ) inventory balance at april 3 , 2011 , is determined using the fifo method . our raw material costs fluctuated dramatically during fiscal 2009 and fiscal 2010. the costs of the majority of our primary raw materials began to increase rapidly and substantially in the first quarter of fiscal 2009 due to high demand and , in some cases , constrained supply . we continued to experience those cost trends through the third quarter of fiscal 2009. the costs for these raw materials leveled off in the fourth quarter of fiscal 2009 , before declining significantly during fiscal 2010 , with the costs at the end of fiscal 2010 substantially lower than they were in the at the end of fiscal 2009. our raw material costs have been generally increasing throughout fiscal 2011 , although they have been significantly more stable than in fiscal years 2009 and 2010. current raw material costs are at levels significantly below the peak that occurred during the third and fourth quarters of fiscal 2009. results of operations the following table sets forth certain items from our statement of income as a percentage of sales from period to period : replace_table_token_4_th 15 fiscal 2011 compared to fiscal 2010 sales sales increased $ 40.5 million , or 15.8 % , to $ 297.6 million for fiscal 2011 , as compared to sales of $ 257.1 million for fiscal 2010. the sales increase was primarily driven by higher sales of manufactured and specialty chemical products and somewhat higher selling prices for bulk chemicals due to increasing commodity chemical costs . sales of these bulk products were approximately 20 % of sales compared to approximately 19 % in the previous year . additionally , the acquisition of vertex , which closed in the fourth quarter of fiscal 2011 , contributed $ 9.2 million in revenue . industrial segment . industrial segment sales increased $ 33.8 million , or 19.3 % , to $ 208.7 million for fiscal 2011. the sales increase was primarily attributable to higher sales of manufactured and specialty chemical products and somewhat higher selling prices for commodity bulk chemicals due to increased commodity chemical costs . in addition , vertex revenues of $ 9.2 million are included in fiscal 2011 industrial segment sales . water treatment segment . story_separator_special_tag the increase in gross profit as a percentage of sales was primarily driven by our ability to maintain relatively stable margin dollars on lower selling prices compared to the prior year , in addition to an increase in sales of higher margin manufactured and specialty chemical products and the lifo reserve adjustments . industrial segment . gross profit for the industrial segment was $ 37.3 million , or 21.3 % of sales , for fiscal 2010 , as compared to $ 41.5 million , or 20.6 % of sales , for fiscal 2009. in fiscal 2009 , the gross profit dollars were significantly higher than historical levels due to the sale of lower-cost inventory on hand during that period of rapidly escalating commodity chemical prices as well as an increase in profits realized on certain products where we had inventory available to meet escalated demand during a period of constrained supply . by contrast , in fiscal 2010 , market conditions returned to levels more in line with our historical experience and , as a result , our gross profit dollars were lower for that period . increased operational overhead costs , primarily related to the two new facilities , also contributed to the lower gross profit levels in the industrial segment . the reductions were partially offset by higher profits realized from the sale of manufactured and specialty chemical products . the increase in gross profit margin as a percent of sales was primarily driven by our ability to maintain relatively stable margin dollars on lower selling prices compared to the prior year . the lifo method of valuing inventory positively impacted gross profit in this segment by $ 10.2 million in fiscal 2010 , as compared to negatively impacting gross profit by $ 6.9 million in fiscal 2009 . 17 water treatment segment . gross profit for the water treatment segment was $ 27.2 million , or 33.0 % of sales , for fiscal 2010 , as compared to $ 21.0 million , or 25.3 % of sales , for fiscal 2009. the higher gross profit dollars were primarily driven by a favorable product mix change as sales of higher-margin manufactured and specialty chemical products increased , and we experienced favorable weather conditions in the first quarter of fiscal 2010 as compare to the first quarter of fiscal 2009. the increase in gross profit margin as a percent of sales was primarily driven by our ability to maintain relatively stable margin dollars on lower selling prices compared to the prior year . additionally , the lifo method of valuing inventory positively impacted gross profit in this segment by $ 2.4 million in fiscal 2010 , as compared to negatively impacting gross profit by $ 3.1 million in fiscal 2009. selling , general and administrative expenses sg & a expenses were $ 25.6 million , or 10.0 % of sales , for fiscal 2010 , as compared to $ 25.1 million , or 8.8 % of sales , for fiscal 2009. the increase in sg & a expenses was primarily the result of higher equity incentive plan , variable pay plan and medical insurance costs partially offset by lower bad debt expense . the increase as a percentage of sales was primarily the result of the decrease in sales from fiscal 2009. operating income operating income was $ 38.8 million , or 15.1 % of sales , for fiscal 2010 , as compared to $ 37.3 million , or 13.1 % of sales , for fiscal 2009. a $ 6.1 million increase in operating income for the water treatment segment , which was driven by higher sales volumes for manufactured and specialty chemical products , was partially offset by a $ 4.6 million decrease in operating income for the industrial segment . both segments benefited from the lifo method of valuing inventory in fiscal 2010. investment income investment income was $ 0.3 million for fiscal 2010 and fiscal 2009. investment income remained flat year-over-year primarily due to lower yields on investments as compared to the prior year . provision for income taxes our effective income tax rate was 39.3 % for fiscal 2010 compared to 37.8 % for fiscal 2009. the higher effective tax rate for fiscal 2010 was primarily due to decreased permanent tax differences that served to reduce the effective tax rate in fiscal 2009. story_separator_special_tag there is evidence that the customer has agreed to purchase the product , the price and terms of the sale are fixed , the product has shipped and title passes to our customer , performance has occurred , and collection of the receivable is reasonably assured . inventories inventories are valued at the lower of cost or market . on a quarterly basis , management assesses the inventory quantities on hand to estimated future usage and sales and , if necessary , writes down to net realizable the value of inventory deemed obsolete or excess . though management considers these reserves adequate and proper , changes in sales volumes due to unexpected economic or competitive conditions are among the factors that could materially affect the adequacy of this reserve . lifo reserve inventories , with the exception of vertex inventories , are primarily valued at the lower of cost or market with cost being determined using the lifo method . we may incur significant fluctuations in our gross margins due primarily to changes in the cost of a single , large-volume component of inventory . the price of this inventory component may fluctuate depending on the balance between supply and demand . management reviews the lifo reserve on a quarterly basis . vertex inventories are valued at the lower of cost or market with cost being determined using the fifo method . impairment of long-lived assets we review the recoverability of long-lived assets to be held and used , such as property , plant and equipment and intangible assets subject to amortization , when events or changes in
| liquidity and capital resources cash provided by operations in fiscal 2011 was $ 28.5 million compared to $ 38.8 million in fiscal 2010 and $ 24.4 million in fiscal 2009. the decrease in cash provided by operating activities in fiscal 2011 from fiscal 2010 was primarily due to a decrease in net income , fluctuations in working capital balances and lower deferred tax liabilities . higher working capital balances used $ 0.4 million in cash in fiscal 2011 whereas lower working capital balances provided $ 0.8 million in cash in fiscal 2010. the net increase in working capital balances in fiscal 2011 was primarily due to increasing commodity chemical costs and the resulting increase in selling prices , which resulted in an increase in trade receivables and inventories partially offset by an increase in accounts payable and income tax payable balance due to the timing of tax payments . the increase in cash provided by operating activities in fiscal 2010 from fiscal 2009 was primarily due to the fluctuations in working capital balances and increased deferred tax liabilities in fiscal 2010. due to the nature of our operations , which includes purchases of large quantities of bulk chemicals , the timing of purchases can result in significant changes in working capital investment and the resulting operating cash flow . historically , our cash requirements for working capital increase during the period from april through november as caustic soda inventory levels increase as the majority of barges are received during this period .
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we anticipate construction completion for the second tower in the fourth quarter of 2016. by the end of january 2016 , we had signed leases for 55 % of the 12,560 square feet of commercial space in the community , at rents above underwriting . at the sterling , during 2015 , we completed renovation of the common areas and retail space , at a cost consistent with underwriting . based on the success of the lease-up pace and pricing of the apartment homes that have been completed , in the fourth quarter 2015 , we approved a plan to expand the phased redevelopment of the sterling with another five floors containing 20 130 apartment homes . by the end of january 2016 , 62 % of the 409 apartment homes approved for redevelopment were complete , at a cost consistent with underwriting , and we had leased 97 % of the completed apartment homes , with rents above underwriting . we had also signed leases for 84 % of the 19,845 square feet of retail space at rents above underwriting . during 2015 , we also invested a total of $ 116 million in development , about $ 100 million of which was in our one canal property in boston . we expect completion of construction for one canal in april 2016 and we are pre-leasing now . we also invested $ 16 million in the completion of vivo , a community we acquired in cambridge mid-year while under construction . we saw our first move-ins at vivo in october and at the end of january 2016 , the community was 48 % leased at rents above underwriting . see below under the liquidity and capital resources – redevelopment and development heading for additional information regarding our ongoing redevelopment and development projects at december 31 , 2015 . portfolio management average revenue per effective apartment home for our conventional portfolio increased by 10 % , from $ 1,669 for the three months ended december 31 , 2014 , to $ 1,840 for the three months ended december 31 , 2015 , as a result of year-over-year revenue growth of 4.5 % for our conventional same store apartment communities , the sale of conventional apartment communities during 2015 with average revenues per home lower than the apartment communities in our retained portfolio and the reinvestment of the sales proceeds through redevelopment and acquisition of apartment communities with better prospects and higher rents . in total , we sold 11 apartment communities with 3,855 apartment homes during the year ended december 31 , 2015 . these sales represented roughly 4 % of our beginning of year real estate asset value . eight of these communities were from our conventional portfolio , with average monthly revenues per apartment home of $ 1,043 , 43 % below the average of our retained conventional portfolio . among the properties sold , was the last one we held in phoenix . we also continued the sell-down of our affordable portfolio with the sale of three communities . consistent with our paired-trade discipline , proceeds from these sales were reinvested in redevelopment and development projects described above , acquisitions , and property upgrades with a weighted average free cash flow internal rate of return ( defined under the non-gaap performance and liquidity measures heading ) approximately 350 basis points higher than the communities sold to fund them . in addition to our acquisition of the under construction community , vivo , which is described under the redevelopment and development heading above , during 2015 , we purchased two other communities : mezzo , an operating community in atlanta ; and axiom , a lease-up community in cambridge . our total purchase price for these three communities was $ 129 million . at the end of january 2016 , axiom was 89 % leased at rents above underwriting . we expect to reach occupancy stabilization on this community during the second quarter of 2016. in addition to the acquisitions of these three communities , during the year we entered into a contract to acquire an apartment community currently under construction in northern california for $ 320 million . the acquisition is expected to close upon completion of construction in the summer of 2016. we intend to fund the acquisition through a ten-year property loan , with the balance funded primarily by proceeds from the sale of two apartment communities : one in alexandra , virginia ; and our last community in phoenix , which sale closed in december 2015. through our disciplined execution of our portfolio management strategy , over the three year period from december 31 , 2012 to december 31 , 2015 , we : increased our period-end conventional portfolio average revenue per apartment home by 35 % to $ 1,840 . this rate of growth reflects the impact of market rent growth , and more significantly , the impact of portfolio management through dispositions , redevelopment and acquisitions ; increased our conventional portfolio free cash flow margin by 9 % through the sale of lower-rated communities and reinvestment in communities of greater quality commanding higher rents ; and increased to 91 % the percentage of our conventional property net operating income earned in our target markets . as a result of these efforts , as of september 30 , 2015 , the most recent period for which market information is available , approximately 51 % , 32 % and 17 % of aimco 's portfolio is invested in “ a , ” “ b ” and “ c+ ” quality apartment homes , respectively , as measured under our portfolio quality rating system discussed in the portfolio management heading in item 1. as we continue to execute our portfolio strategy , we expect to continue to increase conventional portfolio average revenue per apartment home at a rate greater than market rent growth ; to increase further free cash flow margins ; to sell our story_separator_special_tag at december 31 , 2015 , as defined by our segment performance metrics , our affordable portfolio consisted of 45 affordable same store apartment communities with 7,311 apartment homes and two other affordable apartment communities with 595 apartment homes . from december 31 , 2014 , to december 31 , 2015 , on a net basis , our affordable same store portfolio increased by one apartment community with 200 apartment homes that was reclassified to our affordable same store portfolio upon maintaining a stabilized level of occupancy following a casualty event . 26 our affordable results for the years ended december 31 , 2015 and 2014 , presented below are based on the apartment community populations at december 31 , 2015 . replace_table_token_9_th for the year ended december 31 , 2015 , as compared to 2014 , our affordable segment 's proportionate property net operating income increased $ 2.0 million , or 3.5 % . the increase was attributable to a $ 2.0 million increase in rental income driven primarily by higher rental rates of $ 22 per month on apartment homes . at december 31 , 2014 , our affordable portfolio consisted of 44 affordable same store apartment communities with 7,111 apartment homes and three other affordable apartment communities and 795 apartment homes . our affordable results for the years ended december 31 , 2014 and 2013 presented below are based on the apartment community populations at december 31 , 2014 ( excluding amounts related to apartment communities sold or classified as held for sale during 2015 ) . replace_table_token_10_th for the year ended december 31 , 2014 , as compared to 2013 , the proportionate property net operating income of our affordable apartment communities increased $ 0.5 million , or 0.9 % . the increase in proportionate property net operating income was primarily attributable to an increase in rental income driven by higher rental rates , partially offset by an increase in utilities expense . non-segment real estate operations real estate operations net operating income amounts not attributed to our conventional or affordable segments include property management revenues , offsite costs associated with property management , and casualty losses , reported in consolidated amounts , which we do not allocate to our conventional or affordable segments for purposes of evaluating segment performance ( see note 15 to the consolidated financial statements in item 8 ) . we also exclude the results of apartment communities sold and classified as held for sale from our conventional or affordable segments for purposes of evaluating segment performance . 27 for the years ended december 31 , 2015 , 2014 and 2013 , property management expenses , which include offsite costs associated with managing apartment communities we own ( both our share and the share that we allocate to the limited partners in our consolidated partnerships ) , totaled $ 24.7 million , $ 25.3 million and $ 30.7 million , respectively . the decrease in property management expenses in these periods was primarily due to reductions in personnel and related costs based on the reduction in the number of apartment communities we own and manage . for the years ended december 31 , 2015 , 2014 and 2013 , casualty losses totaled $ 8.3 million , $ 11.8 million and $ 6.7 million , respectively . casualty losses during the year ended december 31 , 2015 , included losses resulting from property damage and snow removal costs associated with the severe snow storms in the northeast . casualty losses during the year ended december 31 , 2014 , included losses from the severe weather associated with the 2014 “ polar vortex , ” which affected many of our apartment communities in the northeast and midwest , as well damage to one of our apartment communities resulting from a severe hail storm . tax credit and asset management revenues we sponsor certain consolidated partnerships that acquire , develop and operate qualifying affordable housing apartment communities and are structured to provide for the pass-through of tax credits and deductions to their partners . we recognize income associated with the delivery of tax credits and benefits associated with these partnerships to their partners . for the year ended december 31 , 2015 , as compared to the year ended december 31 , 2014 , tax credit and asset management revenues decreased $ 7.2 million . this decrease was attributable to a decrease in amortization of deferred tax credit income due to delivery of substantially all of the tax credits on various apartment communities during 2014 and 2015 , and a decrease in disposition and other transactional fees earned in 2015 as compared to 2014. for the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013 , tax credit and asset management revenues decreased $ 3.3 million . this decrease was attributable to a decrease in amortization of tax credit income , and a decrease in disposition and other transactional fees earned in 2014 , as compared to 2013. certain of the apartment communities within our tax credit partnerships have delivered substantially all of the tax credits , or are anticipated to deliver substantially all of the tax credits during 2016. as the tax credit delivery and compliance periods for these apartment communities expire , amortization of deferred income associated with the delivery of tax credits and benefits decreases . we expect amortization of deferred tax credit income to decrease from $ 24.1 million in the year ended december 31 , 2015 , to approximately $ 19 million for the year ending december 31 , 2016. investment management expenses for the year ended december 31 , 2015 , compared to the year ended december 31 , 2014 , investment management expenses decreased $ 1.5 million primarily due to decreases in acquisition and other costs , partially offset by an increase in personnel and related costs . for the year ended december 31 , 2014 , compared to the
| liquidity and capital resources cash provided by operations in fiscal 2011 was $ 28.5 million compared to $ 38.8 million in fiscal 2010 and $ 24.4 million in fiscal 2009. the decrease in cash provided by operating activities in fiscal 2011 from fiscal 2010 was primarily due to a decrease in net income , fluctuations in working capital balances and lower deferred tax liabilities . higher working capital balances used $ 0.4 million in cash in fiscal 2011 whereas lower working capital balances provided $ 0.8 million in cash in fiscal 2010. the net increase in working capital balances in fiscal 2011 was primarily due to increasing commodity chemical costs and the resulting increase in selling prices , which resulted in an increase in trade receivables and inventories partially offset by an increase in accounts payable and income tax payable balance due to the timing of tax payments . the increase in cash provided by operating activities in fiscal 2010 from fiscal 2009 was primarily due to the fluctuations in working capital balances and increased deferred tax liabilities in fiscal 2010. due to the nature of our operations , which includes purchases of large quantities of bulk chemicals , the timing of purchases can result in significant changes in working capital investment and the resulting operating cash flow . historically , our cash requirements for working capital increase during the period from april through november as caustic soda inventory levels increase as the majority of barges are received during this period .
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we anticipate construction completion for the second tower in the fourth quarter of 2016. by the end of january 2016 , we had signed leases for 55 % of the 12,560 square feet of commercial space in the community , at rents above underwriting . at the sterling , during 2015 , we completed renovation of the common areas and retail space , at a cost consistent with underwriting . based on the success of the lease-up pace and pricing of the apartment homes that have been completed , in the fourth quarter 2015 , we approved a plan to expand the phased redevelopment of the sterling with another five floors containing 20 130 apartment homes . by the end of january 2016 , 62 % of the 409 apartment homes approved for redevelopment were complete , at a cost consistent with underwriting , and we had leased 97 % of the completed apartment homes , with rents above underwriting . we had also signed leases for 84 % of the 19,845 square feet of retail space at rents above underwriting . during 2015 , we also invested a total of $ 116 million in development , about $ 100 million of which was in our one canal property in boston . we expect completion of construction for one canal in april 2016 and we are pre-leasing now . we also invested $ 16 million in the completion of vivo , a community we acquired in cambridge mid-year while under construction . we saw our first move-ins at vivo in october and at the end of january 2016 , the community was 48 % leased at rents above underwriting . see below under the liquidity and capital resources – redevelopment and development heading for additional information regarding our ongoing redevelopment and development projects at december 31 , 2015 . portfolio management average revenue per effective apartment home for our conventional portfolio increased by 10 % , from $ 1,669 for the three months ended december 31 , 2014 , to $ 1,840 for the three months ended december 31 , 2015 , as a result of year-over-year revenue growth of 4.5 % for our conventional same store apartment communities , the sale of conventional apartment communities during 2015 with average revenues per home lower than the apartment communities in our retained portfolio and the reinvestment of the sales proceeds through redevelopment and acquisition of apartment communities with better prospects and higher rents . in total , we sold 11 apartment communities with 3,855 apartment homes during the year ended december 31 , 2015 . these sales represented roughly 4 % of our beginning of year real estate asset value . eight of these communities were from our conventional portfolio , with average monthly revenues per apartment home of $ 1,043 , 43 % below the average of our retained conventional portfolio . among the properties sold , was the last one we held in phoenix . we also continued the sell-down of our affordable portfolio with the sale of three communities . consistent with our paired-trade discipline , proceeds from these sales were reinvested in redevelopment and development projects described above , acquisitions , and property upgrades with a weighted average free cash flow internal rate of return ( defined under the non-gaap performance and liquidity measures heading ) approximately 350 basis points higher than the communities sold to fund them . in addition to our acquisition of the under construction community , vivo , which is described under the redevelopment and development heading above , during 2015 , we purchased two other communities : mezzo , an operating community in atlanta ; and axiom , a lease-up community in cambridge . our total purchase price for these three communities was $ 129 million . at the end of january 2016 , axiom was 89 % leased at rents above underwriting . we expect to reach occupancy stabilization on this community during the second quarter of 2016. in addition to the acquisitions of these three communities , during the year we entered into a contract to acquire an apartment community currently under construction in northern california for $ 320 million . the acquisition is expected to close upon completion of construction in the summer of 2016. we intend to fund the acquisition through a ten-year property loan , with the balance funded primarily by proceeds from the sale of two apartment communities : one in alexandra , virginia ; and our last community in phoenix , which sale closed in december 2015. through our disciplined execution of our portfolio management strategy , over the three year period from december 31 , 2012 to december 31 , 2015 , we : increased our period-end conventional portfolio average revenue per apartment home by 35 % to $ 1,840 . this rate of growth reflects the impact of market rent growth , and more significantly , the impact of portfolio management through dispositions , redevelopment and acquisitions ; increased our conventional portfolio free cash flow margin by 9 % through the sale of lower-rated communities and reinvestment in communities of greater quality commanding higher rents ; and increased to 91 % the percentage of our conventional property net operating income earned in our target markets . as a result of these efforts , as of september 30 , 2015 , the most recent period for which market information is available , approximately 51 % , 32 % and 17 % of aimco 's portfolio is invested in “ a , ” “ b ” and “ c+ ” quality apartment homes , respectively , as measured under our portfolio quality rating system discussed in the portfolio management heading in item 1. as we continue to execute our portfolio strategy , we expect to continue to increase conventional portfolio average revenue per apartment home at a rate greater than market rent growth ; to increase further free cash flow margins ; to sell our story_separator_special_tag at december 31 , 2015 , as defined by our segment performance metrics , our affordable portfolio consisted of 45 affordable same store apartment communities with 7,311 apartment homes and two other affordable apartment communities with 595 apartment homes . from december 31 , 2014 , to december 31 , 2015 , on a net basis , our affordable same store portfolio increased by one apartment community with 200 apartment homes that was reclassified to our affordable same store portfolio upon maintaining a stabilized level of occupancy following a casualty event . 26 our affordable results for the years ended december 31 , 2015 and 2014 , presented below are based on the apartment community populations at december 31 , 2015 . replace_table_token_9_th for the year ended december 31 , 2015 , as compared to 2014 , our affordable segment 's proportionate property net operating income increased $ 2.0 million , or 3.5 % . the increase was attributable to a $ 2.0 million increase in rental income driven primarily by higher rental rates of $ 22 per month on apartment homes . at december 31 , 2014 , our affordable portfolio consisted of 44 affordable same store apartment communities with 7,111 apartment homes and three other affordable apartment communities and 795 apartment homes . our affordable results for the years ended december 31 , 2014 and 2013 presented below are based on the apartment community populations at december 31 , 2014 ( excluding amounts related to apartment communities sold or classified as held for sale during 2015 ) . replace_table_token_10_th for the year ended december 31 , 2014 , as compared to 2013 , the proportionate property net operating income of our affordable apartment communities increased $ 0.5 million , or 0.9 % . the increase in proportionate property net operating income was primarily attributable to an increase in rental income driven by higher rental rates , partially offset by an increase in utilities expense . non-segment real estate operations real estate operations net operating income amounts not attributed to our conventional or affordable segments include property management revenues , offsite costs associated with property management , and casualty losses , reported in consolidated amounts , which we do not allocate to our conventional or affordable segments for purposes of evaluating segment performance ( see note 15 to the consolidated financial statements in item 8 ) . we also exclude the results of apartment communities sold and classified as held for sale from our conventional or affordable segments for purposes of evaluating segment performance . 27 for the years ended december 31 , 2015 , 2014 and 2013 , property management expenses , which include offsite costs associated with managing apartment communities we own ( both our share and the share that we allocate to the limited partners in our consolidated partnerships ) , totaled $ 24.7 million , $ 25.3 million and $ 30.7 million , respectively . the decrease in property management expenses in these periods was primarily due to reductions in personnel and related costs based on the reduction in the number of apartment communities we own and manage . for the years ended december 31 , 2015 , 2014 and 2013 , casualty losses totaled $ 8.3 million , $ 11.8 million and $ 6.7 million , respectively . casualty losses during the year ended december 31 , 2015 , included losses resulting from property damage and snow removal costs associated with the severe snow storms in the northeast . casualty losses during the year ended december 31 , 2014 , included losses from the severe weather associated with the 2014 “ polar vortex , ” which affected many of our apartment communities in the northeast and midwest , as well damage to one of our apartment communities resulting from a severe hail storm . tax credit and asset management revenues we sponsor certain consolidated partnerships that acquire , develop and operate qualifying affordable housing apartment communities and are structured to provide for the pass-through of tax credits and deductions to their partners . we recognize income associated with the delivery of tax credits and benefits associated with these partnerships to their partners . for the year ended december 31 , 2015 , as compared to the year ended december 31 , 2014 , tax credit and asset management revenues decreased $ 7.2 million . this decrease was attributable to a decrease in amortization of deferred tax credit income due to delivery of substantially all of the tax credits on various apartment communities during 2014 and 2015 , and a decrease in disposition and other transactional fees earned in 2015 as compared to 2014. for the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013 , tax credit and asset management revenues decreased $ 3.3 million . this decrease was attributable to a decrease in amortization of tax credit income , and a decrease in disposition and other transactional fees earned in 2014 , as compared to 2013. certain of the apartment communities within our tax credit partnerships have delivered substantially all of the tax credits , or are anticipated to deliver substantially all of the tax credits during 2016. as the tax credit delivery and compliance periods for these apartment communities expire , amortization of deferred income associated with the delivery of tax credits and benefits decreases . we expect amortization of deferred tax credit income to decrease from $ 24.1 million in the year ended december 31 , 2015 , to approximately $ 19 million for the year ending december 31 , 2016. investment management expenses for the year ended december 31 , 2015 , compared to the year ended december 31 , 2014 , investment management expenses decreased $ 1.5 million primarily due to decreases in acquisition and other costs , partially offset by an increase in personnel and related costs . for the year ended december 31 , 2014 , compared to the
| liquidity and capital resources liquidity is the ability to meet present and future financial obligations . our primary source of liquidity is cash flow from our operations . additional sources are proceeds from sales of apartment communities , proceeds from refinancings of existing property debt , borrowings under new property debt , borrowings under our credit agreement and proceeds from equity offerings . our principal uses for liquidity include normal operating activities , payments of principal and interest on outstanding property debt , dividends paid to stockholders , distributions paid to noncontrolling interest partners and acquisitions of , and investments in , apartment communities , including redevelopment , development and other capital spending . we use our cash and cash equivalents and our cash provided by operating activities to meet short-term liquidity needs . in the event that our cash and cash equivalents and cash provided by operating activities are not sufficient to cover our short-term liquidity needs , we have additional means , such as short-term borrowing availability and proceeds from apartment community sales and refinancings . we may use our credit agreement for working capital and other short-term purposes , such as funding investments on an interim basis . we expect to meet our long-term liquidity requirements , such as debt maturities and apartment community acquisitions , through long-term borrowings , primarily non-recourse , the issuance of equity securities ( including op units ) , the sale of apartment communities , and cash generated from operations .
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in response to covid-19 , we have put into place certain restrictions , requirements and guidelines , to protect the health of our employees and clients , including requiring certain conditions to be met before employees return to the company 's offices . also , to protect the health and safety of our employees , our daily execution has evolved into a largely virtual model and we continue to endeavor to find innovative ways to engage with customers and prospects as we , our customers and prospects endeavor to navigate the current environment . between april 1 , 2020 and september 1 , 2020 , computex reduced the salaries of its employees and we are endeavoring to reduce other operating expenses . we plan to continue to monitor the current environment and may take further actions that may be required by federal , state or local authorities or that we determine are in the interests of our employees , customers , and partners . 24 our business our hardware offerings are sourced from a network of leading manufacturers , and include , data storage , desktops , servers , and other hardware . third party software and maintenance offerings include licensing , licensing management , software solutions and other services . we offer a full suite of value-added services , which typically are delivered as part of a complete technology solution , to help our customers meet their specific needs . our solutions range from configuration services for computer devices to fully integrated solutions such as virtualization , collaboration , security , mobility , data center optimization and cloud computing . we also offer complementary services including installations , warranty services and certain managed services such as remote network and data center monitoring . we believe our software and service offerings are important growth areas for us . our professional and managed services include managed it services , virtualization , storage , networking and data center services . as part of these services , we offer customized solutions for business continuity , back-up and recovery , capacity on-demand , regulatory compliance and data center best practice methodologies as well as infrastructure as a service ( “ iaas ” ) and software as a service ( “ saas ” ) . our customers utilize our solutions to optimize their current and planned investments in it infrastructure and data centers . we believe the breadth of our service offering and our consultative approach to working with our clients distinguishes us from other providers . c loud subscription and software products include subscriptions to the company 's cloud-based technology platform . in addition , we believe our business is well-diversified across verticals , technology solutions offerings and procurement partners from whom we procure products and software for resale . our sales teams consist of seasoned account executives and regionally focused sales support teams who work within assigned territories to provide customized solutions to our customers . our sales teams are supported by industry leading technologists who design end to end solutions and who take projects from design , to implementation , to management . we boast an extensive network of oems and distributors which allow us to direct-sell a diverse selection of products and software to our ever-growing customer base , as packaged software or as licensed products and services . we have developed an infrastructure that enables us to deliver our it solutions and service agnostic as to technology platform and location through a flexible , customer-focused delivery model which spans three datacenter environments ( customer-owned , co-location , and the cloud ) . by optimizing our customers ' use of secure , energy efficient and reliable data centers combined with a comprehensive suite of related it infrastructure services , we are able to offer our customers highly customized solutions to address their needs for data center availability , data management , data security , business continuity disaster recovery and data center consolidation , as well as a variety of other related managed services . key trends affecting our results of operations the following are key trends that we believe can impact our results of operations : ● the increasing need , by organizations , for third-party service providers , such as computex technology solutions , to manage significant aspects of the it environment ● the increasing need , by organizations , to reduce the number of solutions providers they do business with to improve supply chain and internal efficiencies , enhance accountability , improve supplier management practices , and reduce costs ● the lack of sufficient internal it resources at mid-sized and large enterprises , and the scarcity of it personnel in certain high-demand disciplines ● disruptive technologies that are creating complexity and challenges for customers and vendors ● the increasing sophistication and incidences of it security breaches and cyber-attacks ● the it decision-making shift by some companies , whereby it decision-making is shifting from it departments to line-of-business personnel , which is changing the customer engagement model and types of consultative services required to fulfill the needs of customers ● the recognition that certain it services provide the opportunity of funding via recurring payments over a period of time , rather than large upfront payments ● the increasing use of multi-cloud strategies , whereby cloud architectures and cloud-enabled frameworks , whether public , private , or hybrid , provide the core foundation of modern it ● the explosive growth in remote workforce needs . 25 growth strategy the acquisition of kandy serves to complement the services provided by computex by giving us the opportunity to provide a full suite of ucaas , cpaas , and ccaas products to serve the rapidly growing cloud communications market . customers today demand a highly reliable , secure , and scalable communications platform along with a world class customer experience . story_separator_special_tag when an arrangement contains more than one performance obligation , the company will allocate the transaction price to each performance obligation on a relative standalone selling price basis . the company utilizes the observable price of goods and services when they are sold separately to similar customers in order to estimate standalone selling price . hardware revenue from the sale of hardware is recognized on a gross basis , as the company is deemed to be acting as the principal in these transactions . the selling price to the customer is recorded as revenue and the acquisition cost is recorded within cost of revenue . the company recognizes revenue from these transactions when control has passed to the customer , which is usually upon shipment . in some instances , the customer agrees to buy the product from the company , but requests delivery at a later date , commonly known as a bill-and-hold arrangement . for these transactions , the company deems that control passes to the customer when the product is ready for delivery . the company classifies such products as products ready for delivery when the customer is in possession of a signed agreement , the significant risk and rewards for the product has passed to the customer , the customer has the ability to direct the asset , the product has been set aside specifically for the customer and the company can not redirect the product for the benefit of another customer . in drop-shipment arrangements , whereby the company arranges for the vendor to deliver the product directly to the customer without the inventory first being held at its warehouses , the company considers itself to be the principal and therefore , recognizes the related revenue on a gross basis . third party software revenues from most software license sales are recognized as a single performance obligation on a net basis , as the company is deemed to be acting as an agent in these transactions . revenues in these instances are recognized at the point the software license is delivered to the customer . generally , software licenses are sold with accompanying third-party delivered software support , which is a product that allows customers to upgrade , at no additional cost , to the latest technology if new capabilities are introduced during the period that the software support is in effect . the company evaluates whether the software support is a separate performance obligation by assessing whether the third-party delivered software support is critical or essential to the core functionality of the software itself . this involves considering whether the software provides its original intended functionality to the customer without the updates , whether the customer would ascribe a higher value to the upgrades versus the up-front deliverable , whether the customer would expect frequent intelligence updates to the software ( such as updates that maintain the original functionality ) , and whether the customer chooses to not delay or always install upgrades . if the company determines that the accompanying third-party delivered software support is critical or essential to the core functionality of the software license , the software license and the accompanying third-party delivered software support are recognized as a single performance obligation . the value of the product is primarily based on the accompanying support delivered by a third-party , and therefore the company is acting as an agent in these transactions and therefore , recognizes the associated revenue on a net basis at the point that the associated software license is delivered to the customer . 32 third party maintenance the company is deemed to be the agent in the sale of third-party maintenance , software support and services , as the third-party controls the service until it is transferred to the customer . in these instances , the company recognizes the revenue on a net basis equal to the selling price to the customer less the acquisition costs . such revenue is recognized when the customer and vendor accept the terms and conditions of the arrangement . managed and professional services professional services offered by the company include assessments , project management , staging , configuration , customer training and integration . managed services offerings range from monitoring and notification to a fully outsourced network management solution . in these arrangements , the company satisfies the performance obligations and recognizes revenue over time . such professional services are provided under both time and materials and fixed price contracts . when services are provided on a time and materials basis , the company recognizes revenues at agreed-upon billing rates as services are performed . when services are provided on a fixed fee basis , the company recognizes revenues over time in proportion to the company 's progress towards satisfaction of the performance obligation . in arrangements for managed services , the company 's arrangement is typically a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer ( i.e . , distinct days of service ) . the company typically recognizes revenue from these services on a straight-line basis over the period services are provided , which is consistent with the timing of services rendered . cloud subscription and software revenue revenue from subscriptions to kandy 's cloud-based technology platform is recognized on a ratable basis over the contractual subscription term beginning on the date that the platform is made available to the customer until the end of the contractual period . payments received in advance of subscription services are recorded as deferred revenue ; revenue recognized for services rendered in advance of payments received are recorded as contract assets . usage fees , when bundled , are billed in advance and recognized on a ratable basis over the contractual subscription term , which is usually the monthly contractual billing period . non-bundled usage fees are recognized as actual usage occurs . when services do not meet
| liquidity and capital resources liquidity is the ability to meet present and future financial obligations . our primary source of liquidity is cash flow from our operations . additional sources are proceeds from sales of apartment communities , proceeds from refinancings of existing property debt , borrowings under new property debt , borrowings under our credit agreement and proceeds from equity offerings . our principal uses for liquidity include normal operating activities , payments of principal and interest on outstanding property debt , dividends paid to stockholders , distributions paid to noncontrolling interest partners and acquisitions of , and investments in , apartment communities , including redevelopment , development and other capital spending . we use our cash and cash equivalents and our cash provided by operating activities to meet short-term liquidity needs . in the event that our cash and cash equivalents and cash provided by operating activities are not sufficient to cover our short-term liquidity needs , we have additional means , such as short-term borrowing availability and proceeds from apartment community sales and refinancings . we may use our credit agreement for working capital and other short-term purposes , such as funding investments on an interim basis . we expect to meet our long-term liquidity requirements , such as debt maturities and apartment community acquisitions , through long-term borrowings , primarily non-recourse , the issuance of equity securities ( including op units ) , the sale of apartment communities , and cash generated from operations .
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in response to covid-19 , we have put into place certain restrictions , requirements and guidelines , to protect the health of our employees and clients , including requiring certain conditions to be met before employees return to the company 's offices . also , to protect the health and safety of our employees , our daily execution has evolved into a largely virtual model and we continue to endeavor to find innovative ways to engage with customers and prospects as we , our customers and prospects endeavor to navigate the current environment . between april 1 , 2020 and september 1 , 2020 , computex reduced the salaries of its employees and we are endeavoring to reduce other operating expenses . we plan to continue to monitor the current environment and may take further actions that may be required by federal , state or local authorities or that we determine are in the interests of our employees , customers , and partners . 24 our business our hardware offerings are sourced from a network of leading manufacturers , and include , data storage , desktops , servers , and other hardware . third party software and maintenance offerings include licensing , licensing management , software solutions and other services . we offer a full suite of value-added services , which typically are delivered as part of a complete technology solution , to help our customers meet their specific needs . our solutions range from configuration services for computer devices to fully integrated solutions such as virtualization , collaboration , security , mobility , data center optimization and cloud computing . we also offer complementary services including installations , warranty services and certain managed services such as remote network and data center monitoring . we believe our software and service offerings are important growth areas for us . our professional and managed services include managed it services , virtualization , storage , networking and data center services . as part of these services , we offer customized solutions for business continuity , back-up and recovery , capacity on-demand , regulatory compliance and data center best practice methodologies as well as infrastructure as a service ( “ iaas ” ) and software as a service ( “ saas ” ) . our customers utilize our solutions to optimize their current and planned investments in it infrastructure and data centers . we believe the breadth of our service offering and our consultative approach to working with our clients distinguishes us from other providers . c loud subscription and software products include subscriptions to the company 's cloud-based technology platform . in addition , we believe our business is well-diversified across verticals , technology solutions offerings and procurement partners from whom we procure products and software for resale . our sales teams consist of seasoned account executives and regionally focused sales support teams who work within assigned territories to provide customized solutions to our customers . our sales teams are supported by industry leading technologists who design end to end solutions and who take projects from design , to implementation , to management . we boast an extensive network of oems and distributors which allow us to direct-sell a diverse selection of products and software to our ever-growing customer base , as packaged software or as licensed products and services . we have developed an infrastructure that enables us to deliver our it solutions and service agnostic as to technology platform and location through a flexible , customer-focused delivery model which spans three datacenter environments ( customer-owned , co-location , and the cloud ) . by optimizing our customers ' use of secure , energy efficient and reliable data centers combined with a comprehensive suite of related it infrastructure services , we are able to offer our customers highly customized solutions to address their needs for data center availability , data management , data security , business continuity disaster recovery and data center consolidation , as well as a variety of other related managed services . key trends affecting our results of operations the following are key trends that we believe can impact our results of operations : ● the increasing need , by organizations , for third-party service providers , such as computex technology solutions , to manage significant aspects of the it environment ● the increasing need , by organizations , to reduce the number of solutions providers they do business with to improve supply chain and internal efficiencies , enhance accountability , improve supplier management practices , and reduce costs ● the lack of sufficient internal it resources at mid-sized and large enterprises , and the scarcity of it personnel in certain high-demand disciplines ● disruptive technologies that are creating complexity and challenges for customers and vendors ● the increasing sophistication and incidences of it security breaches and cyber-attacks ● the it decision-making shift by some companies , whereby it decision-making is shifting from it departments to line-of-business personnel , which is changing the customer engagement model and types of consultative services required to fulfill the needs of customers ● the recognition that certain it services provide the opportunity of funding via recurring payments over a period of time , rather than large upfront payments ● the increasing use of multi-cloud strategies , whereby cloud architectures and cloud-enabled frameworks , whether public , private , or hybrid , provide the core foundation of modern it ● the explosive growth in remote workforce needs . 25 growth strategy the acquisition of kandy serves to complement the services provided by computex by giving us the opportunity to provide a full suite of ucaas , cpaas , and ccaas products to serve the rapidly growing cloud communications market . customers today demand a highly reliable , secure , and scalable communications platform along with a world class customer experience . story_separator_special_tag when an arrangement contains more than one performance obligation , the company will allocate the transaction price to each performance obligation on a relative standalone selling price basis . the company utilizes the observable price of goods and services when they are sold separately to similar customers in order to estimate standalone selling price . hardware revenue from the sale of hardware is recognized on a gross basis , as the company is deemed to be acting as the principal in these transactions . the selling price to the customer is recorded as revenue and the acquisition cost is recorded within cost of revenue . the company recognizes revenue from these transactions when control has passed to the customer , which is usually upon shipment . in some instances , the customer agrees to buy the product from the company , but requests delivery at a later date , commonly known as a bill-and-hold arrangement . for these transactions , the company deems that control passes to the customer when the product is ready for delivery . the company classifies such products as products ready for delivery when the customer is in possession of a signed agreement , the significant risk and rewards for the product has passed to the customer , the customer has the ability to direct the asset , the product has been set aside specifically for the customer and the company can not redirect the product for the benefit of another customer . in drop-shipment arrangements , whereby the company arranges for the vendor to deliver the product directly to the customer without the inventory first being held at its warehouses , the company considers itself to be the principal and therefore , recognizes the related revenue on a gross basis . third party software revenues from most software license sales are recognized as a single performance obligation on a net basis , as the company is deemed to be acting as an agent in these transactions . revenues in these instances are recognized at the point the software license is delivered to the customer . generally , software licenses are sold with accompanying third-party delivered software support , which is a product that allows customers to upgrade , at no additional cost , to the latest technology if new capabilities are introduced during the period that the software support is in effect . the company evaluates whether the software support is a separate performance obligation by assessing whether the third-party delivered software support is critical or essential to the core functionality of the software itself . this involves considering whether the software provides its original intended functionality to the customer without the updates , whether the customer would ascribe a higher value to the upgrades versus the up-front deliverable , whether the customer would expect frequent intelligence updates to the software ( such as updates that maintain the original functionality ) , and whether the customer chooses to not delay or always install upgrades . if the company determines that the accompanying third-party delivered software support is critical or essential to the core functionality of the software license , the software license and the accompanying third-party delivered software support are recognized as a single performance obligation . the value of the product is primarily based on the accompanying support delivered by a third-party , and therefore the company is acting as an agent in these transactions and therefore , recognizes the associated revenue on a net basis at the point that the associated software license is delivered to the customer . 32 third party maintenance the company is deemed to be the agent in the sale of third-party maintenance , software support and services , as the third-party controls the service until it is transferred to the customer . in these instances , the company recognizes the revenue on a net basis equal to the selling price to the customer less the acquisition costs . such revenue is recognized when the customer and vendor accept the terms and conditions of the arrangement . managed and professional services professional services offered by the company include assessments , project management , staging , configuration , customer training and integration . managed services offerings range from monitoring and notification to a fully outsourced network management solution . in these arrangements , the company satisfies the performance obligations and recognizes revenue over time . such professional services are provided under both time and materials and fixed price contracts . when services are provided on a time and materials basis , the company recognizes revenues at agreed-upon billing rates as services are performed . when services are provided on a fixed fee basis , the company recognizes revenues over time in proportion to the company 's progress towards satisfaction of the performance obligation . in arrangements for managed services , the company 's arrangement is typically a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer ( i.e . , distinct days of service ) . the company typically recognizes revenue from these services on a straight-line basis over the period services are provided , which is consistent with the timing of services rendered . cloud subscription and software revenue revenue from subscriptions to kandy 's cloud-based technology platform is recognized on a ratable basis over the contractual subscription term beginning on the date that the platform is made available to the customer until the end of the contractual period . payments received in advance of subscription services are recorded as deferred revenue ; revenue recognized for services rendered in advance of payments received are recorded as contract assets . usage fees , when bundled , are billed in advance and recognized on a ratable basis over the contractual subscription term , which is usually the monthly contractual billing period . non-bundled usage fees are recognized as actual usage occurs . when services do not meet
| liquidity and capital resources overview historically , the company 's primary sources of liquidity have been cash and cash equivalents , cash flows from operations ( when available ) and cash flows from financing activities , including funding under its credit agreement . the credit agreement is more fully discussed in note 9. from time to time , the company may also choose to access the debt and equity markets to fund acquisitions to diversity its capital sources . the company 's current principal capital requirements are to fund working capital and make investments in line with its business strategy . the credit agreement matures on june 30 , 2021 , and , as amended , provides for maximum borrowings of $ 16.5 million on the line of credit portion with a scheduled reduction of $ 3.5 million in availability under the line of credit as of april 1 , 2021. as amended , the credit agreement provides for a minimum monthly liquidity ( defined as unrestricted cash plus availability under the line of credit ) of $ 3.0 million commencing january 31 , 2021. as of december 31 , 2020 , amounts outstanding under the term loan and the line of credit with comerica bank were $ 5.7 million and $ 7.4 million , respectively . in addition , at december 31 , 2020 , the company had unrestricted and restricted cash of $ 9.9 million and $ 0.6 million , respectively , in its operating bank accounts , and had availability under its line of credit of $ 6.5 million . total equity at december 31 , 2020 was $ 52.5 million . however , as of december 31 , 2020 , the company 's current liabilities exceeded its current assets by $ 18.4 million , primarily as a result of the classification of the components of the credit agreement as current .
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depreciation , depletion , amortization and impairment includes the systematic expensing of the capitalized costs incurred to acquire , explore and develop oil and natural gas properties . as a full cost company , we capitalize all costs associated with our development and acquisition efforts and allocate these costs to each unit of production using the units-of-production method . general and administrative expenses . general and administrative expenses include overhead , including payroll and benefits for our corporate staff , costs of maintaining our headquarters , costs of managing our acquisition and development operations , franchise taxes , audit and other professional fees and legal compliance . interest expense . we finance a portion of our working capital requirements , capital expenditures and acquisitions with borrowings . as a result , we incur interest expense that is affected by both fluctuations in interest rates and our financing decisions . we capitalize a portion of the interest paid on applicable borrowings into our full cost pool . we include interest expense that is not capitalized into the full cost pool , the amortization of deferred financing costs and bond premiums ( including origination and amendment fees ) , commitment fees and annual agency fees as interest expense . 45 income tax expense . our provision for taxes includes both federal and state taxes . we record our federal income taxes in accordance with accounting for income taxes under gaap which results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . a valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized . selected factors that affect our operating results our revenues , cash flows from operations and future growth depend substantially upon : the timing and success of drilling and production activities by our operating partners ; the prices and the supply and demand for oil , natural gas and ngls ; the quantity of oil and natural gas production from the wells in which we participate ; changes in the fair value of the derivative instruments we use to reduce our exposure to fluctuations in the price of oil ; our ability to continue to identify and acquire high-quality acreage and drilling opportunities ; and the level of our operating expenses . in addition to the factors that affect companies in our industry generally , the location of our acreage and wells in the williston basin subjects our operating results to factors specific to this region . these factors include the potential adverse impact of weather on drilling , production and transportation activities , particularly during the winter and spring months , and the limitations of the developing infrastructure and transportation capacity in this region . the price of oil in the williston basin can vary depending on the market in which it is sold and the means of transportation used to transport the oil to market . light sweet crude from the williston basin has a higher value at many major refining centers because of its higher quality relative to heavier and sour grades of oil ; however , because of north dakota 's location relative to traditional oil transport centers , this higher value is generally offset to some extent by higher transportation costs . while rail transportation has historically been more expensive than pipeline transportation , williston basin prices have at times justified shipment by rail to markets such as st. james , louisiana , which offers prices benchmarked to brent/lls . additional pipeline infrastructure during 2017 has increased takeaway capacity in the williston basin which has improved wellhead values in the region . the price at which our oil production is sold typically reflects a discount to the nymex benchmark price . thus , our operating results are also affected by changes in the oil price differentials between the nymex and the sales prices we receive for our oil production . our oil price differential to the nymex benchmark price during 2017 was $ 5.87 per barrel , as compared to $ 8.25 per barrel in 2016 . fluctuations in our oil price differential are due to several factors such as takeaway capacity relative to production levels in the williston basin , and seasonal refinery maintenance temporarily depressing crude demand . another significant factor affecting our operating results is drilling costs . the cost of drilling wells has varied significantly over the past few years as volatility in oil prices has substantially impacted the level of drilling activity in the williston basin . generally , higher oil prices have led to increased drilling activity , with the increased demand for drilling and completion services driving these costs higher . lower oil prices have generally had the opposite effect . in addition , individual components of the cost can vary depending on numerous factors such as the length of the horizontal lateral , the number of fracture stimulation stages , and the choice of proppant ( sand or ceramic ) . rig activity levels in 2017 increased from 2016 levels and a large percentage of our newer wells utilize higher intensity completion techniques . the higher intensity completions generally deliver the best returns in the current pricing environment but cost more due to increased materials and servicing costs . story_separator_special_tag net income ( loss ) is the most directly comparable gaap measure for both adjusted net income and adjusted ebitda , and tabular reconciliations for these measures are included below . we recorded a net loss of $ 9.2 million ( representing $ 0.15 per diluted share ) for 2017 , compared to a net loss of $ 293.5 million ( representing $ 4.80 per diluted share ) for 2016 and a net loss of $ 975.4 million ( representing $ 16.08 per diluted share ) for 2015 . we define adjusted net income as net income ( loss ) excluding ( i ) ( gain ) loss on the mark-to-market of derivative instruments , net of tax , ( ii ) restructuring costs , net of tax , ( iii ) impairment of oil and natural gas properties , net of tax , ( iv ) write-off of debt issuance costs , net of tax , ( v ) loss on the extinguishment of debt , net of tax , and ( vi ) certain legal settlements , net of tax . our adjusted net income for 2017 was $ 8.5 million ( representing $ 0.14 per diluted share ) as compared to adjusted net income for 2016 of $ 12.2 million ( representing $ 0.20 per diluted share ) and $ 47.6 million ( representing $ 0.78 per diluted share ) for 2015 . the decrease in adjusted net income in 2017 compared to 2016 was primarily due to lower realized commodity prices , and higher general and administrative expenses , production expenses and interest costs , which were partially offset by lower depletion expense and higher production volumes . the decrease in adjusted net income in 2016 compared to 2015 was primarily due to lower realized commodity prices and production volumes , as well as higher interest costs , which were partially offset by lower depletion expense and other operating expenses . we define adjusted ebitda as net income before ( i ) interest expense , ( ii ) income taxes , ( iii ) depreciation , depletion , amortization , and accretion , ( iv ) ( gain ) loss on the mark-to-market of derivative instruments , ( v ) non-cash share based compensation expense , ( vi ) write-off of debt issuance costs , ( vii ) loss on the extinguishment of debt , and ( viii ) impairment of oil and natural gas properties . adjusted ebitda for 2017 was $ 144.7 million , compared to adjusted ebitda of $ 148.5 million in 2016 and $ 277.3 million in 2015 . the decrease in adjusted ebitda in 2017 as compared to 2016 is primarily due to lower realized commodity prices and increased general and administrative expenses , partially offset by higher production volumes . the decrease in adjusted ebitda in 2016 as compared to 2015 was primarily due to lower realized commodity prices and lower production volumes . management believes the use of these non-gaap financial measures provides useful information to investors to gain an overall understanding of our current financial performance . specifically , management believes the non-gaap financial measures included herein provide useful information to both management and investors by excluding certain expenses and unrealized commodity gains and losses that our management believes are not indicative of our core operating results . in addition , these non-gaap financial measures are used by management for budgeting and forecasting as well as subsequently measuring our performance , and we believe that we are providing investors with financial measures that most closely align to our internal measurement processes . we consider these non-gaap measures to be useful in evaluating our core operating results as they more closely reflect our essential revenue generating activities and direct operating expenses ( resulting in cash expenditures ) needed to perform these revenue generating activities . our management also believes , based on feedback provided by the investment community , that the non-gaap financial measures are necessary to allow the investment community to construct its valuation models to better compare our results with our competitors and market sector . these measures should be considered in addition to results prepared in accordance with gaap . in addition , these non-gaap financial measures are not based on any comprehensive set of accounting rules or principles . we believe that non-gaap financial measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with gaap and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding gaap financial measures . adjusted net income and adjusted ebitda are non-gaap measures . a reconciliation of these measures to gaap is included below : 52 reconciliation of adjusted net income replace_table_token_22_th _ ( 1 ) for the 2017 columns , this represents the tax impact using an estimated tax rate of 39.1 % and includes adjustments for changes in our valuation allowance of $ 3.7 million , excluding the impact for the tax cuts and jobs act that was enacted on december 22 , 2017. for 2016 and 2015 columns , this represents the tax impact using an estimated tax rate of 37.4 % for 2016 and 36.9 % for 2015 , and includes adjustments for changes in our valuation allowance of $ 109.0 million for 2016 , and $ 232.3 million for 2015 , respectively . 53 reconciliation of adjusted ebitda replace_table_token_23_th liquidity and capital resources overview our main sources of liquidity and capital resources as of the date of this report have been internally generated cash flow from operations , proceeds from senior unsecured notes , credit facility borrowings and cash settlements of derivative contracts . our primary uses of capital have been for the acquisition and development of our oil and gas properties . we continually monitor potential capital sources for opportunities to enhance liquidity or otherwise improve our financial position . one
| liquidity and capital resources overview historically , the company 's primary sources of liquidity have been cash and cash equivalents , cash flows from operations ( when available ) and cash flows from financing activities , including funding under its credit agreement . the credit agreement is more fully discussed in note 9. from time to time , the company may also choose to access the debt and equity markets to fund acquisitions to diversity its capital sources . the company 's current principal capital requirements are to fund working capital and make investments in line with its business strategy . the credit agreement matures on june 30 , 2021 , and , as amended , provides for maximum borrowings of $ 16.5 million on the line of credit portion with a scheduled reduction of $ 3.5 million in availability under the line of credit as of april 1 , 2021. as amended , the credit agreement provides for a minimum monthly liquidity ( defined as unrestricted cash plus availability under the line of credit ) of $ 3.0 million commencing january 31 , 2021. as of december 31 , 2020 , amounts outstanding under the term loan and the line of credit with comerica bank were $ 5.7 million and $ 7.4 million , respectively . in addition , at december 31 , 2020 , the company had unrestricted and restricted cash of $ 9.9 million and $ 0.6 million , respectively , in its operating bank accounts , and had availability under its line of credit of $ 6.5 million . total equity at december 31 , 2020 was $ 52.5 million . however , as of december 31 , 2020 , the company 's current liabilities exceeded its current assets by $ 18.4 million , primarily as a result of the classification of the components of the credit agreement as current .
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depreciation , depletion , amortization and impairment includes the systematic expensing of the capitalized costs incurred to acquire , explore and develop oil and natural gas properties . as a full cost company , we capitalize all costs associated with our development and acquisition efforts and allocate these costs to each unit of production using the units-of-production method . general and administrative expenses . general and administrative expenses include overhead , including payroll and benefits for our corporate staff , costs of maintaining our headquarters , costs of managing our acquisition and development operations , franchise taxes , audit and other professional fees and legal compliance . interest expense . we finance a portion of our working capital requirements , capital expenditures and acquisitions with borrowings . as a result , we incur interest expense that is affected by both fluctuations in interest rates and our financing decisions . we capitalize a portion of the interest paid on applicable borrowings into our full cost pool . we include interest expense that is not capitalized into the full cost pool , the amortization of deferred financing costs and bond premiums ( including origination and amendment fees ) , commitment fees and annual agency fees as interest expense . 45 income tax expense . our provision for taxes includes both federal and state taxes . we record our federal income taxes in accordance with accounting for income taxes under gaap which results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . a valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized . selected factors that affect our operating results our revenues , cash flows from operations and future growth depend substantially upon : the timing and success of drilling and production activities by our operating partners ; the prices and the supply and demand for oil , natural gas and ngls ; the quantity of oil and natural gas production from the wells in which we participate ; changes in the fair value of the derivative instruments we use to reduce our exposure to fluctuations in the price of oil ; our ability to continue to identify and acquire high-quality acreage and drilling opportunities ; and the level of our operating expenses . in addition to the factors that affect companies in our industry generally , the location of our acreage and wells in the williston basin subjects our operating results to factors specific to this region . these factors include the potential adverse impact of weather on drilling , production and transportation activities , particularly during the winter and spring months , and the limitations of the developing infrastructure and transportation capacity in this region . the price of oil in the williston basin can vary depending on the market in which it is sold and the means of transportation used to transport the oil to market . light sweet crude from the williston basin has a higher value at many major refining centers because of its higher quality relative to heavier and sour grades of oil ; however , because of north dakota 's location relative to traditional oil transport centers , this higher value is generally offset to some extent by higher transportation costs . while rail transportation has historically been more expensive than pipeline transportation , williston basin prices have at times justified shipment by rail to markets such as st. james , louisiana , which offers prices benchmarked to brent/lls . additional pipeline infrastructure during 2017 has increased takeaway capacity in the williston basin which has improved wellhead values in the region . the price at which our oil production is sold typically reflects a discount to the nymex benchmark price . thus , our operating results are also affected by changes in the oil price differentials between the nymex and the sales prices we receive for our oil production . our oil price differential to the nymex benchmark price during 2017 was $ 5.87 per barrel , as compared to $ 8.25 per barrel in 2016 . fluctuations in our oil price differential are due to several factors such as takeaway capacity relative to production levels in the williston basin , and seasonal refinery maintenance temporarily depressing crude demand . another significant factor affecting our operating results is drilling costs . the cost of drilling wells has varied significantly over the past few years as volatility in oil prices has substantially impacted the level of drilling activity in the williston basin . generally , higher oil prices have led to increased drilling activity , with the increased demand for drilling and completion services driving these costs higher . lower oil prices have generally had the opposite effect . in addition , individual components of the cost can vary depending on numerous factors such as the length of the horizontal lateral , the number of fracture stimulation stages , and the choice of proppant ( sand or ceramic ) . rig activity levels in 2017 increased from 2016 levels and a large percentage of our newer wells utilize higher intensity completion techniques . the higher intensity completions generally deliver the best returns in the current pricing environment but cost more due to increased materials and servicing costs . story_separator_special_tag net income ( loss ) is the most directly comparable gaap measure for both adjusted net income and adjusted ebitda , and tabular reconciliations for these measures are included below . we recorded a net loss of $ 9.2 million ( representing $ 0.15 per diluted share ) for 2017 , compared to a net loss of $ 293.5 million ( representing $ 4.80 per diluted share ) for 2016 and a net loss of $ 975.4 million ( representing $ 16.08 per diluted share ) for 2015 . we define adjusted net income as net income ( loss ) excluding ( i ) ( gain ) loss on the mark-to-market of derivative instruments , net of tax , ( ii ) restructuring costs , net of tax , ( iii ) impairment of oil and natural gas properties , net of tax , ( iv ) write-off of debt issuance costs , net of tax , ( v ) loss on the extinguishment of debt , net of tax , and ( vi ) certain legal settlements , net of tax . our adjusted net income for 2017 was $ 8.5 million ( representing $ 0.14 per diluted share ) as compared to adjusted net income for 2016 of $ 12.2 million ( representing $ 0.20 per diluted share ) and $ 47.6 million ( representing $ 0.78 per diluted share ) for 2015 . the decrease in adjusted net income in 2017 compared to 2016 was primarily due to lower realized commodity prices , and higher general and administrative expenses , production expenses and interest costs , which were partially offset by lower depletion expense and higher production volumes . the decrease in adjusted net income in 2016 compared to 2015 was primarily due to lower realized commodity prices and production volumes , as well as higher interest costs , which were partially offset by lower depletion expense and other operating expenses . we define adjusted ebitda as net income before ( i ) interest expense , ( ii ) income taxes , ( iii ) depreciation , depletion , amortization , and accretion , ( iv ) ( gain ) loss on the mark-to-market of derivative instruments , ( v ) non-cash share based compensation expense , ( vi ) write-off of debt issuance costs , ( vii ) loss on the extinguishment of debt , and ( viii ) impairment of oil and natural gas properties . adjusted ebitda for 2017 was $ 144.7 million , compared to adjusted ebitda of $ 148.5 million in 2016 and $ 277.3 million in 2015 . the decrease in adjusted ebitda in 2017 as compared to 2016 is primarily due to lower realized commodity prices and increased general and administrative expenses , partially offset by higher production volumes . the decrease in adjusted ebitda in 2016 as compared to 2015 was primarily due to lower realized commodity prices and lower production volumes . management believes the use of these non-gaap financial measures provides useful information to investors to gain an overall understanding of our current financial performance . specifically , management believes the non-gaap financial measures included herein provide useful information to both management and investors by excluding certain expenses and unrealized commodity gains and losses that our management believes are not indicative of our core operating results . in addition , these non-gaap financial measures are used by management for budgeting and forecasting as well as subsequently measuring our performance , and we believe that we are providing investors with financial measures that most closely align to our internal measurement processes . we consider these non-gaap measures to be useful in evaluating our core operating results as they more closely reflect our essential revenue generating activities and direct operating expenses ( resulting in cash expenditures ) needed to perform these revenue generating activities . our management also believes , based on feedback provided by the investment community , that the non-gaap financial measures are necessary to allow the investment community to construct its valuation models to better compare our results with our competitors and market sector . these measures should be considered in addition to results prepared in accordance with gaap . in addition , these non-gaap financial measures are not based on any comprehensive set of accounting rules or principles . we believe that non-gaap financial measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with gaap and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding gaap financial measures . adjusted net income and adjusted ebitda are non-gaap measures . a reconciliation of these measures to gaap is included below : 52 reconciliation of adjusted net income replace_table_token_22_th _ ( 1 ) for the 2017 columns , this represents the tax impact using an estimated tax rate of 39.1 % and includes adjustments for changes in our valuation allowance of $ 3.7 million , excluding the impact for the tax cuts and jobs act that was enacted on december 22 , 2017. for 2016 and 2015 columns , this represents the tax impact using an estimated tax rate of 37.4 % for 2016 and 36.9 % for 2015 , and includes adjustments for changes in our valuation allowance of $ 109.0 million for 2016 , and $ 232.3 million for 2015 , respectively . 53 reconciliation of adjusted ebitda replace_table_token_23_th liquidity and capital resources overview our main sources of liquidity and capital resources as of the date of this report have been internally generated cash flow from operations , proceeds from senior unsecured notes , credit facility borrowings and cash settlements of derivative contracts . our primary uses of capital have been for the acquisition and development of our oil and gas properties . we continually monitor potential capital sources for opportunities to enhance liquidity or otherwise improve our financial position . one
| cash flows used in investing activities we had cash flows used in investing activities of $ 119.2 million , $ 91.0 million and $ 288.9 million during the years ended december 31 , 2017 , 2016 and 2015 , respectively , primarily as a result of our capital expenditures for drilling , development and acquisition costs . the year-over-year increase in cash used in investing activities in 2017 was attributable to increased oil and gas development activities . in light of the lower price environment , oil and gas development activities were significantly lower in 2016 when compared to 2015 . during 2017 , 2016 and 2015 we added 16.9 , 10.7 and 18.6 net wells to production , respectively . our cash flows used in investing activities reflects actual cash spending , which can lag several months from when the related costs were incurred . as a result , our actual cash spending is not always reflective of current levels of development activity . for instance , during the year ended december 31 , 2017 , our capitalized costs incurred for oil and natural gas properties ( e.g . drilling and completion costs and other capital expenditures ) amounted to $ 156.0 million , while the actual cash spend in this regard amounted to $ 119.4 million . our cash spend for development and acquisition activities for the years ended december 31 , 2017 , 2016 and 2015 are summarized in the following table : replace_table_token_25_th development and acquisition activities are discretionary . we monitor our capital expenditures on a regular basis , adjusting the amount up or down , and between projects , depending on projected commodity prices , cash flows and returns . 56 cash flows ( used for ) provided by financing activities net cash provided by ( used for ) financing activities was $ 142.0 million , $ ( 7.8 ) million and $ 36.0 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively .
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we believe that ellington 's proprietary research and analytics allow our manager to identify attractive assets in these classes , value these assets , monitor and forecast the performance of these assets , and opportunistically hedge our risk with respect to these assets . we continue to maintain a highly leveraged portfolio of agency rmbs to take advantage of opportunities in that market sector and to maintain our exclusion from registration as an investment company under the investment company act . unless we acquire very substantial amounts of whole mortgage loans or there are changes to the rules and regulations applicable to us under the investment company act , we expect that we will always maintain some core amount of agency rmbs . we also use leverage in our credit strategy , albeit significantly less leverage than that used in our agency rmbs strategy . through december 31 , 2015 , we financed our asset purchases almost exclusively through reverse repurchase agreements , or `` reverse repos , `` which we account for as collateralized borrowings and we expect to continue to obtain the vast majority of our financing through the use of reverse repos . the strategies that we employ are intended to capitalize on opportunities in the current market environment . we intend to adjust our strategies to changing market conditions by shifting our asset allocations across various asset classes as credit and liquidity trends evolve over time . we believe that this flexibility , combined with ellington 's experience , will help us generate more consistent returns on our capital throughout changing market cycles . as of december 31 , 2015 , outstanding borrowings under reverse repos were $ 1.2 billion and our debt-to-equity ratio was 1.59 to 1. our debt-to-equity ratio does not account for liabilities other than debt financings . of our total borrowings outstanding as of december 31 , 2015 , approximately 79.5 % , or $ 933.3 million , relates to our agency rmbs holdings . the remaining outstanding borrowings relate to our non-agency mbs , clos , consumer loans , and corporate debt . we opportunistically hedge our credit risk , interest rate risk , and foreign currency risk ; however , at any point in time we may choose not to hedge all or a portion of these risks , and we will generally not hedge those risks that we believe are appropriate for us to take at such time , or that we believe would be impractical or prohibitively expensive to hedge . we believe that we have been organized and have operated so that we have qualified , and will continue to qualify , to be treated for u.s. federal income tax purposes as a partnership and not as an association or a publicly traded partnership taxable as a corporation . we also measure our book value per share and our total return on a diluted basis , assuming all convertible units were converted into common shares at their respective issuance dates . as of december 31 , 2015 , our diluted book value per share was $ 21.80 as compared to $ 23.09 as of december 31 , 2014. on a diluted basis , the company 's total return for the year ended december 31 , 2015 was 5.20 % . additionally our diluted net-asset-value-based total return was 162.06 % from our inception ( august 17 , 2007 ) through december 31 , 2015 , and our annualized inception-to-date diluted net-asset-value-based total return was 12.19 % as of december 31 , 2015 . trends and recent market developments key trends and recent market developments for the u.s. mortgage market include the following : u.s. federal reserve and u.s. monetary policy— in december 2015 , the u.s. federal reserve , or `` federal reserve , `` raised the target range for the federal funds rate by 0.25 % , but maintained its existing policy of reinvesting principal payments from its u.s. treasury security and agency rmbs holdings ; global macroeconomic events— continued declines in prices for oil and other commodities , driven by slowing demand from china and other emerging markets , has continued to strain companies and economies focused on energy , basic materials , and manufacturing . lower oil prices and higher exchange rate volatility raised the prospects of an emerging markets-led global recession ; 56 housing and mortgage market statistics— data released by s & p indices for its s & p/case-shiller home price indices showed modest year-to-date home price appreciation through december ; meanwhile the freddie mac survey 30-year mortgage rate ended 2015 at 4.01 % , rising from 3.87 % at the beginning of the year ; government sponsored enterprise , or `` gse , `` and government agency developments —the federal housing finance agency , or `` fhfa , `` and the gses continued to announce program and policy changes and clarifications intended to increase mortgage credit availability ; portfolio overview and outlook —the year ended december 31 , 2015 was marked by significant market volatility . in the latter part of the year , uncertainty around the health of the chinese economy and the decline in commodity prices fueled fears of slower global growth and led to a broad sell-off in global equity markets , and a significant widening in global credit spreads . yield spreads widened for most sectors of the fixed-income market , including agency rmbs . non-agency rmbs was also impacted by widening credit spreads , but not as much as other credit-sensitive fixed-income sectors . at the same time , relative stability in the u.s. economy fueled speculation of rising interest rates . the combination of concerns over global growth and the relative strength of the u.s. economy led to a high level of interest rate volatility , with interest rates fluctuating meaningfully over the course of the year . story_separator_special_tag it highlighted a number of important goals , including changing the appraisal framework to use third party sources for property valuation in order to reduce representation and warranty risks , as well as implementing a refinancing program aimed at high ltv borrowers in january 2017 to replace the home affordable refinance program , which expires in december 2016. in addition , the 2016 scorecard called for full implementation of the csp by 2018. the csp is to be utilized by both fannie mae and freddie mac to improve the liquidity of gse securities and housing markets more broadly . to date , no definitive legislation has been enacted with respect to a possible unwinding of the gses or a material reduction in their roles in the u.s. mortgage market . there have been several proposals offered by members of congress , including the corker-warner bill introduced in june 2013 , the johnson-crapo bill introduced in march 2014 , the partnership to strengthen homeownership act introduced in july 2014 , and a senate draft bill introduced in may 2015 by senator richard shelby that pushes for increased credit risk transfers to private investors . to date , the gses have engaged predominantly in `` second-loss `` risk sharing transactions , where the gses bear losses on their mortgage pools up to a capped amount first , before private investors bear any losses . furthermore , these risk sharing transactions to date have generally been `` back-end `` transactions , where the gse seeks to offload its risk only after it has actually issued guarantees on a defined pool of mortgages . under the shelby bill , not only would the gses be required to engage in significant and increasing levels of risk sharing transactions generally , but for the first time the gses would be required to engage both in `` first-loss `` risk sharing transactions and in `` front-end `` risk sharing transactions . many of these proposed bills could potentially increase private capital flows to the mortgage sector while reducing taxpayer risk . though it appears unlikely that any of these bills will be passed in their current form , features may be incorporated into future proposals . portfolio overview and outlook general market overview for the fixed income markets , 2015 was characterized by high levels of interest rate volatility and , especially during the latter part of the year , widening credit spreads in the face of concerns over the health of the chinese economy and the steep decline in commodity prices . despite these concerns , the u.s. economy appeared strong enough for the federal reserve to begin tightening monetary policy , and it actually did so in december . for the first time since june 2006 , the federal reserve raised its target interest rate by 0.25 % . while this increase was both modest in size and widely expected , the actual implementation was significant in that it made official the federal reserve 's view that the u.s. economy was on solid footing , and represented a reversal in course from previous monetary easing policy actions . anticipation of an increase in the target interest rate put upward pressure on interest rates , especially shorter-term rates , during the latter part of 2015. while there was also upward pressure on longer-term interest rates , this upward pressure was somewhat muted by global market concerns and the increase in demand for safe haven securities . the 10-year u.s. treasury yield ended the year at 2.27 % as compared to 2.17 % at the end of the 2014 , an increase of 10 basis points , and the 2-year u.s. treasury yield increased 39 basis points over the course of the year , from 0.66 % to 1.05 % . during 2015 , the 2-year swap rate increased 28 basis points while the 10-year swap rate actually decreased 10 basis points . the 10-year interest rate swap spread to u.s. treasury securities became negative during the second half of 2015 , the first time this spread had become negative since 2010. the average rate for a fixed rate 30-year conventional mortgage also increased over 2015 , rising to 4.01 % as of december 31 , 2015 from 3.87 % as of december 31 , 2014 . 61 credit as of december 31 , 2015 , the value of our long credit portfolio was $ 600.5 million , as compared to $ 880.4 million as of december 31 , 2014 , representing a decrease of approximately 31.8 % . the decline over the course of the year in the size of our credit portfolio was primarily related to sales of our non-agency rmbs , with proceeds primarily redeployed into several of our other credit asset classes , where we utilize less leverage . during the latter part of the year and in light of continuing market volatility , proceeds received from net sales of non-agency rmbs and certain other credit assets , such as clos and cmbs , were also used to increase our cash position , in order for us to be more defensively positioned . yield spreads on non-agency rmbs were generally not immune to the broader market widening that occurred over the course of 2015 , although this sector was somewhat less impacted than other credit sectors . a stable housing market continues to support the non-agency rmbs sector , while on the technical side the sector continues to be supported by the absence of a robust new issue market ( in contrast with the cmbs sector , where new issue supply has been heavy ) . over the course of the year , we steadily sold down our legacy non-agency rmbs , primarily in order to redeploy the net proceeds to our other targeted credit assets , and more recently in order to increase our cash holdings . while our non-agency rmbs portfolio currently represents a much smaller portion of our total credit
| cash flows used in investing activities we had cash flows used in investing activities of $ 119.2 million , $ 91.0 million and $ 288.9 million during the years ended december 31 , 2017 , 2016 and 2015 , respectively , primarily as a result of our capital expenditures for drilling , development and acquisition costs . the year-over-year increase in cash used in investing activities in 2017 was attributable to increased oil and gas development activities . in light of the lower price environment , oil and gas development activities were significantly lower in 2016 when compared to 2015 . during 2017 , 2016 and 2015 we added 16.9 , 10.7 and 18.6 net wells to production , respectively . our cash flows used in investing activities reflects actual cash spending , which can lag several months from when the related costs were incurred . as a result , our actual cash spending is not always reflective of current levels of development activity . for instance , during the year ended december 31 , 2017 , our capitalized costs incurred for oil and natural gas properties ( e.g . drilling and completion costs and other capital expenditures ) amounted to $ 156.0 million , while the actual cash spend in this regard amounted to $ 119.4 million . our cash spend for development and acquisition activities for the years ended december 31 , 2017 , 2016 and 2015 are summarized in the following table : replace_table_token_25_th development and acquisition activities are discretionary . we monitor our capital expenditures on a regular basis , adjusting the amount up or down , and between projects , depending on projected commodity prices , cash flows and returns . 56 cash flows ( used for ) provided by financing activities net cash provided by ( used for ) financing activities was $ 142.0 million , $ ( 7.8 ) million and $ 36.0 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively .
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we believe that ellington 's proprietary research and analytics allow our manager to identify attractive assets in these classes , value these assets , monitor and forecast the performance of these assets , and opportunistically hedge our risk with respect to these assets . we continue to maintain a highly leveraged portfolio of agency rmbs to take advantage of opportunities in that market sector and to maintain our exclusion from registration as an investment company under the investment company act . unless we acquire very substantial amounts of whole mortgage loans or there are changes to the rules and regulations applicable to us under the investment company act , we expect that we will always maintain some core amount of agency rmbs . we also use leverage in our credit strategy , albeit significantly less leverage than that used in our agency rmbs strategy . through december 31 , 2015 , we financed our asset purchases almost exclusively through reverse repurchase agreements , or `` reverse repos , `` which we account for as collateralized borrowings and we expect to continue to obtain the vast majority of our financing through the use of reverse repos . the strategies that we employ are intended to capitalize on opportunities in the current market environment . we intend to adjust our strategies to changing market conditions by shifting our asset allocations across various asset classes as credit and liquidity trends evolve over time . we believe that this flexibility , combined with ellington 's experience , will help us generate more consistent returns on our capital throughout changing market cycles . as of december 31 , 2015 , outstanding borrowings under reverse repos were $ 1.2 billion and our debt-to-equity ratio was 1.59 to 1. our debt-to-equity ratio does not account for liabilities other than debt financings . of our total borrowings outstanding as of december 31 , 2015 , approximately 79.5 % , or $ 933.3 million , relates to our agency rmbs holdings . the remaining outstanding borrowings relate to our non-agency mbs , clos , consumer loans , and corporate debt . we opportunistically hedge our credit risk , interest rate risk , and foreign currency risk ; however , at any point in time we may choose not to hedge all or a portion of these risks , and we will generally not hedge those risks that we believe are appropriate for us to take at such time , or that we believe would be impractical or prohibitively expensive to hedge . we believe that we have been organized and have operated so that we have qualified , and will continue to qualify , to be treated for u.s. federal income tax purposes as a partnership and not as an association or a publicly traded partnership taxable as a corporation . we also measure our book value per share and our total return on a diluted basis , assuming all convertible units were converted into common shares at their respective issuance dates . as of december 31 , 2015 , our diluted book value per share was $ 21.80 as compared to $ 23.09 as of december 31 , 2014. on a diluted basis , the company 's total return for the year ended december 31 , 2015 was 5.20 % . additionally our diluted net-asset-value-based total return was 162.06 % from our inception ( august 17 , 2007 ) through december 31 , 2015 , and our annualized inception-to-date diluted net-asset-value-based total return was 12.19 % as of december 31 , 2015 . trends and recent market developments key trends and recent market developments for the u.s. mortgage market include the following : u.s. federal reserve and u.s. monetary policy— in december 2015 , the u.s. federal reserve , or `` federal reserve , `` raised the target range for the federal funds rate by 0.25 % , but maintained its existing policy of reinvesting principal payments from its u.s. treasury security and agency rmbs holdings ; global macroeconomic events— continued declines in prices for oil and other commodities , driven by slowing demand from china and other emerging markets , has continued to strain companies and economies focused on energy , basic materials , and manufacturing . lower oil prices and higher exchange rate volatility raised the prospects of an emerging markets-led global recession ; 56 housing and mortgage market statistics— data released by s & p indices for its s & p/case-shiller home price indices showed modest year-to-date home price appreciation through december ; meanwhile the freddie mac survey 30-year mortgage rate ended 2015 at 4.01 % , rising from 3.87 % at the beginning of the year ; government sponsored enterprise , or `` gse , `` and government agency developments —the federal housing finance agency , or `` fhfa , `` and the gses continued to announce program and policy changes and clarifications intended to increase mortgage credit availability ; portfolio overview and outlook —the year ended december 31 , 2015 was marked by significant market volatility . in the latter part of the year , uncertainty around the health of the chinese economy and the decline in commodity prices fueled fears of slower global growth and led to a broad sell-off in global equity markets , and a significant widening in global credit spreads . yield spreads widened for most sectors of the fixed-income market , including agency rmbs . non-agency rmbs was also impacted by widening credit spreads , but not as much as other credit-sensitive fixed-income sectors . at the same time , relative stability in the u.s. economy fueled speculation of rising interest rates . the combination of concerns over global growth and the relative strength of the u.s. economy led to a high level of interest rate volatility , with interest rates fluctuating meaningfully over the course of the year . story_separator_special_tag it highlighted a number of important goals , including changing the appraisal framework to use third party sources for property valuation in order to reduce representation and warranty risks , as well as implementing a refinancing program aimed at high ltv borrowers in january 2017 to replace the home affordable refinance program , which expires in december 2016. in addition , the 2016 scorecard called for full implementation of the csp by 2018. the csp is to be utilized by both fannie mae and freddie mac to improve the liquidity of gse securities and housing markets more broadly . to date , no definitive legislation has been enacted with respect to a possible unwinding of the gses or a material reduction in their roles in the u.s. mortgage market . there have been several proposals offered by members of congress , including the corker-warner bill introduced in june 2013 , the johnson-crapo bill introduced in march 2014 , the partnership to strengthen homeownership act introduced in july 2014 , and a senate draft bill introduced in may 2015 by senator richard shelby that pushes for increased credit risk transfers to private investors . to date , the gses have engaged predominantly in `` second-loss `` risk sharing transactions , where the gses bear losses on their mortgage pools up to a capped amount first , before private investors bear any losses . furthermore , these risk sharing transactions to date have generally been `` back-end `` transactions , where the gse seeks to offload its risk only after it has actually issued guarantees on a defined pool of mortgages . under the shelby bill , not only would the gses be required to engage in significant and increasing levels of risk sharing transactions generally , but for the first time the gses would be required to engage both in `` first-loss `` risk sharing transactions and in `` front-end `` risk sharing transactions . many of these proposed bills could potentially increase private capital flows to the mortgage sector while reducing taxpayer risk . though it appears unlikely that any of these bills will be passed in their current form , features may be incorporated into future proposals . portfolio overview and outlook general market overview for the fixed income markets , 2015 was characterized by high levels of interest rate volatility and , especially during the latter part of the year , widening credit spreads in the face of concerns over the health of the chinese economy and the steep decline in commodity prices . despite these concerns , the u.s. economy appeared strong enough for the federal reserve to begin tightening monetary policy , and it actually did so in december . for the first time since june 2006 , the federal reserve raised its target interest rate by 0.25 % . while this increase was both modest in size and widely expected , the actual implementation was significant in that it made official the federal reserve 's view that the u.s. economy was on solid footing , and represented a reversal in course from previous monetary easing policy actions . anticipation of an increase in the target interest rate put upward pressure on interest rates , especially shorter-term rates , during the latter part of 2015. while there was also upward pressure on longer-term interest rates , this upward pressure was somewhat muted by global market concerns and the increase in demand for safe haven securities . the 10-year u.s. treasury yield ended the year at 2.27 % as compared to 2.17 % at the end of the 2014 , an increase of 10 basis points , and the 2-year u.s. treasury yield increased 39 basis points over the course of the year , from 0.66 % to 1.05 % . during 2015 , the 2-year swap rate increased 28 basis points while the 10-year swap rate actually decreased 10 basis points . the 10-year interest rate swap spread to u.s. treasury securities became negative during the second half of 2015 , the first time this spread had become negative since 2010. the average rate for a fixed rate 30-year conventional mortgage also increased over 2015 , rising to 4.01 % as of december 31 , 2015 from 3.87 % as of december 31 , 2014 . 61 credit as of december 31 , 2015 , the value of our long credit portfolio was $ 600.5 million , as compared to $ 880.4 million as of december 31 , 2014 , representing a decrease of approximately 31.8 % . the decline over the course of the year in the size of our credit portfolio was primarily related to sales of our non-agency rmbs , with proceeds primarily redeployed into several of our other credit asset classes , where we utilize less leverage . during the latter part of the year and in light of continuing market volatility , proceeds received from net sales of non-agency rmbs and certain other credit assets , such as clos and cmbs , were also used to increase our cash position , in order for us to be more defensively positioned . yield spreads on non-agency rmbs were generally not immune to the broader market widening that occurred over the course of 2015 , although this sector was somewhat less impacted than other credit sectors . a stable housing market continues to support the non-agency rmbs sector , while on the technical side the sector continues to be supported by the absence of a robust new issue market ( in contrast with the cmbs sector , where new issue supply has been heavy ) . over the course of the year , we steadily sold down our legacy non-agency rmbs , primarily in order to redeploy the net proceeds to our other targeted credit assets , and more recently in order to increase our cash holdings . while our non-agency rmbs portfolio currently represents a much smaller portion of our total credit
| liquidity and capital resources liquidity refers to our ability to meet our cash needs , including repaying our borrowings , funding and maintaining positions in mbs and other assets , making distributions in the form of dividends , and other general business needs . our short-term ( one year or less ) and long-term liquidity requirements include acquisition costs for assets we acquire , payment of our base management fee and incentive fee , compliance with margin requirements under our repurchase agreements , or `` repos , '' reverse repos , tbas , and financial derivative contracts , repayment of reverse repo borrowings to the extent we are unable or unwilling to extend our reverse repos , payment of our general operating expenses , and payment of our quarterly dividend . our capital resources primarily include cash on hand , cash flow from our investments ( including monthly principal and interest payments received on our investments and proceeds from the sale of investments ) , borrowings under reverse repos , and proceeds from equity offerings . we expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs . the following summarizes our reverse repos : reverse repurchase agreements ( in thousands ) average borrowed funds during the period borrowed funds outstanding at end of the period year ended december 31 , 2015 $ 1,410,938 $ 1,174,189 year ended december 31 , 2014 $ 1,360,964 $ 1,669,433 78 the following summarizes our borrowings under reverse repos by remaining maturity : replace_table_token_23_th reverse repos involving underlying investments that we sold prior to december 31 , 2015 , for settlement following december 31 , 2015 , are shown using their original maturity dates even though such reverse repos may be expected to be terminated early upon settlement of the sale of the underlying investment . not included are any reverse repos that we may have entered into prior to december 31 , 2015 for which delivery of the borrowed funds is not scheduled until after december 31 , 2015 . the amounts borrowed under our reverse repo agreements are generally subject to the application of `` haircuts . ''
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these results were driven by continued growth in our regulated businesses from infrastructure investment , acquisitions and organic growth , combined with growth in our market-based businesses from our homeowner services group and keystone . these increases were partially offset by lower water services demand in our regulated businesses and lower capital upgrades in our military services group . adjustments to gaap adjusted diluted earnings per share represents a non-gaap financial measure and is calculated as gaap diluted earnings per share , excluding the impact of one or more of the following events : ( i ) a gain in the third quarter of 2018 on the sale of the majority of our contract services group 's o & m contracts ; ( ii ) a goodwill and intangible impairment charge in the third quarter of 2018 resulting from narrowing the scope of the keystone business ; ( iii ) insurance settlements received in the third quarter of 2017 and the second quarter of 2018 related to the freedom industries chemical spill in west virginia ; ( iv ) non-cash re-measurement charges recorded in the fourth quarters of 2017 and 2018 resulting from the impact of the change in the federal corporate income tax rate on the company 's deferred income taxes from the enactment of the tcja ; ( v ) an early extinguishment of debt charge at the parent company in the third quarter of 2017 ; and ( vi ) a charge in the fourth quarter of 2016 related to the binding global agreement in principle to settle claims related to the freedom industries chemical spill . we believe that this non-gaap measure provides investors with useful information by excluding certain matters that may not be indicative of our ongoing operating results , and that providing this non-gaap measure will allow investors to understand better our businesses ' operating performance and facilitate a meaningful year-to-year comparison of our results of operations . although management uses this non-gaap financial measure internally to evaluate our results of operations , we do not intend results excluding the adjustments to represent results as defined by gaap , and the reader should not consider them as indicators of performance . this non-gaap financial measure is derived from our consolidated financial information and it should be considered in addition to , and not as a substitute for , measures of financial performance prepared in accordance with gaap . in addition , this non-gaap financial measure as defined and used above may not be comparable to similarly titled non-gaap measures used by other companies , and , accordingly , it may have significant limitations on its use . achievements and strategic focus we believe our success has , and will continue to be , guided by the following strategic philosophies : purpose driven— “ we keep life flowing ” is our trademark purpose , for our customers and our communities , because we provide the most precious of life 's critical needs . people powered—a company is its people . people who have a safe place to work , both physically and emotionally . customer obsessed—without customers , we do n't exist . they are why we are here . trusted source of everything water— best in class , ensuring we have safe , reliable and affordable water . 43 our strategy , which is driven by our vision and values , will continue to be anchored on our five central themes : safety—safety is both a strategy and a value at american water . we put safety first in everything that we do . in 2018 , we : finished the year with fewer employee injuries than the prior year , improving both our occupational safety and health administration recordable incident rate ( “ orir ” ) and days away , restricted or transferred ( “ dart ” ) injury severity rate ; continued to strengthen our safety culture as measured by employee responses to safety-related questions in the company 's culture survey , and feedback from our in-person , labor-management conferences ; initiated a frontline safety leadership strategic action group , developed to provide recommendations to improve safety leadership training , tools , and engagement ; and championed , through our safety council which consists of management and labor employees , our annual safety day , the ceo safety award and other recognition programs . looking forward , we will : strive toward zero workplace incidents and eliminate hazards to reduce the potential for incidents ; continue our focus on “ near miss reporting ” and promoting continuous learning and corrective action regarding potential safety hazards before incidents can occur ; improve toward the achievement of our orir and dart targets ; continue our focus on requiring contractors that perform work for the company be held to the same safety standards as our employees ; and continue to promote the company 's employee stop work authority , where every employee is empowered to stop any work he or she perceives as unsafe , and to initiate a review to resolve concerns and to eliminate safety hazards . customer—our customers are at the center of everything we plan and do . customer input , their ideas and experiences will drive how we improve our processes and systems . we want to be the best , and if our customers have a choice as to who serves them , we want it to be us . in 2018 , we : achieved a customer satisfaction rating in the top quartile among our industry peer group ; expanded our customer experience initiative , designed to make it easier for customers to do business with us , and enhanced our quality of service through implementation and upgrades of technology tools ; and continued to make needed infrastructure investments while implementing operational efficiency improvements to keep customer bills affordable . story_separator_special_tag 49 infrastructure surcharges a number of states have authorized the use of regulatory mechanisms that permit rates to be adjusted outside of a general rate case for certain costs and investments , such as infrastructure surcharge mechanisms that permit recovery of capital investments to replace aging infrastructure . the following table provides annualized incremental revenues resulting from infrastructure surcharge authorizations that became effective during 2016 through 2018 , assuming a constant water sales volume : replace_table_token_7_th ( a ) in 2018 , the effective date was january 1. in 2016 , $ 1 million was effective january 1 and $ 6 million was effective august 1 . ( b ) in 2017 , $ 10 million was effective june 1 and $ 4 million was effective december 10. in 2016 , $ 9 million was effective june 1 and $ 10 million was effective december 1 . ( c ) in 2017 , the effective date was january 1. in 2016 , $ 11 million , $ 2 million , $ 6 million and $ 9 million were effective january 1 , april 1 , july 1 and october 1 , respectively . on february 8 , 2019 , our west virginia subsidiary received authorization for additional annualized revenues of $ 2 million from an infrastructure surcharge filing , effective january 1 , 2019 . on december 20 , 2018 , our illinois subsidiary filed for an infrastructure surcharge requesting $ 8 million in additional annualized revenues , which will become effective on january 1 , 2019 . pending infrastructure surcharge filings on november 16 , 2018 , our tennessee subsidiary filed for an infrastructure surcharge requesting $ 2 million in additional annualized revenues . there is no assurance that all or any portion of these requests will be granted . tax matters tax cuts and jobs act on december 22 , 2017 , the tcja was signed into law , which , among other things , enacted significant and complex changes to the internal revenue code of 1986 , including a reduction in the federal corporate income tax rate from 35 % to 21 % as of january 1 , 2018 , and certain other provisions related specifically to the public utility industry , including continuation of interest expense deductibility , the exclusion from utilizing bonus depreciation and the normalization of deferred income tax . the enactment of the tcja required a re-measurement of our deferred income taxes that materially impacted our 2017 results of operations and financial position . the portion of this re-measurement related to our regulated businesses was substantially offset by a regulatory liability , as we believe it is probable that the deferred income tax excesses created by the tcja will benefit our regulated customers in future rates . the remaining portion of this re-measurement of the net deferred income tax liability was recorded as a non-cash charge to earnings during the fourth quarter of 2017. during 2018 , we continued to gather , assess and evaluate additional guidance and regulations related to the changes related to the tcja . as a result of this process , we have recorded additional adjustments to finalize our initial 2017 estimates . see note 14—income taxes in the notes to consolidated financial statements for additional information . 50 during 2018 , the company 's 14 regulatory jurisdictions began to consider the impacts of the tcja . the company has adjusted customer rates to reflect the lower income tax rate in 10 states . in one of those 10 states , a portion of the tax savings is being used to reduce certain regulatory assets . in one additional state , we are using the tax savings to offset additional capital investment and to reduce a regulatory asset . proceedings in the other three jurisdictions remain pending . with respect to excess accumulated deferred income taxes , regulators in the eight states that have considered the issue have agreed with our overall timeline of passing the excess back to customers beginning no earlier than 2019 , when the company is able to produce the normalization schedule using the average rate assumption method . in one of those states , we will use the amortization of the excess accumulated deferred income taxes to offset future infrastructure investments . on march 23 , 2018 , president trump signed the consolidated appropriations act of 2018 ( the “ caa ” ) . the caa corrects and clarifies some aspects of the tcja related to bonus depreciation eligibility . specifically , property that was acquired , or the construction began , prior to september 27 , 2017 , is eligible for bonus depreciation . this clarification allowed the company to benefit from additional bonus depreciation deductions on the 2017 tax return , and as a result , we believe that we will likely begin paying federal income taxes towards the end of 2019 , when we expect our federal nol carryforwards balance will be fully used , and expect to be a full year cash taxpayer by 2020 , although this timing could be impacted by any significant changes in our future results of operations and the outcome of pending regulatory proceedings regarding the tcja . on november 26 , 2018 , the u.s. department of the treasury released proposed regulations concerning interest expense limitation rules . the tcja revised and broadened the existing interest expense limitation regulations . the company has considered all the rules set forth in the proposed regulation including allocated interest expense and interest income based on the relative amounts of the company 's adjusted basis in the assets used in its excepted and non-excepted trades or business , or our regulated businesses and market-based businesses . based on our interpretation of the new guidance , the company reasonably believes the deductibility of its interest expense will not be limited under the new regulations . other tax matters on june 1 , 2018 , the state of missouri enacted
| liquidity and capital resources liquidity refers to our ability to meet our cash needs , including repaying our borrowings , funding and maintaining positions in mbs and other assets , making distributions in the form of dividends , and other general business needs . our short-term ( one year or less ) and long-term liquidity requirements include acquisition costs for assets we acquire , payment of our base management fee and incentive fee , compliance with margin requirements under our repurchase agreements , or `` repos , '' reverse repos , tbas , and financial derivative contracts , repayment of reverse repo borrowings to the extent we are unable or unwilling to extend our reverse repos , payment of our general operating expenses , and payment of our quarterly dividend . our capital resources primarily include cash on hand , cash flow from our investments ( including monthly principal and interest payments received on our investments and proceeds from the sale of investments ) , borrowings under reverse repos , and proceeds from equity offerings . we expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs . the following summarizes our reverse repos : reverse repurchase agreements ( in thousands ) average borrowed funds during the period borrowed funds outstanding at end of the period year ended december 31 , 2015 $ 1,410,938 $ 1,174,189 year ended december 31 , 2014 $ 1,360,964 $ 1,669,433 78 the following summarizes our borrowings under reverse repos by remaining maturity : replace_table_token_23_th reverse repos involving underlying investments that we sold prior to december 31 , 2015 , for settlement following december 31 , 2015 , are shown using their original maturity dates even though such reverse repos may be expected to be terminated early upon settlement of the sale of the underlying investment . not included are any reverse repos that we may have entered into prior to december 31 , 2015 for which delivery of the borrowed funds is not scheduled until after december 31 , 2015 . the amounts borrowed under our reverse repo agreements are generally subject to the application of `` haircuts . ''
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these results were driven by continued growth in our regulated businesses from infrastructure investment , acquisitions and organic growth , combined with growth in our market-based businesses from our homeowner services group and keystone . these increases were partially offset by lower water services demand in our regulated businesses and lower capital upgrades in our military services group . adjustments to gaap adjusted diluted earnings per share represents a non-gaap financial measure and is calculated as gaap diluted earnings per share , excluding the impact of one or more of the following events : ( i ) a gain in the third quarter of 2018 on the sale of the majority of our contract services group 's o & m contracts ; ( ii ) a goodwill and intangible impairment charge in the third quarter of 2018 resulting from narrowing the scope of the keystone business ; ( iii ) insurance settlements received in the third quarter of 2017 and the second quarter of 2018 related to the freedom industries chemical spill in west virginia ; ( iv ) non-cash re-measurement charges recorded in the fourth quarters of 2017 and 2018 resulting from the impact of the change in the federal corporate income tax rate on the company 's deferred income taxes from the enactment of the tcja ; ( v ) an early extinguishment of debt charge at the parent company in the third quarter of 2017 ; and ( vi ) a charge in the fourth quarter of 2016 related to the binding global agreement in principle to settle claims related to the freedom industries chemical spill . we believe that this non-gaap measure provides investors with useful information by excluding certain matters that may not be indicative of our ongoing operating results , and that providing this non-gaap measure will allow investors to understand better our businesses ' operating performance and facilitate a meaningful year-to-year comparison of our results of operations . although management uses this non-gaap financial measure internally to evaluate our results of operations , we do not intend results excluding the adjustments to represent results as defined by gaap , and the reader should not consider them as indicators of performance . this non-gaap financial measure is derived from our consolidated financial information and it should be considered in addition to , and not as a substitute for , measures of financial performance prepared in accordance with gaap . in addition , this non-gaap financial measure as defined and used above may not be comparable to similarly titled non-gaap measures used by other companies , and , accordingly , it may have significant limitations on its use . achievements and strategic focus we believe our success has , and will continue to be , guided by the following strategic philosophies : purpose driven— “ we keep life flowing ” is our trademark purpose , for our customers and our communities , because we provide the most precious of life 's critical needs . people powered—a company is its people . people who have a safe place to work , both physically and emotionally . customer obsessed—without customers , we do n't exist . they are why we are here . trusted source of everything water— best in class , ensuring we have safe , reliable and affordable water . 43 our strategy , which is driven by our vision and values , will continue to be anchored on our five central themes : safety—safety is both a strategy and a value at american water . we put safety first in everything that we do . in 2018 , we : finished the year with fewer employee injuries than the prior year , improving both our occupational safety and health administration recordable incident rate ( “ orir ” ) and days away , restricted or transferred ( “ dart ” ) injury severity rate ; continued to strengthen our safety culture as measured by employee responses to safety-related questions in the company 's culture survey , and feedback from our in-person , labor-management conferences ; initiated a frontline safety leadership strategic action group , developed to provide recommendations to improve safety leadership training , tools , and engagement ; and championed , through our safety council which consists of management and labor employees , our annual safety day , the ceo safety award and other recognition programs . looking forward , we will : strive toward zero workplace incidents and eliminate hazards to reduce the potential for incidents ; continue our focus on “ near miss reporting ” and promoting continuous learning and corrective action regarding potential safety hazards before incidents can occur ; improve toward the achievement of our orir and dart targets ; continue our focus on requiring contractors that perform work for the company be held to the same safety standards as our employees ; and continue to promote the company 's employee stop work authority , where every employee is empowered to stop any work he or she perceives as unsafe , and to initiate a review to resolve concerns and to eliminate safety hazards . customer—our customers are at the center of everything we plan and do . customer input , their ideas and experiences will drive how we improve our processes and systems . we want to be the best , and if our customers have a choice as to who serves them , we want it to be us . in 2018 , we : achieved a customer satisfaction rating in the top quartile among our industry peer group ; expanded our customer experience initiative , designed to make it easier for customers to do business with us , and enhanced our quality of service through implementation and upgrades of technology tools ; and continued to make needed infrastructure investments while implementing operational efficiency improvements to keep customer bills affordable . story_separator_special_tag 49 infrastructure surcharges a number of states have authorized the use of regulatory mechanisms that permit rates to be adjusted outside of a general rate case for certain costs and investments , such as infrastructure surcharge mechanisms that permit recovery of capital investments to replace aging infrastructure . the following table provides annualized incremental revenues resulting from infrastructure surcharge authorizations that became effective during 2016 through 2018 , assuming a constant water sales volume : replace_table_token_7_th ( a ) in 2018 , the effective date was january 1. in 2016 , $ 1 million was effective january 1 and $ 6 million was effective august 1 . ( b ) in 2017 , $ 10 million was effective june 1 and $ 4 million was effective december 10. in 2016 , $ 9 million was effective june 1 and $ 10 million was effective december 1 . ( c ) in 2017 , the effective date was january 1. in 2016 , $ 11 million , $ 2 million , $ 6 million and $ 9 million were effective january 1 , april 1 , july 1 and october 1 , respectively . on february 8 , 2019 , our west virginia subsidiary received authorization for additional annualized revenues of $ 2 million from an infrastructure surcharge filing , effective january 1 , 2019 . on december 20 , 2018 , our illinois subsidiary filed for an infrastructure surcharge requesting $ 8 million in additional annualized revenues , which will become effective on january 1 , 2019 . pending infrastructure surcharge filings on november 16 , 2018 , our tennessee subsidiary filed for an infrastructure surcharge requesting $ 2 million in additional annualized revenues . there is no assurance that all or any portion of these requests will be granted . tax matters tax cuts and jobs act on december 22 , 2017 , the tcja was signed into law , which , among other things , enacted significant and complex changes to the internal revenue code of 1986 , including a reduction in the federal corporate income tax rate from 35 % to 21 % as of january 1 , 2018 , and certain other provisions related specifically to the public utility industry , including continuation of interest expense deductibility , the exclusion from utilizing bonus depreciation and the normalization of deferred income tax . the enactment of the tcja required a re-measurement of our deferred income taxes that materially impacted our 2017 results of operations and financial position . the portion of this re-measurement related to our regulated businesses was substantially offset by a regulatory liability , as we believe it is probable that the deferred income tax excesses created by the tcja will benefit our regulated customers in future rates . the remaining portion of this re-measurement of the net deferred income tax liability was recorded as a non-cash charge to earnings during the fourth quarter of 2017. during 2018 , we continued to gather , assess and evaluate additional guidance and regulations related to the changes related to the tcja . as a result of this process , we have recorded additional adjustments to finalize our initial 2017 estimates . see note 14—income taxes in the notes to consolidated financial statements for additional information . 50 during 2018 , the company 's 14 regulatory jurisdictions began to consider the impacts of the tcja . the company has adjusted customer rates to reflect the lower income tax rate in 10 states . in one of those 10 states , a portion of the tax savings is being used to reduce certain regulatory assets . in one additional state , we are using the tax savings to offset additional capital investment and to reduce a regulatory asset . proceedings in the other three jurisdictions remain pending . with respect to excess accumulated deferred income taxes , regulators in the eight states that have considered the issue have agreed with our overall timeline of passing the excess back to customers beginning no earlier than 2019 , when the company is able to produce the normalization schedule using the average rate assumption method . in one of those states , we will use the amortization of the excess accumulated deferred income taxes to offset future infrastructure investments . on march 23 , 2018 , president trump signed the consolidated appropriations act of 2018 ( the “ caa ” ) . the caa corrects and clarifies some aspects of the tcja related to bonus depreciation eligibility . specifically , property that was acquired , or the construction began , prior to september 27 , 2017 , is eligible for bonus depreciation . this clarification allowed the company to benefit from additional bonus depreciation deductions on the 2017 tax return , and as a result , we believe that we will likely begin paying federal income taxes towards the end of 2019 , when we expect our federal nol carryforwards balance will be fully used , and expect to be a full year cash taxpayer by 2020 , although this timing could be impacted by any significant changes in our future results of operations and the outcome of pending regulatory proceedings regarding the tcja . on november 26 , 2018 , the u.s. department of the treasury released proposed regulations concerning interest expense limitation rules . the tcja revised and broadened the existing interest expense limitation regulations . the company has considered all the rules set forth in the proposed regulation including allocated interest expense and interest income based on the relative amounts of the company 's adjusted basis in the assets used in its excepted and non-excepted trades or business , or our regulated businesses and market-based businesses . based on our interpretation of the new guidance , the company reasonably believes the deductibility of its interest expense will not be limited under the new regulations . other tax matters on june 1 , 2018 , the state of missouri enacted
| cash flows used in investing activities the following table provides a summary of the major items affecting our cash flows used in investing activities : replace_table_token_18_th ( a ) includes removal costs from property , plant and equipment retirements and proceeds from sale of assets . 62 in 2018 and 2017 , cash flows used in investing activities increased primarily due to an increase in our regulated capital expenditures , principally from incremental investments associated with the replacement and renewal of our transmission and distribution infrastructure in our regulated businesses , as well as acquisitions in both our regulated businesses and market-based businesses , as discussed below . our infrastructure investment plan consists of both infrastructure renewal programs , where we replace infrastructure , as needed , and major capital investment projects , where we construct new water and wastewater treatment and delivery facilities to meet new customer growth and water quality regulations . our projected capital expenditures and other investments are subject to periodic review and revision to reflect changes in economic conditions and other factors . the following table provides a summary of our historical capital expenditures related to the upgrading of our infrastructure and systems : replace_table_token_19_th in 2018 , our capital expenditures increased $ 152 million , or 10.6 % , primarily due to investment across the majority of our infrastructure categories .
| 1 |
each patient received a single infusion of cap-1002 into the coronary artery most closely associated with the location of their mi , at a dose level of either 12.5 million or 25 million cells . the primary safety endpoints focused on the potential adverse effects of cap-1002 delivery , including potential immunologic consequences of infusing cells that had originated from an unrelated donor . enrollment was completed in october 2013. event rates observed for each of the four pre-specified safety endpoints ( acute myocarditis possibly attributable to cap-1002 ; death due to ventricular tachycardia or ventricular fibrillation ; sudden death ; and major adverse cardiac events ) were 0 % over one and 12 months following cap-1002 infusion . updated preliminary 12-month magnetic resonance imaging , or mri , data revealed that those phase i patients who would have been eligible for randomization into the phase ii clinical study by virtue of dose and tissue type compatibility exhibited a reduction in infarct , or scar , size of 15 % from baseline . these data also indicated a 4 % improvement from baseline in ejection fraction , a global measure of the heart 's pumping ability . measurements of viable mass and regional function also showed quantifiable improvements . this phase i study was funded in large part by a grant received from the national institutes of health , or nih . in december 2013 , the gene and cell therapy data safety monitoring board of the national heart lung and blood institute notified capricor that it had had met its safety endpoints and that capricor was cleared to begin the phase ii portion of the allstar trial . capricor began enrollment of the phase ii allstar study in the first quarter of 2014. this randomized , double-blind , placebo-controlled trial is designed to determine if treatment with cap-1002 can reduce scar size in patients who have suffered an mi . at the time of randomization , patients were stratified into one of two cohorts according to the time since the occurrence of their mi ( either 30 to 90 days after the mi , or greater than 90 days up to one-year after the mi ) . following infusion , patients are to be followed for periodic evaluations over the course of one year . as such , cap-1002 is being evaluated in the setting of both acute mi , in which the scar has recently formed , and chronic mi , in which the scar is more established . patients were randomized in a 2:1 ratio to receive an infusion of cap-1002 ( 25 million cells ) or placebo , respectively , into the coronary artery most closely associated with the region of their mi . the trial is powered to detect a reduction in scar size , relative to placebo , as measured by mri at the 12-month follow-up . in addition to evaluating cap-1002 according to changes in scar size , allstar will also evaluate cap-1002 according to a variety of clinical and quality of life endpoints . the phase ii portion of the allstar trial is being funded in large part through the support of the california institute for regenerative medicine , or cirm . based on information available to us at the start of enrollment into the phase ii allstar trial , we initially designed this study to enroll up to 300 patients . following the completion of statistical modeling of the design of allstar which incorporated the expanded dataset that had become available from other clinical trials of our cdcs , we elected to decrease the enrollment goal of allstar to approximately 120 patients , a sample size that is expected to maintain sufficient statistical power to detect a reduction in scar size as measured by mri at 12 months . we have amended our clinical protocol to reflect these changes , which amendment was approved by the data safety monitoring board and was submitted to the u.s. food and drug administration , or the fda , in february 2016. in october 2016 , we announced completion of enrollment of the phase ii portion of the allstar trial in which 142 subjects were randomized to the active or control treatment groups in a 2:1 ratio , respectively , and of whom 134 received a single infusion of either cap-1002 or placebo into the infarct-associated coronary artery . patients in the trial were enrolled at approximately 30 centers in the u.s. and in canada . in december 2013 , capricor entered into a collaboration agreement and exclusive license option with janssen biotech , inc. , or janssen . under the agreement , janssen has an exclusive option to enter into an exclusive license agreement with capricor , pursuant to which , if exercised , janssen would receive a worldwide , exclusive license to exploit cap-1002 as well as certain allogeneic csps and cdcs in the field of cardiology , except as may otherwise be agreed with respect to certain indications to be determined . janssen has the right to exercise the option at any time until 60 days after the delivery by capricor of the six-month follow-up results from the phase ii portion of the allstar clinical trial of cap-1002 . we expect to receive janssen 's decision with respect to this option in the third quarter of 2017 following the delivery of the six-month results from the allstar trial . 47 phase i/ii hope-duchenne clinical trial we are currently conducting the randomized , controlled , multi-center phase i/ii hope-duchenne clinical trial which was designed to evaluate the safety and exploratory efficacy of cap-1002 in approximately 24 patients with cardiomyopathy associated with duchenne muscular dystrophy , or dmd . patients were randomized in a 1:1 ratio to receive either cap-1002 or usual care available for dmd-associated cardiomyopathy . story_separator_special_tag our expenditures on current and future clinical development programs , particularly our cap-1002 and cap-2003 programs , are expected to be substantial and to increase in relation to our available capital resources . however , these planned expenditures are subject to many uncertainties , including the results of clinical trials and whether we develop any of our product candidates independently or with a partner . as a result , we can not predict with any significant degree of certainty the amount of time which will be required to complete our clinical trials , the costs of completing research and development projects or whether , when and to what extent we will generate revenues from the commercialization and sale of any of our product candidates . the duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during manufacturing and clinical development and as a result of a variety of other factors , including : · the number of trials and studies in a clinical program ; · the number of patients who participate in the trials ; · the number of sites included in the trials ; · the rates of patient recruitment and enrollment ; · the duration of patient treatment and follow-up ; · the costs of manufacturing our product candidates ; and · the costs , requirements and timing of , and the ability to secure , regulatory approvals . grant income . grant income for the years ended december 31 , 2016 and 2015 was approximately $ 0.8 million and $ 1.7 million , respectively . the decrease in grant income in 2016 as compared to 2015 is primarily due to the fact that the dynamic trial incurred more costs in 2015 than it did in 2016. the dynamic trial was nearing its completion in 2016. collaboration income . as a result of the janssen agreement , collaboration income for the years ended december 31 , 2016 and 2015 was approximately $ 3.2 million and $ 3.8 million , respectively . a ratable portion of the payment to capricor under the janssen agreement was recognized in both the years ended december 31 , 2016 and 2015. the company periodically reviews the estimated performance period of the janssen agreement based on the estimated progress of its project with janssen . impairment expense . impairment expense , a non-cash expense , was $ 1.5 million for the year ended december 31 , 2016. impairment expense for the period related to acquired in-process research and development assets that were acquired in the merger with nile in 2013. in february 2017 , we announced the termination of our development plans for cenderitide and cu-np . given this development , we have assessed the fair value of this indefinite-lived intangible asset to be $ 0 at december 31 , 2016 . 51 interest expense . interest expense for the years ended december 31 , 2016 and 2015 was $ 344,665 and $ 248,626 , respectively . the increase in interest expense in 2016 as compared to 2015 is due to accrued interest on the cirm loan award . liquidity and capital resources for the fiscal years ended december 31 , 2016 and 2015 the following table summarizes our liquidity and capital resources as of and for each of our last two fiscal years , and our net increase ( decrease ) in cash and cash equivalents as of and for each of our last two fiscal years , and is intended to supplement the more detailed discussion that follows . the amounts stated in the tables below are expressed in thousands . replace_table_token_1_th replace_table_token_2_th our total cash and cash equivalents , not including restricted cash , as of december 31 , 2016 was approximately $ 3.2 million compared to approximately $ 5.6 million as of december 31 , 2015. the decrease in cash and cash equivalents for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 is due to an increase in operating expenses and an allocation of cash and cash equivalents to marketable securities . total marketable securities , consisting primarily of united states treasuries , were approximately $ 13.0 million as of december 31 , 2016 , as compared to approximately $ 8.0 million as of december 31 , 2015. the increase in working capital as of december 31 , 2016 is primarily due to the approximately $ 3.9 million received in net proceeds in the first quarter of 2016 as a result of a registered direct offering of our common stock and concurrent private placement of warrants to purchase shares of our common stock and the approximate $ 9.9 million received in net proceeds as a result of an underwritten registered public offering and concurrent registered direct offering of our common stock completed in the third quarter of 2016 coupled with operational expenditures . as of december 31 , 2016 , we had approximately $ 22.8 million in total liabilities , of which approximately $ 1.4 million was recorded as deferred income under the janssen agreement . as of december 31 , 2016 , we had approximately $ 13.2 million in net working capital . we incurred a net loss of approximately $ 18.8 million for the year ended december 31 , 2016. cash used in operating activities was approximately $ 15.8 million and $ 10.8 million for the years ended december 31 , 2016 and 2015 , respectively . the difference of approximately $ 5.0 million in cash from operating activities is primarily due to an increase in net loss for the year ended december 31 , 2016 of approximately $ 5.9 million as compared to the same period of 2015. additionally , for the year ended december 31 , 2015 , cash provided by the release of restricted cash totaled approximately $ 3.0 million as compared to a net change of cash received of approximately $
| cash flows used in investing activities the following table provides a summary of the major items affecting our cash flows used in investing activities : replace_table_token_18_th ( a ) includes removal costs from property , plant and equipment retirements and proceeds from sale of assets . 62 in 2018 and 2017 , cash flows used in investing activities increased primarily due to an increase in our regulated capital expenditures , principally from incremental investments associated with the replacement and renewal of our transmission and distribution infrastructure in our regulated businesses , as well as acquisitions in both our regulated businesses and market-based businesses , as discussed below . our infrastructure investment plan consists of both infrastructure renewal programs , where we replace infrastructure , as needed , and major capital investment projects , where we construct new water and wastewater treatment and delivery facilities to meet new customer growth and water quality regulations . our projected capital expenditures and other investments are subject to periodic review and revision to reflect changes in economic conditions and other factors . the following table provides a summary of our historical capital expenditures related to the upgrading of our infrastructure and systems : replace_table_token_19_th in 2018 , our capital expenditures increased $ 152 million , or 10.6 % , primarily due to investment across the majority of our infrastructure categories .
| 0 |
each patient received a single infusion of cap-1002 into the coronary artery most closely associated with the location of their mi , at a dose level of either 12.5 million or 25 million cells . the primary safety endpoints focused on the potential adverse effects of cap-1002 delivery , including potential immunologic consequences of infusing cells that had originated from an unrelated donor . enrollment was completed in october 2013. event rates observed for each of the four pre-specified safety endpoints ( acute myocarditis possibly attributable to cap-1002 ; death due to ventricular tachycardia or ventricular fibrillation ; sudden death ; and major adverse cardiac events ) were 0 % over one and 12 months following cap-1002 infusion . updated preliminary 12-month magnetic resonance imaging , or mri , data revealed that those phase i patients who would have been eligible for randomization into the phase ii clinical study by virtue of dose and tissue type compatibility exhibited a reduction in infarct , or scar , size of 15 % from baseline . these data also indicated a 4 % improvement from baseline in ejection fraction , a global measure of the heart 's pumping ability . measurements of viable mass and regional function also showed quantifiable improvements . this phase i study was funded in large part by a grant received from the national institutes of health , or nih . in december 2013 , the gene and cell therapy data safety monitoring board of the national heart lung and blood institute notified capricor that it had had met its safety endpoints and that capricor was cleared to begin the phase ii portion of the allstar trial . capricor began enrollment of the phase ii allstar study in the first quarter of 2014. this randomized , double-blind , placebo-controlled trial is designed to determine if treatment with cap-1002 can reduce scar size in patients who have suffered an mi . at the time of randomization , patients were stratified into one of two cohorts according to the time since the occurrence of their mi ( either 30 to 90 days after the mi , or greater than 90 days up to one-year after the mi ) . following infusion , patients are to be followed for periodic evaluations over the course of one year . as such , cap-1002 is being evaluated in the setting of both acute mi , in which the scar has recently formed , and chronic mi , in which the scar is more established . patients were randomized in a 2:1 ratio to receive an infusion of cap-1002 ( 25 million cells ) or placebo , respectively , into the coronary artery most closely associated with the region of their mi . the trial is powered to detect a reduction in scar size , relative to placebo , as measured by mri at the 12-month follow-up . in addition to evaluating cap-1002 according to changes in scar size , allstar will also evaluate cap-1002 according to a variety of clinical and quality of life endpoints . the phase ii portion of the allstar trial is being funded in large part through the support of the california institute for regenerative medicine , or cirm . based on information available to us at the start of enrollment into the phase ii allstar trial , we initially designed this study to enroll up to 300 patients . following the completion of statistical modeling of the design of allstar which incorporated the expanded dataset that had become available from other clinical trials of our cdcs , we elected to decrease the enrollment goal of allstar to approximately 120 patients , a sample size that is expected to maintain sufficient statistical power to detect a reduction in scar size as measured by mri at 12 months . we have amended our clinical protocol to reflect these changes , which amendment was approved by the data safety monitoring board and was submitted to the u.s. food and drug administration , or the fda , in february 2016. in october 2016 , we announced completion of enrollment of the phase ii portion of the allstar trial in which 142 subjects were randomized to the active or control treatment groups in a 2:1 ratio , respectively , and of whom 134 received a single infusion of either cap-1002 or placebo into the infarct-associated coronary artery . patients in the trial were enrolled at approximately 30 centers in the u.s. and in canada . in december 2013 , capricor entered into a collaboration agreement and exclusive license option with janssen biotech , inc. , or janssen . under the agreement , janssen has an exclusive option to enter into an exclusive license agreement with capricor , pursuant to which , if exercised , janssen would receive a worldwide , exclusive license to exploit cap-1002 as well as certain allogeneic csps and cdcs in the field of cardiology , except as may otherwise be agreed with respect to certain indications to be determined . janssen has the right to exercise the option at any time until 60 days after the delivery by capricor of the six-month follow-up results from the phase ii portion of the allstar clinical trial of cap-1002 . we expect to receive janssen 's decision with respect to this option in the third quarter of 2017 following the delivery of the six-month results from the allstar trial . 47 phase i/ii hope-duchenne clinical trial we are currently conducting the randomized , controlled , multi-center phase i/ii hope-duchenne clinical trial which was designed to evaluate the safety and exploratory efficacy of cap-1002 in approximately 24 patients with cardiomyopathy associated with duchenne muscular dystrophy , or dmd . patients were randomized in a 1:1 ratio to receive either cap-1002 or usual care available for dmd-associated cardiomyopathy . story_separator_special_tag our expenditures on current and future clinical development programs , particularly our cap-1002 and cap-2003 programs , are expected to be substantial and to increase in relation to our available capital resources . however , these planned expenditures are subject to many uncertainties , including the results of clinical trials and whether we develop any of our product candidates independently or with a partner . as a result , we can not predict with any significant degree of certainty the amount of time which will be required to complete our clinical trials , the costs of completing research and development projects or whether , when and to what extent we will generate revenues from the commercialization and sale of any of our product candidates . the duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during manufacturing and clinical development and as a result of a variety of other factors , including : · the number of trials and studies in a clinical program ; · the number of patients who participate in the trials ; · the number of sites included in the trials ; · the rates of patient recruitment and enrollment ; · the duration of patient treatment and follow-up ; · the costs of manufacturing our product candidates ; and · the costs , requirements and timing of , and the ability to secure , regulatory approvals . grant income . grant income for the years ended december 31 , 2016 and 2015 was approximately $ 0.8 million and $ 1.7 million , respectively . the decrease in grant income in 2016 as compared to 2015 is primarily due to the fact that the dynamic trial incurred more costs in 2015 than it did in 2016. the dynamic trial was nearing its completion in 2016. collaboration income . as a result of the janssen agreement , collaboration income for the years ended december 31 , 2016 and 2015 was approximately $ 3.2 million and $ 3.8 million , respectively . a ratable portion of the payment to capricor under the janssen agreement was recognized in both the years ended december 31 , 2016 and 2015. the company periodically reviews the estimated performance period of the janssen agreement based on the estimated progress of its project with janssen . impairment expense . impairment expense , a non-cash expense , was $ 1.5 million for the year ended december 31 , 2016. impairment expense for the period related to acquired in-process research and development assets that were acquired in the merger with nile in 2013. in february 2017 , we announced the termination of our development plans for cenderitide and cu-np . given this development , we have assessed the fair value of this indefinite-lived intangible asset to be $ 0 at december 31 , 2016 . 51 interest expense . interest expense for the years ended december 31 , 2016 and 2015 was $ 344,665 and $ 248,626 , respectively . the increase in interest expense in 2016 as compared to 2015 is due to accrued interest on the cirm loan award . liquidity and capital resources for the fiscal years ended december 31 , 2016 and 2015 the following table summarizes our liquidity and capital resources as of and for each of our last two fiscal years , and our net increase ( decrease ) in cash and cash equivalents as of and for each of our last two fiscal years , and is intended to supplement the more detailed discussion that follows . the amounts stated in the tables below are expressed in thousands . replace_table_token_1_th replace_table_token_2_th our total cash and cash equivalents , not including restricted cash , as of december 31 , 2016 was approximately $ 3.2 million compared to approximately $ 5.6 million as of december 31 , 2015. the decrease in cash and cash equivalents for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 is due to an increase in operating expenses and an allocation of cash and cash equivalents to marketable securities . total marketable securities , consisting primarily of united states treasuries , were approximately $ 13.0 million as of december 31 , 2016 , as compared to approximately $ 8.0 million as of december 31 , 2015. the increase in working capital as of december 31 , 2016 is primarily due to the approximately $ 3.9 million received in net proceeds in the first quarter of 2016 as a result of a registered direct offering of our common stock and concurrent private placement of warrants to purchase shares of our common stock and the approximate $ 9.9 million received in net proceeds as a result of an underwritten registered public offering and concurrent registered direct offering of our common stock completed in the third quarter of 2016 coupled with operational expenditures . as of december 31 , 2016 , we had approximately $ 22.8 million in total liabilities , of which approximately $ 1.4 million was recorded as deferred income under the janssen agreement . as of december 31 , 2016 , we had approximately $ 13.2 million in net working capital . we incurred a net loss of approximately $ 18.8 million for the year ended december 31 , 2016. cash used in operating activities was approximately $ 15.8 million and $ 10.8 million for the years ended december 31 , 2016 and 2015 , respectively . the difference of approximately $ 5.0 million in cash from operating activities is primarily due to an increase in net loss for the year ended december 31 , 2016 of approximately $ 5.9 million as compared to the same period of 2015. additionally , for the year ended december 31 , 2015 , cash provided by the release of restricted cash totaled approximately $ 3.0 million as compared to a net change of cash received of approximately $
| restricted cash we have two awards with cirm designated for specific use , the cirm loan agreement in connection with the allstar phase ii clinical trial and the cirm award related to the hope phase i/ii clinical trial . restricted cash represents funds received under these awards which are to be allocated to the research costs as incurred . generally , a reduction of restricted cash occurs when we deem certain costs are attributable to the respective award . recently issued or newly adopted accounting pronouncements in may 2014 , the fasb issued accounting standards update , or asu , 2014-09 , revenue from contracts with customers , or asu 2014-09. asu 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current generally accepted accounting principles in the united states of america and replace it with a principle-based approach for determining revenue recognition . asu 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract . asu 2014-09 also will require additional disclosure about the nature , amount , timing and uncertainty of revenue and cash flows arising from customer contracts , including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract . asu 2014-09 is effective for reporting periods beginning after december 15 , 2017 , and early adoption is not permitted . entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption . we have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting .
| 1 |
the ceiling limitation is the sum of 1 ) the discounted present value ( at 10 % ) , using average first-day-of-the-month prices during the 12-month period ending as of the balance sheet date held constant over the life of the reserves , of barnwell 's estimated future net cash flows from estimated production of proved oil and natural gas reserves , less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations ; plus 2 ) the cost of major development projects and unproven properties not subject to depletion , if any ; plus 3 ) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion ; less 4 ) related income tax effects . if net capitalized costs exceed this limit , the excess is expensed . judgments and assumptions the estimate of our oil and natural gas reserves is a major component of the ceiling calculation and represents the component that requires the most subjective judgments . estimates of reserves are forecasts based on engineering data , historical data , projected future rates of production and the timing of future expenditures . the process of estimating oil and natural gas reserves requires substantial judgment , resulting in imprecise determinations , particularly for new discoveries . our reserve estimates are prepared at least annually by independent petroleum reserve engineers . the passage of time provides more quantitative and qualitative information regarding estimates of reserves , and revisions are made to prior estimates to reflect updated information . a portion of the revisions are attributable to changes in the rolling 12-month average first-day-of-the-month prices , which impact the economics of producible reserves . in the last three fiscal years , annual revisions to our reserve volume estimates have averaged 30 % of the previous year 's estimate . however , there can be no assurance that more significant revisions will not be necessary in the future . if future significant revisions are necessary that reduce previously estimated reserve quantities , such revisions could result in a write-down of oil and natural gas properties . if reported reserve volumes were revised downward by 5 % at the end of fiscal 2017 , the ceiling limitation would have decreased approximately $ 406,000 before income taxes , which would not have resulted in a reduction of the carrying value of oil and gas properties before income taxes . in addition to the impact of the estimates of proved reserves on the calculation of the ceiling , estimated proved reserves are also a significant component of the quarterly calculation of depletion expense . the lower the estimated reserves , the higher the depletion rate per unit of production . conversely , the higher the estimated reserves , the lower the depletion rate per unit of production . if reported reserve volumes were revised downward by 5 % as of the beginning of fiscal 2017 , depletion for fiscal 2017 would have increased by approximately $ 42,000. while the quantities of proved reserves require substantial judgment , the associated prices of oil , natural gas and natural gas liquids reserves are the average first-day-of-the-month prices during the 12-month period ending in the reporting period on a constant basis as prescribed by sec regulations . additionally , the applicable discount rate that is used to calculate the discounted present value of the reserves is mandated at 10 % . costs included in future net revenues are determined in a similar manner . as such , the future net revenues associated with the estimated proved reserves are not based on an assessment of future prices or costs . 32 investment held for sale policy description investment held for sale is recorded at the lower of cost or estimated fair value less costs to sell . if an asset 's fair value less costs to sell , based on estimated future cash flows , management estimates or market comparisons , is less than its carrying amount , the asset is written down to its estimated fair value less costs to sell . judgments and assumptions investment held for sale is reviewed for possible impairment when events or circumstances indicate that the carrying value may not be recoverable . if the evaluation determines that the recorded value will not be recovered , the carrying value of the investment held for sale is written down to the estimated fair value less costs to sell . this evaluation requires management to make assumptions and apply considerable judgment based on market conditions and comparable sales transactions . changes in assumptions may require valuation adjustments that may materially impact the company 's future operating results . equity method investments policy description under the equity method of accounting , the company 's proportional share of the investee 's underlying net income or loss , adjustments to recognize certain differences between the carrying value of the investment and the equity in net assets of the investee at the date of investment , impairments , and other adjustments required by the equity method are recorded as part of the company 's net earnings ( loss ) and increases or decreases to the carrying value of the investee . distributions received from the investment reduce the company 's carrying value of the investee . equity method investments are reviewed for possible impairment when events or circumstances indicate that there is an other-than-temporary loss in value . an investment is written down to fair value if there is evidence of a loss in value which is other-than-temporary . judgments and assumptions in determining the fair value of an investment and assessing whether any identified impairment is other-than-temporary , significant estimates and considerable judgment are involved . story_separator_special_tag at september 30 , 2017 , the company had sufficient deemed asset value that no security deposit was due . the aer requires purchasers of aer licensed oil and natural gas assets to have an lmr of 2.0 or higher immediately following the transfer of a license . this lmr requirement for well transfers hinders our ability to generate capital by selling oil and natural gas assets as it limits the number of qualified buyers . additionally , it inhibits our ability to grow through acquisitions without depositing collateral with the aer , as we currently have an lmr of less than 1.2. a requirement to provide security deposit funds to the aer in the future for asset retirement obligations would result in the diversion of cash and cash flows that could otherwise be used to fund oil and natural gas reserve additions , which in turn will have a material adverse effect on our business , financial condition and results of operations . if barnwell fails to comply with the requirements of the llr program , barnwell 's oil and natural gas subsidiary would be subject to the aer 's enforcement provisions which could include suspension of operations and non-compliance fees and could ultimately result in the aer serving the company with a closure order to shut-in all operated wells . additionally , if barnwell is non-compliant , the company would be prohibited from transferring well licenses which would prohibit us from selling any oil and natural gas assets until the required cash deposit is made with the aer . 38 land investment segment future land investment payments and any future cash distributions from our investment in the kukio resort land development partnerships are dependent upon the sale of the remaining 23 residential lots within increment i by kd i and potential future development or sale of the remaining portion of increment ii by kd ii of kaupulehu lot 4a . the amount and timing of future land investment segment proceeds from percentage of sales payments and cash distributions from the kukio resort land development partnerships are highly uncertain and out of our control , and there is no assurance with regards to the amounts of future sales of residential lots within increments i and ii . barnwell estimates that it will be heavily reliant upon land investment segment proceeds in order to provide sufficient liquidity to fund our operations in the long term . however , there can be no assurance that the amount of future land investment segment proceeds will provide the liquidity required . contract drilling segment demand for water well drilling and or pump installation and repair services is volatile and dependent upon land development activities within the state of hawaii . management currently estimates that well drilling activity for fiscal 2018 will be comparable to fiscal 2017 based upon the value of contracts in backlog . results of operations summary net earnings attributable to barnwell for fiscal 2017 totaled $ 1,171,000 , a $ 4,786,000 increase in operating results from a net loss of $ 3,615,000 in fiscal 2016 . the following factors affected the results of operations for the current fiscal year as compared to the prior fiscal year : a $ 2,093,000 increase in land investment segment operating profit , before income taxes and non-controlling interests ' share of such profits , due to a $ 2,500,000 payment received by kaupulehu developments from kd ii in the current year ; a $ 1,708,000 increase in oil and natural gas segment operating results , before impairment of assets and income taxes , due primarily to an increase in net revenues as a result of increases in prices for all products and a reduction in the depletion rate as a result of sales of oil and natural gas properties and upward revisions of oil and natural gas reserves due to higher rolling average prices in the current year period ; a $ 553,000 increase in contract drilling segment operating results , before income taxes , primarily resulting from increased activity on a contract for the plugging and abandonment of two geothermal wells which was partially offset by losses on certain water well drilling contracts due to unforeseen difficulties such as geological formation issues and well wall subsidences ; a $ 1,154,000 impairment of oil and natural gas properties recorded in the prior year ; and a $ 348,000 decrease in equity in income from affiliates recorded as a result of decreased operating results of the kukio resort land development partnerships . 39 general barnwell conducts operations in the u.s. and canada . consequently , barnwell is subject to foreign currency translation and transaction gains and losses due to fluctuations of the exchange rates between the canadian dollar and the u.s. dollar . barnwell can not accurately predict future fluctuations of the exchange rates and the impact of such fluctuations may be material from period to period . the average exchange rate of the canadian dollar to the u.s. dollar increased 1 % in fiscal 2017 , as compared to fiscal 2016 , and the exchange rate of the canadian dollar to the u.s. dollar increased 5 % at september 30 , 2017 , as compared to september 30 , 2016 . accordingly , the assets , liabilities , stockholders ' equity , and revenues and expenses of barnwell 's subsidiaries operating in canada have been adjusted to reflect the change in the exchange rates . barnwell 's canadian dollar assets are greater than its canadian dollar liabilities ; therefore , increases or decreases in the value of the canadian dollar to the u.s. dollar generate other comprehensive income or loss , respectively . other comprehensive income and losses are not included in net earnings ( loss ) . other comprehensive income due to foreign currency translation adjustments , net of taxes , for fiscal 2017 was $ 147,000 , a $ 60,000 increase from $ 87,000 in fiscal 2016 . there were no taxes
| restricted cash we have two awards with cirm designated for specific use , the cirm loan agreement in connection with the allstar phase ii clinical trial and the cirm award related to the hope phase i/ii clinical trial . restricted cash represents funds received under these awards which are to be allocated to the research costs as incurred . generally , a reduction of restricted cash occurs when we deem certain costs are attributable to the respective award . recently issued or newly adopted accounting pronouncements in may 2014 , the fasb issued accounting standards update , or asu , 2014-09 , revenue from contracts with customers , or asu 2014-09. asu 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current generally accepted accounting principles in the united states of america and replace it with a principle-based approach for determining revenue recognition . asu 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract . asu 2014-09 also will require additional disclosure about the nature , amount , timing and uncertainty of revenue and cash flows arising from customer contracts , including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract . asu 2014-09 is effective for reporting periods beginning after december 15 , 2017 , and early adoption is not permitted . entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption . we have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting .
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the ceiling limitation is the sum of 1 ) the discounted present value ( at 10 % ) , using average first-day-of-the-month prices during the 12-month period ending as of the balance sheet date held constant over the life of the reserves , of barnwell 's estimated future net cash flows from estimated production of proved oil and natural gas reserves , less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations ; plus 2 ) the cost of major development projects and unproven properties not subject to depletion , if any ; plus 3 ) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion ; less 4 ) related income tax effects . if net capitalized costs exceed this limit , the excess is expensed . judgments and assumptions the estimate of our oil and natural gas reserves is a major component of the ceiling calculation and represents the component that requires the most subjective judgments . estimates of reserves are forecasts based on engineering data , historical data , projected future rates of production and the timing of future expenditures . the process of estimating oil and natural gas reserves requires substantial judgment , resulting in imprecise determinations , particularly for new discoveries . our reserve estimates are prepared at least annually by independent petroleum reserve engineers . the passage of time provides more quantitative and qualitative information regarding estimates of reserves , and revisions are made to prior estimates to reflect updated information . a portion of the revisions are attributable to changes in the rolling 12-month average first-day-of-the-month prices , which impact the economics of producible reserves . in the last three fiscal years , annual revisions to our reserve volume estimates have averaged 30 % of the previous year 's estimate . however , there can be no assurance that more significant revisions will not be necessary in the future . if future significant revisions are necessary that reduce previously estimated reserve quantities , such revisions could result in a write-down of oil and natural gas properties . if reported reserve volumes were revised downward by 5 % at the end of fiscal 2017 , the ceiling limitation would have decreased approximately $ 406,000 before income taxes , which would not have resulted in a reduction of the carrying value of oil and gas properties before income taxes . in addition to the impact of the estimates of proved reserves on the calculation of the ceiling , estimated proved reserves are also a significant component of the quarterly calculation of depletion expense . the lower the estimated reserves , the higher the depletion rate per unit of production . conversely , the higher the estimated reserves , the lower the depletion rate per unit of production . if reported reserve volumes were revised downward by 5 % as of the beginning of fiscal 2017 , depletion for fiscal 2017 would have increased by approximately $ 42,000. while the quantities of proved reserves require substantial judgment , the associated prices of oil , natural gas and natural gas liquids reserves are the average first-day-of-the-month prices during the 12-month period ending in the reporting period on a constant basis as prescribed by sec regulations . additionally , the applicable discount rate that is used to calculate the discounted present value of the reserves is mandated at 10 % . costs included in future net revenues are determined in a similar manner . as such , the future net revenues associated with the estimated proved reserves are not based on an assessment of future prices or costs . 32 investment held for sale policy description investment held for sale is recorded at the lower of cost or estimated fair value less costs to sell . if an asset 's fair value less costs to sell , based on estimated future cash flows , management estimates or market comparisons , is less than its carrying amount , the asset is written down to its estimated fair value less costs to sell . judgments and assumptions investment held for sale is reviewed for possible impairment when events or circumstances indicate that the carrying value may not be recoverable . if the evaluation determines that the recorded value will not be recovered , the carrying value of the investment held for sale is written down to the estimated fair value less costs to sell . this evaluation requires management to make assumptions and apply considerable judgment based on market conditions and comparable sales transactions . changes in assumptions may require valuation adjustments that may materially impact the company 's future operating results . equity method investments policy description under the equity method of accounting , the company 's proportional share of the investee 's underlying net income or loss , adjustments to recognize certain differences between the carrying value of the investment and the equity in net assets of the investee at the date of investment , impairments , and other adjustments required by the equity method are recorded as part of the company 's net earnings ( loss ) and increases or decreases to the carrying value of the investee . distributions received from the investment reduce the company 's carrying value of the investee . equity method investments are reviewed for possible impairment when events or circumstances indicate that there is an other-than-temporary loss in value . an investment is written down to fair value if there is evidence of a loss in value which is other-than-temporary . judgments and assumptions in determining the fair value of an investment and assessing whether any identified impairment is other-than-temporary , significant estimates and considerable judgment are involved . story_separator_special_tag at september 30 , 2017 , the company had sufficient deemed asset value that no security deposit was due . the aer requires purchasers of aer licensed oil and natural gas assets to have an lmr of 2.0 or higher immediately following the transfer of a license . this lmr requirement for well transfers hinders our ability to generate capital by selling oil and natural gas assets as it limits the number of qualified buyers . additionally , it inhibits our ability to grow through acquisitions without depositing collateral with the aer , as we currently have an lmr of less than 1.2. a requirement to provide security deposit funds to the aer in the future for asset retirement obligations would result in the diversion of cash and cash flows that could otherwise be used to fund oil and natural gas reserve additions , which in turn will have a material adverse effect on our business , financial condition and results of operations . if barnwell fails to comply with the requirements of the llr program , barnwell 's oil and natural gas subsidiary would be subject to the aer 's enforcement provisions which could include suspension of operations and non-compliance fees and could ultimately result in the aer serving the company with a closure order to shut-in all operated wells . additionally , if barnwell is non-compliant , the company would be prohibited from transferring well licenses which would prohibit us from selling any oil and natural gas assets until the required cash deposit is made with the aer . 38 land investment segment future land investment payments and any future cash distributions from our investment in the kukio resort land development partnerships are dependent upon the sale of the remaining 23 residential lots within increment i by kd i and potential future development or sale of the remaining portion of increment ii by kd ii of kaupulehu lot 4a . the amount and timing of future land investment segment proceeds from percentage of sales payments and cash distributions from the kukio resort land development partnerships are highly uncertain and out of our control , and there is no assurance with regards to the amounts of future sales of residential lots within increments i and ii . barnwell estimates that it will be heavily reliant upon land investment segment proceeds in order to provide sufficient liquidity to fund our operations in the long term . however , there can be no assurance that the amount of future land investment segment proceeds will provide the liquidity required . contract drilling segment demand for water well drilling and or pump installation and repair services is volatile and dependent upon land development activities within the state of hawaii . management currently estimates that well drilling activity for fiscal 2018 will be comparable to fiscal 2017 based upon the value of contracts in backlog . results of operations summary net earnings attributable to barnwell for fiscal 2017 totaled $ 1,171,000 , a $ 4,786,000 increase in operating results from a net loss of $ 3,615,000 in fiscal 2016 . the following factors affected the results of operations for the current fiscal year as compared to the prior fiscal year : a $ 2,093,000 increase in land investment segment operating profit , before income taxes and non-controlling interests ' share of such profits , due to a $ 2,500,000 payment received by kaupulehu developments from kd ii in the current year ; a $ 1,708,000 increase in oil and natural gas segment operating results , before impairment of assets and income taxes , due primarily to an increase in net revenues as a result of increases in prices for all products and a reduction in the depletion rate as a result of sales of oil and natural gas properties and upward revisions of oil and natural gas reserves due to higher rolling average prices in the current year period ; a $ 553,000 increase in contract drilling segment operating results , before income taxes , primarily resulting from increased activity on a contract for the plugging and abandonment of two geothermal wells which was partially offset by losses on certain water well drilling contracts due to unforeseen difficulties such as geological formation issues and well wall subsidences ; a $ 1,154,000 impairment of oil and natural gas properties recorded in the prior year ; and a $ 348,000 decrease in equity in income from affiliates recorded as a result of decreased operating results of the kukio resort land development partnerships . 39 general barnwell conducts operations in the u.s. and canada . consequently , barnwell is subject to foreign currency translation and transaction gains and losses due to fluctuations of the exchange rates between the canadian dollar and the u.s. dollar . barnwell can not accurately predict future fluctuations of the exchange rates and the impact of such fluctuations may be material from period to period . the average exchange rate of the canadian dollar to the u.s. dollar increased 1 % in fiscal 2017 , as compared to fiscal 2016 , and the exchange rate of the canadian dollar to the u.s. dollar increased 5 % at september 30 , 2017 , as compared to september 30 , 2016 . accordingly , the assets , liabilities , stockholders ' equity , and revenues and expenses of barnwell 's subsidiaries operating in canada have been adjusted to reflect the change in the exchange rates . barnwell 's canadian dollar assets are greater than its canadian dollar liabilities ; therefore , increases or decreases in the value of the canadian dollar to the u.s. dollar generate other comprehensive income or loss , respectively . other comprehensive income and losses are not included in net earnings ( loss ) . other comprehensive income due to foreign currency translation adjustments , net of taxes , for fiscal 2017 was $ 147,000 , a $ 60,000 increase from $ 87,000 in fiscal 2016 . there were no taxes
| net cash provided by investing activities totaled $ 2,911,000 for fiscal 2017 , as compared to $ 9,378,000 for fiscal 2016 . the $ 6,467,000 decrease in investing cash flows was primarily due to a $ 7,089,000 release of restricted cash in the prior year and $ 4,413,000 in net purchases of certificates of deposit in the current year . these decreases were partially offset by a $ 2,486,000 increase in proceeds from the sales of assets related to the sale of the new york office and certain oil and natural gas properties in the current year and an increase of $ 2,283,000 in proceeds from the sale of interest in leasehold land net of fees paid in the current year . cash flows used in financing activities totaled $ 370,000 for fiscal 2017 , as compared to $ 4,252,000 for fiscal 2016 . the $ 3,882,000 increase in financing cash flows was primarily due to $ 3,440,000 in debt repayments in the prior year as a result of the sale of the real estate held for sale in april 2016 and a $ 318,000 increase in the release of restricted cash in the current year . credit arrangements in june 2016 , barnwell entered into an agreement with royal bank of canada for a revolving demand facility in the amount of $ 500,000 canadian dollars .
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the following factors , among others , could cause the company 's financial performance to differ materially from the plans , objectives , expectations , estimates and intentions expressed in such forward-looking statements : the strength of the united states economy in general and the strength of the real estate values and the local economies in which the company conducts operations ; the effects of , and changes in , trade , monetary and fiscal policies and laws , changes in interest rates ; the timely development of and acceptance of new products and services of the company and the perceived overall value of these products and services by users , including the features , pricing and quality compared to competitors ' products and services ; the impact of changes in financial services ' laws and regulations ( including laws concerning taxes , banking , securities and insurance ) ; asset quality deterioration ; environmental liability associated with real estate collateral ; technological changes and cybersecurity risks ; acquisitions ; employee retention ; the success of the company at managing the risks resulting from these factors ; and other factors set forth in reports and other documents filed by the company with the securities and exchange commission from time to time . for further information about these and other risks , uncertainties and factors , please review the disclosure included in item 1a . of this form 10-k. the company cautions that the listed factors are not exclusive . the company does not undertake to update any forward-looking statement , whether written or oral , that may be made from time to time by or on behalf of the company . 43 financial condition from december 31 , 2014 to december 31 , 2015 , the company 's total assets increased $ 24,375,428 ( 4 % ) to $ 652,835,072 , liabilities increased $ 19,429,810 ( 3 % ) to $ 586,412,607 , and stockholders ' equity increased $ 4,945,618 ( 8 % ) to $ 66,422,465. the ratio of stockholders ' equity to total assets increased to 10.2 % during this period , compared to 9.8 % as of december 31 , 2014. from december 31 , 2014 to december 31 , 2015 , cash and cash equivalents increased $ 6,280,529 ( 50 % ) to $ 18,774,419. this was primarily due to the increase of $ 37,567,413 in deposits balances , offset by the increase in net loans receivable of $ 4,415,271 , a net increase of $ 10,824,502 in available-for-sale securities and paydowns of fhlb and federal reserve advances and the prepayment of a repurchase agreement in the total of $ 18,250,000. from december 31 , 2014 to december 31 , 2015 , available-for-sale securities increased $ 10,824,502 ( 13 % ) , primarily due to purchases of $ 55,150,017 offset by sales , maturities and principal payments received of $ 43,505,410. the company had unrealized losses of $ 1,085,644 at december 31 , 2015 compared to $ 711,779 at december 31 , 2014. stock of fhlb decreased by $ 319,400 ( 10 % ) to $ 2,837,500 due to lower stock requirements necessary from the reduction in fhlb advances . from december 31 , 2014 to december 31 , 2015 , net loans receivable increased by $ 4,415,271 ( 1 % ) to $ 491,001,907. permanent loans secured by commercial real estate , primarily secured by owner occupied retail and low-income housing project , decreased $ 6,780,481 ( 3 % ) which was due to various expected payoffs and principal reductions . construction loans increased $ 8,678,311 ( 24 % ) due to increase in new construction loan demand combined with draws on existing loans . permanent multi-family loans increased $ 7,817,710 ( 23 % ) due to primarily two larger new credits and one larger credit increasing existing loan balance . commercial loans decreased $ 11,469,164 ( 12 % ) and installment loans increased $ 5,107,289 ( 30 % ) which was primarily due to the anticipated payoff of one larger relationship and one large credit previously classified as commercial being transferred to installment due to collateral changing . loans secured by both owner and non-owner occupied one-to-four unit residential real estate increased $ 356,604 ( less than 1 % ) . despite gross loan balances at december 31 , 2015 being above year-end 2014 , they declined $ 13.6 million for the second half of 2015. the decline was primarily due to loan payoffs combined with a highly competitive environment for new loans that has made it difficult to maintain loan balances . the company continues to focus its lending efforts in the commercial and owner occupied real estate mortgage loan categories , and to reduce its concentrations in non-owner occupied commercial real estate . as of december 31 , 2015 , management identified loans totaling $ 14,730,000 as impaired with a related allowance for loan losses of $ 865,000. impaired loans increased by $ 9,349,000 during 2015 , compared to the balance of $ 5,381,000 at december 31 , 2014. from december 31 , 2014 to december 31 , 2015 , the allowance for loan losses decreased $ 776,657 to $ 5,811,940. in addition to the provision for loan losses of $ 600,000 recorded by the company during the year ended december 31 , 2015 , loan charge-offs of specific loans ( previously classified as nonperforming ) exceeded recoveries by $ 1,376,657 for the year ended december 31 , 2015. the company 's increase in overall loan balances during 2015 has increased the general component of the allowance for loan loss reserve requirements . however , the overall reserve decreased as a result of charge-offs of specific reserves established on nonperforming loans . story_separator_special_tag in july 2013 , the federal reserve issued final rules that make technical changes to its capital rules to align them with the basel iii regulatory capital framework and meet certain requirements of the dodd-frank act . the final rules maintain the general structure of the prompt corrective action framework in effect at such time while incorporating certain increased minimum requirements . the final rules modified or left unchanged the components of regulatory capital , which are : ( i ) `` total capital `` , defined as core capital and supplementary capital less certain specified deductions from total capital such as reciprocal holdings of depository institution capital instruments and equity investments ; ( ii ) `` tier 1 capital , `` which consists principally of common and certain qualifying preferred shareholders ' equity ( including grandfathered trust preferred securities ) as well as retained earnings , less certain intangibles and other adjustments ; and ( iii ) `` tier 2 capital `` , which consists of cumulative preferred stock , long-term perpetual preferred stock , a limited amount of subordinated and other qualifying debt ( including certain hybrid capital instruments ) , and a limited amount of the general loan loss allowance . the federal reserve also has established a minimum leverage capital ratio of tier 1 capital to average adjusted assets ( `` tier 1 leverage ratio `` ) . effective january 1 , 2015 , the final rules require the bank to comply with the following minimum capital ratios : ( i ) a new common equity tier 1 capital ratio of 4.5 % of risk-weighted assets ; ( ii ) a tier 1 capital ratio of 6.0 % of risk-weighted assets ( increased from the prior requirement of 4.0 % ) ; ( iii ) a total capital ratio of 8.0 % of risk-weighted assets ( unchanged from the prior requirement ) ; and ( iv ) a leverage ratio of 4.0 % of total assets ( unchanged from the prior requirement ) . these are the initial capital requirements , which will be phased in over a four-year period . when fully phased in on january 1 , 2019 , the rules will require the bank to maintain ( i ) a minimum ratio of common equity tier 1 to risk-weighted assets of at least 4.5 % , plus a 2.5 % `` capital conservation buffer `` ( which is added to the 4.5 % common equity tier 1 ratio as that buffer is phased in , effectively resulting in a minimum ratio of common equity tier 1 to risk-weighted assets of at least 7.0 % upon full implementation ) , ( ii ) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0 % , plus the 2.5 % capital conservation buffer ( which is added to the 6.0 % tier 1 capital ratio as that buffer is phased in , effectively resulting in a minimum tier 1 capital ratio of 8.5 % upon full implementation ) , ( iii ) a minimum ratio of total capital to risk-weighted assets of at least 8.0 % , plus the 2.5 % capital conservation buffer ( which is added to the 8.0 % total capital ratio as that buffer is phased in , effectively resulting in a minimum total capital ratio of 10.5 % upon full implementation ) , and ( iv ) a minimum leverage ratio of 4.0 % , calculated as the ratio of tier 1 capital to average assets . beginning january 1 , 2016 , the capital conservation buffer requirement will be phased in at 0.625 % of risk-weighted assets , increasing by the same amount each year until fully implemented at 2.5 % on january 1 , 2019. the capital conservation buffer is designed to absorb losses during periods of economic stress . banking institutions with a ratio of common equity tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends , equity repurchases , and compensation based on the amount of the shortfall . 52 the company 's tier 1 capital position of $ 82,347,000 is 12.7 % of average assets as of december 31 , 2015. the company has an excess of $ 56,462,000 , $ 58,944,000 , and $ 41,110,000 of required regulatory levels of tangible , core , and risk-based capital , respectively . in addition , under current regulatory guidelines , the bank is classified as well capitalized . see also additional information provided under the caption “ regulatory matters ” in note 1 of the notes to consolidated financial statements . off-balance sheet arrangements various commitments and contingent liabilities arise in the normal course of business , which are not required to be recorded on the balance sheet . the most significant of these are loan commitments , lines of credit and standby letters of credit . commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract . as of december 31 , 2015 and 2014 , the bank had outstanding commitments to originate loans of approximately $ 4,218,000 and $ 2,483,000 , respectively . lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract . as of december 31 , 2015 and 2014 , unused lines of credit to borrowers aggregated approximately $ 68,066,000 and $ 47,599,000 for commercial lines and $ 14,461,000 and $ 13,859,000 for open-end consumer lines . since a portion of the loan commitment and line of credit may expire without being drawn upon , the total unused commitments and lines do not necessarily represent future cash requirements . standby letters of credit are irrevocable conditional commitments issued by the bank to guarantee the performance of a customer to a third party . the credit risk involved in issuing
| net cash provided by investing activities totaled $ 2,911,000 for fiscal 2017 , as compared to $ 9,378,000 for fiscal 2016 . the $ 6,467,000 decrease in investing cash flows was primarily due to a $ 7,089,000 release of restricted cash in the prior year and $ 4,413,000 in net purchases of certificates of deposit in the current year . these decreases were partially offset by a $ 2,486,000 increase in proceeds from the sales of assets related to the sale of the new york office and certain oil and natural gas properties in the current year and an increase of $ 2,283,000 in proceeds from the sale of interest in leasehold land net of fees paid in the current year . cash flows used in financing activities totaled $ 370,000 for fiscal 2017 , as compared to $ 4,252,000 for fiscal 2016 . the $ 3,882,000 increase in financing cash flows was primarily due to $ 3,440,000 in debt repayments in the prior year as a result of the sale of the real estate held for sale in april 2016 and a $ 318,000 increase in the release of restricted cash in the current year . credit arrangements in june 2016 , barnwell entered into an agreement with royal bank of canada for a revolving demand facility in the amount of $ 500,000 canadian dollars .
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the following factors , among others , could cause the company 's financial performance to differ materially from the plans , objectives , expectations , estimates and intentions expressed in such forward-looking statements : the strength of the united states economy in general and the strength of the real estate values and the local economies in which the company conducts operations ; the effects of , and changes in , trade , monetary and fiscal policies and laws , changes in interest rates ; the timely development of and acceptance of new products and services of the company and the perceived overall value of these products and services by users , including the features , pricing and quality compared to competitors ' products and services ; the impact of changes in financial services ' laws and regulations ( including laws concerning taxes , banking , securities and insurance ) ; asset quality deterioration ; environmental liability associated with real estate collateral ; technological changes and cybersecurity risks ; acquisitions ; employee retention ; the success of the company at managing the risks resulting from these factors ; and other factors set forth in reports and other documents filed by the company with the securities and exchange commission from time to time . for further information about these and other risks , uncertainties and factors , please review the disclosure included in item 1a . of this form 10-k. the company cautions that the listed factors are not exclusive . the company does not undertake to update any forward-looking statement , whether written or oral , that may be made from time to time by or on behalf of the company . 43 financial condition from december 31 , 2014 to december 31 , 2015 , the company 's total assets increased $ 24,375,428 ( 4 % ) to $ 652,835,072 , liabilities increased $ 19,429,810 ( 3 % ) to $ 586,412,607 , and stockholders ' equity increased $ 4,945,618 ( 8 % ) to $ 66,422,465. the ratio of stockholders ' equity to total assets increased to 10.2 % during this period , compared to 9.8 % as of december 31 , 2014. from december 31 , 2014 to december 31 , 2015 , cash and cash equivalents increased $ 6,280,529 ( 50 % ) to $ 18,774,419. this was primarily due to the increase of $ 37,567,413 in deposits balances , offset by the increase in net loans receivable of $ 4,415,271 , a net increase of $ 10,824,502 in available-for-sale securities and paydowns of fhlb and federal reserve advances and the prepayment of a repurchase agreement in the total of $ 18,250,000. from december 31 , 2014 to december 31 , 2015 , available-for-sale securities increased $ 10,824,502 ( 13 % ) , primarily due to purchases of $ 55,150,017 offset by sales , maturities and principal payments received of $ 43,505,410. the company had unrealized losses of $ 1,085,644 at december 31 , 2015 compared to $ 711,779 at december 31 , 2014. stock of fhlb decreased by $ 319,400 ( 10 % ) to $ 2,837,500 due to lower stock requirements necessary from the reduction in fhlb advances . from december 31 , 2014 to december 31 , 2015 , net loans receivable increased by $ 4,415,271 ( 1 % ) to $ 491,001,907. permanent loans secured by commercial real estate , primarily secured by owner occupied retail and low-income housing project , decreased $ 6,780,481 ( 3 % ) which was due to various expected payoffs and principal reductions . construction loans increased $ 8,678,311 ( 24 % ) due to increase in new construction loan demand combined with draws on existing loans . permanent multi-family loans increased $ 7,817,710 ( 23 % ) due to primarily two larger new credits and one larger credit increasing existing loan balance . commercial loans decreased $ 11,469,164 ( 12 % ) and installment loans increased $ 5,107,289 ( 30 % ) which was primarily due to the anticipated payoff of one larger relationship and one large credit previously classified as commercial being transferred to installment due to collateral changing . loans secured by both owner and non-owner occupied one-to-four unit residential real estate increased $ 356,604 ( less than 1 % ) . despite gross loan balances at december 31 , 2015 being above year-end 2014 , they declined $ 13.6 million for the second half of 2015. the decline was primarily due to loan payoffs combined with a highly competitive environment for new loans that has made it difficult to maintain loan balances . the company continues to focus its lending efforts in the commercial and owner occupied real estate mortgage loan categories , and to reduce its concentrations in non-owner occupied commercial real estate . as of december 31 , 2015 , management identified loans totaling $ 14,730,000 as impaired with a related allowance for loan losses of $ 865,000. impaired loans increased by $ 9,349,000 during 2015 , compared to the balance of $ 5,381,000 at december 31 , 2014. from december 31 , 2014 to december 31 , 2015 , the allowance for loan losses decreased $ 776,657 to $ 5,811,940. in addition to the provision for loan losses of $ 600,000 recorded by the company during the year ended december 31 , 2015 , loan charge-offs of specific loans ( previously classified as nonperforming ) exceeded recoveries by $ 1,376,657 for the year ended december 31 , 2015. the company 's increase in overall loan balances during 2015 has increased the general component of the allowance for loan loss reserve requirements . however , the overall reserve decreased as a result of charge-offs of specific reserves established on nonperforming loans . story_separator_special_tag in july 2013 , the federal reserve issued final rules that make technical changes to its capital rules to align them with the basel iii regulatory capital framework and meet certain requirements of the dodd-frank act . the final rules maintain the general structure of the prompt corrective action framework in effect at such time while incorporating certain increased minimum requirements . the final rules modified or left unchanged the components of regulatory capital , which are : ( i ) `` total capital `` , defined as core capital and supplementary capital less certain specified deductions from total capital such as reciprocal holdings of depository institution capital instruments and equity investments ; ( ii ) `` tier 1 capital , `` which consists principally of common and certain qualifying preferred shareholders ' equity ( including grandfathered trust preferred securities ) as well as retained earnings , less certain intangibles and other adjustments ; and ( iii ) `` tier 2 capital `` , which consists of cumulative preferred stock , long-term perpetual preferred stock , a limited amount of subordinated and other qualifying debt ( including certain hybrid capital instruments ) , and a limited amount of the general loan loss allowance . the federal reserve also has established a minimum leverage capital ratio of tier 1 capital to average adjusted assets ( `` tier 1 leverage ratio `` ) . effective january 1 , 2015 , the final rules require the bank to comply with the following minimum capital ratios : ( i ) a new common equity tier 1 capital ratio of 4.5 % of risk-weighted assets ; ( ii ) a tier 1 capital ratio of 6.0 % of risk-weighted assets ( increased from the prior requirement of 4.0 % ) ; ( iii ) a total capital ratio of 8.0 % of risk-weighted assets ( unchanged from the prior requirement ) ; and ( iv ) a leverage ratio of 4.0 % of total assets ( unchanged from the prior requirement ) . these are the initial capital requirements , which will be phased in over a four-year period . when fully phased in on january 1 , 2019 , the rules will require the bank to maintain ( i ) a minimum ratio of common equity tier 1 to risk-weighted assets of at least 4.5 % , plus a 2.5 % `` capital conservation buffer `` ( which is added to the 4.5 % common equity tier 1 ratio as that buffer is phased in , effectively resulting in a minimum ratio of common equity tier 1 to risk-weighted assets of at least 7.0 % upon full implementation ) , ( ii ) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0 % , plus the 2.5 % capital conservation buffer ( which is added to the 6.0 % tier 1 capital ratio as that buffer is phased in , effectively resulting in a minimum tier 1 capital ratio of 8.5 % upon full implementation ) , ( iii ) a minimum ratio of total capital to risk-weighted assets of at least 8.0 % , plus the 2.5 % capital conservation buffer ( which is added to the 8.0 % total capital ratio as that buffer is phased in , effectively resulting in a minimum total capital ratio of 10.5 % upon full implementation ) , and ( iv ) a minimum leverage ratio of 4.0 % , calculated as the ratio of tier 1 capital to average assets . beginning january 1 , 2016 , the capital conservation buffer requirement will be phased in at 0.625 % of risk-weighted assets , increasing by the same amount each year until fully implemented at 2.5 % on january 1 , 2019. the capital conservation buffer is designed to absorb losses during periods of economic stress . banking institutions with a ratio of common equity tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends , equity repurchases , and compensation based on the amount of the shortfall . 52 the company 's tier 1 capital position of $ 82,347,000 is 12.7 % of average assets as of december 31 , 2015. the company has an excess of $ 56,462,000 , $ 58,944,000 , and $ 41,110,000 of required regulatory levels of tangible , core , and risk-based capital , respectively . in addition , under current regulatory guidelines , the bank is classified as well capitalized . see also additional information provided under the caption “ regulatory matters ” in note 1 of the notes to consolidated financial statements . off-balance sheet arrangements various commitments and contingent liabilities arise in the normal course of business , which are not required to be recorded on the balance sheet . the most significant of these are loan commitments , lines of credit and standby letters of credit . commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract . as of december 31 , 2015 and 2014 , the bank had outstanding commitments to originate loans of approximately $ 4,218,000 and $ 2,483,000 , respectively . lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract . as of december 31 , 2015 and 2014 , unused lines of credit to borrowers aggregated approximately $ 68,066,000 and $ 47,599,000 for commercial lines and $ 14,461,000 and $ 13,859,000 for open-end consumer lines . since a portion of the loan commitment and line of credit may expire without being drawn upon , the total unused commitments and lines do not necessarily represent future cash requirements . standby letters of credit are irrevocable conditional commitments issued by the bank to guarantee the performance of a customer to a third party . the credit risk involved in issuing
| cash dividends paid . the company paid dividends of $ 0.05 per share on april 16 , 2015 to stockholders of record as of april 6 , 2015 , and $ 0.05 per share on july 16 , 2015 , to stockholders of record as of july 6 , 2015 , and $ .05 per share on october 15 , 2015 , to stockholders of record as of october 5 , 2015 and also declared a cash dividend of $ 0.08 per share on december 23 , 2015 , which was paid on january 16 , 2016 , to stockholders of record on january 5 , 2016. during 2014 , the company also paid $ 648,280 in dividends on common stock and $ 413,000 dividends on its preferred stock . during 2013 , the company paid $ 600,000 in dividends on its then outstanding preferred stock . results of operations - comparison of year ended december 31 , 2014 and december 31 , 2013 replace_table_token_28_th interest rates . the bank charges borrowers and pays depositors interest rates that are largely a function of the general level of interest rates . the above table sets forth the weekly average interest rates for the 52 weeks ending december 31 , 2014 and december 31 , 2013 as reported by the federal reserve . the bank typically indexes its adjustable rate commercial loans to prime and its adjustable rate mortgage loans to the one-year treasury rate . the ten-year treasury rate is a proxy for 30-year fixed rate home mortgage loans . 49 rates were steady and remained low for 2014 as the fomc left the discount rate at 25 basis points .
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however , sales associated with products for elective procedures appear to be influenced by the somewhat lower level of such procedures performed in the late summer . certain of the breg ® bracing products experience greater demand in the fall and winter corresponding with high school and college football schedules and winter sports . in addition , we do not believe our operations will be significantly affected by inflation . however , in the ordinary course of business , we are exposed to the impact of changes in interest rates and foreign currency fluctuations . our objective is to limit the impact of such movements on earnings and cash flows . in order to achieve this objective , we seek to balance non-dollar denominated income and expenditures . during the year , we have used derivative instruments to hedge foreign currency fluctuation exposures . see item 7aquantitative and qualitative disclosures about market risk. 38 critical accounting policies and estimates our discussion of operating results is based upon the consolidated financial statements and accompanying notes to the consolidated financial statements prepared in conformity with us gaap . the preparation of these statements necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period . these estimates and assumptions form the basis for the carrying values of assets and liabilities . on an ongoing basis , we evaluate these estimates , including those related to contractual allowances , doubtful accounts , inventories , potential intangible assets and goodwill impairment , income taxes , and share-based compensation . we base our estimates on historical experience and various other assumptions . actual results may differ from these estimates . we have reviewed our critical accounting policies with the audit committee of the board of directors . revenue recognition revenue is generally recognized as income in the period in which title passes and the products are delivered . revenues exclude any value added or other local taxes , intercompany sales and trade discounts . shipping and handling costs are included in cost of sales . royalty revenues are recognized when the royalty is earned . for stimulation and certain bracing products that are prescribed by a physician , we recognize revenue when the product is placed on or implanted in and accepted by the patient . for domestic spinal implant and hct/p products , revenues are recognized when the product has been utilized and a confirming purchase order has been received from the hospital . for sales to commercial customers , including hospitals and distributors , revenues are recognized at the time of shipment unless contractual agreements specify that title passes on delivery . revenues for inventory delivered on consignment are recognized as the product is used by the consignee . in 2008 , we entered into an agreement with the musculoskeletal transplant foundation ( mtf ) to develop and commercialize trinity ® evolution , a stem cell-based regenerative biologic matrix . with the development process completed in 2009 , we and mtf operate under the terms of a separate commercialization agreement . under the terms of this 10-year agreement , mtf sources the tissue , processes it to create the regenerative matrix , packages and delivers it to the customer in accordance with orders received from us . we have exclusive global marketing rights for trinity ® evolution and receive a marketing fee from mtf based on total sales . this marketing fee is recorded on a net basis within net sales . on january 9 , 2012 we entered into an agreement with mtf to both co-develop and commercialize a new technology for use in bone grafting applications and to expand mtf 's trinity evolution processing capacity . mtf and orthofix also extended the initial term of their existing agreement for an additional five years . we derive a significant amount of revenues in the u.s. from third-party payors , including commercial insurance carriers , health maintenance organizations , preferred provider organizations and governmental payors such as medicare . amounts paid by these third-party payors are generally based on fixed or allowable reimbursement rates . these revenues are recorded at the expected or pre-authorized reimbursement rates , net of any contractual allowances or adjustments . certain billings are subject to review by the third-party payors and may be subject to adjustment . allowance for doubtful accounts and contractual allowances the process for estimating the ultimate collection of accounts receivable involves significant assumptions and judgments . historical collection and payor reimbursement experience is an integral part of the estimation process related to reserves for doubtful accounts and the establishment of contractual allowances . accounts receivable are analyzed on a quarterly basis to assess the adequacy of both reserves for doubtful accounts and contractual allowances . revisions in allowances for doubtful accounts estimates are recorded as an adjustment to bad debt expense within sales and marketing expenses . revisions to contractual allowances are recorded as an adjustment to net sales . in the judgment of management , adequate allowances have been provided for doubtful accounts and contractual allowances . our estimates are periodically tested against actual collection experience . inventory allowances we write down our inventory for inventory excess and obsolescence by an amount equal to the difference between the cost of the inventory and the estimated net realizable value based upon assumptions about future demand and market conditions . inventory is analyzed to assess the adequacy of inventory excess and obsolescence provisions . reserves for excess and obsolescence provisions are recorded as adjustments to cost of goods sold . if conditions or assumptions used in determining the market value change , additional inventory adjustments in the future may be necessary . story_separator_special_tag this global business unit uses both direct and distributor sales representatives to sell orthopedics products to hospitals , doctors and other healthcare providers , globally . sports medicine sports medicine designs , manufactures and distributes a portfolio of non-invasive products that allow physicians and clinicians to treat a variety of sports medicine related conditions in order to minimize pain and restore mobility to their patients . sports medicine distributes products through a network of domestic and international distributors , sales representatives and affiliates to hospitals , doctors and other healthcare providers , primarily in the u.s. corporate corporate activities are comprised of the operating expenses of orthofix international n.v. and its u.s. holding company subsidiary , orthofix holdings , inc. , along with activities not necessarily identifiable with the three gbus . 43 segment and market sector revenue the following tables display net sales by business segment and net sales by market sector . we maintain our books and records and account for net sales , costs of sales and expenses by business segment . we provide net sales by market sector for information purposes only . business segments by gbu : replace_table_token_7_th our market sectors are spine that includes implants , biologics , and also stimulation products , orthopedics , and sports medicine . market sectors : replace_table_token_8_th ( 1 ) divested products sales for 2011 include $ 5.8 million related to the vascular business which was divested in march 2010. divested products sales for 2010 and 2009 include $ 8.3 million and $ 18.7 million , respectively , related to the vascular business which was divested in march 2010. this revenue represents amounts recognized in 2010 and 2009 prior to the march 2010 sale date as well as revenue generated in 2010 and 2011 from the transition services supply agreement that commenced upon the sale of the business . in addition , divested products sales for 2010 and 2009 also include $ 5 million and $ 11.8 million , respectively , related to the anesthesia product line . the company exited its anesthesia product line after the expiration of its distribution agreement in the united kingdom during the second quarter of 2010 . 2011 compared to 2010 net sales increased 3 % to $ 579 million in 2011 compared to $ 564.4 million in 2010. the impact of foreign currency increased sales by $ 6.5 million in 2011 when compared to 2010 . 44 sales net sales in our spine market sector decreased to $ 304.2 million in 2011 compared to $ 306.4 million for 2010 , a decrease of 1 % . the decrease in spine 's net sales was primarily the result of a 7 % decrease in sales of our spine stimulation products in 2011 when compared to the 2010 , due to lower industry-wide surgical procedures and organizational changes to our sales force . this sales decrease was partially offset by a 23 % increase in sales of our biologics products and an increase in our implant products of 3 % when compared to 2010. the improvement in hardware products included improved sales in our thorocolumbar devices in 2011 compared to 2010 due to increased sales of our firebird platform products including phoenix mis and deformity correction . net sales in our orthopedics market sector increased to $ 165.9 million in 2011 compared to $ 149.2 million for 2010 , an increase of 11 % . orthopedics 's constant currency net sales increased by 7 % , or $ 10.5 million during 2011 as compared to 2010. this increase was led by fixation products and the increased use of trinity ® evolution in orthopedic applications but was offset by the reduction in stimulation products used in long-bone applications . sales of our fixation products and biologics products increased 21 % and 23 % , respectively , during 2011 when compared to 2010. net sales in our sports medicine market sector increased to $ 103 million in 2011 compared to $ 95.5 million for the same period in the prior year , an increase of 8 % . we had increased billing capacity and revenues of $ 4.7 million resulting from the acquisition of a billing capability in february 2011. net sales of our divested products decreased in 2011 from $ 13.3 million to $ 5.8 million . this revenue represents amounts recognized in 2010 and in 2011 from the vascular business which we divested in march 2010 and the transition services supply agreement that commenced upon the sale of the business . in addition , sales for the year ended december 31 , 2010 also include $ 5 million related to the anesthesia product line . we exited the anesthesia product line after the expiration of our distribution agreement in the united kingdom during the second quarter of 2010. gross profit our gross profit increased 2 % to $ 439.8 million for 2011 compared to $ 432.7 million for 2010. gross profit as a percent of net sales in 2011 was 76.0 % compared to 76.7 % in 2010. this decrease was primarily a result of increased pricing pressures in the u.s. spinal implants and sports medicine markets , an unfavorable product and geographical sales mix and a negative impact of the change in foreign currency rates . sales and marketing expense sales and marketing expense , which includes commissions , certain royalties and the bad debt provision , generally increases and decreases in relation to sales . sales and marketing expense increased $ 2.7 million , or 1 % , to $ 233.6 million in 2011 compared to $ 230.9 million in 2010. as a percent of sales , sales and marketing expense was 40.3 % and 40.9 % for 2011 and 2010 , respectively . in 2011 the reduction in sales and marketing expense as percent of sales was the result of various consolidation and operational efficiency initiatives we have executed on over the past several quarters . general and administrative expense
| cash dividends paid . the company paid dividends of $ 0.05 per share on april 16 , 2015 to stockholders of record as of april 6 , 2015 , and $ 0.05 per share on july 16 , 2015 , to stockholders of record as of july 6 , 2015 , and $ .05 per share on october 15 , 2015 , to stockholders of record as of october 5 , 2015 and also declared a cash dividend of $ 0.08 per share on december 23 , 2015 , which was paid on january 16 , 2016 , to stockholders of record on january 5 , 2016. during 2014 , the company also paid $ 648,280 in dividends on common stock and $ 413,000 dividends on its preferred stock . during 2013 , the company paid $ 600,000 in dividends on its then outstanding preferred stock . results of operations - comparison of year ended december 31 , 2014 and december 31 , 2013 replace_table_token_28_th interest rates . the bank charges borrowers and pays depositors interest rates that are largely a function of the general level of interest rates . the above table sets forth the weekly average interest rates for the 52 weeks ending december 31 , 2014 and december 31 , 2013 as reported by the federal reserve . the bank typically indexes its adjustable rate commercial loans to prime and its adjustable rate mortgage loans to the one-year treasury rate . the ten-year treasury rate is a proxy for 30-year fixed rate home mortgage loans . 49 rates were steady and remained low for 2014 as the fomc left the discount rate at 25 basis points .
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however , sales associated with products for elective procedures appear to be influenced by the somewhat lower level of such procedures performed in the late summer . certain of the breg ® bracing products experience greater demand in the fall and winter corresponding with high school and college football schedules and winter sports . in addition , we do not believe our operations will be significantly affected by inflation . however , in the ordinary course of business , we are exposed to the impact of changes in interest rates and foreign currency fluctuations . our objective is to limit the impact of such movements on earnings and cash flows . in order to achieve this objective , we seek to balance non-dollar denominated income and expenditures . during the year , we have used derivative instruments to hedge foreign currency fluctuation exposures . see item 7aquantitative and qualitative disclosures about market risk. 38 critical accounting policies and estimates our discussion of operating results is based upon the consolidated financial statements and accompanying notes to the consolidated financial statements prepared in conformity with us gaap . the preparation of these statements necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period . these estimates and assumptions form the basis for the carrying values of assets and liabilities . on an ongoing basis , we evaluate these estimates , including those related to contractual allowances , doubtful accounts , inventories , potential intangible assets and goodwill impairment , income taxes , and share-based compensation . we base our estimates on historical experience and various other assumptions . actual results may differ from these estimates . we have reviewed our critical accounting policies with the audit committee of the board of directors . revenue recognition revenue is generally recognized as income in the period in which title passes and the products are delivered . revenues exclude any value added or other local taxes , intercompany sales and trade discounts . shipping and handling costs are included in cost of sales . royalty revenues are recognized when the royalty is earned . for stimulation and certain bracing products that are prescribed by a physician , we recognize revenue when the product is placed on or implanted in and accepted by the patient . for domestic spinal implant and hct/p products , revenues are recognized when the product has been utilized and a confirming purchase order has been received from the hospital . for sales to commercial customers , including hospitals and distributors , revenues are recognized at the time of shipment unless contractual agreements specify that title passes on delivery . revenues for inventory delivered on consignment are recognized as the product is used by the consignee . in 2008 , we entered into an agreement with the musculoskeletal transplant foundation ( mtf ) to develop and commercialize trinity ® evolution , a stem cell-based regenerative biologic matrix . with the development process completed in 2009 , we and mtf operate under the terms of a separate commercialization agreement . under the terms of this 10-year agreement , mtf sources the tissue , processes it to create the regenerative matrix , packages and delivers it to the customer in accordance with orders received from us . we have exclusive global marketing rights for trinity ® evolution and receive a marketing fee from mtf based on total sales . this marketing fee is recorded on a net basis within net sales . on january 9 , 2012 we entered into an agreement with mtf to both co-develop and commercialize a new technology for use in bone grafting applications and to expand mtf 's trinity evolution processing capacity . mtf and orthofix also extended the initial term of their existing agreement for an additional five years . we derive a significant amount of revenues in the u.s. from third-party payors , including commercial insurance carriers , health maintenance organizations , preferred provider organizations and governmental payors such as medicare . amounts paid by these third-party payors are generally based on fixed or allowable reimbursement rates . these revenues are recorded at the expected or pre-authorized reimbursement rates , net of any contractual allowances or adjustments . certain billings are subject to review by the third-party payors and may be subject to adjustment . allowance for doubtful accounts and contractual allowances the process for estimating the ultimate collection of accounts receivable involves significant assumptions and judgments . historical collection and payor reimbursement experience is an integral part of the estimation process related to reserves for doubtful accounts and the establishment of contractual allowances . accounts receivable are analyzed on a quarterly basis to assess the adequacy of both reserves for doubtful accounts and contractual allowances . revisions in allowances for doubtful accounts estimates are recorded as an adjustment to bad debt expense within sales and marketing expenses . revisions to contractual allowances are recorded as an adjustment to net sales . in the judgment of management , adequate allowances have been provided for doubtful accounts and contractual allowances . our estimates are periodically tested against actual collection experience . inventory allowances we write down our inventory for inventory excess and obsolescence by an amount equal to the difference between the cost of the inventory and the estimated net realizable value based upon assumptions about future demand and market conditions . inventory is analyzed to assess the adequacy of inventory excess and obsolescence provisions . reserves for excess and obsolescence provisions are recorded as adjustments to cost of goods sold . if conditions or assumptions used in determining the market value change , additional inventory adjustments in the future may be necessary . story_separator_special_tag this global business unit uses both direct and distributor sales representatives to sell orthopedics products to hospitals , doctors and other healthcare providers , globally . sports medicine sports medicine designs , manufactures and distributes a portfolio of non-invasive products that allow physicians and clinicians to treat a variety of sports medicine related conditions in order to minimize pain and restore mobility to their patients . sports medicine distributes products through a network of domestic and international distributors , sales representatives and affiliates to hospitals , doctors and other healthcare providers , primarily in the u.s. corporate corporate activities are comprised of the operating expenses of orthofix international n.v. and its u.s. holding company subsidiary , orthofix holdings , inc. , along with activities not necessarily identifiable with the three gbus . 43 segment and market sector revenue the following tables display net sales by business segment and net sales by market sector . we maintain our books and records and account for net sales , costs of sales and expenses by business segment . we provide net sales by market sector for information purposes only . business segments by gbu : replace_table_token_7_th our market sectors are spine that includes implants , biologics , and also stimulation products , orthopedics , and sports medicine . market sectors : replace_table_token_8_th ( 1 ) divested products sales for 2011 include $ 5.8 million related to the vascular business which was divested in march 2010. divested products sales for 2010 and 2009 include $ 8.3 million and $ 18.7 million , respectively , related to the vascular business which was divested in march 2010. this revenue represents amounts recognized in 2010 and 2009 prior to the march 2010 sale date as well as revenue generated in 2010 and 2011 from the transition services supply agreement that commenced upon the sale of the business . in addition , divested products sales for 2010 and 2009 also include $ 5 million and $ 11.8 million , respectively , related to the anesthesia product line . the company exited its anesthesia product line after the expiration of its distribution agreement in the united kingdom during the second quarter of 2010 . 2011 compared to 2010 net sales increased 3 % to $ 579 million in 2011 compared to $ 564.4 million in 2010. the impact of foreign currency increased sales by $ 6.5 million in 2011 when compared to 2010 . 44 sales net sales in our spine market sector decreased to $ 304.2 million in 2011 compared to $ 306.4 million for 2010 , a decrease of 1 % . the decrease in spine 's net sales was primarily the result of a 7 % decrease in sales of our spine stimulation products in 2011 when compared to the 2010 , due to lower industry-wide surgical procedures and organizational changes to our sales force . this sales decrease was partially offset by a 23 % increase in sales of our biologics products and an increase in our implant products of 3 % when compared to 2010. the improvement in hardware products included improved sales in our thorocolumbar devices in 2011 compared to 2010 due to increased sales of our firebird platform products including phoenix mis and deformity correction . net sales in our orthopedics market sector increased to $ 165.9 million in 2011 compared to $ 149.2 million for 2010 , an increase of 11 % . orthopedics 's constant currency net sales increased by 7 % , or $ 10.5 million during 2011 as compared to 2010. this increase was led by fixation products and the increased use of trinity ® evolution in orthopedic applications but was offset by the reduction in stimulation products used in long-bone applications . sales of our fixation products and biologics products increased 21 % and 23 % , respectively , during 2011 when compared to 2010. net sales in our sports medicine market sector increased to $ 103 million in 2011 compared to $ 95.5 million for the same period in the prior year , an increase of 8 % . we had increased billing capacity and revenues of $ 4.7 million resulting from the acquisition of a billing capability in february 2011. net sales of our divested products decreased in 2011 from $ 13.3 million to $ 5.8 million . this revenue represents amounts recognized in 2010 and in 2011 from the vascular business which we divested in march 2010 and the transition services supply agreement that commenced upon the sale of the business . in addition , sales for the year ended december 31 , 2010 also include $ 5 million related to the anesthesia product line . we exited the anesthesia product line after the expiration of our distribution agreement in the united kingdom during the second quarter of 2010. gross profit our gross profit increased 2 % to $ 439.8 million for 2011 compared to $ 432.7 million for 2010. gross profit as a percent of net sales in 2011 was 76.0 % compared to 76.7 % in 2010. this decrease was primarily a result of increased pricing pressures in the u.s. spinal implants and sports medicine markets , an unfavorable product and geographical sales mix and a negative impact of the change in foreign currency rates . sales and marketing expense sales and marketing expense , which includes commissions , certain royalties and the bad debt provision , generally increases and decreases in relation to sales . sales and marketing expense increased $ 2.7 million , or 1 % , to $ 233.6 million in 2011 compared to $ 230.9 million in 2010. as a percent of sales , sales and marketing expense was 40.3 % and 40.9 % for 2011 and 2010 , respectively . in 2011 the reduction in sales and marketing expense as percent of sales was the result of various consolidation and operational efficiency initiatives we have executed on over the past several quarters . general and administrative expense
| liquidity and capital resources cash and cash equivalents at december 31 , 2011 were $ 80.3 million , of which $ 47.1 million is subject to certain restrictions under the senior secured credit agreement described below . this compares to cash and cash equivalents of $ 36.5 million at december 31 , 2010 , of which $ 22.9 million was subject to certain restrictions under the senior secured credit agreement described below . net cash provided by operating activities was $ 64.8 million in 2011 compared to $ 42.5 million in 2010 , an increase of $ 22.3 million . net cash provided by operating activities is comprised of net income , non-cash items ( including depreciation and amortization , provision for doubtful accounts , inventory obsolescence , share-based compensation , deferred taxes , and the net gain on sale of vascular operations ) and changes in working capital . net income decreased $ 45.3 million to a net loss of $ 1.1 million in 2011 compared to net income of $ 44.2 million in 2010. non-cash items for 2011 increased $ 19 million to $ 49.7 million compared to $ 30.7 million in 2010 primarily as a result of the net gain on the sale of vascular operations of $ 12 million and an increase in the tax benefit on non-qualified stock options of $ 2.2 million . working capital accounts provided $ 16.1 million of cash in 2011 as compared to consuming $ 32.4 million in 2010. working capital impacts in the 2011 period can be attributed to charges related to u.s. government resolutions of $ 88.5 million partially offset by the change in escrow receivable of $ 30.5 million . overall performance indicators for our two primary working capital accounts , accounts receivable and inventory reflect days sales in receivables of 89 days at december 31 , 2011 compared to 86 days at december 31 , 2010 and inventory turns of 1.5 times at december 31 , 2011 and 2010. net cash used in investing activities was $ 31 million in 2011 compared to $ 2.1 million in 2010. during the first quarter of 2010 , we sold our vascular operations with cash proceeds , net of litigation settlement costs , for $ 24.2
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we believe this because the united states grew to be the world 's largest producer of oil during the second quarter of 2014 , and the increase in oil production was due to the growth of oil-directed drilling in shale formations . these wells produce a large amount of oil immediately following their completion , but typically experience large production declines within two years . therefore , the declining production of these wells , and the rapid decline in drilling of new wells of this type in 2015 are the most likely initial catalyst for improving industry conditions . customer activities directed towards natural gas drilling and production have been weak for several years , with the u.s. domestic natural gas rig count remaining at its lowest level since the second quarter of 1995. we believe that customer activities directed towards drilling for natural gas have been weak because of the high production of shale-directed natural gas wells , the high amount of natural gas production associated with oil-directed shale wells in the u.s. domestic market , relatively constant consumption of natural gas in the united states , and the fact that natural gas presently can not be exported from the united states to other markets in which demand and prices are higher . the price of natural gas increased during the first quarter of 2014 due to winter weather that was colder than normal , but has declined during the third and fourth quarters of 2014 and the first quarter of 2015. early in the first quarter of 2015 , the price of natural gas had fallen to its lowest level since the second quarter of 2012 , due to the fact that winter in 2015 has thus far not been as cold as the previous winter , and that natural gas in storage in the united states has increased and is now approaching its average long-term storage level . 17 rpc monitors the number of horizontal and directional wells drilled in the u.s. domestic market , because this type of well is more service-intensive than a vertical oil or gas well , thus requiring more of the company 's services provided for a longer period of time . during 2014 , the average number of horizontal and directional wells drilled in the united states increased by approximately 14 percent , and was 81 percent of total wells drilled during the year . during the first part of 2015 , the percentage of horizontal and directional wells drilled as a percentage of total wells rose to approximately 84 percent . in addition , the percentage of wells drilled for oil increased to 82 percent during 2014 compared to 78 percent during 2013. during the beginning of the first quarter of 2015 , the percentage of wells drilled for oil decreased slightly to 81 percent . we also monitor the u.s. domestic well count , which is a measure of wells drilled by the existing drilling rig fleet . we believe that the well count is an important measure of our potential activity levels because it reflects changes in rig efficiencies . during 2014 , the total u.s. domestic well count increased by approximately five percent . in the markets in which rpc has operational locations , the well count increased by approximately seven percent . pricing for our services did not change materially during 2014. while there was continued downward pricing pressure due to a larger fleet of revenue-producing equipment in the u.s. domestic market , this impact was offset by greater service intensity and moderately higher customer activity levels . during previous years , a number of our customers entered into contractual relationships with us to provide services to support their completion programs . such arrangements were advantageous to our customers because of the repetitive nature of this type of activity and their need to have service providers dedicated exclusively to their drilling programs . these arrangements also positively impacted the company 's financial results , because of increased utilization of our revenue-producing equipment and increased efficiency . all of these arrangements had expired by the third quarter of 2013. we do not expect to enter into additional contractual arrangements with such terms during 2015. during 2014 the company increased our purchases of revenue-producing equipment . cash flows from operating activities as well as borrowings under our revolving credit facility have been sufficient to fund the company 's higher capital expenditures which increased to $ 371.5 million in 2014 compared to $ 201.7 million in 2013. the company has a syndicated revolving credit facility in order to maintain sufficient liquidity to fund its capital expenditure and other funding requirements . revenues during 2014 totaled $ 2.3 billion , an increase of 25.6 percent compared to 2013 due primarily to higher activity levels and service intensity in our major services lines and a larger fleet revenue-producing equipment in our pressure pumping service line . cost of revenues increased $ 314.7 million in 2014 compared to the prior year due to higher materials and supplies expense and employment costs associated with higher activity levels and was approximately 64 percent of revenues in 2014 compared to 63 percent of revenues in 2013. selling , general and administrative expenses as a percentage of revenues decreased approximately 1.4 percentage points in 2014 compared to 2013. income before income taxes increased to $ 399.4 million in 2014 compared to $ 276.3 million in the prior year . diluted earnings per share were $ 1.14 in 2014 compared to $ 0.77 in the prior year . cash flows from operating activities decreased slightly to $ 322.8 million in 2014 compared to $ 365.6 million in 2013 primarily due to higher working capital requirements partially offset by higher earnings . story_separator_special_tag there were 2,662,080 shares purchased on the open market during 2014 by the company , and 2,050,154 shares remain available to be repurchased under the current authorization as of december 31 , 2014. the company may repurchase outstanding common shares periodically based on market conditions and our capital allocation strategies considering restrictions under our credit facility . the stock buyback program does not have a predetermined expiration date . on january 27 , 2015 , the board of directors approved a $ 0.105 per share cash dividend , payable march 10 , 2015 to stockholders of record at the close of business on february 10 , 2015. the company expects to continue to pay cash dividends to common stockholders , subject to the earnings and financial condition of the company and other relevant factors . 23 contractual obligations the company 's obligations and commitments that require future payments include our credit facility , certain non-cancelable operating leases , purchase obligations and other long-term liabilities . the following table summarizes the company 's significant contractual obligations as of december 31 , 2014 : replace_table_token_5_th ( 1 ) operating leases include agreements for various office locations , office equipment , and certain operating equipment . ( 2 ) includes agreements to purchase raw materials , goods or services that have been approved and that specify all significant terms ( pricing , quantity , and timing ) . as part of the normal course of business the company occasionally enters into purchase commitments to manage its various operating needs . ( 3 ) includes expected cash payments for long-term liabilities reflected on the balance sheet where the timing of the payments are known . these amounts include incentive compensation . these amounts exclude pension obligations with uncertain funding requirements and deferred compensation liabilities . fair value measurements the company 's assets and liabilities measured at fair value are classified in the fair value hierarchy ( level 1 , 2 or 3 ) based on the inputs used for valuation . assets and liabilities that are traded on an exchange with a quoted price are classified as level 1. assets and liabilities that are valued using significant observable inputs in addition to quoted market prices are classified as level 2. the company currently has no assets or liabilities measured on a recurring basis that are valued using unobservable inputs and therefore no assets or liabilities measured on a recurring basis are classified as level 3. for defined benefit plan assets classified as level 3 , the values are computed using inputs such as cost , discounted future cash flows , independent appraisals and market based comparable data or on net asset values calculated by the fund or when not publicly available . inflation the company purchases its equipment and materials from suppliers who provide competitive prices , and employs skilled workers from competitive labor markets . if inflation in the general economy increases , the company 's costs for equipment , materials and labor could increase as well . also , increases in activity in the domestic oilfield can cause upward wage pressures in the labor markets from which it hires employees as well as increases in the costs of certain materials and key equipment components used to provide services to the company 's customers . during 2013 and 2014 , we experienced high employment costs due to the demand for skilled labor in our markets . in addition , we experienced continued high cost for certain raw materials the company uses to provide its services , in spite of our efforts to secure raw materials from alternative sources . during the third and fourth quarter of 2014 , there were indications that increased supplies of raw materials were becoming more readily available . at the end of the fourth quarter of 2014 and early in the first quarter of 2015 , there were many indications that the prices of both skilled labor and many of the raw materials used in providing our services had started to decline due to lower demand caused by the sudden and steep decline in the price of oil and the resulting decline in oil-directed drilling and completion . we believe that declining oilfield activity during 2015 will decrease both wage rates for skilled labor and the prices of raw materials used in providing our services . because customers are pressuring the prices we charge for our services , it will be difficult to realize higher operating profit from these anticipated costs decreases . off balance sheet arrangements the company does not have any material off balance sheet arrangements . 24 related party transactions marine products corporation effective in 2001 , the company spun off the business conducted through chaparral boats , inc. ( “ chaparral ” ) , rpc 's former powerboat manufacturing segment . rpc accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of chaparral to marine products corporation ( a delaware corporation ) ( “ marine products ” ) , a newly formed wholly owned subsidiary of rpc , and then distributing the common stock of marine products to rpc stockholders . in conjunction with the spin-off , rpc and marine products entered into various agreements that define the companies ' relationship . in accordance with a transition support services agreement , which may be terminated by either party , rpc provides certain administrative services , including financial reporting and income tax administration , acquisition assistance , etc . , to marine products . charges from the company ( or from corporations that are subsidiaries of the company ) for such services were $ 663,000 in 2014 , $ 670,000 in 2013 , and $ 544,000 in 2012. the company 's receivable due from marine products for these services was $ 47,000 as of december 31 , 2014 and $ 145,000 as of december 31 , 2013. the company 's directors are also directors of marine products and all of the
| liquidity and capital resources cash and cash equivalents at december 31 , 2011 were $ 80.3 million , of which $ 47.1 million is subject to certain restrictions under the senior secured credit agreement described below . this compares to cash and cash equivalents of $ 36.5 million at december 31 , 2010 , of which $ 22.9 million was subject to certain restrictions under the senior secured credit agreement described below . net cash provided by operating activities was $ 64.8 million in 2011 compared to $ 42.5 million in 2010 , an increase of $ 22.3 million . net cash provided by operating activities is comprised of net income , non-cash items ( including depreciation and amortization , provision for doubtful accounts , inventory obsolescence , share-based compensation , deferred taxes , and the net gain on sale of vascular operations ) and changes in working capital . net income decreased $ 45.3 million to a net loss of $ 1.1 million in 2011 compared to net income of $ 44.2 million in 2010. non-cash items for 2011 increased $ 19 million to $ 49.7 million compared to $ 30.7 million in 2010 primarily as a result of the net gain on the sale of vascular operations of $ 12 million and an increase in the tax benefit on non-qualified stock options of $ 2.2 million . working capital accounts provided $ 16.1 million of cash in 2011 as compared to consuming $ 32.4 million in 2010. working capital impacts in the 2011 period can be attributed to charges related to u.s. government resolutions of $ 88.5 million partially offset by the change in escrow receivable of $ 30.5 million . overall performance indicators for our two primary working capital accounts , accounts receivable and inventory reflect days sales in receivables of 89 days at december 31 , 2011 compared to 86 days at december 31 , 2010 and inventory turns of 1.5 times at december 31 , 2011 and 2010. net cash used in investing activities was $ 31 million in 2011 compared to $ 2.1 million in 2010. during the first quarter of 2010 , we sold our vascular operations with cash proceeds , net of litigation settlement costs , for $ 24.2
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we believe this because the united states grew to be the world 's largest producer of oil during the second quarter of 2014 , and the increase in oil production was due to the growth of oil-directed drilling in shale formations . these wells produce a large amount of oil immediately following their completion , but typically experience large production declines within two years . therefore , the declining production of these wells , and the rapid decline in drilling of new wells of this type in 2015 are the most likely initial catalyst for improving industry conditions . customer activities directed towards natural gas drilling and production have been weak for several years , with the u.s. domestic natural gas rig count remaining at its lowest level since the second quarter of 1995. we believe that customer activities directed towards drilling for natural gas have been weak because of the high production of shale-directed natural gas wells , the high amount of natural gas production associated with oil-directed shale wells in the u.s. domestic market , relatively constant consumption of natural gas in the united states , and the fact that natural gas presently can not be exported from the united states to other markets in which demand and prices are higher . the price of natural gas increased during the first quarter of 2014 due to winter weather that was colder than normal , but has declined during the third and fourth quarters of 2014 and the first quarter of 2015. early in the first quarter of 2015 , the price of natural gas had fallen to its lowest level since the second quarter of 2012 , due to the fact that winter in 2015 has thus far not been as cold as the previous winter , and that natural gas in storage in the united states has increased and is now approaching its average long-term storage level . 17 rpc monitors the number of horizontal and directional wells drilled in the u.s. domestic market , because this type of well is more service-intensive than a vertical oil or gas well , thus requiring more of the company 's services provided for a longer period of time . during 2014 , the average number of horizontal and directional wells drilled in the united states increased by approximately 14 percent , and was 81 percent of total wells drilled during the year . during the first part of 2015 , the percentage of horizontal and directional wells drilled as a percentage of total wells rose to approximately 84 percent . in addition , the percentage of wells drilled for oil increased to 82 percent during 2014 compared to 78 percent during 2013. during the beginning of the first quarter of 2015 , the percentage of wells drilled for oil decreased slightly to 81 percent . we also monitor the u.s. domestic well count , which is a measure of wells drilled by the existing drilling rig fleet . we believe that the well count is an important measure of our potential activity levels because it reflects changes in rig efficiencies . during 2014 , the total u.s. domestic well count increased by approximately five percent . in the markets in which rpc has operational locations , the well count increased by approximately seven percent . pricing for our services did not change materially during 2014. while there was continued downward pricing pressure due to a larger fleet of revenue-producing equipment in the u.s. domestic market , this impact was offset by greater service intensity and moderately higher customer activity levels . during previous years , a number of our customers entered into contractual relationships with us to provide services to support their completion programs . such arrangements were advantageous to our customers because of the repetitive nature of this type of activity and their need to have service providers dedicated exclusively to their drilling programs . these arrangements also positively impacted the company 's financial results , because of increased utilization of our revenue-producing equipment and increased efficiency . all of these arrangements had expired by the third quarter of 2013. we do not expect to enter into additional contractual arrangements with such terms during 2015. during 2014 the company increased our purchases of revenue-producing equipment . cash flows from operating activities as well as borrowings under our revolving credit facility have been sufficient to fund the company 's higher capital expenditures which increased to $ 371.5 million in 2014 compared to $ 201.7 million in 2013. the company has a syndicated revolving credit facility in order to maintain sufficient liquidity to fund its capital expenditure and other funding requirements . revenues during 2014 totaled $ 2.3 billion , an increase of 25.6 percent compared to 2013 due primarily to higher activity levels and service intensity in our major services lines and a larger fleet revenue-producing equipment in our pressure pumping service line . cost of revenues increased $ 314.7 million in 2014 compared to the prior year due to higher materials and supplies expense and employment costs associated with higher activity levels and was approximately 64 percent of revenues in 2014 compared to 63 percent of revenues in 2013. selling , general and administrative expenses as a percentage of revenues decreased approximately 1.4 percentage points in 2014 compared to 2013. income before income taxes increased to $ 399.4 million in 2014 compared to $ 276.3 million in the prior year . diluted earnings per share were $ 1.14 in 2014 compared to $ 0.77 in the prior year . cash flows from operating activities decreased slightly to $ 322.8 million in 2014 compared to $ 365.6 million in 2013 primarily due to higher working capital requirements partially offset by higher earnings . story_separator_special_tag there were 2,662,080 shares purchased on the open market during 2014 by the company , and 2,050,154 shares remain available to be repurchased under the current authorization as of december 31 , 2014. the company may repurchase outstanding common shares periodically based on market conditions and our capital allocation strategies considering restrictions under our credit facility . the stock buyback program does not have a predetermined expiration date . on january 27 , 2015 , the board of directors approved a $ 0.105 per share cash dividend , payable march 10 , 2015 to stockholders of record at the close of business on february 10 , 2015. the company expects to continue to pay cash dividends to common stockholders , subject to the earnings and financial condition of the company and other relevant factors . 23 contractual obligations the company 's obligations and commitments that require future payments include our credit facility , certain non-cancelable operating leases , purchase obligations and other long-term liabilities . the following table summarizes the company 's significant contractual obligations as of december 31 , 2014 : replace_table_token_5_th ( 1 ) operating leases include agreements for various office locations , office equipment , and certain operating equipment . ( 2 ) includes agreements to purchase raw materials , goods or services that have been approved and that specify all significant terms ( pricing , quantity , and timing ) . as part of the normal course of business the company occasionally enters into purchase commitments to manage its various operating needs . ( 3 ) includes expected cash payments for long-term liabilities reflected on the balance sheet where the timing of the payments are known . these amounts include incentive compensation . these amounts exclude pension obligations with uncertain funding requirements and deferred compensation liabilities . fair value measurements the company 's assets and liabilities measured at fair value are classified in the fair value hierarchy ( level 1 , 2 or 3 ) based on the inputs used for valuation . assets and liabilities that are traded on an exchange with a quoted price are classified as level 1. assets and liabilities that are valued using significant observable inputs in addition to quoted market prices are classified as level 2. the company currently has no assets or liabilities measured on a recurring basis that are valued using unobservable inputs and therefore no assets or liabilities measured on a recurring basis are classified as level 3. for defined benefit plan assets classified as level 3 , the values are computed using inputs such as cost , discounted future cash flows , independent appraisals and market based comparable data or on net asset values calculated by the fund or when not publicly available . inflation the company purchases its equipment and materials from suppliers who provide competitive prices , and employs skilled workers from competitive labor markets . if inflation in the general economy increases , the company 's costs for equipment , materials and labor could increase as well . also , increases in activity in the domestic oilfield can cause upward wage pressures in the labor markets from which it hires employees as well as increases in the costs of certain materials and key equipment components used to provide services to the company 's customers . during 2013 and 2014 , we experienced high employment costs due to the demand for skilled labor in our markets . in addition , we experienced continued high cost for certain raw materials the company uses to provide its services , in spite of our efforts to secure raw materials from alternative sources . during the third and fourth quarter of 2014 , there were indications that increased supplies of raw materials were becoming more readily available . at the end of the fourth quarter of 2014 and early in the first quarter of 2015 , there were many indications that the prices of both skilled labor and many of the raw materials used in providing our services had started to decline due to lower demand caused by the sudden and steep decline in the price of oil and the resulting decline in oil-directed drilling and completion . we believe that declining oilfield activity during 2015 will decrease both wage rates for skilled labor and the prices of raw materials used in providing our services . because customers are pressuring the prices we charge for our services , it will be difficult to realize higher operating profit from these anticipated costs decreases . off balance sheet arrangements the company does not have any material off balance sheet arrangements . 24 related party transactions marine products corporation effective in 2001 , the company spun off the business conducted through chaparral boats , inc. ( “ chaparral ” ) , rpc 's former powerboat manufacturing segment . rpc accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of chaparral to marine products corporation ( a delaware corporation ) ( “ marine products ” ) , a newly formed wholly owned subsidiary of rpc , and then distributing the common stock of marine products to rpc stockholders . in conjunction with the spin-off , rpc and marine products entered into various agreements that define the companies ' relationship . in accordance with a transition support services agreement , which may be terminated by either party , rpc provides certain administrative services , including financial reporting and income tax administration , acquisition assistance , etc . , to marine products . charges from the company ( or from corporations that are subsidiaries of the company ) for such services were $ 663,000 in 2014 , $ 670,000 in 2013 , and $ 544,000 in 2012. the company 's receivable due from marine products for these services was $ 47,000 as of december 31 , 2014 and $ 145,000 as of december 31 , 2013. the company 's directors are also directors of marine products and all of the
| liquidity and capital resources cash and cash flows the company 's cash and cash equivalents were $ 9.8 million as of december 31 , 2014 , $ 8.7 million as of december 31 , 2013 and $ 14.2 million as of december 31 , 2012. the following table sets forth the historical cash flows for the years ended december 31 : replace_table_token_4_th 2014 cash provided by operating activities decreased $ 42.9 million in 2014 compared to the prior year due primarily to an unfavorable change in working capital of $ 173.0 million partially offset by an increase in net income of $ 78.3 million , an increase in depreciation and amortization of $ 18.1 million , and a favorable change in deferred taxes of $ 25.4 million due to tax benefits resulting from higher capital expenditures . the unfavorable change in working capital is primarily due to the following : an unfavorable change of $ 148.1 million in accounts receivable due to higher business activity levels in 2014 compared to prior year ; an unfavorable change of $ 43.8 million in inventories due to an increase in materials and supplies that require longer lead times ; an unfavorable change of $ 3.4 million in other current assets due to lower deposits for raw materials ; and an unfavorable net change of $ 13.4 million in net current income taxes receivable/payable . these unfavorable changes were partially offset by a favorable change in accounts payable of $ 22.4 million ; a favorable change in accrued payroll of $ 8.6 million ; and a favorable change of $ 4.1 million in accrued state , local and other taxes due to higher business activity levels coupled with the timing of payments . cash used for investing activities in 2014 increased by $ 147.7 million compared to 2013 , primarily as a result of higher capital expenditures primarily directed to expand or maintain our revenue-producing equipment .
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as the share exchange was a transaction between entities that are under common control accounting rules require that our consolidated financial statements include the results of the transferred businesses for all periods presented , including periods prior to the completion of the share exchange . we initially recorded the transferred businesses at echostar 's historical cost basis . the difference between the historical cost basis of the transferred businesses and the net carrying value of the tracking stock was recorded in “ additional paid-in capital ” on our consolidated balance sheets . the results of the transferred businesses were prepared from separate records maintained by echostar for the periods prior to march 1 , 2017 , and may not necessarily be indicative of the conditions that would have existed , or the results of operations , if the transferred businesses had been operated on a combined basis with our subsidiaries . see note 2 in the notes to our consolidated financial statements in this annual report on form 10-k for further information . wireless since 2008 , we have directly invested over $ 11 billion to acquire certain wireless spectrum licenses and related assets and made over $ 10 billion in non-controlling investments in certain entities , for a total of over $ 21 billion , as described further below . dish network spectrum we have directly invested over $ 11 billion to acquire certain wireless spectrum licenses and related assets . these wireless spectrum licenses are subject to certain interim and final build-out requirements , as well as certain renewal requirements . in march 2017 , we notified the fcc that we plan to deploy a next-generation 5g-capable network , focused on supporting narrowband iot . we expect to complete the first phase by march 2020 , with subsequent phases to be completed thereafter . as of december 31 , 2018 , we had entered into vendor contracts with multiple parties for , among other things , base stations , chipsets , modules , tower leases , the core network , rf design , and deployment services for the first phase . among other things , initial rf design in connection with the first phase is now complete , we have secured certain tower sites , and we are in the process of identifying and securing additional tower sites . the core network has been installed and commissioned . we installed the first base stations on sites in 2018 , and plan to continue deployment until complete . we currently expect expenditures for our wireless projects to be between $ 500 million and $ 1.0 billion through 2020. we expect the second phase to follow o nce the 3gpp release 16 is standardized and as our plans for our other spectrum holdings develop , we plan to upgrade and expand our network to full 5g to support new use cases . we currently expect expenditures for the second phase to be approximately $ 10 billion . we will need to make significant additional investments or partner with others to , among other things , commercialize , build-out , and integrate these licenses and related assets , and any additional acquired licenses and related assets ; and comply with regulations applicable to such licenses . depending on the nature and scope of such commercialization , build-out , integration efforts , and regulatory compliance , any such investments or partnerships could vary significantly . in addition , as we consider our options for the commercialization of our wireless spectrum , we will incur significant additional expenses and will have to make significant investments related to , among other things , research and development , wireless testing and wireless network infrastructure . we may also determine that additional wireless spectrum licenses may be required to commercialize our wireless business and to compete with other wireless service providers . see note 14 “ commitments and contingencies – commitments – wireless – dish network spectrum ” in the notes to our consolidated financial statements in this annual report on form 10-k for further information . 68 dish network non-controlling investments in the northstar entities and the snr entities related to aws-3 wireless spectrum licenses during 2015 , through our wholly-owned subsidiaries american ii and american iii , we initially made over $ 10 billion in certain non-controlling investments in northstar spectrum , the parent company of northstar wireless , and in snr holdco , the parent company of snr wireless , respectively . on october 27 , 2015 , the fcc granted certain aws-3 licenses to northstar wireless and to snr wireless , respectively , which are recorded in “ fcc authorizations ” on our consolidated balance sheets . under the applicable accounting guidance in asc 810 , northstar spectrum and snr holdco are considered variable interest entities and , based on the characteristics of the structure of these entities and in accordance with the applicable accounting guidance , we consolidate these entities into our financial statements . see note 2 in the notes to our consolidated financial statements in this annual report on form 10-k for further information . the aws-3 licenses are subject to certain interim and final build-out requirements , as well as certain renewal requirements . the northstar entities and or the snr entities may need to raise significant additional capital in the future , which may be obtained from third party sources or from us , so that the northstar entities and the snr entities may commercialize , build-out and integrate these aws-3 licenses , comply with regulations applicable to such aws-3 licenses , and make any potential northstar re-auction payment and snr re-auction payment for the aws-3 licenses retained by the fcc . depending upon the nature and scope of such commercialization , build-out , integration efforts , regulatory compliance , and potential northstar re-auction payment and snr re-auction payment , any loans , equity contributions or partnerships could vary significantly . story_separator_special_tag however , over the long term , we anticipate that we will be able to provide more compelling offers to our subscribers , particularly containing latino programming because of , among other things , our ability to provide more flexible and lower cost programming and because certain univision programming is also available through alternative methods including over the air antennas and directly from univision over the internet . in addition , in october 2018 , at & t removed its hbo and cinemax channels from our dish tv and sling tv programming lineup , as we and at & t have been unable to negotiate the terms and conditions of a new programming carriage contract . at & t offers its programming , including its hbo and cinemax channels , directly to consumers over the internet and provides hbo for free to subscribers of its streaming service at & t 's “ watch tv . ” we experienced a higher dish tv churn rate , higher net pay-tv subscriber losses and lower gross new dish tv subscriber activations during the third and fourth quarter 2018 and continuing into the first quarter 2019 , when univision and at & t removed certain of their channels from our dish tv and sling tv programming lineup . as a result , there can be no assurance that the removal of these channels will not have a material adverse effect on our business , results of operations and financial condition or otherwise disrupt our business . we can not predict with any certainty the impact to our net pay-tv subscriber additions , gross new dish tv subscriber activations , and dish tv churn rate resulting from additional programming interruptions or threatened programming interruptions that may occur in the future . as a result , we may at times suffer from periods of lower net pay-tv subscriber additions or higher net pay-tv subscriber losses . 71 operations and customer service while competitive factors have impacted the entire pay-tv industry , our relative performance has also been driven by issues specific to us . in the past , our subscriber growth has been adversely affected by signal theft and other forms of fraud and by our operational inefficiencies . for our dish tv services , in order to combat signal theft and improve the security of our broadcast system , we use microchips embedded in credit card sized access cards , called “ smart cards , ” or security chips in our dbs receiver systems to control access to authorized programming content ( “ security access devices ” ) . we expect that future replacements of these devices may be necessary to keep our system secure . to combat other forms of fraud , among other things , we monitor our independent third-party distributors ' and independent third-party retailers ' adherence to our business rules . furthermore , for our sling tv services , we encrypt programming content and use digital rights management software to , among other things , prevent unauthorized access to our programming content . while we have made improvements in responding to and dealing with customer service issues , we continue to focus on the prevention of these issues , which is critical to our business , financial condition and results of operations . to improve our operational performance , we continue to make investments in staffing , training , information systems , and other initiatives , primarily in our call center and in-home service operations . these investments are intended to help combat inefficiencies introduced by the increasing complexity of our business , improve customer satisfaction , reduce churn , increase productivity , and allow us to scale better over the long run . we can not be certain , however , that our spending will ultimately be successful in improving our operational performance . changes in our technology we have been deploying dbs receivers for our dish tv services that utilize 8psk modulation technology with mpeg-4 compression technology for several years . these technologies , when fully deployed , will allow improved broadcast efficiency , and therefore allow increased programming capacity . many of our customers today , however , do not have dbs receivers that use mpeg-4 compression technology . in addition , given that all of our hd content is broadcast in mpeg-4 , any growth in hd penetration will naturally accelerate our transition to these newer technologies and may increase our retention costs . all new dbs receivers have mpeg-4 compression with 8psk modulation technology . in addition , from time to time , we change equipment for certain subscribers to make more efficient use of transponder capacity in support of hd and other initiatives . we believe that the benefit from the increase in available transponder capacity outweighs the short-term cost of these equipment changes . explanation of key metrics and other items subscriber-related revenue . “ subscriber-related revenue ” consists principally of revenue from basic , local , premium movie , pay-per-view , latino and international subscriptions ; equipment rental fees and other hardware related fees , including dvrs and fees from subscribers with multiple receivers ; advertising services ; fees earned from our smart home service operations ; broadband services ; warranty services ; and other subscriber revenue . certain of the amounts included in “ subscriber-related revenue ” are not recurring on a monthly basis . equipment sales and other revenue . “ equipment sales and other revenue ” principally includes the non-subsidized sales of dbs accessories to independent third-party retailers and other independent third-party distributors of our equipment , sales of digital receivers and related components to third-party pay-tv providers and revenue from services and other agreements with echostar . subscriber-related expenses . “ subscriber-related expenses ” principally include programming expenses , which represent a substantial majority of these expenses . “ subscriber-related expenses ” also include costs for pay-tv and broadband services incurred in connection with our subscriber retention , smart
| liquidity and capital resources cash and cash flows the company 's cash and cash equivalents were $ 9.8 million as of december 31 , 2014 , $ 8.7 million as of december 31 , 2013 and $ 14.2 million as of december 31 , 2012. the following table sets forth the historical cash flows for the years ended december 31 : replace_table_token_4_th 2014 cash provided by operating activities decreased $ 42.9 million in 2014 compared to the prior year due primarily to an unfavorable change in working capital of $ 173.0 million partially offset by an increase in net income of $ 78.3 million , an increase in depreciation and amortization of $ 18.1 million , and a favorable change in deferred taxes of $ 25.4 million due to tax benefits resulting from higher capital expenditures . the unfavorable change in working capital is primarily due to the following : an unfavorable change of $ 148.1 million in accounts receivable due to higher business activity levels in 2014 compared to prior year ; an unfavorable change of $ 43.8 million in inventories due to an increase in materials and supplies that require longer lead times ; an unfavorable change of $ 3.4 million in other current assets due to lower deposits for raw materials ; and an unfavorable net change of $ 13.4 million in net current income taxes receivable/payable . these unfavorable changes were partially offset by a favorable change in accounts payable of $ 22.4 million ; a favorable change in accrued payroll of $ 8.6 million ; and a favorable change of $ 4.1 million in accrued state , local and other taxes due to higher business activity levels coupled with the timing of payments . cash used for investing activities in 2014 increased by $ 147.7 million compared to 2013 , primarily as a result of higher capital expenditures primarily directed to expand or maintain our revenue-producing equipment .
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as the share exchange was a transaction between entities that are under common control accounting rules require that our consolidated financial statements include the results of the transferred businesses for all periods presented , including periods prior to the completion of the share exchange . we initially recorded the transferred businesses at echostar 's historical cost basis . the difference between the historical cost basis of the transferred businesses and the net carrying value of the tracking stock was recorded in “ additional paid-in capital ” on our consolidated balance sheets . the results of the transferred businesses were prepared from separate records maintained by echostar for the periods prior to march 1 , 2017 , and may not necessarily be indicative of the conditions that would have existed , or the results of operations , if the transferred businesses had been operated on a combined basis with our subsidiaries . see note 2 in the notes to our consolidated financial statements in this annual report on form 10-k for further information . wireless since 2008 , we have directly invested over $ 11 billion to acquire certain wireless spectrum licenses and related assets and made over $ 10 billion in non-controlling investments in certain entities , for a total of over $ 21 billion , as described further below . dish network spectrum we have directly invested over $ 11 billion to acquire certain wireless spectrum licenses and related assets . these wireless spectrum licenses are subject to certain interim and final build-out requirements , as well as certain renewal requirements . in march 2017 , we notified the fcc that we plan to deploy a next-generation 5g-capable network , focused on supporting narrowband iot . we expect to complete the first phase by march 2020 , with subsequent phases to be completed thereafter . as of december 31 , 2018 , we had entered into vendor contracts with multiple parties for , among other things , base stations , chipsets , modules , tower leases , the core network , rf design , and deployment services for the first phase . among other things , initial rf design in connection with the first phase is now complete , we have secured certain tower sites , and we are in the process of identifying and securing additional tower sites . the core network has been installed and commissioned . we installed the first base stations on sites in 2018 , and plan to continue deployment until complete . we currently expect expenditures for our wireless projects to be between $ 500 million and $ 1.0 billion through 2020. we expect the second phase to follow o nce the 3gpp release 16 is standardized and as our plans for our other spectrum holdings develop , we plan to upgrade and expand our network to full 5g to support new use cases . we currently expect expenditures for the second phase to be approximately $ 10 billion . we will need to make significant additional investments or partner with others to , among other things , commercialize , build-out , and integrate these licenses and related assets , and any additional acquired licenses and related assets ; and comply with regulations applicable to such licenses . depending on the nature and scope of such commercialization , build-out , integration efforts , and regulatory compliance , any such investments or partnerships could vary significantly . in addition , as we consider our options for the commercialization of our wireless spectrum , we will incur significant additional expenses and will have to make significant investments related to , among other things , research and development , wireless testing and wireless network infrastructure . we may also determine that additional wireless spectrum licenses may be required to commercialize our wireless business and to compete with other wireless service providers . see note 14 “ commitments and contingencies – commitments – wireless – dish network spectrum ” in the notes to our consolidated financial statements in this annual report on form 10-k for further information . 68 dish network non-controlling investments in the northstar entities and the snr entities related to aws-3 wireless spectrum licenses during 2015 , through our wholly-owned subsidiaries american ii and american iii , we initially made over $ 10 billion in certain non-controlling investments in northstar spectrum , the parent company of northstar wireless , and in snr holdco , the parent company of snr wireless , respectively . on october 27 , 2015 , the fcc granted certain aws-3 licenses to northstar wireless and to snr wireless , respectively , which are recorded in “ fcc authorizations ” on our consolidated balance sheets . under the applicable accounting guidance in asc 810 , northstar spectrum and snr holdco are considered variable interest entities and , based on the characteristics of the structure of these entities and in accordance with the applicable accounting guidance , we consolidate these entities into our financial statements . see note 2 in the notes to our consolidated financial statements in this annual report on form 10-k for further information . the aws-3 licenses are subject to certain interim and final build-out requirements , as well as certain renewal requirements . the northstar entities and or the snr entities may need to raise significant additional capital in the future , which may be obtained from third party sources or from us , so that the northstar entities and the snr entities may commercialize , build-out and integrate these aws-3 licenses , comply with regulations applicable to such aws-3 licenses , and make any potential northstar re-auction payment and snr re-auction payment for the aws-3 licenses retained by the fcc . depending upon the nature and scope of such commercialization , build-out , integration efforts , regulatory compliance , and potential northstar re-auction payment and snr re-auction payment , any loans , equity contributions or partnerships could vary significantly . story_separator_special_tag however , over the long term , we anticipate that we will be able to provide more compelling offers to our subscribers , particularly containing latino programming because of , among other things , our ability to provide more flexible and lower cost programming and because certain univision programming is also available through alternative methods including over the air antennas and directly from univision over the internet . in addition , in october 2018 , at & t removed its hbo and cinemax channels from our dish tv and sling tv programming lineup , as we and at & t have been unable to negotiate the terms and conditions of a new programming carriage contract . at & t offers its programming , including its hbo and cinemax channels , directly to consumers over the internet and provides hbo for free to subscribers of its streaming service at & t 's “ watch tv . ” we experienced a higher dish tv churn rate , higher net pay-tv subscriber losses and lower gross new dish tv subscriber activations during the third and fourth quarter 2018 and continuing into the first quarter 2019 , when univision and at & t removed certain of their channels from our dish tv and sling tv programming lineup . as a result , there can be no assurance that the removal of these channels will not have a material adverse effect on our business , results of operations and financial condition or otherwise disrupt our business . we can not predict with any certainty the impact to our net pay-tv subscriber additions , gross new dish tv subscriber activations , and dish tv churn rate resulting from additional programming interruptions or threatened programming interruptions that may occur in the future . as a result , we may at times suffer from periods of lower net pay-tv subscriber additions or higher net pay-tv subscriber losses . 71 operations and customer service while competitive factors have impacted the entire pay-tv industry , our relative performance has also been driven by issues specific to us . in the past , our subscriber growth has been adversely affected by signal theft and other forms of fraud and by our operational inefficiencies . for our dish tv services , in order to combat signal theft and improve the security of our broadcast system , we use microchips embedded in credit card sized access cards , called “ smart cards , ” or security chips in our dbs receiver systems to control access to authorized programming content ( “ security access devices ” ) . we expect that future replacements of these devices may be necessary to keep our system secure . to combat other forms of fraud , among other things , we monitor our independent third-party distributors ' and independent third-party retailers ' adherence to our business rules . furthermore , for our sling tv services , we encrypt programming content and use digital rights management software to , among other things , prevent unauthorized access to our programming content . while we have made improvements in responding to and dealing with customer service issues , we continue to focus on the prevention of these issues , which is critical to our business , financial condition and results of operations . to improve our operational performance , we continue to make investments in staffing , training , information systems , and other initiatives , primarily in our call center and in-home service operations . these investments are intended to help combat inefficiencies introduced by the increasing complexity of our business , improve customer satisfaction , reduce churn , increase productivity , and allow us to scale better over the long run . we can not be certain , however , that our spending will ultimately be successful in improving our operational performance . changes in our technology we have been deploying dbs receivers for our dish tv services that utilize 8psk modulation technology with mpeg-4 compression technology for several years . these technologies , when fully deployed , will allow improved broadcast efficiency , and therefore allow increased programming capacity . many of our customers today , however , do not have dbs receivers that use mpeg-4 compression technology . in addition , given that all of our hd content is broadcast in mpeg-4 , any growth in hd penetration will naturally accelerate our transition to these newer technologies and may increase our retention costs . all new dbs receivers have mpeg-4 compression with 8psk modulation technology . in addition , from time to time , we change equipment for certain subscribers to make more efficient use of transponder capacity in support of hd and other initiatives . we believe that the benefit from the increase in available transponder capacity outweighs the short-term cost of these equipment changes . explanation of key metrics and other items subscriber-related revenue . “ subscriber-related revenue ” consists principally of revenue from basic , local , premium movie , pay-per-view , latino and international subscriptions ; equipment rental fees and other hardware related fees , including dvrs and fees from subscribers with multiple receivers ; advertising services ; fees earned from our smart home service operations ; broadband services ; warranty services ; and other subscriber revenue . certain of the amounts included in “ subscriber-related revenue ” are not recurring on a monthly basis . equipment sales and other revenue . “ equipment sales and other revenue ” principally includes the non-subsidized sales of dbs accessories to independent third-party retailers and other independent third-party distributors of our equipment , sales of digital receivers and related components to third-party pay-tv providers and revenue from services and other agreements with echostar . subscriber-related expenses . “ subscriber-related expenses ” principally include programming expenses , which represent a substantial majority of these expenses . “ subscriber-related expenses ” also include costs for pay-tv and broadband services incurred in connection with our subscriber retention , smart
| cash flows from operating activities . we typically reinvest the cash flow from operating activities in our business primarily to grow our subscriber base , expand our infrastructure , make strategic investments , such as significant investments in wireless , including commercialization of our wireless spectrum , and repay debt obligations . for the years ended december 31 , 2018 , 2017 and 2016 , we reported “ net cash flows from operating activities ” of $ 2.518 billion , $ 2.780 billion and $ 2.854 billion , respectively . net cash flows from operating activities from 2017 to 2018 decreased $ 262 million , primarily attributable to a decrease in cash flows resulting from changes in operating assets and liabilities principally attributable to timing differences between book expense and cash payments , including income taxes . this decrease was partially offset by a $ 267 million increase in income adjusted to exclude non-cash charges for “ realized and unrealized losses ( gains ) on investments , ” “ depreciation and amortization ” expense , “ impairment of long-lived assets ” and “ deferred tax expense ( benefit ) . ” net cash flows from operating activities from 2016 to 2017 decreased $ 74 million , primarily attributable to a $ 317 million decrease in income adjusted to exclude non-cash charges for “ realized and unrealized losses ( gains ) on investments , ” “ depreciation and amortization ” expense , “ impairment of long-lived assets ” and “ deferred tax expense ( benefit ) , ” partially offset by an increase in cash flows resulting from changes in operating assets and liabilities principally attributable to timing differences between book expense and cash payments . cash flows from investing activities .
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without access to working capital from profitable operations , through equity , or by incurring additional debt , we may not be able to execute our growth strategy or pursue additional projects , which could adversely impact our results of operations , and may impair our longer term viability . 4 our ability to secure project financing for project development and our outstanding loans and line of credit from cdb may be adversely impacted by ldk solar 's liquidation and our default under our cathay bank loan agreement . as shown in the accompanying consolidated financial statements , the company incurred a net loss of $ 32.2 million during the year ended december 31 , 2013 and has an accumulated deficit of $ 56.1 million as of december 31 , 2013. working capital levels have decreased significantly from $ 22.4 million at december 31 , 2012 to negative $ 36.6 million at december 31 , 2013. in february 2014 , the company 's parent company , ldk , who owns approximately 71 % of the company 's outstanding common stock , announced that ldk filed an application for provisional liquidation in the cayman islands in connection with its plans to resolve its offshore liquidity issues . it is unknown at this time if ldk 's joint provisional liquidation will require or result in the company disposing of assets in an orderly manner , in a liquidation scenario or at all . if the company is required to dispose of assets to satisfy ldk 's creditors , it could result in the company incurring losses . we are experiencing the following risks and uncertainties in our business : as of december 31 , 2013 and 2012 , the company has accounts payable due to ldk of $ 50.9 million and $ 51.8 million , respectively . all of the accounts payable due to ldk are currently past due and payable to ldk . although there are no formal agreements , ldk has verbally indicated that it will not demand payment until the receivable from the customer has been collected . in light of ldk 's recent filing for liquidation , it is unclear whether or not ldk will be able to continue to allow the company to defer repayment to ldk . should ldk change its position and demand payment for the past due amount prior to collection of the related receivable from the customer , the company does not have the ability to make the payment currently due without additional sources of financing or accelerating the collection of outstanding receivables . with ldk as a majority shareholder , the significant risks and uncertainties associated with their filing for liquidation by ldk could have a significant negative impact on the financial viability of solar power , inc. as well as indicate an inability for ldk to support the company 's business . on march 25 , 2014 , solar power , inc. ( the “ company ” ) received notice from cathay bank stating that the company is in default under the business loan agreement dated december 26 , 2011 and as amended on january 2 , 2013 ( the “ loan agreement ” ) due to ( i ) the company failing to make payments as due pursuant to the loan agreement and pursuant to the forbearance agreements entered into between the parties , and ( ii ) the guarantor , ldk , filing an application for provisional liquidation in the cayman islands on february 24 , 2014. based on these events of default , cathay bank has accelerated the entire principal balance due under the loan agreement . the company owes approximately $ 4.25 million under the loan agreement , plus accrued interest and fees . the balance under the loan agreement will continue to incur interest at 11 % per year . if the company can not remedy the default , the company does not have the ability to make the payments without additional sources of financing or accelerating the collection of outstanding receivables . since the loan balance is secured by the company 's assets , cathay bank may foreclose on the collateral securing the loan which could significantly impact our business and our financial results . china development bank ( “ cdb ” ) has provided financing for construction and project financing on certain development projects in the past . they have also executed non-binding term sheets for other projects , but there is no assurance that the projects in process will be funded by cdb . cdb has been financing the company 's projects primarily because the company 's majority shareholder is ldk and cdb has a long term relationship with ldk . due to ldk 's financial difficulties and liquidation , certain financing of the company 's projects have been delayed . if cdb will no longer provide financing for the projects , the company will need to seek construction financing from other sources which could be very difficult given the company 's financial condition and its recent default under the cathay bank loan agreement as further described below . the company has completed projects in greece with a customer that is requesting debt term financing from cdb . because cdb has not yet provided the term financing , the company will collect its outstanding receivables on these projects from the operation 's cash proceeds over an extended period of time of up to six years and has reflected the receivables as noncurrent on the balance sheet . however , the customer continues to have discussions with cdb about financing , and if financing is obtained , collection of our receivables may be accelerated . the company has also completed an additional commercial scale project in new jersey with kdc solar , which is currently seeking debt term financing from cdb . story_separator_special_tag if these net metering caps are reached and local utilities are not required to purchase solar power , or if the net metering caps do not increase in the locations where we install our solar product , demand for our products could decrease . the solar industry is currently lobbying to extend these arbitrary net metering caps and replace them with either notably higher numbers or with a revised method of calculation that will allow the industry to continue our expansion in a manner consistent with both the industry and state and federal desires . moreover , we anticipate that our solar power installation will be subject to oversight and regulation in accordance with national and local ordinances relating to building codes , safety , environmental protection , utility interconnection and metering and related matters . 9 it is difficult to track the requirements of individual states and design equipment to comply with the varying standards . any new government regulations or utility policies pertaining to our solar power products may result in significant additional expenses to us , our resellers , and our customers and as a result , could cause a significant reduction in demand for our solar power products . compliance with environmental regulations can be expensive and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines . we are required to comply with extensive environmental laws and regulations at the national , state , local , and international levels . these environmental laws and regulations include those governing the discharge of pollutants into the air and water , the use , management , and disposal of hazardous materials and wastes , the cleanup of contaminated sites , and occupational health and safety . we have incurred and will continue to incur significant costs and capital expenditures in complying with these laws and regulations . in addition , violations of or liabilities under environmental laws or permits may result in restrictions being imposed on our operating activities or in our being subjected to substantial fines , penalties , criminal proceedings , third party property damage or personal injury claims , cleanup costs , or other costs . while we believe we are currently in substantial compliance with applicable environmental requirements , future developments such as more aggressive enforcement policies , and the implementation of new , more stringent laws and regulations , or the discovery of presently unknown environmental conditions may require expenditures that could have a material adverse effect on our business , results of operations , and financial condition . we generally recognize revenue on system installations on a “ percentage of completion ” basis and payments are due upon the achievement of contractual milestones and any delay or cancellation of a project could adversely affect our business . we generally recognize revenue on our system installations on a “ percentage of completion ” basis , and as a result , our revenues from these installations are driven by the performance of our contractual obligations , which is generally driven by timelines for the installation of our solar power systems at customer sites . this could result in unpredictability of revenue and in the near term , a revenue decrease . as with any project-related business , there is the potential for delays within any particular customer project . variation of project timelines and estimates may impact our ability to recognize revenue in a particular period . in addition , certain customer contracts may include payment milestones due at specified points during a project . because we must invest substantial time and incur significant expense in advance of achieving milestones and the receipt of payments , failure to achieve milestones could adversely affect our business and results of operations . we are subject to particularly lengthy sales cycles in some markets . our focus on developing a customer base that requires installation of a solar power system means that it may take longer to develop strong customer relationships or partnerships . moreover , factors specific to certain industries also have an impact on our sales cycles . some of our customers may have longer sales cycles that could occur due to the timing of various state and federal subsidies . these lengthy and challenging sales cycles may mean that it could take longer before our sales and marketing efforts result in revenue , if at all , and may have adverse effects on our operating results , financial condition , cash flows and stock price . our competitive position depends in part on maintaining intellectual property protection . our ability to compete and to achieve and maintain profitability depends in part on our ability to protect our proprietary discoveries and technologies . we currently rely on a combination of copyrights , trademarks , trade secret laws and confidentiality agreements to protect our intellectual property rights . we also rely upon unpatented know-how and continuing technological innovation to develop and maintain our competitive position . from time to time , the u.s. supreme court , other federal courts , the u.s. congress or the u.s. patent and trademark office may change the standards of patentability , and any such changes could have a negative impact on our business . 10 we may face intellectual property infringement claims that could be time-consuming and costly to defend and result in our loss of significant rights and the assessment of damages . if we receive notice of claims of infringement , misappropriation or misuse of other parties ' proprietary rights , some of these claims could lead to litigation . we can not provide assurance that we will prevail in these actions or that other actions alleging misappropriation or misuse by us of third-party trade secrets , infringement by us of third-party patents and trademarks or the validity of our patents will not be asserted or prosecuted against us . we may also initiate claims to defend our intellectual property rights .
| cash flows from operating activities . we typically reinvest the cash flow from operating activities in our business primarily to grow our subscriber base , expand our infrastructure , make strategic investments , such as significant investments in wireless , including commercialization of our wireless spectrum , and repay debt obligations . for the years ended december 31 , 2018 , 2017 and 2016 , we reported “ net cash flows from operating activities ” of $ 2.518 billion , $ 2.780 billion and $ 2.854 billion , respectively . net cash flows from operating activities from 2017 to 2018 decreased $ 262 million , primarily attributable to a decrease in cash flows resulting from changes in operating assets and liabilities principally attributable to timing differences between book expense and cash payments , including income taxes . this decrease was partially offset by a $ 267 million increase in income adjusted to exclude non-cash charges for “ realized and unrealized losses ( gains ) on investments , ” “ depreciation and amortization ” expense , “ impairment of long-lived assets ” and “ deferred tax expense ( benefit ) . ” net cash flows from operating activities from 2016 to 2017 decreased $ 74 million , primarily attributable to a $ 317 million decrease in income adjusted to exclude non-cash charges for “ realized and unrealized losses ( gains ) on investments , ” “ depreciation and amortization ” expense , “ impairment of long-lived assets ” and “ deferred tax expense ( benefit ) , ” partially offset by an increase in cash flows resulting from changes in operating assets and liabilities principally attributable to timing differences between book expense and cash payments . cash flows from investing activities .
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without access to working capital from profitable operations , through equity , or by incurring additional debt , we may not be able to execute our growth strategy or pursue additional projects , which could adversely impact our results of operations , and may impair our longer term viability . 4 our ability to secure project financing for project development and our outstanding loans and line of credit from cdb may be adversely impacted by ldk solar 's liquidation and our default under our cathay bank loan agreement . as shown in the accompanying consolidated financial statements , the company incurred a net loss of $ 32.2 million during the year ended december 31 , 2013 and has an accumulated deficit of $ 56.1 million as of december 31 , 2013. working capital levels have decreased significantly from $ 22.4 million at december 31 , 2012 to negative $ 36.6 million at december 31 , 2013. in february 2014 , the company 's parent company , ldk , who owns approximately 71 % of the company 's outstanding common stock , announced that ldk filed an application for provisional liquidation in the cayman islands in connection with its plans to resolve its offshore liquidity issues . it is unknown at this time if ldk 's joint provisional liquidation will require or result in the company disposing of assets in an orderly manner , in a liquidation scenario or at all . if the company is required to dispose of assets to satisfy ldk 's creditors , it could result in the company incurring losses . we are experiencing the following risks and uncertainties in our business : as of december 31 , 2013 and 2012 , the company has accounts payable due to ldk of $ 50.9 million and $ 51.8 million , respectively . all of the accounts payable due to ldk are currently past due and payable to ldk . although there are no formal agreements , ldk has verbally indicated that it will not demand payment until the receivable from the customer has been collected . in light of ldk 's recent filing for liquidation , it is unclear whether or not ldk will be able to continue to allow the company to defer repayment to ldk . should ldk change its position and demand payment for the past due amount prior to collection of the related receivable from the customer , the company does not have the ability to make the payment currently due without additional sources of financing or accelerating the collection of outstanding receivables . with ldk as a majority shareholder , the significant risks and uncertainties associated with their filing for liquidation by ldk could have a significant negative impact on the financial viability of solar power , inc. as well as indicate an inability for ldk to support the company 's business . on march 25 , 2014 , solar power , inc. ( the “ company ” ) received notice from cathay bank stating that the company is in default under the business loan agreement dated december 26 , 2011 and as amended on january 2 , 2013 ( the “ loan agreement ” ) due to ( i ) the company failing to make payments as due pursuant to the loan agreement and pursuant to the forbearance agreements entered into between the parties , and ( ii ) the guarantor , ldk , filing an application for provisional liquidation in the cayman islands on february 24 , 2014. based on these events of default , cathay bank has accelerated the entire principal balance due under the loan agreement . the company owes approximately $ 4.25 million under the loan agreement , plus accrued interest and fees . the balance under the loan agreement will continue to incur interest at 11 % per year . if the company can not remedy the default , the company does not have the ability to make the payments without additional sources of financing or accelerating the collection of outstanding receivables . since the loan balance is secured by the company 's assets , cathay bank may foreclose on the collateral securing the loan which could significantly impact our business and our financial results . china development bank ( “ cdb ” ) has provided financing for construction and project financing on certain development projects in the past . they have also executed non-binding term sheets for other projects , but there is no assurance that the projects in process will be funded by cdb . cdb has been financing the company 's projects primarily because the company 's majority shareholder is ldk and cdb has a long term relationship with ldk . due to ldk 's financial difficulties and liquidation , certain financing of the company 's projects have been delayed . if cdb will no longer provide financing for the projects , the company will need to seek construction financing from other sources which could be very difficult given the company 's financial condition and its recent default under the cathay bank loan agreement as further described below . the company has completed projects in greece with a customer that is requesting debt term financing from cdb . because cdb has not yet provided the term financing , the company will collect its outstanding receivables on these projects from the operation 's cash proceeds over an extended period of time of up to six years and has reflected the receivables as noncurrent on the balance sheet . however , the customer continues to have discussions with cdb about financing , and if financing is obtained , collection of our receivables may be accelerated . the company has also completed an additional commercial scale project in new jersey with kdc solar , which is currently seeking debt term financing from cdb . story_separator_special_tag if these net metering caps are reached and local utilities are not required to purchase solar power , or if the net metering caps do not increase in the locations where we install our solar product , demand for our products could decrease . the solar industry is currently lobbying to extend these arbitrary net metering caps and replace them with either notably higher numbers or with a revised method of calculation that will allow the industry to continue our expansion in a manner consistent with both the industry and state and federal desires . moreover , we anticipate that our solar power installation will be subject to oversight and regulation in accordance with national and local ordinances relating to building codes , safety , environmental protection , utility interconnection and metering and related matters . 9 it is difficult to track the requirements of individual states and design equipment to comply with the varying standards . any new government regulations or utility policies pertaining to our solar power products may result in significant additional expenses to us , our resellers , and our customers and as a result , could cause a significant reduction in demand for our solar power products . compliance with environmental regulations can be expensive and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines . we are required to comply with extensive environmental laws and regulations at the national , state , local , and international levels . these environmental laws and regulations include those governing the discharge of pollutants into the air and water , the use , management , and disposal of hazardous materials and wastes , the cleanup of contaminated sites , and occupational health and safety . we have incurred and will continue to incur significant costs and capital expenditures in complying with these laws and regulations . in addition , violations of or liabilities under environmental laws or permits may result in restrictions being imposed on our operating activities or in our being subjected to substantial fines , penalties , criminal proceedings , third party property damage or personal injury claims , cleanup costs , or other costs . while we believe we are currently in substantial compliance with applicable environmental requirements , future developments such as more aggressive enforcement policies , and the implementation of new , more stringent laws and regulations , or the discovery of presently unknown environmental conditions may require expenditures that could have a material adverse effect on our business , results of operations , and financial condition . we generally recognize revenue on system installations on a “ percentage of completion ” basis and payments are due upon the achievement of contractual milestones and any delay or cancellation of a project could adversely affect our business . we generally recognize revenue on our system installations on a “ percentage of completion ” basis , and as a result , our revenues from these installations are driven by the performance of our contractual obligations , which is generally driven by timelines for the installation of our solar power systems at customer sites . this could result in unpredictability of revenue and in the near term , a revenue decrease . as with any project-related business , there is the potential for delays within any particular customer project . variation of project timelines and estimates may impact our ability to recognize revenue in a particular period . in addition , certain customer contracts may include payment milestones due at specified points during a project . because we must invest substantial time and incur significant expense in advance of achieving milestones and the receipt of payments , failure to achieve milestones could adversely affect our business and results of operations . we are subject to particularly lengthy sales cycles in some markets . our focus on developing a customer base that requires installation of a solar power system means that it may take longer to develop strong customer relationships or partnerships . moreover , factors specific to certain industries also have an impact on our sales cycles . some of our customers may have longer sales cycles that could occur due to the timing of various state and federal subsidies . these lengthy and challenging sales cycles may mean that it could take longer before our sales and marketing efforts result in revenue , if at all , and may have adverse effects on our operating results , financial condition , cash flows and stock price . our competitive position depends in part on maintaining intellectual property protection . our ability to compete and to achieve and maintain profitability depends in part on our ability to protect our proprietary discoveries and technologies . we currently rely on a combination of copyrights , trademarks , trade secret laws and confidentiality agreements to protect our intellectual property rights . we also rely upon unpatented know-how and continuing technological innovation to develop and maintain our competitive position . from time to time , the u.s. supreme court , other federal courts , the u.s. congress or the u.s. patent and trademark office may change the standards of patentability , and any such changes could have a negative impact on our business . 10 we may face intellectual property infringement claims that could be time-consuming and costly to defend and result in our loss of significant rights and the assessment of damages . if we receive notice of claims of infringement , misappropriation or misuse of other parties ' proprietary rights , some of these claims could lead to litigation . we can not provide assurance that we will prevail in these actions or that other actions alleging misappropriation or misuse by us of third-party trade secrets , infringement by us of third-party patents and trademarks or the validity of our patents will not be asserted or prosecuted against us . we may also initiate claims to defend our intellectual property rights .
| liquidity a summary of the sources and uses of cash and cash equivalents is as follows : replace_table_token_1_th 23 as of december 31 , 2013 and 2012 , we had $ 1.0 million and $ 17.8 million , respectively , in cash and cash equivalents . operating activities – net cash provided by operating activities of $ 11.2 million for the year ended december 31 , 2013 which resulted primarily from the decreases in costs and estimated earnings in excess of billing on uncompleted contracts of $ 28.7 million , decreases in construction in progress of $ 16.0 million , decreases in accounts receivable of $ 15.3 million , increases in accounts payable of $ 2.4 million , decreases in inventories of $ 1.6 million . these amounts were partially offset by the $ 32.2 million net loss which includes a gain on deconsolidation of sgt of $ 3.5 million and non-cash activity related to the solar system subject to financing obligation of $ 1.2 million , offset in part by non-cash items consisting of depreciation and amortization of $ 1.9 million , bad debt expense of $ 9.3 million , impairment charges of $ 7.5 million and impairment of project assets of $ 2.8 million .
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we intend to maximize shareholder value through a well-defined business strategy that incorporates the following elements : · leasing and managing our shopping centers to increase occupancy , maximize rental income , and control operating expenses and capital expenditures ; · redeveloping our centers to increase gross leasable area , reconfigure space for credit tenants , create outparcels , sell excess land , and generally make the centers more desirable for our tenants and their shoppers ; · acquiring new shopping centers that are located in targeted metropolitan markets and that provide opportunities to add value through intensive leasing , management , or redevelopment ; · developing our land held for development into income-producing investment property , subject to market demand , availability of capital and adequate returns on our incremental capital ; · selling non-core shopping centers and redeploying the proceeds into investments that meet our criteria ; · selling available-for-sale land parcels and using the proceeds to pay down debt or reinvest in our business ; · maintaining a strong and flexible balance sheet by capitalizing our company with a moderate ratio of debt to equity and by financing our investment activities with various forms and sources of capital ; and · managing our overall enterprise to create an efficient organization with a strong corporate culture and transparent disclosure for all stakeholders . 23 the economic performance and value of our shopping centers are dependent on various factors . the general economic environment in the united states and credit availability began to see improvement during 2011 but continued high unemployment and the slower rate of growth may affect our tenant 's abilities to pay base rent , percentage rent or other charges , which may adversely affect our financial condition and results of operations . further , our ability to re-lease vacant spaces may be negatively impacted by the slow national economic recovery . these factors may impact the valuation of certain long-lived or intangible assets that are subject to impairment testing , potentially resulting in impairment provisions which may be material to our financial condition or results of operations . while we believe the locations of our centers and our diverse tenant base should mitigate the negative impact of the economic environment , we may experience an increase in vacancy that will have a negative impact on our revenue and bad debt expense . we continue to monitor our tenants ' operating performance as well as trends in the retail industry to evaluate any future impact . significant operating , investing and financing transactions operating activity during 2011 , we improved our portfolio of shopping centers through aggressive leasing . specifically , we completed the following : · renewed 82 % of the leases that expired during the year , comprised of 233 renewal leases totaling 1.2 million square feet at an average base rent of $ 13.25 per square foot , a 1.5 % increase over the average expiring base rent ; · executed 152 new leases comprised of 0.9 million square feet at an average base rent of $ 12.20 per square foot . for new leases for space which had previously been leased on a comparable basis , the average base rent was $ 12.78 per square foot , a 10.5 % decrease over the prior rent period ; · reduced the number of vacant anchor spaces ( spaces ≥ 19,000 square feet ) from fifteen to eight ; and · reduced the number of anchor tenants that were lease obligated , but not in occupancy , from nine to six . also , during 2011 , we continued our strategy of redeveloping centers on a selective basis . in particular , we completed two redevelopment projects for which our proportionate share of costs was $ 15.6 million and commenced two redevelopment projects for which our proportionate share of cost to be $ 2.4 million . we expect to identify new redevelopment projects periodically provided such projects are driven by market demand and generate suitable returns on our investment . investment activity during 2011 , we entered st. louis , missouri , a new market for us , through the acquisition of two high-quality grocery-anchored shopping centers located in high-income trade areas for an aggregate investment of $ 77.3 million . specifically , we acquired : · town and country crossing , a 141,996 square foot grocery-anchored shopping center located in suburban st. louis , missouri for $ 37.9 million ; and · heritage place , a 269,254 square foot grocery-anchored shopping center located in suburban st. louis , missouri for $ 39.4 million . also during 2011 , we sold three shopping centers and three outparcels where we believed we had maximized value for aggregate net proceeds to us of $ 28.8 million . specifically , we sold : · a shopping center located in tamarac , florida for $ 15.0 million , resulting in a small loss while generating approximately $ 14.3 million in net cash proceeds ; · a shopping center located in lantana , florida for $ 16.9 million , resulting in a net gain of $ 6.2 million and generating $ 6.9 million in net proceeds ; · a shopping center located in taylors , south carolina for $ 4.3 million , resulting in a net gain of $ 1.0 million and generating $ 3.8 million in net proceeds ; and · three outparcels located in florida for an aggregate of approximately $ 4.0 million , resulting in a net gain of $ 2.4 million and generating $ 3.8 million in net proceeds . 24 financing activity during 2011 , we strengthened our capital structure by raising common and preferred equity , replacing short-term secured bank debt with longer-term unsecured bank debt , lengthening our debt maturities , and locking in interest rates for 5-7 years through interest rate swaps that qualify as cash flow hedges . story_separator_special_tag because we can influence but not make significant decisions without our partner 's approval these investments are accounted for under the equity method of accounting . we provide leasing , development , asset and property management services to these joint ventures for which we are paid fees . entities identified as variable interest entities are consolidated if we are determined to be the primary beneficiary of the partially owned real estate joint venture . refer to note 8 of the notes to the consolidated financial statements for further information . we review our equity investments in unconsolidated entities for impairment on a venture-by-venture basis whenever events of changes in circumstances indicate that the carrying value of the equity investment may not be recoverable . these changes in circumstances include , but are not limited to , declines in real estate values in general , increases in interest rates in general , or decreases in net operating income and occupancy of the properties held in the unconsolidated joint venture . in testing for impairment of equity investments in unconsolidated entities , we primarily use cash flow models , discount rates , and capitalization rates to estimate the fair values of properties held in joint ventures , and mark the debt of the joint ventures to market . determining whether an equity investment in an unconsolidated entity is impaired and , if so , the amount of the impairment requires considerable management judgment . changes to assumptions regarding cash flows , discount rates , or capitalization rates could be material to our consolidated financial statements . we record an impairment provision when it is determined that a decline in value is other than temporary . in 2011 , we recorded a non-cash impairment provision of $ 9.6 million resulting from other-than-temporary declines in the fair market value of various equity investments in unconsolidated joint ventures . refer to note 7 of the notes to the consolidated financial statements for further information . fair value measurements certain financial instruments , estimates and transactions are required to be calculated , reported and or recorded at fair value . the estimated fair values of such financial items , including , debt instruments , impairments , acquisitions and derivatives , have been determined using a market-based measurement . this measurement is determined based on the assumptions that management believes market participants would use in pricing an asset or liability . as a basis for considering market participant assumptions in fair value measurements , gaap establishes three fair value levels , based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value . the assessed inputs used in determining any fair value measurement could result in incorrect valuations that could be material to our consolidated financial statements . these levels are : level 1 valuation is based upon quoted prices for identical instruments traded in active markets . level 2 valuation is based upon quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , and model-based valuation techniques for which all significant assumptions are observable in the market . level 3 valuation is generated from model-based techniques that use at least one significant assumption not observable in the market . these unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability . 28 we utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures . derivative instruments ( interest rate swaps ) are recorded at fair value on a recurring basis . additionally , from time to time , we may be required to record certain assets , such as impaired real estate assets , at fair value on a nonrecurring basis . deferred charges debt financing costs are amortized primarily on a straight-line basis , which approximates the effective interest method , over the terms of the debt . lease costs represent the initial direct costs incurred in origination , negotiation and processing of a lease agreement . such costs include outside broker commissions , legal , and other independent third party costs , as well as salaries and benefits , travel , and other internal costs directly related to completing a lease and are amortized over the life of the lease on a straight-line basis . costs related to supervision , administration , unsuccessful originations efforts and other activities not directly related to the execution of leases are charged to expense as incurred . results of operations comparison of the year ended december 31 , 2011 to the year ended december 31 , 2010 the following summarizes certain line items from our audited statements of operations which we believe are important in understanding our operations and or those items that have significantly changed during the year ended december 31 , 2011 as compared to 2010 : replace_table_token_12_th nm - not meaningful total revenue increased $ 8.1 million , or 7.2 % , to $ 121.3 million for the year ended december 31 , 2011 from $ 113.2 million in 2010. the increase is primarily due to the following : · $ 7.0 million increase in minimum rent and tenant recovery income primarily related to our acquisitions in 2011 and 2010 ; and · $ 1.1 million increase in lease termination income . 29 recoverable operating expenses increased by $ 2.1 million , or 6.8 % , to $ 32.7 million in 2011 from $ 30.6 million in 2010 , primarily due to our acquisitions in 2011 and 2010. other non-recoverable operating expenses increased $ 0.5 million , or 17.3 % , to $ 3.7 million in 2011 from $ 3.2 million . the increase was primarily due to our acquisitions in 2010 and 2011. depreciation and amortization expense increased by $ 5.7 million , or 18.5 % , to $ 36.3 million in
| liquidity a summary of the sources and uses of cash and cash equivalents is as follows : replace_table_token_1_th 23 as of december 31 , 2013 and 2012 , we had $ 1.0 million and $ 17.8 million , respectively , in cash and cash equivalents . operating activities – net cash provided by operating activities of $ 11.2 million for the year ended december 31 , 2013 which resulted primarily from the decreases in costs and estimated earnings in excess of billing on uncompleted contracts of $ 28.7 million , decreases in construction in progress of $ 16.0 million , decreases in accounts receivable of $ 15.3 million , increases in accounts payable of $ 2.4 million , decreases in inventories of $ 1.6 million . these amounts were partially offset by the $ 32.2 million net loss which includes a gain on deconsolidation of sgt of $ 3.5 million and non-cash activity related to the solar system subject to financing obligation of $ 1.2 million , offset in part by non-cash items consisting of depreciation and amortization of $ 1.9 million , bad debt expense of $ 9.3 million , impairment charges of $ 7.5 million and impairment of project assets of $ 2.8 million .
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we intend to maximize shareholder value through a well-defined business strategy that incorporates the following elements : · leasing and managing our shopping centers to increase occupancy , maximize rental income , and control operating expenses and capital expenditures ; · redeveloping our centers to increase gross leasable area , reconfigure space for credit tenants , create outparcels , sell excess land , and generally make the centers more desirable for our tenants and their shoppers ; · acquiring new shopping centers that are located in targeted metropolitan markets and that provide opportunities to add value through intensive leasing , management , or redevelopment ; · developing our land held for development into income-producing investment property , subject to market demand , availability of capital and adequate returns on our incremental capital ; · selling non-core shopping centers and redeploying the proceeds into investments that meet our criteria ; · selling available-for-sale land parcels and using the proceeds to pay down debt or reinvest in our business ; · maintaining a strong and flexible balance sheet by capitalizing our company with a moderate ratio of debt to equity and by financing our investment activities with various forms and sources of capital ; and · managing our overall enterprise to create an efficient organization with a strong corporate culture and transparent disclosure for all stakeholders . 23 the economic performance and value of our shopping centers are dependent on various factors . the general economic environment in the united states and credit availability began to see improvement during 2011 but continued high unemployment and the slower rate of growth may affect our tenant 's abilities to pay base rent , percentage rent or other charges , which may adversely affect our financial condition and results of operations . further , our ability to re-lease vacant spaces may be negatively impacted by the slow national economic recovery . these factors may impact the valuation of certain long-lived or intangible assets that are subject to impairment testing , potentially resulting in impairment provisions which may be material to our financial condition or results of operations . while we believe the locations of our centers and our diverse tenant base should mitigate the negative impact of the economic environment , we may experience an increase in vacancy that will have a negative impact on our revenue and bad debt expense . we continue to monitor our tenants ' operating performance as well as trends in the retail industry to evaluate any future impact . significant operating , investing and financing transactions operating activity during 2011 , we improved our portfolio of shopping centers through aggressive leasing . specifically , we completed the following : · renewed 82 % of the leases that expired during the year , comprised of 233 renewal leases totaling 1.2 million square feet at an average base rent of $ 13.25 per square foot , a 1.5 % increase over the average expiring base rent ; · executed 152 new leases comprised of 0.9 million square feet at an average base rent of $ 12.20 per square foot . for new leases for space which had previously been leased on a comparable basis , the average base rent was $ 12.78 per square foot , a 10.5 % decrease over the prior rent period ; · reduced the number of vacant anchor spaces ( spaces ≥ 19,000 square feet ) from fifteen to eight ; and · reduced the number of anchor tenants that were lease obligated , but not in occupancy , from nine to six . also , during 2011 , we continued our strategy of redeveloping centers on a selective basis . in particular , we completed two redevelopment projects for which our proportionate share of costs was $ 15.6 million and commenced two redevelopment projects for which our proportionate share of cost to be $ 2.4 million . we expect to identify new redevelopment projects periodically provided such projects are driven by market demand and generate suitable returns on our investment . investment activity during 2011 , we entered st. louis , missouri , a new market for us , through the acquisition of two high-quality grocery-anchored shopping centers located in high-income trade areas for an aggregate investment of $ 77.3 million . specifically , we acquired : · town and country crossing , a 141,996 square foot grocery-anchored shopping center located in suburban st. louis , missouri for $ 37.9 million ; and · heritage place , a 269,254 square foot grocery-anchored shopping center located in suburban st. louis , missouri for $ 39.4 million . also during 2011 , we sold three shopping centers and three outparcels where we believed we had maximized value for aggregate net proceeds to us of $ 28.8 million . specifically , we sold : · a shopping center located in tamarac , florida for $ 15.0 million , resulting in a small loss while generating approximately $ 14.3 million in net cash proceeds ; · a shopping center located in lantana , florida for $ 16.9 million , resulting in a net gain of $ 6.2 million and generating $ 6.9 million in net proceeds ; · a shopping center located in taylors , south carolina for $ 4.3 million , resulting in a net gain of $ 1.0 million and generating $ 3.8 million in net proceeds ; and · three outparcels located in florida for an aggregate of approximately $ 4.0 million , resulting in a net gain of $ 2.4 million and generating $ 3.8 million in net proceeds . 24 financing activity during 2011 , we strengthened our capital structure by raising common and preferred equity , replacing short-term secured bank debt with longer-term unsecured bank debt , lengthening our debt maturities , and locking in interest rates for 5-7 years through interest rate swaps that qualify as cash flow hedges . story_separator_special_tag because we can influence but not make significant decisions without our partner 's approval these investments are accounted for under the equity method of accounting . we provide leasing , development , asset and property management services to these joint ventures for which we are paid fees . entities identified as variable interest entities are consolidated if we are determined to be the primary beneficiary of the partially owned real estate joint venture . refer to note 8 of the notes to the consolidated financial statements for further information . we review our equity investments in unconsolidated entities for impairment on a venture-by-venture basis whenever events of changes in circumstances indicate that the carrying value of the equity investment may not be recoverable . these changes in circumstances include , but are not limited to , declines in real estate values in general , increases in interest rates in general , or decreases in net operating income and occupancy of the properties held in the unconsolidated joint venture . in testing for impairment of equity investments in unconsolidated entities , we primarily use cash flow models , discount rates , and capitalization rates to estimate the fair values of properties held in joint ventures , and mark the debt of the joint ventures to market . determining whether an equity investment in an unconsolidated entity is impaired and , if so , the amount of the impairment requires considerable management judgment . changes to assumptions regarding cash flows , discount rates , or capitalization rates could be material to our consolidated financial statements . we record an impairment provision when it is determined that a decline in value is other than temporary . in 2011 , we recorded a non-cash impairment provision of $ 9.6 million resulting from other-than-temporary declines in the fair market value of various equity investments in unconsolidated joint ventures . refer to note 7 of the notes to the consolidated financial statements for further information . fair value measurements certain financial instruments , estimates and transactions are required to be calculated , reported and or recorded at fair value . the estimated fair values of such financial items , including , debt instruments , impairments , acquisitions and derivatives , have been determined using a market-based measurement . this measurement is determined based on the assumptions that management believes market participants would use in pricing an asset or liability . as a basis for considering market participant assumptions in fair value measurements , gaap establishes three fair value levels , based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value . the assessed inputs used in determining any fair value measurement could result in incorrect valuations that could be material to our consolidated financial statements . these levels are : level 1 valuation is based upon quoted prices for identical instruments traded in active markets . level 2 valuation is based upon quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , and model-based valuation techniques for which all significant assumptions are observable in the market . level 3 valuation is generated from model-based techniques that use at least one significant assumption not observable in the market . these unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability . 28 we utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures . derivative instruments ( interest rate swaps ) are recorded at fair value on a recurring basis . additionally , from time to time , we may be required to record certain assets , such as impaired real estate assets , at fair value on a nonrecurring basis . deferred charges debt financing costs are amortized primarily on a straight-line basis , which approximates the effective interest method , over the terms of the debt . lease costs represent the initial direct costs incurred in origination , negotiation and processing of a lease agreement . such costs include outside broker commissions , legal , and other independent third party costs , as well as salaries and benefits , travel , and other internal costs directly related to completing a lease and are amortized over the life of the lease on a straight-line basis . costs related to supervision , administration , unsuccessful originations efforts and other activities not directly related to the execution of leases are charged to expense as incurred . results of operations comparison of the year ended december 31 , 2011 to the year ended december 31 , 2010 the following summarizes certain line items from our audited statements of operations which we believe are important in understanding our operations and or those items that have significantly changed during the year ended december 31 , 2011 as compared to 2010 : replace_table_token_12_th nm - not meaningful total revenue increased $ 8.1 million , or 7.2 % , to $ 121.3 million for the year ended december 31 , 2011 from $ 113.2 million in 2010. the increase is primarily due to the following : · $ 7.0 million increase in minimum rent and tenant recovery income primarily related to our acquisitions in 2011 and 2010 ; and · $ 1.1 million increase in lease termination income . 29 recoverable operating expenses increased by $ 2.1 million , or 6.8 % , to $ 32.7 million in 2011 from $ 30.6 million in 2010 , primarily due to our acquisitions in 2011 and 2010. other non-recoverable operating expenses increased $ 0.5 million , or 17.3 % , to $ 3.7 million in 2011 from $ 3.2 million . the increase was primarily due to our acquisitions in 2010 and 2011. depreciation and amortization expense increased by $ 5.7 million , or 18.5 % , to $ 36.3 million in
| debt the following financing activity occurred during 2011 : · a new seven-year $ 60.0 million unsecured term loan . the net proceeds were used to repay four property mortgages aggregating approximately $ 22.0 million and to repay the $ 33.0 million outstanding balance ( as of september 30 , 2011 ) on our unsecured revolving line of credit ; · closed a new $ 24.7 million mortgage secured by the jackson crossing shopping center in jackson , michigan . the mortgage bears a fixed rate of 5.8 % and matures in april 2018 ; · repaid in full the $ 30.0 million secured term loan facility from borrowings under our secured credit facility , and used net proceeds from our cumulative convertible perpetual preferred share offering to repay our $ 30.0 million secured bridge loan and reduce borrowings on our credit facility ; and · repaid three wholly owned property mortgages secured by our lakeshore marketplace , beacon square , and gaines marketplace shopping centers and three land loans totaling $ 38.6 million . additionally , a $ 9.1 million non-recourse mortgage note that was secured by our wholly-owned madison center property located in madison heights , michigan , was due may 1 , 2011. the note entered default status in may when we did not repay the note at maturity . on october 19 , 2011 we conveyed titled to and our interest in the madison center property to the lender and were released of our obligation . it is anticipated that funds borrowed under our credit facilities will be used for general corporate purposes , including working capital , capital expenditures , the repayment of indebtedness or other corporate activities . for further information on the credit facilities and other debt , refer to note 11 of the consolidated financial statements . at december 31 , 2011 , we had four interest rate swap agreements in effect for an aggregate notional amount of $ 135.0 million converting our floating rate corporate debt to fixed rate debt .
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under topic 805 , all the assets and liabilities of tectonic holdings are carried over to the books of the company at their then current carrying amounts , and the consolidated financial statements have been retrospectively adjusted to reflect the acquisition of sanders morris , hwg and tectonic advisors for all periods subsequent to the date at which the entities were under common control , may 15 , 2017. all intercompany transactions and balances are eliminated in consolidation . critical accounting policies and estimates we prepare consolidated financial statements based on gaap and to customary practices within the financial services industry . these policies , in certain areas , require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . while we base estimates on historical experience , current information and other factors deemed to be relevant , actual results could differ from those estimates . 50 we consider accounting estimates to be critical to reported financial results if ( i ) the accounting estimate requires management to make assumptions about matters that are highly uncertain at the time we make the accounting estimate and ( ii ) different estimates that management reasonably could have used for the accounting estimate in the current period , or changes in the accounting estimate that are reasonably likely to occur from period to period , could have a material impact on the financial statements . accounting policies related to the allowance for loan losses are considered to be critical as these policies involve considerable subjective judgment and estimation by management . a discussion of our allowance for loan losses is included in note 1 to our consolidated financial statements . performance summary net income available to common shareholders totaled $ 6.5 million , or $ 0.98 per diluted common share for the year ended december 31 , 2019 , compared to $ 8.8 million , or $ 1.34 per diluted common share for the year ended december 31 , 2018 , a decrease of $ 2.3 million or 26.1 % . the decrease in net income available to common shareholders for the year ended december 31 , 2019 was the result of a $ 6.0 million increase in non-interest expense , a $ 830,000 increase in the provision for loan losses , a $ 891,000 increase in income tax expense and a $ 618,000 increase in preferred stock dividends paid , partially offset by a $ 1.5 million increase in net interest income and a $ 4.5 million increase in non-interest income . we calculate return on average tangible common equity as net income available to common shareholders ( net income less dividends paid on preferred stock ) divided by average tangible common equity . average tangible common equity is a non-gaap financial measure . the most directly comparable gaap financial measure for average tangible common equity is average total common equity . the following table reconciles net income to income available to common shareholders and presents the calculation of return on average tangible common equity : replace_table_token_1_th for the year ended december 31 , 2019 , return on average assets was 2.33 % , compared to 3.33 % for the prior year , and return on average tangible common equity was 34.80 % , compared to 54.99 % for the prior year . the higher returns for the year ended december 31 , 2018 was primarily due to a $ 1.7 million gain on bargain purchase related to the acquisition of summer wealth management during the three months ended march 31 , 2018. total assets grew by $ 53.4 million , or 17.1 % , to $ 365.1 million as of december 31 , 2019 , from $ 311.7 million as of december 31 , 2018. this increase was primarily due to an increase in sba loans . our loans held for investment , net of allowance for loan losses increased $ 55.7 million , or 23.8 % , to $ 289.7 million as of december 31 , 2019 , from $ 234.0 million as of december 31 , 2018. substantially all loans are secured by specific collateral , including business assets , consumer assets , and commercial real estate . shareholders ' equity increased $ 13.0 million , or 34.7 % , to $ 50.5 million as of december 31 , 2019 , from $ 37.5 million as of december 31 , 2018. see analysis of shareholders ' equity in the section captioned “ capital resources and regulatory capital requirements ” included elsewhere in this discussion . results of operations details of the changes in the various components of net income are discussed below . net interest income net interest income is the difference between interest income on interest-earning assets , such as loans , investment securities , and interest-bearing cash , and interest expense on interest-bearing liabilities , such as deposits and borrowings . changes in net interest income result from changes in volume and spread , and are reflected in the net interest margin , as well as changes in average interest rates . volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities . spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . margin refers to net interest income divided by average interest-earning assets , and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities . 51 the federal reserve influences the general market rates of interest , including the deposit and loan rates offered by many financial institutions . interest rates are highly sensitive to many factors that are beyond the control of the company , including changes in the expected rate of inflation , the influence of general and local economic conditions and the monetary and fiscal policies of the united states government , its agencies and various other governmental regulatory authorities . story_separator_special_tag net interest income for the year ended december 31 , 2019 increased $ 1.4 million , or 12.3 % , compared to the year ended december 31 , 2018 , due primarily to an increase in average volume of loans , partially offset by increase in average volume of interest-bearing deposits and average rates paid on interest-bearing deposits . see the analysis of net interest income included in the section captioned “ net interest income ” included elsewhere in this discussion . the provision for loan losses for the year ended december 31 , 2019 increased $ 830,000 , or 114.5 % , to $ 1.6 million , compared to $ 725,000 for the year ended december 31 , 2018. see “ allowance for loan losses ” included elsewhere in this discussion . non-interest income for the year ended december 31 , 2019 increased $ 136,000 , or 18.8 % , compared to the year ended december 31 , 2018 , which was primarily due to a $ 244,000 increase in gain on sale of loans and a $ 32,000 increase in rental income , partly offset by a $ 140,000 decrease in service fees , primarily the net loan servicing fees . see the analysis of non-interest income included in the section captioned “ non-interest income ” included elsewhere in this discussion . non-interest expense for the year ended december 31 , 2019 increased $ 580,000 , or 7.7 % , compared to the year ended december 31 , 2018. the increase was primarily related to increases in salaries and employee benefits , occupancy and equipment expense and data processing expense , partly offset be a decrease in other expenses . see the analysis of non-interest expense included in the section captioned “ non-interest expense ” included elsewhere in this discussion . other financial services income before taxes for the year ended december 31 , 2019 increased $ 1.1 million , or 17.8 % , compared to the year ended december 31 , 2018. the increase was primarily the result of a $ 6.2 million increase in non-interest income partly offset by a $ 5.1 million increase in non-interest expense . non-interest income for the year ended december 31 , 2019 increased $ 6.2 million , or 27.4 % , compared to the year ended december 31 , 2018. the increase was primarily due to increases in brokerage income of $ 882,000 , related to increased trading activity , including private placements , and increases in service fees and other income of $ 4.0 million , which was primarily related to the nolan acquisition on january 2 , 2019. in addition , advisory and trust income increased related to increases in the average market value of trust assets and advisory assets under management by $ 1.3 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. see the analysis of non-interest income included in the section captioned “ non-interest income ” included elsewhere in this discussion . non-interest expense for the year ended december 31 , 2019 increased $ 5.1 million , or 31.1 % , compared to the year ended december 31 , 2018. the increases were primarily related to increases in salaries and employee benefits , as well as increases in occupancy and equipment costs and professional fees , related to the acquisition of the nolan business and other new business activity , as well as annual merit increases . brokerage and advisory direct costs showed increases primarily from increased brokerage activity , which led to increases in clearing fees and execution charges . see the analysis of non-interest income included in the section captioned “ non-interest expense ” included elsewhere in this discussion . 57 holdco the holdco operating segment had a loss before taxes of $ 1.8 million during the year ended december 31 , 2019 , compared to income before taxes of $ 356,000 for the year ended december 31 , 2018. the loss resulted from a decrease in other income as compared to the year ended december 31 , 2018 , during which we recognized a gain on bargain purchase of $ 1.7 million related to the acquisition of summer wealth management during the first quarter of 2018. in addition , there were increases in salaries and compensation expense and professional fees for the year ended december 31 , 2019 as compared to the prior year , partly offset by decreases in other expense and interest expense related to the payoff of the bank stock loan in may 2019. financial condition investment securities the primary purpose of the company 's investment portfolio is to provide a source of earnings for liquidity management purposes , to provide collateral to pledge against borrowings , and to control interest rate risk . in managing the portfolio , the company seeks to attain the objectives of safety of principal , liquidity , diversification , and maximized return on investment . securities are classified as available for sale when we intend to hold for an indefinite period of time but might be sold before maturity . securities available for sale are carried at fair value , with unrealized holding gains and losses reported as a separate component of stockholders ' equity as other comprehensive income ( loss ) , net of tax . securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity . as of december 31 , 2019 and 2018 , securities available for sale consisted of u.s. government agency securities and mortgage-backed securities guaranteed by u.s. government agencies . securities held to maturity consisted of property assessed clean energy investments . these investment contracts or bonds , located in california and florida , originate under a contractual obligation between the property owners , the local county administration , and a third-party administrator and sponsor . the assessments are created to fund
| debt the following financing activity occurred during 2011 : · a new seven-year $ 60.0 million unsecured term loan . the net proceeds were used to repay four property mortgages aggregating approximately $ 22.0 million and to repay the $ 33.0 million outstanding balance ( as of september 30 , 2011 ) on our unsecured revolving line of credit ; · closed a new $ 24.7 million mortgage secured by the jackson crossing shopping center in jackson , michigan . the mortgage bears a fixed rate of 5.8 % and matures in april 2018 ; · repaid in full the $ 30.0 million secured term loan facility from borrowings under our secured credit facility , and used net proceeds from our cumulative convertible perpetual preferred share offering to repay our $ 30.0 million secured bridge loan and reduce borrowings on our credit facility ; and · repaid three wholly owned property mortgages secured by our lakeshore marketplace , beacon square , and gaines marketplace shopping centers and three land loans totaling $ 38.6 million . additionally , a $ 9.1 million non-recourse mortgage note that was secured by our wholly-owned madison center property located in madison heights , michigan , was due may 1 , 2011. the note entered default status in may when we did not repay the note at maturity . on october 19 , 2011 we conveyed titled to and our interest in the madison center property to the lender and were released of our obligation . it is anticipated that funds borrowed under our credit facilities will be used for general corporate purposes , including working capital , capital expenditures , the repayment of indebtedness or other corporate activities . for further information on the credit facilities and other debt , refer to note 11 of the consolidated financial statements . at december 31 , 2011 , we had four interest rate swap agreements in effect for an aggregate notional amount of $ 135.0 million converting our floating rate corporate debt to fixed rate debt .
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under topic 805 , all the assets and liabilities of tectonic holdings are carried over to the books of the company at their then current carrying amounts , and the consolidated financial statements have been retrospectively adjusted to reflect the acquisition of sanders morris , hwg and tectonic advisors for all periods subsequent to the date at which the entities were under common control , may 15 , 2017. all intercompany transactions and balances are eliminated in consolidation . critical accounting policies and estimates we prepare consolidated financial statements based on gaap and to customary practices within the financial services industry . these policies , in certain areas , require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . while we base estimates on historical experience , current information and other factors deemed to be relevant , actual results could differ from those estimates . 50 we consider accounting estimates to be critical to reported financial results if ( i ) the accounting estimate requires management to make assumptions about matters that are highly uncertain at the time we make the accounting estimate and ( ii ) different estimates that management reasonably could have used for the accounting estimate in the current period , or changes in the accounting estimate that are reasonably likely to occur from period to period , could have a material impact on the financial statements . accounting policies related to the allowance for loan losses are considered to be critical as these policies involve considerable subjective judgment and estimation by management . a discussion of our allowance for loan losses is included in note 1 to our consolidated financial statements . performance summary net income available to common shareholders totaled $ 6.5 million , or $ 0.98 per diluted common share for the year ended december 31 , 2019 , compared to $ 8.8 million , or $ 1.34 per diluted common share for the year ended december 31 , 2018 , a decrease of $ 2.3 million or 26.1 % . the decrease in net income available to common shareholders for the year ended december 31 , 2019 was the result of a $ 6.0 million increase in non-interest expense , a $ 830,000 increase in the provision for loan losses , a $ 891,000 increase in income tax expense and a $ 618,000 increase in preferred stock dividends paid , partially offset by a $ 1.5 million increase in net interest income and a $ 4.5 million increase in non-interest income . we calculate return on average tangible common equity as net income available to common shareholders ( net income less dividends paid on preferred stock ) divided by average tangible common equity . average tangible common equity is a non-gaap financial measure . the most directly comparable gaap financial measure for average tangible common equity is average total common equity . the following table reconciles net income to income available to common shareholders and presents the calculation of return on average tangible common equity : replace_table_token_1_th for the year ended december 31 , 2019 , return on average assets was 2.33 % , compared to 3.33 % for the prior year , and return on average tangible common equity was 34.80 % , compared to 54.99 % for the prior year . the higher returns for the year ended december 31 , 2018 was primarily due to a $ 1.7 million gain on bargain purchase related to the acquisition of summer wealth management during the three months ended march 31 , 2018. total assets grew by $ 53.4 million , or 17.1 % , to $ 365.1 million as of december 31 , 2019 , from $ 311.7 million as of december 31 , 2018. this increase was primarily due to an increase in sba loans . our loans held for investment , net of allowance for loan losses increased $ 55.7 million , or 23.8 % , to $ 289.7 million as of december 31 , 2019 , from $ 234.0 million as of december 31 , 2018. substantially all loans are secured by specific collateral , including business assets , consumer assets , and commercial real estate . shareholders ' equity increased $ 13.0 million , or 34.7 % , to $ 50.5 million as of december 31 , 2019 , from $ 37.5 million as of december 31 , 2018. see analysis of shareholders ' equity in the section captioned “ capital resources and regulatory capital requirements ” included elsewhere in this discussion . results of operations details of the changes in the various components of net income are discussed below . net interest income net interest income is the difference between interest income on interest-earning assets , such as loans , investment securities , and interest-bearing cash , and interest expense on interest-bearing liabilities , such as deposits and borrowings . changes in net interest income result from changes in volume and spread , and are reflected in the net interest margin , as well as changes in average interest rates . volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities . spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . margin refers to net interest income divided by average interest-earning assets , and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities . 51 the federal reserve influences the general market rates of interest , including the deposit and loan rates offered by many financial institutions . interest rates are highly sensitive to many factors that are beyond the control of the company , including changes in the expected rate of inflation , the influence of general and local economic conditions and the monetary and fiscal policies of the united states government , its agencies and various other governmental regulatory authorities . story_separator_special_tag net interest income for the year ended december 31 , 2019 increased $ 1.4 million , or 12.3 % , compared to the year ended december 31 , 2018 , due primarily to an increase in average volume of loans , partially offset by increase in average volume of interest-bearing deposits and average rates paid on interest-bearing deposits . see the analysis of net interest income included in the section captioned “ net interest income ” included elsewhere in this discussion . the provision for loan losses for the year ended december 31 , 2019 increased $ 830,000 , or 114.5 % , to $ 1.6 million , compared to $ 725,000 for the year ended december 31 , 2018. see “ allowance for loan losses ” included elsewhere in this discussion . non-interest income for the year ended december 31 , 2019 increased $ 136,000 , or 18.8 % , compared to the year ended december 31 , 2018 , which was primarily due to a $ 244,000 increase in gain on sale of loans and a $ 32,000 increase in rental income , partly offset by a $ 140,000 decrease in service fees , primarily the net loan servicing fees . see the analysis of non-interest income included in the section captioned “ non-interest income ” included elsewhere in this discussion . non-interest expense for the year ended december 31 , 2019 increased $ 580,000 , or 7.7 % , compared to the year ended december 31 , 2018. the increase was primarily related to increases in salaries and employee benefits , occupancy and equipment expense and data processing expense , partly offset be a decrease in other expenses . see the analysis of non-interest expense included in the section captioned “ non-interest expense ” included elsewhere in this discussion . other financial services income before taxes for the year ended december 31 , 2019 increased $ 1.1 million , or 17.8 % , compared to the year ended december 31 , 2018. the increase was primarily the result of a $ 6.2 million increase in non-interest income partly offset by a $ 5.1 million increase in non-interest expense . non-interest income for the year ended december 31 , 2019 increased $ 6.2 million , or 27.4 % , compared to the year ended december 31 , 2018. the increase was primarily due to increases in brokerage income of $ 882,000 , related to increased trading activity , including private placements , and increases in service fees and other income of $ 4.0 million , which was primarily related to the nolan acquisition on january 2 , 2019. in addition , advisory and trust income increased related to increases in the average market value of trust assets and advisory assets under management by $ 1.3 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. see the analysis of non-interest income included in the section captioned “ non-interest income ” included elsewhere in this discussion . non-interest expense for the year ended december 31 , 2019 increased $ 5.1 million , or 31.1 % , compared to the year ended december 31 , 2018. the increases were primarily related to increases in salaries and employee benefits , as well as increases in occupancy and equipment costs and professional fees , related to the acquisition of the nolan business and other new business activity , as well as annual merit increases . brokerage and advisory direct costs showed increases primarily from increased brokerage activity , which led to increases in clearing fees and execution charges . see the analysis of non-interest income included in the section captioned “ non-interest expense ” included elsewhere in this discussion . 57 holdco the holdco operating segment had a loss before taxes of $ 1.8 million during the year ended december 31 , 2019 , compared to income before taxes of $ 356,000 for the year ended december 31 , 2018. the loss resulted from a decrease in other income as compared to the year ended december 31 , 2018 , during which we recognized a gain on bargain purchase of $ 1.7 million related to the acquisition of summer wealth management during the first quarter of 2018. in addition , there were increases in salaries and compensation expense and professional fees for the year ended december 31 , 2019 as compared to the prior year , partly offset by decreases in other expense and interest expense related to the payoff of the bank stock loan in may 2019. financial condition investment securities the primary purpose of the company 's investment portfolio is to provide a source of earnings for liquidity management purposes , to provide collateral to pledge against borrowings , and to control interest rate risk . in managing the portfolio , the company seeks to attain the objectives of safety of principal , liquidity , diversification , and maximized return on investment . securities are classified as available for sale when we intend to hold for an indefinite period of time but might be sold before maturity . securities available for sale are carried at fair value , with unrealized holding gains and losses reported as a separate component of stockholders ' equity as other comprehensive income ( loss ) , net of tax . securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity . as of december 31 , 2019 and 2018 , securities available for sale consisted of u.s. government agency securities and mortgage-backed securities guaranteed by u.s. government agencies . securities held to maturity consisted of property assessed clean energy investments . these investment contracts or bonds , located in california and florida , originate under a contractual obligation between the property owners , the local county administration , and a third-party administrator and sponsor . the assessments are created to fund
| capital resources and regulatory capital requirements shareholders ' equity increased $ 13.0 million to $ 50.5 million as of december 31 , 2019 , from $ 37.5 million as of december 31 , 2018 , after adjusting for the tectonic merger . the tectonic merger has been accounted for as a combination of businesses under common control in accordance with topic 805 . under topic 805 , all the assets and liabilities of tectonic holdings are carried over to the books of the company at their then current carrying amounts , and the consolidated financial statements have been retrospectively adjusted to reflect the tectonic merger for all periods subsequent to the date at which the entities were under common control , may 15 , 2017. as of december 31 , 2018 , the tectonic merger had the effect of increasing retained earnings and additional paid in capital by a total of $ 811,000 , while increasing series a preferred stock by approximately $ 8.0 million , attributable to preferred stock outstanding at tectonic holdings at the time of the tectonic merger . the majority of the increase in shareholders ' equity of $ 13.0 million is attributable to the issuance of 1,725,000 shares of series b preferred stock in our initial public offering , which raised $ 15.5 million , net of issuance costs , including underwriting discounts and offering expenses , partly offset by the $ 8.0 million repurchase of the series a preferred stock . the balance is related to 2019 dividends paid on the series a preferred stock of $ 640,000 and on series b preferred stock of $ 781,000 , regular distributions made by tectonic holdings to its limited liability company members prior to the date of the tectonic merger of $ 1.3 million , a $ 263,000 net after-tax increase in the market value of the securities available for sale , a $ 109,000 increase in additional paid-in capital related to stock compensation expense , and net income of $ 7.9 million for the year ended december 31 , 2019 .
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the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.0005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . on may 12 , 2016 , the company issued a convertible note to u.s. affiliated , inc. ( a related party ) for $ 7,500 of cash consideration . the note bears interest at 6 % , matures on september 12 , 2016 , and is convertible into common stock at 50 % of the average bid price of the stock during the 30 days prior to the conversion . the company recorded a debt discount equal to $ 7,500 due to this conversion feature and amortized $ 6,768 during the year ended august 31 , 2016 , with a remaining debt discount balance of $ 732 as of august 31 , 2016. the note had accrued interest of $ 137 and $ 0 as of august 31 , 2016 and august 31 , 2015 , respectively . the note was repaid in full during the six months ended february 28 , 2017. the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.0005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . convertible notes payable – third party vis veres group on july 2 , 2015 , the company issued a convertible note to vis veres group for $ 38,000 of cash consideration . the note bears interest at 8 % , matures on april 7 , 2016 , and is convertible into common stock at 55 % of the lowest 3 closing market prices of the previous 20 trading days prior to conversion . the company recorded a debt discount equal to $ 35,000 due to this conversion feature . the company also recorded a $ 3,000 debt discount due to accrued interest required by the agreement to be accrued at the beginning of the note . the note had accrued interest of $ 0 and $ 500 as of august 31 , 2016 and august 31 , 2015 , respectively . during the year ended august 31 , 2016 , vis veres group had converted the note into common shares within the terms of the agreement , therefore , there was no gain or loss recognized as a result of these conversions . the debt discounts had a balance at august 31 , 2016 and august 31 , 2015 of $ 0 and $ 29,857 , respectively . the company recorded debt discount amortization expense of $ 29,857 and $ 8,143 during the year ended august 31 , 2016 and the year ended august 31 , 2015 , respectively . as the note has been fully converted , it is considered paid in full as of august 31 , 2016. the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.00005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . 30 jmj financial group on july 21 , 2015 , the company issued a convertible note to jmj financial group for $ 27,778 of cash consideration . the note bears interest at 12 % , matures on july story_separator_special_tag overview service team inc. ( the `` company `` ) was incorporated pursuant to the laws of the state of nevada on june 6 , 2011. on august 22 , 2017 , the company changed its state of domicile to wyoming . the company was organized to comply with the warranty obligations of electronic devices manufactured by companies outside of the united states . the business proved to be unprofitable and the company discontinued its warranty and repair operations . on june 5 , 2013 , service team inc. acquired 100 percent of the outstanding stock of trade leasing , inc. for 4,000,000 shares of its common stock . trade leasing , inc. , a california corporation , was incorporated on november 1 , 2011 , and commenced business january 1 , 2013. trade leasing , inc. is principally involved in the manufacturing , maintenance and repair of truck bodies . service team inc. and trade leasing inc. have not been involved in a bankruptcy , receivership or any similar proceeding . the acquisition of trade leasing inc. is a major change in the operations of service team inc. results of operations the company had sales of $ 3,673,673 for the fiscal year ended august 31 , 2017 , compared to $ 3,030,734 during the fiscal year ended august 31 , 2016 , an increase of $ 642,939. this represents an increase of twenty-one percent . all of the sales are generated by trade leasing , inc. the service products division had no sales . cost of sales increased $ 424,850 from $ 2,525,865 to $ 2,950,715 from 2016 to 2017 which was due to increase in volume of production in story_separator_special_tag the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.0005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . on may 12 , 2016 , the company issued a convertible note to u.s. affiliated , inc. ( a related party ) for $ 7,500 of cash consideration . the note bears interest at 6 % , matures on september 12 , 2016 , and is convertible into common stock at 50 % of the average bid price of the stock during the 30 days prior to the conversion . the company recorded a debt discount equal to $ 7,500 due to this conversion feature and amortized $ 6,768 during the year ended august 31 , 2016 , with a remaining debt discount balance of $ 732 as of august 31 , 2016. the note had accrued interest of $ 137 and $ 0 as of august 31 , 2016 and august 31 , 2015 , respectively . the note was repaid in full during the six months ended february 28 , 2017. the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.0005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . convertible notes payable – third party vis veres group on july 2 , 2015 , the company issued a convertible note to vis veres group for $ 38,000 of cash consideration . the note bears interest at 8 % , matures on april 7 , 2016 , and is convertible into common stock at 55 % of the lowest 3 closing market prices of the previous 20 trading days prior to conversion . the company recorded a debt discount equal to $ 35,000 due to this conversion feature . the company also recorded a $ 3,000 debt discount due to accrued interest required by the agreement to be accrued at the beginning of the note . the note had accrued interest of $ 0 and $ 500 as of august 31 , 2016 and august 31 , 2015 , respectively . during the year ended august 31 , 2016 , vis veres group had converted the note into common shares within the terms of the agreement , therefore , there was no gain or loss recognized as a result of these conversions . the debt discounts had a balance at august 31 , 2016 and august 31 , 2015 of $ 0 and $ 29,857 , respectively . the company recorded debt discount amortization expense of $ 29,857 and $ 8,143 during the year ended august 31 , 2016 and the year ended august 31 , 2015 , respectively . as the note has been fully converted , it is considered paid in full as of august 31 , 2016. the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.00005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . 30 jmj financial group on july 21 , 2015 , the company issued a convertible note to jmj financial group for $ 27,778 of cash consideration . the note bears interest at 12 % , matures on july story_separator_special_tag overview service team inc. ( the `` company `` ) was incorporated pursuant to the laws of the state of nevada on june 6 , 2011. on august 22 , 2017 , the company changed its state of domicile to wyoming . the company was organized to comply with the warranty obligations of electronic devices manufactured by companies outside of the united states . the business proved to be unprofitable and the company discontinued its warranty and repair operations . on june 5 , 2013 , service team inc. acquired 100 percent of the outstanding stock of trade leasing , inc. for 4,000,000 shares of its common stock . trade leasing , inc. , a california corporation , was incorporated on november 1 , 2011 , and commenced business january 1 , 2013. trade leasing , inc. is principally involved in the manufacturing , maintenance and repair of truck bodies . service team inc. and trade leasing inc. have not been involved in a bankruptcy , receivership or any similar proceeding . the acquisition of trade leasing inc. is a major change in the operations of service team inc. results of operations the company had sales of $ 3,673,673 for the fiscal year ended august 31 , 2017 , compared to $ 3,030,734 during the fiscal year ended august 31 , 2016 , an increase of $ 642,939. this represents an increase of twenty-one percent . all of the sales are generated by trade leasing , inc. the service products division had no sales . cost of sales increased $ 424,850 from $ 2,525,865 to $ 2,950,715 from 2016 to 2017 which was due to increase in volume of production in
| capital resources and regulatory capital requirements shareholders ' equity increased $ 13.0 million to $ 50.5 million as of december 31 , 2019 , from $ 37.5 million as of december 31 , 2018 , after adjusting for the tectonic merger . the tectonic merger has been accounted for as a combination of businesses under common control in accordance with topic 805 . under topic 805 , all the assets and liabilities of tectonic holdings are carried over to the books of the company at their then current carrying amounts , and the consolidated financial statements have been retrospectively adjusted to reflect the tectonic merger for all periods subsequent to the date at which the entities were under common control , may 15 , 2017. as of december 31 , 2018 , the tectonic merger had the effect of increasing retained earnings and additional paid in capital by a total of $ 811,000 , while increasing series a preferred stock by approximately $ 8.0 million , attributable to preferred stock outstanding at tectonic holdings at the time of the tectonic merger . the majority of the increase in shareholders ' equity of $ 13.0 million is attributable to the issuance of 1,725,000 shares of series b preferred stock in our initial public offering , which raised $ 15.5 million , net of issuance costs , including underwriting discounts and offering expenses , partly offset by the $ 8.0 million repurchase of the series a preferred stock . the balance is related to 2019 dividends paid on the series a preferred stock of $ 640,000 and on series b preferred stock of $ 781,000 , regular distributions made by tectonic holdings to its limited liability company members prior to the date of the tectonic merger of $ 1.3 million , a $ 263,000 net after-tax increase in the market value of the securities available for sale , a $ 109,000 increase in additional paid-in capital related to stock compensation expense , and net income of $ 7.9 million for the year ended december 31 , 2019 .
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the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.0005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . on may 12 , 2016 , the company issued a convertible note to u.s. affiliated , inc. ( a related party ) for $ 7,500 of cash consideration . the note bears interest at 6 % , matures on september 12 , 2016 , and is convertible into common stock at 50 % of the average bid price of the stock during the 30 days prior to the conversion . the company recorded a debt discount equal to $ 7,500 due to this conversion feature and amortized $ 6,768 during the year ended august 31 , 2016 , with a remaining debt discount balance of $ 732 as of august 31 , 2016. the note had accrued interest of $ 137 and $ 0 as of august 31 , 2016 and august 31 , 2015 , respectively . the note was repaid in full during the six months ended february 28 , 2017. the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.0005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . convertible notes payable – third party vis veres group on july 2 , 2015 , the company issued a convertible note to vis veres group for $ 38,000 of cash consideration . the note bears interest at 8 % , matures on april 7 , 2016 , and is convertible into common stock at 55 % of the lowest 3 closing market prices of the previous 20 trading days prior to conversion . the company recorded a debt discount equal to $ 35,000 due to this conversion feature . the company also recorded a $ 3,000 debt discount due to accrued interest required by the agreement to be accrued at the beginning of the note . the note had accrued interest of $ 0 and $ 500 as of august 31 , 2016 and august 31 , 2015 , respectively . during the year ended august 31 , 2016 , vis veres group had converted the note into common shares within the terms of the agreement , therefore , there was no gain or loss recognized as a result of these conversions . the debt discounts had a balance at august 31 , 2016 and august 31 , 2015 of $ 0 and $ 29,857 , respectively . the company recorded debt discount amortization expense of $ 29,857 and $ 8,143 during the year ended august 31 , 2016 and the year ended august 31 , 2015 , respectively . as the note has been fully converted , it is considered paid in full as of august 31 , 2016. the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.00005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . 30 jmj financial group on july 21 , 2015 , the company issued a convertible note to jmj financial group for $ 27,778 of cash consideration . the note bears interest at 12 % , matures on july story_separator_special_tag overview service team inc. ( the `` company `` ) was incorporated pursuant to the laws of the state of nevada on june 6 , 2011. on august 22 , 2017 , the company changed its state of domicile to wyoming . the company was organized to comply with the warranty obligations of electronic devices manufactured by companies outside of the united states . the business proved to be unprofitable and the company discontinued its warranty and repair operations . on june 5 , 2013 , service team inc. acquired 100 percent of the outstanding stock of trade leasing , inc. for 4,000,000 shares of its common stock . trade leasing , inc. , a california corporation , was incorporated on november 1 , 2011 , and commenced business january 1 , 2013. trade leasing , inc. is principally involved in the manufacturing , maintenance and repair of truck bodies . service team inc. and trade leasing inc. have not been involved in a bankruptcy , receivership or any similar proceeding . the acquisition of trade leasing inc. is a major change in the operations of service team inc. results of operations the company had sales of $ 3,673,673 for the fiscal year ended august 31 , 2017 , compared to $ 3,030,734 during the fiscal year ended august 31 , 2016 , an increase of $ 642,939. this represents an increase of twenty-one percent . all of the sales are generated by trade leasing , inc. the service products division had no sales . cost of sales increased $ 424,850 from $ 2,525,865 to $ 2,950,715 from 2016 to 2017 which was due to increase in volume of production in story_separator_special_tag the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.0005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . on may 12 , 2016 , the company issued a convertible note to u.s. affiliated , inc. ( a related party ) for $ 7,500 of cash consideration . the note bears interest at 6 % , matures on september 12 , 2016 , and is convertible into common stock at 50 % of the average bid price of the stock during the 30 days prior to the conversion . the company recorded a debt discount equal to $ 7,500 due to this conversion feature and amortized $ 6,768 during the year ended august 31 , 2016 , with a remaining debt discount balance of $ 732 as of august 31 , 2016. the note had accrued interest of $ 137 and $ 0 as of august 31 , 2016 and august 31 , 2015 , respectively . the note was repaid in full during the six months ended february 28 , 2017. the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.0005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . convertible notes payable – third party vis veres group on july 2 , 2015 , the company issued a convertible note to vis veres group for $ 38,000 of cash consideration . the note bears interest at 8 % , matures on april 7 , 2016 , and is convertible into common stock at 55 % of the lowest 3 closing market prices of the previous 20 trading days prior to conversion . the company recorded a debt discount equal to $ 35,000 due to this conversion feature . the company also recorded a $ 3,000 debt discount due to accrued interest required by the agreement to be accrued at the beginning of the note . the note had accrued interest of $ 0 and $ 500 as of august 31 , 2016 and august 31 , 2015 , respectively . during the year ended august 31 , 2016 , vis veres group had converted the note into common shares within the terms of the agreement , therefore , there was no gain or loss recognized as a result of these conversions . the debt discounts had a balance at august 31 , 2016 and august 31 , 2015 of $ 0 and $ 29,857 , respectively . the company recorded debt discount amortization expense of $ 29,857 and $ 8,143 during the year ended august 31 , 2016 and the year ended august 31 , 2015 , respectively . as the note has been fully converted , it is considered paid in full as of august 31 , 2016. the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.00005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . 30 jmj financial group on july 21 , 2015 , the company issued a convertible note to jmj financial group for $ 27,778 of cash consideration . the note bears interest at 12 % , matures on july story_separator_special_tag overview service team inc. ( the `` company `` ) was incorporated pursuant to the laws of the state of nevada on june 6 , 2011. on august 22 , 2017 , the company changed its state of domicile to wyoming . the company was organized to comply with the warranty obligations of electronic devices manufactured by companies outside of the united states . the business proved to be unprofitable and the company discontinued its warranty and repair operations . on june 5 , 2013 , service team inc. acquired 100 percent of the outstanding stock of trade leasing , inc. for 4,000,000 shares of its common stock . trade leasing , inc. , a california corporation , was incorporated on november 1 , 2011 , and commenced business january 1 , 2013. trade leasing , inc. is principally involved in the manufacturing , maintenance and repair of truck bodies . service team inc. and trade leasing inc. have not been involved in a bankruptcy , receivership or any similar proceeding . the acquisition of trade leasing inc. is a major change in the operations of service team inc. results of operations the company had sales of $ 3,673,673 for the fiscal year ended august 31 , 2017 , compared to $ 3,030,734 during the fiscal year ended august 31 , 2016 , an increase of $ 642,939. this represents an increase of twenty-one percent . all of the sales are generated by trade leasing , inc. the service products division had no sales . cost of sales increased $ 424,850 from $ 2,525,865 to $ 2,950,715 from 2016 to 2017 which was due to increase in volume of production in
| liquidity and capital resources as of august 31 , 2017 , we had total assets of $ 587,206 including current assets of $ 419,397. we also have current and total liabilities of $ 365,543 which consist of related party convertible notes of $ 7,842 , third party convertible notes of $ 110,995 , accrued interest of $ 0 , other accrued expenses of $ 131,708 , and accounts payable of $ 114,998. there is no firm date which the related party convertible note is to be paid . it is to be repaid when we have funds available . we believe our ability to achieve commercial success and continued growth will be dependent upon our continued access to capital either through additional sale of our equity or cash generated from operations . we will seek to obtain additional working capital through the sale of our securities . we will attempt to obtain additional capital through bank lines of credit ; however , we have no agreements or understandings with third parties at this
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25 readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this report , as well as those discussed under “ item 1a . risk factors . ” overview net income for 2020 was $ 335 million , compared with net income of $ 327 million for 2019. the increase in net income of $ 8 million from 2019 to 2020 primarily reflected an increase in other income of $ 38 million and a decrease in other expense of $ 22 million , which were offset by a decrease in net interest income of $ 26 million and an increase in provision for credit losses of $ 26 million . the $ 38 million increase in other income primarily reflected the bank 's receipt of $ 85 million in disgorgement proceeds in connection with a securities and exchange commission enforcement action in the third quarter of 2020 , which was partially offset by an increase in net fair value losses associated with derivatives and financial instruments carried at fair value . the $ 22 million decrease in other expense primarily reflected a decrease of $ 15 million in expense associated with voluntary charitable contributions to the quality jobs fund and a reduction in operating expense of $ 9 million that was primarily related to higher expenses associated with the relocation of the bank 's premises during the second quarter of 2019. net interest income in 2020 decreased by $ 26 million , which primarily reflected a lower interest rate environment and lower average balances of interest-earning assets , partially offset by an increase in prepayment fees on advances of $ 30 million and a decrease in dividends paid on mandatory redeemable capital stock ( classified as interest expense ) of $ 9 million . the 2020 provision for credit losses increased by $ 26 million and was primarily associated with certain private-label residential mortgage-backed securities ( plrmbs ) classified as available-for-sale ( afs ) . retained earnings grew to $ 3.7 billion at december 31 , 2020 , from $ 3.5 billion at december 31 , 2019 , primarily resulting from net income in 2020 of $ 335 million . the bank also received a credit to unrestricted retained earnings related to the partial recovery of the bank 's investment in the financing corporation of $ 40 million . these increases to retained earnings were partially offset by cash dividends of $ 159 million paid at an annualized rate of 5.53 % during 2020. at december 31 , 2020 , total assets were $ 68.6 billion , a decrease of $ 38.2 billion from $ 106.8 billion at december 31 , 2019. total advances decreased $ 34.4 billion , to $ 31.0 billion at december 31 , 2020 , from $ 65.4 billion at december 31 , 2019. the decrease in advances primarily reflected reduced member liquidity needs related to the impact of the covid-19 pandemic on the economy and on our members . in addition , investments decreased $ 2.4 billion , to $ 35.2 billion at december 31 , 2020 , from $ 37.6 billion at december 31 , 2019. the decrease in investments primarily reflected a decrease in mbs , federal funds sold , and interest-bearing deposits , partially offset by an increase in u.s. treasury securities . accumulated other comprehensive income/ ( loss ) ( aoci ) decreased by $ 44 million during 2020 , to $ 230 million at december 31 , 2020 , from $ 274 million at december 31 , 2019. the decrease in aoci during 2020 primarily reflected lower fair values of plrmbs classified as afs . on february 18 , 2021 , the bank 's board of directors declared a quarterly cash dividend on the capital stock outstanding during the fourth quarter of 2020 at an annualized rate of 5.00 % . the dividend will total $ 30 million , including a de minimis amount in dividends on mandatorily redeemable capital stock that will be reflected as interest expense in the first quarter of 2021. the bank recorded the dividend on february 18 , 2021 , and expects to pay the dividend on march 18 , 2021. as a result of the covid-19 pandemic and the measures taken to contain the spread of the virus , u.s. and global economies face great challenges and ongoing uncertainty . to preserve capital in this uncertain environment , the bank 's board of directors has decided to pay a quarterly dividend rate at the low end of the range stated in the bank 's dividend philosophy . as of december 31 , 2020 , the bank was in compliance with all of its regulatory capital requirements . the bank 's total regulatory capital ratio was 8.7 % , exceeding the 4.0 % requirement . the bank had $ 6.0 billion in permanent capital , exceeding its risk-based capital requirement of $ 1.4 billion . 26 the bank will continue to monitor the condition of its balance sheet , its financial performance , its capital position , overall financial market conditions , and other relevant information as the basis for determining the payment of dividends in future quarters . in addition , management will continue to monitor the covid-19 pandemic 's impact on the bank 's financial condition and operations , including the bank 's liquidity , advance levels , funding spreads , and workforce effectiveness . covid-19 pandemic impact . in 2020 , the covid-19 pandemic impacted the financial markets , and created substantial uncertainty about future economic activity and the bank 's operating environment . in response , the federal government and the federal reserve used their full range of tools to support the economy , including fiscal stimulus and quantitative easing . at the end of the year , the federal reserve maintained a federal funds target range of 0.00 % to 0.25 % . story_separator_special_tag billion at december 31 , 2020 , from $ 65.4 billion at december 31 , 2019. mbs investments decreased by $ 2.0 billion , or 11 % , to $ 15.8 billion at december 31 , 2020 , from $ 17.8 billion at december 31 , 2019. average total assets were $ 94.2 billion for 2020 , a 12 % decrease compared to $ 107.1 billion for 2019. average advances were $ 52.8 billion for 2020 , a 22 % decrease from $ 67.6 billion for 2019. average mbs investments were $ 16.9 billion for 2020 , a 5 % decrease from $ 17.8 billion for 2019. advances outstanding at december 31 , 2020 , included unrealized gains of $ 639 million , of which $ 509 million represented unrealized gains on advances hedged in accordance with the accounting for derivative instruments and hedging activities and $ 130 million represented unrealized gains on economically hedged advances that are carried at fair value in accordance with the fair value option . advances outstanding at december 31 , 2019 , included unrealized gains of $ 286 million , of which $ 203 million represented unrealized gains on advances hedged in accordance with the accounting for derivative instruments and hedging activities and $ 83 million represented unrealized gains on economically hedged advances that are carried at fair value in accordance with the fair value option . the change in the net unrealized gains on the hedged advances and advances carried at fair value from december 31 , 2019 , to december 31 , 2020 , was primarily attributable to the effects of changes in market interest rates , interest rate spreads , interest rate volatility , and other market factors relative to the terms on the bank 's advances during the period . total liabilities were $ 62.4 billion at december 31 , 2020 , a decrease of $ 37.7 billion from $ 100.1 billion at december 31 , 2019 , primarily reflecting a $ 38.1 billion decrease in consolidated obligations outstanding to $ 60.6 billion at december 31 , 2020 , from $ 98.7 billion at december 31 , 2019. average total liabilities were $ 87.9 billion for 2020 , a 13 % decrease compared to $ 100.5 billion for 2019. average consolidated obligations were $ 86.3 billion for 2020 and $ 99.0 billion for 2019. consolidated obligations outstanding at december 31 , 2020 , included unrealized losses of $ 13 million on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and unrealized losses of $ 1 million on economically hedged consolidated obligation bonds that are carried at fair value in accordance with the fair value option . consolidated obligations outstanding at december 31 , 2019 , included unrealized losses of $ 9 million on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and unrealized losses of $ 2 million on economically hedged consolidated obligation bonds that are carried at fair value in accordance with the fair value option . the change in the net unrealized losses on the hedged consolidated obligation bonds and on the consolidated obligation bonds carried at fair value from december 31 , 2019 , to december 31 , 2020 , were primarily attributable to the effects of 34 changes in market interest rates , interest rate spreads , interest rate volatility , and other market factors relative to the actual terms on the bank 's consolidated obligation bonds during the period . as provided by the fhlbank act or regulations governing the operations of the fhlbanks , all fhlbanks have joint and several liability for all fhlbank consolidated obligations . the joint and several liability regulation authorizes the finance agency to require any fhlbank to repay all or a portion of the principal or interest on consolidated obligations for which another fhlbank is the primary obligor . the bank has never been asked or required to repay the principal or interest on any consolidated obligation on behalf of another fhlbank , and as of december 31 , 2020 , and through the filing date of this report , does not believe that it is probable that it will be asked to do so . the par value of the outstanding consolidated obligations of the fhlbanks was $ 746.7 billion at december 31 , 2020 , and $ 1,025.9 billion at december 31 , 2019. on july 22 , 2020 , s & p global ratings ( s & p ) affirmed the long-term issuer credit ratings on all of the fhlbanks at aa+ . the outlook for all ratings remained stable . on october 11 , 2019 , moody 's investors service ( moody 's ) affirmed the aaa long-term ratings of the fhlbank system . the outlook for all ratings remained stable . changes in the long-term credit ratings of individual fhlbanks do not necessarily affect the credit rating of the consolidated obligations issued on behalf of the fhlbanks . rating agencies may change or withdraw a rating from time to time because of various factors , including operating results or actions taken , business developments , or changes in their opinion regarding , among other factors , the general outlook for a particular industry or the economy . certain bank assets , liabilities , and derivatives are indexed to libor . the bank recognizes that the impending discontinuation of libor presents risks and challenges that could have an impact on the bank 's business . for information about the risks to the bank from discontinuation of libor , see “ item 1a . risk factors . ” accordingly , the bank has established the libor transition working group , led by the chief financial officer , and developed a libor phase out transition plan ( transition plan ) . among other things , the transition plan addresses three key strategies to mitigate the risks to the bank associated with the discontinuation
| liquidity and capital resources as of august 31 , 2017 , we had total assets of $ 587,206 including current assets of $ 419,397. we also have current and total liabilities of $ 365,543 which consist of related party convertible notes of $ 7,842 , third party convertible notes of $ 110,995 , accrued interest of $ 0 , other accrued expenses of $ 131,708 , and accounts payable of $ 114,998. there is no firm date which the related party convertible note is to be paid . it is to be repaid when we have funds available . we believe our ability to achieve commercial success and continued growth will be dependent upon our continued access to capital either through additional sale of our equity or cash generated from operations . we will seek to obtain additional working capital through the sale of our securities . we will attempt to obtain additional capital through bank lines of credit ; however , we have no agreements or understandings with third parties at this
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25 readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this report , as well as those discussed under “ item 1a . risk factors . ” overview net income for 2020 was $ 335 million , compared with net income of $ 327 million for 2019. the increase in net income of $ 8 million from 2019 to 2020 primarily reflected an increase in other income of $ 38 million and a decrease in other expense of $ 22 million , which were offset by a decrease in net interest income of $ 26 million and an increase in provision for credit losses of $ 26 million . the $ 38 million increase in other income primarily reflected the bank 's receipt of $ 85 million in disgorgement proceeds in connection with a securities and exchange commission enforcement action in the third quarter of 2020 , which was partially offset by an increase in net fair value losses associated with derivatives and financial instruments carried at fair value . the $ 22 million decrease in other expense primarily reflected a decrease of $ 15 million in expense associated with voluntary charitable contributions to the quality jobs fund and a reduction in operating expense of $ 9 million that was primarily related to higher expenses associated with the relocation of the bank 's premises during the second quarter of 2019. net interest income in 2020 decreased by $ 26 million , which primarily reflected a lower interest rate environment and lower average balances of interest-earning assets , partially offset by an increase in prepayment fees on advances of $ 30 million and a decrease in dividends paid on mandatory redeemable capital stock ( classified as interest expense ) of $ 9 million . the 2020 provision for credit losses increased by $ 26 million and was primarily associated with certain private-label residential mortgage-backed securities ( plrmbs ) classified as available-for-sale ( afs ) . retained earnings grew to $ 3.7 billion at december 31 , 2020 , from $ 3.5 billion at december 31 , 2019 , primarily resulting from net income in 2020 of $ 335 million . the bank also received a credit to unrestricted retained earnings related to the partial recovery of the bank 's investment in the financing corporation of $ 40 million . these increases to retained earnings were partially offset by cash dividends of $ 159 million paid at an annualized rate of 5.53 % during 2020. at december 31 , 2020 , total assets were $ 68.6 billion , a decrease of $ 38.2 billion from $ 106.8 billion at december 31 , 2019. total advances decreased $ 34.4 billion , to $ 31.0 billion at december 31 , 2020 , from $ 65.4 billion at december 31 , 2019. the decrease in advances primarily reflected reduced member liquidity needs related to the impact of the covid-19 pandemic on the economy and on our members . in addition , investments decreased $ 2.4 billion , to $ 35.2 billion at december 31 , 2020 , from $ 37.6 billion at december 31 , 2019. the decrease in investments primarily reflected a decrease in mbs , federal funds sold , and interest-bearing deposits , partially offset by an increase in u.s. treasury securities . accumulated other comprehensive income/ ( loss ) ( aoci ) decreased by $ 44 million during 2020 , to $ 230 million at december 31 , 2020 , from $ 274 million at december 31 , 2019. the decrease in aoci during 2020 primarily reflected lower fair values of plrmbs classified as afs . on february 18 , 2021 , the bank 's board of directors declared a quarterly cash dividend on the capital stock outstanding during the fourth quarter of 2020 at an annualized rate of 5.00 % . the dividend will total $ 30 million , including a de minimis amount in dividends on mandatorily redeemable capital stock that will be reflected as interest expense in the first quarter of 2021. the bank recorded the dividend on february 18 , 2021 , and expects to pay the dividend on march 18 , 2021. as a result of the covid-19 pandemic and the measures taken to contain the spread of the virus , u.s. and global economies face great challenges and ongoing uncertainty . to preserve capital in this uncertain environment , the bank 's board of directors has decided to pay a quarterly dividend rate at the low end of the range stated in the bank 's dividend philosophy . as of december 31 , 2020 , the bank was in compliance with all of its regulatory capital requirements . the bank 's total regulatory capital ratio was 8.7 % , exceeding the 4.0 % requirement . the bank had $ 6.0 billion in permanent capital , exceeding its risk-based capital requirement of $ 1.4 billion . 26 the bank will continue to monitor the condition of its balance sheet , its financial performance , its capital position , overall financial market conditions , and other relevant information as the basis for determining the payment of dividends in future quarters . in addition , management will continue to monitor the covid-19 pandemic 's impact on the bank 's financial condition and operations , including the bank 's liquidity , advance levels , funding spreads , and workforce effectiveness . covid-19 pandemic impact . in 2020 , the covid-19 pandemic impacted the financial markets , and created substantial uncertainty about future economic activity and the bank 's operating environment . in response , the federal government and the federal reserve used their full range of tools to support the economy , including fiscal stimulus and quantitative easing . at the end of the year , the federal reserve maintained a federal funds target range of 0.00 % to 0.25 % . story_separator_special_tag billion at december 31 , 2020 , from $ 65.4 billion at december 31 , 2019. mbs investments decreased by $ 2.0 billion , or 11 % , to $ 15.8 billion at december 31 , 2020 , from $ 17.8 billion at december 31 , 2019. average total assets were $ 94.2 billion for 2020 , a 12 % decrease compared to $ 107.1 billion for 2019. average advances were $ 52.8 billion for 2020 , a 22 % decrease from $ 67.6 billion for 2019. average mbs investments were $ 16.9 billion for 2020 , a 5 % decrease from $ 17.8 billion for 2019. advances outstanding at december 31 , 2020 , included unrealized gains of $ 639 million , of which $ 509 million represented unrealized gains on advances hedged in accordance with the accounting for derivative instruments and hedging activities and $ 130 million represented unrealized gains on economically hedged advances that are carried at fair value in accordance with the fair value option . advances outstanding at december 31 , 2019 , included unrealized gains of $ 286 million , of which $ 203 million represented unrealized gains on advances hedged in accordance with the accounting for derivative instruments and hedging activities and $ 83 million represented unrealized gains on economically hedged advances that are carried at fair value in accordance with the fair value option . the change in the net unrealized gains on the hedged advances and advances carried at fair value from december 31 , 2019 , to december 31 , 2020 , was primarily attributable to the effects of changes in market interest rates , interest rate spreads , interest rate volatility , and other market factors relative to the terms on the bank 's advances during the period . total liabilities were $ 62.4 billion at december 31 , 2020 , a decrease of $ 37.7 billion from $ 100.1 billion at december 31 , 2019 , primarily reflecting a $ 38.1 billion decrease in consolidated obligations outstanding to $ 60.6 billion at december 31 , 2020 , from $ 98.7 billion at december 31 , 2019. average total liabilities were $ 87.9 billion for 2020 , a 13 % decrease compared to $ 100.5 billion for 2019. average consolidated obligations were $ 86.3 billion for 2020 and $ 99.0 billion for 2019. consolidated obligations outstanding at december 31 , 2020 , included unrealized losses of $ 13 million on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and unrealized losses of $ 1 million on economically hedged consolidated obligation bonds that are carried at fair value in accordance with the fair value option . consolidated obligations outstanding at december 31 , 2019 , included unrealized losses of $ 9 million on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and unrealized losses of $ 2 million on economically hedged consolidated obligation bonds that are carried at fair value in accordance with the fair value option . the change in the net unrealized losses on the hedged consolidated obligation bonds and on the consolidated obligation bonds carried at fair value from december 31 , 2019 , to december 31 , 2020 , were primarily attributable to the effects of 34 changes in market interest rates , interest rate spreads , interest rate volatility , and other market factors relative to the actual terms on the bank 's consolidated obligation bonds during the period . as provided by the fhlbank act or regulations governing the operations of the fhlbanks , all fhlbanks have joint and several liability for all fhlbank consolidated obligations . the joint and several liability regulation authorizes the finance agency to require any fhlbank to repay all or a portion of the principal or interest on consolidated obligations for which another fhlbank is the primary obligor . the bank has never been asked or required to repay the principal or interest on any consolidated obligation on behalf of another fhlbank , and as of december 31 , 2020 , and through the filing date of this report , does not believe that it is probable that it will be asked to do so . the par value of the outstanding consolidated obligations of the fhlbanks was $ 746.7 billion at december 31 , 2020 , and $ 1,025.9 billion at december 31 , 2019. on july 22 , 2020 , s & p global ratings ( s & p ) affirmed the long-term issuer credit ratings on all of the fhlbanks at aa+ . the outlook for all ratings remained stable . on october 11 , 2019 , moody 's investors service ( moody 's ) affirmed the aaa long-term ratings of the fhlbank system . the outlook for all ratings remained stable . changes in the long-term credit ratings of individual fhlbanks do not necessarily affect the credit rating of the consolidated obligations issued on behalf of the fhlbanks . rating agencies may change or withdraw a rating from time to time because of various factors , including operating results or actions taken , business developments , or changes in their opinion regarding , among other factors , the general outlook for a particular industry or the economy . certain bank assets , liabilities , and derivatives are indexed to libor . the bank recognizes that the impending discontinuation of libor presents risks and challenges that could have an impact on the bank 's business . for information about the risks to the bank from discontinuation of libor , see “ item 1a . risk factors . ” accordingly , the bank has established the libor transition working group , led by the chief financial officer , and developed a libor phase out transition plan ( transition plan ) . among other things , the transition plan addresses three key strategies to mitigate the risks to the bank associated with the discontinuation
| cash collateral pledged to/ ( from ) counterparty noncash collateral pledged to/ ( from ) counterparty net credit exposure to counterparties asset positions with credit exposure : uncleared derivatives a $ 91 $ 3 $ ( 3 ) $ — $ — liability positions with credit exposure : uncleared derivatives a 101 ( 4 ) 4 — — cleared derivatives ( 2 ) 71,417 ( 12 ) 13 379 380 total derivative positions with credit exposure to nonmember counterparties 71,609 ( 13 ) 14 379 380 member institutions ( 3 ) 1 — — — — total 71,610 $ ( 13 ) $ 14 $ 379 $ 380 derivative positions without credit exposure 7,035 total notional $ 78,645 65 replace_table_token_42_th ( 1 ) the credit ratings used by the bank are based on the lower of moody 's or s & p ratings . ( 2 ) represents derivative transactions cleared with lch ltd , the bank 's clearinghouse , which was rated aa- by s & p at december 31 , 2020 and 2019 , with a stable and negative creditwatchby s & p at december 31 , 2020 and 2019 , respectively .
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products and customers products sold on our media channel platforms include primarily jewelry & watches , home & consumer electronics , beauty , health & fitness , and fashion & accessories . historically jewelry & watches has been our largest merchandise category . we are working to shift our product mix to include a more diversified product assortment in order to grow our new and active customer base . the following table shows our merchandise mix as a percentage of television shopping and internet net merchandise sales for the years indicated by product category group : 26 replace_table_token_7_th our product strategy is to continue to develop and expand new product offerings across multiple merchandise categories based on customer demand , as well as to offer competitive pricing and special values in order to drive new customers and maximize margin dollars per minute . our multichannel customers — those who interact with our network and transact through tv , internet and mobile device — are primarily women between the ages of 35 and 65 , married , with average annual household incomes of $ 70,000 or more . we also have a strong presence of male customers of similar age and income range . we believe our customers make purchases based on our unique products , quality merchandise and value . company strategy as a multichannel electronic retailer , our strategy is to offer our customers differentiated quality brands and products at a compelling value proposition . we also seek to provide today 's consumers with flexible programming formats and access that allow them to view and interact with our content and products at their convenience — whenever and wherever they are able . our merchandise positioning aims to make us a trusted destination for quality and a shopping headquarters for a broad category of merchandise . we focus on creating a customer experience that builds strong loyalty and a growing customer base . in support of this strategy , we are pursuing the following actions to improve the operational and financial performance of our company : ( i ) expand and diversify our product mix to appeal to more customers , to increase the purchase frequency of active customers and to increase customer retention rates , ( ii ) attract , retain and increase new and active customers and improve household penetration , ( iii ) increase our gross margin dollars by maintaining merchandise margins in key product categories while prudently managing inventory levels , ( iv ) enhance our customer experience through a variety of investments in technology , promotional activity and improved and competitive service , ( v ) manage our fixed operating costs and variable transaction expenses , ( vi ) grow our internet and mobile business with expanded product assortments and internet-only merchandise offerings , ( vii ) expand our internet , mobile and social media channels to attract and retain more customers , and ( viii ) maintain cable and satellite carriage contracts at appropriate durations and cost while improving distribution productivity through better channel positions and dual illumination or multiple channels . our competition the direct marketing and multichannel retail businesses are highly competitive . in our television shopping and e-commerce operations , we compete for customers with other television shopping and e-commerce retailers , infomercial companies , infomercial companies , other types of consumer retail businesses , including traditional `` brick and mortar `` department stores , discount stores , warehouse stores and specialty stores ; catalog and mail order retailers and other direct sellers . our direct competitors within our industry include qvc network , inc. and hsn , inc. , both of whom are substantially larger than we are in terms of annual revenues and customers , and whose programming is carried more broadly to u.s. households than our programming . the american collectibles network , which operates jewelry television , also competes with us for customers in the jewelry category . in addition , there are a number of smaller niche players and startups in the television shopping arena who compete with us . we believe that our major competitors incur cable and satellite distribution fees representing a significantly lower percentage of their sales attributable to their television programming than we do ; and that their fee arrangements are substantially on a commission basis ( in some cases with minimum guarantees ) rather than on the predominantly fixed-cost basis that we currently have . at our current sales level , our distribution costs as a percentage of total consolidated net sales are higher than our competition . however , one of our key strategies is to maintain our fixed distribution cost structure in order to leverage our profitability as we grow our business . the e-commerce sector also is highly competitive , and we are in direct competition with numerous other internet retailers , many of whom are larger , better financed and have a broader customer base than we do . we anticipate continuing competition for viewers and customers , for experienced television shopping personnel , for distribution agreements with cable and satellite systems and for vendors and suppliers — not only from television shopping companies , but also from other companies that seek to enter the television shopping and internet retail industries , including telecommunications and cable companies , television networks , and other established retailers . we believe that our ability to be 27 successful in the multichannel retailing industry will be dependent on a number of key factors , including expanding our digital footprint to meet our customers ' `` watch and shop anytime , anywhere `` needs , increasing the number of customers who purchase products from us and increasing the dollar value of sales per customer from our existing customer base . results for fiscal 2013 , 2012 and 2011 consolidated net sales in fiscal 2013 were $ 640.5 million compared to $ 586.8 million in fiscal 2012 , a 9 % increase . story_separator_special_tag gross profit for fiscal 2012 was $ 212.4 million , an increase of 4 % , compared to $ 204.1 million for fiscal 2011 . as noted above , fiscal 2012 had 53 weeks as compared to fiscal 2011 , which had 52 weeks , and pro forma gross profit for fiscal 2012 was $ 208.3 million , a 2 % increase over gross profit for fiscal 2011. the increase in gross profits experienced during fiscal 2012 was driven primarily by the year-over-year sales increase partially offset by the lower gross margin percentages experiences as discussed above . operating expenses total operating expenses were $ 229.9 million , $ 235.7 million and $ 220.9 million for fiscal 2013 , fiscal 2012 and fiscal 2011 respectively , representing a decrease of $ 5.7 million or 2 % from fiscal 2012 to fiscal 2013 , and an increase of $ 14.8 million , or 7 % from fiscal 2011 to fiscal 2012 . results of operations for fiscal 2012 includes an $ 11.1 million write-down of our fcc broadcast license asset . also as noted above , fiscal 2013 had 52 weeks of operating expenses as compared to fiscal 2012 , which had 53 weeks of operating expenses . distribution and selling expense for fiscal 2013 decreased $ 1.3 million , or 1 % , to $ 191.7 million or 29.9 % of net sales compared to $ 193.0 million or 32.9 % of net sales in fiscal 2012 . distribution and selling expense decreased from fiscal 2012 primarily due to net decreased program distribution expense of $ 18.5 million , reflecting lower rates on renewed distribution agreements that became effective in january 2013. this decrease over the prior year was partially offset by increases in salaries , wages and accrued incentive compensation costs of $ 9.8 million , variable credit card processing fees and other credit expenses of $ 3.7 million , customer service and telecommunications expenses of $ 1.8 million , advertising and promotion expense of $ 996,000 and incremental rebranding marketing and consulting expenses totaling $ 258,000. total variable expenses , in fiscal 2013 were approximately 8 % of total net sales versus approximately 7 % of total net sales in fiscal 2012. the increase in variable expense as a percentage of net sales coincides with the reduction in average selling price and resulting 30 % increase in net shipped units during fiscal 2013. to the extent that our average selling price continues to decline , our variable expense as a percentage of net sales could increase as the number of our shipped units increase . program distribution expense is primarily a fixed cost per household , however , this expense may be impacted by growth in the number of average homes reached or by rate changes associated with improvements in our channel positions . distribution and selling expense for fiscal 2012 increased $ 4.2 million , or 2 % , to $ 193.0 million , or 32.9 % of net sales compared to $ 188.8 million or 33.8 % of net sales in fiscal 2011 . distribution and selling expense increased from fiscal 2011 primarily due to increased program distribution expense of $ 4.3 million related to a 4 % increase in average homes reached during the year . the increase over the prior year was also due to increased salary and wage costs of $ 2.3 million and increased customer service and telemarketing expense of $ 600,000 attributable to an increase in units ordered and shipped during the year . these distribution and selling expense increases were offset by decreases in variable credit card processing fees and other credit expense of $ 2.1 million , decreased share based compensation expenses of $ 618,000 and decreases in advertising and promotion expense of $ 888,000. general and administrative expense for fiscal 2013 increased $ 7.6 million , or 42 % , to $ 25.9 million , or 4.0 % of net sales compared to $ 18.3 million or 3.1 % of net sales in fiscal 2012 . general and administrative expense increased from fiscal 2012 primarily as a result of increased salaries , wages and accrued incentive compensation costs of $ 4.1 million , costs related to an activist shareholder response of $ 2.1 million , information systems and website related rebranding costs of $ 700,000 and the effect of net favorable legal settlements in fiscal 2012 totaling $ 300,000 that reduced year-to-date general and administrative expense in the prior year . general and administrative expense for fiscal 2012 increased $ 1.2 million , or 6.5 % , to $ 18.3 million or 3.1 % of net sales compared to $ 19.5 million or 3.5 % of net sales in fiscal 2011 . general and administrative expense increased from fiscal 2011 primarily as a result of decreased share-based compensation expense of $ 1.1 million due to the timing of fully vested older stock option grants no longer being expensed and reduced restricted stock compensation expense resulting from the timing of vesting , and decreases in salaries and consulting expense of $ 400,000 , offset by an increase in board of directors fees of $ 282,000. depreciation and amortization expense was $ 12.3 million , $ 13.2 million and $ 12.6 million for fiscal 2013 , fiscal 2012 and fiscal 2011 , respectively , representing a decrease of $ 0.9 million , or 7 % from fiscal 2012 to fiscal 2013 and an increase of $ 0.6 million , or 5 % from fiscal 2011 to fiscal 2012 . depreciation and amortization expense as a percentage of net sales was 1.9 % for fiscal 2013 , and 2.3 % for fiscal 2012 and fiscal 2011 . the decrease in depreciation and amortization expense during fiscal 2013 was primarily due to decreased depreciation expense of $ 778,000 as a result of a reduction in our depreciable asset base year over year and decreased amortization expense of $ 52,000 related to our
| cash collateral pledged to/ ( from ) counterparty noncash collateral pledged to/ ( from ) counterparty net credit exposure to counterparties asset positions with credit exposure : uncleared derivatives a $ 91 $ 3 $ ( 3 ) $ — $ — liability positions with credit exposure : uncleared derivatives a 101 ( 4 ) 4 — — cleared derivatives ( 2 ) 71,417 ( 12 ) 13 379 380 total derivative positions with credit exposure to nonmember counterparties 71,609 ( 13 ) 14 379 380 member institutions ( 3 ) 1 — — — — total 71,610 $ ( 13 ) $ 14 $ 379 $ 380 derivative positions without credit exposure 7,035 total notional $ 78,645 65 replace_table_token_42_th ( 1 ) the credit ratings used by the bank are based on the lower of moody 's or s & p ratings . ( 2 ) represents derivative transactions cleared with lch ltd , the bank 's clearinghouse , which was rated aa- by s & p at december 31 , 2020 and 2019 , with a stable and negative creditwatchby s & p at december 31 , 2020 and 2019 , respectively .
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products and customers products sold on our media channel platforms include primarily jewelry & watches , home & consumer electronics , beauty , health & fitness , and fashion & accessories . historically jewelry & watches has been our largest merchandise category . we are working to shift our product mix to include a more diversified product assortment in order to grow our new and active customer base . the following table shows our merchandise mix as a percentage of television shopping and internet net merchandise sales for the years indicated by product category group : 26 replace_table_token_7_th our product strategy is to continue to develop and expand new product offerings across multiple merchandise categories based on customer demand , as well as to offer competitive pricing and special values in order to drive new customers and maximize margin dollars per minute . our multichannel customers — those who interact with our network and transact through tv , internet and mobile device — are primarily women between the ages of 35 and 65 , married , with average annual household incomes of $ 70,000 or more . we also have a strong presence of male customers of similar age and income range . we believe our customers make purchases based on our unique products , quality merchandise and value . company strategy as a multichannel electronic retailer , our strategy is to offer our customers differentiated quality brands and products at a compelling value proposition . we also seek to provide today 's consumers with flexible programming formats and access that allow them to view and interact with our content and products at their convenience — whenever and wherever they are able . our merchandise positioning aims to make us a trusted destination for quality and a shopping headquarters for a broad category of merchandise . we focus on creating a customer experience that builds strong loyalty and a growing customer base . in support of this strategy , we are pursuing the following actions to improve the operational and financial performance of our company : ( i ) expand and diversify our product mix to appeal to more customers , to increase the purchase frequency of active customers and to increase customer retention rates , ( ii ) attract , retain and increase new and active customers and improve household penetration , ( iii ) increase our gross margin dollars by maintaining merchandise margins in key product categories while prudently managing inventory levels , ( iv ) enhance our customer experience through a variety of investments in technology , promotional activity and improved and competitive service , ( v ) manage our fixed operating costs and variable transaction expenses , ( vi ) grow our internet and mobile business with expanded product assortments and internet-only merchandise offerings , ( vii ) expand our internet , mobile and social media channels to attract and retain more customers , and ( viii ) maintain cable and satellite carriage contracts at appropriate durations and cost while improving distribution productivity through better channel positions and dual illumination or multiple channels . our competition the direct marketing and multichannel retail businesses are highly competitive . in our television shopping and e-commerce operations , we compete for customers with other television shopping and e-commerce retailers , infomercial companies , infomercial companies , other types of consumer retail businesses , including traditional `` brick and mortar `` department stores , discount stores , warehouse stores and specialty stores ; catalog and mail order retailers and other direct sellers . our direct competitors within our industry include qvc network , inc. and hsn , inc. , both of whom are substantially larger than we are in terms of annual revenues and customers , and whose programming is carried more broadly to u.s. households than our programming . the american collectibles network , which operates jewelry television , also competes with us for customers in the jewelry category . in addition , there are a number of smaller niche players and startups in the television shopping arena who compete with us . we believe that our major competitors incur cable and satellite distribution fees representing a significantly lower percentage of their sales attributable to their television programming than we do ; and that their fee arrangements are substantially on a commission basis ( in some cases with minimum guarantees ) rather than on the predominantly fixed-cost basis that we currently have . at our current sales level , our distribution costs as a percentage of total consolidated net sales are higher than our competition . however , one of our key strategies is to maintain our fixed distribution cost structure in order to leverage our profitability as we grow our business . the e-commerce sector also is highly competitive , and we are in direct competition with numerous other internet retailers , many of whom are larger , better financed and have a broader customer base than we do . we anticipate continuing competition for viewers and customers , for experienced television shopping personnel , for distribution agreements with cable and satellite systems and for vendors and suppliers — not only from television shopping companies , but also from other companies that seek to enter the television shopping and internet retail industries , including telecommunications and cable companies , television networks , and other established retailers . we believe that our ability to be 27 successful in the multichannel retailing industry will be dependent on a number of key factors , including expanding our digital footprint to meet our customers ' `` watch and shop anytime , anywhere `` needs , increasing the number of customers who purchase products from us and increasing the dollar value of sales per customer from our existing customer base . results for fiscal 2013 , 2012 and 2011 consolidated net sales in fiscal 2013 were $ 640.5 million compared to $ 586.8 million in fiscal 2012 , a 9 % increase . story_separator_special_tag gross profit for fiscal 2012 was $ 212.4 million , an increase of 4 % , compared to $ 204.1 million for fiscal 2011 . as noted above , fiscal 2012 had 53 weeks as compared to fiscal 2011 , which had 52 weeks , and pro forma gross profit for fiscal 2012 was $ 208.3 million , a 2 % increase over gross profit for fiscal 2011. the increase in gross profits experienced during fiscal 2012 was driven primarily by the year-over-year sales increase partially offset by the lower gross margin percentages experiences as discussed above . operating expenses total operating expenses were $ 229.9 million , $ 235.7 million and $ 220.9 million for fiscal 2013 , fiscal 2012 and fiscal 2011 respectively , representing a decrease of $ 5.7 million or 2 % from fiscal 2012 to fiscal 2013 , and an increase of $ 14.8 million , or 7 % from fiscal 2011 to fiscal 2012 . results of operations for fiscal 2012 includes an $ 11.1 million write-down of our fcc broadcast license asset . also as noted above , fiscal 2013 had 52 weeks of operating expenses as compared to fiscal 2012 , which had 53 weeks of operating expenses . distribution and selling expense for fiscal 2013 decreased $ 1.3 million , or 1 % , to $ 191.7 million or 29.9 % of net sales compared to $ 193.0 million or 32.9 % of net sales in fiscal 2012 . distribution and selling expense decreased from fiscal 2012 primarily due to net decreased program distribution expense of $ 18.5 million , reflecting lower rates on renewed distribution agreements that became effective in january 2013. this decrease over the prior year was partially offset by increases in salaries , wages and accrued incentive compensation costs of $ 9.8 million , variable credit card processing fees and other credit expenses of $ 3.7 million , customer service and telecommunications expenses of $ 1.8 million , advertising and promotion expense of $ 996,000 and incremental rebranding marketing and consulting expenses totaling $ 258,000. total variable expenses , in fiscal 2013 were approximately 8 % of total net sales versus approximately 7 % of total net sales in fiscal 2012. the increase in variable expense as a percentage of net sales coincides with the reduction in average selling price and resulting 30 % increase in net shipped units during fiscal 2013. to the extent that our average selling price continues to decline , our variable expense as a percentage of net sales could increase as the number of our shipped units increase . program distribution expense is primarily a fixed cost per household , however , this expense may be impacted by growth in the number of average homes reached or by rate changes associated with improvements in our channel positions . distribution and selling expense for fiscal 2012 increased $ 4.2 million , or 2 % , to $ 193.0 million , or 32.9 % of net sales compared to $ 188.8 million or 33.8 % of net sales in fiscal 2011 . distribution and selling expense increased from fiscal 2011 primarily due to increased program distribution expense of $ 4.3 million related to a 4 % increase in average homes reached during the year . the increase over the prior year was also due to increased salary and wage costs of $ 2.3 million and increased customer service and telemarketing expense of $ 600,000 attributable to an increase in units ordered and shipped during the year . these distribution and selling expense increases were offset by decreases in variable credit card processing fees and other credit expense of $ 2.1 million , decreased share based compensation expenses of $ 618,000 and decreases in advertising and promotion expense of $ 888,000. general and administrative expense for fiscal 2013 increased $ 7.6 million , or 42 % , to $ 25.9 million , or 4.0 % of net sales compared to $ 18.3 million or 3.1 % of net sales in fiscal 2012 . general and administrative expense increased from fiscal 2012 primarily as a result of increased salaries , wages and accrued incentive compensation costs of $ 4.1 million , costs related to an activist shareholder response of $ 2.1 million , information systems and website related rebranding costs of $ 700,000 and the effect of net favorable legal settlements in fiscal 2012 totaling $ 300,000 that reduced year-to-date general and administrative expense in the prior year . general and administrative expense for fiscal 2012 increased $ 1.2 million , or 6.5 % , to $ 18.3 million or 3.1 % of net sales compared to $ 19.5 million or 3.5 % of net sales in fiscal 2011 . general and administrative expense increased from fiscal 2011 primarily as a result of decreased share-based compensation expense of $ 1.1 million due to the timing of fully vested older stock option grants no longer being expensed and reduced restricted stock compensation expense resulting from the timing of vesting , and decreases in salaries and consulting expense of $ 400,000 , offset by an increase in board of directors fees of $ 282,000. depreciation and amortization expense was $ 12.3 million , $ 13.2 million and $ 12.6 million for fiscal 2013 , fiscal 2012 and fiscal 2011 , respectively , representing a decrease of $ 0.9 million , or 7 % from fiscal 2012 to fiscal 2013 and an increase of $ 0.6 million , or 5 % from fiscal 2011 to fiscal 2012 . depreciation and amortization expense as a percentage of net sales was 1.9 % for fiscal 2013 , and 2.3 % for fiscal 2012 and fiscal 2011 . the decrease in depreciation and amortization expense during fiscal 2013 was primarily due to decreased depreciation expense of $ 778,000 as a result of a reduction in our depreciable asset base year over year and decreased amortization expense of $ 52,000 related to our
| net cash used for investing activities totaled $ 11.1 million for fiscal 2013 compared to net cash used for investing activities of $ 10.1 million for fiscal 2012 and net cash used for investing activities of $ 7.8 million in fiscal 2011 . expenditures for property and equipment were $ 8.2 million in fiscal 2013 compared to $ 6.2 million in fiscal 2012 and $ 11.1 million in fiscal 2011 . expenditures for property and equipment during fiscal 2013 , fiscal 2012 and fiscal 2011 primarily include capital expenditures made for the development , upgrade and replacement of computer software , order management and merchandising systems , related computer equipment , digital broadcasting equipment and other office equipment , warehouse equipment and production equipment . principal future capital expenditures are expected to include the development , upgrade and replacement of various enterprise software systems , a significant potential expansion of warehousing capacity and related equipment improvements at the company 's distribution facility in bowling green , kentucky , security in our network , the upgrade and digitalization of television production and transmission equipment and related computer equipment associated with the expansion of our television shopping business and e-commerce initiatives . during fiscal 2013 , we also made a cash payment of $ 2,830,000 in connection with the extension of our nbcu trademark license .
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they rely on our technology to manage employee corporate identity and to protect their corporate data . and , increasingly , businesses of all sizes are looking to microsoft to realize the benefits of the cloud . helping businesses move to the cloud is one of our largest opportunities . cloud-based solutions provide customers with software , services , and content over the internet by way of shared computing resources located in centralized data centers . the shift to the cloud is driven by three important economies of scale : larger data centers can deploy computational resources at significantly lower cost per unit than smaller ones ; larger data centers can coordinate and aggregate diverse customer , geographic , and application demand patterns improving the utilization of computing , storage , and network resources ; and multi-tenancy lowers application maintenance labor costs for large public clouds . because of the improved economics , the cloud offers unique levels of elasticity and agility that enable new solutions and applications . for businesses of all sizes , the cloud creates the opportunity to focus on innovation while leaving non-differentiating activities to reliable and cost-effective providers . unique to microsoft , we continue to design and deliver cloud solutions that allow our customers to use both the cloud and their on-premise assets however best suits their own needs . for example , a company can choose to deploy office or microsoft dynamics on premise , as a cloud service , or a combination of both . with windows server 2012 , windows azure , and system center infrastructure , businesses can deploy applications in their own datacenter , a partner 's datacenter , or in microsoft 's datacenter with common security , management , and administration across all environments , with the flexibility and scale they desire . these hybrid capabilities allow customers to fully harness the power of the cloud so they can achieve greater levels of efficiency and tap new areas of growth . our future opportunity there are several distinct areas of technology that we are focused on driving forward . our goal is to lead the industry in these areas over the long-term , which we expect will translate to sustained growth well into the future . we are investing significant resources in : developing new form factors that have increasingly natural ways to use them , including touch , gesture , and speech . applying machine learning to make technology more intuitive and able to act on our behalf , instead of at our command . building and running cloud-based services in ways that unleash new experiences and opportunities for businesses and individuals . establishing our windows platform across the pc , tablet , phone , server , and cloud to drive a thriving ecosystem of developers , unify the cross-device user experience , and increase agility when bringing new advances to market . delivering new high-value experiences with improvements in how people learn , work , play , and interact with one another . we believe the breadth of our devices and services portfolio , our large , global partner and customer base , and the growing windows ecosystem position us to be a leader in these areas . economic conditions , challenges , and risks the market for software , devices , and cloud-based services is dynamic and highly competitive . some of our traditional businesses such as the windows operating system are in a period of transition . our competitors are developing new devices and deploy competing cloud-based services for consumers and businesses . the devices and form factors customers prefer evolve rapidly , and influence how users access services in the cloud and in some cases the user 's choice of which suite of cloud-based services to use . the windows ecosystem must continue to evolve and adapt , over an extended time , in pace with this changing environment . to support our strategy of offering 25 part ii item 7 a family of devices and services designed to empower our customers for the activities they value most , we announced a functional realignment in july 2013. through this realignment our goal is to become more nimble , collaborative , communicative , motivated , and decisive . even if we achieve these benefits , the investments we are making in devices and infrastructure to support our cloud-based services will increase our operating costs and may decrease our operation margins . we prioritize our investments among the highest long-term growth opportunities . these investments require significant resources and are multi-year in nature . the products and services we bring to market may be developed internally , as part of a partnership or alliance , or through acquisition . our success is highly dependent on our ability to attract and retain qualified employees . we hire a mix of university and industry talent worldwide . microsoft competes for talented individuals worldwide by offering broad customer reach , scale in resources , and competitive compensation . aggregate demand for our software , services , and hardware is correlated to global macroeconomic factors , which remain dynamic . see a discussion of these factors and other risks under risk factors ( part i , item 1a of this form 10-k ) . seasonality our revenue historically has fluctuated quarterly and has generally been highest in the second quarter of our fiscal year due to corporate calendar year-end spending trends in our major markets and holiday season spending by consumers . our entertainment and devices division is particularly seasonal as its products are aimed at the consumer market and are in highest demand during the holiday shopping season . typically , the entertainment and devices division has generated approximately 40 % of its yearly revenue in our second fiscal quarter . unearned revenue quarterly and annual revenue may be impacted by the deferral of revenue . story_separator_special_tag mbd revenue for the year ended june 30 , 2012 included a favorable foreign currency impact of $ 506 million . mbd operating income increased , primarily due to revenue growth , offset in part by higher cost of revenue and research and development expenses . cost of revenue increased $ 278 million or 17 % , primarily due to higher online operation and support costs . research and development expenses increased , due mainly to an increase in headcount-related expenses . entertainment and devices division replace_table_token_6_th entertainment and devices division ( edd ) develops and markets products and services designed to entertain and connect people . edd offerings include the xbox entertainment platform ( which includes the xbox 360 gaming and entertainment console , kinect for xbox 360 , xbox 360 video games , xbox live , and xbox 360 accessories ) , skype , and windows phone , including related patent licensing revenue . we acquired skype on october 13 , 2011 , and its results of operations from that date are reflected in our results discussed below . in june 2013 , we announced that we expect our next generation console , xbox one , to be available for purchase in the second quarter of fiscal year 2014. fiscal year 2013 compared with fiscal year 2012 edd revenue increased , due to higher windows phone and skype revenue , offset in part by lower xbox 360 platform revenue . windows phone revenue increased $ 1.2 billion , including an increase in patent licensing revenue and sales of windows phone licenses . skype revenue increased , due primarily to including a full year of results in fiscal year 2013. xbox 360 platform revenue decreased $ 950 million or 12 % , due mainly to lower volumes of consoles sold , offset in part by higher xbox live revenue . we shipped 9.8 million xbox 360 consoles during fiscal year 2013 , compared with 13.0 million xbox 360 consoles during fiscal year 2012. edd operating income increased , primarily due to revenue growth and lower cost of revenue , offset in part by higher operating expenses . sales and marketing expenses decreased $ 176 million or 16 % , reflecting a $ 248 million 31 part ii item 7 decrease in xbox 360 platform marketing . cost of revenue decreased $ 143 million or 2 % , due mainly to a $ 1.0 billion decrease in manufacturing and distribution costs associated with lower volumes of xbox 360 consoles sold , offset in part by a $ 375 million increase in expenses for payments made to nokia related to joint strategic initiatives and a $ 273 million increase in royalties on xbox live content . research and development expenses increased $ 432 million or 28 % , reflecting $ 246 million higher headcount-related expenses , resulting mainly from increased headcount in connection with the xbox platform and skype . fiscal year 2012 compared with fiscal year 2011 edd revenue increased primarily reflecting skype and windows phone revenue , offset in part by lower xbox 360 platform revenue . xbox 360 platform revenue decreased $ 107 million , due mainly to decreased volumes of kinect for xbox 360 sold and lower video game revenue , offset in part by higher xbox live revenue . we shipped 13.0 million xbox 360 consoles during fiscal year 2012 , compared with 13.7 million xbox 360 consoles during fiscal year 2011. video game revenue decreased due to strong sales of halo reach in the prior year . edd operating income decreased reflecting higher cost of revenue and operating expenses , offset in part by revenue growth . cost of revenue grew $ 896 million or 16 % , primarily due to changes in the mix of products and services sold and payments made to nokia related to joint strategic initiatives . research and development expenses increased $ 366 million or 31 % , primarily reflecting higher headcount-related expenses . sales and marketing expenses increased $ 242 million or 27 % , primarily reflecting the inclusion of skype expenses . corporate-level activity replace_table_token_7_th certain corporate-level activity is not allocated to our segments , including costs of : broad-based sales and marketing ; product support services ; human resources ; legal ; finance ; information technology ; corporate development and procurement activities ; research and development ; costs of operating our retail stores ; and legal settlements and contingencies . fiscal year 2013 compared with fiscal year 2012 corporate-level expenses increased , primarily due to higher legal charges from the european commission fine of 561 million ( approximately $ 733 million ) for failure to comply with our 2009 agreement to display a browser choice screen on windows pcs where internet explorer is the default browser ( the eu fine ) . corporate-level expenses also grew due to a $ 350 million increase in retail stores expenses and $ 287 million higher intellectual property licensing costs . fiscal year 2012 compared with fiscal year 2011 corporate-level expenses increased due mainly to full year puerto rican excise taxes , higher headcount-related expenses , and changes in foreign currency exchange rates . these increases were offset in part by lower legal charges , which were $ 56 million in fiscal year 2012 compared with $ 332 million in fiscal year 2011. cost of revenue cost of revenue replace_table_token_8_th 32 part ii item 7 cost of revenue includes : manufacturing and distribution costs for products sold , including xbox and surface , and programs licensed ; operating costs related to product support service centers and product distribution centers ; costs incurred to include software on pcs sold by oems , to drive traffic to our websites , and to acquire online advertising space ( traffic acquisition costs ) ; costs incurred to support and maintain internet-based products and services , including datacenter costs and royalties ; warranty costs ; inventory valuation adjustments ; costs associated with the delivery of
| net cash used for investing activities totaled $ 11.1 million for fiscal 2013 compared to net cash used for investing activities of $ 10.1 million for fiscal 2012 and net cash used for investing activities of $ 7.8 million in fiscal 2011 . expenditures for property and equipment were $ 8.2 million in fiscal 2013 compared to $ 6.2 million in fiscal 2012 and $ 11.1 million in fiscal 2011 . expenditures for property and equipment during fiscal 2013 , fiscal 2012 and fiscal 2011 primarily include capital expenditures made for the development , upgrade and replacement of computer software , order management and merchandising systems , related computer equipment , digital broadcasting equipment and other office equipment , warehouse equipment and production equipment . principal future capital expenditures are expected to include the development , upgrade and replacement of various enterprise software systems , a significant potential expansion of warehousing capacity and related equipment improvements at the company 's distribution facility in bowling green , kentucky , security in our network , the upgrade and digitalization of television production and transmission equipment and related computer equipment associated with the expansion of our television shopping business and e-commerce initiatives . during fiscal 2013 , we also made a cash payment of $ 2,830,000 in connection with the extension of our nbcu trademark license .
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they rely on our technology to manage employee corporate identity and to protect their corporate data . and , increasingly , businesses of all sizes are looking to microsoft to realize the benefits of the cloud . helping businesses move to the cloud is one of our largest opportunities . cloud-based solutions provide customers with software , services , and content over the internet by way of shared computing resources located in centralized data centers . the shift to the cloud is driven by three important economies of scale : larger data centers can deploy computational resources at significantly lower cost per unit than smaller ones ; larger data centers can coordinate and aggregate diverse customer , geographic , and application demand patterns improving the utilization of computing , storage , and network resources ; and multi-tenancy lowers application maintenance labor costs for large public clouds . because of the improved economics , the cloud offers unique levels of elasticity and agility that enable new solutions and applications . for businesses of all sizes , the cloud creates the opportunity to focus on innovation while leaving non-differentiating activities to reliable and cost-effective providers . unique to microsoft , we continue to design and deliver cloud solutions that allow our customers to use both the cloud and their on-premise assets however best suits their own needs . for example , a company can choose to deploy office or microsoft dynamics on premise , as a cloud service , or a combination of both . with windows server 2012 , windows azure , and system center infrastructure , businesses can deploy applications in their own datacenter , a partner 's datacenter , or in microsoft 's datacenter with common security , management , and administration across all environments , with the flexibility and scale they desire . these hybrid capabilities allow customers to fully harness the power of the cloud so they can achieve greater levels of efficiency and tap new areas of growth . our future opportunity there are several distinct areas of technology that we are focused on driving forward . our goal is to lead the industry in these areas over the long-term , which we expect will translate to sustained growth well into the future . we are investing significant resources in : developing new form factors that have increasingly natural ways to use them , including touch , gesture , and speech . applying machine learning to make technology more intuitive and able to act on our behalf , instead of at our command . building and running cloud-based services in ways that unleash new experiences and opportunities for businesses and individuals . establishing our windows platform across the pc , tablet , phone , server , and cloud to drive a thriving ecosystem of developers , unify the cross-device user experience , and increase agility when bringing new advances to market . delivering new high-value experiences with improvements in how people learn , work , play , and interact with one another . we believe the breadth of our devices and services portfolio , our large , global partner and customer base , and the growing windows ecosystem position us to be a leader in these areas . economic conditions , challenges , and risks the market for software , devices , and cloud-based services is dynamic and highly competitive . some of our traditional businesses such as the windows operating system are in a period of transition . our competitors are developing new devices and deploy competing cloud-based services for consumers and businesses . the devices and form factors customers prefer evolve rapidly , and influence how users access services in the cloud and in some cases the user 's choice of which suite of cloud-based services to use . the windows ecosystem must continue to evolve and adapt , over an extended time , in pace with this changing environment . to support our strategy of offering 25 part ii item 7 a family of devices and services designed to empower our customers for the activities they value most , we announced a functional realignment in july 2013. through this realignment our goal is to become more nimble , collaborative , communicative , motivated , and decisive . even if we achieve these benefits , the investments we are making in devices and infrastructure to support our cloud-based services will increase our operating costs and may decrease our operation margins . we prioritize our investments among the highest long-term growth opportunities . these investments require significant resources and are multi-year in nature . the products and services we bring to market may be developed internally , as part of a partnership or alliance , or through acquisition . our success is highly dependent on our ability to attract and retain qualified employees . we hire a mix of university and industry talent worldwide . microsoft competes for talented individuals worldwide by offering broad customer reach , scale in resources , and competitive compensation . aggregate demand for our software , services , and hardware is correlated to global macroeconomic factors , which remain dynamic . see a discussion of these factors and other risks under risk factors ( part i , item 1a of this form 10-k ) . seasonality our revenue historically has fluctuated quarterly and has generally been highest in the second quarter of our fiscal year due to corporate calendar year-end spending trends in our major markets and holiday season spending by consumers . our entertainment and devices division is particularly seasonal as its products are aimed at the consumer market and are in highest demand during the holiday shopping season . typically , the entertainment and devices division has generated approximately 40 % of its yearly revenue in our second fiscal quarter . unearned revenue quarterly and annual revenue may be impacted by the deferral of revenue . story_separator_special_tag mbd revenue for the year ended june 30 , 2012 included a favorable foreign currency impact of $ 506 million . mbd operating income increased , primarily due to revenue growth , offset in part by higher cost of revenue and research and development expenses . cost of revenue increased $ 278 million or 17 % , primarily due to higher online operation and support costs . research and development expenses increased , due mainly to an increase in headcount-related expenses . entertainment and devices division replace_table_token_6_th entertainment and devices division ( edd ) develops and markets products and services designed to entertain and connect people . edd offerings include the xbox entertainment platform ( which includes the xbox 360 gaming and entertainment console , kinect for xbox 360 , xbox 360 video games , xbox live , and xbox 360 accessories ) , skype , and windows phone , including related patent licensing revenue . we acquired skype on october 13 , 2011 , and its results of operations from that date are reflected in our results discussed below . in june 2013 , we announced that we expect our next generation console , xbox one , to be available for purchase in the second quarter of fiscal year 2014. fiscal year 2013 compared with fiscal year 2012 edd revenue increased , due to higher windows phone and skype revenue , offset in part by lower xbox 360 platform revenue . windows phone revenue increased $ 1.2 billion , including an increase in patent licensing revenue and sales of windows phone licenses . skype revenue increased , due primarily to including a full year of results in fiscal year 2013. xbox 360 platform revenue decreased $ 950 million or 12 % , due mainly to lower volumes of consoles sold , offset in part by higher xbox live revenue . we shipped 9.8 million xbox 360 consoles during fiscal year 2013 , compared with 13.0 million xbox 360 consoles during fiscal year 2012. edd operating income increased , primarily due to revenue growth and lower cost of revenue , offset in part by higher operating expenses . sales and marketing expenses decreased $ 176 million or 16 % , reflecting a $ 248 million 31 part ii item 7 decrease in xbox 360 platform marketing . cost of revenue decreased $ 143 million or 2 % , due mainly to a $ 1.0 billion decrease in manufacturing and distribution costs associated with lower volumes of xbox 360 consoles sold , offset in part by a $ 375 million increase in expenses for payments made to nokia related to joint strategic initiatives and a $ 273 million increase in royalties on xbox live content . research and development expenses increased $ 432 million or 28 % , reflecting $ 246 million higher headcount-related expenses , resulting mainly from increased headcount in connection with the xbox platform and skype . fiscal year 2012 compared with fiscal year 2011 edd revenue increased primarily reflecting skype and windows phone revenue , offset in part by lower xbox 360 platform revenue . xbox 360 platform revenue decreased $ 107 million , due mainly to decreased volumes of kinect for xbox 360 sold and lower video game revenue , offset in part by higher xbox live revenue . we shipped 13.0 million xbox 360 consoles during fiscal year 2012 , compared with 13.7 million xbox 360 consoles during fiscal year 2011. video game revenue decreased due to strong sales of halo reach in the prior year . edd operating income decreased reflecting higher cost of revenue and operating expenses , offset in part by revenue growth . cost of revenue grew $ 896 million or 16 % , primarily due to changes in the mix of products and services sold and payments made to nokia related to joint strategic initiatives . research and development expenses increased $ 366 million or 31 % , primarily reflecting higher headcount-related expenses . sales and marketing expenses increased $ 242 million or 27 % , primarily reflecting the inclusion of skype expenses . corporate-level activity replace_table_token_7_th certain corporate-level activity is not allocated to our segments , including costs of : broad-based sales and marketing ; product support services ; human resources ; legal ; finance ; information technology ; corporate development and procurement activities ; research and development ; costs of operating our retail stores ; and legal settlements and contingencies . fiscal year 2013 compared with fiscal year 2012 corporate-level expenses increased , primarily due to higher legal charges from the european commission fine of 561 million ( approximately $ 733 million ) for failure to comply with our 2009 agreement to display a browser choice screen on windows pcs where internet explorer is the default browser ( the eu fine ) . corporate-level expenses also grew due to a $ 350 million increase in retail stores expenses and $ 287 million higher intellectual property licensing costs . fiscal year 2012 compared with fiscal year 2011 corporate-level expenses increased due mainly to full year puerto rican excise taxes , higher headcount-related expenses , and changes in foreign currency exchange rates . these increases were offset in part by lower legal charges , which were $ 56 million in fiscal year 2012 compared with $ 332 million in fiscal year 2011. cost of revenue cost of revenue replace_table_token_8_th 32 part ii item 7 cost of revenue includes : manufacturing and distribution costs for products sold , including xbox and surface , and programs licensed ; operating costs related to product support service centers and product distribution centers ; costs incurred to include software on pcs sold by oems , to drive traffic to our websites , and to acquire online advertising space ( traffic acquisition costs ) ; costs incurred to support and maintain internet-based products and services , including datacenter costs and royalties ; warranty costs ; inventory valuation adjustments ; costs associated with the delivery of
| cash flows fiscal year 2013 compared with fiscal year 2012 cash flows from operations decreased $ 2.8 billion during the current fiscal year to $ 28.8 billion , due mainly to changes in working capital , including increases in inventory and other current assets . cash used for financing decreased $ 1.3 billion to $ 8.1 billion , due mainly to a $ 3.5 billion increase in proceeds from issuances of debt , net of repayments , offset in part by a $ 1.1 billion increase in dividends paid and a $ 982 million decrease in proceeds from the issuance of common stock . cash used in investing decreased $ 975 million to $ 23.8 billion , due mainly to an $ 8.5 billion decrease in cash used for acquisitions of companies and purchases of intangible and other assets , offset in part by a $ 5.8 billion increase in cash used for net investment purchases , maturities , and sales and a $ 2.0 billion increase in cash used for additions to property and equipment . fiscal year 2012 compared with fiscal year 2011 cash flows from operations increased $ 4.6 billion during fiscal year 2012 to $ 31.6 billion , due mainly to increased revenue and cash collections from customers . cash used for financing increased $ 1.0 billion to $ 9.4 billion , due mainly to a $ 6.0 billion net decrease in proceeds from issuances of debt and a $ 1.2 billion increase in dividends paid , offset in part by a $ 6.5 billion decrease in cash used for common stock repurchases .
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through december 31 , 2018 , we have primarily funded our operations through the net proceeds from our initial public offering , or ipo , of $ 237.7 million , the sale of $ 152.4 million of convertible preferred stock and net borrowing of $ 38.5 million after fees of $ 1.5 million under the loan and security agreement , or term loan , entered into with hercules capital inc. , or hercules , on february 28 , 2018. we have incurred losses in each year since our inception in 2013. our net losses were $ 102.8 million , $ 41.3 million and $ 28.7 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . as of december 31 , 2018 , we had an accumulated deficit of $ 192.2 million . substantially all of our operating losses resulted from expenses incurred in connection with advancing trc101 through development activities and general and administrative costs associated with our operations . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . our net losses may fluctuate significantly from quarter to quarter and year to year . we expect our expenses will increase substantially in connection with our ongoing activities as we : 86 conduct clinical studies of trc101 ; optimize the scale-up of the manufacturing process and increase drug substance manufacturing for trc101 for planned clinical study materials , and upon a successful validation campaign , commercial launch materials ; increase our research and development efforts ; hire additional personnel ; create additional infrastructure to support our product development ; seek regulatory approval for trc101 ; engage in commercial launch activities ; conduct confirmatory postmarketing trial , valor-ckd maintain , expand and protect our intellectual property portfolio ; and add operational , financial and management information systems to support ongoing operations , including operating as a public company . we do not expect to generate any revenue from product sales until we successfully complete development and obtain regulatory approval for trc101 , which we expect will take a number of years . if we obtain regulatory approval for trc101 , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . accordingly , we will seek to fund our operations through public or private equity or debt financings or other sources . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and ability to develop trc101 . components of our results of operations research and development expense research and development expense consists primarily of costs associated with the development of trc101 and include salaries , benefits , travel and other related costs , including stock-based compensation expenses , for personnel engaged in research and development functions ; expenses incurred under agreements with contract research organizations , or cros , investigative sites and consultants that conduct our nonclinical and clinical studies ; manufacturing development , optimization and scale-up expenses and the cost of acquiring and manufacturing clinical study materials and commercial materials , including manufacturing registration and validation batches ; payments to consultants engaged in the development of trc101 , including stock-based compensation , travel and other expenses ; costs related to compliance with quality and regulatory requirements ; research and development facility-related expenses , which include direct and allocated expenses , and other related costs . research and development expense is charged to operations as incurred when these expenditures relate to our research and development efforts and have no alternative future uses . payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received . all of our research and development expense to date has been incurred in connection with trc101 . we expect our research and development expense to increase for the foreseeable future as we optimize our manufacturing processes and advance trc101 through clinical development , including our confirmatory post marketing trial , known as valor-ckd . the process of conducting clinical studies necessary to obtain regulatory approval is costly and time consuming and the successful development of trc101 is highly uncertain . as a result , we are unable to determine the duration and completion costs of our research and development projects or when , and to what extent , we will generate revenue from commercialization and sale of trc101 , if approved . therefore , we are unable to estimate with any certainty the costs we will incur in the continued development of trc101 . the degree of success , timelines and cost of development can differ materially from expectations . we may never succeed in achieving regulatory approval for trc101 . general and administrative expense 87 general and administrative expense consists primarily of salaries , related benefits , travel , stock-based compensation expense and facility-related expenses for personnel in finance and administrative functions . general and administrative expense also includes professional fees for legal , patent , consulting , accounting and audit services , pre-commercial preparation for the potential launch of trc101 and other related costs . we anticipate that our general and administrative expense will increase in the future as we continue to build our infrastructure to support our continued research and development of trc101 . we also anticipate increased expenses related to accounting , legal and regulatory-related services associated with maintaining compliance with exchange listing and the sec requirements , director and officer insurance premiums and other costs associated with being a public company . results of operations and comprehensive loss the following table presents our results of operations and comprehensive loss for the years ended december 31 , 2018 , 2017 and 2016 . story_separator_special_tag we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . changes in estimates are reflected in reported results for the period in which they become known . actual results may differ significantly from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 `` summary of significant accounting policies `` to our financial statements included in this annual report on form 10-k , we believe that the following accounting policies related to ( i ) research and development expenses , ( ii ) stock-based compensation , ( iii ) common stock valuation , ( iv ) convertible preferred stock tranche obligation valuation and ( v ) income taxes involve significant judgments and estimates used in the preparation of our financial statements . research and development expenses research and development costs are expensed as incurred . non-refundable advance payments for goods or services that will be used or rendered for future research and development activities are recorded as a prepaid expense and recognized as an expense as the related goods are delivered or the related services are performed . as part of the process of preparing our financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing contracts and purchase orders , communicating with internal personnel and external service providers to identify services that have been performed on our behalf , and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . we base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions , contract research organizations that conduct and manage clinical trials on our behalf and contract manufacturing organizations that manage drug production on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract , and may result in uneven payment flows and expense recognition . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual accordingly . furthermore , all additional identified costs incurred are accrued from all outside third-party service providers . our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period . to date , there have been no material differences between our estimates and the amount actually incurred . however , due to the nature of these estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies or other research activity . stock-based compensation stock-based compensation expense represents the grant-date fair value of awards recognized over the requisite service period of the awards ( usually the vesting period ) on a straight-line basis . for stock options and shares purchased under our employee stock purchase plan , or espp , we estimate the grant-date fair value , and the resulting stock-based compensation expense , using the black-scholes option-pricing model . for restricted stock units , or rsus , the grant-date fair value is the closing price of our common stock on the date of grant as reported on the nasdaq global select market . the black-scholes option-pricing model requires the derivation and use of subjective assumptions to determine the estimated fair value of stock option awards . these assumptions include : expected term—we have concluded that our stock option exercise history does not provide a reasonable basis upon which to estimate expected term , and therefore we use the simplified method for estimating the expected term of stock option grants . under this approach , the weighted-average expected term is presumed to be the average of the vesting term and the contractual term of the option . 94 expected volatility—since we do not have significant trading history for our common stock , the expected volatility is estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants . the comparable companies were chosen based on their similar size , stage in the life cycle or area of specialty . we will continue to use comparable company information until the historical volatility of our common stock is sufficient to measure expected volatility for future option grants . risk-free interest rate—the risk-free interest rate is based on the u.s. treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the award . dividend yield—we have not paid dividends on our common stock and do not anticipate paying dividends for the foreseeable future , and we therefore used an expected dividend yield of zero . in addition to the black-scholes assumptions , we include an estimated forfeiture rate in the calculation of stock-based compensation related to stock options and rsus based on an analysis
| cash flows fiscal year 2013 compared with fiscal year 2012 cash flows from operations decreased $ 2.8 billion during the current fiscal year to $ 28.8 billion , due mainly to changes in working capital , including increases in inventory and other current assets . cash used for financing decreased $ 1.3 billion to $ 8.1 billion , due mainly to a $ 3.5 billion increase in proceeds from issuances of debt , net of repayments , offset in part by a $ 1.1 billion increase in dividends paid and a $ 982 million decrease in proceeds from the issuance of common stock . cash used in investing decreased $ 975 million to $ 23.8 billion , due mainly to an $ 8.5 billion decrease in cash used for acquisitions of companies and purchases of intangible and other assets , offset in part by a $ 5.8 billion increase in cash used for net investment purchases , maturities , and sales and a $ 2.0 billion increase in cash used for additions to property and equipment . fiscal year 2012 compared with fiscal year 2011 cash flows from operations increased $ 4.6 billion during fiscal year 2012 to $ 31.6 billion , due mainly to increased revenue and cash collections from customers . cash used for financing increased $ 1.0 billion to $ 9.4 billion , due mainly to a $ 6.0 billion net decrease in proceeds from issuances of debt and a $ 1.2 billion increase in dividends paid , offset in part by a $ 6.5 billion decrease in cash used for common stock repurchases .
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through december 31 , 2018 , we have primarily funded our operations through the net proceeds from our initial public offering , or ipo , of $ 237.7 million , the sale of $ 152.4 million of convertible preferred stock and net borrowing of $ 38.5 million after fees of $ 1.5 million under the loan and security agreement , or term loan , entered into with hercules capital inc. , or hercules , on february 28 , 2018. we have incurred losses in each year since our inception in 2013. our net losses were $ 102.8 million , $ 41.3 million and $ 28.7 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . as of december 31 , 2018 , we had an accumulated deficit of $ 192.2 million . substantially all of our operating losses resulted from expenses incurred in connection with advancing trc101 through development activities and general and administrative costs associated with our operations . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . our net losses may fluctuate significantly from quarter to quarter and year to year . we expect our expenses will increase substantially in connection with our ongoing activities as we : 86 conduct clinical studies of trc101 ; optimize the scale-up of the manufacturing process and increase drug substance manufacturing for trc101 for planned clinical study materials , and upon a successful validation campaign , commercial launch materials ; increase our research and development efforts ; hire additional personnel ; create additional infrastructure to support our product development ; seek regulatory approval for trc101 ; engage in commercial launch activities ; conduct confirmatory postmarketing trial , valor-ckd maintain , expand and protect our intellectual property portfolio ; and add operational , financial and management information systems to support ongoing operations , including operating as a public company . we do not expect to generate any revenue from product sales until we successfully complete development and obtain regulatory approval for trc101 , which we expect will take a number of years . if we obtain regulatory approval for trc101 , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . accordingly , we will seek to fund our operations through public or private equity or debt financings or other sources . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and ability to develop trc101 . components of our results of operations research and development expense research and development expense consists primarily of costs associated with the development of trc101 and include salaries , benefits , travel and other related costs , including stock-based compensation expenses , for personnel engaged in research and development functions ; expenses incurred under agreements with contract research organizations , or cros , investigative sites and consultants that conduct our nonclinical and clinical studies ; manufacturing development , optimization and scale-up expenses and the cost of acquiring and manufacturing clinical study materials and commercial materials , including manufacturing registration and validation batches ; payments to consultants engaged in the development of trc101 , including stock-based compensation , travel and other expenses ; costs related to compliance with quality and regulatory requirements ; research and development facility-related expenses , which include direct and allocated expenses , and other related costs . research and development expense is charged to operations as incurred when these expenditures relate to our research and development efforts and have no alternative future uses . payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received . all of our research and development expense to date has been incurred in connection with trc101 . we expect our research and development expense to increase for the foreseeable future as we optimize our manufacturing processes and advance trc101 through clinical development , including our confirmatory post marketing trial , known as valor-ckd . the process of conducting clinical studies necessary to obtain regulatory approval is costly and time consuming and the successful development of trc101 is highly uncertain . as a result , we are unable to determine the duration and completion costs of our research and development projects or when , and to what extent , we will generate revenue from commercialization and sale of trc101 , if approved . therefore , we are unable to estimate with any certainty the costs we will incur in the continued development of trc101 . the degree of success , timelines and cost of development can differ materially from expectations . we may never succeed in achieving regulatory approval for trc101 . general and administrative expense 87 general and administrative expense consists primarily of salaries , related benefits , travel , stock-based compensation expense and facility-related expenses for personnel in finance and administrative functions . general and administrative expense also includes professional fees for legal , patent , consulting , accounting and audit services , pre-commercial preparation for the potential launch of trc101 and other related costs . we anticipate that our general and administrative expense will increase in the future as we continue to build our infrastructure to support our continued research and development of trc101 . we also anticipate increased expenses related to accounting , legal and regulatory-related services associated with maintaining compliance with exchange listing and the sec requirements , director and officer insurance premiums and other costs associated with being a public company . results of operations and comprehensive loss the following table presents our results of operations and comprehensive loss for the years ended december 31 , 2018 , 2017 and 2016 . story_separator_special_tag we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . changes in estimates are reflected in reported results for the period in which they become known . actual results may differ significantly from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 `` summary of significant accounting policies `` to our financial statements included in this annual report on form 10-k , we believe that the following accounting policies related to ( i ) research and development expenses , ( ii ) stock-based compensation , ( iii ) common stock valuation , ( iv ) convertible preferred stock tranche obligation valuation and ( v ) income taxes involve significant judgments and estimates used in the preparation of our financial statements . research and development expenses research and development costs are expensed as incurred . non-refundable advance payments for goods or services that will be used or rendered for future research and development activities are recorded as a prepaid expense and recognized as an expense as the related goods are delivered or the related services are performed . as part of the process of preparing our financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing contracts and purchase orders , communicating with internal personnel and external service providers to identify services that have been performed on our behalf , and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . we base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions , contract research organizations that conduct and manage clinical trials on our behalf and contract manufacturing organizations that manage drug production on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract , and may result in uneven payment flows and expense recognition . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual accordingly . furthermore , all additional identified costs incurred are accrued from all outside third-party service providers . our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period . to date , there have been no material differences between our estimates and the amount actually incurred . however , due to the nature of these estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies or other research activity . stock-based compensation stock-based compensation expense represents the grant-date fair value of awards recognized over the requisite service period of the awards ( usually the vesting period ) on a straight-line basis . for stock options and shares purchased under our employee stock purchase plan , or espp , we estimate the grant-date fair value , and the resulting stock-based compensation expense , using the black-scholes option-pricing model . for restricted stock units , or rsus , the grant-date fair value is the closing price of our common stock on the date of grant as reported on the nasdaq global select market . the black-scholes option-pricing model requires the derivation and use of subjective assumptions to determine the estimated fair value of stock option awards . these assumptions include : expected term—we have concluded that our stock option exercise history does not provide a reasonable basis upon which to estimate expected term , and therefore we use the simplified method for estimating the expected term of stock option grants . under this approach , the weighted-average expected term is presumed to be the average of the vesting term and the contractual term of the option . 94 expected volatility—since we do not have significant trading history for our common stock , the expected volatility is estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants . the comparable companies were chosen based on their similar size , stage in the life cycle or area of specialty . we will continue to use comparable company information until the historical volatility of our common stock is sufficient to measure expected volatility for future option grants . risk-free interest rate—the risk-free interest rate is based on the u.s. treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the award . dividend yield—we have not paid dividends on our common stock and do not anticipate paying dividends for the foreseeable future , and we therefore used an expected dividend yield of zero . in addition to the black-scholes assumptions , we include an estimated forfeiture rate in the calculation of stock-based compensation related to stock options and rsus based on an analysis
| cash used in operating activities during the year ended december 31 , 2018 , cash used in operating activities was $ 94.9 million , which consisted of a net loss of $ 102.8 million , adjusted by non-cash charges of $ 5.8 million and changes in our operating assets and liabilities of $ 2.1 million . the non-cash charges consisted primarily of stock-based compensation of $ 5.2 million , amortization of term loan discounts and issuance costs of $ 1.3 million and depreciation and amortization of $ 0.6 million , partially offset by net amortization of premiums and discounts on investments of $ 1.1 million and net changes in the fair value of the warrants and compound derivative liabilities of $ 0.2 million . the changes in our operating assets and liabilities were primarily due to an increase in accounts payable of $ 4.6 million , partially offset by an increase in prepaid and other assets of $ 1.3 million and a decrease in accrued expenses and other current liabilities of $ 1.1 million . during the year ended december 31 , 2017 , cash used in operating activities was $ 40.4 million , which consisted of a net loss of $ 41.3 million , adjusted by changes in our operating assets and liabilities of $ 5.4 million and non-cash charges of $ 4.5 million . the changes in our operating assets and liabilities were primarily due to an increase in accrued expenses and other current liabilities of $ 4.8 million and an increase in accounts payable of $ 1.8 million , partially offset by an increase in prepaid expenses and other assets of $ 1.2 million . the non-cash charges consisted primarily of changes in the fair value of our preferred stock tranche financing obligation of $ 5.6 million , partially offset by stock-based compensation of $ 0.9 million and depreciation and amortization of $ 0.3
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's reliance on certain key suppliers of core rail equipment ; availability of qualified personnel ; and acts of terrorism , war or other acts of violence or crime or risk of such activities . forward-looking statements reflect the information only as of the date on which they are made . the company does not undertake any obligation to update any forward-looking statements to reflect future events , developments , or other information . if kcs does update one or more forward-looking statements , no inference should be drawn that additional updates will be made regarding that statement or any other forward-looking statements . corporate overview kansas city southern , a delaware corporation , is a transportation holding company that has railroad investments in the u.s. , mexico and panama . in the u.s. , the company serves the central and south central u.s. its international holdings serve northeastern and central mexico and the port cities of lazaro cardenas , tampico and veracruz , and a fifty percent interest in panama canal railway company provides ocean-to-ocean freight and passenger service along the panama canal . kcs 's north american rail holdings and strategic alliances are primary components of a nafta railway system , linking the commercial and industrial centers of the u.s. , canada and mexico . its principal subsidiaries and affiliates include the following : the kansas city southern railway company ( “ kcsr ” ) , a wholly-owned subsidiary ; kansas city southern de méxico , s.a. de c.v. ( “ kcsm ” ) , a wholly-owned subsidiary ; mexrail , inc. ( “ mexrail ” ) , a wholly-owned consolidated subsidiary ; which , in turn , wholly owns the texas mexican railway company ( “ tex-mex ” ) ; kcsm servicios , s.a. de c.v. ( “ kcsm servicios ” ) , a wholly-owned subsidiary ; meridian speedway , llc ( “ msllc ” ) , a seventy percent-owned consolidated affiliate ; panama canal railway company ( “ pcrc ” ) , a fifty percent-owned unconsolidated affiliate , ferrocarril y terminal del valle de méxico , s.a. de c.v. ( “ ftvm ” ) , a twenty-five percent-owned unconsolidated affiliate ; and ptc-220 , llc ( “ ptc-220 ” ) , a fourteen percent-owned unconsolidated affiliate . executive summary 2016 financial overview revenues in 2016 decreased 3 % from 2015 , due to a 2 % decrease in revenue per carload/unit and carload/unit volumes . revenue per carload/unit decreased due to the weakening of the mexican peso against the u.s. dollar and lower fuel surcharge , partially offset by positive pricing impacts . energy revenue decreased by $ 49.6 million due to lower volumes in crude oil as a result of low crude oil spreads and increased pipeline capacity . volumes also decreased as the decline in new crude drilling operations in the u.s. has reduced the demand for frac sand . in addition , low natural gas prices and high coal inventory levels reduced the demand for utility coal in 2016. operating expenses decreased 6 % compared to 2015 , due to a $ 62.8 million mexican fuel excise tax credit recognized in 2016 , the weakening of the mexican peso against the u.s. dollar and lower fuel prices . expense reductions resulting from the weakening mexican peso and lower fuel prices largely offset the revenue reductions driven by these same macroeconomic factors . these expense reductions were partially offset by higher incentive compensation and increased depreciation expense . operating expenses as a percentage of revenues decreased to 64.9 % in 2016 from 66.8 % in 2015. in 2016 , the company invested $ 584.0 million in capital expenditures . in addition , the company purchased $ 26.6 million of equipment under existing operating leases or replacement equipment as certain operating leases expired , which was primarily funded with internally generated cash flows and short-term borrowings . 25 the company reported 2016 earnings of $ 4.43 per diluted share on consolidated net income attributable to kansas city southern and subsidiaries of $ 478.1 million for the year ended december 31 , 2016 , compared to annual earnings of $ 4.40 per diluted share on consolidated net income attributable to kansas city southern and subsidiaries of $ 483.5 million for 2015 . during 2016 , kcs repurchased 2,127,612 shares of common stock for $ 185.4 million at an average price of $ 87.15 per share under the $ 500.0 million share repurchase program announced in may 2015. since inception of this program , kcs has repurchased 4,261,596 shares of common stock for $ 379.6 million at an average price of $ 89.07 per share . management 's assessment of market conditions , available liquidity and other factors will determine the timing and volume of any future repurchases . on may 16 , 2016 , kcs issued $ 250.0 million principal amount of senior unsecured notes , which bear interest semiannually at a fixed annual rate of 3.125 % . the net proceeds from the offering were used to repay the outstanding commercial paper issued by kcs and for other general corporate purposes . on october 28 , 2016 , $ 250.0 million principal amount of outstanding floating rate senior notes issued by kcs and kcsm matured and were redeemed by the company at a redemption price equal to 100 % of the principal amount using available cash on hand and commercial paper . 26 results of operations year ended december 31 , 2016 , compared with the year ended december 31 , 2015 the following summarizes kcs 's consolidated income statement components ( in millions ) : replace_table_token_5_th revenues the following summarizes revenues ( in millions ) , carload/unit statistics ( in thousands ) and revenue per carload/unit : replace_table_token_6_th revenues include revenue for transportation services and fuel surcharges . story_separator_special_tag revenues decreased $ 74.5 million for the year ended december 31 , 2015 , compared to 2014 , due to an 18 % decrease in revenue per carload/unit and a 6 % decrease in carload/unit volumes . revenue per carload/unit decreased due to lower fuel surcharge , a short-term rate concession provided to a customer during the second half of 2015 and shorter average length of haul . volumes decreased as low natural gas prices reduced the demand for utility coal and the decline in new crude drilling operations in the u.s. reduced the demand for frac sand . these decreases were partially offset by increased crude oil volumes due to new business . intermodal . revenues decreased $ 14.3 million for the year ended december 31 , 2015 , compared to 2014 , due to a 3 % decrease in in carload/unit volumes and a 1 % decrease in revenue per carload/unit . lower volumes due to service-related issues in the second and third quarters of 2015 and the conversion of rail traffic to truck were partially offset by volume growth driven by trans-pacific imports via the port of lazaro cardenas . revenue per carload/unit decreased due to lower fuel surcharge . automotive . revenues decreased $ 19.7 million for the year ended december 31 , 2015 , compared to 2014 , due to an 8 % decrease in revenue per carload/unit . revenue per carload/unit decreased due to the weakening of the mexican peso against the u.s. dollar , partially offset by positive pricing impacts . volumes were flat for the year ended december 31 , 2015 , compared to 2014 , due to service-related issues in the second and third quarters of 2015 . 34 operating expenses operating expenses , as shown below ( in millions ) , decreased $ 153.0 million for the year ended december 31 , 2015 , compared to 2014 , due to the weakening of the mexican peso against the u.s. dollar and lower u.s. fuel prices , partially offset by increased depreciation expense . the weakening of the mexican peso against the u.s. dollar resulted in an expense reduction of approximately $ 77.0 million for expense transactions denominated in mexican pesos . the average exchange rate of mexican pesos per u.s. dollar was ps.15.8 for 2015 compared to ps.13.3 for 2014. lower u.s. fuel prices reduced 2015 expenses by $ 71.5 million . replace_table_token_10_th compensation and benefits . compensation and benefits decreased $ 32.3 million for the year ended december 31 , 2015 , compared to 2014 , due to the weakening of the mexican peso of approximately $ 23.0 million , lower incentive compensation of $ 22.4 million and a reduction in post-employment liabilities due to changes in discount rates . these decreases were partially offset by annual salary rate increases and a 3 % growth in headcount . purchased services . purchased services expense decreased $ 22.2 million for the year ended december 31 , 2015 , compared to 2014 , due to renegotiation of maintenance contracts during 2015 , the weakening of the mexican peso and lower track maintenance and corporate expenses . fuel . fuel expense decreased $ 109.0 million for the year ended december 31 , 2015 , compared to 2014 , due to lower u.s. diesel fuel prices of $ 71.5 million and the weakening of the mexican peso of approximately $ 37.0 million . these decreases were partially offset by approximately $ 12.0 million increase due to mexican diesel prices . the average price per gallon , inclusive of the impact from the weakening of the mexican peso , was $ 2.32 in 2015 , compared to $ 3.03 in 2014. in addition , fuel expense decreased due to improved fuel efficiency and lower fuel consumption . equipment costs . equipment costs increased $ 0.2 million for the year ended december 31 , 2015 , compared to 2014 , primarily due to higher car hire expense due to longer cycle times , partially offset by lower lease expense as a result of the purchase of equipment under existing operating leases and replacement equipment as certain operating leases expired . depreciation and amortization . depreciation and amortization increased $ 26.5 million for the year ended december 31 , 2015 , compared to 2014 , due to a larger asset base , including the purchase of equipment under existing operating leases and replacement equipment as certain operating leases expired . materials and other . materials and other increased $ 12.5 million for the year ended december 31 , 2015 , compared to 2014 , due to an increase in materials and supplies , derailment expense , property taxes , environmental expense and the settlement of a litigation dispute during 2015. these increases were partially offset by the weakening of the mexican peso , lower employee expenses and a reduction in personal injury expense recognized during 2015 as a result of changes in estimates due to favorable claim experience lease termination costs . lease termination costs were $ 9.6 million and $ 38.3 million for the years ended december 31 , 2015 and 2014 , respectively , due to the early termination of certain operating leases and the related purchase of the equipment . 35 non-operating expenses equity in net earnings of affiliates . equity in net earnings from affiliates decreased $ 2.8 million for the year ended december 31 , 2015 , compared to 2014 . equity in net earnings from the operations of ferrocarril y terminal del valle de mexico , s.a. de c.v. decreased due to higher operating expenses . in addition , equity in net earnings from the operations of panama canal railway company decreased due to lower container volumes . interest expense . interest expense increased $ 9.1 million for the year ended december 31 , 2015 , compared to 2014 , due to higher average interest rates and average debt balances as a result of the company 's issuance of debt
| cash used in operating activities during the year ended december 31 , 2018 , cash used in operating activities was $ 94.9 million , which consisted of a net loss of $ 102.8 million , adjusted by non-cash charges of $ 5.8 million and changes in our operating assets and liabilities of $ 2.1 million . the non-cash charges consisted primarily of stock-based compensation of $ 5.2 million , amortization of term loan discounts and issuance costs of $ 1.3 million and depreciation and amortization of $ 0.6 million , partially offset by net amortization of premiums and discounts on investments of $ 1.1 million and net changes in the fair value of the warrants and compound derivative liabilities of $ 0.2 million . the changes in our operating assets and liabilities were primarily due to an increase in accounts payable of $ 4.6 million , partially offset by an increase in prepaid and other assets of $ 1.3 million and a decrease in accrued expenses and other current liabilities of $ 1.1 million . during the year ended december 31 , 2017 , cash used in operating activities was $ 40.4 million , which consisted of a net loss of $ 41.3 million , adjusted by changes in our operating assets and liabilities of $ 5.4 million and non-cash charges of $ 4.5 million . the changes in our operating assets and liabilities were primarily due to an increase in accrued expenses and other current liabilities of $ 4.8 million and an increase in accounts payable of $ 1.8 million , partially offset by an increase in prepaid expenses and other assets of $ 1.2 million . the non-cash charges consisted primarily of changes in the fair value of our preferred stock tranche financing obligation of $ 5.6 million , partially offset by stock-based compensation of $ 0.9 million and depreciation and amortization of $ 0.3
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's reliance on certain key suppliers of core rail equipment ; availability of qualified personnel ; and acts of terrorism , war or other acts of violence or crime or risk of such activities . forward-looking statements reflect the information only as of the date on which they are made . the company does not undertake any obligation to update any forward-looking statements to reflect future events , developments , or other information . if kcs does update one or more forward-looking statements , no inference should be drawn that additional updates will be made regarding that statement or any other forward-looking statements . corporate overview kansas city southern , a delaware corporation , is a transportation holding company that has railroad investments in the u.s. , mexico and panama . in the u.s. , the company serves the central and south central u.s. its international holdings serve northeastern and central mexico and the port cities of lazaro cardenas , tampico and veracruz , and a fifty percent interest in panama canal railway company provides ocean-to-ocean freight and passenger service along the panama canal . kcs 's north american rail holdings and strategic alliances are primary components of a nafta railway system , linking the commercial and industrial centers of the u.s. , canada and mexico . its principal subsidiaries and affiliates include the following : the kansas city southern railway company ( “ kcsr ” ) , a wholly-owned subsidiary ; kansas city southern de méxico , s.a. de c.v. ( “ kcsm ” ) , a wholly-owned subsidiary ; mexrail , inc. ( “ mexrail ” ) , a wholly-owned consolidated subsidiary ; which , in turn , wholly owns the texas mexican railway company ( “ tex-mex ” ) ; kcsm servicios , s.a. de c.v. ( “ kcsm servicios ” ) , a wholly-owned subsidiary ; meridian speedway , llc ( “ msllc ” ) , a seventy percent-owned consolidated affiliate ; panama canal railway company ( “ pcrc ” ) , a fifty percent-owned unconsolidated affiliate , ferrocarril y terminal del valle de méxico , s.a. de c.v. ( “ ftvm ” ) , a twenty-five percent-owned unconsolidated affiliate ; and ptc-220 , llc ( “ ptc-220 ” ) , a fourteen percent-owned unconsolidated affiliate . executive summary 2016 financial overview revenues in 2016 decreased 3 % from 2015 , due to a 2 % decrease in revenue per carload/unit and carload/unit volumes . revenue per carload/unit decreased due to the weakening of the mexican peso against the u.s. dollar and lower fuel surcharge , partially offset by positive pricing impacts . energy revenue decreased by $ 49.6 million due to lower volumes in crude oil as a result of low crude oil spreads and increased pipeline capacity . volumes also decreased as the decline in new crude drilling operations in the u.s. has reduced the demand for frac sand . in addition , low natural gas prices and high coal inventory levels reduced the demand for utility coal in 2016. operating expenses decreased 6 % compared to 2015 , due to a $ 62.8 million mexican fuel excise tax credit recognized in 2016 , the weakening of the mexican peso against the u.s. dollar and lower fuel prices . expense reductions resulting from the weakening mexican peso and lower fuel prices largely offset the revenue reductions driven by these same macroeconomic factors . these expense reductions were partially offset by higher incentive compensation and increased depreciation expense . operating expenses as a percentage of revenues decreased to 64.9 % in 2016 from 66.8 % in 2015. in 2016 , the company invested $ 584.0 million in capital expenditures . in addition , the company purchased $ 26.6 million of equipment under existing operating leases or replacement equipment as certain operating leases expired , which was primarily funded with internally generated cash flows and short-term borrowings . 25 the company reported 2016 earnings of $ 4.43 per diluted share on consolidated net income attributable to kansas city southern and subsidiaries of $ 478.1 million for the year ended december 31 , 2016 , compared to annual earnings of $ 4.40 per diluted share on consolidated net income attributable to kansas city southern and subsidiaries of $ 483.5 million for 2015 . during 2016 , kcs repurchased 2,127,612 shares of common stock for $ 185.4 million at an average price of $ 87.15 per share under the $ 500.0 million share repurchase program announced in may 2015. since inception of this program , kcs has repurchased 4,261,596 shares of common stock for $ 379.6 million at an average price of $ 89.07 per share . management 's assessment of market conditions , available liquidity and other factors will determine the timing and volume of any future repurchases . on may 16 , 2016 , kcs issued $ 250.0 million principal amount of senior unsecured notes , which bear interest semiannually at a fixed annual rate of 3.125 % . the net proceeds from the offering were used to repay the outstanding commercial paper issued by kcs and for other general corporate purposes . on october 28 , 2016 , $ 250.0 million principal amount of outstanding floating rate senior notes issued by kcs and kcsm matured and were redeemed by the company at a redemption price equal to 100 % of the principal amount using available cash on hand and commercial paper . 26 results of operations year ended december 31 , 2016 , compared with the year ended december 31 , 2015 the following summarizes kcs 's consolidated income statement components ( in millions ) : replace_table_token_5_th revenues the following summarizes revenues ( in millions ) , carload/unit statistics ( in thousands ) and revenue per carload/unit : replace_table_token_6_th revenues include revenue for transportation services and fuel surcharges . story_separator_special_tag revenues decreased $ 74.5 million for the year ended december 31 , 2015 , compared to 2014 , due to an 18 % decrease in revenue per carload/unit and a 6 % decrease in carload/unit volumes . revenue per carload/unit decreased due to lower fuel surcharge , a short-term rate concession provided to a customer during the second half of 2015 and shorter average length of haul . volumes decreased as low natural gas prices reduced the demand for utility coal and the decline in new crude drilling operations in the u.s. reduced the demand for frac sand . these decreases were partially offset by increased crude oil volumes due to new business . intermodal . revenues decreased $ 14.3 million for the year ended december 31 , 2015 , compared to 2014 , due to a 3 % decrease in in carload/unit volumes and a 1 % decrease in revenue per carload/unit . lower volumes due to service-related issues in the second and third quarters of 2015 and the conversion of rail traffic to truck were partially offset by volume growth driven by trans-pacific imports via the port of lazaro cardenas . revenue per carload/unit decreased due to lower fuel surcharge . automotive . revenues decreased $ 19.7 million for the year ended december 31 , 2015 , compared to 2014 , due to an 8 % decrease in revenue per carload/unit . revenue per carload/unit decreased due to the weakening of the mexican peso against the u.s. dollar , partially offset by positive pricing impacts . volumes were flat for the year ended december 31 , 2015 , compared to 2014 , due to service-related issues in the second and third quarters of 2015 . 34 operating expenses operating expenses , as shown below ( in millions ) , decreased $ 153.0 million for the year ended december 31 , 2015 , compared to 2014 , due to the weakening of the mexican peso against the u.s. dollar and lower u.s. fuel prices , partially offset by increased depreciation expense . the weakening of the mexican peso against the u.s. dollar resulted in an expense reduction of approximately $ 77.0 million for expense transactions denominated in mexican pesos . the average exchange rate of mexican pesos per u.s. dollar was ps.15.8 for 2015 compared to ps.13.3 for 2014. lower u.s. fuel prices reduced 2015 expenses by $ 71.5 million . replace_table_token_10_th compensation and benefits . compensation and benefits decreased $ 32.3 million for the year ended december 31 , 2015 , compared to 2014 , due to the weakening of the mexican peso of approximately $ 23.0 million , lower incentive compensation of $ 22.4 million and a reduction in post-employment liabilities due to changes in discount rates . these decreases were partially offset by annual salary rate increases and a 3 % growth in headcount . purchased services . purchased services expense decreased $ 22.2 million for the year ended december 31 , 2015 , compared to 2014 , due to renegotiation of maintenance contracts during 2015 , the weakening of the mexican peso and lower track maintenance and corporate expenses . fuel . fuel expense decreased $ 109.0 million for the year ended december 31 , 2015 , compared to 2014 , due to lower u.s. diesel fuel prices of $ 71.5 million and the weakening of the mexican peso of approximately $ 37.0 million . these decreases were partially offset by approximately $ 12.0 million increase due to mexican diesel prices . the average price per gallon , inclusive of the impact from the weakening of the mexican peso , was $ 2.32 in 2015 , compared to $ 3.03 in 2014. in addition , fuel expense decreased due to improved fuel efficiency and lower fuel consumption . equipment costs . equipment costs increased $ 0.2 million for the year ended december 31 , 2015 , compared to 2014 , primarily due to higher car hire expense due to longer cycle times , partially offset by lower lease expense as a result of the purchase of equipment under existing operating leases and replacement equipment as certain operating leases expired . depreciation and amortization . depreciation and amortization increased $ 26.5 million for the year ended december 31 , 2015 , compared to 2014 , due to a larger asset base , including the purchase of equipment under existing operating leases and replacement equipment as certain operating leases expired . materials and other . materials and other increased $ 12.5 million for the year ended december 31 , 2015 , compared to 2014 , due to an increase in materials and supplies , derailment expense , property taxes , environmental expense and the settlement of a litigation dispute during 2015. these increases were partially offset by the weakening of the mexican peso , lower employee expenses and a reduction in personal injury expense recognized during 2015 as a result of changes in estimates due to favorable claim experience lease termination costs . lease termination costs were $ 9.6 million and $ 38.3 million for the years ended december 31 , 2015 and 2014 , respectively , due to the early termination of certain operating leases and the related purchase of the equipment . 35 non-operating expenses equity in net earnings of affiliates . equity in net earnings from affiliates decreased $ 2.8 million for the year ended december 31 , 2015 , compared to 2014 . equity in net earnings from the operations of ferrocarril y terminal del valle de mexico , s.a. de c.v. decreased due to higher operating expenses . in addition , equity in net earnings from the operations of panama canal railway company decreased due to lower container volumes . interest expense . interest expense increased $ 9.1 million for the year ended december 31 , 2015 , compared to 2014 , due to higher average interest rates and average debt balances as a result of the company 's issuance of debt
| debt retirement and exchange costs were $ 7.6 million for the year ended december 31 , 2015 , related to costs that were payable to parties other than the debt holders as a result of the kcsr and kcsm senior notes exchanged for kcs senior notes . for the year ended december 31 , 2014 , debt retirement and exchange costs were $ 6.6 million related to the call premiums , original issue discounts and write-off of unamortized debt issuance costs associated with the company 's various debt redemption activities . foreign exchange loss . for the years ended december 31 , 2015 and 2014 , foreign exchange loss was $ 56.6 million and $ 35.5 million , respectively . foreign exchange loss includes the re-measurement and settlement of net monetary assets denominated in mexican pesos and the loss on foreign currency derivative contracts . for the years ended december 31 , 2015 and 2014 , the re-measurement and settlement of net monetary assets denominated in mexican pesos resulted in a foreign exchange loss of $ 9.4 million and $ 7.6 million , respectively . the company enters into foreign currency derivative contracts to hedge its net exposure to fluctuations in the mexican cash tax obligation due to changes in the value of the mexican peso against the u.s. dollar . for the years ended december 31 , 2015 and 2014 , foreign exchange loss on foreign currency derivative contracts was $ 47.2 million and $ 27.9 million , respectively . other expense , net . other expense , net , increased $ 1.2 million for the year ended december 31 , 2015 , compared to 2014 , due to lower miscellaneous income . income tax expense . income tax expense decreased $ 21.5 million for the year ended december 31 , 2015 , compared to 2014 , due to lower pre-tax income and a lower effective tax rate . the effective tax rate was 27.8 % and 29.3 % for the years ended december 31 , 2015 and 2014 , respectively .
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in addition to our current and anticipated clinical development activities , we are engaged in preclinical development and evaluation of multistem in other disease indications in the cardiovascular , neurological , inflammatory & immune disorder areas . we conduct such work both through our own internal research efforts and through a broad network of collaborations we have established with investigators at leading research institutions across the united states and in europe . we are also working with our collaborator , rti , to develop products for certain orthopedic applications in the bone graft substitutes market using our stem cell technologies . we are also engaged in the development of novel small molecule therapies to treat obesity and other conditions . currently , we are focused on the development of potent , highly selective compounds that act through stimulation of a specific receptor in the brain , the 5ht2c serotonin receptor . we are conducting preclinical evaluation of novel compounds that we have developed that exhibit outstanding receptor selectivity and are working towards the selection of a clinical development candidate for this program . we may elect to enter into a partnership to advance the development of this program . financial we have incurred losses since inception of operations in 1995 and had an accumulated deficit of $ 219 million at december 31 , 2011. our losses have resulted principally from costs incurred in research and development , clinical and preclinical product development , acquisition and licensing costs , and general and administrative costs associated with our operations . we have used the financing proceeds from private equity and debt offerings and other sources of capital to develop our technologies , to discover and develop therapeutic product candidates , develop business collaborations and to acquire certain technologies and assets . in march 2012 , we completed a private placement generating net proceeds of approximately $ 8.0 million through the issuance of 4,347,827 shares of common stock and five-year warrants to purchase 4,347,827 shares of common stock with an exercise price of $ 2.07 per share . the securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase one share of common stock at an offering price of $ 2.07 per fixed combination . in connection with this offering , our former lenders were entitled to a milestone payment in the amount of $ 0.9 million , of which 75 % was settled through the issuance of our common stock at $ 1.94 per share to the former lenders at our election . in november 2011 , we entered into a purchase agreement with aspire capital , which provides that aspire capital is committed to purchase up to an aggregate of $ 20.0 million of shares of our common stock over a two-year term , subject to our election to sell any such shares , and the terms and conditions set forth therein . under the purchase agreement , we have the right to sell shares , subject to certain volume limitations and a minimum floor price , at a modest discount to the prevailing market price . as part of the agreement , aspire capital made an initial investment of $ 1.0 million in us through the purchase of 666,667 shares of our common stock at $ 1.50 per share , and received 266,667 additional shares as compensation for its commitment . in connection with this initial investment , our former lenders were entitled to a milestone payment in the amount of $ 100,000 , of which $ 25,000 was paid in cash and $ 75,000 was paid through the issuance of our common stock to the former lenders at our election at $ 1.50 per share in november 2011. in 2012 , we sold an additional 200,000 shares to aspire capital at an average price of $ 1.85 per share and made milestone payments amounting to $ 37,000 , of which $ 9,000 was paid in cash and $ 28,000 was paid through the issuance of our common stock to the former lenders at our election . in march 2012 , in connection with the private placement financing , we agreed not to sell any shares of common stock , including to aspire capital , until the earlier of the 180 th day after the closing date or the 30 th day after the resale registration statement covering the resale of the shares sold in the financing is declared effective . in february 2011 , we completed a registered direct offering of 4,366,667 shares of common stock and five-year warrants to purchase 1,310,000 shares of common stock with an exercise price of $ 3.55 per share , generating net proceeds of $ 11.8 million . the securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase 0.3 of a share of common stock at an offering price of $ 3.00 per fixed combination . 39 in connection with this offering , our former lenders were entitled to a milestone payment in the amount of $ 810,000 , of which 75 % was settled through the issuance of our common stock to the former lenders at our election . during 2011 , we were awarded grants aggregating approximately $ 800,000 for projects spanning over the next few years , including our alliance with fast forward , llc , or fast forward . in early 2012 , we were awarded grant funding aggregating $ 3.6 million to further advance our multistem programs and cell therapy platform , including further development of multistem for the treatment of tbi and further development of our cell therapy formulations and manufacturing capabilities . the sources of funding including federal , state , european and private organizations and are generally aimed at the advancement of our preclinical multistem programs and multistem process development . story_separator_special_tag we expect that our capital equipment expenditures will continue at similar levels in 2012 compared to 2011. financing activities provided cash of $ 12.6 million in 2011 related to the february 2011 registered direct offering and the initial aspire capital investment in november 2011 , and financing activities neither used nor provided cash in 2010 and 2009. investors in our march 2012 private placement received five-year warrants to purchase an aggregate of 4,347,827 shares of common stock with an exercise price of $ 2.07 per share . the exercise of such warrants could provide us with cash proceeds . investors in our february 2011 registered direct offering received five-year warrants to purchase an aggregate of 1,310,000 shares of common stock with an exercise price of $ 3.55 per share . the exercise of such warrants could provide us with cash proceeds . no warrants have been exercised at december 31 , 2011. investors in our equity offering in june 2007 received five-year warrants to purchase an aggregate of 3,250,000 shares of common stock with an exercise price of $ 6.00 per share . the lead investor in the june offering received additional five-year warrants to purchase an aggregate of 500,000 shares of common stock with a cash or cashless exercise price of $ 6.00 per share . the placement agents for the june 2007 offering received five-year warrants to purchase an aggregate of 1,093,525 shares of common stock with a cash or cashless exercise price of $ 6.00 per share . also , investors that participated in a bridge financing in 2006 received in the june 2007 offering five-year warrants to purchase an aggregate of 132,945 shares of common stock with an exercise price of $ 6.00 per share . the exercise of such warrants could provide us with cash proceeds . no warrants have been exercised at december 31 , 2011. in february 2012 , we were awarded grant funding aggregating $ 3.6 million to further advance our multistem product programs and cell therapy platform . specifically , we were awarded a small business innovation research fast-track grant of up to $ 1.9 million from the national institute of neurological disorders and stroke to develop multistem for the treatment of traumatic brain injury . in addition , our subsidiary based in belgium was awarded a $ 1.2 million ( 0.9 million ) grant from belgium 's agency for innovation by science and technology to further develop cell therapy formulations and manufacturing capabilities , as well as funding from a local grant to work in other areas , such as using multistem to treat chronic cardiovascular disease . in october 2011 , we entered into an alliance with fast forward , a nonprofit subsidiary of the national multiple sclerosis society , pursuant to which fast forward will fund the development of multistem for the treatment of multiple sclerosis through the filing of an ind . fast forward will commit up to $ 640,000 to fund the advancement of the program to clinical development stage . in return , upon successful achievement of certain development and commercialization milestones , we would remit certain milestone payments to fast forward . our contractual payment obligations as of december 31 , 2011 are as follows : payment due by period replace_table_token_6_th we lease office and laboratory space under an operating lease . the lease began in 2000 and currently expires in march 2013 , and we expect to extend the lease option periods . our rent is $ 267,000 per year and our rental rate has not changed since the lease inception in 2000. also , we lease office and laboratory space for our belgian subsidiary that includes options to renew annually through december 2014 and the annual rent is subject to adjustments based on an inflationary index . we executed an option to renew this lease through december 31 , 2012. our annual rent in belgium was $ 93,000 in 2011. the research funding in the table above represents our current funding commitment for a research program that began in 2007 and ends in august 2012 . 46 in connection with our private placement in march 2012 , we intend to promptly file a resale registration statement with the sec for 8,695,654 shares of common stock , which includes all shares of common stock issued in the equity offering in march 2012 and shares of common stock issuable upon exercise of the warrants issued in the offering . if the registration statement is not timely filed , is not declared effective within the requisite time period or , once effective , ceases to remain effective , a 1 % cash penalty will be assessed upon a default under the registration rights agreement and for each 30-day period until the default is cured during the first year after the closing of the private placement , capped at 10 % the aggregate gross proceeds we received from the private placement . because the penalty is based on the number of unregistered shares of common stock held by investors in the offering , our maximum penalty exposure will decline over time as investors sell their shares of common stock that are required to be included in the registration statement . in connection with our private financing in 2007 , we filed a resale registration statement with the sec for 18,508,251 shares of common stock , which includes all shares of common stock issued in the equity offering in june 2007 and shares of common stock issuable upon exercise of the warrants issued in the offering ( as well as the 531,781 shares of common stock issued to the bridge investors and the 132,945 shares underlying their warrants ) . the resale registration statement was declared effective by the sec on october 18 , 2007. under the registration rights agreement entered into in connection with the offering , subject to certain exceptions , if the resale registration statement ceases to remain effective , a 1 % cash
| debt retirement and exchange costs were $ 7.6 million for the year ended december 31 , 2015 , related to costs that were payable to parties other than the debt holders as a result of the kcsr and kcsm senior notes exchanged for kcs senior notes . for the year ended december 31 , 2014 , debt retirement and exchange costs were $ 6.6 million related to the call premiums , original issue discounts and write-off of unamortized debt issuance costs associated with the company 's various debt redemption activities . foreign exchange loss . for the years ended december 31 , 2015 and 2014 , foreign exchange loss was $ 56.6 million and $ 35.5 million , respectively . foreign exchange loss includes the re-measurement and settlement of net monetary assets denominated in mexican pesos and the loss on foreign currency derivative contracts . for the years ended december 31 , 2015 and 2014 , the re-measurement and settlement of net monetary assets denominated in mexican pesos resulted in a foreign exchange loss of $ 9.4 million and $ 7.6 million , respectively . the company enters into foreign currency derivative contracts to hedge its net exposure to fluctuations in the mexican cash tax obligation due to changes in the value of the mexican peso against the u.s. dollar . for the years ended december 31 , 2015 and 2014 , foreign exchange loss on foreign currency derivative contracts was $ 47.2 million and $ 27.9 million , respectively . other expense , net . other expense , net , increased $ 1.2 million for the year ended december 31 , 2015 , compared to 2014 , due to lower miscellaneous income . income tax expense . income tax expense decreased $ 21.5 million for the year ended december 31 , 2015 , compared to 2014 , due to lower pre-tax income and a lower effective tax rate . the effective tax rate was 27.8 % and 29.3 % for the years ended december 31 , 2015 and 2014 , respectively .
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in addition to our current and anticipated clinical development activities , we are engaged in preclinical development and evaluation of multistem in other disease indications in the cardiovascular , neurological , inflammatory & immune disorder areas . we conduct such work both through our own internal research efforts and through a broad network of collaborations we have established with investigators at leading research institutions across the united states and in europe . we are also working with our collaborator , rti , to develop products for certain orthopedic applications in the bone graft substitutes market using our stem cell technologies . we are also engaged in the development of novel small molecule therapies to treat obesity and other conditions . currently , we are focused on the development of potent , highly selective compounds that act through stimulation of a specific receptor in the brain , the 5ht2c serotonin receptor . we are conducting preclinical evaluation of novel compounds that we have developed that exhibit outstanding receptor selectivity and are working towards the selection of a clinical development candidate for this program . we may elect to enter into a partnership to advance the development of this program . financial we have incurred losses since inception of operations in 1995 and had an accumulated deficit of $ 219 million at december 31 , 2011. our losses have resulted principally from costs incurred in research and development , clinical and preclinical product development , acquisition and licensing costs , and general and administrative costs associated with our operations . we have used the financing proceeds from private equity and debt offerings and other sources of capital to develop our technologies , to discover and develop therapeutic product candidates , develop business collaborations and to acquire certain technologies and assets . in march 2012 , we completed a private placement generating net proceeds of approximately $ 8.0 million through the issuance of 4,347,827 shares of common stock and five-year warrants to purchase 4,347,827 shares of common stock with an exercise price of $ 2.07 per share . the securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase one share of common stock at an offering price of $ 2.07 per fixed combination . in connection with this offering , our former lenders were entitled to a milestone payment in the amount of $ 0.9 million , of which 75 % was settled through the issuance of our common stock at $ 1.94 per share to the former lenders at our election . in november 2011 , we entered into a purchase agreement with aspire capital , which provides that aspire capital is committed to purchase up to an aggregate of $ 20.0 million of shares of our common stock over a two-year term , subject to our election to sell any such shares , and the terms and conditions set forth therein . under the purchase agreement , we have the right to sell shares , subject to certain volume limitations and a minimum floor price , at a modest discount to the prevailing market price . as part of the agreement , aspire capital made an initial investment of $ 1.0 million in us through the purchase of 666,667 shares of our common stock at $ 1.50 per share , and received 266,667 additional shares as compensation for its commitment . in connection with this initial investment , our former lenders were entitled to a milestone payment in the amount of $ 100,000 , of which $ 25,000 was paid in cash and $ 75,000 was paid through the issuance of our common stock to the former lenders at our election at $ 1.50 per share in november 2011. in 2012 , we sold an additional 200,000 shares to aspire capital at an average price of $ 1.85 per share and made milestone payments amounting to $ 37,000 , of which $ 9,000 was paid in cash and $ 28,000 was paid through the issuance of our common stock to the former lenders at our election . in march 2012 , in connection with the private placement financing , we agreed not to sell any shares of common stock , including to aspire capital , until the earlier of the 180 th day after the closing date or the 30 th day after the resale registration statement covering the resale of the shares sold in the financing is declared effective . in february 2011 , we completed a registered direct offering of 4,366,667 shares of common stock and five-year warrants to purchase 1,310,000 shares of common stock with an exercise price of $ 3.55 per share , generating net proceeds of $ 11.8 million . the securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase 0.3 of a share of common stock at an offering price of $ 3.00 per fixed combination . 39 in connection with this offering , our former lenders were entitled to a milestone payment in the amount of $ 810,000 , of which 75 % was settled through the issuance of our common stock to the former lenders at our election . during 2011 , we were awarded grants aggregating approximately $ 800,000 for projects spanning over the next few years , including our alliance with fast forward , llc , or fast forward . in early 2012 , we were awarded grant funding aggregating $ 3.6 million to further advance our multistem programs and cell therapy platform , including further development of multistem for the treatment of tbi and further development of our cell therapy formulations and manufacturing capabilities . the sources of funding including federal , state , european and private organizations and are generally aimed at the advancement of our preclinical multistem programs and multistem process development . story_separator_special_tag we expect that our capital equipment expenditures will continue at similar levels in 2012 compared to 2011. financing activities provided cash of $ 12.6 million in 2011 related to the february 2011 registered direct offering and the initial aspire capital investment in november 2011 , and financing activities neither used nor provided cash in 2010 and 2009. investors in our march 2012 private placement received five-year warrants to purchase an aggregate of 4,347,827 shares of common stock with an exercise price of $ 2.07 per share . the exercise of such warrants could provide us with cash proceeds . investors in our february 2011 registered direct offering received five-year warrants to purchase an aggregate of 1,310,000 shares of common stock with an exercise price of $ 3.55 per share . the exercise of such warrants could provide us with cash proceeds . no warrants have been exercised at december 31 , 2011. investors in our equity offering in june 2007 received five-year warrants to purchase an aggregate of 3,250,000 shares of common stock with an exercise price of $ 6.00 per share . the lead investor in the june offering received additional five-year warrants to purchase an aggregate of 500,000 shares of common stock with a cash or cashless exercise price of $ 6.00 per share . the placement agents for the june 2007 offering received five-year warrants to purchase an aggregate of 1,093,525 shares of common stock with a cash or cashless exercise price of $ 6.00 per share . also , investors that participated in a bridge financing in 2006 received in the june 2007 offering five-year warrants to purchase an aggregate of 132,945 shares of common stock with an exercise price of $ 6.00 per share . the exercise of such warrants could provide us with cash proceeds . no warrants have been exercised at december 31 , 2011. in february 2012 , we were awarded grant funding aggregating $ 3.6 million to further advance our multistem product programs and cell therapy platform . specifically , we were awarded a small business innovation research fast-track grant of up to $ 1.9 million from the national institute of neurological disorders and stroke to develop multistem for the treatment of traumatic brain injury . in addition , our subsidiary based in belgium was awarded a $ 1.2 million ( 0.9 million ) grant from belgium 's agency for innovation by science and technology to further develop cell therapy formulations and manufacturing capabilities , as well as funding from a local grant to work in other areas , such as using multistem to treat chronic cardiovascular disease . in october 2011 , we entered into an alliance with fast forward , a nonprofit subsidiary of the national multiple sclerosis society , pursuant to which fast forward will fund the development of multistem for the treatment of multiple sclerosis through the filing of an ind . fast forward will commit up to $ 640,000 to fund the advancement of the program to clinical development stage . in return , upon successful achievement of certain development and commercialization milestones , we would remit certain milestone payments to fast forward . our contractual payment obligations as of december 31 , 2011 are as follows : payment due by period replace_table_token_6_th we lease office and laboratory space under an operating lease . the lease began in 2000 and currently expires in march 2013 , and we expect to extend the lease option periods . our rent is $ 267,000 per year and our rental rate has not changed since the lease inception in 2000. also , we lease office and laboratory space for our belgian subsidiary that includes options to renew annually through december 2014 and the annual rent is subject to adjustments based on an inflationary index . we executed an option to renew this lease through december 31 , 2012. our annual rent in belgium was $ 93,000 in 2011. the research funding in the table above represents our current funding commitment for a research program that began in 2007 and ends in august 2012 . 46 in connection with our private placement in march 2012 , we intend to promptly file a resale registration statement with the sec for 8,695,654 shares of common stock , which includes all shares of common stock issued in the equity offering in march 2012 and shares of common stock issuable upon exercise of the warrants issued in the offering . if the registration statement is not timely filed , is not declared effective within the requisite time period or , once effective , ceases to remain effective , a 1 % cash penalty will be assessed upon a default under the registration rights agreement and for each 30-day period until the default is cured during the first year after the closing of the private placement , capped at 10 % the aggregate gross proceeds we received from the private placement . because the penalty is based on the number of unregistered shares of common stock held by investors in the offering , our maximum penalty exposure will decline over time as investors sell their shares of common stock that are required to be included in the registration statement . in connection with our private financing in 2007 , we filed a resale registration statement with the sec for 18,508,251 shares of common stock , which includes all shares of common stock issued in the equity offering in june 2007 and shares of common stock issuable upon exercise of the warrants issued in the offering ( as well as the 531,781 shares of common stock issued to the bridge investors and the 132,945 shares underlying their warrants ) . the resale registration statement was declared effective by the sec on october 18 , 2007. under the registration rights agreement entered into in connection with the offering , subject to certain exceptions , if the resale registration statement ceases to remain effective , a 1 % cash
| liquidity and capital resources our sources of liquidity include our cash balances and available-for-sale securities . at december 31 , 2011 , we had $ 8.8 million in cash and cash equivalents and $ 4.0 million in available-for-sale securities . we have primarily financed our operations through business collaborations , grant funding and equity financings . we conduct all of our operations through our subsidiary , abt holding company . consequently , our ability to fund our operations depends on abt holding company 's financial condition and its ability to make dividend payments or other cash distributions to us . there are no restrictions such as government regulations or material contractual arrangements that restrict the ability of abt holding company to make dividend and other payments to us . in march 2012 , we completed a private placement generating net proceeds of approximately $ 8.0 million through the issuance of 4,347,827 shares of common stock and five-year warrants to purchase 4,347,827 shares of common stock with an exercise price of $ 2.07 per share . the securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase one share of common stock at an offering price of $ 2.07 per fixed combination . in connection with this offering , our former lenders were entitled to a milestone payment in the amount of $ 0.9 million , of which 75 % was settled through the issuance of our common stock at $ 1.94 per share to the former lenders at our election . in november 2011 , we entered into a purchase agreement with aspire capital , which provides that aspire capital is committed to purchase up to an aggregate of $ 20.0 million of shares of our common stock over a two-year term , subject to our election to sell any such shares , and the terms and conditions set forth therein . under the purchase agreement , we have the right to sell shares , subject to certain volume limitations and a minimum floor price , at a modest discount to the prevailing market price .
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we generally bill maintenance fees annually in advance and recognize the resulting revenues ratably over the term of the maintenance agreement . we derive revenues from services which primarily include consulting , implementation , training , software as a service ( saas ) , hosting and managed services . we bill for these services primarily under time and materials arrangements and recognize fees as we perform the services . deferred revenues represent advance payments or billings for software licenses , services , and maintenance billed in advance of the time we recognize revenues . we record revenues from sales of third-party products in accordance with principal agent considerations within the revenue recognition topic of the fasb accounting standards codification . furthermore , we evaluate sales through our indirect channel on a case-by-case basis to determine whether the transaction should be recorded gross or net , including but not limited to assessing whether or not we ( 1 ) act as principal in the transaction , ( 2 ) take title to the products , ( 3 ) have risks and rewards of ownership , such as the risk of loss for collection , delivery , or returns , and ( 4 ) act as an agent or broker with compensation on a commission or fee basis . accordingly , our sales through the dmi channel are typically recorded on a gross basis . generally , our software products do not require significant modification or customization . installation of the products is routine and is not essential to their functionality . our sales frequently include maintenance contracts and professional services with the sale of our software licenses . we have established vsoe for our maintenance contracts and professional services . we determine fair value based upon the prices we charge to customers when we sell these elements separately . we defer maintenance revenues , including those sold with the initial license fee , based on vsoe , and recognize the revenue ratably over the maintenance contract period . we recognize consulting and training service revenues , including those sold with license fees , as we perform the services based on their 43 established vsoe . we determine the amount of revenue we allocate to the licenses sold with services or maintenance using the residual method of accounting . under the residual method , we allocate the total value of the arrangement first to the undelivered elements based on their vsoe and allocate the remainder to license fees . saas revenues are recognized ratably over the subscription term as the customer has no ability to take delivery of the software , and the underlying arrangements typically include a single fee for the service that is billed monthly , quarterly or annually . stock-based compensation . we estimate the value of options granted on the date of grant using the black-scholes option pricing model . management judgments and assumptions related to volatility , the expected term and the forfeiture rate are made in connection with the calculation of stock compensation expense . we periodically review all assumptions used in our stock option pricing model . changes in these assumptions could have a significant impact on the amount of stock compensation expense . income taxes . we provide for the effect of income taxes on our financial position and results of operations in accordance with the income tax topic of the fasb accounting standards codification . under this accounting guidance , income tax expense is recognized for the amount of income taxes payable or refundable for the current year and for the change in net deferred tax assets or 44 liabilities resulting from events that are recorded for financial reporting purposes in a different reporting period than recorded in the tax return . management must make significant assumptions , judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset . our judgments , assumptions and estimates relative to the current provision for income tax take into account current tax laws , our interpretation of current tax laws , allowable deductions , tax planning strategies , projected tax credits and possible outcomes of current and future audits conducted by foreign and domestic tax authorities . changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our financial position and results of operations . our assumptions , judgments and estimates relative to the value of our deferred tax asset take into account our expectations of the amount and category of future taxable income . actual operating results and the underlying amount and category of income in future years , which could significantly increase tax expense , could render inaccurate our current assumptions , judgments and estimates of recoverable net deferred taxes . business combinations and intangible assets including goodwill . we account for business combinations using the acquisition method of accounting and accordingly , the identifiable assets acquired and liabilities assumed are recorded based upon management 's estimates of current fair values as of the acquisition date . the estimation process includes analyses based on income and market approaches . goodwill represents the excess purchase price over the fair value of net assets , including the amount assigned to identifiable intangible assets . the goodwill generated is due in part to the synergies that are not included in the fair value of identifiable intangible assets . goodwill recorded in an acquisition is assigned to applicable reporting units based on expected revenues . identifiable intangible assets with finite lives are amortized over there useful lives . amortization of current technology is recorded in cost of revenues-license and amortization of all other intangible assets is recorded in amortization of acquisition-related intangibles . story_separator_special_tag maintenance revenues replace_table_token_8_th the 3 % increase in total maintenance revenues for the year ended april 30 , 2018 was due to a 4 % increase in maintenance revenues from our scm segment due to improved customer retention and additional license sales . this increase was partially offset by a 4 % decrease in our other segment due lower customer renewals and lower software license sales . the 4 % increase in total maintenance revenues for the year ended april 30 , 2017 was primarily due to a 4 % increase in maintenance revenues from our scm and other segments as a result of an increase in maintenance revenue from recent software license sales . the scm segment 's maintenance revenues constituted 96 % of total maintenance revenues for the years ended april 30 , 2018 , 2017 and 2016. typically , our maintenance revenues have had a direct relationship to current and historic license fee revenues , since new licenses are the potential source of new maintenance customers . gross margin : the following table provides both dollar amounts and percentage measures of gross margin : replace_table_token_9_th the total gross margin percentage for the year ended april 30 , 2018 increased to 56 % in fiscal 2018 when compared to 52 % in fiscal 2017 due to the increase in gross margin percentage for license fees margins , services and other gross margins and maintenance gross margin . the total gross margin percentage for the year ended april 30 , 2017 was primarily the same as the prior fiscal year due to the increase in gross margin percentage on services and other gross margins . this was partially offset by a decrease in license fees margins when compared to the prior year . gross margin on license fees the increase in license fee gross margin percentage for the year ended april 30 , 2018 when compared to fiscal 2017 was primarily due to lower capitalized software amortization expense . we expect capitalized software amortization expense to increase in fiscal 2019 when compared to fiscal 2018. the decrease in license fee gross margin percentage for the year ended april 30 , 2017 when compared to fiscal 2016 was primarily due to the 29 % decrease in license fees in fiscal 2017 when compared to the prior year . license fee gross margin percentage tends to be directly related to the level of license fee revenues due to the relatively fixed cost of computer software amortization expense , amortization of acquired software and the sales mix between our direct and indirect channel . 50 gross margin on services and other for the year ended april 30 , 2018 , our gross margin percentage on services and other revenues increased from 30 % in fiscal 2017 to 37 % in fiscal 2018 primarily due to higher gross margins in our scm segment services gross margin which increased from 38 % in fiscal 2017 to 46 % in fiscal 2018 primarily due to an increase in our cloud service revenue which has higher margins . our it consulting segment services gross margin also increased from 18 % in fiscal 2017 to 21 % in fiscal 2018 due to an increase in project related billing . our other segment increased from 33 % in fiscal 2017 to 44 % in fiscal 2018 due to improved billing utilization rates . for the year ended april 30 , 2017 , our gross margin percentage on services and other revenues increased from 27 % in fiscal 2016 to 30 % in fiscal 2017 due to higher gross margins in our other segment , which increased from 20 % in fiscal 2016 to 39 % in fiscal 2017 due to improved billing utilization rates . our scm segment services gross margin was 38 % and 39 % in fiscal 2017 and fiscal 2016 , respectively . our it consulting segment services gross margin was 18 % in fiscal 2017 and fiscal 2016. as discussed above , our it consulting segment typically has lower margins when compared to the other segments that have higher margin implementation service revenue , so a decrease in the percentage of services revenues from our it consulting segment tends to cause our overall services gross margin percentage to increase . the it consulting segment was 34 % , 41 % and 47 % of the company 's services revenues in fiscal 2018 , 2017 and 2016 , respectively . our scm segment was 64 % , 57 % and 51 % of the company 's services revenues in fiscal 2018 , 2017 and 2016 , respectively . our other segment was 2 % , 2 % and 2 % of the company 's services revenues in fiscal 2018 , 2017 and 2016 , respectively . gross margin on maintenance maintenance gross margin percentage remained relatively consistent for the years ended april 30 , 2018 , 2017 and 2016 in the range of 77 % to 79 % . expenses replace_table_token_10_th 51 research and development gross product research and development costs include all non-capitalized and capitalized software development costs . a breakdown of the research and development costs is as follows : replace_table_token_11_th * included in cost of license fees for the year ended april 30 , 2018 , gross product research and development costs increased by 7 % primarily due to increased headcount from the halo acquisition and additional hiring . capitalized software development costs increased in fiscal 2018 compared to fiscal 2017 due to timing of project work . amortization of capitalized software development decreased 13 % in fiscal 2018 when compared to fiscal 2017 due to timing of project releases . for the year ended april 30 , 2017 , gross product research and development costs increased by 8 % primarily due to increased headcount from the adapchain acquisition and additional hiring . capitalized software development costs increased in fiscal 2017 compared to fiscal 2016 due to timing of project work .
| liquidity and capital resources our sources of liquidity include our cash balances and available-for-sale securities . at december 31 , 2011 , we had $ 8.8 million in cash and cash equivalents and $ 4.0 million in available-for-sale securities . we have primarily financed our operations through business collaborations , grant funding and equity financings . we conduct all of our operations through our subsidiary , abt holding company . consequently , our ability to fund our operations depends on abt holding company 's financial condition and its ability to make dividend payments or other cash distributions to us . there are no restrictions such as government regulations or material contractual arrangements that restrict the ability of abt holding company to make dividend and other payments to us . in march 2012 , we completed a private placement generating net proceeds of approximately $ 8.0 million through the issuance of 4,347,827 shares of common stock and five-year warrants to purchase 4,347,827 shares of common stock with an exercise price of $ 2.07 per share . the securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase one share of common stock at an offering price of $ 2.07 per fixed combination . in connection with this offering , our former lenders were entitled to a milestone payment in the amount of $ 0.9 million , of which 75 % was settled through the issuance of our common stock at $ 1.94 per share to the former lenders at our election . in november 2011 , we entered into a purchase agreement with aspire capital , which provides that aspire capital is committed to purchase up to an aggregate of $ 20.0 million of shares of our common stock over a two-year term , subject to our election to sell any such shares , and the terms and conditions set forth therein . under the purchase agreement , we have the right to sell shares , subject to certain volume limitations and a minimum floor price , at a modest discount to the prevailing market price .
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we generally bill maintenance fees annually in advance and recognize the resulting revenues ratably over the term of the maintenance agreement . we derive revenues from services which primarily include consulting , implementation , training , software as a service ( saas ) , hosting and managed services . we bill for these services primarily under time and materials arrangements and recognize fees as we perform the services . deferred revenues represent advance payments or billings for software licenses , services , and maintenance billed in advance of the time we recognize revenues . we record revenues from sales of third-party products in accordance with principal agent considerations within the revenue recognition topic of the fasb accounting standards codification . furthermore , we evaluate sales through our indirect channel on a case-by-case basis to determine whether the transaction should be recorded gross or net , including but not limited to assessing whether or not we ( 1 ) act as principal in the transaction , ( 2 ) take title to the products , ( 3 ) have risks and rewards of ownership , such as the risk of loss for collection , delivery , or returns , and ( 4 ) act as an agent or broker with compensation on a commission or fee basis . accordingly , our sales through the dmi channel are typically recorded on a gross basis . generally , our software products do not require significant modification or customization . installation of the products is routine and is not essential to their functionality . our sales frequently include maintenance contracts and professional services with the sale of our software licenses . we have established vsoe for our maintenance contracts and professional services . we determine fair value based upon the prices we charge to customers when we sell these elements separately . we defer maintenance revenues , including those sold with the initial license fee , based on vsoe , and recognize the revenue ratably over the maintenance contract period . we recognize consulting and training service revenues , including those sold with license fees , as we perform the services based on their 43 established vsoe . we determine the amount of revenue we allocate to the licenses sold with services or maintenance using the residual method of accounting . under the residual method , we allocate the total value of the arrangement first to the undelivered elements based on their vsoe and allocate the remainder to license fees . saas revenues are recognized ratably over the subscription term as the customer has no ability to take delivery of the software , and the underlying arrangements typically include a single fee for the service that is billed monthly , quarterly or annually . stock-based compensation . we estimate the value of options granted on the date of grant using the black-scholes option pricing model . management judgments and assumptions related to volatility , the expected term and the forfeiture rate are made in connection with the calculation of stock compensation expense . we periodically review all assumptions used in our stock option pricing model . changes in these assumptions could have a significant impact on the amount of stock compensation expense . income taxes . we provide for the effect of income taxes on our financial position and results of operations in accordance with the income tax topic of the fasb accounting standards codification . under this accounting guidance , income tax expense is recognized for the amount of income taxes payable or refundable for the current year and for the change in net deferred tax assets or 44 liabilities resulting from events that are recorded for financial reporting purposes in a different reporting period than recorded in the tax return . management must make significant assumptions , judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset . our judgments , assumptions and estimates relative to the current provision for income tax take into account current tax laws , our interpretation of current tax laws , allowable deductions , tax planning strategies , projected tax credits and possible outcomes of current and future audits conducted by foreign and domestic tax authorities . changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our financial position and results of operations . our assumptions , judgments and estimates relative to the value of our deferred tax asset take into account our expectations of the amount and category of future taxable income . actual operating results and the underlying amount and category of income in future years , which could significantly increase tax expense , could render inaccurate our current assumptions , judgments and estimates of recoverable net deferred taxes . business combinations and intangible assets including goodwill . we account for business combinations using the acquisition method of accounting and accordingly , the identifiable assets acquired and liabilities assumed are recorded based upon management 's estimates of current fair values as of the acquisition date . the estimation process includes analyses based on income and market approaches . goodwill represents the excess purchase price over the fair value of net assets , including the amount assigned to identifiable intangible assets . the goodwill generated is due in part to the synergies that are not included in the fair value of identifiable intangible assets . goodwill recorded in an acquisition is assigned to applicable reporting units based on expected revenues . identifiable intangible assets with finite lives are amortized over there useful lives . amortization of current technology is recorded in cost of revenues-license and amortization of all other intangible assets is recorded in amortization of acquisition-related intangibles . story_separator_special_tag maintenance revenues replace_table_token_8_th the 3 % increase in total maintenance revenues for the year ended april 30 , 2018 was due to a 4 % increase in maintenance revenues from our scm segment due to improved customer retention and additional license sales . this increase was partially offset by a 4 % decrease in our other segment due lower customer renewals and lower software license sales . the 4 % increase in total maintenance revenues for the year ended april 30 , 2017 was primarily due to a 4 % increase in maintenance revenues from our scm and other segments as a result of an increase in maintenance revenue from recent software license sales . the scm segment 's maintenance revenues constituted 96 % of total maintenance revenues for the years ended april 30 , 2018 , 2017 and 2016. typically , our maintenance revenues have had a direct relationship to current and historic license fee revenues , since new licenses are the potential source of new maintenance customers . gross margin : the following table provides both dollar amounts and percentage measures of gross margin : replace_table_token_9_th the total gross margin percentage for the year ended april 30 , 2018 increased to 56 % in fiscal 2018 when compared to 52 % in fiscal 2017 due to the increase in gross margin percentage for license fees margins , services and other gross margins and maintenance gross margin . the total gross margin percentage for the year ended april 30 , 2017 was primarily the same as the prior fiscal year due to the increase in gross margin percentage on services and other gross margins . this was partially offset by a decrease in license fees margins when compared to the prior year . gross margin on license fees the increase in license fee gross margin percentage for the year ended april 30 , 2018 when compared to fiscal 2017 was primarily due to lower capitalized software amortization expense . we expect capitalized software amortization expense to increase in fiscal 2019 when compared to fiscal 2018. the decrease in license fee gross margin percentage for the year ended april 30 , 2017 when compared to fiscal 2016 was primarily due to the 29 % decrease in license fees in fiscal 2017 when compared to the prior year . license fee gross margin percentage tends to be directly related to the level of license fee revenues due to the relatively fixed cost of computer software amortization expense , amortization of acquired software and the sales mix between our direct and indirect channel . 50 gross margin on services and other for the year ended april 30 , 2018 , our gross margin percentage on services and other revenues increased from 30 % in fiscal 2017 to 37 % in fiscal 2018 primarily due to higher gross margins in our scm segment services gross margin which increased from 38 % in fiscal 2017 to 46 % in fiscal 2018 primarily due to an increase in our cloud service revenue which has higher margins . our it consulting segment services gross margin also increased from 18 % in fiscal 2017 to 21 % in fiscal 2018 due to an increase in project related billing . our other segment increased from 33 % in fiscal 2017 to 44 % in fiscal 2018 due to improved billing utilization rates . for the year ended april 30 , 2017 , our gross margin percentage on services and other revenues increased from 27 % in fiscal 2016 to 30 % in fiscal 2017 due to higher gross margins in our other segment , which increased from 20 % in fiscal 2016 to 39 % in fiscal 2017 due to improved billing utilization rates . our scm segment services gross margin was 38 % and 39 % in fiscal 2017 and fiscal 2016 , respectively . our it consulting segment services gross margin was 18 % in fiscal 2017 and fiscal 2016. as discussed above , our it consulting segment typically has lower margins when compared to the other segments that have higher margin implementation service revenue , so a decrease in the percentage of services revenues from our it consulting segment tends to cause our overall services gross margin percentage to increase . the it consulting segment was 34 % , 41 % and 47 % of the company 's services revenues in fiscal 2018 , 2017 and 2016 , respectively . our scm segment was 64 % , 57 % and 51 % of the company 's services revenues in fiscal 2018 , 2017 and 2016 , respectively . our other segment was 2 % , 2 % and 2 % of the company 's services revenues in fiscal 2018 , 2017 and 2016 , respectively . gross margin on maintenance maintenance gross margin percentage remained relatively consistent for the years ended april 30 , 2018 , 2017 and 2016 in the range of 77 % to 79 % . expenses replace_table_token_10_th 51 research and development gross product research and development costs include all non-capitalized and capitalized software development costs . a breakdown of the research and development costs is as follows : replace_table_token_11_th * included in cost of license fees for the year ended april 30 , 2018 , gross product research and development costs increased by 7 % primarily due to increased headcount from the halo acquisition and additional hiring . capitalized software development costs increased in fiscal 2018 compared to fiscal 2017 due to timing of project work . amortization of capitalized software development decreased 13 % in fiscal 2018 when compared to fiscal 2017 due to timing of project releases . for the year ended april 30 , 2017 , gross product research and development costs increased by 8 % primarily due to increased headcount from the adapchain acquisition and additional hiring . capitalized software development costs increased in fiscal 2017 compared to fiscal 2016 due to timing of project work .
| liquidity and capital resources sources and uses of cash we have historically funded , and continue to fund , our operations and capital expenditures primarily with cash generated from operating activities . the changes in net cash that our operating activities provide generally reflect the changes in net earnings and non-cash operating items plus the effect of changes in operating assets and liabilities , such as investment trading securities , trade accounts receivable , trade accounts payable , accrued expenses and deferred revenue . we have no debt obligations or off-balance sheet financing arrangements , and therefore , we used no cash for debt service purposes . the following tables show information about our cash flows and liquidity positions as of and for the fiscal years ended april 30 , 2018 , 2017 and 2016. you should read these tables and the discussion that follows in conjunction with our consolidated statements of cash flows contained in item 8 of this report . replace_table_token_13_th the decrease in cash provided by operating activities in fiscal 2018 compared to fiscal 2017 was due primarily to : ( 1 ) an increase in the purchases of trading securities due to timing , ( 2 ) a decrease in accounts payable and other liabilities in fiscal 2018 when compared to an increase in fiscal 2017 due primarily to timing and the amount of sales commissions , bonuses and tax liabilities , ( 3 ) an increase in accounts receivable in fiscal 2018 when compared to an decrease in fiscal 2017 due to timing of sales and billing , ( 4 ) a decrease in net earnings , ( 5 ) a decrease in the net proceeds from sales and maturities of trading securities in fiscal 2018 compared to fiscal 2017 due to timing of purchases and maturity dates , ( 6 ) an increase in prepaid expenses and other assets in fiscal 2018 compared to the increase in fiscal 2017 due to timing of purchases and ( 7 ) lower depreciation and amortization expense due to timing of closing capitalized software projects and the sale of real estate in fiscal 2017 ( 8 ) higher gains on unrealized investments due to timing of sales of investments , and (
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gift card sales revenue is deferred until the guest redeems the gift card . company coupons and other incentives are recorded as a reduction of net sales . comparable sales reflect sales for stores beginning on the first day of the 14th month of operation . therefore , a store is included in our comparable store base on the first day of the period after one year of operations plus the initial one month grand opening period . non-comparable store sales include sales from new stores that have not yet completed their 13th month of operation and stores that were closed for part or all of the period in either year as a result of remodel activity . remodeled stores are included in comparable sales unless the store was closed for a portion of the current or prior period . comparable sales include the company 's e-commerce business . there may be variations in the way in which some of our competitors and other retailers calculate comparable or same store sales . measuring comparable sales allows us to evaluate the performance of our store base as well as several other aspects of our overall strategy . several factors could positively or negatively impact our comparable sales results : the general national , regional and local economic conditions and corresponding impact on customer spending levels ; the introduction of new products or brands ; the location of new stores in existing store markets ; competition ; our ability to respond on a timely basis to changes in consumer preferences ; the effectiveness of our various marketing activities ; and the number of new stores opened and the impact on the average age of all of our comparable stores . cost of sales includes : the cost of merchandise sold ( retail and e-commerce ) , including substantially all vendor allowances , which are treated as a reduction of merchandise costs ; 31 warehousing and distribution costs including labor and related benefits , freight , rent , depreciation and amortization , real estate taxes , utilities and insurance ; shipping and handling costs ; store occupancy costs including rent , depreciation and amortization , real estate taxes , utilities , repairs and maintenance , insurance , licenses and cleaning expenses ; salon payroll and benefits ; customer loyalty program expense ; and shrink and inventory valuation reserves . our cost of sales may be negatively impacted as we open an increasing number of stores . changes in our merchandise mix may also have an impact on cost of sales . this presentation of items included in cost of sales may not be comparable to the way in which our competitors or other retailers compute their cost of sales . selling , general and administrative expenses include : payroll , bonus and benefit costs for retail and corporate employees ; advertising and marketing costs ; credit card program incentives ; occupancy costs related to our corporate office facilities ; stock-based compensation expense ; depreciation and amortization for all assets , except those related to our retail and warehouse operations , which are included in cost of sales ; and legal , finance , information systems and other corporate overhead costs . this presentation of items in selling , general and administrative expenses may not be comparable to the way in which our competitors or other retailers compute their selling , general and administrative expenses . pre-opening expenses include non-capital expenditures during the period prior to store opening for new , remodeled and relocated stores including rent during the construction period for new and relocated stores , store set-up labor , management and employee training and grand opening advertising . interest income , net includes both interest income and expense . interest income represents interest from short-term investments with maturities of twelve months or less from the date of purchase . interest expense includes interest costs and unused facility fees associated with our credit facility , which is structured as an asset-based lending instrument . our credit facility interest is based on a variable interest rate structure which can result in increased cost in periods of rising interest rates . income tax expense reflects the federal statutory tax rate and the weighted average state statutory tax rate for the states in which we operate stores . results of operations our fiscal years are the 52 or 53 week periods ending on the saturday closest to january 31. the company 's fiscal years ended january 28 , 2017 , january 30 , 2016 and january 31 , 2015 were 52 week years and are hereafter referred to as fiscal 2016 , fiscal 2015 and fiscal 2014 . 32 as of january 28 , 2017 , we operated 974 stores across 48 states and the district of columbia . the following tables present the components of our consolidated results of operations for the periods indicated : replace_table_token_10_th replace_table_token_11_th fiscal year 2016 versus fiscal year 2015 net sales net sales increased $ 930.6 million , or 23.7 % , to $ 4,854.7 million in fiscal 2016 compared to $ 3,924.1 million in fiscal 2015. salon service sales increased $ 31.9 million , or 15.2 % to $ 241.1 million compared to $ 209.2 million in fiscal 2015. e-commerce sales increased $ 124.2 million , or 56.2 % , to $ 345.3 million compared to $ 221.1 million in fiscal 2015. the net sales increases are due to the opening of 100 net new stores in 2016 and a 15.8 % increase in comparable sales . non-comparable stores , which include stores opened in fiscal 2016 as well 33 as stores opened in fiscal 2015 , which have not yet turned comparable , contributed $ 320.9 million of the net sales increase , while comparable stores contributed $ 609.8 million of the total net sales increase . story_separator_special_tag the preparation of these financial statements required the use of estimates and judgments that affect the reported amounts of our assets , liabilities , revenues and expenses . management bases estimates on historical experience and other assumptions it believes to be reasonable under the circumstances and evaluates these estimates on an on-going basis . actual results may differ from these estimates . a discussion of our more significant estimates follows . management has discussed the development , selection and disclosure of these estimates and assumptions with the audit committee of the board of directors . inventory valuation merchandise inventories are carried at the lower of average cost or market value . cost is determined using the weighted-average cost method and includes costs incurred to purchase and distribute goods as well as related vendor allowances including co-op advertising , markdowns and volume discounts . we record valuation adjustments to our inventories if the cost of a specific product on hand exceeds the amount we expect to realize from the ultimate sale or disposal of the inventory . these estimates are based on management 's judgment regarding future demand , age of inventory and analysis of historical experience . if actual demand or market conditions are different than those projected by management , future merchandise margin rates may be unfavorably or favorably affected by adjustments to these estimates . inventories are adjusted for the results of periodic physical inventory counts at each of our locations . we record a shrink reserve representing management 's estimate of inventory losses by location that have occurred since the date of the last physical count . this estimate is based on management 's analysis of historical results and operating trends . we do not believe that there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our lower of cost or market or shrink reserves . adjustments to earnings resulting from revisions to management 's estimates of the lower of cost or market and shrink reserves have been insignificant during fiscal 2016 , 2015 and 2014. an increase or decrease in the lower of cost or market reserve of 10 % would have had no material impact on our pre-tax income for fiscal 2016. an increase or decrease in the shrink rate included in the shrink reserve calculation of 10 % would have had no material impact on our pre-tax income for fiscal 2016. vendor allowances the majority of cash consideration received from a supplier is considered to be a reduction of the cost of the related products and is reflected in cost of sales in our consolidated statements of income as the related products are sold unless it is in exchange for an asset or service or a reimbursement of a specific , incremental , identifiable cost incurred by the company in selling the vendors ' products . we estimate the amount recorded as a reduction of inventory at the end of each period , based on a detailed analysis of inventory turns and management 's analysis of the facts and circumstances of the various contractual agreements with vendors . we record cash consideration expected to be received from vendors in net receivables at the amount we expect to collect . we do not believe that there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our reduction of inventory . an increase or decrease in inventory turns of five basis points would have affected pre-tax income by approximately $ 3.8 million in fiscal 2016. impairment of long-lived tangible assets we review long-lived tangible assets whenever events or circumstances indicate these assets might not be recoverable based on undiscounted future cash flows . assets are reviewed at the store level , which is the lowest level for which cash flows can be identified . significant estimates are used in determining future operating 40 results of each store over its remaining lease term . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . we do not believe that there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our impairment charges . in fiscal 2016 , we recognized $ 3.1 million of fixed asset impairment charges related to store closures in chicago , illinois and denham springs , louisiana . no significant impairment charges were recognized in fiscal 2015 or 2014. customer loyalty program we maintain a customer loyalty program , ultamate rewards , in which program members earn points based on purchases . points earned by members are valid for at least one year and may be redeemed on any product we sell . we accrue the cost of anticipated redemptions related to this program at the time of the initial purchase based on historical experience . we do not believe that there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our redemption rates . adjustments to earnings resulting from revisions to management 's estimates of the redemption rates have been insignificant during fiscal 2016 , 2015 and 2014. if our redemption rate were to increase or decrease by 5 % , it would have affected pre-tax income by approximately $ 5.7 million in fiscal 2016. share-based compensation we account for share-based compensation in accordance with the accounting standards codification ( asc ) rules for stock compensation . share-based compensation cost is measured at the grant date , based on the fair value of the award , and is recognized on a straight-line method over the requisite service period for awards expected to vest . we estimate the grant date fair value of stock options using a black-scholes valuation model
| liquidity and capital resources sources and uses of cash we have historically funded , and continue to fund , our operations and capital expenditures primarily with cash generated from operating activities . the changes in net cash that our operating activities provide generally reflect the changes in net earnings and non-cash operating items plus the effect of changes in operating assets and liabilities , such as investment trading securities , trade accounts receivable , trade accounts payable , accrued expenses and deferred revenue . we have no debt obligations or off-balance sheet financing arrangements , and therefore , we used no cash for debt service purposes . the following tables show information about our cash flows and liquidity positions as of and for the fiscal years ended april 30 , 2018 , 2017 and 2016. you should read these tables and the discussion that follows in conjunction with our consolidated statements of cash flows contained in item 8 of this report . replace_table_token_13_th the decrease in cash provided by operating activities in fiscal 2018 compared to fiscal 2017 was due primarily to : ( 1 ) an increase in the purchases of trading securities due to timing , ( 2 ) a decrease in accounts payable and other liabilities in fiscal 2018 when compared to an increase in fiscal 2017 due primarily to timing and the amount of sales commissions , bonuses and tax liabilities , ( 3 ) an increase in accounts receivable in fiscal 2018 when compared to an decrease in fiscal 2017 due to timing of sales and billing , ( 4 ) a decrease in net earnings , ( 5 ) a decrease in the net proceeds from sales and maturities of trading securities in fiscal 2018 compared to fiscal 2017 due to timing of purchases and maturity dates , ( 6 ) an increase in prepaid expenses and other assets in fiscal 2018 compared to the increase in fiscal 2017 due to timing of purchases and ( 7 ) lower depreciation and amortization expense due to timing of closing capitalized software projects and the sale of real estate in fiscal 2017 ( 8 ) higher gains on unrealized investments due to timing of sales of investments , and (
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gift card sales revenue is deferred until the guest redeems the gift card . company coupons and other incentives are recorded as a reduction of net sales . comparable sales reflect sales for stores beginning on the first day of the 14th month of operation . therefore , a store is included in our comparable store base on the first day of the period after one year of operations plus the initial one month grand opening period . non-comparable store sales include sales from new stores that have not yet completed their 13th month of operation and stores that were closed for part or all of the period in either year as a result of remodel activity . remodeled stores are included in comparable sales unless the store was closed for a portion of the current or prior period . comparable sales include the company 's e-commerce business . there may be variations in the way in which some of our competitors and other retailers calculate comparable or same store sales . measuring comparable sales allows us to evaluate the performance of our store base as well as several other aspects of our overall strategy . several factors could positively or negatively impact our comparable sales results : the general national , regional and local economic conditions and corresponding impact on customer spending levels ; the introduction of new products or brands ; the location of new stores in existing store markets ; competition ; our ability to respond on a timely basis to changes in consumer preferences ; the effectiveness of our various marketing activities ; and the number of new stores opened and the impact on the average age of all of our comparable stores . cost of sales includes : the cost of merchandise sold ( retail and e-commerce ) , including substantially all vendor allowances , which are treated as a reduction of merchandise costs ; 31 warehousing and distribution costs including labor and related benefits , freight , rent , depreciation and amortization , real estate taxes , utilities and insurance ; shipping and handling costs ; store occupancy costs including rent , depreciation and amortization , real estate taxes , utilities , repairs and maintenance , insurance , licenses and cleaning expenses ; salon payroll and benefits ; customer loyalty program expense ; and shrink and inventory valuation reserves . our cost of sales may be negatively impacted as we open an increasing number of stores . changes in our merchandise mix may also have an impact on cost of sales . this presentation of items included in cost of sales may not be comparable to the way in which our competitors or other retailers compute their cost of sales . selling , general and administrative expenses include : payroll , bonus and benefit costs for retail and corporate employees ; advertising and marketing costs ; credit card program incentives ; occupancy costs related to our corporate office facilities ; stock-based compensation expense ; depreciation and amortization for all assets , except those related to our retail and warehouse operations , which are included in cost of sales ; and legal , finance , information systems and other corporate overhead costs . this presentation of items in selling , general and administrative expenses may not be comparable to the way in which our competitors or other retailers compute their selling , general and administrative expenses . pre-opening expenses include non-capital expenditures during the period prior to store opening for new , remodeled and relocated stores including rent during the construction period for new and relocated stores , store set-up labor , management and employee training and grand opening advertising . interest income , net includes both interest income and expense . interest income represents interest from short-term investments with maturities of twelve months or less from the date of purchase . interest expense includes interest costs and unused facility fees associated with our credit facility , which is structured as an asset-based lending instrument . our credit facility interest is based on a variable interest rate structure which can result in increased cost in periods of rising interest rates . income tax expense reflects the federal statutory tax rate and the weighted average state statutory tax rate for the states in which we operate stores . results of operations our fiscal years are the 52 or 53 week periods ending on the saturday closest to january 31. the company 's fiscal years ended january 28 , 2017 , january 30 , 2016 and january 31 , 2015 were 52 week years and are hereafter referred to as fiscal 2016 , fiscal 2015 and fiscal 2014 . 32 as of january 28 , 2017 , we operated 974 stores across 48 states and the district of columbia . the following tables present the components of our consolidated results of operations for the periods indicated : replace_table_token_10_th replace_table_token_11_th fiscal year 2016 versus fiscal year 2015 net sales net sales increased $ 930.6 million , or 23.7 % , to $ 4,854.7 million in fiscal 2016 compared to $ 3,924.1 million in fiscal 2015. salon service sales increased $ 31.9 million , or 15.2 % to $ 241.1 million compared to $ 209.2 million in fiscal 2015. e-commerce sales increased $ 124.2 million , or 56.2 % , to $ 345.3 million compared to $ 221.1 million in fiscal 2015. the net sales increases are due to the opening of 100 net new stores in 2016 and a 15.8 % increase in comparable sales . non-comparable stores , which include stores opened in fiscal 2016 as well 33 as stores opened in fiscal 2015 , which have not yet turned comparable , contributed $ 320.9 million of the net sales increase , while comparable stores contributed $ 609.8 million of the total net sales increase . story_separator_special_tag the preparation of these financial statements required the use of estimates and judgments that affect the reported amounts of our assets , liabilities , revenues and expenses . management bases estimates on historical experience and other assumptions it believes to be reasonable under the circumstances and evaluates these estimates on an on-going basis . actual results may differ from these estimates . a discussion of our more significant estimates follows . management has discussed the development , selection and disclosure of these estimates and assumptions with the audit committee of the board of directors . inventory valuation merchandise inventories are carried at the lower of average cost or market value . cost is determined using the weighted-average cost method and includes costs incurred to purchase and distribute goods as well as related vendor allowances including co-op advertising , markdowns and volume discounts . we record valuation adjustments to our inventories if the cost of a specific product on hand exceeds the amount we expect to realize from the ultimate sale or disposal of the inventory . these estimates are based on management 's judgment regarding future demand , age of inventory and analysis of historical experience . if actual demand or market conditions are different than those projected by management , future merchandise margin rates may be unfavorably or favorably affected by adjustments to these estimates . inventories are adjusted for the results of periodic physical inventory counts at each of our locations . we record a shrink reserve representing management 's estimate of inventory losses by location that have occurred since the date of the last physical count . this estimate is based on management 's analysis of historical results and operating trends . we do not believe that there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our lower of cost or market or shrink reserves . adjustments to earnings resulting from revisions to management 's estimates of the lower of cost or market and shrink reserves have been insignificant during fiscal 2016 , 2015 and 2014. an increase or decrease in the lower of cost or market reserve of 10 % would have had no material impact on our pre-tax income for fiscal 2016. an increase or decrease in the shrink rate included in the shrink reserve calculation of 10 % would have had no material impact on our pre-tax income for fiscal 2016. vendor allowances the majority of cash consideration received from a supplier is considered to be a reduction of the cost of the related products and is reflected in cost of sales in our consolidated statements of income as the related products are sold unless it is in exchange for an asset or service or a reimbursement of a specific , incremental , identifiable cost incurred by the company in selling the vendors ' products . we estimate the amount recorded as a reduction of inventory at the end of each period , based on a detailed analysis of inventory turns and management 's analysis of the facts and circumstances of the various contractual agreements with vendors . we record cash consideration expected to be received from vendors in net receivables at the amount we expect to collect . we do not believe that there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our reduction of inventory . an increase or decrease in inventory turns of five basis points would have affected pre-tax income by approximately $ 3.8 million in fiscal 2016. impairment of long-lived tangible assets we review long-lived tangible assets whenever events or circumstances indicate these assets might not be recoverable based on undiscounted future cash flows . assets are reviewed at the store level , which is the lowest level for which cash flows can be identified . significant estimates are used in determining future operating 40 results of each store over its remaining lease term . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . we do not believe that there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our impairment charges . in fiscal 2016 , we recognized $ 3.1 million of fixed asset impairment charges related to store closures in chicago , illinois and denham springs , louisiana . no significant impairment charges were recognized in fiscal 2015 or 2014. customer loyalty program we maintain a customer loyalty program , ultamate rewards , in which program members earn points based on purchases . points earned by members are valid for at least one year and may be redeemed on any product we sell . we accrue the cost of anticipated redemptions related to this program at the time of the initial purchase based on historical experience . we do not believe that there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our redemption rates . adjustments to earnings resulting from revisions to management 's estimates of the redemption rates have been insignificant during fiscal 2016 , 2015 and 2014. if our redemption rate were to increase or decrease by 5 % , it would have affected pre-tax income by approximately $ 5.7 million in fiscal 2016. share-based compensation we account for share-based compensation in accordance with the accounting standards codification ( asc ) rules for stock compensation . share-based compensation cost is measured at the grant date , based on the fair value of the award , and is recognized on a straight-line method over the requisite service period for awards expected to vest . we estimate the grant date fair value of stock options using a black-scholes valuation model
| liquidity and capital resources our primary cash needs are for capital expenditures for new , relocated and remodeled stores , increased merchandise inventories related to store expansion and new brand additions , in-store boutiques ( sets of custom designed fixtures configured to prominently display certain prestige brands within our stores ) , supply chain improvements , share repurchases and for continued improvement in our information technology systems . our primary sources of liquidity are cash on hand , short-term investments and cash flows from operations , including changes in working capital , and borrowings under our credit facility . the most significant component of our working capital is merchandise inventories reduced by related accounts payable and accrued expenses . our working capital needs are greatest from august through november each year as a result of our inventory build-up during this period for the approaching holiday season . this is also the time of year when we are at maximum investment levels in our new store class and may not have collected all of the landlord allowances due to us as part of our lease agreements . based on past performance and current expectations , we believe that cash on hand , short-term investments , cash generated from operations and borrowings under the credit facility will satisfy the company 's working capital needs , capital expenditure needs , commitments and other liquidity requirements through at least the next 12 months . the following table presents a summary of our cash flows for fiscal years 2016 , 2015 and 2014 : replace_table_token_12_th operating activities operating activities consist of net income adjusted for certain non-cash items , including depreciation and amortization , non-cash stock-based compensation , realized gains or losses on disposal of property and equipment and the effect of working capital changes . merchandise inventories were $ 944.0 million at january 28 , 2017 , compared to $ 761.8 million at january 30 , 2016 , representing an increase of $ 182.2 million or 23.9 % .
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our results in 2013 showed significant improvement in the majority of our key operating metrics compared to 2012 , driven by the introduction of new home inventory and development activities , as compared to the fully developed , available for sale legacy inventories settled in 2012. sales trends in the first six months of 2013 were stronger than the last six months of the year . during the first half of 2013 , the homebuilding market experienced favorable sales and pricing trends compared to 2012 , driven by historically low mortgage interest rates and rising costs in the rental market which contributed to higher levels of housing affordability in the washington , d.c. market . sales trends in the second half of 2013 were strong compared to 2012 , though negatively impacted by increasing mortgage interest rates , higher home prices and buyer uncertainty . the housing market also continues to face challenges from tight mortgage underwriting standards . while we have benefited from generally improved market conditions , we continue to face gross margin pressure due to increasing land acquisition , land development and home construction costs . home closings , revenues , average selling price , gross margin , overhead leverage , and net income from continuing operations all improved in 2013 compared to 2012. our settlements for the year ended december 31 , 2013 totaled 107 units , compared to 45 units in 2012 , which represents an increase of 138 % . our consolidated homebuilding revenues for the year ended december 31 , 2013 totaled $ 53.8 million , an increase of 363 % from $ 11.6 million in 2012. our net new orders increased by 147 % in 2013 compared to 2012. an increase in the number of active communities with units available for sale contributed to the increase in net new orders as compared to 2012. the higher active community count resulted from our more disciplined land investment strategy and capital raising initiatives . we intend to continue to calibrate sales pace in each community to improve our gross margins and maximize returns on invested capital . we expect that this approach will continue to result in an expansion in our net new order volume in 2014 , as compared to 2013. while we believe higher mortgage interest rates are inevitable and may have a moderating effect on demand and pricing , we believe this impact will be outweighed in the long-term by other factors driving increased sales volume as overall new home sales in the washington , d.c. market remain low compared with historical levels . the significant improvements reported for 2013 , coupled with our successful capital raising initiatives , allowed us to continue to enhance our financial position . unrestricted cash at december 31 , 2013 totaled $ 11.9 million , an increase of $ 8.4 million from $ 3.5 million at december 31 , 2012. our improved financial position provided us additional flexibility to increase our pipeline and reduce our secured loan-to-inventory ratio to 57 % at december 31 , 2013 , as compared to 70 % at december 31 , 2012. in the short-term , we will continue to focus on maximizing our operating margins to enhance our balance sheet , despite the possibility of rising house cost pressures from increasing material prices and labor shortages , by using our existing land assets more effectively , allocating capital more effectively , and aggressively controlling unsold spec inventory . we believe we have positioned ourselves to deliver improved long-term returns . in planning for the longer term , we continue to maintain confidence that we are likely in the early stages of a broad , sustainable recovery in the u.s. new home market . while the u.s. macroeconomic environment continues to face challenges , we are continuing to pursue strategic land positions that meet our underwriting requirements in well-positioned locations and believe that sustained execution of our strategy will allow us to continue to improve our financial position and improve our returns on invested capital over the housing cycle . recent developments comstock maxwell square , l.c . on september 30 , 2013 , the company , through its subsidiary comstock maxwell square , l.c . the borrower , closed on its forty-five unit townhome condominium project located in downtown frederick , maryland ( the townes at maxwell square ) . in connection with the closing of the townes at maxwell square , the borrower entered into a loan agreement and related documents with eaglebank pursuant to which the borrower secured ( i ) a $ 2.1 million acquisition and development loan , ( ii ) a $ 3.4 million revolving construction loan and ( iii ) a $ 51 letter of credit facility ( collectively , the eagle maxwell loans ) to finance the development of the townes at maxwell square . the eagle maxwell loans provide for a variable interest rate of libor plus 3 % , subject to a minimum floor of 4.75 % . the eagle maxwell loans have a maturity date of 24 months , subject to meeting a minimum sales and settlement schedule on a quarterly basis . there is no prepayment penalty associated with the eagle maxwell loans , which are secured by a first deed of trust on the townes at maxwell square and fully guaranteed by the company . 17 comstock investors viii , l.c . in december 2013 , comstock investors viii , l.c . story_separator_special_tag excluding the impact of the release of the warranty reserve discussed in note 2 in the accompanying consolidated financial statements , gross margin percentage was 21.9 % for the year ended december 31 , 2013. revenue other revenue other decreased approximately $ 1.9 million to $ 0.8 million during the year ended december 31 , 2013 , as compared to $ 2.7 million for the year ended december 31 , 2012. the decrease primarily relates to revenue from rental operations , as the number of rental units at penderbrook and eclipse continued to decline until all units were sold in the second quarter of 2013. the completion of several of the general contracting projects in 2012 also contributed to the decline . we consider revenue to be from homebuilding when there is a structure built or being built on the lot when delivered . sales of lots occur , and are included in other revenues , when we sell raw land or finished home sites in advance of any home construction . cost of sales homebuilding cost of sales homebuilding for the year ended december 31 , 2013 increased by $ 31.9 million , to $ 41.6 million as compared to $ 9.7 million for the year ended december 31 , 2012. the number of units settled and mix of homes settled during the year ended december 31 , 2013 accounted for the increase in cost of sales . cost of sales other cost of sales other decreased approximately $ 2.7 million to $ 0.8 million during the year ended december 31 , 2013 as compared to $ 3.5 million for the year ended december 31 , 2012. as a result of the continued absorption and sale of the condominium units at penderbrook and eclipse , the decline in the number of units used in rental operations resulted in a significant decrease in cost of sales other . additionally , the completion of several general contracting projects in 2012 also contributed to the decline . impairment charges and write-offs we evaluate all of our projects to the extent of the existence of any impairment indicators requiring evaluation to determine if recorded carrying amounts were recoverable by evaluating discount rates , sales prices , absorption and our analysis of the best approach to marketing our projects for sale . based on this evaluation , we recorded an impairment charge of $ 2.4 million during the year ended december 31 , 2012 , to properly record our for sale project at fair market value less costs to sell based on the then current bulk sale strategy consistent with the provisions of asc 360 . 21 due to a change to an individual unit retail sale model from our previous bulk sale disposition strategy , we reversed a previously recorded impairment charge of $ 0.7 million during the year ended december 31 , 2013. additionally , during 2013 , we wrote-off $ 1.1 million in due diligence and entitlement pursuit costs related to the blvd newell project , which was controlled under a land purchase option contract . the write-off occurred in december 2013 due to the company 's unsuccessful attempt to obtain entitlement approvals . see real estate inventories in note 4 in the accompanying consolidated financial statements for further discussion and the basis for determining the impairment charges , reversals and write-offs . sales and marketing expenses sales and marketing expenses for the year ended december 31 , 2013 increased by $ 1.4 million to $ 2.0 million , as compared to $ 0.6 million for the year ended december 31 , 2012. the increase in sales and marketing expenses over the prior year period is directly attributable to increases in active developments and marketing efforts , which resulted in an increase in homes ordered and delivered . general and administrative expenses general and administrative expenses for the year ended december 31 , 2013 decreased by $ 1.3 million to $ 6.7 million , as compared to $ 8.0 million for the year ended december 31 , 2012. the decrease in general and administrative expenses over the prior year is attributable to increased utilization of operations employees which increased capitalization to specific projects as a result of the increase in active selling and developing communities . interest , real estate taxes and indirect costs related to inactive projects interest and real estate taxes incurred relating to the development of lots and parcels are capitalized to real estate inventories during the active development period , which generally commences when borrowings are used to acquire real estate assets and ends when the properties are substantially complete or the property becomes inactive which means that development and construction activities have been suspended indefinitely . interest is capitalized based on the interest rate applicable to specific borrowings or the weighted average of the rates applicable to other borrowings during the period . interest and real estate taxes capitalized to real estate inventories are expensed as a component of cost of sales as related units are sold . approximately , $ 1.9 million and $ 0.4 million of interest was capitalized to projects during the years ended december 31 , 2013 and 2012 , respectively . when a project becomes inactive , its interest , real estate taxes and indirect overhead costs are no longer capitalized but rather expensed in the period in which they are incurred . during the year ended december 31 , 2013 and 2012 , we recorded interest expense of $ 0.1 million and $ 1.9 million , respectively , related to inactive projects . refer to note 2 in the accompanying consolidated financial statements for the breakdown of the interest , real estate taxes and indirect costs related to inactive projects reported on the consolidated statement of operations . discontinued operations as described in note 14 to the consolidated financial statements , on march 7 , 2012 , the company 's subsidiary sold the
| liquidity and capital resources our primary cash needs are for capital expenditures for new , relocated and remodeled stores , increased merchandise inventories related to store expansion and new brand additions , in-store boutiques ( sets of custom designed fixtures configured to prominently display certain prestige brands within our stores ) , supply chain improvements , share repurchases and for continued improvement in our information technology systems . our primary sources of liquidity are cash on hand , short-term investments and cash flows from operations , including changes in working capital , and borrowings under our credit facility . the most significant component of our working capital is merchandise inventories reduced by related accounts payable and accrued expenses . our working capital needs are greatest from august through november each year as a result of our inventory build-up during this period for the approaching holiday season . this is also the time of year when we are at maximum investment levels in our new store class and may not have collected all of the landlord allowances due to us as part of our lease agreements . based on past performance and current expectations , we believe that cash on hand , short-term investments , cash generated from operations and borrowings under the credit facility will satisfy the company 's working capital needs , capital expenditure needs , commitments and other liquidity requirements through at least the next 12 months . the following table presents a summary of our cash flows for fiscal years 2016 , 2015 and 2014 : replace_table_token_12_th operating activities operating activities consist of net income adjusted for certain non-cash items , including depreciation and amortization , non-cash stock-based compensation , realized gains or losses on disposal of property and equipment and the effect of working capital changes . merchandise inventories were $ 944.0 million at january 28 , 2017 , compared to $ 761.8 million at january 30 , 2016 , representing an increase of $ 182.2 million or 23.9 % .
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our results in 2013 showed significant improvement in the majority of our key operating metrics compared to 2012 , driven by the introduction of new home inventory and development activities , as compared to the fully developed , available for sale legacy inventories settled in 2012. sales trends in the first six months of 2013 were stronger than the last six months of the year . during the first half of 2013 , the homebuilding market experienced favorable sales and pricing trends compared to 2012 , driven by historically low mortgage interest rates and rising costs in the rental market which contributed to higher levels of housing affordability in the washington , d.c. market . sales trends in the second half of 2013 were strong compared to 2012 , though negatively impacted by increasing mortgage interest rates , higher home prices and buyer uncertainty . the housing market also continues to face challenges from tight mortgage underwriting standards . while we have benefited from generally improved market conditions , we continue to face gross margin pressure due to increasing land acquisition , land development and home construction costs . home closings , revenues , average selling price , gross margin , overhead leverage , and net income from continuing operations all improved in 2013 compared to 2012. our settlements for the year ended december 31 , 2013 totaled 107 units , compared to 45 units in 2012 , which represents an increase of 138 % . our consolidated homebuilding revenues for the year ended december 31 , 2013 totaled $ 53.8 million , an increase of 363 % from $ 11.6 million in 2012. our net new orders increased by 147 % in 2013 compared to 2012. an increase in the number of active communities with units available for sale contributed to the increase in net new orders as compared to 2012. the higher active community count resulted from our more disciplined land investment strategy and capital raising initiatives . we intend to continue to calibrate sales pace in each community to improve our gross margins and maximize returns on invested capital . we expect that this approach will continue to result in an expansion in our net new order volume in 2014 , as compared to 2013. while we believe higher mortgage interest rates are inevitable and may have a moderating effect on demand and pricing , we believe this impact will be outweighed in the long-term by other factors driving increased sales volume as overall new home sales in the washington , d.c. market remain low compared with historical levels . the significant improvements reported for 2013 , coupled with our successful capital raising initiatives , allowed us to continue to enhance our financial position . unrestricted cash at december 31 , 2013 totaled $ 11.9 million , an increase of $ 8.4 million from $ 3.5 million at december 31 , 2012. our improved financial position provided us additional flexibility to increase our pipeline and reduce our secured loan-to-inventory ratio to 57 % at december 31 , 2013 , as compared to 70 % at december 31 , 2012. in the short-term , we will continue to focus on maximizing our operating margins to enhance our balance sheet , despite the possibility of rising house cost pressures from increasing material prices and labor shortages , by using our existing land assets more effectively , allocating capital more effectively , and aggressively controlling unsold spec inventory . we believe we have positioned ourselves to deliver improved long-term returns . in planning for the longer term , we continue to maintain confidence that we are likely in the early stages of a broad , sustainable recovery in the u.s. new home market . while the u.s. macroeconomic environment continues to face challenges , we are continuing to pursue strategic land positions that meet our underwriting requirements in well-positioned locations and believe that sustained execution of our strategy will allow us to continue to improve our financial position and improve our returns on invested capital over the housing cycle . recent developments comstock maxwell square , l.c . on september 30 , 2013 , the company , through its subsidiary comstock maxwell square , l.c . the borrower , closed on its forty-five unit townhome condominium project located in downtown frederick , maryland ( the townes at maxwell square ) . in connection with the closing of the townes at maxwell square , the borrower entered into a loan agreement and related documents with eaglebank pursuant to which the borrower secured ( i ) a $ 2.1 million acquisition and development loan , ( ii ) a $ 3.4 million revolving construction loan and ( iii ) a $ 51 letter of credit facility ( collectively , the eagle maxwell loans ) to finance the development of the townes at maxwell square . the eagle maxwell loans provide for a variable interest rate of libor plus 3 % , subject to a minimum floor of 4.75 % . the eagle maxwell loans have a maturity date of 24 months , subject to meeting a minimum sales and settlement schedule on a quarterly basis . there is no prepayment penalty associated with the eagle maxwell loans , which are secured by a first deed of trust on the townes at maxwell square and fully guaranteed by the company . 17 comstock investors viii , l.c . in december 2013 , comstock investors viii , l.c . story_separator_special_tag excluding the impact of the release of the warranty reserve discussed in note 2 in the accompanying consolidated financial statements , gross margin percentage was 21.9 % for the year ended december 31 , 2013. revenue other revenue other decreased approximately $ 1.9 million to $ 0.8 million during the year ended december 31 , 2013 , as compared to $ 2.7 million for the year ended december 31 , 2012. the decrease primarily relates to revenue from rental operations , as the number of rental units at penderbrook and eclipse continued to decline until all units were sold in the second quarter of 2013. the completion of several of the general contracting projects in 2012 also contributed to the decline . we consider revenue to be from homebuilding when there is a structure built or being built on the lot when delivered . sales of lots occur , and are included in other revenues , when we sell raw land or finished home sites in advance of any home construction . cost of sales homebuilding cost of sales homebuilding for the year ended december 31 , 2013 increased by $ 31.9 million , to $ 41.6 million as compared to $ 9.7 million for the year ended december 31 , 2012. the number of units settled and mix of homes settled during the year ended december 31 , 2013 accounted for the increase in cost of sales . cost of sales other cost of sales other decreased approximately $ 2.7 million to $ 0.8 million during the year ended december 31 , 2013 as compared to $ 3.5 million for the year ended december 31 , 2012. as a result of the continued absorption and sale of the condominium units at penderbrook and eclipse , the decline in the number of units used in rental operations resulted in a significant decrease in cost of sales other . additionally , the completion of several general contracting projects in 2012 also contributed to the decline . impairment charges and write-offs we evaluate all of our projects to the extent of the existence of any impairment indicators requiring evaluation to determine if recorded carrying amounts were recoverable by evaluating discount rates , sales prices , absorption and our analysis of the best approach to marketing our projects for sale . based on this evaluation , we recorded an impairment charge of $ 2.4 million during the year ended december 31 , 2012 , to properly record our for sale project at fair market value less costs to sell based on the then current bulk sale strategy consistent with the provisions of asc 360 . 21 due to a change to an individual unit retail sale model from our previous bulk sale disposition strategy , we reversed a previously recorded impairment charge of $ 0.7 million during the year ended december 31 , 2013. additionally , during 2013 , we wrote-off $ 1.1 million in due diligence and entitlement pursuit costs related to the blvd newell project , which was controlled under a land purchase option contract . the write-off occurred in december 2013 due to the company 's unsuccessful attempt to obtain entitlement approvals . see real estate inventories in note 4 in the accompanying consolidated financial statements for further discussion and the basis for determining the impairment charges , reversals and write-offs . sales and marketing expenses sales and marketing expenses for the year ended december 31 , 2013 increased by $ 1.4 million to $ 2.0 million , as compared to $ 0.6 million for the year ended december 31 , 2012. the increase in sales and marketing expenses over the prior year period is directly attributable to increases in active developments and marketing efforts , which resulted in an increase in homes ordered and delivered . general and administrative expenses general and administrative expenses for the year ended december 31 , 2013 decreased by $ 1.3 million to $ 6.7 million , as compared to $ 8.0 million for the year ended december 31 , 2012. the decrease in general and administrative expenses over the prior year is attributable to increased utilization of operations employees which increased capitalization to specific projects as a result of the increase in active selling and developing communities . interest , real estate taxes and indirect costs related to inactive projects interest and real estate taxes incurred relating to the development of lots and parcels are capitalized to real estate inventories during the active development period , which generally commences when borrowings are used to acquire real estate assets and ends when the properties are substantially complete or the property becomes inactive which means that development and construction activities have been suspended indefinitely . interest is capitalized based on the interest rate applicable to specific borrowings or the weighted average of the rates applicable to other borrowings during the period . interest and real estate taxes capitalized to real estate inventories are expensed as a component of cost of sales as related units are sold . approximately , $ 1.9 million and $ 0.4 million of interest was capitalized to projects during the years ended december 31 , 2013 and 2012 , respectively . when a project becomes inactive , its interest , real estate taxes and indirect overhead costs are no longer capitalized but rather expensed in the period in which they are incurred . during the year ended december 31 , 2013 and 2012 , we recorded interest expense of $ 0.1 million and $ 1.9 million , respectively , related to inactive projects . refer to note 2 in the accompanying consolidated financial statements for the breakdown of the interest , real estate taxes and indirect costs related to inactive projects reported on the consolidated statement of operations . discontinued operations as described in note 14 to the consolidated financial statements , on march 7 , 2012 , the company 's subsidiary sold the
| liquidity and capital resources we require capital to operate , to post deposits on new deals , to purchase and develop land , to construct homes , to fund related carrying costs and overhead and to fund various advertising and marketing programs to generate sales . these expenditures include payroll , community engineering , entitlement , architecture , advertising , utilities and interest as well as the construction costs of our homes . our sources of capital include , and will continue to include , funds derived from various secured and unsecured borrowings to finance acquisition , development and construction on acquired land , cash flow from operations , which includes the sale and delivery of constructed homes , rental multi-family projects , finished and raw building lots and the sale of equity and debt securities . the company is involved in ongoing discussions with lenders and equity sources in an effort to provide additional growth capital to fund 22 various new business opportunities . refer to note 8 in the accompanying consolidated financial statements for more details on our credit facilities and note 3 in the accompanying consolidated financial statements for details on private placement offerings in 2013. we are anticipating that through a combination of the capital raised through the aforementioned private placements , current available cash on hand and additional cash from settlement proceeds at existing and under development communities , the company will have sufficient financial resources to sustain our operations through the next 12 months , though no assurances can be made that we will be successful in our efforts . credit facilities we have outstanding borrowings with various financial institutions and other lenders that have been used to finance the acquisition , development and construction of real estate projects .
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important factors that could cause actual results to differ materially from our expectations , which we refer to as “ cautionary statements , ” are disclosed under “ item 1a . risk factors , ” and “ item 7. management 's discussion and analysis of financial condition and results of operations “ and elsewhere in this form 10-k. all forward-looking information in this form 10-k and subsequent written and oral forward-looking statements attributable to us , or persons acting on our behalf , are expressly qualified in their entirety by the cautionary statements . some of the factors that we believe could affect our results include : our limited operating history as a separate public partnership ; changes in general economic conditions ; our ability to have sufficient cash from operations to enable us to pay the minimum quarterly distribution ; competitive conditions in our industry ; actions taken by our customers and competitors ; the supply of , and demand for , crude oil , refined products and logistics services ; our ability to successfully implement our business plan ; our dependence on pbf energy for all of our revenues and , therefore , we are subject to the business risks of pbf energy ; all of our revenue is generated at two of pbf energy 's facilities , and any adverse development at either facility could have a material adverse effect on us ; our ability to complete internal growth projects on time and on budget ; the price and availability of debt and equity financing ; operating hazards and other risks incidental to handling crude oil ; natural disasters , weather-related delays , casualty losses and other matters beyond our control ; interest rates ; labor relations ; changes in the availability and cost of capital ; the effects of existing and future laws and governmental regulations ; changes in insurance markets impacting costs and the level and types of coverage available ; the timing and extent of changes in commodity prices and demand for pbf energy 's refined products ; 53 the suspension , reduction or termination of pbf energy 's obligations under our commercial agreements ; disruptions due to equipment interruption or failure at our facilities , pbf energy 's facilities or third-party facilities on which our business is dependent ; incremental costs as a stand-alone public company ; our general partner and its affiliates , including pbf energy , have conflicts of interest with us and limited duties to us and our unitholders , and they may favor their own interests to the detriment of us and our other common unitholders ; our partnership agreement restricts the remedies available to holders of our common units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty ; holders of our common units have limited voting rights and are not entitled to elect our general partner or its directors ; our tax treatment depends on our status as a partnership for u.s. federal income tax purposes , as well as our not being subject to a material amount of entity level taxation by individual states ; changes at any time ( including on a retroactive basis ) in the tax treatment of publicly traded partnerships or an investment in our common units ; our unitholders will be required to pay taxes on their share of our taxable income even if they do not receive any cash distributions from us ; the effects of future litigation ; and other factors discussed elsewhere in this form 10-k. we caution you that the foregoing list of important factors may not contain all of the material factors that are important to you . in addition , in light of these risks and uncertainties , the matters referred to in the forward-looking statements contained in this form 10-k may not in fact occur . accordingly , investors should not place undue reliance on those statements . our forward-looking statements speak only as of the date of this form 10-k or as of the date which they are made . except as required by applicable law , including the securities laws of the united states , we do not intend to update or revise any forward-looking statements . all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing . overview pbfx is a fee-based , growth-oriented , delaware master limited partnership formed in february 2013 by subsidiaries of pbf energy to own or lease , operate , develop and acquire crude oil and refined petroleum products terminals , pipelines , storage facilities and similar logistics assets . on may 14 , 2014 , pbfx completed the offering of 15,812,500 common units ( including 2,062,500 common units issued pursuant to the exercise of the underwriters ' over-allotment option ) . pbf gp is our general partner and is wholly-owned by pbf llc . pbf energy is the sole managing member of pbf llc and as of december 31 , 2014 owned 89.9 % of the total economic interest in pbf llc . upon completion of the offering , pbf llc held a 50.2 % limited partner interest in pbfx and owns all of pbfx 's idrs , with the remaining 49.8 % limited partner interest held by public unitholders . on september 16 , 2014 , the partnership entered into the contribution agreement ii with pbf llc to acquire the dcr west rack , a heavy crude oil unloading facility at the delaware city refinery with total throughput capacity of at least 40,000 bpd . the transaction closed on september 30 , 2014. also , on december 2 , 2014 , the partnership entered into the contribution agreement iii with pbf llc to acquire the toledo storage facility , including a propane storage and loading facility . the transaction closed on december 11 , 2014 . story_separator_special_tag increase in general and administrative expenses of $ 5.7 million , or 283.7 % , as a result of increased cost allocations of certain direct employee costs , additional expenses related to being a publicly traded partnership and expenses associated with pbfx unit-based compensation ; ◦ an increase in interest expense , net and other financing costs of $ 2.3 million which was attributable to the interest costs associated with the term loan and revolving credit facility , partially offset by interest income associated with our marketable securities ; and ◦ an increase in amortization of loan fees of $ 0.4 million due to the amortization of capitalized debt issuance costs associated with the term loan and revolving credit facility . our net loss for the year ended december 31 , 2013 increased $ 9.1 million , or 99.6 % , to $ 18.3 million from a net loss of $ 9.2 million for the year ended december 31 , 2012. the increase in net loss was primarily due to the following : an increase in operating and maintenance expenses of $ 6.4 million , or 84.1 % , attributable to operating costs associated with the dcr rail terminal which commenced operations in february 2013 , as well as two additional lact units being placed in service in may 2013 ; an increase in general and administrative expenses of $ 1.4 million , or 204.4 % , attributable to corporate administrative costs associated with the dcr rail terminal and additional lact units ; and an increase in depreciation and amortization expenses of $ 1.4 million , or 150.6 % , related to the new assets being placed in service in 2013. operating segments we review operating results in two reportable segments : ( i ) terminaling and ( ii ) storage . decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation . management measures the operating performance of each of its reportable segments based on the segment operating income . segment operating income is defined as net sales less operating expenses and depreciation and amortization . general and administrative expenses not included in the terminaling and storage segments are included in corporate . segment reporting is more fully discussed in note 12 to our accompanying consolidated financial statements . 61 terminaling segment the following table and discussion is an explanation of our results of operations of the terminaling segment for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_7_th ( a ) the information presented includes the results of operations of pbf mlp predecessor for periods presented through may 13 , 2014 and of pbfx for the period beginning may 14 , 2014 , the date pbfx commenced operations . the information also includes the results of operations of the dcr west rack and the terminaling assets of the toledo storage facility for periods presented through the effective date of each acquisition . pbfx includes the dcr west rack and terminaling segment of the toledo storage facility for the period subsequent to the acquisitions . prior to the the offering and acquisitions from pbf revenues were not recorded for terminaling . replace_table_token_8_th 62 year ended december 31 , 2014 compared to year ended december 31 , 2013 the following discussion of results for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 reflects the combined results of our predecessor and pbfx . as such , the year ended december 31 , 2013 includes the historical results of our predecessor . the year ended december 31 , 2014 includes the historical results of our predecessor and of pbfx . the partnership 's future results of operations may not be comparable to our predecessor 's historical results of operations , as further discussed in “ factors affecting comparability of our financial results . ” revenue . prior to the offering and the acquisitions from pbf , our assets were a part of the integrated operations of pbf energy , and our predecessor generally recognized only the costs and did not record revenue associated with the terminaling services provided to pbf energy on an intercompany basis . following the closing of the offering and the acquisitions from pbf , our revenues were generated from commercial agreements with pbf energy . operating and maintenance expenses . operating and maintenance expenses increased by approximately $ 7.7 million , or 106.5 % , to approximately $ 15.0 million for the year ended december 31 , 2014 compared to approximately $ 7.3 million for the year ended december 31 , 2013. the increase in operating and maintenance expenses was primarily attributable to $ 5.2 million in outside services and $ 1.8 million in materials and operating supplies associated with the dcr west rack assets which were placed in service in august 2014. the remaining increase was primarily attributable to increased insurance premiums of approximately $ 0.7 million . the expenses prior to the offering and the acquisitions from pbf were incurred by pbf energy and were allocated to our predecessor based on the nature of the expenses and our proportionate share of pbf holding 's employee time and headcount . the allocation of employee costs was based on each employee 's compensation plus associated employee benefits . employee benefits include an allocation of pbf holding 's pension benefits and equity-based compensation . depreciation and amortization . depreciation and amortization expense increased by approximately $ 0.9 million , or 88.8 % , to $ 2.0 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. the increase in depreciation and amortization expense was primarily attributable to $ 0.6 million of additional depreciation associated with the dcr west rack assets which were placed in service in august 2014. the remaining increase in depreciation and amortization was due to the dcr rail terminal being in operation for the entire period in 2014 ,
| liquidity and capital resources we require capital to operate , to post deposits on new deals , to purchase and develop land , to construct homes , to fund related carrying costs and overhead and to fund various advertising and marketing programs to generate sales . these expenditures include payroll , community engineering , entitlement , architecture , advertising , utilities and interest as well as the construction costs of our homes . our sources of capital include , and will continue to include , funds derived from various secured and unsecured borrowings to finance acquisition , development and construction on acquired land , cash flow from operations , which includes the sale and delivery of constructed homes , rental multi-family projects , finished and raw building lots and the sale of equity and debt securities . the company is involved in ongoing discussions with lenders and equity sources in an effort to provide additional growth capital to fund 22 various new business opportunities . refer to note 8 in the accompanying consolidated financial statements for more details on our credit facilities and note 3 in the accompanying consolidated financial statements for details on private placement offerings in 2013. we are anticipating that through a combination of the capital raised through the aforementioned private placements , current available cash on hand and additional cash from settlement proceeds at existing and under development communities , the company will have sufficient financial resources to sustain our operations through the next 12 months , though no assurances can be made that we will be successful in our efforts . credit facilities we have outstanding borrowings with various financial institutions and other lenders that have been used to finance the acquisition , development and construction of real estate projects .
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important factors that could cause actual results to differ materially from our expectations , which we refer to as “ cautionary statements , ” are disclosed under “ item 1a . risk factors , ” and “ item 7. management 's discussion and analysis of financial condition and results of operations “ and elsewhere in this form 10-k. all forward-looking information in this form 10-k and subsequent written and oral forward-looking statements attributable to us , or persons acting on our behalf , are expressly qualified in their entirety by the cautionary statements . some of the factors that we believe could affect our results include : our limited operating history as a separate public partnership ; changes in general economic conditions ; our ability to have sufficient cash from operations to enable us to pay the minimum quarterly distribution ; competitive conditions in our industry ; actions taken by our customers and competitors ; the supply of , and demand for , crude oil , refined products and logistics services ; our ability to successfully implement our business plan ; our dependence on pbf energy for all of our revenues and , therefore , we are subject to the business risks of pbf energy ; all of our revenue is generated at two of pbf energy 's facilities , and any adverse development at either facility could have a material adverse effect on us ; our ability to complete internal growth projects on time and on budget ; the price and availability of debt and equity financing ; operating hazards and other risks incidental to handling crude oil ; natural disasters , weather-related delays , casualty losses and other matters beyond our control ; interest rates ; labor relations ; changes in the availability and cost of capital ; the effects of existing and future laws and governmental regulations ; changes in insurance markets impacting costs and the level and types of coverage available ; the timing and extent of changes in commodity prices and demand for pbf energy 's refined products ; 53 the suspension , reduction or termination of pbf energy 's obligations under our commercial agreements ; disruptions due to equipment interruption or failure at our facilities , pbf energy 's facilities or third-party facilities on which our business is dependent ; incremental costs as a stand-alone public company ; our general partner and its affiliates , including pbf energy , have conflicts of interest with us and limited duties to us and our unitholders , and they may favor their own interests to the detriment of us and our other common unitholders ; our partnership agreement restricts the remedies available to holders of our common units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty ; holders of our common units have limited voting rights and are not entitled to elect our general partner or its directors ; our tax treatment depends on our status as a partnership for u.s. federal income tax purposes , as well as our not being subject to a material amount of entity level taxation by individual states ; changes at any time ( including on a retroactive basis ) in the tax treatment of publicly traded partnerships or an investment in our common units ; our unitholders will be required to pay taxes on their share of our taxable income even if they do not receive any cash distributions from us ; the effects of future litigation ; and other factors discussed elsewhere in this form 10-k. we caution you that the foregoing list of important factors may not contain all of the material factors that are important to you . in addition , in light of these risks and uncertainties , the matters referred to in the forward-looking statements contained in this form 10-k may not in fact occur . accordingly , investors should not place undue reliance on those statements . our forward-looking statements speak only as of the date of this form 10-k or as of the date which they are made . except as required by applicable law , including the securities laws of the united states , we do not intend to update or revise any forward-looking statements . all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing . overview pbfx is a fee-based , growth-oriented , delaware master limited partnership formed in february 2013 by subsidiaries of pbf energy to own or lease , operate , develop and acquire crude oil and refined petroleum products terminals , pipelines , storage facilities and similar logistics assets . on may 14 , 2014 , pbfx completed the offering of 15,812,500 common units ( including 2,062,500 common units issued pursuant to the exercise of the underwriters ' over-allotment option ) . pbf gp is our general partner and is wholly-owned by pbf llc . pbf energy is the sole managing member of pbf llc and as of december 31 , 2014 owned 89.9 % of the total economic interest in pbf llc . upon completion of the offering , pbf llc held a 50.2 % limited partner interest in pbfx and owns all of pbfx 's idrs , with the remaining 49.8 % limited partner interest held by public unitholders . on september 16 , 2014 , the partnership entered into the contribution agreement ii with pbf llc to acquire the dcr west rack , a heavy crude oil unloading facility at the delaware city refinery with total throughput capacity of at least 40,000 bpd . the transaction closed on september 30 , 2014. also , on december 2 , 2014 , the partnership entered into the contribution agreement iii with pbf llc to acquire the toledo storage facility , including a propane storage and loading facility . the transaction closed on december 11 , 2014 . story_separator_special_tag increase in general and administrative expenses of $ 5.7 million , or 283.7 % , as a result of increased cost allocations of certain direct employee costs , additional expenses related to being a publicly traded partnership and expenses associated with pbfx unit-based compensation ; ◦ an increase in interest expense , net and other financing costs of $ 2.3 million which was attributable to the interest costs associated with the term loan and revolving credit facility , partially offset by interest income associated with our marketable securities ; and ◦ an increase in amortization of loan fees of $ 0.4 million due to the amortization of capitalized debt issuance costs associated with the term loan and revolving credit facility . our net loss for the year ended december 31 , 2013 increased $ 9.1 million , or 99.6 % , to $ 18.3 million from a net loss of $ 9.2 million for the year ended december 31 , 2012. the increase in net loss was primarily due to the following : an increase in operating and maintenance expenses of $ 6.4 million , or 84.1 % , attributable to operating costs associated with the dcr rail terminal which commenced operations in february 2013 , as well as two additional lact units being placed in service in may 2013 ; an increase in general and administrative expenses of $ 1.4 million , or 204.4 % , attributable to corporate administrative costs associated with the dcr rail terminal and additional lact units ; and an increase in depreciation and amortization expenses of $ 1.4 million , or 150.6 % , related to the new assets being placed in service in 2013. operating segments we review operating results in two reportable segments : ( i ) terminaling and ( ii ) storage . decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation . management measures the operating performance of each of its reportable segments based on the segment operating income . segment operating income is defined as net sales less operating expenses and depreciation and amortization . general and administrative expenses not included in the terminaling and storage segments are included in corporate . segment reporting is more fully discussed in note 12 to our accompanying consolidated financial statements . 61 terminaling segment the following table and discussion is an explanation of our results of operations of the terminaling segment for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_7_th ( a ) the information presented includes the results of operations of pbf mlp predecessor for periods presented through may 13 , 2014 and of pbfx for the period beginning may 14 , 2014 , the date pbfx commenced operations . the information also includes the results of operations of the dcr west rack and the terminaling assets of the toledo storage facility for periods presented through the effective date of each acquisition . pbfx includes the dcr west rack and terminaling segment of the toledo storage facility for the period subsequent to the acquisitions . prior to the the offering and acquisitions from pbf revenues were not recorded for terminaling . replace_table_token_8_th 62 year ended december 31 , 2014 compared to year ended december 31 , 2013 the following discussion of results for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 reflects the combined results of our predecessor and pbfx . as such , the year ended december 31 , 2013 includes the historical results of our predecessor . the year ended december 31 , 2014 includes the historical results of our predecessor and of pbfx . the partnership 's future results of operations may not be comparable to our predecessor 's historical results of operations , as further discussed in “ factors affecting comparability of our financial results . ” revenue . prior to the offering and the acquisitions from pbf , our assets were a part of the integrated operations of pbf energy , and our predecessor generally recognized only the costs and did not record revenue associated with the terminaling services provided to pbf energy on an intercompany basis . following the closing of the offering and the acquisitions from pbf , our revenues were generated from commercial agreements with pbf energy . operating and maintenance expenses . operating and maintenance expenses increased by approximately $ 7.7 million , or 106.5 % , to approximately $ 15.0 million for the year ended december 31 , 2014 compared to approximately $ 7.3 million for the year ended december 31 , 2013. the increase in operating and maintenance expenses was primarily attributable to $ 5.2 million in outside services and $ 1.8 million in materials and operating supplies associated with the dcr west rack assets which were placed in service in august 2014. the remaining increase was primarily attributable to increased insurance premiums of approximately $ 0.7 million . the expenses prior to the offering and the acquisitions from pbf were incurred by pbf energy and were allocated to our predecessor based on the nature of the expenses and our proportionate share of pbf holding 's employee time and headcount . the allocation of employee costs was based on each employee 's compensation plus associated employee benefits . employee benefits include an allocation of pbf holding 's pension benefits and equity-based compensation . depreciation and amortization . depreciation and amortization expense increased by approximately $ 0.9 million , or 88.8 % , to $ 2.0 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. the increase in depreciation and amortization expense was primarily attributable to $ 0.6 million of additional depreciation associated with the dcr west rack assets which were placed in service in august 2014. the remaining increase in depreciation and amortization was due to the dcr rail terminal being in operation for the entire period in 2014 ,
| cash flows the following table sets forth our cash flows for the periods indicated : replace_table_token_10_th cash flows from operating activities cash flows provided by operating activities increased $ 23.5 million to approximately $ 7.6 million for the year ended december 31 , 2014 compared to net cash used in operating activities of approximately $ 15.9 million for the year ended december 31 , 2013 . the increase in net cash provided by operating activities was primarily the result of net income of approximately $ 13.3 million recognized during the year ended december 31 , 2014 , compared to a net loss of approximately $ 18.3 million for the year ended december 31 , 2013 . our operating cash flows for the year ended december 31 , 2014 also included non-cash charges relating to depreciation and amortization of $ 3.7 million , amortization of loan fees of $ 0.4 million and unit-based compensation of $ 1.1 million , partially offset by net changes in working capital of $ 10.9 million primarily driven by the timing of collection of accounts receivables . our operating cash flows for the year ended december 31 , 2013 included non-cash charges relating to depreciation and amortization of $ 2.4 million .
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we sell our products in 49 countries outside the united states through a combination of direct sales representatives employed by us and international distributors . we believe there are significant opportunities for us to increase our presence in both existing and new international markets through the continued expansion of our direct and distributor sales forces and the commercialization of additional products . recent developments on september 1 , 2016 , we acquired the international operations and distribution channel of alphatec holdings , inc. , a publicly traded orthopedic company ( nasdaq : atec ) for $ 80.1 million in cash , subject to certain closing adjustments ( see “ part ii ; item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 2. acquisitions ” ) . on january 13 , 2016 , we entered into a settlement agreement providing for the settlement of four patent infringement lawsuits concerning spinal implant technologies between globus medical , inc. and depuy synthes ( the “ settlement agreement ” ) . pursuant to the terms of the settlement agreement , we were required to make a $ 7.9 million payment to depuy synthes . the settlement agreement also provides for covenants not to sue relating to certain of the products sold by each of the parties and cross-licenses of all of the patents asserted in each of the settled lawsuits and each of the patents in those respective patent families . the company does not expect the settlement agreement to impact its ability to conduct its business or have any impact on its future revenues . the settlement resulted in one-time financial benefits reflecting the difference from previously established provisions and the final settlement amount through a one-time net income benefit of approximately $ 7.6 million , recognized during the fourth quarter of 2015 , and a one-time transfer of approximately $ 8.4 million from restricted cash account into the cash account , which we recognized during the first quarter of 2016. the consolidated appropriations act of 2016 , which was signed into law in december 2015 , includes a two-year suspension on the medical device excise tax , effective january 1 , 2016. the 2.3 % tax on sales in the united states of certain medical devices by a manufacturer , producer or importer was enacted as part of the affordable care act in 2010 and applied to device sales beginning on january 1 , 2013. without further legislative action , the tax will be automatically reinstated for certain medical device sales in the united states starting on january 1 , 2018. we incurred $ 8.1 million and $ 7.1 million for this medical device excise tax for the years ended december 31 , 2015 and 2014 , respectively . in 2016 , we redirected the medical device excise tax savings into research and development as well as expanded our in-house manufacturing capabilities . components of our results of operations we manage our business globally within one reportable segment , which is consistent with how our management reviews our business , makes investment and resource allocation decisions and assesses operating performance . sales we sell implants and related disposables , primarily to hospitals , for use by spine surgeons to treat spine disorders . we generally consign our surgical sets , which contain our implants , disposables , surgical instruments and cases to our sales representatives , and the sets are maintained with the sales representatives or at our hospital customers that purchase the implants and related disposables used in the surgeries . we recognize revenue when we are notified that consigned implants and related disposables have been implanted or used , or for sets that are sold directly and not consigned , when title to the goods and risk of loss are 50 transferred to customers with no remaining performance obligations which affect the customer 's final acceptance of the sale . we expect to expand our u.s. and international sales forces , which will provide us with significant opportunity to continue to increase our penetration in existing markets and to enter new international markets . we also expect to increase sales by commercializing new products , but expect the increase of sales from new products to be partially offset by decreased sales of earlier-generation products . all of our current products fall into one of two categories : innovative fusion or disruptive technologies . our innovative fusion products comprise fusion products to treat a wide variety of spinal disorders for the entire spine and can be used in a variety of surgical approaches . we believe our innovative fusion products have features and characteristics that may provide advantages for surgeons and potentially contribute to better outcomes for patients as compared to competing traditional fusion products . we define disruptive technologies as those that represent a significant shift in the treatment of spinal disorders by allowing for novel surgical procedures , improvements to existing surgical procedures and the treatment of spinal disorders earlier in the continuum of care . we believe the use of disruptive technologies may improve patient outcomes and reduce costs given the expected lower morbidity rates , shorter patient recovery times and shorter hospital stays associated with these procedures . additionally , disruptive technologies may help a patient avoid progression of spinal disc disease sometimes caused by traditional surgical options such as spinal fusion . our current portfolio of approved and pipeline disruptive technology products includes products that allow for minimally invasive surgical ( “ mis ” ) techniques , as well as new treatment alternatives , including motion preservation technologies , such as dynamic stabilization , total disc replacement and interspinous process spacer products , and regenerative biologics technologies , as well as interventional pain management solutions , including treatments for vertebral compression fractures . as a result , we anticipate disruptive technology products to continue to drive our sales growth in the future . story_separator_special_tag we also do not have sufficient history of stock option exercises as a public company available that is indicative of future exercise and post-vesting behavior to estimate the expected term after our initial public offering ( “ ipo ” ) . as a result , we use the simplified method of estimating the expected term , under which the expected term is presumed to be the mid-point between the vesting date and the contractual end of the term . we base the risk-free interest rate on observed interest rates of u.s. treasury securities equivalent to the expected terms of the stock options . we estimate our pre-vesting forfeiture rate based on our historical experience . our dividend yield assumption is based on the history and expectation of no dividend payouts . we estimate the weighted-average fair value of the options granted using a black-scholes option-pricing model , which requires the input of subjective assumptions , including the expected stock price volatility , the calculation of expected term and fair value of the underlying common stock on the date of grant , among other inputs . to the extent that further evidence regarding these variables is available and provides estimates that we believe are more indicative of actual trends , we may refine or change our approach to deriving these input 55 estimates . any such changes could materially affect the stock-based compensation expense we record in the future . we expect to continue to grant stock options in the future , and to the extent that we do , our actual stock-based compensation expense recognized may increase . results of operations year ended december 31 , 2016 compared to the year ended december 31 , 2015 sales the following table sets forth , for the periods indicated , our sales by product category and geography expressed as dollar amounts and the changes in sales between the specified periods expressed in dollar amounts and as percentages : replace_table_token_5_th product launches continue to be a driving force in our sales growth , particularly from products launched during the last three years . the growth in disruptive technology of $ 19.7 million was due primarily to sales of regenerative biologics , expandable interbody and minimally invasive products launched during the past three years , including sales from ttot since the acquisition in late 2014. innovative fusion sales decreased by $ 0.5 million due to sales declines of pedicle screw systems , which were partially offset by increases from alphatec international sales . replace_table_token_6_th in the united states , the increase in sales of $ 2.0 million was due primarily to expansion into new territories and increased penetration in existing territories . the region experienced strong sales in disruptive technology products , led by sales of expandable interbody products and regenerative biologics , which were partially offset by declines in innovative fusion products , primarily pedicle screw systems . internationally , the increase in sales of $ 17.2 million was primarily due to incremental sales from the alphatec international acquisition . on a constant currency basis , our international sales grew $ 18.8 million , or by 40.4 % , due to expansion into new international territories . our worldwide sales increased 3.8 % on a constant currency basis . for additional information regarding the alphatec international acquisition , please refer to “ part ii ; item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 2. acquisitions ” and for additional information regarding constant currency , please refer to “ non-gaap financial measures ” below . 56 cost of goods sold replace_table_token_7_th the increase in cost of goods sold was primarily due to increases from higher volumes , product mix , inventory write offs and increases in depreciation and other operational costs . included in these increases was a prior period adjustment of $ 1.8 million . partially offsetting these increases was $ 9.0 million in savings related to the two year moratorium on the medical device excise tax ( “ mdet ” ) , which began january 1 , 2016. savings of $ 5.0 million were realized in the year from the impact of lower manufacturing costs from branch medical group ( “ bmg ” ) as well as a $ 3.4 million decrease in freight costs . for additional information regarding the prior period adjustment , please refer to “ part ii ; item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 1. background and summary of significant accounting policies ; ( b ) basis of presentation . ” research and development expenses replace_table_token_8_th the increase in research and development expenses was due primarily to $ 4.0 million of one-time licensing costs , increases in employee-related expenses of $ 3.4 million from additional headcount related to continued investment in robotics and orthopedic trauma groups , and increases in supplies and other research costs of $ 0.8 million . selling , general and administrative expenses replace_table_token_9_th the increase in selling , general and administrative expenses was due primarily to an increase of $ 5.8 million of costs to support sales volume and company growth , including the alphatec international acquisition , and increases of $ 3.3 million in depreciation expense and $ 2.8 million in other general and administrative expenses . 57 provision for litigation replace_table_token_10_th the current year provision for litigation , which includes settlement and verdict costs , was due primarily to the settlements of the bonutti and other litigation matters . in the prior year period , we recognized a benefit due to the recognition of the depuy synthes settlement agreement . for additional information regarding litigation , please refer to “ part ii ; item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 15. commitments and contingencies . ” amortization of intangibles replace_table_token_11_th the increase in the amortization of intangibles is primarily due to the customer relationship intangibles acquired in connection
| cash flows the following table sets forth our cash flows for the periods indicated : replace_table_token_10_th cash flows from operating activities cash flows provided by operating activities increased $ 23.5 million to approximately $ 7.6 million for the year ended december 31 , 2014 compared to net cash used in operating activities of approximately $ 15.9 million for the year ended december 31 , 2013 . the increase in net cash provided by operating activities was primarily the result of net income of approximately $ 13.3 million recognized during the year ended december 31 , 2014 , compared to a net loss of approximately $ 18.3 million for the year ended december 31 , 2013 . our operating cash flows for the year ended december 31 , 2014 also included non-cash charges relating to depreciation and amortization of $ 3.7 million , amortization of loan fees of $ 0.4 million and unit-based compensation of $ 1.1 million , partially offset by net changes in working capital of $ 10.9 million primarily driven by the timing of collection of accounts receivables . our operating cash flows for the year ended december 31 , 2013 included non-cash charges relating to depreciation and amortization of $ 2.4 million .
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we sell our products in 49 countries outside the united states through a combination of direct sales representatives employed by us and international distributors . we believe there are significant opportunities for us to increase our presence in both existing and new international markets through the continued expansion of our direct and distributor sales forces and the commercialization of additional products . recent developments on september 1 , 2016 , we acquired the international operations and distribution channel of alphatec holdings , inc. , a publicly traded orthopedic company ( nasdaq : atec ) for $ 80.1 million in cash , subject to certain closing adjustments ( see “ part ii ; item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 2. acquisitions ” ) . on january 13 , 2016 , we entered into a settlement agreement providing for the settlement of four patent infringement lawsuits concerning spinal implant technologies between globus medical , inc. and depuy synthes ( the “ settlement agreement ” ) . pursuant to the terms of the settlement agreement , we were required to make a $ 7.9 million payment to depuy synthes . the settlement agreement also provides for covenants not to sue relating to certain of the products sold by each of the parties and cross-licenses of all of the patents asserted in each of the settled lawsuits and each of the patents in those respective patent families . the company does not expect the settlement agreement to impact its ability to conduct its business or have any impact on its future revenues . the settlement resulted in one-time financial benefits reflecting the difference from previously established provisions and the final settlement amount through a one-time net income benefit of approximately $ 7.6 million , recognized during the fourth quarter of 2015 , and a one-time transfer of approximately $ 8.4 million from restricted cash account into the cash account , which we recognized during the first quarter of 2016. the consolidated appropriations act of 2016 , which was signed into law in december 2015 , includes a two-year suspension on the medical device excise tax , effective january 1 , 2016. the 2.3 % tax on sales in the united states of certain medical devices by a manufacturer , producer or importer was enacted as part of the affordable care act in 2010 and applied to device sales beginning on january 1 , 2013. without further legislative action , the tax will be automatically reinstated for certain medical device sales in the united states starting on january 1 , 2018. we incurred $ 8.1 million and $ 7.1 million for this medical device excise tax for the years ended december 31 , 2015 and 2014 , respectively . in 2016 , we redirected the medical device excise tax savings into research and development as well as expanded our in-house manufacturing capabilities . components of our results of operations we manage our business globally within one reportable segment , which is consistent with how our management reviews our business , makes investment and resource allocation decisions and assesses operating performance . sales we sell implants and related disposables , primarily to hospitals , for use by spine surgeons to treat spine disorders . we generally consign our surgical sets , which contain our implants , disposables , surgical instruments and cases to our sales representatives , and the sets are maintained with the sales representatives or at our hospital customers that purchase the implants and related disposables used in the surgeries . we recognize revenue when we are notified that consigned implants and related disposables have been implanted or used , or for sets that are sold directly and not consigned , when title to the goods and risk of loss are 50 transferred to customers with no remaining performance obligations which affect the customer 's final acceptance of the sale . we expect to expand our u.s. and international sales forces , which will provide us with significant opportunity to continue to increase our penetration in existing markets and to enter new international markets . we also expect to increase sales by commercializing new products , but expect the increase of sales from new products to be partially offset by decreased sales of earlier-generation products . all of our current products fall into one of two categories : innovative fusion or disruptive technologies . our innovative fusion products comprise fusion products to treat a wide variety of spinal disorders for the entire spine and can be used in a variety of surgical approaches . we believe our innovative fusion products have features and characteristics that may provide advantages for surgeons and potentially contribute to better outcomes for patients as compared to competing traditional fusion products . we define disruptive technologies as those that represent a significant shift in the treatment of spinal disorders by allowing for novel surgical procedures , improvements to existing surgical procedures and the treatment of spinal disorders earlier in the continuum of care . we believe the use of disruptive technologies may improve patient outcomes and reduce costs given the expected lower morbidity rates , shorter patient recovery times and shorter hospital stays associated with these procedures . additionally , disruptive technologies may help a patient avoid progression of spinal disc disease sometimes caused by traditional surgical options such as spinal fusion . our current portfolio of approved and pipeline disruptive technology products includes products that allow for minimally invasive surgical ( “ mis ” ) techniques , as well as new treatment alternatives , including motion preservation technologies , such as dynamic stabilization , total disc replacement and interspinous process spacer products , and regenerative biologics technologies , as well as interventional pain management solutions , including treatments for vertebral compression fractures . as a result , we anticipate disruptive technology products to continue to drive our sales growth in the future . story_separator_special_tag we also do not have sufficient history of stock option exercises as a public company available that is indicative of future exercise and post-vesting behavior to estimate the expected term after our initial public offering ( “ ipo ” ) . as a result , we use the simplified method of estimating the expected term , under which the expected term is presumed to be the mid-point between the vesting date and the contractual end of the term . we base the risk-free interest rate on observed interest rates of u.s. treasury securities equivalent to the expected terms of the stock options . we estimate our pre-vesting forfeiture rate based on our historical experience . our dividend yield assumption is based on the history and expectation of no dividend payouts . we estimate the weighted-average fair value of the options granted using a black-scholes option-pricing model , which requires the input of subjective assumptions , including the expected stock price volatility , the calculation of expected term and fair value of the underlying common stock on the date of grant , among other inputs . to the extent that further evidence regarding these variables is available and provides estimates that we believe are more indicative of actual trends , we may refine or change our approach to deriving these input 55 estimates . any such changes could materially affect the stock-based compensation expense we record in the future . we expect to continue to grant stock options in the future , and to the extent that we do , our actual stock-based compensation expense recognized may increase . results of operations year ended december 31 , 2016 compared to the year ended december 31 , 2015 sales the following table sets forth , for the periods indicated , our sales by product category and geography expressed as dollar amounts and the changes in sales between the specified periods expressed in dollar amounts and as percentages : replace_table_token_5_th product launches continue to be a driving force in our sales growth , particularly from products launched during the last three years . the growth in disruptive technology of $ 19.7 million was due primarily to sales of regenerative biologics , expandable interbody and minimally invasive products launched during the past three years , including sales from ttot since the acquisition in late 2014. innovative fusion sales decreased by $ 0.5 million due to sales declines of pedicle screw systems , which were partially offset by increases from alphatec international sales . replace_table_token_6_th in the united states , the increase in sales of $ 2.0 million was due primarily to expansion into new territories and increased penetration in existing territories . the region experienced strong sales in disruptive technology products , led by sales of expandable interbody products and regenerative biologics , which were partially offset by declines in innovative fusion products , primarily pedicle screw systems . internationally , the increase in sales of $ 17.2 million was primarily due to incremental sales from the alphatec international acquisition . on a constant currency basis , our international sales grew $ 18.8 million , or by 40.4 % , due to expansion into new international territories . our worldwide sales increased 3.8 % on a constant currency basis . for additional information regarding the alphatec international acquisition , please refer to “ part ii ; item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 2. acquisitions ” and for additional information regarding constant currency , please refer to “ non-gaap financial measures ” below . 56 cost of goods sold replace_table_token_7_th the increase in cost of goods sold was primarily due to increases from higher volumes , product mix , inventory write offs and increases in depreciation and other operational costs . included in these increases was a prior period adjustment of $ 1.8 million . partially offsetting these increases was $ 9.0 million in savings related to the two year moratorium on the medical device excise tax ( “ mdet ” ) , which began january 1 , 2016. savings of $ 5.0 million were realized in the year from the impact of lower manufacturing costs from branch medical group ( “ bmg ” ) as well as a $ 3.4 million decrease in freight costs . for additional information regarding the prior period adjustment , please refer to “ part ii ; item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 1. background and summary of significant accounting policies ; ( b ) basis of presentation . ” research and development expenses replace_table_token_8_th the increase in research and development expenses was due primarily to $ 4.0 million of one-time licensing costs , increases in employee-related expenses of $ 3.4 million from additional headcount related to continued investment in robotics and orthopedic trauma groups , and increases in supplies and other research costs of $ 0.8 million . selling , general and administrative expenses replace_table_token_9_th the increase in selling , general and administrative expenses was due primarily to an increase of $ 5.8 million of costs to support sales volume and company growth , including the alphatec international acquisition , and increases of $ 3.3 million in depreciation expense and $ 2.8 million in other general and administrative expenses . 57 provision for litigation replace_table_token_10_th the current year provision for litigation , which includes settlement and verdict costs , was due primarily to the settlements of the bonutti and other litigation matters . in the prior year period , we recognized a benefit due to the recognition of the depuy synthes settlement agreement . for additional information regarding litigation , please refer to “ part ii ; item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 15. commitments and contingencies . ” amortization of intangibles replace_table_token_11_th the increase in the amortization of intangibles is primarily due to the customer relationship intangibles acquired in connection
| cash flows the following table summarizes , for the periods indicated , cash flows from operating , investing and financing activities : replace_table_token_31_th our cash , cash equivalents and marketable securities at december 31 , 2016 and 2015 were $ 350.8 million and $ 329.8 million , respectively . we assess our liquidity in terms of our ability to generate cash to fund our operating , investing and financing activities , whereby our principal source of liquidity is operating cash flows . excess operating cash is primarily used to fund acquisitions to advance the strategic growth of the company , as well as continue our cash management program to generate returns on our cash and cash equivalents through investing in marketable securities , which include municipal bonds , corporate debt securities , commercial paper , securities of u.s. government-sponsored agencies and asset-backed securities . our overall cash position reflects our strong business results and a cash management strategy that takes into account liquidity , economic factors and tax considerations . we believe our future operating cash flows will be sufficient to meet our future operating cash needs . see “ liquidity and capital resources ” below for further discussion of cash flow results . cash provided by operating activities the increase in net cash provided by operating activities for the year ended december 31 , 2016 was due primarily to the recovery of the restricted cash related to the depuy synthes settlement , coupled with lower working capital and lower year-over-year income tax payments .
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we believe our vertical retail strategy allows us to interact more directly with and gain insights from our customers while providing us with greater control of our brand . in fiscal 2011 , 43 % of our net revenue was derived from sales of our products in canada , 53 % of our net revenue was derived from the sales of our products in the united states and 4 % of our net revenue was derived from sales of our products outside of north america . in fiscal 2010 , 52 % of our net revenue was derived from sales of our products in canada , 46 % of our net revenue was derived from the sales of our products in the united states and 2 % of our net revenue was derived from sales of our products outside of north america . in fiscal 2009 , 60 % of our net revenue was derived from sales of our products in canada , 40 % of our net revenue was derived from the sales of our products in the united states and an immaterial amount of our net revenue was derived from sales of our products outside of north america . our net revenue increased from $ 711.7 million in fiscal 2010 to $ 1,000.8 million in fiscal 2011 , representing a 41 % increase . our increase in net revenue from fiscal 2010 to fiscal 2011 resulted from the net addition of 41 retail locations , including our remaining four reacquired franchises , and comparable store sales growth of 22 % in fiscal 2011. our ability to open new stores and grow sales in existing stores has been driven by increasing demand for our technical athletic apparel and a growing recognition of the lululemon athletica brand . we believe our superior products , strategic store locations , inviting store environment , grassroots marketing approach and distinctive corporate culture are responsible for our strong financial performance . we have three reportable segments : corporate-owned stores , direct to consumer and other . we report our segments based on the financial information we use in managing our businesses . while we receive financial information for each corporate-owned store , we have aggregated all of the corporate-owned stores into one reportable segment due to the similarities in the economic and other characteristics of these stores . our direct to consumer segment accounted for 11 % of our net revenue in fiscal 2011 , 8 % in fiscal 2010 and 4 % in fiscal 2009. our other segment , consisting of franchise sales , wholesale accounts , sales from company-operated showrooms , warehouse sales and outlets , each accounted for less than 10 % of our net revenue in each of fiscal 2011 , fiscal 2010 and fiscal 2009. we previously reported our franchise channel as an operating segment ; however , we reacquired our remaining four franchised stores in fiscal 2011 and opening new franchise stores is not part of our growth strategy . as of january 29 , 2012 , we sold our products through 174 corporate-owned stores located in canada , the united states , australia , and new zealand . we plan to increase our net revenue in north america and australia by opening additional corporate-owned stores in new and existing markets . corporate-owned stores accounted for 82 % of total net revenue in fiscal 2011 , 83 % of total net revenue in fiscal 2010 and 87 % of total net revenue in fiscal 2009. as of january 29 , 2012 , our direct to consumer segment included our e-commerce website . e-commerce sales are taken directly from retail customers through www.lululemon.com . our direct to consumer segment is an increasingly substantial part of our growth strategy , and now represents more than 10 % of our net revenue . in addition to deriving revenue from sales through our corporate-owned stores and direct to consumer , we also derive other net revenue , which includes wholesale customers , as well as franchise sales , warehouse sales and sales through a number of company-operated showrooms . wholesale customers include select premium yoga studios , health clubs and fitness centers . we reacquired our four remaining franchise stores during fiscal 2011 , 26 and as such , franchise sales , which included inventory sales and royalties , will no longer be a part of our other net revenue in future fiscal years . warehouse sales are typically held one or more times a year to sell slow moving inventory or inventory from prior seasons to retail customers at discounted prices . our showrooms are typically small locations that we open from time to time when we enter new markets and feature a limited selection of our product offering during select hours . other net revenue accounted for 7 % of total revenue in fiscal 2011 , 9 % of total net revenue in fiscal 2010 and 9 % of total net revenue in fiscal 2009. we believe that our athletic apparel has and will continue to appeal to consumers outside of north america who value its technical attributes as well as its function and style . in 2004 , we opened our first store in australia which was operated under a franchise license . in fiscal 2009 we made a 13 % equity investment in lululemon athletica australia pty , our franchise operator . during fiscal 2010 we increased our investment to 80 % which has provided us control over lululemon athletica australia pty . in fiscal 2008 , we opened a company-operated showroom in hong kong . in the past , we have entered into franchise agreements to distribute lululemon athletica branded products to more quickly disseminate our brand name and increase our net revenue and net income . story_separator_special_tag net income from our corporate-owned stores segment increased $ 91.0 million , or 44 % , to $ 299.0 million for fiscal 2011 from $ 208.0 million for fiscal 2010 primarily due to an increase of $ 137.2 million in gross profit , which was offset partially by a natural increase in selling , general and administrative expenses related to employee costs as well as operating expenses associated with new stores and net revenue growth at existing stores . income from operations as a percentage of corporate-owned stores revenue increased by 140 basis points primarily from leverage gained over fixed costs . direct to consumer . net income from our direct to consumer segment increased $ 30.2 million , or 215 % , to $ 44.2 million in fiscal 2011 from $ 14.0 million in fiscal 2010 due to increasing traffic and conversion rates on our e-commerce website . income from operations as a percentage of direct to consumer revenue increased by 1710 basis points in fiscal 2011 compared to fiscal 2010 due to decreased professional fees paid as our e-commerce operations were brought in-house near the beginning of fiscal 2011. we discontinued our phone sales channel during fiscal 2011 , and therefore our direct to consumer segment will only include e-commerce sales in future fiscal years . other . net income from our other segment increased $ 4.2 million , or 24 % , to $ 21.2 million in fiscal 2011 from $ 17.1 million in fiscal 2010. this increase was primarily the result of temporary locations open in the fourth quarter of fiscal 2011 and additional warehouse sales held during the fourth quarter of fiscal 2011 compared to fiscal 2010. this increase was also a result of increased income from strategic sales , showrooms and outlets , partially offset by decreased income from our franchise operating channel . we reacquired our four remaining franchised locations during the third quarter of fiscal 2011 ; as a result , income from operations from the reacquired stores is now included in our corporate-owned stores segment . we continue to employ our other segment strategy to increase interest in our product in markets we have not otherwise entered with corporate-owned stores . income from operations also includes general corporate expenses . general corporate expenses increased $ 18.7 million , or 32 % , to $ 77.4 million in fiscal 2011 from $ 58.7 million in fiscal 2010. this increase was 33 primarily due to an increase in expenses related to our head office growth of $ 14.8 million , which was largely related to the growth of our information technology and human resources departments to support the growth of our business . income from operations also increased as a result of increased stock-based compensation expense of $ 2.2 million , an increase in foreign exchange losses of $ 1.2 million , and increased depreciation and amortization expense of $ 0.5 million . the increase was partially offset by a decreased provision for impairment and lease exit costs of $ 1.8 million . general corporate expenses are expected to continue to increase in future years as we grow our overall business and require increased efforts at our head office to support our corporate-owned stores , franchises and other segments . other income ( expense ) , net other income ( expense ) , net decreased $ 0.4 million , to $ 2.5 million in fiscal 2011 from $ 2.9 million in fiscal 2010. the decrease was primarily a result of re-measuring our 13 percent non-controlling equity investment in australia immediately prior to obtaining control of the business , which led to a $ 1.8 million gain on investment in fiscal 2010. this was offset by increased interest income earned in fiscal 2011 compared to fiscal 2010 on our increased cash balances . provision for income taxes provision for income taxes increased $ 43.4 million , or 71 % , to $ 104.5 million in fiscal 2011 from $ 61.1 million in fiscal 2010. in fiscal 2011 , our effective tax rate was 36.1 % compared to 33.3 % in fiscal 2010. the higher effective tax rate was due to the proportional increase of taxable income in the united states in fiscal 2011 compared to taxable income in canada which is taxed at a rate lower than the us statutory rate combined with the declining canadian corporate tax rate . we expect this trend to continue as we expect to generate a higher proportion of our future taxable income in the united states . we have not recorded deferred taxes on undistributed earnings and other temporary differences of our canadian subsidiary which are considered to be indefinitely reinvested . if management 's intentions with respect to these undistributed earnings and other temporary differences were to change in the future , deferred taxes may need to be provided that could materially impact our financial results . net income net income increased $ 62.2 million , or 51 % , to $ 184.1 million in fiscal 2011 from $ 121.8 million in fiscal 2010. the increase in net income in fiscal 2011 was primarily due to a $ 174.3 million increase in gross profit resulting from sales growth at existing and additional corporate-owned stores opened during fiscal 2011 and increasing traffic on our e-commerce website , offset by an increase of $ 67.8 million in selling , general and administrative expenses , including provision for impairment and lease exit costs , an increase of $ 43.4 million in provision for income taxes , and a $ 0.4 million decrease in other income ( expense ) , net . comparison of fiscal 2010 to fiscal 2009 net revenue net revenue increased $ 258.8 million , or 57 % , to $ 711.7 million in fiscal 2010 from $ 452.9 million in fiscal 2009. assuming the average exchange rate between the canadian and united states dollars in fiscal 2009 remained constant , our net revenue would have increased
| cash flows the following table summarizes , for the periods indicated , cash flows from operating , investing and financing activities : replace_table_token_31_th our cash , cash equivalents and marketable securities at december 31 , 2016 and 2015 were $ 350.8 million and $ 329.8 million , respectively . we assess our liquidity in terms of our ability to generate cash to fund our operating , investing and financing activities , whereby our principal source of liquidity is operating cash flows . excess operating cash is primarily used to fund acquisitions to advance the strategic growth of the company , as well as continue our cash management program to generate returns on our cash and cash equivalents through investing in marketable securities , which include municipal bonds , corporate debt securities , commercial paper , securities of u.s. government-sponsored agencies and asset-backed securities . our overall cash position reflects our strong business results and a cash management strategy that takes into account liquidity , economic factors and tax considerations . we believe our future operating cash flows will be sufficient to meet our future operating cash needs . see “ liquidity and capital resources ” below for further discussion of cash flow results . cash provided by operating activities the increase in net cash provided by operating activities for the year ended december 31 , 2016 was due primarily to the recovery of the restricted cash related to the depuy synthes settlement , coupled with lower working capital and lower year-over-year income tax payments .
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we believe our vertical retail strategy allows us to interact more directly with and gain insights from our customers while providing us with greater control of our brand . in fiscal 2011 , 43 % of our net revenue was derived from sales of our products in canada , 53 % of our net revenue was derived from the sales of our products in the united states and 4 % of our net revenue was derived from sales of our products outside of north america . in fiscal 2010 , 52 % of our net revenue was derived from sales of our products in canada , 46 % of our net revenue was derived from the sales of our products in the united states and 2 % of our net revenue was derived from sales of our products outside of north america . in fiscal 2009 , 60 % of our net revenue was derived from sales of our products in canada , 40 % of our net revenue was derived from the sales of our products in the united states and an immaterial amount of our net revenue was derived from sales of our products outside of north america . our net revenue increased from $ 711.7 million in fiscal 2010 to $ 1,000.8 million in fiscal 2011 , representing a 41 % increase . our increase in net revenue from fiscal 2010 to fiscal 2011 resulted from the net addition of 41 retail locations , including our remaining four reacquired franchises , and comparable store sales growth of 22 % in fiscal 2011. our ability to open new stores and grow sales in existing stores has been driven by increasing demand for our technical athletic apparel and a growing recognition of the lululemon athletica brand . we believe our superior products , strategic store locations , inviting store environment , grassroots marketing approach and distinctive corporate culture are responsible for our strong financial performance . we have three reportable segments : corporate-owned stores , direct to consumer and other . we report our segments based on the financial information we use in managing our businesses . while we receive financial information for each corporate-owned store , we have aggregated all of the corporate-owned stores into one reportable segment due to the similarities in the economic and other characteristics of these stores . our direct to consumer segment accounted for 11 % of our net revenue in fiscal 2011 , 8 % in fiscal 2010 and 4 % in fiscal 2009. our other segment , consisting of franchise sales , wholesale accounts , sales from company-operated showrooms , warehouse sales and outlets , each accounted for less than 10 % of our net revenue in each of fiscal 2011 , fiscal 2010 and fiscal 2009. we previously reported our franchise channel as an operating segment ; however , we reacquired our remaining four franchised stores in fiscal 2011 and opening new franchise stores is not part of our growth strategy . as of january 29 , 2012 , we sold our products through 174 corporate-owned stores located in canada , the united states , australia , and new zealand . we plan to increase our net revenue in north america and australia by opening additional corporate-owned stores in new and existing markets . corporate-owned stores accounted for 82 % of total net revenue in fiscal 2011 , 83 % of total net revenue in fiscal 2010 and 87 % of total net revenue in fiscal 2009. as of january 29 , 2012 , our direct to consumer segment included our e-commerce website . e-commerce sales are taken directly from retail customers through www.lululemon.com . our direct to consumer segment is an increasingly substantial part of our growth strategy , and now represents more than 10 % of our net revenue . in addition to deriving revenue from sales through our corporate-owned stores and direct to consumer , we also derive other net revenue , which includes wholesale customers , as well as franchise sales , warehouse sales and sales through a number of company-operated showrooms . wholesale customers include select premium yoga studios , health clubs and fitness centers . we reacquired our four remaining franchise stores during fiscal 2011 , 26 and as such , franchise sales , which included inventory sales and royalties , will no longer be a part of our other net revenue in future fiscal years . warehouse sales are typically held one or more times a year to sell slow moving inventory or inventory from prior seasons to retail customers at discounted prices . our showrooms are typically small locations that we open from time to time when we enter new markets and feature a limited selection of our product offering during select hours . other net revenue accounted for 7 % of total revenue in fiscal 2011 , 9 % of total net revenue in fiscal 2010 and 9 % of total net revenue in fiscal 2009. we believe that our athletic apparel has and will continue to appeal to consumers outside of north america who value its technical attributes as well as its function and style . in 2004 , we opened our first store in australia which was operated under a franchise license . in fiscal 2009 we made a 13 % equity investment in lululemon athletica australia pty , our franchise operator . during fiscal 2010 we increased our investment to 80 % which has provided us control over lululemon athletica australia pty . in fiscal 2008 , we opened a company-operated showroom in hong kong . in the past , we have entered into franchise agreements to distribute lululemon athletica branded products to more quickly disseminate our brand name and increase our net revenue and net income . story_separator_special_tag net income from our corporate-owned stores segment increased $ 91.0 million , or 44 % , to $ 299.0 million for fiscal 2011 from $ 208.0 million for fiscal 2010 primarily due to an increase of $ 137.2 million in gross profit , which was offset partially by a natural increase in selling , general and administrative expenses related to employee costs as well as operating expenses associated with new stores and net revenue growth at existing stores . income from operations as a percentage of corporate-owned stores revenue increased by 140 basis points primarily from leverage gained over fixed costs . direct to consumer . net income from our direct to consumer segment increased $ 30.2 million , or 215 % , to $ 44.2 million in fiscal 2011 from $ 14.0 million in fiscal 2010 due to increasing traffic and conversion rates on our e-commerce website . income from operations as a percentage of direct to consumer revenue increased by 1710 basis points in fiscal 2011 compared to fiscal 2010 due to decreased professional fees paid as our e-commerce operations were brought in-house near the beginning of fiscal 2011. we discontinued our phone sales channel during fiscal 2011 , and therefore our direct to consumer segment will only include e-commerce sales in future fiscal years . other . net income from our other segment increased $ 4.2 million , or 24 % , to $ 21.2 million in fiscal 2011 from $ 17.1 million in fiscal 2010. this increase was primarily the result of temporary locations open in the fourth quarter of fiscal 2011 and additional warehouse sales held during the fourth quarter of fiscal 2011 compared to fiscal 2010. this increase was also a result of increased income from strategic sales , showrooms and outlets , partially offset by decreased income from our franchise operating channel . we reacquired our four remaining franchised locations during the third quarter of fiscal 2011 ; as a result , income from operations from the reacquired stores is now included in our corporate-owned stores segment . we continue to employ our other segment strategy to increase interest in our product in markets we have not otherwise entered with corporate-owned stores . income from operations also includes general corporate expenses . general corporate expenses increased $ 18.7 million , or 32 % , to $ 77.4 million in fiscal 2011 from $ 58.7 million in fiscal 2010. this increase was 33 primarily due to an increase in expenses related to our head office growth of $ 14.8 million , which was largely related to the growth of our information technology and human resources departments to support the growth of our business . income from operations also increased as a result of increased stock-based compensation expense of $ 2.2 million , an increase in foreign exchange losses of $ 1.2 million , and increased depreciation and amortization expense of $ 0.5 million . the increase was partially offset by a decreased provision for impairment and lease exit costs of $ 1.8 million . general corporate expenses are expected to continue to increase in future years as we grow our overall business and require increased efforts at our head office to support our corporate-owned stores , franchises and other segments . other income ( expense ) , net other income ( expense ) , net decreased $ 0.4 million , to $ 2.5 million in fiscal 2011 from $ 2.9 million in fiscal 2010. the decrease was primarily a result of re-measuring our 13 percent non-controlling equity investment in australia immediately prior to obtaining control of the business , which led to a $ 1.8 million gain on investment in fiscal 2010. this was offset by increased interest income earned in fiscal 2011 compared to fiscal 2010 on our increased cash balances . provision for income taxes provision for income taxes increased $ 43.4 million , or 71 % , to $ 104.5 million in fiscal 2011 from $ 61.1 million in fiscal 2010. in fiscal 2011 , our effective tax rate was 36.1 % compared to 33.3 % in fiscal 2010. the higher effective tax rate was due to the proportional increase of taxable income in the united states in fiscal 2011 compared to taxable income in canada which is taxed at a rate lower than the us statutory rate combined with the declining canadian corporate tax rate . we expect this trend to continue as we expect to generate a higher proportion of our future taxable income in the united states . we have not recorded deferred taxes on undistributed earnings and other temporary differences of our canadian subsidiary which are considered to be indefinitely reinvested . if management 's intentions with respect to these undistributed earnings and other temporary differences were to change in the future , deferred taxes may need to be provided that could materially impact our financial results . net income net income increased $ 62.2 million , or 51 % , to $ 184.1 million in fiscal 2011 from $ 121.8 million in fiscal 2010. the increase in net income in fiscal 2011 was primarily due to a $ 174.3 million increase in gross profit resulting from sales growth at existing and additional corporate-owned stores opened during fiscal 2011 and increasing traffic on our e-commerce website , offset by an increase of $ 67.8 million in selling , general and administrative expenses , including provision for impairment and lease exit costs , an increase of $ 43.4 million in provision for income taxes , and a $ 0.4 million decrease in other income ( expense ) , net . comparison of fiscal 2010 to fiscal 2009 net revenue net revenue increased $ 258.8 million , or 57 % , to $ 711.7 million in fiscal 2010 from $ 452.9 million in fiscal 2009. assuming the average exchange rate between the canadian and united states dollars in fiscal 2009 remained constant , our net revenue would have increased
| liquidity and capital resources our primary sources of liquidity are our current balances of cash and cash equivalents , cash flows from operations and borrowings available under our revolving credit facility . our primary cash needs are capital expenditures for opening new stores and remodeling existing stores , making information technology system enhancements and funding working capital requirements . cash and cash equivalents in excess of our needs are held in interest bearing accounts with financial institutions . as of january 29 , 2012 , our working capital ( excluding cash and cash equivalents ) was $ 3.6 million and our cash and cash equivalents were $ 409.4 million . the following table summarizes our net cash flows provided by and used in operating , investing and financing activities for the periods indicated : replace_table_token_14_th operating activities operating activities consist primarily of net income adjusted for certain non-cash items , including depreciation and amortization , deferred income taxes , realized gains and losses on disposal of property and equipment , stock-based compensation expense and the effect of the changes in non-cash working capital items , principally accounts receivable , inventories , accounts payable and accrued expenses . in fiscal 2011 , cash provided by operating activities increased $ 23.6 million , to $ 203.6 million compared to cash provided by operating activities of $ 180.0 million in fiscal 2010. the increase was primarily a result of increased net income , an increase in items not affecting cash , and an increase in accrued liabilities , offset by increased inventory purchases . the net increase in items not affecting cash was primarily due to an increase in depreciation and amortization related to our increased store base , and an increase in stock-based compensation . the increase in accrued liabilities was primarily a result of increased sales tax collected as a result of our increased sales . depreciation and amortization relate almost entirely to leasehold improvements , furniture and fixtures , computer hardware and software , equipment and vehicles in our stores and other corporate buildings .
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in addition , our private equity segment includes ( a ) our core private equity fund , blackstone core equity partners ( “ bcep ” ) , 74 ( b ) our opportunistic investment platform that invests globally across asset classes , industries and geographies , blackstone tactical opportunities ( “ tactical opportunities ” ) , ( c ) our secondary fund of funds business , strategic partners fund solutions ( “ strategic partners ” ) , ( d ) our infrastructure-focused funds , blackstone infrastructure partners ( “ bip ” ) , ( e ) our life sciences private investment platform , blackstone life sciences ( “ bxls ” ) , ( f ) a multi-asset investment program for eligible high net worth investors offering exposure to certain of blackstone 's key illiquid investment strategies through a single commitment , blackstone total alternatives solution ( “ btas ” ) and ( g ) our capital markets services business , blackstone capital markets ( “ bxcm ” ) . we are a world leader in private equity investing . our corporate private equity business , established in 1987 , pursues transactions across industries in both established and growth-oriented businesses across the globe . it strives to create value by investing in great businesses where our capital , strategic insight , global relationships and operational support can drive transformation . our core private equity fund targets control-oriented investments in high-quality companies with durable businesses and seeks to offer a lower level of risk and a longer hold period than traditional private equity . tactical opportunities invests globally across asset classes , industries and geographies , seeking to identify and execute on attractive , differentiated investment opportunities , leveraging the intellectual capital across our various businesses while continuously optimizing its approach in the face of ever-changing market conditions . strategic partners is a total fund solutions provider that acquires interests in high-quality private funds from original holders seeking liquidity , makes primary investments and co-investments with financial sponsors and provides investment advisory services to clients investing in primary and secondary investments in private funds and co-investments . bip focuses on investments across all infrastructure sectors , including energy , water and waste and communications . bxls is our private investment platform with capabilities to invest across the life cycle of companies and products within the life sciences sector . hedge fund solutions . the principal component of our hedge fund solutions segment is blackstone alternative asset management ( “ baam ” ) . baam is the world 's largest discretionary allocator to hedge funds , managing a broad range of commingled and customized fund solutions since its inception in 1990. the hedge fund solutions segment also includes investment platforms that seed new hedge fund businesses , purchase minority interests in more established general partners and management companies of funds , invest in special situation opportunities , create alternative solutions in the form of daily liquidity products and invest directly . credit . the principal component of our credit segment is gso capital partners ( “ gso ” ) . gso is one of the largest credit-oriented managers in the world and is the largest manager of collateralized loan obligations ( “ clos ” ) globally . the investment portfolios of the funds gso manages or sub-advises predominantly consist of loans and securities of non-investment grade companies spread across the capital structure including senior debt , subordinated debt , preferred stock and common equity . gso is organized into three overarching strategies : performing credit , distressed and long only . gso 's performing credit strategies include mezzanine lending funds , middle market direct lending funds , including our business development company ( “ bdc ” ) and other performing credit strategy funds . gso 's distressed strategies include credit alpha strategies , stressed/distressed funds and energy strategies . gso 's long only strategies consist of clos , closed-ended funds , open-ended funds and separately managed accounts . in addition , our credit segment includes our publicly traded master limited partnership ( “ mlp ” ) investment platform , which is managed by harvest . harvest primarily invests capital raised from institutional investors in separately managed accounts and pooled vehicles , investing in publicly traded mlps holding primarily midstream energy assets in the u.s. 75 our insurer-focused platform , bis , also a part of our credit segment , partners with insurers to deliver customized and diversified portfolios of blackstone products across asset classes , including the option for full management of insurance companies ' investment portfolios . we generate revenue from fees earned pursuant to contractual arrangements with funds , fund investors and fund portfolio companies ( including management , transaction and monitoring fees ) , and from capital markets services . we also invest in the funds we manage and we are entitled to a pro-rata share of the results of the fund ( a “ pro-rata allocation ” ) . in addition to a pro-rata allocation , and assuming certain investment returns are achieved , we are entitled to a disproportionate allocation of the income otherwise allocable to the limited partners , commonly referred to as carried interest ( “ performance allocations ” ) . in certain structures , we receive a contractual incentive fee from an investment fund in the event that specified cumulative investment returns are achieved ( an “ incentive fee ” , and together with performance allocations , “ performance revenues ” ) . the composition of our revenues will vary based on market conditions and the cyclicality of the different businesses in which we operate . net investment gains and investment income generated by the blackstone funds are driven by value created by our operating and strategic initiatives as well as overall market conditions . story_separator_special_tag perpetual capital refers to the component of assets under management with an indefinite term , that is not in liquidation , and for which there is no requirement to return capital to investors through redemption requests in the ordinary course of business , except where funded by new capital inflows . perpetual capital includes co-investment capital with an investor right to convert into perpetual capital . dry powder . dry powder represents the amount of capital available for investment or reinvestment , including general partner and employee capital , and is an indicator of the capital we have available for future investments . performance revenue eligible assets under management . performance revenue eligible assets under management represents invested and to be invested capital at fair value , including capital closed for funds whose investment period has not yet commenced , on which performance revenues could be earned if certain hurdles are met . income tax current developments prior to the conversion , certain of our share of investment income and carried interest was not subject to u.s. corporate income taxes . subsequent to the conversion , all income earned by us is subject to u.s. corporate income taxes , which we believe will result in an overall higher income tax expense ( or benefit ) over time when compared to periods prior to the conversion . congress , the organization for economic co-operation and development ( “ oecd ” ) and other government agencies in jurisdictions in which we and our affiliates invest or do business have maintained a focus on issues related to the taxation of multinational companies . the oecd , which represents a coalition of member countries , is contemplating changes to numerous long-standing tax principles through its base erosion and profit shifting ( “ beps ” ) project , which is focused on a number of issues , including the shifting of profits between affiliated entities in different tax jurisdictions , interest deductibility and eligibility for the benefits of double tax treaties . several of 81 the proposed measures are potentially relevant to some of our structures and could have an adverse tax impact on our funds , investors and or our portfolio companies . some member countries have been moving forward on the beps agenda but , because timing of implementation and the specific measures adopted will vary among participating states , significant uncertainty remains regarding the impact of beps proposals . if implemented , these proposals could result in a loss of tax treaty benefits and increased taxes on income from our investments . a number of european jurisdictions have enacted taxes on financial transactions , and the european commission has proposed legislation to harmonize these taxes under the so-called “ enhanced cooperation procedure , ” which provides for adoption of eu-level legislation applicable to some but not all eu member states . these contemplated changes , if adopted by individual countries , could increase tax uncertainty and or costs faced by us , our funds ' portfolio companies and our investors , change our business model and cause other adverse consequences . the timing or impact of these proposals is unclear at this point . in addition , tax laws , regulations and interpretations are subject to continual changes , which could adversely affect our structures or returns to our investors . for instance , various countries have adopted or proposed tax legislation that may adversely affect portfolio companies and investment structures in countries in which our funds have invested and may limit the benefits of additional investments in those countries . consolidated results of operations following is a discussion of our consolidated results of operations for each of the years in the three-year period ended december 31 , 2019. for a more detailed discussion of the factors that affected the results of our four business segments ( which are presented on a basis that deconsolidates the investment funds we manage ) in these periods , see “ — segment analysis ” below . 82 the following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_5_th n/m not meaningful . 83 year ended december 31 , 2019 compared to year ended december 31 , 2018 revenues revenues were $ 7.3 billion for the year ended december 31 , 2019 , an increase of $ 505.0 million compared to $ 6.8 billion for the year ended december 31 , 2018. the increase in revenues was primarily attributable to increases of $ 570.2 million in investment income , $ 444.4 million in management and advisory fees , net and $ 72.4 million in incentive fees , partially offset by a decrease of $ 592.3 million in other revenue . the increase in investment income was primarily attributable to increases in our real estate , credit and hedge fund solutions segments of $ 1.0 billion , $ 173.4 million and $ 53.7 million , respectively , partially offset by a decrease in our private equity segment of $ 632.8 million . the increase in our real estate segment was primarily attributable to higher net appreciation of investment holdings in our brep opportunistic funds . the carrying value of investments for our brep opportunistic funds increased 17.6 % for the year ended december 31 , 2019 compared to 9.8 % for the year ended december 31 , 2018. the increase in our credit segment was primarily attributable to higher returns in 2019 than in 2018 due to the negative impact of decreases in certain public positions and the volatility in the energy and credit markets in 2018. the increase in our hedge fund solutions segment was primarily driven by higher net appreciation of investments of which blackstone owns a share . the decrease in our private equity segment was primarily due to lower appreciation in corporate private equity . corporate private equity carrying value increased 9.3 %
| liquidity and capital resources our primary sources of liquidity are our current balances of cash and cash equivalents , cash flows from operations and borrowings available under our revolving credit facility . our primary cash needs are capital expenditures for opening new stores and remodeling existing stores , making information technology system enhancements and funding working capital requirements . cash and cash equivalents in excess of our needs are held in interest bearing accounts with financial institutions . as of january 29 , 2012 , our working capital ( excluding cash and cash equivalents ) was $ 3.6 million and our cash and cash equivalents were $ 409.4 million . the following table summarizes our net cash flows provided by and used in operating , investing and financing activities for the periods indicated : replace_table_token_14_th operating activities operating activities consist primarily of net income adjusted for certain non-cash items , including depreciation and amortization , deferred income taxes , realized gains and losses on disposal of property and equipment , stock-based compensation expense and the effect of the changes in non-cash working capital items , principally accounts receivable , inventories , accounts payable and accrued expenses . in fiscal 2011 , cash provided by operating activities increased $ 23.6 million , to $ 203.6 million compared to cash provided by operating activities of $ 180.0 million in fiscal 2010. the increase was primarily a result of increased net income , an increase in items not affecting cash , and an increase in accrued liabilities , offset by increased inventory purchases . the net increase in items not affecting cash was primarily due to an increase in depreciation and amortization related to our increased store base , and an increase in stock-based compensation . the increase in accrued liabilities was primarily a result of increased sales tax collected as a result of our increased sales . depreciation and amortization relate almost entirely to leasehold improvements , furniture and fixtures , computer hardware and software , equipment and vehicles in our stores and other corporate buildings .
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in addition , our private equity segment includes ( a ) our core private equity fund , blackstone core equity partners ( “ bcep ” ) , 74 ( b ) our opportunistic investment platform that invests globally across asset classes , industries and geographies , blackstone tactical opportunities ( “ tactical opportunities ” ) , ( c ) our secondary fund of funds business , strategic partners fund solutions ( “ strategic partners ” ) , ( d ) our infrastructure-focused funds , blackstone infrastructure partners ( “ bip ” ) , ( e ) our life sciences private investment platform , blackstone life sciences ( “ bxls ” ) , ( f ) a multi-asset investment program for eligible high net worth investors offering exposure to certain of blackstone 's key illiquid investment strategies through a single commitment , blackstone total alternatives solution ( “ btas ” ) and ( g ) our capital markets services business , blackstone capital markets ( “ bxcm ” ) . we are a world leader in private equity investing . our corporate private equity business , established in 1987 , pursues transactions across industries in both established and growth-oriented businesses across the globe . it strives to create value by investing in great businesses where our capital , strategic insight , global relationships and operational support can drive transformation . our core private equity fund targets control-oriented investments in high-quality companies with durable businesses and seeks to offer a lower level of risk and a longer hold period than traditional private equity . tactical opportunities invests globally across asset classes , industries and geographies , seeking to identify and execute on attractive , differentiated investment opportunities , leveraging the intellectual capital across our various businesses while continuously optimizing its approach in the face of ever-changing market conditions . strategic partners is a total fund solutions provider that acquires interests in high-quality private funds from original holders seeking liquidity , makes primary investments and co-investments with financial sponsors and provides investment advisory services to clients investing in primary and secondary investments in private funds and co-investments . bip focuses on investments across all infrastructure sectors , including energy , water and waste and communications . bxls is our private investment platform with capabilities to invest across the life cycle of companies and products within the life sciences sector . hedge fund solutions . the principal component of our hedge fund solutions segment is blackstone alternative asset management ( “ baam ” ) . baam is the world 's largest discretionary allocator to hedge funds , managing a broad range of commingled and customized fund solutions since its inception in 1990. the hedge fund solutions segment also includes investment platforms that seed new hedge fund businesses , purchase minority interests in more established general partners and management companies of funds , invest in special situation opportunities , create alternative solutions in the form of daily liquidity products and invest directly . credit . the principal component of our credit segment is gso capital partners ( “ gso ” ) . gso is one of the largest credit-oriented managers in the world and is the largest manager of collateralized loan obligations ( “ clos ” ) globally . the investment portfolios of the funds gso manages or sub-advises predominantly consist of loans and securities of non-investment grade companies spread across the capital structure including senior debt , subordinated debt , preferred stock and common equity . gso is organized into three overarching strategies : performing credit , distressed and long only . gso 's performing credit strategies include mezzanine lending funds , middle market direct lending funds , including our business development company ( “ bdc ” ) and other performing credit strategy funds . gso 's distressed strategies include credit alpha strategies , stressed/distressed funds and energy strategies . gso 's long only strategies consist of clos , closed-ended funds , open-ended funds and separately managed accounts . in addition , our credit segment includes our publicly traded master limited partnership ( “ mlp ” ) investment platform , which is managed by harvest . harvest primarily invests capital raised from institutional investors in separately managed accounts and pooled vehicles , investing in publicly traded mlps holding primarily midstream energy assets in the u.s. 75 our insurer-focused platform , bis , also a part of our credit segment , partners with insurers to deliver customized and diversified portfolios of blackstone products across asset classes , including the option for full management of insurance companies ' investment portfolios . we generate revenue from fees earned pursuant to contractual arrangements with funds , fund investors and fund portfolio companies ( including management , transaction and monitoring fees ) , and from capital markets services . we also invest in the funds we manage and we are entitled to a pro-rata share of the results of the fund ( a “ pro-rata allocation ” ) . in addition to a pro-rata allocation , and assuming certain investment returns are achieved , we are entitled to a disproportionate allocation of the income otherwise allocable to the limited partners , commonly referred to as carried interest ( “ performance allocations ” ) . in certain structures , we receive a contractual incentive fee from an investment fund in the event that specified cumulative investment returns are achieved ( an “ incentive fee ” , and together with performance allocations , “ performance revenues ” ) . the composition of our revenues will vary based on market conditions and the cyclicality of the different businesses in which we operate . net investment gains and investment income generated by the blackstone funds are driven by value created by our operating and strategic initiatives as well as overall market conditions . story_separator_special_tag perpetual capital refers to the component of assets under management with an indefinite term , that is not in liquidation , and for which there is no requirement to return capital to investors through redemption requests in the ordinary course of business , except where funded by new capital inflows . perpetual capital includes co-investment capital with an investor right to convert into perpetual capital . dry powder . dry powder represents the amount of capital available for investment or reinvestment , including general partner and employee capital , and is an indicator of the capital we have available for future investments . performance revenue eligible assets under management . performance revenue eligible assets under management represents invested and to be invested capital at fair value , including capital closed for funds whose investment period has not yet commenced , on which performance revenues could be earned if certain hurdles are met . income tax current developments prior to the conversion , certain of our share of investment income and carried interest was not subject to u.s. corporate income taxes . subsequent to the conversion , all income earned by us is subject to u.s. corporate income taxes , which we believe will result in an overall higher income tax expense ( or benefit ) over time when compared to periods prior to the conversion . congress , the organization for economic co-operation and development ( “ oecd ” ) and other government agencies in jurisdictions in which we and our affiliates invest or do business have maintained a focus on issues related to the taxation of multinational companies . the oecd , which represents a coalition of member countries , is contemplating changes to numerous long-standing tax principles through its base erosion and profit shifting ( “ beps ” ) project , which is focused on a number of issues , including the shifting of profits between affiliated entities in different tax jurisdictions , interest deductibility and eligibility for the benefits of double tax treaties . several of 81 the proposed measures are potentially relevant to some of our structures and could have an adverse tax impact on our funds , investors and or our portfolio companies . some member countries have been moving forward on the beps agenda but , because timing of implementation and the specific measures adopted will vary among participating states , significant uncertainty remains regarding the impact of beps proposals . if implemented , these proposals could result in a loss of tax treaty benefits and increased taxes on income from our investments . a number of european jurisdictions have enacted taxes on financial transactions , and the european commission has proposed legislation to harmonize these taxes under the so-called “ enhanced cooperation procedure , ” which provides for adoption of eu-level legislation applicable to some but not all eu member states . these contemplated changes , if adopted by individual countries , could increase tax uncertainty and or costs faced by us , our funds ' portfolio companies and our investors , change our business model and cause other adverse consequences . the timing or impact of these proposals is unclear at this point . in addition , tax laws , regulations and interpretations are subject to continual changes , which could adversely affect our structures or returns to our investors . for instance , various countries have adopted or proposed tax legislation that may adversely affect portfolio companies and investment structures in countries in which our funds have invested and may limit the benefits of additional investments in those countries . consolidated results of operations following is a discussion of our consolidated results of operations for each of the years in the three-year period ended december 31 , 2019. for a more detailed discussion of the factors that affected the results of our four business segments ( which are presented on a basis that deconsolidates the investment funds we manage ) in these periods , see “ — segment analysis ” below . 82 the following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_5_th n/m not meaningful . 83 year ended december 31 , 2019 compared to year ended december 31 , 2018 revenues revenues were $ 7.3 billion for the year ended december 31 , 2019 , an increase of $ 505.0 million compared to $ 6.8 billion for the year ended december 31 , 2018. the increase in revenues was primarily attributable to increases of $ 570.2 million in investment income , $ 444.4 million in management and advisory fees , net and $ 72.4 million in incentive fees , partially offset by a decrease of $ 592.3 million in other revenue . the increase in investment income was primarily attributable to increases in our real estate , credit and hedge fund solutions segments of $ 1.0 billion , $ 173.4 million and $ 53.7 million , respectively , partially offset by a decrease in our private equity segment of $ 632.8 million . the increase in our real estate segment was primarily attributable to higher net appreciation of investment holdings in our brep opportunistic funds . the carrying value of investments for our brep opportunistic funds increased 17.6 % for the year ended december 31 , 2019 compared to 9.8 % for the year ended december 31 , 2018. the increase in our credit segment was primarily attributable to higher returns in 2019 than in 2018 due to the negative impact of decreases in certain public positions and the volatility in the energy and credit markets in 2018. the increase in our hedge fund solutions segment was primarily driven by higher net appreciation of investments of which blackstone owns a share . the decrease in our private equity segment was primarily due to lower appreciation in corporate private equity . corporate private equity carrying value increased 9.3 %
| liquidity and capital resources general blackstone 's business model derives revenue primarily from third party assets under management . blackstone is not a capital or balance sheet intensive business and targets operating expense levels such that total management and advisory fees exceed total operating expenses each period . as a result , we require limited capital resources to support the working capital or operating needs of our businesses . we draw primarily on the long-term committed capital of our limited partner investors to fund the investment requirements of the blackstone funds and use our own realizations and cash flows to invest in growth initiatives , make commitments to our own funds , where our minimum general partner commitments are generally less than 5 % of the limited partner commitments of a fund , and pay dividends to shareholders . fluctuations in our statement of financial condition result primarily from activities of the blackstone funds that are consolidated as well as business transactions , such as the issuance of senior notes described below . the majority economic ownership interests of the blackstone funds are reflected as redeemable non-controlling interests in consolidated entities , and non-controlling interests in consolidated entities in the consolidated financial statements . the consolidation of these blackstone funds has no net effect on blackstone 's net income or partners ' capital . additionally , fluctuations in our statement of financial condition also include appreciation or depreciation in blackstone investments in the blackstone funds , additional investments and redemptions of such interests in the blackstone funds and the collection of receivables related to management and advisory fees . total assets were $ 32.6 billion as of december 31 , 2019 , an increase of $ 3.7 billion , or 13 % , from december 31 , 2018. the increase in total assets was principally due to an increase of $ 3.6 billion in total assets attributable to the consolidated operating partnerships .
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in addition , future economic conditions in europe are expected to be generally weaker in 2012 due to sovereign debt issues and other macroeconomic drivers . this weakness may affect demand for our products in the region although the magnitude of these effects is difficult to estimate at this time . factors that could adversely affect our future financial performance are described under the heading risk factors in item 1a . 21 results of operations comparison of the years ended december 31 , 2011 and 2010 replace_table_token_4_th net sales increased by 2.6 % in the year ended december 31 , 2011 , compared with the prior year . changes in product prices and mix , together with changes in foreign currency exchange rates , were the primary drivers of the increased sales . increased sales of precious metals , driven by higher prices for silver , also contributed to the overall sales growth . lower sales volume had a negative effect on sales , particularly in the electronic materials segment . the lower sales volume also was the result of decisions we made in 2010 to exit certain markets served by the color and glass performance materials and electronic materials segments . for the year , changes in product prices and mix accounted for approximately 10 percentage points of sales growth , and changes in foreign currency exchange rates contributed an additional 2 percentage points to higher sales . lower sales volume reduced sales by 9 percentage points . higher precious metal prices contributed approximately 1 percentage point to the overall sales increase during the year , including effects from changes in volume and prices of the precious metals . gross profit declined during 2011 primarily as a result of reduced sales volume of conductive pastes used in solar cell applications . in addition , increased raw material costs and product mix changes combined to reduce gross profit or to limit the growth in gross profit in certain business segments where sales increased . in aggregate , raw material costs increased by approximately $ 113 million during 2011 and these increased costs were offset by increased product prices . gross profit percentage declined to 19.2 % of net sales from 21.8 % of net sales in the prior-year period . charges that were primarily related to residual costs at closed manufacturing sites involved in earlier restructuring initiatives reduced gross profit by $ 4.8 million during 2011. gross profit was reduced by charges of $ 9.0 million during 2010 , primarily due to costs related to manufacturing rationalization activities . selling , general and administrative ( sg & a ) expenses were slightly higher in 2011 compared with 2010. sg & a expense declined to 13.7 % of net sales during the year , down from 14.0 % of net sales in 2010. sg & a expenses increased as a result of an initiative to streamline and standardize business processes and improve 22 management information systems tools , increased sg & a expense in our non-u.s. operations resulting from changes in foreign currency exchange rates and added expense due to annual salary increases . partially offsetting these sg & a expense increases were reduced incentive compensation expense , lower special charges and lower pension expense . sg & a expenses during 2011 included charges of $ 4.1 million that were primarily related to expenses at sites that were closed during earlier restructuring initiatives . in 2010 , sg & a expense included $ 18.1 million in charges , primarily related to manufacturing rationalization projects , employee severance and corporate development activities . restructuring and impairment charges were $ 17.0 million , down from $ 63.7 million in 2010. the lower charges reflected the winding down of our multi-year manufacturing rationalization activities . included in restructuring and impairment charges during 2011 were impairment charges of $ 12.1 million resulting from an impairment of goodwill in the performance coatings segment and fixed asset impairment charges related to property , plant and equipment and property held for sale . the impaired property related to sites that were closed due to prior-period restructuring actions , and the impairments reflect ongoing deterioration in commercial real estate markets . interest expense declined by $ 16.2 million during 2011 compared with 2010. lower average borrowing levels , reduced interest rates on borrowings and reduced amortization of debt issuance costs contributed to the decline in interest expense . interest expense in 2010 included nonrecurring charges of $ 2.3 million for a noncash write-off of debt issuance costs related to prepayments of our term loans prior to their scheduled repayment . we recorded losses from extinguishment of debt of $ 23.0 million during 2010 that were related to debt refinancing . the charges included a write-off of unamortized fees and the difference between the carrying value and the fair market value of the portion of our 6.5 % convertible notes purchased pursuant to a tender offer and a write-off of unamortized fees associated with our previous revolving credit facility . the losses on extinguishment of debt were less than $ 0.1 million during 2011. we are exposed to the impact of exchange rate fluctuations on foreign currency positions arising from our international trade . we manage these currency risks principally by entering into forward contracts . the carrying value of the open contracts at each quarter-end are adjusted to fair value and the resulting gains or losses are charged to income or expense during the period , partially offsetting the effects of changes in foreign currency exchange rates on the underlying positions . net miscellaneous expense for 2011 was $ 2.5 million compared with $ 5.8 million in 2010. as part of our miscellaneous expense during 2010 , we recorded a number of nonrecurring charges . the charges included a net pre-tax gain of $ 8.3 million as a result of a business combination related to decoration materials for ceramic and glass products . story_separator_special_tag sales were higher in all regions , with the largest increase in europe-middle east-africa . operating income increased due to a $ 20 million increase in gross profit , primarily driven by improved sales volume and changes in product pricing and mix . partially offsetting the improved gross profit was a $ 10 million increase in sg & a expenses including higher incentive compensation accruals , salaries and benefits , increased commissions and higher information technology expenses . color and glass performance materials segment results . sales increased in color and glass performance materials primarily due to higher sales volume . increased sales volume contributed approximately $ 56 million to 28 the sales growth during 2010. changes in product pricing and mix contributed an additional $ 10 million to the sales growth while changes in foreign currency exchange rates reduced sales by $ 6 million . sales growth was recorded in europe-middle east-africa , the united states and asia-pacific . operating income increased due to a $ 24 million increase in gross profit that was primarily driven by increased sales volume . the increase in gross profit was partially offset by a $ 6 million increase in sg & a expenses . polymer additives segment results . sales increased in polymer additives as a result of higher sales volume and changes in product pricing and mix . increased sales volume accounted for approximately $ 36 million of the sales growth for the year . changes in product pricing and mix contributed an additional $ 21 million to the growth in sales . changes in foreign currency exchange rates reduced sales by $ 4 million . sales growth was primarily in the united states and europe-middle east-africa . operating profit increased due to a $ 12 million increase in gross profit that was primarily due to increased sales volume and improved manufacturing effectiveness . specialty plastics segment results . sales increased in specialty plastics due to a combination of changes in product pricing and mix , and higher sales volumes . changes in product pricing and mix contributed approximately $ 10 million to the higher sales in 2010. increased sales volumes accounted for an additional $ 6 million of the sales growth , while changes in foreign currency exchange rates reduced sales growth by $ 3 million . sales growth was primarily in the united states . operating income increased due to a reduction of $ 2 million in sg & a expenses , partially offset by a $ 1 million decline in gross profit . pharmaceutical segment results . sales increased in pharmaceuticals as a result of changes in product mix . operating income increased as a result of a $ 2 million increase in gross profit which was partially offset by a $ 1.6 million increase in sg & a expenses . replace_table_token_9_th during 2010 , sales increased in the united states and internationally . sales of products manufactured in the united states were 49 % of total net sales for the year , compared with 46 % of total sales in 2009. sales grew more rapidly in the united states than internationally in 2010 primarily as a result of strong sales of electronic materials products . many of our electronic materials products are manufactured in the united states and exported to other regions . sales recorded in each region include products that are exported to customers located in other regions . the increase in international sales was driven by higher sales in europe-middle east-africa and asia-pacific . summary of cash flows for the years ended december 31 , 2011 , 2010 , and 2009 replace_table_token_10_th 29 operating activities . cash flows from operating activities decreased $ 145.6 million from 2010 to 2011. cash flows declined $ 68.0 million from decreases in accrued expenses , primarily from the payment of 2010 year-end incentive compensation . the return of precious metal deposits provided $ 28.1 million in 2011 and $ 84.3 million in 2010 due to additional credit lines not requiring collateral . adjustments to reconcile net income to cash provided by operating activities include noncash losses on extinguishment of debt , depreciation and amortization , and deferred income taxes , as well as payments toward retirement benefits greater than the expenses recognized . the net positive effects of adjustments for these items declined by $ 27.8 million from 2010 to 2011. partially offsetting these decreases was an improvement of $ 25.1 million in net income as a result of reduced restructuring and impairment charges , reduced losses on extinguishment of debt and lower interest expense . cash flows from operating activities increased $ 196.7 million from 2009 to 2010. cash flows improved $ 196.8 million from decreases in deposit requirements related to our precious metal consignment program , $ 54.1 million from increases in accrued expenses and other current liabilities , $ 47.6 million as a result of a lower net loss in 2010 , and $ 41.8 million from increases in accounts payable . these benefits were partially offset by increases in cash used for inventories of $ 98.9 million , accounts receivable of $ 37.0 million and other receivables and current assets of $ 32.5 million . investing activities . capital expenditures increased $ 28.0 million from 2010 to 2011 and decreased $ 1.5 million from 2009 to 2010. in 2009 and 2010 , we continued capital spending on manufacturing rationalization programs , but we made a concerted effort to defer or scale back new projects in order to conserve cash during a period of reduced customer demand associated with the global economic downturn . in 2011 , our capital spending returned to more normal levels and also included certain deferred projects . in 2011 , we received proceeds of $ 6.4 million from the sale of assets , primarily property , plant and equipment in australia and our former corporate headquarters in cleveland , ohio . in 2010 , we received proceeds of $ 11.4 million
| liquidity and capital resources general blackstone 's business model derives revenue primarily from third party assets under management . blackstone is not a capital or balance sheet intensive business and targets operating expense levels such that total management and advisory fees exceed total operating expenses each period . as a result , we require limited capital resources to support the working capital or operating needs of our businesses . we draw primarily on the long-term committed capital of our limited partner investors to fund the investment requirements of the blackstone funds and use our own realizations and cash flows to invest in growth initiatives , make commitments to our own funds , where our minimum general partner commitments are generally less than 5 % of the limited partner commitments of a fund , and pay dividends to shareholders . fluctuations in our statement of financial condition result primarily from activities of the blackstone funds that are consolidated as well as business transactions , such as the issuance of senior notes described below . the majority economic ownership interests of the blackstone funds are reflected as redeemable non-controlling interests in consolidated entities , and non-controlling interests in consolidated entities in the consolidated financial statements . the consolidation of these blackstone funds has no net effect on blackstone 's net income or partners ' capital . additionally , fluctuations in our statement of financial condition also include appreciation or depreciation in blackstone investments in the blackstone funds , additional investments and redemptions of such interests in the blackstone funds and the collection of receivables related to management and advisory fees . total assets were $ 32.6 billion as of december 31 , 2019 , an increase of $ 3.7 billion , or 13 % , from december 31 , 2018. the increase in total assets was principally due to an increase of $ 3.6 billion in total assets attributable to the consolidated operating partnerships .
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in addition , future economic conditions in europe are expected to be generally weaker in 2012 due to sovereign debt issues and other macroeconomic drivers . this weakness may affect demand for our products in the region although the magnitude of these effects is difficult to estimate at this time . factors that could adversely affect our future financial performance are described under the heading risk factors in item 1a . 21 results of operations comparison of the years ended december 31 , 2011 and 2010 replace_table_token_4_th net sales increased by 2.6 % in the year ended december 31 , 2011 , compared with the prior year . changes in product prices and mix , together with changes in foreign currency exchange rates , were the primary drivers of the increased sales . increased sales of precious metals , driven by higher prices for silver , also contributed to the overall sales growth . lower sales volume had a negative effect on sales , particularly in the electronic materials segment . the lower sales volume also was the result of decisions we made in 2010 to exit certain markets served by the color and glass performance materials and electronic materials segments . for the year , changes in product prices and mix accounted for approximately 10 percentage points of sales growth , and changes in foreign currency exchange rates contributed an additional 2 percentage points to higher sales . lower sales volume reduced sales by 9 percentage points . higher precious metal prices contributed approximately 1 percentage point to the overall sales increase during the year , including effects from changes in volume and prices of the precious metals . gross profit declined during 2011 primarily as a result of reduced sales volume of conductive pastes used in solar cell applications . in addition , increased raw material costs and product mix changes combined to reduce gross profit or to limit the growth in gross profit in certain business segments where sales increased . in aggregate , raw material costs increased by approximately $ 113 million during 2011 and these increased costs were offset by increased product prices . gross profit percentage declined to 19.2 % of net sales from 21.8 % of net sales in the prior-year period . charges that were primarily related to residual costs at closed manufacturing sites involved in earlier restructuring initiatives reduced gross profit by $ 4.8 million during 2011. gross profit was reduced by charges of $ 9.0 million during 2010 , primarily due to costs related to manufacturing rationalization activities . selling , general and administrative ( sg & a ) expenses were slightly higher in 2011 compared with 2010. sg & a expense declined to 13.7 % of net sales during the year , down from 14.0 % of net sales in 2010. sg & a expenses increased as a result of an initiative to streamline and standardize business processes and improve 22 management information systems tools , increased sg & a expense in our non-u.s. operations resulting from changes in foreign currency exchange rates and added expense due to annual salary increases . partially offsetting these sg & a expense increases were reduced incentive compensation expense , lower special charges and lower pension expense . sg & a expenses during 2011 included charges of $ 4.1 million that were primarily related to expenses at sites that were closed during earlier restructuring initiatives . in 2010 , sg & a expense included $ 18.1 million in charges , primarily related to manufacturing rationalization projects , employee severance and corporate development activities . restructuring and impairment charges were $ 17.0 million , down from $ 63.7 million in 2010. the lower charges reflected the winding down of our multi-year manufacturing rationalization activities . included in restructuring and impairment charges during 2011 were impairment charges of $ 12.1 million resulting from an impairment of goodwill in the performance coatings segment and fixed asset impairment charges related to property , plant and equipment and property held for sale . the impaired property related to sites that were closed due to prior-period restructuring actions , and the impairments reflect ongoing deterioration in commercial real estate markets . interest expense declined by $ 16.2 million during 2011 compared with 2010. lower average borrowing levels , reduced interest rates on borrowings and reduced amortization of debt issuance costs contributed to the decline in interest expense . interest expense in 2010 included nonrecurring charges of $ 2.3 million for a noncash write-off of debt issuance costs related to prepayments of our term loans prior to their scheduled repayment . we recorded losses from extinguishment of debt of $ 23.0 million during 2010 that were related to debt refinancing . the charges included a write-off of unamortized fees and the difference between the carrying value and the fair market value of the portion of our 6.5 % convertible notes purchased pursuant to a tender offer and a write-off of unamortized fees associated with our previous revolving credit facility . the losses on extinguishment of debt were less than $ 0.1 million during 2011. we are exposed to the impact of exchange rate fluctuations on foreign currency positions arising from our international trade . we manage these currency risks principally by entering into forward contracts . the carrying value of the open contracts at each quarter-end are adjusted to fair value and the resulting gains or losses are charged to income or expense during the period , partially offsetting the effects of changes in foreign currency exchange rates on the underlying positions . net miscellaneous expense for 2011 was $ 2.5 million compared with $ 5.8 million in 2010. as part of our miscellaneous expense during 2010 , we recorded a number of nonrecurring charges . the charges included a net pre-tax gain of $ 8.3 million as a result of a business combination related to decoration materials for ceramic and glass products . story_separator_special_tag sales were higher in all regions , with the largest increase in europe-middle east-africa . operating income increased due to a $ 20 million increase in gross profit , primarily driven by improved sales volume and changes in product pricing and mix . partially offsetting the improved gross profit was a $ 10 million increase in sg & a expenses including higher incentive compensation accruals , salaries and benefits , increased commissions and higher information technology expenses . color and glass performance materials segment results . sales increased in color and glass performance materials primarily due to higher sales volume . increased sales volume contributed approximately $ 56 million to 28 the sales growth during 2010. changes in product pricing and mix contributed an additional $ 10 million to the sales growth while changes in foreign currency exchange rates reduced sales by $ 6 million . sales growth was recorded in europe-middle east-africa , the united states and asia-pacific . operating income increased due to a $ 24 million increase in gross profit that was primarily driven by increased sales volume . the increase in gross profit was partially offset by a $ 6 million increase in sg & a expenses . polymer additives segment results . sales increased in polymer additives as a result of higher sales volume and changes in product pricing and mix . increased sales volume accounted for approximately $ 36 million of the sales growth for the year . changes in product pricing and mix contributed an additional $ 21 million to the growth in sales . changes in foreign currency exchange rates reduced sales by $ 4 million . sales growth was primarily in the united states and europe-middle east-africa . operating profit increased due to a $ 12 million increase in gross profit that was primarily due to increased sales volume and improved manufacturing effectiveness . specialty plastics segment results . sales increased in specialty plastics due to a combination of changes in product pricing and mix , and higher sales volumes . changes in product pricing and mix contributed approximately $ 10 million to the higher sales in 2010. increased sales volumes accounted for an additional $ 6 million of the sales growth , while changes in foreign currency exchange rates reduced sales growth by $ 3 million . sales growth was primarily in the united states . operating income increased due to a reduction of $ 2 million in sg & a expenses , partially offset by a $ 1 million decline in gross profit . pharmaceutical segment results . sales increased in pharmaceuticals as a result of changes in product mix . operating income increased as a result of a $ 2 million increase in gross profit which was partially offset by a $ 1.6 million increase in sg & a expenses . replace_table_token_9_th during 2010 , sales increased in the united states and internationally . sales of products manufactured in the united states were 49 % of total net sales for the year , compared with 46 % of total sales in 2009. sales grew more rapidly in the united states than internationally in 2010 primarily as a result of strong sales of electronic materials products . many of our electronic materials products are manufactured in the united states and exported to other regions . sales recorded in each region include products that are exported to customers located in other regions . the increase in international sales was driven by higher sales in europe-middle east-africa and asia-pacific . summary of cash flows for the years ended december 31 , 2011 , 2010 , and 2009 replace_table_token_10_th 29 operating activities . cash flows from operating activities decreased $ 145.6 million from 2010 to 2011. cash flows declined $ 68.0 million from decreases in accrued expenses , primarily from the payment of 2010 year-end incentive compensation . the return of precious metal deposits provided $ 28.1 million in 2011 and $ 84.3 million in 2010 due to additional credit lines not requiring collateral . adjustments to reconcile net income to cash provided by operating activities include noncash losses on extinguishment of debt , depreciation and amortization , and deferred income taxes , as well as payments toward retirement benefits greater than the expenses recognized . the net positive effects of adjustments for these items declined by $ 27.8 million from 2010 to 2011. partially offsetting these decreases was an improvement of $ 25.1 million in net income as a result of reduced restructuring and impairment charges , reduced losses on extinguishment of debt and lower interest expense . cash flows from operating activities increased $ 196.7 million from 2009 to 2010. cash flows improved $ 196.8 million from decreases in deposit requirements related to our precious metal consignment program , $ 54.1 million from increases in accrued expenses and other current liabilities , $ 47.6 million as a result of a lower net loss in 2010 , and $ 41.8 million from increases in accounts payable . these benefits were partially offset by increases in cash used for inventories of $ 98.9 million , accounts receivable of $ 37.0 million and other receivables and current assets of $ 32.5 million . investing activities . capital expenditures increased $ 28.0 million from 2010 to 2011 and decreased $ 1.5 million from 2009 to 2010. in 2009 and 2010 , we continued capital spending on manufacturing rationalization programs , but we made a concerted effort to defer or scale back new projects in order to conserve cash during a period of reduced customer demand associated with the global economic downturn . in 2011 , our capital spending returned to more normal levels and also included certain deferred projects . in 2011 , we received proceeds of $ 6.4 million from the sale of assets , primarily property , plant and equipment in australia and our former corporate headquarters in cleveland , ohio . in 2010 , we received proceeds of $ 11.4 million
| capital resources and liquidity major debt instruments that were outstanding during 2011 are described below . 30 7.875 % senior notes in 2010 , we issued $ 250 million of 7.875 % senior notes due 2018 ( the senior notes ) . we used portions of the proceeds from the offering to repay all of the remaining term loans and revolving borrowings outstanding under a credit facility originally entered into in 2006 and as amended and restated through november 2009 ( the 2009 amended and restated credit facility ) . we also used portions of the proceeds from the offering to repurchase the 6.50 % convertible senior notes ( the convertible notes ) that were tendered pursuant to a related tender offer . the senior notes were issued at par and bear interest at a rate of 7.875 % per year , payable semi-annually in arrears on february 15 and august 15 of each year , beginning february 15 , 2011. the senior notes mature on august 15 , 2018 , and are unsecured . at december 31 , 2011 , we were in compliance with the covenants under the senior notes ' indenture . 6.50 % convertible senior notes in 2008 , ferro issued $ 172.5 million of 6.50 % convertible senior notes due 2013 ( the convertible notes ) . the convertible notes bear interest at a rate of 6.5 % per year , payable semi-annually in arrears on february 15 and august 15 of each year . the convertible notes mature on august 15 , 2013. in 2010 , we purchased $ 136.7 million of the convertible notes through a tender offer or on the open market . in 2011 , we purchased an additional $ 0.7 million of the convertible notes on the open market . in connection with these transactions , we recognized losses on extinguishment of debt of $ 13.1 million in 2010 and less than $ 0.1 million in 2011 , consisting of unamortized debt issuance costs and the difference between the carrying value and the fair value of these notes .
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although the u.s. fda has approved two vaccines and certain therapies for use as of the date of this report , the initial rollout of vaccine distribution has encountered significant delays , and uncertainties remain as to the amount of vaccine available for distribution , the logistics of implementing a national vaccine program , and the overall efficacy of the vaccines once widely administered , especially as new strains of covid-19 have been discovered , and the level of resistance these new strains have to the existing vaccines , if any , remains unknown . in response to the supply and distribution issues surrounding the vaccine , in january 2021 , president biden outlined a plan to create additional vaccination sites , increase the supply and distribution of vaccines , and increase the number of vaccinations administered to americans . the biden administration plans to utilize the defense production act to maximize the manufacturing and distribution of vaccines in order to administer 100 million vaccination shots within the first 100 days of holding office . in addition to the currently approved vaccines , as of january 29 , 2021 , there are over 60 other potential vaccines in clinical development that may contribute to increasing the supply of vaccines in 2021. the current vaccines in development use a myriad of different scientific approaches to attempt to provoke an immune response , including : genetic vaccines that use part of the coronavirus 's genetic code ; viral vector vaccines that use a virus to deliver coronavirus genes into cells ; protein-based vaccines that use a coronavirus protein or protein fragment to stimulate the immune system ; and whole-virus vaccines that use a weakened or inactivated version of the coronavirus . over 60 potential vaccines are currently in human clinical trials , with nearly a third of these in later stages of clinical development . phase i trials typically include a small number of participants to test safety and dosage as well as to confirm that the vaccine stimulates the immune system . phase ii trials involve hundreds of participants split into groups , such as children and the elderly , to determine whether the vaccine acts differently in each subpopulation . phase iii trials involve delivering the vaccine to tens of thousands of people , observing how many subsequently become infected , and determining the severity of symptoms when compared with volunteer subjects who received a placebo . regulators in each country will review the trial results to make a determination as to 80 whether the drug or vaccine should be approved . as of january 29 , 2021 , there were 20 potential vaccines in phase iii trials , including a number that require only a single dose , rather than two doses for the currently approved vaccines and that are potentially easier to distribute . shelter-in-place and stay-at-home orders on march 19 , 2020 , california became the first state to set mandatory stay-at-home restrictions to help combat the spread of the coronavirus . the order included the shutdown of all nonessential services , such as dine-in restaurants , bars , gyms , conference or convention centers , and other businesses not deemed to support critical infrastructure . exceptions for essential services , such as grocery stores , pharmacies , gas stations , food banks , convenience stores , and delivery restaurants , have allowed these services to remain open . subsequently , almost all states issued similar orders , including new york , massachusetts , washington , maryland , and north carolina , where our remaining properties outside california are located . countries around the world also implemented measures to slow the spread of the coronavirus , from national quarantines to school closures or similar types of stay-at-home orders or movement limitations . most state orders expired or were rescinded between may and early june 2020 , and authorities began reopening businesses , including retail stores , restaurants , bars , salons , houses of worship , entertainment venues such as movie theaters and museums , and manufacturing facilities and offices . daily new covid-19 cases in the u.s. , which had declined to approximately 18,000 new daily cases by june 9 , 2020 , from the low- to mid-30,000 daily range in april 2020 , began to surge , leading to additional restrictions in many parts of the country . additionally , in recent months , new covid-19 variants were discovered in the u.k , among other countries , which have spread globally , including the u.s. while these strains do not appear to cause more severe symptoms in individuals , they have shown to be more infectious than the original strain discovered in china . as a result , more stringent lockdown restrictions have been implemented globally and within the u.s. on january 29 , 2021 , according to the world health organization , 155,203 new cases and 4,100 deaths were reported in the u.s. impact to the global and u.s. economy as a result of the unprecedented measures taken in the u.s. and around the world , the disruption and impact to the u.s. and global economies and financial markets by the covid-19 pandemic have been significant . in january 2021 , the imf estimated that the global and u.s. economies contracted by 3.5 % and 3.4 % , respectively , during 2020 , in contrast to the expansion of 3.3 % and 2.0 % , respectively , that imf projected for the year 2020 in january 2020. however , multiple vaccine approvals have raised hopes for an eventual end to the pandemic , and the rollout of vaccines has contributed to the positive global and u.s. growth projections for 2021 , as estimated by imf in january 2021 , of 5.5 % and 5.1 % , respectively . these projections may be negatively impacted by potential new strains of the virus , renewed lockdowns , or logistical problems with vaccine distribution . story_separator_special_tag 86 in august 2020 , we opportunistically issued $ 1.0 billion of unsecured senior notes payable due in 2033 at an interest rate of 1.875 % ( “ 1.875 % unsecured senior notes ” ) . we used a portion of the proceeds from our 1.875 % unsecured senior notes to refinance $ 500.0 million of our 3.90 % unsecured senior notes payable due in 2023 , pursuant to a partial cash tender offer completed on august 5 , 2020 , and a subsequent call for redemption for the remaining outstanding amounts , which settled on september 4 , 2020. as a result of our debt refinancing , we recognized a loss on early extinguishment of debt of $ 50.8 million , including the write-off of unamortized loan fees extinguishment of unsecured senior notes payable , unsecured senior line of credit , and secured notes payable in august 2020 , we refinanced our 3.90 % unsecured senior notes payable due in 2023 aggregating $ 500.0 million and recognized a loss on early extinguishment of debt aggregating $ 50.8 million , including the write-off of unamortized loan fees . additionally , we recognized a loss on early extinguishment of debt aggregating $ 1.9 million due to the termination of our $ 750.0 million unsecured senior line of credit . in december 2020 , we extinguished two secured notes payable aggregating $ 108.2 million , due in 2023 with a weighted-average interest rate of 3.67 % , and recognized losses on early extinguishment of debt aggregating $ 7.3 million . as a result of these extinguishments , we have no debt maturing until 2024. forward equity sales agreements in january 2020 and july 2020 , we entered into forward equity sales agreements aggregating $ 1.0 billion and $ 1.1 billion , respectively , to sell an aggregate of 6.9 million shares for each offering ( 13.8 million in aggregate ) of our common stock , including the exercise of underwriters ' options , at public offering prices of $ 155.00 per share and $ 160.50 per share , respectively , before underwriting discounts . during 2020 , we issued all 13.8 million shares under these forward equity sales agreements and received net proceeds of $ 2.1 billion . in january 2021 , we entered into forward equity sales agreements aggregating $ 1.1 billion to sell an aggregate of 6.9 million shares of our common stock ( including the exercise of underwriters ' option ) at a public offering price of $ 164.00 per share , before underwriting discounts and commissions . we expect to settle these forward equity sales agreements in march 2021. atm common stock offering program in february 2020 , we entered into a new atm common stock offering program , which allows us to sell up to an aggregate of $ 850.0 million of our common stock . we issued 1.5 million shares of common stock under our atm program at a price of $ 159.09 per share ( before underwriting discounts ) , and received net proceeds of $ 235.0 million in 2020. we have 362 thousand shares under our atm program subject to forward equity sales agreements that remain outstanding at a price of $ 159.09 per share ( before underwriting discounts ) as of december 31 , 2020. we expect to settle these forward equity sales agreements in 2021 and receive net proceeds of approximately $ 56.3 million . the remaining availability of $ 547.3 million under this atm program expired in december 2020 concurrently with the expiration of the associated shelf registration . in january 2021 , we filed a new shelf registration and we expect to establish a new atm program soon in 2021. unconsolidated real estate joint venture loan in march 2020 , our unconsolidated joint venture at 1655 and 1725 third street , in which we own a 10 % interest , located in mission bay/soma , refinanced an existing variable-rate secured construction loan with a fixed-rate loan with terms as follows : 100 % at joint venture level amended agreement change aggregate commitments $ 600.0 million increase of $ 225.0 million maturity date march 2025 extended by 45 months interest rate fixed at 4.50 % previously libor + 3.70 % investments our investments in publicly traded companies and privately held entities aggregated a carrying amount of $ 1.6 billion , including an adjusted cost basis of $ 835.4 million and unrealized gains of $ 775.7 million , as of december 31 , 2020. investment income of $ 421.3 million during the year ended december 31 , 2020 , consisted of $ 47.3 million of realized gains , which included $ 24.5 million of impairments related to investments in privately held entities that do not report nav , and $ 374.0 million of unrealized gains . 87 2021 capital strategy during 2021 , we intend to continue to execute our capital strategy to achieve further improvements to our credit profile , which will allow us to further improve our cost of capital and continue our disciplined approach to capital allocation . for further information , refer to the “ projected results ” section below under this item 7 in this annual report on form 10-k. consistent with 2020 , our capital strategy for 2021 includes the following elements : allocate capital to class a properties located in collaborative life science , technology , and agtech campuses in aaa urban innovation clusters ; continue to improve our credit profile ; maintain prudent access to diverse sources of capital , which include cash flows from operating activities after dividends , incremental debt supported by our growth in ebitda , real estate asset sales , non-real estate investment sales , joint venture capital , and other capital such as sales of equity ; maintain commitment to long-term capital to fund growth ; prudently ladder debt maturities ; reduce short-term variable-rate debt ; prudently manage equity investments to support corporate-level investment strategies ; maintain significant balance
| capital resources and liquidity major debt instruments that were outstanding during 2011 are described below . 30 7.875 % senior notes in 2010 , we issued $ 250 million of 7.875 % senior notes due 2018 ( the senior notes ) . we used portions of the proceeds from the offering to repay all of the remaining term loans and revolving borrowings outstanding under a credit facility originally entered into in 2006 and as amended and restated through november 2009 ( the 2009 amended and restated credit facility ) . we also used portions of the proceeds from the offering to repurchase the 6.50 % convertible senior notes ( the convertible notes ) that were tendered pursuant to a related tender offer . the senior notes were issued at par and bear interest at a rate of 7.875 % per year , payable semi-annually in arrears on february 15 and august 15 of each year , beginning february 15 , 2011. the senior notes mature on august 15 , 2018 , and are unsecured . at december 31 , 2011 , we were in compliance with the covenants under the senior notes ' indenture . 6.50 % convertible senior notes in 2008 , ferro issued $ 172.5 million of 6.50 % convertible senior notes due 2013 ( the convertible notes ) . the convertible notes bear interest at a rate of 6.5 % per year , payable semi-annually in arrears on february 15 and august 15 of each year . the convertible notes mature on august 15 , 2013. in 2010 , we purchased $ 136.7 million of the convertible notes through a tender offer or on the open market . in 2011 , we purchased an additional $ 0.7 million of the convertible notes on the open market . in connection with these transactions , we recognized losses on extinguishment of debt of $ 13.1 million in 2010 and less than $ 0.1 million in 2011 , consisting of unamortized debt issuance costs and the difference between the carrying value and the fair value of these notes .
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although the u.s. fda has approved two vaccines and certain therapies for use as of the date of this report , the initial rollout of vaccine distribution has encountered significant delays , and uncertainties remain as to the amount of vaccine available for distribution , the logistics of implementing a national vaccine program , and the overall efficacy of the vaccines once widely administered , especially as new strains of covid-19 have been discovered , and the level of resistance these new strains have to the existing vaccines , if any , remains unknown . in response to the supply and distribution issues surrounding the vaccine , in january 2021 , president biden outlined a plan to create additional vaccination sites , increase the supply and distribution of vaccines , and increase the number of vaccinations administered to americans . the biden administration plans to utilize the defense production act to maximize the manufacturing and distribution of vaccines in order to administer 100 million vaccination shots within the first 100 days of holding office . in addition to the currently approved vaccines , as of january 29 , 2021 , there are over 60 other potential vaccines in clinical development that may contribute to increasing the supply of vaccines in 2021. the current vaccines in development use a myriad of different scientific approaches to attempt to provoke an immune response , including : genetic vaccines that use part of the coronavirus 's genetic code ; viral vector vaccines that use a virus to deliver coronavirus genes into cells ; protein-based vaccines that use a coronavirus protein or protein fragment to stimulate the immune system ; and whole-virus vaccines that use a weakened or inactivated version of the coronavirus . over 60 potential vaccines are currently in human clinical trials , with nearly a third of these in later stages of clinical development . phase i trials typically include a small number of participants to test safety and dosage as well as to confirm that the vaccine stimulates the immune system . phase ii trials involve hundreds of participants split into groups , such as children and the elderly , to determine whether the vaccine acts differently in each subpopulation . phase iii trials involve delivering the vaccine to tens of thousands of people , observing how many subsequently become infected , and determining the severity of symptoms when compared with volunteer subjects who received a placebo . regulators in each country will review the trial results to make a determination as to 80 whether the drug or vaccine should be approved . as of january 29 , 2021 , there were 20 potential vaccines in phase iii trials , including a number that require only a single dose , rather than two doses for the currently approved vaccines and that are potentially easier to distribute . shelter-in-place and stay-at-home orders on march 19 , 2020 , california became the first state to set mandatory stay-at-home restrictions to help combat the spread of the coronavirus . the order included the shutdown of all nonessential services , such as dine-in restaurants , bars , gyms , conference or convention centers , and other businesses not deemed to support critical infrastructure . exceptions for essential services , such as grocery stores , pharmacies , gas stations , food banks , convenience stores , and delivery restaurants , have allowed these services to remain open . subsequently , almost all states issued similar orders , including new york , massachusetts , washington , maryland , and north carolina , where our remaining properties outside california are located . countries around the world also implemented measures to slow the spread of the coronavirus , from national quarantines to school closures or similar types of stay-at-home orders or movement limitations . most state orders expired or were rescinded between may and early june 2020 , and authorities began reopening businesses , including retail stores , restaurants , bars , salons , houses of worship , entertainment venues such as movie theaters and museums , and manufacturing facilities and offices . daily new covid-19 cases in the u.s. , which had declined to approximately 18,000 new daily cases by june 9 , 2020 , from the low- to mid-30,000 daily range in april 2020 , began to surge , leading to additional restrictions in many parts of the country . additionally , in recent months , new covid-19 variants were discovered in the u.k , among other countries , which have spread globally , including the u.s. while these strains do not appear to cause more severe symptoms in individuals , they have shown to be more infectious than the original strain discovered in china . as a result , more stringent lockdown restrictions have been implemented globally and within the u.s. on january 29 , 2021 , according to the world health organization , 155,203 new cases and 4,100 deaths were reported in the u.s. impact to the global and u.s. economy as a result of the unprecedented measures taken in the u.s. and around the world , the disruption and impact to the u.s. and global economies and financial markets by the covid-19 pandemic have been significant . in january 2021 , the imf estimated that the global and u.s. economies contracted by 3.5 % and 3.4 % , respectively , during 2020 , in contrast to the expansion of 3.3 % and 2.0 % , respectively , that imf projected for the year 2020 in january 2020. however , multiple vaccine approvals have raised hopes for an eventual end to the pandemic , and the rollout of vaccines has contributed to the positive global and u.s. growth projections for 2021 , as estimated by imf in january 2021 , of 5.5 % and 5.1 % , respectively . these projections may be negatively impacted by potential new strains of the virus , renewed lockdowns , or logistical problems with vaccine distribution . story_separator_special_tag 86 in august 2020 , we opportunistically issued $ 1.0 billion of unsecured senior notes payable due in 2033 at an interest rate of 1.875 % ( “ 1.875 % unsecured senior notes ” ) . we used a portion of the proceeds from our 1.875 % unsecured senior notes to refinance $ 500.0 million of our 3.90 % unsecured senior notes payable due in 2023 , pursuant to a partial cash tender offer completed on august 5 , 2020 , and a subsequent call for redemption for the remaining outstanding amounts , which settled on september 4 , 2020. as a result of our debt refinancing , we recognized a loss on early extinguishment of debt of $ 50.8 million , including the write-off of unamortized loan fees extinguishment of unsecured senior notes payable , unsecured senior line of credit , and secured notes payable in august 2020 , we refinanced our 3.90 % unsecured senior notes payable due in 2023 aggregating $ 500.0 million and recognized a loss on early extinguishment of debt aggregating $ 50.8 million , including the write-off of unamortized loan fees . additionally , we recognized a loss on early extinguishment of debt aggregating $ 1.9 million due to the termination of our $ 750.0 million unsecured senior line of credit . in december 2020 , we extinguished two secured notes payable aggregating $ 108.2 million , due in 2023 with a weighted-average interest rate of 3.67 % , and recognized losses on early extinguishment of debt aggregating $ 7.3 million . as a result of these extinguishments , we have no debt maturing until 2024. forward equity sales agreements in january 2020 and july 2020 , we entered into forward equity sales agreements aggregating $ 1.0 billion and $ 1.1 billion , respectively , to sell an aggregate of 6.9 million shares for each offering ( 13.8 million in aggregate ) of our common stock , including the exercise of underwriters ' options , at public offering prices of $ 155.00 per share and $ 160.50 per share , respectively , before underwriting discounts . during 2020 , we issued all 13.8 million shares under these forward equity sales agreements and received net proceeds of $ 2.1 billion . in january 2021 , we entered into forward equity sales agreements aggregating $ 1.1 billion to sell an aggregate of 6.9 million shares of our common stock ( including the exercise of underwriters ' option ) at a public offering price of $ 164.00 per share , before underwriting discounts and commissions . we expect to settle these forward equity sales agreements in march 2021. atm common stock offering program in february 2020 , we entered into a new atm common stock offering program , which allows us to sell up to an aggregate of $ 850.0 million of our common stock . we issued 1.5 million shares of common stock under our atm program at a price of $ 159.09 per share ( before underwriting discounts ) , and received net proceeds of $ 235.0 million in 2020. we have 362 thousand shares under our atm program subject to forward equity sales agreements that remain outstanding at a price of $ 159.09 per share ( before underwriting discounts ) as of december 31 , 2020. we expect to settle these forward equity sales agreements in 2021 and receive net proceeds of approximately $ 56.3 million . the remaining availability of $ 547.3 million under this atm program expired in december 2020 concurrently with the expiration of the associated shelf registration . in january 2021 , we filed a new shelf registration and we expect to establish a new atm program soon in 2021. unconsolidated real estate joint venture loan in march 2020 , our unconsolidated joint venture at 1655 and 1725 third street , in which we own a 10 % interest , located in mission bay/soma , refinanced an existing variable-rate secured construction loan with a fixed-rate loan with terms as follows : 100 % at joint venture level amended agreement change aggregate commitments $ 600.0 million increase of $ 225.0 million maturity date march 2025 extended by 45 months interest rate fixed at 4.50 % previously libor + 3.70 % investments our investments in publicly traded companies and privately held entities aggregated a carrying amount of $ 1.6 billion , including an adjusted cost basis of $ 835.4 million and unrealized gains of $ 775.7 million , as of december 31 , 2020. investment income of $ 421.3 million during the year ended december 31 , 2020 , consisted of $ 47.3 million of realized gains , which included $ 24.5 million of impairments related to investments in privately held entities that do not report nav , and $ 374.0 million of unrealized gains . 87 2021 capital strategy during 2021 , we intend to continue to execute our capital strategy to achieve further improvements to our credit profile , which will allow us to further improve our cost of capital and continue our disciplined approach to capital allocation . for further information , refer to the “ projected results ” section below under this item 7 in this annual report on form 10-k. consistent with 2020 , our capital strategy for 2021 includes the following elements : allocate capital to class a properties located in collaborative life science , technology , and agtech campuses in aaa urban innovation clusters ; continue to improve our credit profile ; maintain prudent access to diverse sources of capital , which include cash flows from operating activities after dividends , incremental debt supported by our growth in ebitda , real estate asset sales , non-real estate investment sales , joint venture capital , and other capital such as sales of equity ; maintain commitment to long-term capital to fund growth ; prudently ladder debt maturities ; reduce short-term variable-rate debt ; prudently manage equity investments to support corporate-level investment strategies ; maintain significant balance
| liquidity liquidity minimal outstanding borrowings and significant availability on unsecured senior line of credit ( in millions ) $ 4.1b ( in millions ) availability under our unsecured senior line of credit , net of amounts outstanding under our commercial paper program $ 2,900 outstanding forward equity sales agreements ( 1 ) 56 cash , cash equivalents , and restricted cash 598 investments in publicly traded companies 560 liquidity as of december 31 , 2020 $ 4,114 net debt and preferred stock to adjusted ebitda ( 2 ) fixed-charge coverage ratio ( 2 ) ( 1 ) represents expected net proceeds from the future settlement of the remaining 362 thousand shares outstanding under our forward equity sales agreements as of december 31 , 2020. excludes forward equity sales agreements aggregating $ 1.1 billion entered into in january 2021 . ( 2 ) quarter annualized . we expect to meet certain long-term liquidity requirements , such as requirements for development , redevelopment , other construction projects , capital improvements , tenant improvements , property acquisitions , leasing costs , non-revenue-enhancing capital expenditures , scheduled debt maturities , distributions to noncontrolling interests , and payment of dividends through net cash provided by operating activities , periodic asset sales , strategic real estate joint venture capital , and long-term secured and unsecured indebtedness , including borrowings under our unsecured senior line of credit , issuances under our commercial paper program , and issuances of additional debt and or equity securities . we expect to continue meeting our short-term liquidity and capital requirements , as further detailed in this section , generally through our working capital and net cash provided by operating activities . we believe that the net cash provided by operating activities will continue to be sufficient to enable us to make the distributions necessary to continue qualifying as a reit .
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on june 1 , 2015 , mac and csa entered into new dry-lease agreements with fedex with terms different from our prior dry-lease service contracts . the new dry-lease agreements provide for the lease of specified aircraft by mac and csa in return for the payment of monthly rent with respect to each aircraft leased , which monthly rent was increased from the prior dry-lease service contracts to reflect an estimate of a fair market rental rate . the new dry-lease agreements provide for the reimbursement by fedex of our costs , without mark up , incurred in connection with the operation of the leased aircraft for the following : fuel , landing fees , third-party maintenance , parts and certain other direct operating costs . unlike the prior dry-lease contracts , under the new dry-lease agreements , certain operational costs incurred by mac and csa in operating the aircraft under the new dry-lease agreements are not reimbursed by fedex at cost , and such operational costs are to be borne solely by us . under the new dry-lease agreements , mac and csa are required to perform maintenance of the leased aircraft in return for a maintenance fee based upon an hourly maintenance labor rate , which has been increased from the rate in place under the prior dry-lease service contracts and had not been adjusted since 2008. the new dry-lease agreements provide for the payment by fedex to mac and csa of a monthly administrative fee based on the number and type of aircraft leased and routes operated . the amount of the monthly administrative fee under the new dry-lease agreements is greater than under the prior dry-lease service contracts with fedex , in part to reflect the greater monthly lease payment per aircraft and that certain operational costs are to be borne by mac and csa and not reimbursed . 13 ggs manufactures and supports aircraft deicers and other specialized equipment on a worldwide basis . ggs manufactures five basic models of mobile deicing equipment with capacities ranging from 700 to 2,800 gallons . ggs also offers fixed-pedestal-mounted deicers . each model can be customized as requested by the customer , including single operator configuration , fire suppressant equipment , open basket or enclosed cab design , a patented forced-air deicing nozzle and on-board glycol blending system to substantially reduce glycol usage , color and style of the exterior finish . ggs also manufactures five models of scissor-lift equipment , for catering , cabin service and maintenance service of aircraft , and has developed a line of decontamination equipment , flight-line tow tractors , glycol recovery vehicles and other special purpose mobile equipment . ggs competes primarily on the basis of the quality , performance and reliability of its products , prompt delivery , customer service and price . in july 2009 , ggs was awarded a new contract to supply deicing trucks to the usaf , which expired in july 2014. on may 15 , 2014 , ggs was awarded a new contract to supply deicing trucks to the usaf . the initial contract award is for two years through july 13 , 2016 with four additional one-year extension options that may be exercised by the usaf . the value of the contract , as well as the number of units to be delivered , depends upon annual requirements and available funding to the usaf . in september 2010 , ggs was awarded a contract to supply flight-line tow tractors to the usaf . the contract award was for one year commencing september 28 , 2010 with four additional one-year extension options that may be exercised by the usaf . in august 2013 , the third option period under the contract was exercised , extending the contract to september 2014. because these contracts with the usaf do not obligate the usaf to purchase a set or minimum number of units , the value of these contracts , as well as the number of units to be delivered , depends upon the usaf 's requirements and available funding . at march 31 , 2015 , ggs 's backlog of orders was $ 2.8 million , compared to a backlog of $ 14.4 million at march 31 , 2014. ggs 's backlog at may 31 , 2015 was $ 6.3 million . gas provides the aircraft ground support equipment , fleet , and facility maintenance services . at march 31 , 2015 , gas was providing ground support equipment , fleet , and facility maintenance services to more than 75 customers at 54 north american airports . in march 2014 , the company formed space age insurance company ( “ saic ” ) , a captive insurance company licensed in utah , and initially capitalized with $ 250,000. saic insures risks of the company and its subsidiaries that were not previously insured by the company 's insurance programs ; and underwrites third-party risk through certain reinsurance arrangements . the activities of saic are included within the corporate results in the accompanying financial statements . fiscal 2015 summary revenues for our overnight air cargo segment totaled $ 49,865,000 for the year ended march 31 , 2015 , representing a $ 2,477,000 ( 5 % ) decrease over the prior year . revenues were down primarily as a result of a decrease in maintenance labor revenue due to the completion of two- , four- and eight-year heavy maintenance checks during the prior fiscal year which did not recur in fiscal 2015. in addition , the segment experienced a slight decrease in the administrative fee revenue and a reduction in reimbursement for flight crew costs due to fewer aircraft in full revenue service in fiscal 2015 , which was partially offset by a modest increase in other reimbursable costs . story_separator_special_tag the company had worked to reduce ggs 's seasonal fluctuation in revenues and earnings by increasing military and international sales and broadening its product line to increase revenues and earnings throughout the year . in july 2009 , ggs was awarded a new contract to supply deicing trucks to the usaf , which expired in july 2014. on may 15 , 2014 , ggs was awarded a new contract to supply deicing trucks to the usaf . the initial contract award is for two years through july 13 , 2016 with four additional one-year extension options that may be exercised by the usaf . the value of the contract , as well as the number of units to be delivered , depends upon annual requirements and available funding to the usaf . although ggs has retained the usaf deicer contract , recent orders under the contract have not been sufficient to offset the seasonal trend for commercial sales . as a result , ggs revenues and operating income have resumed their seasonal nature . the overnight air cargo and ground support services segments are not susceptible to seasonal trends . critical accounting policies and estimates the company 's significant accounting policies are more fully described in note 1 of notes to the consolidated financial statements in item 8. the preparation of the company 's consolidated financial statements in conformity with accounting principles generally accepted in the united states requires the use of estimates and assumptions to determine certain assets , liabilities , revenues and expenses . management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions . the company 's estimates and assumptions could change materially as conditions within and beyond our control change . accordingly , actual results could differ materially from estimates . the company believes that the following are its most significant accounting policies : allowance for doubtful accounts . an allowance for doubtful accounts receivable is established based on management 's estimates of the collectability of accounts receivable . the required allowance is determined using information such as customer credit history , industry information , credit reports , customer financial condition and the collectability of outstanding accounts receivables . the estimates can be affected by changes in the financial strength of the aviation industry , customer credit issues or general economic conditions . inventories . the company 's parts inventories are valued at the lower of cost or market . provisions for excess and obsolete inventories are based on assessment of the marketability of slow-moving and obsolete inventories . historical parts usage , current period sales , estimated future demand and anticipated transactions between willing buyers and sellers provide the basis for estimates . estimates are subject to volatility and can be affected by reduced equipment utilization , existing supplies of used inventory available for sale , the retirement of aircraft or ground equipment and changes in the financial strength of the aviation industry . 18 warranty reserves . the company warranties its ground equipment products for up to a three-year period from date of sale . product warranty reserves are recorded at time of sale based on the historical average warranty cost and are adjusted as actual warranty cost becomes known . income taxes . income taxes have been provided 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 enacted tax laws and 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 income in the period that includes the enactment date . revenue recognition . cargo revenue is recognized upon completion of contract terms . maintenance and ground support services revenue is recognized when the service has been performed . revenue from product sales is recognized when contract terms are completed and ownership has passed to the customer . recent accounting pronouncements in may 2014 , a comprehensive new revenue recognition standard was issued that will supersede nearly all existing revenue recognition guidance . the new guidance introduces a five-step model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . this guidance also requires disclosures sufficient to enable users to understand the nature , amount , timing , and uncertainty of revenue and cash flows arising from contracts with customers , including qualitative and quantitative disclosures about contracts with customers , significant judgments and changes in judgments , and assets recognized from the costs to obtain or fulfill a contract . this guidance is effective for fiscal years beginning after december 15 , 2016 , including interim periods within that reporting period . management is currently evaluating the new guidance , including possible transition alternatives , to determine the impact it will have on the company 's consolidated financial statements . forward looking statements certain statements in this report , including those contained in “ overview , ” are “ forward-looking ” statements within the meaning of the private securities litigation reform act of 1995 with respect to the company 's financial condition , results of operations , plans , objectives , future performance and business . forward-looking statements include those preceded by , followed by or that include the words “ believes ” , “ pending ” , “ future ” , “ expects , ” “ anticipates , ” “ estimates , ” “ depends ” or similar expressions . these forward-looking statements involve risks and uncertainties . actual results may differ materially
| liquidity liquidity minimal outstanding borrowings and significant availability on unsecured senior line of credit ( in millions ) $ 4.1b ( in millions ) availability under our unsecured senior line of credit , net of amounts outstanding under our commercial paper program $ 2,900 outstanding forward equity sales agreements ( 1 ) 56 cash , cash equivalents , and restricted cash 598 investments in publicly traded companies 560 liquidity as of december 31 , 2020 $ 4,114 net debt and preferred stock to adjusted ebitda ( 2 ) fixed-charge coverage ratio ( 2 ) ( 1 ) represents expected net proceeds from the future settlement of the remaining 362 thousand shares outstanding under our forward equity sales agreements as of december 31 , 2020. excludes forward equity sales agreements aggregating $ 1.1 billion entered into in january 2021 . ( 2 ) quarter annualized . we expect to meet certain long-term liquidity requirements , such as requirements for development , redevelopment , other construction projects , capital improvements , tenant improvements , property acquisitions , leasing costs , non-revenue-enhancing capital expenditures , scheduled debt maturities , distributions to noncontrolling interests , and payment of dividends through net cash provided by operating activities , periodic asset sales , strategic real estate joint venture capital , and long-term secured and unsecured indebtedness , including borrowings under our unsecured senior line of credit , issuances under our commercial paper program , and issuances of additional debt and or equity securities . we expect to continue meeting our short-term liquidity and capital requirements , as further detailed in this section , generally through our working capital and net cash provided by operating activities . we believe that the net cash provided by operating activities will continue to be sufficient to enable us to make the distributions necessary to continue qualifying as a reit .
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on june 1 , 2015 , mac and csa entered into new dry-lease agreements with fedex with terms different from our prior dry-lease service contracts . the new dry-lease agreements provide for the lease of specified aircraft by mac and csa in return for the payment of monthly rent with respect to each aircraft leased , which monthly rent was increased from the prior dry-lease service contracts to reflect an estimate of a fair market rental rate . the new dry-lease agreements provide for the reimbursement by fedex of our costs , without mark up , incurred in connection with the operation of the leased aircraft for the following : fuel , landing fees , third-party maintenance , parts and certain other direct operating costs . unlike the prior dry-lease contracts , under the new dry-lease agreements , certain operational costs incurred by mac and csa in operating the aircraft under the new dry-lease agreements are not reimbursed by fedex at cost , and such operational costs are to be borne solely by us . under the new dry-lease agreements , mac and csa are required to perform maintenance of the leased aircraft in return for a maintenance fee based upon an hourly maintenance labor rate , which has been increased from the rate in place under the prior dry-lease service contracts and had not been adjusted since 2008. the new dry-lease agreements provide for the payment by fedex to mac and csa of a monthly administrative fee based on the number and type of aircraft leased and routes operated . the amount of the monthly administrative fee under the new dry-lease agreements is greater than under the prior dry-lease service contracts with fedex , in part to reflect the greater monthly lease payment per aircraft and that certain operational costs are to be borne by mac and csa and not reimbursed . 13 ggs manufactures and supports aircraft deicers and other specialized equipment on a worldwide basis . ggs manufactures five basic models of mobile deicing equipment with capacities ranging from 700 to 2,800 gallons . ggs also offers fixed-pedestal-mounted deicers . each model can be customized as requested by the customer , including single operator configuration , fire suppressant equipment , open basket or enclosed cab design , a patented forced-air deicing nozzle and on-board glycol blending system to substantially reduce glycol usage , color and style of the exterior finish . ggs also manufactures five models of scissor-lift equipment , for catering , cabin service and maintenance service of aircraft , and has developed a line of decontamination equipment , flight-line tow tractors , glycol recovery vehicles and other special purpose mobile equipment . ggs competes primarily on the basis of the quality , performance and reliability of its products , prompt delivery , customer service and price . in july 2009 , ggs was awarded a new contract to supply deicing trucks to the usaf , which expired in july 2014. on may 15 , 2014 , ggs was awarded a new contract to supply deicing trucks to the usaf . the initial contract award is for two years through july 13 , 2016 with four additional one-year extension options that may be exercised by the usaf . the value of the contract , as well as the number of units to be delivered , depends upon annual requirements and available funding to the usaf . in september 2010 , ggs was awarded a contract to supply flight-line tow tractors to the usaf . the contract award was for one year commencing september 28 , 2010 with four additional one-year extension options that may be exercised by the usaf . in august 2013 , the third option period under the contract was exercised , extending the contract to september 2014. because these contracts with the usaf do not obligate the usaf to purchase a set or minimum number of units , the value of these contracts , as well as the number of units to be delivered , depends upon the usaf 's requirements and available funding . at march 31 , 2015 , ggs 's backlog of orders was $ 2.8 million , compared to a backlog of $ 14.4 million at march 31 , 2014. ggs 's backlog at may 31 , 2015 was $ 6.3 million . gas provides the aircraft ground support equipment , fleet , and facility maintenance services . at march 31 , 2015 , gas was providing ground support equipment , fleet , and facility maintenance services to more than 75 customers at 54 north american airports . in march 2014 , the company formed space age insurance company ( “ saic ” ) , a captive insurance company licensed in utah , and initially capitalized with $ 250,000. saic insures risks of the company and its subsidiaries that were not previously insured by the company 's insurance programs ; and underwrites third-party risk through certain reinsurance arrangements . the activities of saic are included within the corporate results in the accompanying financial statements . fiscal 2015 summary revenues for our overnight air cargo segment totaled $ 49,865,000 for the year ended march 31 , 2015 , representing a $ 2,477,000 ( 5 % ) decrease over the prior year . revenues were down primarily as a result of a decrease in maintenance labor revenue due to the completion of two- , four- and eight-year heavy maintenance checks during the prior fiscal year which did not recur in fiscal 2015. in addition , the segment experienced a slight decrease in the administrative fee revenue and a reduction in reimbursement for flight crew costs due to fewer aircraft in full revenue service in fiscal 2015 , which was partially offset by a modest increase in other reimbursable costs . story_separator_special_tag the company had worked to reduce ggs 's seasonal fluctuation in revenues and earnings by increasing military and international sales and broadening its product line to increase revenues and earnings throughout the year . in july 2009 , ggs was awarded a new contract to supply deicing trucks to the usaf , which expired in july 2014. on may 15 , 2014 , ggs was awarded a new contract to supply deicing trucks to the usaf . the initial contract award is for two years through july 13 , 2016 with four additional one-year extension options that may be exercised by the usaf . the value of the contract , as well as the number of units to be delivered , depends upon annual requirements and available funding to the usaf . although ggs has retained the usaf deicer contract , recent orders under the contract have not been sufficient to offset the seasonal trend for commercial sales . as a result , ggs revenues and operating income have resumed their seasonal nature . the overnight air cargo and ground support services segments are not susceptible to seasonal trends . critical accounting policies and estimates the company 's significant accounting policies are more fully described in note 1 of notes to the consolidated financial statements in item 8. the preparation of the company 's consolidated financial statements in conformity with accounting principles generally accepted in the united states requires the use of estimates and assumptions to determine certain assets , liabilities , revenues and expenses . management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions . the company 's estimates and assumptions could change materially as conditions within and beyond our control change . accordingly , actual results could differ materially from estimates . the company believes that the following are its most significant accounting policies : allowance for doubtful accounts . an allowance for doubtful accounts receivable is established based on management 's estimates of the collectability of accounts receivable . the required allowance is determined using information such as customer credit history , industry information , credit reports , customer financial condition and the collectability of outstanding accounts receivables . the estimates can be affected by changes in the financial strength of the aviation industry , customer credit issues or general economic conditions . inventories . the company 's parts inventories are valued at the lower of cost or market . provisions for excess and obsolete inventories are based on assessment of the marketability of slow-moving and obsolete inventories . historical parts usage , current period sales , estimated future demand and anticipated transactions between willing buyers and sellers provide the basis for estimates . estimates are subject to volatility and can be affected by reduced equipment utilization , existing supplies of used inventory available for sale , the retirement of aircraft or ground equipment and changes in the financial strength of the aviation industry . 18 warranty reserves . the company warranties its ground equipment products for up to a three-year period from date of sale . product warranty reserves are recorded at time of sale based on the historical average warranty cost and are adjusted as actual warranty cost becomes known . income taxes . income taxes have been provided 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 enacted tax laws and 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 income in the period that includes the enactment date . revenue recognition . cargo revenue is recognized upon completion of contract terms . maintenance and ground support services revenue is recognized when the service has been performed . revenue from product sales is recognized when contract terms are completed and ownership has passed to the customer . recent accounting pronouncements in may 2014 , a comprehensive new revenue recognition standard was issued that will supersede nearly all existing revenue recognition guidance . the new guidance introduces a five-step model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . this guidance also requires disclosures sufficient to enable users to understand the nature , amount , timing , and uncertainty of revenue and cash flows arising from contracts with customers , including qualitative and quantitative disclosures about contracts with customers , significant judgments and changes in judgments , and assets recognized from the costs to obtain or fulfill a contract . this guidance is effective for fiscal years beginning after december 15 , 2016 , including interim periods within that reporting period . management is currently evaluating the new guidance , including possible transition alternatives , to determine the impact it will have on the company 's consolidated financial statements . forward looking statements certain statements in this report , including those contained in “ overview , ” are “ forward-looking ” statements within the meaning of the private securities litigation reform act of 1995 with respect to the company 's financial condition , results of operations , plans , objectives , future performance and business . forward-looking statements include those preceded by , followed by or that include the words “ believes ” , “ pending ” , “ future ” , “ expects , ” “ anticipates , ” “ estimates , ” “ depends ” or similar expressions . these forward-looking statements involve risks and uncertainties . actual results may differ materially
| liquidity and capital resources as of march 31 , 2015 , the company held approximately $ 14.2 million in cash and cash equivalents . of this amount , $ 2,799,000 was invested in accounts not insured by the federal deposit insurance corporation ( “ fdic ” ) . as of march 31 , 2015 , the company 's working capital amounted to $ 30,425,000 , an increase of $ 8,292,000 compared to march 31 , 2014. as of march 31 , 2015 , the company had a $ 7,000,000 secured long-term revolving credit line with an expiration date of august 31 , 2016. the revolving credit line contained customary events of default , a subjective acceleration clause and a fixed charge coverage requirement , with which the company was in compliance at march 31 , 2015. at march 31 , 2015 , aggregate outstanding borrowings under the line of credit were $ 5,000,000. see note 7 in the consolidated financial statements , included elsewhere in this report , for further discussion . on april 1 , 2015 , the company replaced this credit line with a senior secured revolving credit facility of $ 20.0 million ( the “ revolving credit facility ” ) . the revolving credit facility includes a sublimit for issuances of letters of credit of up to $ 500,000. under the revolving credit facility , each of the company , mac , csa , ggs and gas may make borrowings . initially , borrowings under the revolving credit facility bear interest ( payable monthly ) at an annual rate of one-month libor plus 1.50 % , although the interest rates under the revolving credit facility are subject to incremental increases based on a consolidated leverage ratio . in addition , a commitment fee accrues with respect to the unused amount of the revolving credit facility at an annual rate of 0.15 % .
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1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 32.2 certification of chief financial officer pursuant to rule 13a-14 ( b ) or rule 15d-14 ( b ) promulgated under the securities exchange act of 1934 and 18 u.s.c . 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( 1 ) included as an exhibit to our current report on form 8-k filed on september 16 , 2009 . ( 2 ) included as an exhibit to our current report on form 8-k filed on june 9 , 2009 . ( 3 ) included as an exhibit to our current report on form 8-k filed on june 23 , 2009 . ( 4 ) included as an exhibit to our current report on form 8-k filed on july 27 , 2009 . ( 5 ) included as an exhibit to our current report on form 8-k filed on november 2 , 2009 . 20 signatures pursuant to the requirements of section 13 or 15 ( d ) of the exchange act , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . date : february 16 , 2010 double halo resources inc. by : george m. rock rutherford george m. rock rutherford president , chief executive officer pursuant to the requirements of the exchange act , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date george m. rock rutherford president , chief executive officer february 16 , 2010 george m. rock rutherford michael killman chief financial officer , principal accounting officer february 16 , 2010 michael killman john kuykendall secretary , treasurer february 16 , 2010 john kuykendall michael todd rutherford vice president of information technology february 16 , 2010 michael todd rutherford david chapman director february 16 , 2010 david chapman 21 story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements , including the notes thereto , appearing elsewhere in this annual report . the discussions of results , causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future . results of operations revenues we have limited operational history . from our inception on march 11 , 2004 to october 31 , 2009 we did not generate any revenues and we sustained operational losses . as of october 31 , 2009 we had no total assets and total liabilities of $ 231,895. we anticipate that we will incur substantial losses for the foreseeable future and our ability to generate any revenues in the next 12 months continues to be uncertain . we believe that our success depends on our ability to close the proposed share exchange transaction with agr stone & tools usa , inc. and develop its business as our own . expenses from our inception on march 11 , 2004 to october 31 , 2009 we incurred total operating expenses of $ 306,157 , including $ 25,567 in consulting fees , $ 62,257 in general and administrative expenses , $ 16,898 in mineral property and exploration costs and $ 201,435 in professional fees . for the fiscal year ended october 31 , 2009 we incurred total expenses of $ 103,152 , including $ 25,567 in consulting fees , $ 9,654 in general and administrative expenses and $ 67,931 in professional fees , whereas for the fiscal year ended october 31 , 2008 we incurred total expenses of $ 58,448 , including $ 12,290 in general and administrative expenses and $ 46,158 in professional fees . our general and administrative expenses consisted primarily of transfer agent fees and general office expenses . our professional fees include legal , accounting and auditing fees . net loss from our inception on march 11 , 2004 to october 31 , 2009 we incurred a net loss of $ 306,157. for the fiscal year ended october 31 , 2009 we incurred a net loss of $ 103,152 , whereas for the fiscal year ended october 31 , 2008 we incurred a net loss of $ 58,448 . 6 story_separator_special_tag operations or an improvement in our liquidity situation . the threat of our ability to continue as a going concern will cease to exist only when our revenues have reached a level able to sustain our business operations . off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to stockholders . critical accounting policies our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation . a complete summary of these policies is included in note 2 of the notes to our financial statements . we have identified below the accounting policies that are of particular importance in the presentation of our financial position , results of operations and cash flows , and which require the application of significant judgment by management . mineral properties we are primarily engaged in the acquisition and exploration of mining properties . mineral exploration costs are expensed as incurred . mineral property acquisition costs are initially capitalized when incurred . we assess the carrying costs for impairment under asc 930 , “ extractive activities – mining ” , at each fiscal quarter end . when it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves , the costs then incurred to develop such property , are capitalized . such costs will be amortized using the units-of-production method over the estimated life of the probable reserve . if mineral properties are subsequently story_separator_special_tag 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 32.2 certification of chief financial officer pursuant to rule 13a-14 ( b ) or rule 15d-14 ( b ) promulgated under the securities exchange act of 1934 and 18 u.s.c . 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( 1 ) included as an exhibit to our current report on form 8-k filed on september 16 , 2009 . ( 2 ) included as an exhibit to our current report on form 8-k filed on june 9 , 2009 . ( 3 ) included as an exhibit to our current report on form 8-k filed on june 23 , 2009 . ( 4 ) included as an exhibit to our current report on form 8-k filed on july 27 , 2009 . ( 5 ) included as an exhibit to our current report on form 8-k filed on november 2 , 2009 . 20 signatures pursuant to the requirements of section 13 or 15 ( d ) of the exchange act , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . date : february 16 , 2010 double halo resources inc. by : george m. rock rutherford george m. rock rutherford president , chief executive officer pursuant to the requirements of the exchange act , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date george m. rock rutherford president , chief executive officer february 16 , 2010 george m. rock rutherford michael killman chief financial officer , principal accounting officer february 16 , 2010 michael killman john kuykendall secretary , treasurer february 16 , 2010 john kuykendall michael todd rutherford vice president of information technology february 16 , 2010 michael todd rutherford david chapman director february 16 , 2010 david chapman 21 story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements , including the notes thereto , appearing elsewhere in this annual report . the discussions of results , causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future . results of operations revenues we have limited operational history . from our inception on march 11 , 2004 to october 31 , 2009 we did not generate any revenues and we sustained operational losses . as of october 31 , 2009 we had no total assets and total liabilities of $ 231,895. we anticipate that we will incur substantial losses for the foreseeable future and our ability to generate any revenues in the next 12 months continues to be uncertain . we believe that our success depends on our ability to close the proposed share exchange transaction with agr stone & tools usa , inc. and develop its business as our own . expenses from our inception on march 11 , 2004 to october 31 , 2009 we incurred total operating expenses of $ 306,157 , including $ 25,567 in consulting fees , $ 62,257 in general and administrative expenses , $ 16,898 in mineral property and exploration costs and $ 201,435 in professional fees . for the fiscal year ended october 31 , 2009 we incurred total expenses of $ 103,152 , including $ 25,567 in consulting fees , $ 9,654 in general and administrative expenses and $ 67,931 in professional fees , whereas for the fiscal year ended october 31 , 2008 we incurred total expenses of $ 58,448 , including $ 12,290 in general and administrative expenses and $ 46,158 in professional fees . our general and administrative expenses consisted primarily of transfer agent fees and general office expenses . our professional fees include legal , accounting and auditing fees . net loss from our inception on march 11 , 2004 to october 31 , 2009 we incurred a net loss of $ 306,157. for the fiscal year ended october 31 , 2009 we incurred a net loss of $ 103,152 , whereas for the fiscal year ended october 31 , 2008 we incurred a net loss of $ 58,448 . 6 story_separator_special_tag operations or an improvement in our liquidity situation . the threat of our ability to continue as a going concern will cease to exist only when our revenues have reached a level able to sustain our business operations . off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to stockholders . critical accounting policies our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation . a complete summary of these policies is included in note 2 of the notes to our financial statements . we have identified below the accounting policies that are of particular importance in the presentation of our financial position , results of operations and cash flows , and which require the application of significant judgment by management . mineral properties we are primarily engaged in the acquisition and exploration of mining properties . mineral exploration costs are expensed as incurred . mineral property acquisition costs are initially capitalized when incurred . we assess the carrying costs for impairment under asc 930 , “ extractive activities – mining ” , at each fiscal quarter end . when it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves , the costs then incurred to develop such property , are capitalized . such costs will be amortized using the units-of-production method over the estimated life of the probable reserve . if mineral properties are subsequently
| liquidity and capital resources as of march 31 , 2015 , the company held approximately $ 14.2 million in cash and cash equivalents . of this amount , $ 2,799,000 was invested in accounts not insured by the federal deposit insurance corporation ( “ fdic ” ) . as of march 31 , 2015 , the company 's working capital amounted to $ 30,425,000 , an increase of $ 8,292,000 compared to march 31 , 2014. as of march 31 , 2015 , the company had a $ 7,000,000 secured long-term revolving credit line with an expiration date of august 31 , 2016. the revolving credit line contained customary events of default , a subjective acceleration clause and a fixed charge coverage requirement , with which the company was in compliance at march 31 , 2015. at march 31 , 2015 , aggregate outstanding borrowings under the line of credit were $ 5,000,000. see note 7 in the consolidated financial statements , included elsewhere in this report , for further discussion . on april 1 , 2015 , the company replaced this credit line with a senior secured revolving credit facility of $ 20.0 million ( the “ revolving credit facility ” ) . the revolving credit facility includes a sublimit for issuances of letters of credit of up to $ 500,000. under the revolving credit facility , each of the company , mac , csa , ggs and gas may make borrowings . initially , borrowings under the revolving credit facility bear interest ( payable monthly ) at an annual rate of one-month libor plus 1.50 % , although the interest rates under the revolving credit facility are subject to incremental increases based on a consolidated leverage ratio . in addition , a commitment fee accrues with respect to the unused amount of the revolving credit facility at an annual rate of 0.15 % .
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1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 32.2 certification of chief financial officer pursuant to rule 13a-14 ( b ) or rule 15d-14 ( b ) promulgated under the securities exchange act of 1934 and 18 u.s.c . 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( 1 ) included as an exhibit to our current report on form 8-k filed on september 16 , 2009 . ( 2 ) included as an exhibit to our current report on form 8-k filed on june 9 , 2009 . ( 3 ) included as an exhibit to our current report on form 8-k filed on june 23 , 2009 . ( 4 ) included as an exhibit to our current report on form 8-k filed on july 27 , 2009 . ( 5 ) included as an exhibit to our current report on form 8-k filed on november 2 , 2009 . 20 signatures pursuant to the requirements of section 13 or 15 ( d ) of the exchange act , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . date : february 16 , 2010 double halo resources inc. by : george m. rock rutherford george m. rock rutherford president , chief executive officer pursuant to the requirements of the exchange act , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date george m. rock rutherford president , chief executive officer february 16 , 2010 george m. rock rutherford michael killman chief financial officer , principal accounting officer february 16 , 2010 michael killman john kuykendall secretary , treasurer february 16 , 2010 john kuykendall michael todd rutherford vice president of information technology february 16 , 2010 michael todd rutherford david chapman director february 16 , 2010 david chapman 21 story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements , including the notes thereto , appearing elsewhere in this annual report . the discussions of results , causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future . results of operations revenues we have limited operational history . from our inception on march 11 , 2004 to october 31 , 2009 we did not generate any revenues and we sustained operational losses . as of october 31 , 2009 we had no total assets and total liabilities of $ 231,895. we anticipate that we will incur substantial losses for the foreseeable future and our ability to generate any revenues in the next 12 months continues to be uncertain . we believe that our success depends on our ability to close the proposed share exchange transaction with agr stone & tools usa , inc. and develop its business as our own . expenses from our inception on march 11 , 2004 to october 31 , 2009 we incurred total operating expenses of $ 306,157 , including $ 25,567 in consulting fees , $ 62,257 in general and administrative expenses , $ 16,898 in mineral property and exploration costs and $ 201,435 in professional fees . for the fiscal year ended october 31 , 2009 we incurred total expenses of $ 103,152 , including $ 25,567 in consulting fees , $ 9,654 in general and administrative expenses and $ 67,931 in professional fees , whereas for the fiscal year ended october 31 , 2008 we incurred total expenses of $ 58,448 , including $ 12,290 in general and administrative expenses and $ 46,158 in professional fees . our general and administrative expenses consisted primarily of transfer agent fees and general office expenses . our professional fees include legal , accounting and auditing fees . net loss from our inception on march 11 , 2004 to october 31 , 2009 we incurred a net loss of $ 306,157. for the fiscal year ended october 31 , 2009 we incurred a net loss of $ 103,152 , whereas for the fiscal year ended october 31 , 2008 we incurred a net loss of $ 58,448 . 6 story_separator_special_tag operations or an improvement in our liquidity situation . the threat of our ability to continue as a going concern will cease to exist only when our revenues have reached a level able to sustain our business operations . off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to stockholders . critical accounting policies our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation . a complete summary of these policies is included in note 2 of the notes to our financial statements . we have identified below the accounting policies that are of particular importance in the presentation of our financial position , results of operations and cash flows , and which require the application of significant judgment by management . mineral properties we are primarily engaged in the acquisition and exploration of mining properties . mineral exploration costs are expensed as incurred . mineral property acquisition costs are initially capitalized when incurred . we assess the carrying costs for impairment under asc 930 , “ extractive activities – mining ” , at each fiscal quarter end . when it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves , the costs then incurred to develop such property , are capitalized . such costs will be amortized using the units-of-production method over the estimated life of the probable reserve . if mineral properties are subsequently story_separator_special_tag 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 32.2 certification of chief financial officer pursuant to rule 13a-14 ( b ) or rule 15d-14 ( b ) promulgated under the securities exchange act of 1934 and 18 u.s.c . 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( 1 ) included as an exhibit to our current report on form 8-k filed on september 16 , 2009 . ( 2 ) included as an exhibit to our current report on form 8-k filed on june 9 , 2009 . ( 3 ) included as an exhibit to our current report on form 8-k filed on june 23 , 2009 . ( 4 ) included as an exhibit to our current report on form 8-k filed on july 27 , 2009 . ( 5 ) included as an exhibit to our current report on form 8-k filed on november 2 , 2009 . 20 signatures pursuant to the requirements of section 13 or 15 ( d ) of the exchange act , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . date : february 16 , 2010 double halo resources inc. by : george m. rock rutherford george m. rock rutherford president , chief executive officer pursuant to the requirements of the exchange act , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date george m. rock rutherford president , chief executive officer february 16 , 2010 george m. rock rutherford michael killman chief financial officer , principal accounting officer february 16 , 2010 michael killman john kuykendall secretary , treasurer february 16 , 2010 john kuykendall michael todd rutherford vice president of information technology february 16 , 2010 michael todd rutherford david chapman director february 16 , 2010 david chapman 21 story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements , including the notes thereto , appearing elsewhere in this annual report . the discussions of results , causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future . results of operations revenues we have limited operational history . from our inception on march 11 , 2004 to october 31 , 2009 we did not generate any revenues and we sustained operational losses . as of october 31 , 2009 we had no total assets and total liabilities of $ 231,895. we anticipate that we will incur substantial losses for the foreseeable future and our ability to generate any revenues in the next 12 months continues to be uncertain . we believe that our success depends on our ability to close the proposed share exchange transaction with agr stone & tools usa , inc. and develop its business as our own . expenses from our inception on march 11 , 2004 to october 31 , 2009 we incurred total operating expenses of $ 306,157 , including $ 25,567 in consulting fees , $ 62,257 in general and administrative expenses , $ 16,898 in mineral property and exploration costs and $ 201,435 in professional fees . for the fiscal year ended october 31 , 2009 we incurred total expenses of $ 103,152 , including $ 25,567 in consulting fees , $ 9,654 in general and administrative expenses and $ 67,931 in professional fees , whereas for the fiscal year ended october 31 , 2008 we incurred total expenses of $ 58,448 , including $ 12,290 in general and administrative expenses and $ 46,158 in professional fees . our general and administrative expenses consisted primarily of transfer agent fees and general office expenses . our professional fees include legal , accounting and auditing fees . net loss from our inception on march 11 , 2004 to october 31 , 2009 we incurred a net loss of $ 306,157. for the fiscal year ended october 31 , 2009 we incurred a net loss of $ 103,152 , whereas for the fiscal year ended october 31 , 2008 we incurred a net loss of $ 58,448 . 6 story_separator_special_tag operations or an improvement in our liquidity situation . the threat of our ability to continue as a going concern will cease to exist only when our revenues have reached a level able to sustain our business operations . off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to stockholders . critical accounting policies our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation . a complete summary of these policies is included in note 2 of the notes to our financial statements . we have identified below the accounting policies that are of particular importance in the presentation of our financial position , results of operations and cash flows , and which require the application of significant judgment by management . mineral properties we are primarily engaged in the acquisition and exploration of mining properties . mineral exploration costs are expensed as incurred . mineral property acquisition costs are initially capitalized when incurred . we assess the carrying costs for impairment under asc 930 , “ extractive activities – mining ” , at each fiscal quarter end . when it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves , the costs then incurred to develop such property , are capitalized . such costs will be amortized using the units-of-production method over the estimated life of the probable reserve . if mineral properties are subsequently
| liquidity and capital resources as of october 31 , 2009 , we did not have any cash or total current assets , and we had total current liabilities and a working capital deficit of $ 231,895. as of october 31 , 2009 , we had an accumulated deficit of $ 306,157. we are dependent on funds raised through equity financing and proceeds from related parties . our net loss of $ 306,895 from our inception on march 11 , 2004 to october 31 , 2009 was funded primarily by such financing and proceeds . since our inception on march 11 , 2004 we have raised gross proceeds of $ 75,000 in cash from the sale of our common stock . from our inception on march 11 , 2004 to october 31 , 2009 we spent $ 204,202 on operating activities . for the fiscal year ended october 31 , 2009 we spent $ 48,806 on operating activities , whereas during the fiscal year ended october 31 , 2008 we spent $ 50,651 on operating activities . the decrease in our expenditures on operating activities during the fiscal year ended october 31 , 2009 was primarily due to an increase in our accounts payable . from our inception on march 11 , 2004 to october 31 , 2009 we received $ 204,940 from financing activities , which consisted of $ 129,923 in advances from related parties , $ 3,200 in proceeds from the issuance of our common stock and $ 71,800 in subscriptions for our common stock . during the fiscal year ended october 31 , 2009 we received $ 48,355 from financing activities , which consisted primarily of advances from related parties , whereas during the fiscal year ended october 31 , 2008 we received $ 51,102 from financing activities , including $ 52,494 in advances from related parties . during the same period we also spent $ 1,392 in connection with bank indebtedness .
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there is substantial risk that if we are unable to renew our eea marketing authorization during any annual renewal cycle , or if our product label is materially restricted , or if study 041 does not provide the data necessary to maintain our marketing authorization , we would lose all , or a significant portion of , our ability to generate revenue from sales of translarna in the eea and other territories . translarna is an investigational new drug in the united states . during the first quarter of 2017 , we filed a new drug application , or nda , for translarna for the treatment of nmdmd over protest with the united states food and drug administration , or fda . in october 2017 , the office of drug evaluation i of the fda issued a complete response letter for the nda , stating that it was unable to approve the application in its current form . in response , we filed a formal dispute resolution request with the office of new drugs of the fda . in february 2018 , the office of new drugs of the fda denied our appeal of the complete response letter . in its response , the office of new drugs recommended a possible path forward for the ataluren nda submission based on the accelerated approval pathway . this would involve a re-submission of an nda containing the current data on effectiveness of ataluren with new data to be generated on dystrophin production in nmdmd patients ' muscles . we intend to follow the fda 's recommendation and will collect , using newer technologies via procedures and methods that we designed , such dystrophin data in a new study , study 045 , which we initiated in the fourth quarter of 2018. we expect that a potential re-submission of an nda could occur in mid-year 2020. additionally , should a re-submission of an nda receive accelerated approval , the office of new drugs stated that study 041 , which is currently enrolling , could serve as the confirmatory post-approval trial required in connection with the accelerated approval framework . 110 there is substantial risk that study 045 , or any other studies we may use to collect the dystrophin data , will not provide the necessary data to support a marketing approval for translarna for the treatment of nmdmd in the u.s. we hold the rights for the commercialization of tegsedi ( inotersen ) and waylivra ( volanesorsen ) for the treatment of rare diseases in countries in latin america and the caribbean pursuant to our collaboration and license agreement with akcea therapeutics , inc. , or akcea . tegsedi has received marketing authorization in the united states , eu and brazil for the treatment of stage 1 or stage 2 polyneuropathy in adult patients with hereditary transthyretin amyloidosis , or hattr amyloidosis . waylivra has received marketing authorization in the european union , or eu , for the treatment of familial chylomicronemia syndrome , or fcs . we anticipate filing for marketing authorization with anvisa in the second half of 2020. we have a pipeline of gene therapy product candidates for rare monogenic diseases that affect the central nervous system , or cns , including ptc-aadc for the treatment of aromatic l-amino acid decarboxylase , or aadc , deficiency , or aadc deficiency , a rare cns disorder arising from reductions in the enzyme aadc that result from mutations in the dopa decarboxylase gene . we are preparing a biologics license application , or bla , for ptc-aadc for the treatment of aadc deficiency in the united states , which we anticipate submitting to the fda in the second quarter of 2020. in january 2020 , we submitted a marketing authorization application , or maa , for ptc-aadc for the treatment of aadc deficiency in the eea to the ema and we expect an opinion from the committee for medicinal products for human use , or chmp , by the end of 2020. we also have a spinal muscular atrophy , or sma , collaboration with f. hoffman-la roche ltd. and hoffman-la roche inc. , which we refer to collectively as roche , and the spinal muscular atrophy foundation , or sma foundation . the lead compound in the sma program is risdiplam ( rg7916 , ro7034067 ) . roche submitted an nda for risdiplam to the fda in the fourth quarter of 2019 and the prescription drug user fee act , or pdufa , date for a decision by the fda is may 24 , 2020. risdiplam is expected to be indicated in the united states for sma type 1 , 2 and 3 patients , if approved . roche anticipates submitting an maa for risdiplam for the treatment of sma in the eea in mid-year 2020. in 2019 , we acquired substantially all of the assets of bioelectron technology corporation , or bioelectron , including certain compounds that we have begun to develop as part of our bio-e platform . in 2020 , we plan to initiate three trials in this platform with two unique compounds that regulate inflammation and oxidative stress . in addition , we have a pipeline of product candidates and discovery programs that are in early clinical , pre-clinical and research and development stages focused on the development of new treatments for multiple therapeutic areas , including rare diseases and oncology . overview—funding the success of our products and any other product candidates we may develop , depends largely on obtaining and maintaining reimbursement from governments and third-party insurers . during 2019 , our revenues were generated from sales of translarna for the treatment of nmdmd in countries where we were able to obtain acceptable commercial pricing and reimbursement terms and in select countries where we are permitted to distribute translarna under our eap programs , and from sales of emflaza for the treatment of dmd in the united states . story_separator_special_tag this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the scope , rate of progress and expense of our clinical trials and other research and development activities ; 114 the potential benefits of our product and product candidates over other therapies ; our ability to market , commercialize and achieve market acceptance for our product or any of our product candidates that we are developing or may develop in the future , including our ability to negotiate pricing and reimbursement terms acceptable to us ; clinical trial results ; the terms and timing of regulatory approvals ; and the expense of filing , prosecuting , defending and enforcing patent claims and other intellectual property rights . a change in the outcome of any of these variables with respect to the development of any of our products or product candidates could mean a significant change in the costs and timing associated with the development of that product candidates . for example , if the ema or fda or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of any of our products or product candidate or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . selling , general and administrative expense selling , general and administrative expenses consist primarily of salaries and other related costs for personnel , including share-based compensation expenses , in our executive , legal , business development , finance , accounting , information technology and human resource functions . other selling , general and administrative expenses include facility-related costs not otherwise included in research and development expense ; advertising and promotional expenses ; costs associated with industry and trade shows ; and professional fees for legal services , including patent-related expenses , accounting services and miscellaneous selling costs . we expect that selling , general and administrative expenses will increase in future periods in connection with our continued efforts to commercialize our products , including increased payroll , expanded infrastructure , commercial operations , increased consulting , legal , accounting and investor relations expenses . interest expense , net interest expense , net consists of interest income earned on investments and interest expense from the convertible notes outstanding and interest expense from the credit agreement . critical accounting policies our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with generally accepted accounting principles in the united states . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . actual results may differ from these estimates under different assumptions or conditions . of our policies , the following are considered critical to an understanding of our consolidated financial statements as they require the application of the most subjective and complex judgment , involving critical accounting estimates and assumptions impacting our consolidated financial statements : revenue recognition convertible notes offering income taxes business combinations and asset acquisitions indefinite-lived intangible assets revenue recognition in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-9 , “ revenue from contracts with customers ( topic 606 ) ” . asu no . 2014-9 eliminated transaction- and industry-specific revenue recognition guidance under fasb accounting standards codification ( “ asc ” ) subtopic 605-15 , revenue recognition-products ( topic 605 ) and replaced it with a principle-based approach for determining revenue recognition . asc topic 606 requires 115 entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . on january 1 , 2018 , we adopted asc topic 606 using the modified retrospective approach , a practical expedient permitted under topic 606 , and applied this approach only to contracts that were not completed as of january 1 , 2018. we calculated a one-time transition adjustment of $ 3.3 million , which was recorded on january 1 , 2018 to the opening balance of accumulated deficit , related to the product sales of emflaza . the asc 606 transition adjustment recorded for emflaza resulted in sales being recognized earlier than under topic 605 , as the deferred revenue recognition model ( sell-through ) is not allowed under topic 606. the one-time adjustment consisted of $ 3.9 million in deferred revenue offset by $ 0.6 million of variable consideration . the information presented for the periods prior to january 1 , 2018 has not been adjusted and is reported under topic 605. periods prior to january 1 , 2018 we recognize revenue when amounts are realized or realizable and earned . revenue is considered realizable and earned when the following criteria are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the price is fixed or determinable ; and ( 4 ) collection of the amounts due are reasonably assured . net product sales prior to the second quarter of 2017 , our net product sales have consisted primarily of sales of translarna for the treatment of nmdmd in territories outside of the u.s. we recognize revenue from product sales when there is persuasive evidence that an arrangement exists , title to product and associated risk of loss has passed to the customer ,
| liquidity and capital resources as of october 31 , 2009 , we did not have any cash or total current assets , and we had total current liabilities and a working capital deficit of $ 231,895. as of october 31 , 2009 , we had an accumulated deficit of $ 306,157. we are dependent on funds raised through equity financing and proceeds from related parties . our net loss of $ 306,895 from our inception on march 11 , 2004 to october 31 , 2009 was funded primarily by such financing and proceeds . since our inception on march 11 , 2004 we have raised gross proceeds of $ 75,000 in cash from the sale of our common stock . from our inception on march 11 , 2004 to october 31 , 2009 we spent $ 204,202 on operating activities . for the fiscal year ended october 31 , 2009 we spent $ 48,806 on operating activities , whereas during the fiscal year ended october 31 , 2008 we spent $ 50,651 on operating activities . the decrease in our expenditures on operating activities during the fiscal year ended october 31 , 2009 was primarily due to an increase in our accounts payable . from our inception on march 11 , 2004 to october 31 , 2009 we received $ 204,940 from financing activities , which consisted of $ 129,923 in advances from related parties , $ 3,200 in proceeds from the issuance of our common stock and $ 71,800 in subscriptions for our common stock . during the fiscal year ended october 31 , 2009 we received $ 48,355 from financing activities , which consisted primarily of advances from related parties , whereas during the fiscal year ended october 31 , 2008 we received $ 51,102 from financing activities , including $ 52,494 in advances from related parties . during the same period we also spent $ 1,392 in connection with bank indebtedness .
| 0 |
there is substantial risk that if we are unable to renew our eea marketing authorization during any annual renewal cycle , or if our product label is materially restricted , or if study 041 does not provide the data necessary to maintain our marketing authorization , we would lose all , or a significant portion of , our ability to generate revenue from sales of translarna in the eea and other territories . translarna is an investigational new drug in the united states . during the first quarter of 2017 , we filed a new drug application , or nda , for translarna for the treatment of nmdmd over protest with the united states food and drug administration , or fda . in october 2017 , the office of drug evaluation i of the fda issued a complete response letter for the nda , stating that it was unable to approve the application in its current form . in response , we filed a formal dispute resolution request with the office of new drugs of the fda . in february 2018 , the office of new drugs of the fda denied our appeal of the complete response letter . in its response , the office of new drugs recommended a possible path forward for the ataluren nda submission based on the accelerated approval pathway . this would involve a re-submission of an nda containing the current data on effectiveness of ataluren with new data to be generated on dystrophin production in nmdmd patients ' muscles . we intend to follow the fda 's recommendation and will collect , using newer technologies via procedures and methods that we designed , such dystrophin data in a new study , study 045 , which we initiated in the fourth quarter of 2018. we expect that a potential re-submission of an nda could occur in mid-year 2020. additionally , should a re-submission of an nda receive accelerated approval , the office of new drugs stated that study 041 , which is currently enrolling , could serve as the confirmatory post-approval trial required in connection with the accelerated approval framework . 110 there is substantial risk that study 045 , or any other studies we may use to collect the dystrophin data , will not provide the necessary data to support a marketing approval for translarna for the treatment of nmdmd in the u.s. we hold the rights for the commercialization of tegsedi ( inotersen ) and waylivra ( volanesorsen ) for the treatment of rare diseases in countries in latin america and the caribbean pursuant to our collaboration and license agreement with akcea therapeutics , inc. , or akcea . tegsedi has received marketing authorization in the united states , eu and brazil for the treatment of stage 1 or stage 2 polyneuropathy in adult patients with hereditary transthyretin amyloidosis , or hattr amyloidosis . waylivra has received marketing authorization in the european union , or eu , for the treatment of familial chylomicronemia syndrome , or fcs . we anticipate filing for marketing authorization with anvisa in the second half of 2020. we have a pipeline of gene therapy product candidates for rare monogenic diseases that affect the central nervous system , or cns , including ptc-aadc for the treatment of aromatic l-amino acid decarboxylase , or aadc , deficiency , or aadc deficiency , a rare cns disorder arising from reductions in the enzyme aadc that result from mutations in the dopa decarboxylase gene . we are preparing a biologics license application , or bla , for ptc-aadc for the treatment of aadc deficiency in the united states , which we anticipate submitting to the fda in the second quarter of 2020. in january 2020 , we submitted a marketing authorization application , or maa , for ptc-aadc for the treatment of aadc deficiency in the eea to the ema and we expect an opinion from the committee for medicinal products for human use , or chmp , by the end of 2020. we also have a spinal muscular atrophy , or sma , collaboration with f. hoffman-la roche ltd. and hoffman-la roche inc. , which we refer to collectively as roche , and the spinal muscular atrophy foundation , or sma foundation . the lead compound in the sma program is risdiplam ( rg7916 , ro7034067 ) . roche submitted an nda for risdiplam to the fda in the fourth quarter of 2019 and the prescription drug user fee act , or pdufa , date for a decision by the fda is may 24 , 2020. risdiplam is expected to be indicated in the united states for sma type 1 , 2 and 3 patients , if approved . roche anticipates submitting an maa for risdiplam for the treatment of sma in the eea in mid-year 2020. in 2019 , we acquired substantially all of the assets of bioelectron technology corporation , or bioelectron , including certain compounds that we have begun to develop as part of our bio-e platform . in 2020 , we plan to initiate three trials in this platform with two unique compounds that regulate inflammation and oxidative stress . in addition , we have a pipeline of product candidates and discovery programs that are in early clinical , pre-clinical and research and development stages focused on the development of new treatments for multiple therapeutic areas , including rare diseases and oncology . overview—funding the success of our products and any other product candidates we may develop , depends largely on obtaining and maintaining reimbursement from governments and third-party insurers . during 2019 , our revenues were generated from sales of translarna for the treatment of nmdmd in countries where we were able to obtain acceptable commercial pricing and reimbursement terms and in select countries where we are permitted to distribute translarna under our eap programs , and from sales of emflaza for the treatment of dmd in the united states . story_separator_special_tag this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the scope , rate of progress and expense of our clinical trials and other research and development activities ; 114 the potential benefits of our product and product candidates over other therapies ; our ability to market , commercialize and achieve market acceptance for our product or any of our product candidates that we are developing or may develop in the future , including our ability to negotiate pricing and reimbursement terms acceptable to us ; clinical trial results ; the terms and timing of regulatory approvals ; and the expense of filing , prosecuting , defending and enforcing patent claims and other intellectual property rights . a change in the outcome of any of these variables with respect to the development of any of our products or product candidates could mean a significant change in the costs and timing associated with the development of that product candidates . for example , if the ema or fda or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of any of our products or product candidate or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . selling , general and administrative expense selling , general and administrative expenses consist primarily of salaries and other related costs for personnel , including share-based compensation expenses , in our executive , legal , business development , finance , accounting , information technology and human resource functions . other selling , general and administrative expenses include facility-related costs not otherwise included in research and development expense ; advertising and promotional expenses ; costs associated with industry and trade shows ; and professional fees for legal services , including patent-related expenses , accounting services and miscellaneous selling costs . we expect that selling , general and administrative expenses will increase in future periods in connection with our continued efforts to commercialize our products , including increased payroll , expanded infrastructure , commercial operations , increased consulting , legal , accounting and investor relations expenses . interest expense , net interest expense , net consists of interest income earned on investments and interest expense from the convertible notes outstanding and interest expense from the credit agreement . critical accounting policies our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with generally accepted accounting principles in the united states . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . actual results may differ from these estimates under different assumptions or conditions . of our policies , the following are considered critical to an understanding of our consolidated financial statements as they require the application of the most subjective and complex judgment , involving critical accounting estimates and assumptions impacting our consolidated financial statements : revenue recognition convertible notes offering income taxes business combinations and asset acquisitions indefinite-lived intangible assets revenue recognition in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-9 , “ revenue from contracts with customers ( topic 606 ) ” . asu no . 2014-9 eliminated transaction- and industry-specific revenue recognition guidance under fasb accounting standards codification ( “ asc ” ) subtopic 605-15 , revenue recognition-products ( topic 605 ) and replaced it with a principle-based approach for determining revenue recognition . asc topic 606 requires 115 entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . on january 1 , 2018 , we adopted asc topic 606 using the modified retrospective approach , a practical expedient permitted under topic 606 , and applied this approach only to contracts that were not completed as of january 1 , 2018. we calculated a one-time transition adjustment of $ 3.3 million , which was recorded on january 1 , 2018 to the opening balance of accumulated deficit , related to the product sales of emflaza . the asc 606 transition adjustment recorded for emflaza resulted in sales being recognized earlier than under topic 605 , as the deferred revenue recognition model ( sell-through ) is not allowed under topic 606. the one-time adjustment consisted of $ 3.9 million in deferred revenue offset by $ 0.6 million of variable consideration . the information presented for the periods prior to january 1 , 2018 has not been adjusted and is reported under topic 605. periods prior to january 1 , 2018 we recognize revenue when amounts are realized or realizable and earned . revenue is considered realizable and earned when the following criteria are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the price is fixed or determinable ; and ( 4 ) collection of the amounts due are reasonably assured . net product sales prior to the second quarter of 2017 , our net product sales have consisted primarily of sales of translarna for the treatment of nmdmd in territories outside of the u.s. we recognize revenue from product sales when there is persuasive evidence that an arrangement exists , title to product and associated risk of loss has passed to the customer ,
| sources of liquidity since inception , we have incurred significant operating losses . as a growing commercial-stage biopharmaceutical company , we are engaging in significant commercialization efforts for our products while also devoting a substantial portion of our efforts on research and development related to our products , product candidates and other programs . to date , almost all of our product revenue has been attributable to sales of translarna for the treatment of nmdmd in territories outside of the united states and from emflaza for the treatment of dmd in the united states . our ongoing ability to generate revenue from sales of translarna for the treatment of nmdmd is dependent upon our ability to maintain our marketing authorization in brazil and in the eea and secure market access through commercial programs following the conclusion of pricing and reimbursement terms at sustainable levels in the member states of the eea or through eap programs in the eea and other territories . the marketing authorization requires annual review and renewal by the european commission following reassessment by the ema of the benefit-risk balance of the authorization and is subject to the specific obligation to 122 conduct study 041. our ability to generate product revenue from emflaza will largely depend on the coverage and reimbursement levels set by governmental authorities , private health insurers and other third-party payors . on august 23 , 2018 , we completed our acquisition of agilis for total upfront consideration comprised of $ 49.2 million in cash and 3,500,907 shares of our common stock , which was determined by dividing $ 150.0 million by the volume-weighted average price per share of our common stock on nasdaq for the 10 consecutive trading-day period ending on the second trading-day immediately preceding the closing . agilis equityholders may become entitled to receive contingent payments from us based on the achievement of certain development , regulatory and net sales milestones as well as based upon a percentage of net sales of certain products .
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our effective rate was lower than the corporate tax rate in both 2014 and 2013 from federal income tax benefits resulting from the tax treatment of earnings on bank owned life insurance , certain tax free municipal securities , and tax credits . note 12 of the audited financial statements provide additional information with respect to our 2014 federal income tax expense and the deferred tax accounts . analysis of financial condition as of december 31 , 2014 and december 31 , 2013 general our total assets were $ 460,865,000 at december 31 , 2014 , an increase of $ 26,354,000 or 6.07 % from $ 434,511,000 at december 31 , 2013 , primarily due to an increase in loan balances which was offset in part by decreases in securities available-for-sale and held-to-maturity , cash and cash equivalents , and the deferred tax asset . as explained in more detail below , deposits increased from $ 387,398,000 on december 31 , 2013 to $ 399,497,000 on december 31 , 2014. loans , net of unearned income and allowance , increased to $ 394,573,000 on december 31 , 2014 from $ 339,994,000 on december 31 , 2013. loans our loan portfolio is the largest and most profitable component of our earning assets . the bank has comprehensive policies and procedures which cover both commercial and consumer loan origination and management of credit risk . loans are underwritten in a manner that focuses on the borrower 's ability to repay . management 's goal is not to avoid risk , but to manage it and to include credit risk as part of the pricing decision for each product . the bank 's loan portfolio consists of commercial short-term lines of credit , term loans , mortgage financing and construction loans that are used by the borrower to build or develop real estate properties , and consumer loans . the consumer portfolio includes residential real estate mortgages , home equity lines and installment loans . loans , net of unearned income and allowance , increased significantly to $ 394,573,000 on december 31 , 2014 from $ 339,994,000 on december 31 , 2013. total loans , including loans held for sale increased to $ 400,393,000 on december 31 , 2014 from $ 347,101,000 on december 31 , 2013. the increase in total loans was partially due to enhanced marketing efforts and the employment of a charlottesville-based lender in september 2013. we anticipate that this office will continue to add to our loan balances . the increase is also attributed to increased calling and sales efforts by our lenders . despite these factors , the number of qualified buyers remains limited . management expects that the number of qualified borrowers will remain limited until the economy further improves . 28 as of december 31 , 2014 , the bank had $ 3,506,000 , or 0.88 % of its total loans , in non-accrual status compared with $ 3,066,000 , or 0.90 % of its total loans , at december 31 , 2013. this slight increase is due primarily to one relationship that became non-accrual in december 2014. despite the increase , efforts are ongoing to reduce non-performing assets through enhanced collection efforts and the liquidation of underlying collateral . the bank attempts to work with borrowers on a case-by-case basis to attempt to protect the bank 's interests . however , despite our commitment , a reduction of non-accrual loans can be dependent on improvements in employment , housing , and overall economic conditions at the local , regional and national levels . see asset quality below . the following table summarizes the composition of the bank 's loan portfolio for the periods indicated by dollar amount : replace_table_token_7_th the following table sets forth the maturities of the loan portfolio at december 31 , 2014. replace_table_token_8_th 29 deposits we experienced an increase in deposits from $ 387,398,000 at december 31 , 2013 to $ 399,497,000 at december 31 , 2014 , for an increase of 3.12 % . noninterest-bearing deposits increased $ 11,426,000 or 18.06 % from $ 63,256,000 at december 31 , 2013 to $ 74,682,000 at december 31 , 2014. the increase in non-interest bearing deposits was due to increased and continued efforts to procure the primary checking accounts of our commercial loan customers . the increase can also be attributed to end of the year real estate and business closings related to our professional settlement accounts . interest-bearing deposits increased slightly $ 673,000 from $ 324,142,000 at december 31 , 2013 to $ 324,815,000 at december 31 , 2014. this modest 0.21 % increase in interest bearing deposits was due primarily to the continued low interest rates paid on accounts . the bank has not aggressively tried to increase deposits in the current environment but anticipates the need to increase deposit levels in 2015 to fund loan growth . the following table sets forth the average deposit balance and the rates paid on deposits for the years indicated : replace_table_token_9_th ( 1 ) although the fdic currently insures accounts up to $ 250,000 , the bank considers $ 100,0000 time deposits ( cds as high balance accounts and therefore continues to monitor cds at and above this amount in order to plan for liquidity needs . the total balance in $ 250,000 and above cds totaled approximately $ 8,785,000 at december 31 , 2014. the following table includes a summary of maturities of cds greater than $ 100,000. maturities of cds greater than $ 100,000 ( dollars in thousands ) less than three months three to six months six to twelve months greater than one year total at december 31 , 2014 $ 5,743 $ 5,138 $ 10,498 story_separator_special_tag beginning in 2011 , asset quality began to rapidly improve . because the bank used a three year charge-off history in calculating general reserves , the general reserves remained elevated ( relative to our historical norms ) through 2013. in 2014 , general reserves would have decreased significantly because , based on the three year charge off history , 2011 charge-off experience would no longer be reflected in the calculation . management was concerned that this decrease would not accurately reflect the increased risk related to expansion in charlottesville and harrisonburg and the related loan growth , as well as continuing economic conditions . throughout the fourth quarter of 2014 , management and the bank 's board of directors had numerous discussions to address this concern regarding the adequacy of the allowance for loan losses going forward . to insure that the general reserves accurately incorporated the additional risks noted above , management recommended to the board that the historical loss history be expanded from 3 years to 4 years within the alll calculation . we believe the expanded four year charge-off history more closely reflects the ongoing economic cycle and the bank 's current operations in the new markets . this recommendation to replace the three year history with the four year history was approved by the board . as of december 31 , 2014 the allowance for loan losses was equal to 1.20 % of the total loan portfolio as compared with 1.50 % at december 31 , 2013. no nonaccrual loans were excluded from impaired loan disclosure under current accounting rules at december 31 , 2014 and 2013. if interest on these loans had been accrued , such income cumulatively would have approximated $ 915,000 and $ 1,173,000 for 2014 and 2013 , respectively . loan payments received on nonaccrual loans are applied to principal . when a loan is placed on nonaccrual status there are several negative implications . first , all interest accrued but unpaid at the time of the classification is deducted from the interest income totals for the bank . second , accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid . third , there may be actual losses that necessitate additional provisions for credit losses charged against earnings . these loans were included in the nonperforming loan totals listed below . the following table sets forth the detail of loans charged-off , recovered , and the changes in the allowance for loan losses as of the dates indicated : replace_table_token_18_th 40 the following table shows the balance and percentage of the bank 's allowance for loan losses allocated to each major category of loans : replace_table_token_19_th the following table provides information on the bank 's nonperforming assets as of the dates indicated : replace_table_token_20_th interest rate sensitivity the most important element of asset/liability management is the monitoring of financial 's sensitivity to interest rate movements . the income stream of financial is subject to risk resulting from interest rate fluctuations to the extent there is a difference between the amount of financial 's interest earning assets and the amount of interest bearing liabilities that prepay , mature or reprice in specified periods . management 's goal is to maximize net interest income with acceptable levels of risk to changes in interest rates . management seeks to meet this goal by influencing the maturity and re-pricing characteristics of the various lending and deposit taking lines of business and by managing discretionary balance sheet asset and liability portfolios . 41 management also is attempting to mitigate interest rate risk by limiting the dollar amount of loans carried on its balance sheet that have fixed rates in excess of five years . to reduce our exposure to interest rate risks inherent with longer term fixed rate loans , we generally do not hold such mortgages on our books . the bank established the mortgage division to serve potential customers that desired fixed rate loans in excess of five years . management monitors interest rate levels on a daily basis and meets in the form of the asset/liability committee ( alco ) at least monthly or when a special situation arises ( e.g . , fomc unscheduled rate change ) . the following reports and or tools are used to assess the current interest rate environment and its impact on financial 's earnings and liquidity : monthly and year-to-date net interest margin and spread calculations , monthly and year-to-date balance sheet and income statements versus budget ( including quarterly interest rate shock analysis ) , quarterly net portfolio value analysis , a weekly survey of rates offered by other local competitive institutions , and gap analysis which matches maturities or repricing dates of interest sensitive assets to those of interest sensitive liabilities . financial currently subscribes to computer simulated modeling tools made available through its consultant , finpro , inc. , to aid in asset/liability analysis . in addition to monitoring by the alco and investment committee , the board is informed of the current asset/liability position and its potential effect on earnings at least quarterly . other borrowings financial uses borrowing in conjunction with deposits to fund lending and investing activities . borrowings include funding of a short-term nature . short-term borrowings consist of securities sold under agreements to repurchase , which are secured transactions with customers and generally mature the day following the date sold . as discussed above , the bank ceased offering sweep accounts to its customers and therefore no longer has short term borrowings in the form repurchase agreements . short-term borrowings may also include federal funds purchased , which are unsecured overnight borrowings from other financial institutions , which totaled $ 3,189,000 and $ 4,108,000 as of december 31 , 2014 and december 31 , 2013 , respectively . unsecured federal funds lines and their respective limits are maintained with the following institutions : community bankers ' bank , $ 11,000,000 ,
| sources of liquidity since inception , we have incurred significant operating losses . as a growing commercial-stage biopharmaceutical company , we are engaging in significant commercialization efforts for our products while also devoting a substantial portion of our efforts on research and development related to our products , product candidates and other programs . to date , almost all of our product revenue has been attributable to sales of translarna for the treatment of nmdmd in territories outside of the united states and from emflaza for the treatment of dmd in the united states . our ongoing ability to generate revenue from sales of translarna for the treatment of nmdmd is dependent upon our ability to maintain our marketing authorization in brazil and in the eea and secure market access through commercial programs following the conclusion of pricing and reimbursement terms at sustainable levels in the member states of the eea or through eap programs in the eea and other territories . the marketing authorization requires annual review and renewal by the european commission following reassessment by the ema of the benefit-risk balance of the authorization and is subject to the specific obligation to 122 conduct study 041. our ability to generate product revenue from emflaza will largely depend on the coverage and reimbursement levels set by governmental authorities , private health insurers and other third-party payors . on august 23 , 2018 , we completed our acquisition of agilis for total upfront consideration comprised of $ 49.2 million in cash and 3,500,907 shares of our common stock , which was determined by dividing $ 150.0 million by the volume-weighted average price per share of our common stock on nasdaq for the 10 consecutive trading-day period ending on the second trading-day immediately preceding the closing . agilis equityholders may become entitled to receive contingent payments from us based on the achievement of certain development , regulatory and net sales milestones as well as based upon a percentage of net sales of certain products .
| 0 |
our effective rate was lower than the corporate tax rate in both 2014 and 2013 from federal income tax benefits resulting from the tax treatment of earnings on bank owned life insurance , certain tax free municipal securities , and tax credits . note 12 of the audited financial statements provide additional information with respect to our 2014 federal income tax expense and the deferred tax accounts . analysis of financial condition as of december 31 , 2014 and december 31 , 2013 general our total assets were $ 460,865,000 at december 31 , 2014 , an increase of $ 26,354,000 or 6.07 % from $ 434,511,000 at december 31 , 2013 , primarily due to an increase in loan balances which was offset in part by decreases in securities available-for-sale and held-to-maturity , cash and cash equivalents , and the deferred tax asset . as explained in more detail below , deposits increased from $ 387,398,000 on december 31 , 2013 to $ 399,497,000 on december 31 , 2014. loans , net of unearned income and allowance , increased to $ 394,573,000 on december 31 , 2014 from $ 339,994,000 on december 31 , 2013. loans our loan portfolio is the largest and most profitable component of our earning assets . the bank has comprehensive policies and procedures which cover both commercial and consumer loan origination and management of credit risk . loans are underwritten in a manner that focuses on the borrower 's ability to repay . management 's goal is not to avoid risk , but to manage it and to include credit risk as part of the pricing decision for each product . the bank 's loan portfolio consists of commercial short-term lines of credit , term loans , mortgage financing and construction loans that are used by the borrower to build or develop real estate properties , and consumer loans . the consumer portfolio includes residential real estate mortgages , home equity lines and installment loans . loans , net of unearned income and allowance , increased significantly to $ 394,573,000 on december 31 , 2014 from $ 339,994,000 on december 31 , 2013. total loans , including loans held for sale increased to $ 400,393,000 on december 31 , 2014 from $ 347,101,000 on december 31 , 2013. the increase in total loans was partially due to enhanced marketing efforts and the employment of a charlottesville-based lender in september 2013. we anticipate that this office will continue to add to our loan balances . the increase is also attributed to increased calling and sales efforts by our lenders . despite these factors , the number of qualified buyers remains limited . management expects that the number of qualified borrowers will remain limited until the economy further improves . 28 as of december 31 , 2014 , the bank had $ 3,506,000 , or 0.88 % of its total loans , in non-accrual status compared with $ 3,066,000 , or 0.90 % of its total loans , at december 31 , 2013. this slight increase is due primarily to one relationship that became non-accrual in december 2014. despite the increase , efforts are ongoing to reduce non-performing assets through enhanced collection efforts and the liquidation of underlying collateral . the bank attempts to work with borrowers on a case-by-case basis to attempt to protect the bank 's interests . however , despite our commitment , a reduction of non-accrual loans can be dependent on improvements in employment , housing , and overall economic conditions at the local , regional and national levels . see asset quality below . the following table summarizes the composition of the bank 's loan portfolio for the periods indicated by dollar amount : replace_table_token_7_th the following table sets forth the maturities of the loan portfolio at december 31 , 2014. replace_table_token_8_th 29 deposits we experienced an increase in deposits from $ 387,398,000 at december 31 , 2013 to $ 399,497,000 at december 31 , 2014 , for an increase of 3.12 % . noninterest-bearing deposits increased $ 11,426,000 or 18.06 % from $ 63,256,000 at december 31 , 2013 to $ 74,682,000 at december 31 , 2014. the increase in non-interest bearing deposits was due to increased and continued efforts to procure the primary checking accounts of our commercial loan customers . the increase can also be attributed to end of the year real estate and business closings related to our professional settlement accounts . interest-bearing deposits increased slightly $ 673,000 from $ 324,142,000 at december 31 , 2013 to $ 324,815,000 at december 31 , 2014. this modest 0.21 % increase in interest bearing deposits was due primarily to the continued low interest rates paid on accounts . the bank has not aggressively tried to increase deposits in the current environment but anticipates the need to increase deposit levels in 2015 to fund loan growth . the following table sets forth the average deposit balance and the rates paid on deposits for the years indicated : replace_table_token_9_th ( 1 ) although the fdic currently insures accounts up to $ 250,000 , the bank considers $ 100,0000 time deposits ( cds as high balance accounts and therefore continues to monitor cds at and above this amount in order to plan for liquidity needs . the total balance in $ 250,000 and above cds totaled approximately $ 8,785,000 at december 31 , 2014. the following table includes a summary of maturities of cds greater than $ 100,000. maturities of cds greater than $ 100,000 ( dollars in thousands ) less than three months three to six months six to twelve months greater than one year total at december 31 , 2014 $ 5,743 $ 5,138 $ 10,498 story_separator_special_tag beginning in 2011 , asset quality began to rapidly improve . because the bank used a three year charge-off history in calculating general reserves , the general reserves remained elevated ( relative to our historical norms ) through 2013. in 2014 , general reserves would have decreased significantly because , based on the three year charge off history , 2011 charge-off experience would no longer be reflected in the calculation . management was concerned that this decrease would not accurately reflect the increased risk related to expansion in charlottesville and harrisonburg and the related loan growth , as well as continuing economic conditions . throughout the fourth quarter of 2014 , management and the bank 's board of directors had numerous discussions to address this concern regarding the adequacy of the allowance for loan losses going forward . to insure that the general reserves accurately incorporated the additional risks noted above , management recommended to the board that the historical loss history be expanded from 3 years to 4 years within the alll calculation . we believe the expanded four year charge-off history more closely reflects the ongoing economic cycle and the bank 's current operations in the new markets . this recommendation to replace the three year history with the four year history was approved by the board . as of december 31 , 2014 the allowance for loan losses was equal to 1.20 % of the total loan portfolio as compared with 1.50 % at december 31 , 2013. no nonaccrual loans were excluded from impaired loan disclosure under current accounting rules at december 31 , 2014 and 2013. if interest on these loans had been accrued , such income cumulatively would have approximated $ 915,000 and $ 1,173,000 for 2014 and 2013 , respectively . loan payments received on nonaccrual loans are applied to principal . when a loan is placed on nonaccrual status there are several negative implications . first , all interest accrued but unpaid at the time of the classification is deducted from the interest income totals for the bank . second , accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid . third , there may be actual losses that necessitate additional provisions for credit losses charged against earnings . these loans were included in the nonperforming loan totals listed below . the following table sets forth the detail of loans charged-off , recovered , and the changes in the allowance for loan losses as of the dates indicated : replace_table_token_18_th 40 the following table shows the balance and percentage of the bank 's allowance for loan losses allocated to each major category of loans : replace_table_token_19_th the following table provides information on the bank 's nonperforming assets as of the dates indicated : replace_table_token_20_th interest rate sensitivity the most important element of asset/liability management is the monitoring of financial 's sensitivity to interest rate movements . the income stream of financial is subject to risk resulting from interest rate fluctuations to the extent there is a difference between the amount of financial 's interest earning assets and the amount of interest bearing liabilities that prepay , mature or reprice in specified periods . management 's goal is to maximize net interest income with acceptable levels of risk to changes in interest rates . management seeks to meet this goal by influencing the maturity and re-pricing characteristics of the various lending and deposit taking lines of business and by managing discretionary balance sheet asset and liability portfolios . 41 management also is attempting to mitigate interest rate risk by limiting the dollar amount of loans carried on its balance sheet that have fixed rates in excess of five years . to reduce our exposure to interest rate risks inherent with longer term fixed rate loans , we generally do not hold such mortgages on our books . the bank established the mortgage division to serve potential customers that desired fixed rate loans in excess of five years . management monitors interest rate levels on a daily basis and meets in the form of the asset/liability committee ( alco ) at least monthly or when a special situation arises ( e.g . , fomc unscheduled rate change ) . the following reports and or tools are used to assess the current interest rate environment and its impact on financial 's earnings and liquidity : monthly and year-to-date net interest margin and spread calculations , monthly and year-to-date balance sheet and income statements versus budget ( including quarterly interest rate shock analysis ) , quarterly net portfolio value analysis , a weekly survey of rates offered by other local competitive institutions , and gap analysis which matches maturities or repricing dates of interest sensitive assets to those of interest sensitive liabilities . financial currently subscribes to computer simulated modeling tools made available through its consultant , finpro , inc. , to aid in asset/liability analysis . in addition to monitoring by the alco and investment committee , the board is informed of the current asset/liability position and its potential effect on earnings at least quarterly . other borrowings financial uses borrowing in conjunction with deposits to fund lending and investing activities . borrowings include funding of a short-term nature . short-term borrowings consist of securities sold under agreements to repurchase , which are secured transactions with customers and generally mature the day following the date sold . as discussed above , the bank ceased offering sweep accounts to its customers and therefore no longer has short term borrowings in the form repurchase agreements . short-term borrowings may also include federal funds purchased , which are unsecured overnight borrowings from other financial institutions , which totaled $ 3,189,000 and $ 4,108,000 as of december 31 , 2014 and december 31 , 2013 , respectively . unsecured federal funds lines and their respective limits are maintained with the following institutions : community bankers ' bank , $ 11,000,000 ,
| capital resources capital adequacy is an important measure of financial stability and performance . management 's objectives are to maintain a level of capitalization that is sufficient to sustain asset growth and promote depositor and investor confidence . 36 regulatory agencies measure capital adequacy utilizing a formula that takes into account the individual risk profiles of financial institutions . the guidelines define capital as tier 1 ( primarily common stockholders ' equity , defined to include certain debt obligations ) and tier 2 ( remaining capital generally consisting of a limited amount of subordinated debt , certain hybrid capital instruments and other debt securities , preferred stock and a limited amount of the general valuation allowance for loan losses ) . the bank 's regulatory capital levels exceed those established for well-capitalized institutions . the following table ( along with note 17 of the audited financial statements ) shows the minimum capital requirements and the bank 's capital position as of december 31 , 2014 and 2013. replace_table_token_14_th replace_table_token_15_th during the third quarter of 2012 , financial closed a private placement of unregistered debt securities ( the 2012 offering ) pursuant to which financial issued $ 10,000,000 in principal of notes ( the 2012 notes ) . the 2012 notes have not been and will not be registered under the securities act of 1933 and may not be offered or sold in the united states absent registration or an applicable exemption from registration requirements . the 2012 notes bear interest at the rate of 6 % per year with interest payable quarterly in arrears . the 2012 notes mature on april 1 , 2017 , but are subject to prepayment in whole or in part on or after april 1 , 2013 at financial 's sole discretion on 30 days written notice to the holders . financial used $ 7 million of the proceeds from the 2012 offering in april 2012 to pay on maturity the principal due on notes issued in 2009. the proceeds from the 2012 offering , existing capital , and funds generated from operations provide financial with sufficient liquidity and capital with which to operate .
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these transactions were completed , and 63,773,603 shares of common stock and 18,369,262 llc interests ( along with an equivalent number of shares of class b common stock ) were issued , on february 4 , 2011 , and the aggregate gross proceeds of the rights offering and the concurrent private placement were $ 46.0 million . in contemplation of the rights offering , on september 23 , 2010 we entered into a letter agreement with cargill pursuant to which we issued 6,597,790 shares of common stock to cargill on february 15 , 2011 , in exchange for the extinguishment of certain indebtedness . see “ — liquidity and capital resources — rights offering and llc concurrent private placement ” . in june 2011 the company terminated its long-term distillers grains marketing agreements with cargill . the company has entered into separate marketing agreements with independent third party marketers for its dry and wet distillers grains . these agreements are for a term of one year , with options to renew for subsequent years , and contain other customary commercial terms . during 2011 , the company decided to install corn oil extraction systems at each of its ethanol plants so that it could begin producing corn oil as an additional co-product . these systems were installed using certain patented technology we have licensed from greenshift corporation for which we pay a royalty . on october 28 , 2011 , the company 's operating subsidiaries received funding under an operating lease each operating subsidiary entered into with farnam street financial , inc. these operating leases provided the funding to pay for most of the costs of installing the corn oil extraction systems at each operating subsidiary . the installation in wood river was completed in december 2011 and the installation in fairmont was completed in january 2012. both operating subsidiaries began generating revenues from corn oil sales early in the first quarter of 2012 . 33 liquidity considerations our operations and cash flows are subject to wide and unpredictable fluctuations primarily due to changes in commodity prices , specifically , the price of our main commodity input , corn , relative to the price of our main commodity product , ethanol , which is known in the industry as the “ crush spread ” . the prices of these commodities are volatile and beyond our control . as a result of the volatility of the prices for these and other items , our results fluctuate substantially and in ways that are largely beyond our control . for example , as shown in the accompanying consolidated financial statements , the company was profitable during the last half of 2011 , with net income of $ 7.0 million , as commodity margins improved significantly from earlier in the year . however , primarily due to narrow commodity margins in the first half of the year , the company incurred a net loss of $ 10.4 million for the year ended december 31 , 2011. narrow commodity margins present a significant risk to our cash flows and liquidity . we have had , and continue to have , limited liquidity , with $ 15.1 million of cash and cash equivalents as of december 31 , 2011. in addition , we have relied upon extensions of payment terms by cargill as an additional source of liquidity and working capital . see `` — liquidity and capital resources `` . commodity margins have narrowed since the end of 2011and , should current commodity margins continue for an extended period of time , we may not generate sufficient cash flow from operations to both service our debt and operate our plants . we are required to make , under the terms of our senior debt facility , quarterly principal payments in a minimum amount of $ 3,150,000 , plus accrued interest . we can not predict when or if crush spreads will fluctuate again or if the current commodity margins will improve or worsen . if crush spreads were to remain at current levels for an extended period of time , we may expend all of our sources of liquidity , in which event we would not be able to pay principal and interest on our debt . any inability to pay principal and interest on our debt would lead to an event of default under our senior debt facility , which , in the absence of forbearance , debt service abeyance or other accommodations from our lenders , could require us to seek relief through a filing under the u.s. bankruptcy code . we expect fluctuations in the crush spread to continue . since we commenced operations , we have from time to time entered into derivative financial instruments such as futures contracts , swaps and options contracts with the objective of limiting our exposure to changes in commodities prices . in the past , we have only been able to conduct such hedging activities on a limited basis due to our lack of financial resources and , while we are currently engaged in some hedging activities , we may not have the financial resources to increase or conduct hedging activities in the future . revenues our primary source of revenue is the sale of ethanol . the selling prices we realize for our ethanol are largely determined by the market supply and demand for ethanol , which , in turn , is influenced by industry and other factors , including government policy and regulations , over which we have little control . ethanol prices are extremely volatile . ethanol revenues are recorded net of transportation and storage charges , and net of marketing commissions we pay to cargill . we also receive revenue from the sale of distillers grain , which is a residual co-product of the processed corn used in the production of ethanol and is sold as animal feed . story_separator_special_tag on february 2 , 2011 , the company 's stockholders approved an increase in the number of authorized shares of common stock of the company , which resulted in the automatic conversion of shares of the preferred stock into shares of the company 's common stock such that subscribers in the rights offering were issued one share of common stock in lieu of each depositary share subscribed for . these transactions were completed , and 63,773,603 shares of common stock and 18,369,262 llc interests ( along with an equivalent number of shares of class b common stock ) were issued , on february 4 , 2011 , and the aggregate gross proceeds of the rights offering and the concurrent private placement were $ 46.0 million . the proceeds of the transaction were used to ( i ) repay in full the bridge loan , ( ii ) repay in full the company 's obligations under the subordinated debt , ( iii ) repay a portion of the cargill debt , and ( iv ) pay certain fees and expenses incurred in connection with the rights offering and the llc 's concurrent private placement . the bridge loan lenders agreed to ( i ) participate in the rights offering for their full pro rata share and participate in the llc 's concurrent private placement for their full basic purchase privileges , which we refer to as their “ basic commitment ” and ( ii ) purchase all of the available depositary shares not otherwise sold in the rights offering and or all of the available preferred membership interests in the llc not sold in the concurrent private placement , which we refer to as their “ backstop commitment ” . the bridge loan lenders purchased $ 0.9 million of depositary shares not otherwise sold in the rights offering pursuant to their backstop commitment . in consideration of their backstop commitment , the company paid the bridge loan lenders $ 0.9 million . in contemplation of the rights offering , on september 23 , 2010 , we entered into a letter agreement with cargill pursuant to which we agreed to ( i ) use a portion of the proceeds from the rights offering to repay a portion of the cargill debt , upon which cargill would forgive a like amount of principal and any accrued interest on such forgiven principal according to its original terms , and ( ii ) upon successful completion of the rights offering , issue a number of depositary shares in exchange for their forgiveness of the remaining principal balance of the cargill debt , the number of shares to be determined by the weighted average price of the company 's common stock for the 10 consecutive trading days following completion of the rights offering . on february 15 , 2011 , the company issued 6,597,790 shares of common stock to cargill in exchange for the extinguishment of the remaining principal amount of the cargill debt . off-balance sheet arrangements except for our operating leases , we do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources . summary of critical accounting policies and significant estimates the consolidated financial statements of biofuel energy corp. included in this form 10-k have been prepared in conformity with accounting principles generally accepted in the united states . note 2 to these consolidated financial statements contains a summary of our significant accounting policies , certain of which require the use of estimates and assumptions . accounting estimates are an integral part of the preparation of financial statements and are based on judgments by management using its knowledge and experience about the past and current events and assumptions regarding future events , all of which we consider to be reasonable . these judgments and estimates reflect the effects of matters that are inherently uncertain and that affect the carrying value of our assets and liabilities , the disclosure of contingent liabilities and reported amounts of expenses during the reporting period . the accounting estimates and assumptions discussed in this section are those that we believe involve significant judgments and the most uncertainty . changes in these estimates or assumptions could materially affect our financial position and results of operations and are therefore important to an understanding of our consolidated financial statements . 42 revenues the company sells its ethanol and distillers grain products under the terms of marketing agreements . revenue is recognized when risk of loss and title transfers upon shipment of ethanol and distillers grain . in accordance with our marketing agreements , the company records its revenues based on the amounts payable to us at the time of our sales of ethanol and distillers grain . for our ethanol that is sold within the united states , the amount payable is equal to the average delivered price per gallon received by the marketing pool from cargill 's customers , less average transportation and storage charges incurred by cargill , and less a commission . we also sell a portion of our ethanol production to cargill for export , which sales are shipped undenatured and are excluded from the marketing pool . for exported ethanol sales , the amount payable is equal to the contracted delivered price per gallon , less transportation and storage charges , and less a commission . the amount payable for distillers grain is equal to the market price of distillers grain at the time of sale less a commission . recoverability of property , plant and equipment the company has two asset groups , its ethanol facility in fairmont and its ethanol facility in wood river , which are evaluated separately when considering whether the carrying value of these assets has been impaired . the company continually monitors whether or
| capital resources capital adequacy is an important measure of financial stability and performance . management 's objectives are to maintain a level of capitalization that is sufficient to sustain asset growth and promote depositor and investor confidence . 36 regulatory agencies measure capital adequacy utilizing a formula that takes into account the individual risk profiles of financial institutions . the guidelines define capital as tier 1 ( primarily common stockholders ' equity , defined to include certain debt obligations ) and tier 2 ( remaining capital generally consisting of a limited amount of subordinated debt , certain hybrid capital instruments and other debt securities , preferred stock and a limited amount of the general valuation allowance for loan losses ) . the bank 's regulatory capital levels exceed those established for well-capitalized institutions . the following table ( along with note 17 of the audited financial statements ) shows the minimum capital requirements and the bank 's capital position as of december 31 , 2014 and 2013. replace_table_token_14_th replace_table_token_15_th during the third quarter of 2012 , financial closed a private placement of unregistered debt securities ( the 2012 offering ) pursuant to which financial issued $ 10,000,000 in principal of notes ( the 2012 notes ) . the 2012 notes have not been and will not be registered under the securities act of 1933 and may not be offered or sold in the united states absent registration or an applicable exemption from registration requirements . the 2012 notes bear interest at the rate of 6 % per year with interest payable quarterly in arrears . the 2012 notes mature on april 1 , 2017 , but are subject to prepayment in whole or in part on or after april 1 , 2013 at financial 's sole discretion on 30 days written notice to the holders . financial used $ 7 million of the proceeds from the 2012 offering in april 2012 to pay on maturity the principal due on notes issued in 2009. the proceeds from the 2012 offering , existing capital , and funds generated from operations provide financial with sufficient liquidity and capital with which to operate .
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these transactions were completed , and 63,773,603 shares of common stock and 18,369,262 llc interests ( along with an equivalent number of shares of class b common stock ) were issued , on february 4 , 2011 , and the aggregate gross proceeds of the rights offering and the concurrent private placement were $ 46.0 million . in contemplation of the rights offering , on september 23 , 2010 we entered into a letter agreement with cargill pursuant to which we issued 6,597,790 shares of common stock to cargill on february 15 , 2011 , in exchange for the extinguishment of certain indebtedness . see “ — liquidity and capital resources — rights offering and llc concurrent private placement ” . in june 2011 the company terminated its long-term distillers grains marketing agreements with cargill . the company has entered into separate marketing agreements with independent third party marketers for its dry and wet distillers grains . these agreements are for a term of one year , with options to renew for subsequent years , and contain other customary commercial terms . during 2011 , the company decided to install corn oil extraction systems at each of its ethanol plants so that it could begin producing corn oil as an additional co-product . these systems were installed using certain patented technology we have licensed from greenshift corporation for which we pay a royalty . on october 28 , 2011 , the company 's operating subsidiaries received funding under an operating lease each operating subsidiary entered into with farnam street financial , inc. these operating leases provided the funding to pay for most of the costs of installing the corn oil extraction systems at each operating subsidiary . the installation in wood river was completed in december 2011 and the installation in fairmont was completed in january 2012. both operating subsidiaries began generating revenues from corn oil sales early in the first quarter of 2012 . 33 liquidity considerations our operations and cash flows are subject to wide and unpredictable fluctuations primarily due to changes in commodity prices , specifically , the price of our main commodity input , corn , relative to the price of our main commodity product , ethanol , which is known in the industry as the “ crush spread ” . the prices of these commodities are volatile and beyond our control . as a result of the volatility of the prices for these and other items , our results fluctuate substantially and in ways that are largely beyond our control . for example , as shown in the accompanying consolidated financial statements , the company was profitable during the last half of 2011 , with net income of $ 7.0 million , as commodity margins improved significantly from earlier in the year . however , primarily due to narrow commodity margins in the first half of the year , the company incurred a net loss of $ 10.4 million for the year ended december 31 , 2011. narrow commodity margins present a significant risk to our cash flows and liquidity . we have had , and continue to have , limited liquidity , with $ 15.1 million of cash and cash equivalents as of december 31 , 2011. in addition , we have relied upon extensions of payment terms by cargill as an additional source of liquidity and working capital . see `` — liquidity and capital resources `` . commodity margins have narrowed since the end of 2011and , should current commodity margins continue for an extended period of time , we may not generate sufficient cash flow from operations to both service our debt and operate our plants . we are required to make , under the terms of our senior debt facility , quarterly principal payments in a minimum amount of $ 3,150,000 , plus accrued interest . we can not predict when or if crush spreads will fluctuate again or if the current commodity margins will improve or worsen . if crush spreads were to remain at current levels for an extended period of time , we may expend all of our sources of liquidity , in which event we would not be able to pay principal and interest on our debt . any inability to pay principal and interest on our debt would lead to an event of default under our senior debt facility , which , in the absence of forbearance , debt service abeyance or other accommodations from our lenders , could require us to seek relief through a filing under the u.s. bankruptcy code . we expect fluctuations in the crush spread to continue . since we commenced operations , we have from time to time entered into derivative financial instruments such as futures contracts , swaps and options contracts with the objective of limiting our exposure to changes in commodities prices . in the past , we have only been able to conduct such hedging activities on a limited basis due to our lack of financial resources and , while we are currently engaged in some hedging activities , we may not have the financial resources to increase or conduct hedging activities in the future . revenues our primary source of revenue is the sale of ethanol . the selling prices we realize for our ethanol are largely determined by the market supply and demand for ethanol , which , in turn , is influenced by industry and other factors , including government policy and regulations , over which we have little control . ethanol prices are extremely volatile . ethanol revenues are recorded net of transportation and storage charges , and net of marketing commissions we pay to cargill . we also receive revenue from the sale of distillers grain , which is a residual co-product of the processed corn used in the production of ethanol and is sold as animal feed . story_separator_special_tag on february 2 , 2011 , the company 's stockholders approved an increase in the number of authorized shares of common stock of the company , which resulted in the automatic conversion of shares of the preferred stock into shares of the company 's common stock such that subscribers in the rights offering were issued one share of common stock in lieu of each depositary share subscribed for . these transactions were completed , and 63,773,603 shares of common stock and 18,369,262 llc interests ( along with an equivalent number of shares of class b common stock ) were issued , on february 4 , 2011 , and the aggregate gross proceeds of the rights offering and the concurrent private placement were $ 46.0 million . the proceeds of the transaction were used to ( i ) repay in full the bridge loan , ( ii ) repay in full the company 's obligations under the subordinated debt , ( iii ) repay a portion of the cargill debt , and ( iv ) pay certain fees and expenses incurred in connection with the rights offering and the llc 's concurrent private placement . the bridge loan lenders agreed to ( i ) participate in the rights offering for their full pro rata share and participate in the llc 's concurrent private placement for their full basic purchase privileges , which we refer to as their “ basic commitment ” and ( ii ) purchase all of the available depositary shares not otherwise sold in the rights offering and or all of the available preferred membership interests in the llc not sold in the concurrent private placement , which we refer to as their “ backstop commitment ” . the bridge loan lenders purchased $ 0.9 million of depositary shares not otherwise sold in the rights offering pursuant to their backstop commitment . in consideration of their backstop commitment , the company paid the bridge loan lenders $ 0.9 million . in contemplation of the rights offering , on september 23 , 2010 , we entered into a letter agreement with cargill pursuant to which we agreed to ( i ) use a portion of the proceeds from the rights offering to repay a portion of the cargill debt , upon which cargill would forgive a like amount of principal and any accrued interest on such forgiven principal according to its original terms , and ( ii ) upon successful completion of the rights offering , issue a number of depositary shares in exchange for their forgiveness of the remaining principal balance of the cargill debt , the number of shares to be determined by the weighted average price of the company 's common stock for the 10 consecutive trading days following completion of the rights offering . on february 15 , 2011 , the company issued 6,597,790 shares of common stock to cargill in exchange for the extinguishment of the remaining principal amount of the cargill debt . off-balance sheet arrangements except for our operating leases , we do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources . summary of critical accounting policies and significant estimates the consolidated financial statements of biofuel energy corp. included in this form 10-k have been prepared in conformity with accounting principles generally accepted in the united states . note 2 to these consolidated financial statements contains a summary of our significant accounting policies , certain of which require the use of estimates and assumptions . accounting estimates are an integral part of the preparation of financial statements and are based on judgments by management using its knowledge and experience about the past and current events and assumptions regarding future events , all of which we consider to be reasonable . these judgments and estimates reflect the effects of matters that are inherently uncertain and that affect the carrying value of our assets and liabilities , the disclosure of contingent liabilities and reported amounts of expenses during the reporting period . the accounting estimates and assumptions discussed in this section are those that we believe involve significant judgments and the most uncertainty . changes in these estimates or assumptions could materially affect our financial position and results of operations and are therefore important to an understanding of our consolidated financial statements . 42 revenues the company sells its ethanol and distillers grain products under the terms of marketing agreements . revenue is recognized when risk of loss and title transfers upon shipment of ethanol and distillers grain . in accordance with our marketing agreements , the company records its revenues based on the amounts payable to us at the time of our sales of ethanol and distillers grain . for our ethanol that is sold within the united states , the amount payable is equal to the average delivered price per gallon received by the marketing pool from cargill 's customers , less average transportation and storage charges incurred by cargill , and less a commission . we also sell a portion of our ethanol production to cargill for export , which sales are shipped undenatured and are excluded from the marketing pool . for exported ethanol sales , the amount payable is equal to the contracted delivered price per gallon , less transportation and storage charges , and less a commission . the amount payable for distillers grain is equal to the market price of distillers grain at the time of sale less a commission . recoverability of property , plant and equipment the company has two asset groups , its ethanol facility in fairmont and its ethanol facility in wood river , which are evaluated separately when considering whether the carrying value of these assets has been impaired . the company continually monitors whether or
| liquidity and capital resources our cash flows from operating , investing and financing activities during the years ended december 31 , 2011 and 2010 are summarized below ( in thousands ) : replace_table_token_9_th cash provided by operating activities . net cash provided by operating activities was $ 23.6 million for the year ended december 31 , 2011 , compared to $ 12.9 million for the year ended december 31 , 2010. for the year ended december 31 , 2011 , the amount was primarily comprised of a net loss of $ 10.4 million which was offset by working capital sources of $ 2.8 million and non-cash charges of $ 31.2 million , which were primarily depreciation and amortization . working capital sources primarily related to a decrease in accounts receivables which was partially offset by an increase in inventories and a decrease in accounts payable . for the year ended december 31 , 2010 , the amount was primarily comprised of a net loss of $ 25.2 million which was offset by working capital sources of $ 6.2 million and non-cash charges of $ 31.9 million , which were primarily depreciation and amortization . cash used in investing activities . net cash used in investing activities was $ 2.8 million for the year ended december 31 , 2011 , compared to $ 4.6 million for the year ended december 31 , 2010. the net cash used in investing activities during both periods was for capital expenditures related to various plant improvement projects . cash used in financing activities .
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accordingly , actual results could differ materially from those contemplated by any forward-looking statement . all subsequent written and oral forward-looking statements concerning the company or other matters attributable to the company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above . you are cautioned not to place undue reliance on these forward-looking statements , which speak only to the date they are made . the company is under no obligation ( and expressly disclaims any such obligation ) to update or revise any forward-looking statement that may be made from time to time , whether as a result of new information , future developments or otherwise . please review “ part i , item 1a—risk factors ” in this annual report for a discussion of the factors , risks and uncertainties that could affect our future results . 35 our fiscal year consists of 52 or 53 weeks , ending on the friday closest to september 30. for clarity of presentation , we present all periods as if the year ended on september 30. we refer to the fiscal year ended september 30 , 2018 as “ fiscal 2018 ” and the fiscal year ended september 30 , 2019 as “ fiscal 2019 . ” overview we are a leading fully integrated firm positioned to design , build , finance and operate infrastructure assets for governments , businesses and organizations throughout the world . we provide planning , consulting , architectural and engineering design services to commercial and government clients worldwide in major end markets such as transportation , facilities , environmental , energy , water and government markets . we also provide construction services , including building construction and energy , infrastructure and industrial construction , primarily in the americas . in addition , we provide program and facilities management and maintenance , training , logistics , consulting , technical assistance , and systems integration and information technology services , primarily for agencies of the u.s. government and also for national governments around the world . our business focuses primarily on providing fee-based planning , consulting , architectural and engineering design services and , therefore , our business is labor intensive . we primarily derive income from our ability to generate revenue and collect cash from our clients through the billing of our employees ' time spent on client projects and our ability to manage our costs . aecom capital primarily derives its income from real estate development sales and management fees . we report our business through four segments : design and consulting services ( dcs ) , construction services ( cs ) , management services ( ms ) , and aecom capital ( acap ) . such segments are organized by the types of services provided , the differing specialized needs of the respective clients , and how we manage the business . we have aggregated various operating segments into our reportable segments based on their similar characteristics , including similar long-term financial performance , the nature of services provided , internal processes for delivering those services , and types of customers . our dcs segment delivers planning , consulting , architectural and engineering design services to commercial and government clients worldwide in major end markets such as transportation , facilities , environmental , energy , water and government . dcs revenue is primarily derived from fees from services that we provide , as opposed to pass-through costs from subcontractors . our cs segment provides construction services , including building construction and energy , infrastructure and industrial construction , primarily in the americas . cs revenue typically includes a significant amount of pass-through costs from subcontractors . our ms segment provides program and facilities management and maintenance , training , logistics , consulting , technical assistance , and systems integration and information technology services , primarily for agencies of the u.s. government and also for national governments around the world . ms revenue typically includes a significant amount of pass-through costs from subcontractors . our acap segment primarily invests in real estate projects . acap typically partners with investors and experienced developers as co-general partners . in addition , acap may , but is not required to , enter into contracts with our other aecom affiliates to provide design , engineering , construction management , development and operations and maintenance services for acap funded projects . our revenue is dependent on our ability to attract and retain qualified and productive employees , identify business opportunities , integrate and maximize the value of our recent acquisitions , allocate our labor resources to profitable and high growth markets , secure new contracts and renew existing client agreements . demand for our services is cyclical and may be vulnerable to sudden economic downturns and reductions in government and private industry spending , which may result in clients delaying , curtailing or canceling proposed and existing projects . moreover , as a professional services company , maintaining the high quality of the work generated by our employees is integral to our revenue generation and profitability . 36 our costs consist primarily of the compensation we pay to our employees , including salaries , fringe benefits , the costs of hiring subcontractors , other project-related expenses and sales , general and administrative costs . in december 2015 , the federal legislation referred to as the fixing america 's surface transportation act ( fast act ) was authorized . the fast act is a five-year federal program expected to provide infrastructure spending on roads , bridges , and public transit and rail systems . we expect that the passage of the fast act will continue to positively impact our transportation services business . the u.s. federal government has proposed significant legislative and executive infrastructure initiatives that , if enacted , could have a positive impact to our infrastructure business . story_separator_special_tag during the impairment test , we estimate the fair value of the reporting unit using income and market approaches , and compare that amount to the carrying value of that reporting unit . in the event the fair value of the reporting unit is determined to be less than the carrying value , goodwill is impaired , and an impairment loss is recognized equal to the excess , limited to the total amount of goodwill allocated to the reporting unit . during the fourth quarter , we conduct our annual goodwill impairment test . the impairment evaluation process includes , among other things , making assumptions about variables such as revenue growth rates , profitability , discount rates , and industry market multiples , which are subject to a high degree of judgment . material assumptions used in the impairment analysis included the weighted average cost of capital ( wacc ) percent and terminal growth rates . for example , as of september 30 , 2019 , a 1 % increase in the wacc rate represents a $ 900 million decrease to the fair value of our reporting units . as of september 30 , 2019 , a 1 % decrease in the terminal growth rate represents a $ 500 million decrease to the fair value of our reporting units . pension benefit obligations a number of assumptions are necessary to determine our pension liabilities and net periodic costs . these liabilities and net periodic costs are sensitive to changes in those assumptions . the assumptions include discount rates , long-term rates of return on plan assets and inflation levels limited to the united kingdom and are generally determined based on the current economic environment in each host country at the end of each respective annual reporting period . we evaluate the funded status of each of our retirement plans using these current assumptions and determine the appropriate funding level considering applicable regulatory requirements , tax deductibility , reporting considerations and other factors . based upon current assumptions , we expect to contribute $ 26.6 million to our international plans in fiscal 2020. our required minimum contributions for our u.s. qualified plans are not significant . in addition , we may make additional discretionary contributions . we currently expect to contribute $ 14.7 million to our u.s. plans ( including benefit payments to nonqualified plans and postretirement medical plans ) in fiscal 2020. if the discount rate was reduced by 25 basis points , plan liabilities would increase by approximately $ 83.0 million . if the discount rate and return on plan assets were reduced by 25 basis points , plan expense would decrease by approximately $ 0.4 million and increase by approximately $ 3.5 million , respectively . if inflation increased by 25 basis points , plan liabilities in the united kingdom would increase by approximately $ 40.8 million and plan expense would increase by approximately $ 2.2 million . at each measurement date , all assumptions are reviewed and adjusted as appropriate . with respect to establishing the return on assets assumption , we consider the long term capital market expectations for each asset class held as an investment by the various pension plans . in addition to expected returns for each asset class , we take into account standard deviation of returns and correlation between asset classes . this is necessary in order to generate a distribution of possible returns which reflects diversification of assets . based on this information , a distribution of possible returns is generated based on the plan 's target asset allocation . capital market expectations for determining the long term rate of return on assets are based on forward-looking assumptions which reflect a 20-year view of the capital markets . in establishing those capital market assumptions and expectations , we rely on the assistance of our actuaries and our investment consultants . we and the plan trustees review 42 whether changes to the various plans ' target asset allocations are appropriate . a change in the plans ' target asset allocations would likely result in a change in the expected return on asset assumptions . in assessing a plan 's asset allocation strategy , we and the plan trustees consider factors such as the structure of the plan 's liabilities , the plan 's funded status , and the impact of the asset allocation to the volatility of the plan 's funded status , so that the overall risk level resulting from our defined benefit plans is appropriate within our risk management strategy . between september 30 , 2018 and september 30 , 2019 , the aggregate worldwide pension deficit increased from $ 400.5 million to $ 483.9 million due to decreased discount rates . if the various plans do not experience future investment gains to reduce this shortfall , the deficit will be reduced by additional contributions . accrued professional liability costs we carry professional liability insurance policies or self-insure for our initial layer of professional liability claims under our professional liability insurance policies and for a deductible for each claim even after exceeding the self-insured retention . we accrue for our portion of the estimated ultimate liability for the estimated potential incurred losses . we establish our estimate of loss for each potential claim in consultation with legal counsel handling the specific matters and based on historic trends taking into account recent events . we also use an outside actuarial firm to assist us in estimating our future claims exposure . it is possible that our estimate of loss may be revised based on the actual or revised estimate of liability of the claims . foreign currency translation our functional currency is the u.s. dollar . results of operations for foreign entities are translated to u.s. dollars using the average exchange rates during the period . assets and liabilities for foreign entities are translated using the exchange rates in effect as of the date of the balance sheet . resulting
| liquidity and capital resources our cash flows from operating , investing and financing activities during the years ended december 31 , 2011 and 2010 are summarized below ( in thousands ) : replace_table_token_9_th cash provided by operating activities . net cash provided by operating activities was $ 23.6 million for the year ended december 31 , 2011 , compared to $ 12.9 million for the year ended december 31 , 2010. for the year ended december 31 , 2011 , the amount was primarily comprised of a net loss of $ 10.4 million which was offset by working capital sources of $ 2.8 million and non-cash charges of $ 31.2 million , which were primarily depreciation and amortization . working capital sources primarily related to a decrease in accounts receivables which was partially offset by an increase in inventories and a decrease in accounts payable . for the year ended december 31 , 2010 , the amount was primarily comprised of a net loss of $ 25.2 million which was offset by working capital sources of $ 6.2 million and non-cash charges of $ 31.9 million , which were primarily depreciation and amortization . cash used in investing activities . net cash used in investing activities was $ 2.8 million for the year ended december 31 , 2011 , compared to $ 4.6 million for the year ended december 31 , 2010. the net cash used in investing activities during both periods was for capital expenditures related to various plant improvement projects . cash used in financing activities .
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accordingly , actual results could differ materially from those contemplated by any forward-looking statement . all subsequent written and oral forward-looking statements concerning the company or other matters attributable to the company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above . you are cautioned not to place undue reliance on these forward-looking statements , which speak only to the date they are made . the company is under no obligation ( and expressly disclaims any such obligation ) to update or revise any forward-looking statement that may be made from time to time , whether as a result of new information , future developments or otherwise . please review “ part i , item 1a—risk factors ” in this annual report for a discussion of the factors , risks and uncertainties that could affect our future results . 35 our fiscal year consists of 52 or 53 weeks , ending on the friday closest to september 30. for clarity of presentation , we present all periods as if the year ended on september 30. we refer to the fiscal year ended september 30 , 2018 as “ fiscal 2018 ” and the fiscal year ended september 30 , 2019 as “ fiscal 2019 . ” overview we are a leading fully integrated firm positioned to design , build , finance and operate infrastructure assets for governments , businesses and organizations throughout the world . we provide planning , consulting , architectural and engineering design services to commercial and government clients worldwide in major end markets such as transportation , facilities , environmental , energy , water and government markets . we also provide construction services , including building construction and energy , infrastructure and industrial construction , primarily in the americas . in addition , we provide program and facilities management and maintenance , training , logistics , consulting , technical assistance , and systems integration and information technology services , primarily for agencies of the u.s. government and also for national governments around the world . our business focuses primarily on providing fee-based planning , consulting , architectural and engineering design services and , therefore , our business is labor intensive . we primarily derive income from our ability to generate revenue and collect cash from our clients through the billing of our employees ' time spent on client projects and our ability to manage our costs . aecom capital primarily derives its income from real estate development sales and management fees . we report our business through four segments : design and consulting services ( dcs ) , construction services ( cs ) , management services ( ms ) , and aecom capital ( acap ) . such segments are organized by the types of services provided , the differing specialized needs of the respective clients , and how we manage the business . we have aggregated various operating segments into our reportable segments based on their similar characteristics , including similar long-term financial performance , the nature of services provided , internal processes for delivering those services , and types of customers . our dcs segment delivers planning , consulting , architectural and engineering design services to commercial and government clients worldwide in major end markets such as transportation , facilities , environmental , energy , water and government . dcs revenue is primarily derived from fees from services that we provide , as opposed to pass-through costs from subcontractors . our cs segment provides construction services , including building construction and energy , infrastructure and industrial construction , primarily in the americas . cs revenue typically includes a significant amount of pass-through costs from subcontractors . our ms segment provides program and facilities management and maintenance , training , logistics , consulting , technical assistance , and systems integration and information technology services , primarily for agencies of the u.s. government and also for national governments around the world . ms revenue typically includes a significant amount of pass-through costs from subcontractors . our acap segment primarily invests in real estate projects . acap typically partners with investors and experienced developers as co-general partners . in addition , acap may , but is not required to , enter into contracts with our other aecom affiliates to provide design , engineering , construction management , development and operations and maintenance services for acap funded projects . our revenue is dependent on our ability to attract and retain qualified and productive employees , identify business opportunities , integrate and maximize the value of our recent acquisitions , allocate our labor resources to profitable and high growth markets , secure new contracts and renew existing client agreements . demand for our services is cyclical and may be vulnerable to sudden economic downturns and reductions in government and private industry spending , which may result in clients delaying , curtailing or canceling proposed and existing projects . moreover , as a professional services company , maintaining the high quality of the work generated by our employees is integral to our revenue generation and profitability . 36 our costs consist primarily of the compensation we pay to our employees , including salaries , fringe benefits , the costs of hiring subcontractors , other project-related expenses and sales , general and administrative costs . in december 2015 , the federal legislation referred to as the fixing america 's surface transportation act ( fast act ) was authorized . the fast act is a five-year federal program expected to provide infrastructure spending on roads , bridges , and public transit and rail systems . we expect that the passage of the fast act will continue to positively impact our transportation services business . the u.s. federal government has proposed significant legislative and executive infrastructure initiatives that , if enacted , could have a positive impact to our infrastructure business . story_separator_special_tag during the impairment test , we estimate the fair value of the reporting unit using income and market approaches , and compare that amount to the carrying value of that reporting unit . in the event the fair value of the reporting unit is determined to be less than the carrying value , goodwill is impaired , and an impairment loss is recognized equal to the excess , limited to the total amount of goodwill allocated to the reporting unit . during the fourth quarter , we conduct our annual goodwill impairment test . the impairment evaluation process includes , among other things , making assumptions about variables such as revenue growth rates , profitability , discount rates , and industry market multiples , which are subject to a high degree of judgment . material assumptions used in the impairment analysis included the weighted average cost of capital ( wacc ) percent and terminal growth rates . for example , as of september 30 , 2019 , a 1 % increase in the wacc rate represents a $ 900 million decrease to the fair value of our reporting units . as of september 30 , 2019 , a 1 % decrease in the terminal growth rate represents a $ 500 million decrease to the fair value of our reporting units . pension benefit obligations a number of assumptions are necessary to determine our pension liabilities and net periodic costs . these liabilities and net periodic costs are sensitive to changes in those assumptions . the assumptions include discount rates , long-term rates of return on plan assets and inflation levels limited to the united kingdom and are generally determined based on the current economic environment in each host country at the end of each respective annual reporting period . we evaluate the funded status of each of our retirement plans using these current assumptions and determine the appropriate funding level considering applicable regulatory requirements , tax deductibility , reporting considerations and other factors . based upon current assumptions , we expect to contribute $ 26.6 million to our international plans in fiscal 2020. our required minimum contributions for our u.s. qualified plans are not significant . in addition , we may make additional discretionary contributions . we currently expect to contribute $ 14.7 million to our u.s. plans ( including benefit payments to nonqualified plans and postretirement medical plans ) in fiscal 2020. if the discount rate was reduced by 25 basis points , plan liabilities would increase by approximately $ 83.0 million . if the discount rate and return on plan assets were reduced by 25 basis points , plan expense would decrease by approximately $ 0.4 million and increase by approximately $ 3.5 million , respectively . if inflation increased by 25 basis points , plan liabilities in the united kingdom would increase by approximately $ 40.8 million and plan expense would increase by approximately $ 2.2 million . at each measurement date , all assumptions are reviewed and adjusted as appropriate . with respect to establishing the return on assets assumption , we consider the long term capital market expectations for each asset class held as an investment by the various pension plans . in addition to expected returns for each asset class , we take into account standard deviation of returns and correlation between asset classes . this is necessary in order to generate a distribution of possible returns which reflects diversification of assets . based on this information , a distribution of possible returns is generated based on the plan 's target asset allocation . capital market expectations for determining the long term rate of return on assets are based on forward-looking assumptions which reflect a 20-year view of the capital markets . in establishing those capital market assumptions and expectations , we rely on the assistance of our actuaries and our investment consultants . we and the plan trustees review 42 whether changes to the various plans ' target asset allocations are appropriate . a change in the plans ' target asset allocations would likely result in a change in the expected return on asset assumptions . in assessing a plan 's asset allocation strategy , we and the plan trustees consider factors such as the structure of the plan 's liabilities , the plan 's funded status , and the impact of the asset allocation to the volatility of the plan 's funded status , so that the overall risk level resulting from our defined benefit plans is appropriate within our risk management strategy . between september 30 , 2018 and september 30 , 2019 , the aggregate worldwide pension deficit increased from $ 400.5 million to $ 483.9 million due to decreased discount rates . if the various plans do not experience future investment gains to reduce this shortfall , the deficit will be reduced by additional contributions . accrued professional liability costs we carry professional liability insurance policies or self-insure for our initial layer of professional liability claims under our professional liability insurance policies and for a deductible for each claim even after exceeding the self-insured retention . we accrue for our portion of the estimated ultimate liability for the estimated potential incurred losses . we establish our estimate of loss for each potential claim in consultation with legal counsel handling the specific matters and based on historic trends taking into account recent events . we also use an outside actuarial firm to assist us in estimating our future claims exposure . it is possible that our estimate of loss may be revised based on the actual or revised estimate of liability of the claims . foreign currency translation our functional currency is the u.s. dollar . results of operations for foreign entities are translated to u.s. dollars using the average exchange rates during the period . assets and liabilities for foreign entities are translated using the exchange rates in effect as of the date of the balance sheet . resulting
| debt consisted of the following : replace_table_token_26_th the following table presents , in millions , scheduled maturities of our debt as of september 30 , 2019 : replace_table_token_27_th 2014 credit agreement we entered into a credit agreement ( credit agreement ) on october 17 , 2014 , which , as amended to date , consists of ( i ) a term loan a facility that includes a $ 510 million ( usd ) term loan a facility with a term expiring on march 13 , 2021 and a $ 500 million canadian dollar ( cad ) term loan a facility and a $ 250 million australian dollar ( aud ) term loan a facility , each with terms expiring on march 13 , 2023 ; ( ii ) a $ 600 million term loan b facility with a term expiring on march 13 , 2025 ; and ( iii ) a revolving credit facility in an aggregate principal amount of $ 1.35 billion with a term expiring on march 13 , 2023. some of our subsidiaries ( guarantors ) have guaranteed the obligations of the borrowers under the credit agreement . the borrowers ' obligations under the credit agreement are secured by a lien on substantially all of our assets and the guarantors ' pursuant to a security and pledge agreement ( security agreement ) . the collateral under the security agreement is subject to release upon fulfillment of conditions specified in the credit agreement and security agreement . the credit agreement contains covenants that limit our ability and the ability of some of our subsidiaries to , among other things : ( i ) create , incur , assume , or suffer to exist liens ; ( ii ) incur or guarantee indebtedness ; ( iii ) pay dividends or repurchase stock ; ( iv ) enter into transactions with affiliates ; ( v ) consummate asset sales , acquisitions or mergers ; ( vi ) enter into various types of burdensome agreements ; or ( vii ) make investments . on july 1 , 2015 , the credit agreement was amended to revise the definition of “ consolidated ebitda ” to increase the allowance for acquisition and integration expenses related to our acquisition of urs .
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32 we anticipate our fleet will continue to evolve , as we are scheduled to add 20 new e175 aircraft with american , 25 used crj700 aircraft with american and one new crj900 aircraft with delta by the end of 2022. timing of these anticipated deliveries may be subject to change as we are coordinating with our major airline partners in response to the covid-19 pandemic 's impact on demand . our primary objective in the fleet changes is to improve our profitability by adding new e175 aircraft to capacity purchase agreements , and potentially removing older aircraft from service that typically require more maintenance cost . for the year ended december 31 , 2020 , approximately 47.1 % of our aircraft in scheduled service were operated for united , approximately 31.4 % were operated for delta , approximately 14.4 % were operated for american and approximately 7.1 % were operated for alaska . historically , multiple contractual relationships with major airlines have enabled us to reduce our reliance on any single major airline code and to enhance and stabilize operating results through a mix of capacity purchase arrangements and our prorate flying arrangements . for the year ended december 31 , 2020 , contract flying revenue and prorate revenue represented approximately 87.0 % and 13.0 % , respectively , of our total flying agreements revenue . on contract routes , the major airline partner controls scheduling , ticketing , pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on completed block hours ( measured from takeoff to landing , including taxi time ) , flight departures , the number of aircraft under contract and other operating measures . on prorate routes , we have more control over scheduling , pricing and seat inventories , we share passenger fares with our major airline partners according to prorate formulas and we are responsible for the operating costs of the prorate flights , including fuel and airport costs . our financial and operating results for the years ended december 31 , 2018 and 2019 contained in this report , include the financial results and position of expressjet through january 22 , 2019 for those respective periods . financial highlights we had total operating revenues of $ 2.1 billion for the year ended december 31 , 2020 , a 28.4 % decrease compared to total operating revenues of $ 3.0 billion for the year ended december 31 , 2019. we had a net loss of $ 8.5 million , or $ 0.17 loss per share , for the year ended december 31 , 2020 , compared to net income of $ 340.1 million , or $ 6.62 per diluted share , for the year ended december 31 , 2019. the significant items affecting our revenue and operating expenses during the year ended december 31 , 2020 are outlined below : revenue the number of aircraft we have in scheduled service and the number of block hours we generate on our flights are primary drivers to our flying agreements revenue under our capacity purchase arrangements . the number of flights we operate and the corresponding number of passengers we carry are the primary drivers to our revenue under our prorate flying agreements . as a result of lower passenger demand from the covid-19 pandemic , the number of aircraft we operated decreased from 483 as of december 31 , 2019 to 452 as of december 31 , 2020 ; the number of block hours decreased from 1.5 million in 2019 to 1.0 in 2020 , or by 33.5 % ; and the number of passengers we carried decreased from 43.7 million in 2019 to 21.3 in 2020 , or by 51.3 % . as a result of reduced flight schedules and fewer aircraft operating under our capacity purchase agreements in 2020 compared to 2019 , our capacity purchase revenue decreased $ 576.4 million , or 24.3 % in 2020. additionally , we deferred recognizing revenue on $ 110.7 million of fixed monthly payments received under our capacity purchase agreements during 2020 as a result of significant reductions to our flight schedules as further described in the section of this report entitled “ results of operations . ” also , as a result of a reduction in the number of aircraft operating under our prorate agreements and fewer passengers carried on our prorate routes , our prorate revenue decreased by $ 252.1 million , or 48.4 % in 2020. the negative impact to our revenues due to the covid-19 pandemic and its associated effects on the travel industry is anticipated to continue in 2021 and may continue into subsequent periods . 33 operating expenses our total operating expenses decreased $ 441.4 million , or 17.9 % for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. this decrease was primarily due to a significant reduction in the number of flights we operated as a result of the covid-19 pandemic . departures decreased from 842,098 in 2019 to 585,257 in 2020 , or by 30.5 % . additionally , during 2020 we recorded $ 345.5 million in payroll support grants received from treasury under the cares act as an offset to our operating expenses . additional details regarding the decrease in our operating expenses are described in the section of this report entitled “ results of operations . ” fleet activity the following table summarizes our fleet activity for 2020 : replace_table_token_7_th during 2020 , we took delivery of 37 new e175 aircraft and placed the aircraft into service under capacity purchase agreements . we removed four crj900 aircraft from service , four ( net ) crj700 aircraft from service and 60 ( net ) crj200 aircraft from service . story_separator_special_tag skywest airlines operating revenues decreased $ 841.9 million , or 34.0 % , from 2019 to 2020 due to reduced flight schedules under our capacity purchase agreements , lower passenger demand and under our prorate agreements , and fewer flights we handled under our airport service agreements , collectively as a result of the covid-19 pandemic . skywest airlines capacity purchase agreement revenue decreased $ 570.1 million from 2019 to 2020 due to the reduction in flight scheduled and block hours , which included deferred revenue of $ 110.7 million of payments received under our capacity purchase agreements during 2020. skywest airlines prorate and other revenue decreased $ 271.8 million from 2019 to 2020 due to decreased passenger demand and reduced flight schedules . skywest airlines airline expense decreased $ 499.0 million , or 22.4 % , from 2019 to 2020 due to the following primary factors : ● skywest airlines ' salaries , wages and benefits expense decreased by $ 161.8 million , or 16.4 % , primarily due to a reduction in direct labor costs that resulted from a significantly lower number of flights we operated during 2020 as a result the covid-19 pandemic and reductions in overhead and other labor costs . ● skywest airlines ' aircraft maintenance , materials and repairs expense increased by $ 107.7 million , or 21.6 % , primarily due to an increase in direct maintenance costs incurred on a portion of skywest airlines ' crj200 and crj700 fleet intended to extend the operational performance and reliability of these older aircraft , including increased engine maintenance expense during 2020 compared to 2019 . 39 ● skywest airlines ' depreciation and amortization expense increased by $ 53.0 million , or 31.5 % , primarily due to a shortened estimated useful life of our owned crj200 fleet that resulted in incremental depreciation expense during 2020 . ● skywest airlines ' fuel expense decreased $ 57.4 million , or 48.2 % , due to a decrease in the number of flights we operated under our prorate agreements and a corresponding decrease in gallons of fuel we purchased and a decrease in our average fuel cost per gallon from $ 2.51 in 2019 to $ 1.89 in 2020 . ● skywest airlines ' recognized $ 345.5 million in payroll support grant proceeds we received through the cares act payroll support program as a reduction to our operating expenses in 2020. skywest airlines did not have a comparable grant in 2019 . ● skywest airlines ' included special items related to a non-cash write-off of $ 18.5 million in aircraft manufacturer part credits that we forfeited to settle future lease return obligations with the aircraft manufacturer during 2019. skywest airlines did not have a comparable special items expense in 2020 . ● skywest airlines ' remaining airline expenses decreased $ 76.4 million , or 17.4 % , primarily related to a reduction in other operating costs that correspond to the significantly lower number of flights we operated during 2020 compared to 2019 , such as crew per diem , crew hotel costs and simulator costs . skywest leasing segment profit . skywest leasing profit decreased $ 60.6 million , or 43.7 % , during 2020 , compared to 2019 , primarily related to credit loss reserves we recorded on a note receivable that originated from our sale of expressjet in 2019 that became uncertain during 2020 due to expressjet ceasing operations in 2020. our credit loss reserves also increased due to reductions in credit ratings during 2020 on certain entities for which we have an outstanding accounts receivable or notes receivable . the reduction in the skywest leasing segment was also due to additional depreciation expense resulting from a shortened estimated useful life of certain crj200 spare engines . these reductions were partially offset by an additional six new e175 aircraft added to our fleet subsequent to december 31 , 2019 . story_separator_special_tag and cash receipts attributed to our various long-term asset and long-term liability accounts . the increase in our cash flow used in investing activities in 2020 compared to 2019 was primarily due to an increase cash used for purchases of marketable securities , net of sales of marketable securities , of $ 105.2 million in 2020 from $ 72.0 million in 2019 and an increase in our long-term assets resulting from an increase in long-term receivables from our major airline partners under our capacity purchase agreements . we amended certain debt agreements on our aircraft which suspended our obligation to make debt service payments for an approximate a six-month period during 2020. concurrently , we suspended required aircraft ownership payments due to us from our major airline partners under our capacity purchase agreements during the same period . we anticipate collecting these payments from our major airline partners over the remaining contract terms , which was the primary factor in the increase in our long-term other assets of $ 94.3 million from december 31 , 2019 to december 31 , 2020 . the increase in our cash flows used in investing activities was significantly offset by reduction in capital expenditures of $ 223.6 million in 2020 from $ 661.9 million in 2019. during 2020 , we acquired six new e175 aircraft 41 and 22 used crj aircraft compared to ten new e175 aircraft and 85 used crj aircraft in 2019 , including 56 used crj aircraft purchased under an early lease buyout in 2019 . cash flows provided by ( used in ) financing activities our cash flows provided by financing activities was $ 178.4 million in 2020 , compared to cash used for financing activities of $ 305.2 million in 2019. our investing cash flows are typically impacted by various factors including proceeds from issuance of debt , principal payments on debt obligations , repurchases our common stock and payment of cash dividends . the $ 483.6
| debt consisted of the following : replace_table_token_26_th the following table presents , in millions , scheduled maturities of our debt as of september 30 , 2019 : replace_table_token_27_th 2014 credit agreement we entered into a credit agreement ( credit agreement ) on october 17 , 2014 , which , as amended to date , consists of ( i ) a term loan a facility that includes a $ 510 million ( usd ) term loan a facility with a term expiring on march 13 , 2021 and a $ 500 million canadian dollar ( cad ) term loan a facility and a $ 250 million australian dollar ( aud ) term loan a facility , each with terms expiring on march 13 , 2023 ; ( ii ) a $ 600 million term loan b facility with a term expiring on march 13 , 2025 ; and ( iii ) a revolving credit facility in an aggregate principal amount of $ 1.35 billion with a term expiring on march 13 , 2023. some of our subsidiaries ( guarantors ) have guaranteed the obligations of the borrowers under the credit agreement . the borrowers ' obligations under the credit agreement are secured by a lien on substantially all of our assets and the guarantors ' pursuant to a security and pledge agreement ( security agreement ) . the collateral under the security agreement is subject to release upon fulfillment of conditions specified in the credit agreement and security agreement . the credit agreement contains covenants that limit our ability and the ability of some of our subsidiaries to , among other things : ( i ) create , incur , assume , or suffer to exist liens ; ( ii ) incur or guarantee indebtedness ; ( iii ) pay dividends or repurchase stock ; ( iv ) enter into transactions with affiliates ; ( v ) consummate asset sales , acquisitions or mergers ; ( vi ) enter into various types of burdensome agreements ; or ( vii ) make investments . on july 1 , 2015 , the credit agreement was amended to revise the definition of “ consolidated ebitda ” to increase the allowance for acquisition and integration expenses related to our acquisition of urs .
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32 we anticipate our fleet will continue to evolve , as we are scheduled to add 20 new e175 aircraft with american , 25 used crj700 aircraft with american and one new crj900 aircraft with delta by the end of 2022. timing of these anticipated deliveries may be subject to change as we are coordinating with our major airline partners in response to the covid-19 pandemic 's impact on demand . our primary objective in the fleet changes is to improve our profitability by adding new e175 aircraft to capacity purchase agreements , and potentially removing older aircraft from service that typically require more maintenance cost . for the year ended december 31 , 2020 , approximately 47.1 % of our aircraft in scheduled service were operated for united , approximately 31.4 % were operated for delta , approximately 14.4 % were operated for american and approximately 7.1 % were operated for alaska . historically , multiple contractual relationships with major airlines have enabled us to reduce our reliance on any single major airline code and to enhance and stabilize operating results through a mix of capacity purchase arrangements and our prorate flying arrangements . for the year ended december 31 , 2020 , contract flying revenue and prorate revenue represented approximately 87.0 % and 13.0 % , respectively , of our total flying agreements revenue . on contract routes , the major airline partner controls scheduling , ticketing , pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on completed block hours ( measured from takeoff to landing , including taxi time ) , flight departures , the number of aircraft under contract and other operating measures . on prorate routes , we have more control over scheduling , pricing and seat inventories , we share passenger fares with our major airline partners according to prorate formulas and we are responsible for the operating costs of the prorate flights , including fuel and airport costs . our financial and operating results for the years ended december 31 , 2018 and 2019 contained in this report , include the financial results and position of expressjet through january 22 , 2019 for those respective periods . financial highlights we had total operating revenues of $ 2.1 billion for the year ended december 31 , 2020 , a 28.4 % decrease compared to total operating revenues of $ 3.0 billion for the year ended december 31 , 2019. we had a net loss of $ 8.5 million , or $ 0.17 loss per share , for the year ended december 31 , 2020 , compared to net income of $ 340.1 million , or $ 6.62 per diluted share , for the year ended december 31 , 2019. the significant items affecting our revenue and operating expenses during the year ended december 31 , 2020 are outlined below : revenue the number of aircraft we have in scheduled service and the number of block hours we generate on our flights are primary drivers to our flying agreements revenue under our capacity purchase arrangements . the number of flights we operate and the corresponding number of passengers we carry are the primary drivers to our revenue under our prorate flying agreements . as a result of lower passenger demand from the covid-19 pandemic , the number of aircraft we operated decreased from 483 as of december 31 , 2019 to 452 as of december 31 , 2020 ; the number of block hours decreased from 1.5 million in 2019 to 1.0 in 2020 , or by 33.5 % ; and the number of passengers we carried decreased from 43.7 million in 2019 to 21.3 in 2020 , or by 51.3 % . as a result of reduced flight schedules and fewer aircraft operating under our capacity purchase agreements in 2020 compared to 2019 , our capacity purchase revenue decreased $ 576.4 million , or 24.3 % in 2020. additionally , we deferred recognizing revenue on $ 110.7 million of fixed monthly payments received under our capacity purchase agreements during 2020 as a result of significant reductions to our flight schedules as further described in the section of this report entitled “ results of operations . ” also , as a result of a reduction in the number of aircraft operating under our prorate agreements and fewer passengers carried on our prorate routes , our prorate revenue decreased by $ 252.1 million , or 48.4 % in 2020. the negative impact to our revenues due to the covid-19 pandemic and its associated effects on the travel industry is anticipated to continue in 2021 and may continue into subsequent periods . 33 operating expenses our total operating expenses decreased $ 441.4 million , or 17.9 % for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. this decrease was primarily due to a significant reduction in the number of flights we operated as a result of the covid-19 pandemic . departures decreased from 842,098 in 2019 to 585,257 in 2020 , or by 30.5 % . additionally , during 2020 we recorded $ 345.5 million in payroll support grants received from treasury under the cares act as an offset to our operating expenses . additional details regarding the decrease in our operating expenses are described in the section of this report entitled “ results of operations . ” fleet activity the following table summarizes our fleet activity for 2020 : replace_table_token_7_th during 2020 , we took delivery of 37 new e175 aircraft and placed the aircraft into service under capacity purchase agreements . we removed four crj900 aircraft from service , four ( net ) crj700 aircraft from service and 60 ( net ) crj200 aircraft from service . story_separator_special_tag skywest airlines operating revenues decreased $ 841.9 million , or 34.0 % , from 2019 to 2020 due to reduced flight schedules under our capacity purchase agreements , lower passenger demand and under our prorate agreements , and fewer flights we handled under our airport service agreements , collectively as a result of the covid-19 pandemic . skywest airlines capacity purchase agreement revenue decreased $ 570.1 million from 2019 to 2020 due to the reduction in flight scheduled and block hours , which included deferred revenue of $ 110.7 million of payments received under our capacity purchase agreements during 2020. skywest airlines prorate and other revenue decreased $ 271.8 million from 2019 to 2020 due to decreased passenger demand and reduced flight schedules . skywest airlines airline expense decreased $ 499.0 million , or 22.4 % , from 2019 to 2020 due to the following primary factors : ● skywest airlines ' salaries , wages and benefits expense decreased by $ 161.8 million , or 16.4 % , primarily due to a reduction in direct labor costs that resulted from a significantly lower number of flights we operated during 2020 as a result the covid-19 pandemic and reductions in overhead and other labor costs . ● skywest airlines ' aircraft maintenance , materials and repairs expense increased by $ 107.7 million , or 21.6 % , primarily due to an increase in direct maintenance costs incurred on a portion of skywest airlines ' crj200 and crj700 fleet intended to extend the operational performance and reliability of these older aircraft , including increased engine maintenance expense during 2020 compared to 2019 . 39 ● skywest airlines ' depreciation and amortization expense increased by $ 53.0 million , or 31.5 % , primarily due to a shortened estimated useful life of our owned crj200 fleet that resulted in incremental depreciation expense during 2020 . ● skywest airlines ' fuel expense decreased $ 57.4 million , or 48.2 % , due to a decrease in the number of flights we operated under our prorate agreements and a corresponding decrease in gallons of fuel we purchased and a decrease in our average fuel cost per gallon from $ 2.51 in 2019 to $ 1.89 in 2020 . ● skywest airlines ' recognized $ 345.5 million in payroll support grant proceeds we received through the cares act payroll support program as a reduction to our operating expenses in 2020. skywest airlines did not have a comparable grant in 2019 . ● skywest airlines ' included special items related to a non-cash write-off of $ 18.5 million in aircraft manufacturer part credits that we forfeited to settle future lease return obligations with the aircraft manufacturer during 2019. skywest airlines did not have a comparable special items expense in 2020 . ● skywest airlines ' remaining airline expenses decreased $ 76.4 million , or 17.4 % , primarily related to a reduction in other operating costs that correspond to the significantly lower number of flights we operated during 2020 compared to 2019 , such as crew per diem , crew hotel costs and simulator costs . skywest leasing segment profit . skywest leasing profit decreased $ 60.6 million , or 43.7 % , during 2020 , compared to 2019 , primarily related to credit loss reserves we recorded on a note receivable that originated from our sale of expressjet in 2019 that became uncertain during 2020 due to expressjet ceasing operations in 2020. our credit loss reserves also increased due to reductions in credit ratings during 2020 on certain entities for which we have an outstanding accounts receivable or notes receivable . the reduction in the skywest leasing segment was also due to additional depreciation expense resulting from a shortened estimated useful life of certain crj200 spare engines . these reductions were partially offset by an additional six new e175 aircraft added to our fleet subsequent to december 31 , 2019 . story_separator_special_tag and cash receipts attributed to our various long-term asset and long-term liability accounts . the increase in our cash flow used in investing activities in 2020 compared to 2019 was primarily due to an increase cash used for purchases of marketable securities , net of sales of marketable securities , of $ 105.2 million in 2020 from $ 72.0 million in 2019 and an increase in our long-term assets resulting from an increase in long-term receivables from our major airline partners under our capacity purchase agreements . we amended certain debt agreements on our aircraft which suspended our obligation to make debt service payments for an approximate a six-month period during 2020. concurrently , we suspended required aircraft ownership payments due to us from our major airline partners under our capacity purchase agreements during the same period . we anticipate collecting these payments from our major airline partners over the remaining contract terms , which was the primary factor in the increase in our long-term other assets of $ 94.3 million from december 31 , 2019 to december 31 , 2020 . the increase in our cash flows used in investing activities was significantly offset by reduction in capital expenditures of $ 223.6 million in 2020 from $ 661.9 million in 2019. during 2020 , we acquired six new e175 aircraft 41 and 22 used crj aircraft compared to ten new e175 aircraft and 85 used crj aircraft in 2019 , including 56 used crj aircraft purchased under an early lease buyout in 2019 . cash flows provided by ( used in ) financing activities our cash flows provided by financing activities was $ 178.4 million in 2020 , compared to cash used for financing activities of $ 305.2 million in 2019. our investing cash flows are typically impacted by various factors including proceeds from issuance of debt , principal payments on debt obligations , repurchases our common stock and payment of cash dividends . the $ 483.6
| liquidity and capital resources as of december 31 , 2020 , we had $ 825.9 million in cash and cash equivalents and marketable securities . as of december 31 , 2020 , we had $ 665.0 million available for borrowings under the treasury loan agreement and $ 39.5 million available for borrowings under our line of credit . we have until may 28 , 2021 to draw additional borrowings under the treasury loan agreement . if we do not increase our borrowings under the treasury loan agreement before may 28 , 2021 , our pledged collateral under the $ 725 million facility will be significantly reduced and any excess pledged collateral will be released and available to use for new debt , if needed . given our available liquidity as of december 31 , 2020 and given the measures we have implemented to reduce the impact of the covid-19 pandemic on our financial position and operations , we believe the working capital currently available to us ( including funds from government assistance provided or may be provided pursuant to the cares act and the 2021 appropriations act ) will be sufficient to meet our present financial requirements , including planned capital expenditures , scheduled lease payments , debt service obligations for at least the next 12 months . our total of cash and marketable securities increased from $ 520.2 million as december 31 , 2019 to $ 825.9 million as of december 31 , 2020 , or by $ 305.7 million .
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45 overview galena biopharma , inc. ( “ we , ” “ us , ” “ our , ” “ galena ” or the “ company ” ) is a biopharmaceutical company focused on developing and commercializing innovative , targeted oncology treatments that address major unmet medical needs to advance cancer care . our strategy is to build value for patients and shareholders by : achieving revenue goals for abstral® ( fentanyl ) sublingual tablets , to which we acquired for the u.s. rights in march 2013 and launched in the fourth quarter of 2013 ; completing the pivotal phase 3 randomized , multicenter present ( prevention of recurrence in early-stage , node-positive breast cancer with low-to-intermediate her2 expression with neuvax treatment ) study of our lead product candidate , neuvax ( nelipepimut-s ) in 700 patients under a u.s. food and drug administration ( fda ) -approved special protocol assessment ( spa ) ; completing the phase 2b randomized , multicenter clinical trial in 300 patients to study neuvax in combination with herceptin® ( trastuzumab ; genentech/roche ) ; completing the phase 2 clinical trials of gale-301 ( folate binding protein ( fbp ) ) cancer immunotherapy trials in both ovarian and endometrial cancers ; initiating a phase 2 clinical trial with gale-401 ( anagrelide controlled release ( cr ) ) , which we acquired in january 2014 , in essential thrombocythemia ( et ) ; and pursuing strategic alliances and acquisitions of other cancer treatments to complement our existing product pipeline and commercialization capabilities . galena is developing peptide vaccine ( off-the-shelf ) cancer immunotherapies , which address patient populations of cancer survivors to prevent disease recurrence by harnessing the patient 's own immune system to seek out and attack any residual cancer . in this case , 25 % of resectable node-positive breast cancer patients , despite having no evidence of disease following surgery and chemo/radiation therapy , will still relapse within three years . increased presence of circulating tumor cells ( ctcs ) predict disease free survival ( dfs ) and overall survival ( os ) - suggesting a dormancy of isolated micrometastases , which over time , leads to recurrence . our lead product , neuvaxtm ( nelipepimut-s ) elicits a robust , specific and durable killer cd8+ cytotoxic t lymphocyte ( ctls ) response to lyse her2 expressing tumor cells . neuvax ( nelipepimut-s ) is the immunodominant nonapeptide derived from the extracellular domain of the her2 protein , a well-established target for therapeutic intervention in breast carcinoma . the nelipepimut sequence stimulates specific ctls following binding to hla-a2/a3 molecules on antigen presenting cells ( apc ) . these activated specific ctls recognize , neutralize and destroy , through cell lysis , her2 expressing cancer cells , including occult cancer cells and micrometastatic foci . the nelipepimut immune response can also generate ctls to other immunogenic peptides through inter- and intra-antigenic epitope spreading . based on a successful phase 2 trial , which achieved its primary endpoint of dfs , the food and drug administration ( fda ) granted neuvax a special protocol assessment ( spa ) for its phase 3 present ( prevention of recurrence in early-stage , node-positive breast cancer with low-to-intermediate her2 expression with neuvax treatment ) study . the present trial is ongoing and additional information on the study can be found at www.neuvax.com . a randomized , multicenter , investigator-sponsored , 300 patient phase 2b clinical trial is also enrolling patients to study neuvax in combination with herceptin® ( trastuzumab ; genentech/roche ) . our second product candidate , gale-301 ( folate binding protein , or “ fbp ” ) , is derived from a protein that is over-expressed ( 20-80 fold ) in more than 90 % of ovarian and endometrial cancers . fbp is a highly immunogenic peptide that can stimulate ctls to recognize and destroy preclinical fbp-expressing cancer cells . the fbp vaccine consists of the fbp peptide ( s ) combined with the immune adjuvant , recombinant human granulocyte macrophage-colony stimulating factor ( rhgm-csf ) . galena 's fbp vaccine is currently in a phase 1/2 trial in two gynecological cancers : ovarian and endometrial adenocarcinomas . 46 our third product candidate , gale-401 ( anagrelide controlled release ( cr ) ) was acquired on january 13 , 2014. gale-401 contains the active ingredient anagrelide , an fda-approved product , which has been in use since the late 1990s for the treatment of essential thrombocythemia ( et ) . gale-401 is a reformulated , controlled release version of anagrelide that is currently only given as an immediate release ( ir ) version . multiple phase 1 studies in approximately 90 patients have shown the drug to be effective at lowering platelet levels while reducing side effects that prevent patients from taking their therapy regularly . based on a regulatory meeting with the fda , galena believes a 505 ( b ) ( 2 ) regulatory filing is an acceptable paradigm for approval of gale-401 , with the reference drug agrylin® ( anagrelide ; shire pharmaceuticals ) . the phase 1 program has provided the desired pk/pd ( pharmacokinetic/pharmacodynamic ) profile to enable the phase 2 initiation in 2014. our first commercial product , abstral® ( fentanyl ) sublingual tablets , is an important treatment option for inadequately controlled breakthrough cancer pain ( btcp ) , which affects an estimated 40 % -80 % of all cancer patients . abstral is approved by the fda as a sublingual ( under the tongue ) tablet for the management of breakthrough pain in patients with cancer , 18 years of age and older , who are already receiving , and who are tolerant to , opioid therapy for their persistent baseline cancer pain . story_separator_special_tag product related overhead and other cost of revenue are fixed in nature , and will decrease or increase as a percentage of net revenue as net revenue increases or decreases , respectively . amortization of certain acquired intangible assets was $ 0.1 million for the year ended december 31 , 2013 and zero for all prior years . amortization of certain acquired intangible assets is a non-cash variable cost based on net revenue during the period . research and development expense research and development expense consists primarily of clinical trial expenses and compensation-related costs for our employees dedicated to research and development activities , compensation paid to our scientific advisory board ( “ sab ” ) members , and licensing fees and patent prosecution costs . research and development expenses also consist of costs related to the abstral registry trial as described above . research and development expense for the years ended december 31 , 2013 and 2012 were as follows ( dollars in thousands ) : replace_table_token_6_th the increase in research and development expense in 2013 was primarily related to the ramp-up of our phase 3 present clinical trial and the related enrollment efforts . we expect research and development expense related to our present trial to remain at current levels through the first part of 2014 , and then begin to decrease in the second half of 2014 as we complete the enrollment phase of the trial and transition to the monitoring and follow-up phase . the expected decrease in costs could be at partially offset by the increase in research and development expense related to the gale-401 program , which we expect to complete enrollment in a phase 2 clinical trial during 2014 , and our abstral registry trial , which we also expect to complete enrollment during 2014 . 51 research and development expense for the years ended december 31 , 2012 and 2011 were as follows ( dollars in thousands ) : replace_table_token_7_th the increase in research and development expense was primarily related to the significant efforts in preparation for our phase 3 present clinical trial of neuvax . selling , general and administrative expense selling , general and administrative expense includes compensation-related costs for our employees dedicated to sales and marketing , general and administrative activities , legal fees , audit and tax fees , consultants and professional services , and general corporate expenses . selling , general and administrative expense for the years ended december 31 , 2013 and 2012 were as follows ( dollars in thousands ) : replace_table_token_8_th selling , general and administrative expense increased during the year ended december 31 , 2013 , primarily due to the establishment of our abstral commercial sales force and marketing team , as well as other expenses related to the commencement of our commercial efforts and the launch of abstral in the fourth quarter of 2013 and related corporate support . selling , general and administrative expense for the years ended december 31 , 2012 and 2011 was as follows ( dollars in thousands ) : replace_table_token_9_th the decrease was primarily due to a decrease in cash-based expense due to the costs related to the spin-off of rxi , and a decrease for employee stock based compensation expense , largely due to the lower strike prices and volatility assumptions used to calculate stock based compensation using the black scholes pricing model . these decreases were partially offset by an increase in warrants and other stock based compensation issued to non-employees for business advisory and other services . non-operating income ( expense ) non-operating expense for the year ended december 31 , 2013 and 2012 was as follows ( dollars in thousands ) : replace_table_token_10_th the increase to our non-operating expense in 2013 was primarily due to a $ 33.2 million increase in the fair value of warrants accounted for as liabilities . this increase in the estimated fair value of our warrant liabilities was primarily due to the increase in our common stock price , rising from $ 1.59 per share as of january 1 , 2013 to $ 4.96 per share as of december 31 , 2013 , which is one of the most impactful inputs into the pricing model we use to estimate the fair value of our warrant liabilities . we also incurred $ 0.8 million in interest expense related to the debt financing we completed in may 2013 , an expense not incurred in prior years . 52 the increases to the warrant liabilities and interest expense were partially offset by realized gains on the sale of marketable securities of $ 3.9 million , with no such sales occurring in prior years , and a decrease to the loss on the change in the fair value of our contingent purchase price consideration . non-operating income ( expense ) for the year ended december 31 , 2012 and 2011 was as follows ( dollars in thousands ) : replace_table_token_11_th the overall decrease in non-operating income was primarily due to a $ 19.8 million increase in the fair value of warrants accounted for as liabilities . this increase in the estimated fair value of our warrant liabilities was primarily due to the increase in our common stock price , rising from $ 0.47 per share as of january 1 , 2012 to $ 1.57 per share as of december 31 , 2012 , which is one of the most impactful inputs into the pricing model we use to estimate the fair value of our warrant liabilities . we also incurred an additional non-cash expense of $ 2.5 million in the estimated fair value of the contingent purchase price consideration due to a shorter amount of time and a lower discount related to the time value of money , to the estimated date that some of the larger milestones will be reached . income taxes for the years ended december 31 , 2013 and 2012 , we recognized an income tax expense of
| liquidity and capital resources as of december 31 , 2020 , we had $ 825.9 million in cash and cash equivalents and marketable securities . as of december 31 , 2020 , we had $ 665.0 million available for borrowings under the treasury loan agreement and $ 39.5 million available for borrowings under our line of credit . we have until may 28 , 2021 to draw additional borrowings under the treasury loan agreement . if we do not increase our borrowings under the treasury loan agreement before may 28 , 2021 , our pledged collateral under the $ 725 million facility will be significantly reduced and any excess pledged collateral will be released and available to use for new debt , if needed . given our available liquidity as of december 31 , 2020 and given the measures we have implemented to reduce the impact of the covid-19 pandemic on our financial position and operations , we believe the working capital currently available to us ( including funds from government assistance provided or may be provided pursuant to the cares act and the 2021 appropriations act ) will be sufficient to meet our present financial requirements , including planned capital expenditures , scheduled lease payments , debt service obligations for at least the next 12 months . our total of cash and marketable securities increased from $ 520.2 million as december 31 , 2019 to $ 825.9 million as of december 31 , 2020 , or by $ 305.7 million .
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45 overview galena biopharma , inc. ( “ we , ” “ us , ” “ our , ” “ galena ” or the “ company ” ) is a biopharmaceutical company focused on developing and commercializing innovative , targeted oncology treatments that address major unmet medical needs to advance cancer care . our strategy is to build value for patients and shareholders by : achieving revenue goals for abstral® ( fentanyl ) sublingual tablets , to which we acquired for the u.s. rights in march 2013 and launched in the fourth quarter of 2013 ; completing the pivotal phase 3 randomized , multicenter present ( prevention of recurrence in early-stage , node-positive breast cancer with low-to-intermediate her2 expression with neuvax treatment ) study of our lead product candidate , neuvax ( nelipepimut-s ) in 700 patients under a u.s. food and drug administration ( fda ) -approved special protocol assessment ( spa ) ; completing the phase 2b randomized , multicenter clinical trial in 300 patients to study neuvax in combination with herceptin® ( trastuzumab ; genentech/roche ) ; completing the phase 2 clinical trials of gale-301 ( folate binding protein ( fbp ) ) cancer immunotherapy trials in both ovarian and endometrial cancers ; initiating a phase 2 clinical trial with gale-401 ( anagrelide controlled release ( cr ) ) , which we acquired in january 2014 , in essential thrombocythemia ( et ) ; and pursuing strategic alliances and acquisitions of other cancer treatments to complement our existing product pipeline and commercialization capabilities . galena is developing peptide vaccine ( off-the-shelf ) cancer immunotherapies , which address patient populations of cancer survivors to prevent disease recurrence by harnessing the patient 's own immune system to seek out and attack any residual cancer . in this case , 25 % of resectable node-positive breast cancer patients , despite having no evidence of disease following surgery and chemo/radiation therapy , will still relapse within three years . increased presence of circulating tumor cells ( ctcs ) predict disease free survival ( dfs ) and overall survival ( os ) - suggesting a dormancy of isolated micrometastases , which over time , leads to recurrence . our lead product , neuvaxtm ( nelipepimut-s ) elicits a robust , specific and durable killer cd8+ cytotoxic t lymphocyte ( ctls ) response to lyse her2 expressing tumor cells . neuvax ( nelipepimut-s ) is the immunodominant nonapeptide derived from the extracellular domain of the her2 protein , a well-established target for therapeutic intervention in breast carcinoma . the nelipepimut sequence stimulates specific ctls following binding to hla-a2/a3 molecules on antigen presenting cells ( apc ) . these activated specific ctls recognize , neutralize and destroy , through cell lysis , her2 expressing cancer cells , including occult cancer cells and micrometastatic foci . the nelipepimut immune response can also generate ctls to other immunogenic peptides through inter- and intra-antigenic epitope spreading . based on a successful phase 2 trial , which achieved its primary endpoint of dfs , the food and drug administration ( fda ) granted neuvax a special protocol assessment ( spa ) for its phase 3 present ( prevention of recurrence in early-stage , node-positive breast cancer with low-to-intermediate her2 expression with neuvax treatment ) study . the present trial is ongoing and additional information on the study can be found at www.neuvax.com . a randomized , multicenter , investigator-sponsored , 300 patient phase 2b clinical trial is also enrolling patients to study neuvax in combination with herceptin® ( trastuzumab ; genentech/roche ) . our second product candidate , gale-301 ( folate binding protein , or “ fbp ” ) , is derived from a protein that is over-expressed ( 20-80 fold ) in more than 90 % of ovarian and endometrial cancers . fbp is a highly immunogenic peptide that can stimulate ctls to recognize and destroy preclinical fbp-expressing cancer cells . the fbp vaccine consists of the fbp peptide ( s ) combined with the immune adjuvant , recombinant human granulocyte macrophage-colony stimulating factor ( rhgm-csf ) . galena 's fbp vaccine is currently in a phase 1/2 trial in two gynecological cancers : ovarian and endometrial adenocarcinomas . 46 our third product candidate , gale-401 ( anagrelide controlled release ( cr ) ) was acquired on january 13 , 2014. gale-401 contains the active ingredient anagrelide , an fda-approved product , which has been in use since the late 1990s for the treatment of essential thrombocythemia ( et ) . gale-401 is a reformulated , controlled release version of anagrelide that is currently only given as an immediate release ( ir ) version . multiple phase 1 studies in approximately 90 patients have shown the drug to be effective at lowering platelet levels while reducing side effects that prevent patients from taking their therapy regularly . based on a regulatory meeting with the fda , galena believes a 505 ( b ) ( 2 ) regulatory filing is an acceptable paradigm for approval of gale-401 , with the reference drug agrylin® ( anagrelide ; shire pharmaceuticals ) . the phase 1 program has provided the desired pk/pd ( pharmacokinetic/pharmacodynamic ) profile to enable the phase 2 initiation in 2014. our first commercial product , abstral® ( fentanyl ) sublingual tablets , is an important treatment option for inadequately controlled breakthrough cancer pain ( btcp ) , which affects an estimated 40 % -80 % of all cancer patients . abstral is approved by the fda as a sublingual ( under the tongue ) tablet for the management of breakthrough pain in patients with cancer , 18 years of age and older , who are already receiving , and who are tolerant to , opioid therapy for their persistent baseline cancer pain . story_separator_special_tag product related overhead and other cost of revenue are fixed in nature , and will decrease or increase as a percentage of net revenue as net revenue increases or decreases , respectively . amortization of certain acquired intangible assets was $ 0.1 million for the year ended december 31 , 2013 and zero for all prior years . amortization of certain acquired intangible assets is a non-cash variable cost based on net revenue during the period . research and development expense research and development expense consists primarily of clinical trial expenses and compensation-related costs for our employees dedicated to research and development activities , compensation paid to our scientific advisory board ( “ sab ” ) members , and licensing fees and patent prosecution costs . research and development expenses also consist of costs related to the abstral registry trial as described above . research and development expense for the years ended december 31 , 2013 and 2012 were as follows ( dollars in thousands ) : replace_table_token_6_th the increase in research and development expense in 2013 was primarily related to the ramp-up of our phase 3 present clinical trial and the related enrollment efforts . we expect research and development expense related to our present trial to remain at current levels through the first part of 2014 , and then begin to decrease in the second half of 2014 as we complete the enrollment phase of the trial and transition to the monitoring and follow-up phase . the expected decrease in costs could be at partially offset by the increase in research and development expense related to the gale-401 program , which we expect to complete enrollment in a phase 2 clinical trial during 2014 , and our abstral registry trial , which we also expect to complete enrollment during 2014 . 51 research and development expense for the years ended december 31 , 2012 and 2011 were as follows ( dollars in thousands ) : replace_table_token_7_th the increase in research and development expense was primarily related to the significant efforts in preparation for our phase 3 present clinical trial of neuvax . selling , general and administrative expense selling , general and administrative expense includes compensation-related costs for our employees dedicated to sales and marketing , general and administrative activities , legal fees , audit and tax fees , consultants and professional services , and general corporate expenses . selling , general and administrative expense for the years ended december 31 , 2013 and 2012 were as follows ( dollars in thousands ) : replace_table_token_8_th selling , general and administrative expense increased during the year ended december 31 , 2013 , primarily due to the establishment of our abstral commercial sales force and marketing team , as well as other expenses related to the commencement of our commercial efforts and the launch of abstral in the fourth quarter of 2013 and related corporate support . selling , general and administrative expense for the years ended december 31 , 2012 and 2011 was as follows ( dollars in thousands ) : replace_table_token_9_th the decrease was primarily due to a decrease in cash-based expense due to the costs related to the spin-off of rxi , and a decrease for employee stock based compensation expense , largely due to the lower strike prices and volatility assumptions used to calculate stock based compensation using the black scholes pricing model . these decreases were partially offset by an increase in warrants and other stock based compensation issued to non-employees for business advisory and other services . non-operating income ( expense ) non-operating expense for the year ended december 31 , 2013 and 2012 was as follows ( dollars in thousands ) : replace_table_token_10_th the increase to our non-operating expense in 2013 was primarily due to a $ 33.2 million increase in the fair value of warrants accounted for as liabilities . this increase in the estimated fair value of our warrant liabilities was primarily due to the increase in our common stock price , rising from $ 1.59 per share as of january 1 , 2013 to $ 4.96 per share as of december 31 , 2013 , which is one of the most impactful inputs into the pricing model we use to estimate the fair value of our warrant liabilities . we also incurred $ 0.8 million in interest expense related to the debt financing we completed in may 2013 , an expense not incurred in prior years . 52 the increases to the warrant liabilities and interest expense were partially offset by realized gains on the sale of marketable securities of $ 3.9 million , with no such sales occurring in prior years , and a decrease to the loss on the change in the fair value of our contingent purchase price consideration . non-operating income ( expense ) for the year ended december 31 , 2012 and 2011 was as follows ( dollars in thousands ) : replace_table_token_11_th the overall decrease in non-operating income was primarily due to a $ 19.8 million increase in the fair value of warrants accounted for as liabilities . this increase in the estimated fair value of our warrant liabilities was primarily due to the increase in our common stock price , rising from $ 0.47 per share as of january 1 , 2012 to $ 1.57 per share as of december 31 , 2012 , which is one of the most impactful inputs into the pricing model we use to estimate the fair value of our warrant liabilities . we also incurred an additional non-cash expense of $ 2.5 million in the estimated fair value of the contingent purchase price consideration due to a shorter amount of time and a lower discount related to the time value of money , to the estimated date that some of the larger milestones will be reached . income taxes for the years ended december 31 , 2013 and 2012 , we recognized an income tax expense of
| liquidity and capital resources we had cash and cash equivalents of approximately $ 47.8 million as of december 31 , 2013 , compared with $ 32.8 million as of december 31 , 2012. the increase of approximately $ 15.0 million in cash and cash equivalents from december 31 , 2012 to december 31 , 2013 was attributable to $ 37.5 million of net proceeds from the issuance of common stock and warrants in our september 2013 underwritten public offering , $ 9.9 million of net proceeds from the issuance of long-term debt , $ 8.5 million proceeds from the exercise of common stock warrants and stock-based compensation awards , and $ 3.9 million in net proceeds from sale of marketable securities , partially offset by $ 31.4 million in net cash operating loss ( exclusive of the $ 2.5 million change in working capital accounts ) , $ 15.7 million spent to purchase the u.s. commercialization rights to abstral and the related inventory and equipment , and $ 0.5 million spent in finance charges paid with respect to our long-term debt . we expect to continue to incur operating losses as we grow our commercial presence for abstral in the u.s. and continue to advance our product candidates through the drug development and regulatory process . we will need to generate significant revenues to achieve profitability and may never do so .
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in addition to the impact of the overall reported declines in north american mall traffic in december , we believe the decrease is primarily attributable to : ● 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 manage the increased traffic to our site . additionally , we believe the strong performance of last year 's minion 's collection contributed to the comparable sales decline in the second and third quarters of 2016. these declines were partially offset by the positive consolidated comparable sales performance in north america in the first quarter of 2016 which we believe was the result of our overall disciplined management of our business and the initial success of key initiatives of our strategic plan . comparable sales percentage changes for 2015 are based on net retail sales as compared to the 52-week period ended january 3 , 2015. we believe the increase in comparable sales for the year is primarily attributable to the balanced product assortment that simultaneously and consistently focused on our four key consumer segments supported by elevated marketing programs . we believe this drove improvements in key metrics including dollars and units per transaction across geographies that were able to offset a decrease in transactions due to a challenging retail environment in north america and the success of certain licensed product in the fourth quarter of fiscal 2014. 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 . 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 . 20 selling , general and administrative expense : these expenses include store payroll and benefits , advertising , credit card fees , store supplies and normal store closings as well as central office general and administrative expenses , including costs for management payroll , benefits , stock-based 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 store payroll and 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 company-owned stores : 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 expect to continue to make improvements to an aged store fleet by leveraging the new discovery format in conjunction with select natural lease events . we also expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans . current plans include expansion into more non-traditional locations , made possible by a new , lower capital , more flexible “ concourse shop ” model . concourse shops are stand-alone shops with approximately 200 square feet designed to be operated in open , concourse areas of malls or other covered pedestrian areas . we currently expect to add 20 to 25 new locations , with approximately 15 being concourse shops , in fiscal 2017 and close 5 to 10 existing locations to finish 2017 with 356 to 366 company-owned retail locations . w e also operate in a number of other non-traditional locations , such as a ballpark , a zoo and science center . additionally , we operate shop-in-shop locations within other retailers ' stores . in 2016 , we had three permanent shop-in-shop locations and seven seasonal locations open only in the fourth quarter . story_separator_special_tag accordingly , management determined it was more likely than not that all of the u.s. deferred tax assets would be realized . for 2014 , the rate was impacted by the full valuation allowance in the u.s. as well as tax expense recorded for state and withholding taxes , adjustments to tax position reserves , and tax expense recorded in foreign jurisdictions . 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 . 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 . 25 the following table sets forth a reconciliation of store contribution to net income for our company-owned stores located in the united states , canada and puerto rico ( north america ) , stores located in the united kingdom , ireland and denmark ( europe ) and , beginning in 2016 , china , for our consolidated store base ( dollars in thousands ) . fiscal 2016 and 2015 include 52 weeks ; fiscal 2014 includes 53 weeks . replace_table_token_11_th 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 . 26 ( 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 . 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 typically incur most preopening costs for a new store , remodeled or relocated store in the three months immediately preceding the store 's opening . expenses related to store closings are typically incurred in stages : when the decision is made to close the store , when the closure is communicated to store associates and at the time of closure . as a specialty retailer , our sales are highest in our fourth quarter , followed by the first quarter . the timing of holidays and school vacations can impact our quarterly results . we can not ensure that this will continue to be the case . in addition , for accounting purposes , the quarters of each fiscal year consist of 13 weeks , although we will have a 14-week quarter approximately once every six years . the 2014 fiscal fourth quarter had 14 weeks . liquidity and capital resources our cash requirements are primarily for the opening of new stores , installation and upgrades of information
| liquidity and capital resources we had cash and cash equivalents of approximately $ 47.8 million as of december 31 , 2013 , compared with $ 32.8 million as of december 31 , 2012. the increase of approximately $ 15.0 million in cash and cash equivalents from december 31 , 2012 to december 31 , 2013 was attributable to $ 37.5 million of net proceeds from the issuance of common stock and warrants in our september 2013 underwritten public offering , $ 9.9 million of net proceeds from the issuance of long-term debt , $ 8.5 million proceeds from the exercise of common stock warrants and stock-based compensation awards , and $ 3.9 million in net proceeds from sale of marketable securities , partially offset by $ 31.4 million in net cash operating loss ( exclusive of the $ 2.5 million change in working capital accounts ) , $ 15.7 million spent to purchase the u.s. commercialization rights to abstral and the related inventory and equipment , and $ 0.5 million spent in finance charges paid with respect to our long-term debt . we expect to continue to incur operating losses as we grow our commercial presence for abstral in the u.s. and continue to advance our product candidates through the drug development and regulatory process . we will need to generate significant revenues to achieve profitability and may never do so .
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in addition to the impact of the overall reported declines in north american mall traffic in december , we believe the decrease is primarily attributable to : ● 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 manage the increased traffic to our site . additionally , we believe the strong performance of last year 's minion 's collection contributed to the comparable sales decline in the second and third quarters of 2016. these declines were partially offset by the positive consolidated comparable sales performance in north america in the first quarter of 2016 which we believe was the result of our overall disciplined management of our business and the initial success of key initiatives of our strategic plan . comparable sales percentage changes for 2015 are based on net retail sales as compared to the 52-week period ended january 3 , 2015. we believe the increase in comparable sales for the year is primarily attributable to the balanced product assortment that simultaneously and consistently focused on our four key consumer segments supported by elevated marketing programs . we believe this drove improvements in key metrics including dollars and units per transaction across geographies that were able to offset a decrease in transactions due to a challenging retail environment in north america and the success of certain licensed product in the fourth quarter of fiscal 2014. 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 . 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 . 20 selling , general and administrative expense : these expenses include store payroll and benefits , advertising , credit card fees , store supplies and normal store closings as well as central office general and administrative expenses , including costs for management payroll , benefits , stock-based 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 store payroll and 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 company-owned stores : 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 expect to continue to make improvements to an aged store fleet by leveraging the new discovery format in conjunction with select natural lease events . we also expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans . current plans include expansion into more non-traditional locations , made possible by a new , lower capital , more flexible “ concourse shop ” model . concourse shops are stand-alone shops with approximately 200 square feet designed to be operated in open , concourse areas of malls or other covered pedestrian areas . we currently expect to add 20 to 25 new locations , with approximately 15 being concourse shops , in fiscal 2017 and close 5 to 10 existing locations to finish 2017 with 356 to 366 company-owned retail locations . w e also operate in a number of other non-traditional locations , such as a ballpark , a zoo and science center . additionally , we operate shop-in-shop locations within other retailers ' stores . in 2016 , we had three permanent shop-in-shop locations and seven seasonal locations open only in the fourth quarter . story_separator_special_tag accordingly , management determined it was more likely than not that all of the u.s. deferred tax assets would be realized . for 2014 , the rate was impacted by the full valuation allowance in the u.s. as well as tax expense recorded for state and withholding taxes , adjustments to tax position reserves , and tax expense recorded in foreign jurisdictions . 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 . 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 . 25 the following table sets forth a reconciliation of store contribution to net income for our company-owned stores located in the united states , canada and puerto rico ( north america ) , stores located in the united kingdom , ireland and denmark ( europe ) and , beginning in 2016 , china , for our consolidated store base ( dollars in thousands ) . fiscal 2016 and 2015 include 52 weeks ; fiscal 2014 includes 53 weeks . replace_table_token_11_th 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 . 26 ( 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 . 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 typically incur most preopening costs for a new store , remodeled or relocated store in the three months immediately preceding the store 's opening . expenses related to store closings are typically incurred in stages : when the decision is made to close the store , when the closure is communicated to store associates and at the time of closure . as a specialty retailer , our sales are highest in our fourth quarter , followed by the first quarter . the timing of holidays and school vacations can impact our quarterly results . we can not ensure that this will continue to be the case . in addition , for accounting purposes , the quarters of each fiscal year consist of 13 weeks , although we will have a 14-week quarter approximately once every six years . the 2014 fiscal fourth quarter had 14 weeks . liquidity and capital resources our cash requirements are primarily for the opening of new stores , installation and upgrades of information
| capital resources . as of december 31 , 2016 , we had a cash balance of $ 32.5 million , less than half of which was domiciled outside of the united states . we also have a line of credit , which we can use to finance capital expenditures and working capital needs throughout the year . the bank line provides availability of up to $ 35 million . borrowings under the credit agreement are secured by our assets and a pledge of 65 % of our ownership interest in certain of our foreign subsidiaries . the credit agreement expires on december 31 , 2017 and contains various restrictions on indebtedness , liens , guarantees , redemptions , mergers , acquisitions or sale of assets , loans , transactions with affiliates and investments . it also prohibits us from declaring dividends without the bank 's prior consent , unless such payment of dividends would not violate any terms of the credit agreement . we are also prohibited from repurchasing shares of our common stock unless such repurchase of shares would not violate any terms of the credit agreement ; we may not use the proceeds of the line of credit to repurchase shares . borrowings bear interest at libor plus 1.8 % . financial covenants include maintaining a minimum tangible net worth , maintaining a minimum fixed charge coverage ratio ( as defined in the credit agreement ) and not exceeding a maximum funded debt to earnings before interest , depreciation and amortization ratio . in 2016 , we exceeded the maximum lease payments for personal property of $ 100,000 permitted in the financial covenants , resulting in non-compliance . we have subsequently obtained a waiver of the personal property lease payments covenant for 2016. as of december 31 , 2016 : ( i ) we were in compliance with all remaining covenants ; ( ii ) there were no borrowings under the line of credit ; and ( iii ) there was $ 35.0 million available for borrowing under the line of credit . most of our retail stores are located within shopping malls and all are operated under leases classified as operating leases .
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operating expenses operations and maintenance o & m expenses include interconnection costs , labor expenses , turbine servicing costs , land payments , insurance , materials , supplies , shared services and administrative expenses attributable to nep 's projects , and costs and expenses under the msa , asas and o & m agreements ( see note 13 ) . o & m expenses also include the cost of maintaining and replacing certain parts for the projects in the portfolio to maintain , over the long term , operating income or operating capacity . o & m expenses increased $ 9 million during the year ended december 31 , 2018 primarily due to an increase of approximately $ 12 million in idr fees related to growth in nep 's distributions to its common unitholders and increases in o & m expenses at various projects , partly offset by a decrease of approximately $ 8 million as a result of the sale of canadian holdings . 41 o & m expenses related to the existing portfolio are expected to remain relatively stable from year to year . however , nep 's o & m expenses are likely to increase as nep acquires new projects . depreciation and amortization depreciation and amortization expense reflects costs associated with depreciation and amortization of nep 's assets , based on depreciable asset lives and consistent depreciation methodologies . for certain of the renewable energy projects , citcs have been elected and are recorded as a reduction in property , plant and equipment - net on the consolidated balance sheets and amortized as a reduction to depreciation and amortization expense over the estimated life of the related property . depreciation and amortization expense also includes a provision for wind and solar facility dismantlement , asset removal costs and accretion related to asset retirement obligations and the amortization of finite-lived intangible assets . depreciation and amortization expense decreased $ 23 million during the year ended december 31 , 2018 primarily as a result of the sale of canadian holdings . gain on disposal of canadian holdings during the year ended december 31 , 2018 , a subsidiary of nep completed the sale of canadian holdings and nep recognized a pre-tax gain of approximately $ 153 million . see note 2 - disposal of canadian holdings . other income ( deductions ) interest expense interest expense primarily consists of interest under long-term debt agreements and mark-to-market gains and losses on interest rate contracts . interest expense increased approximately $ 49 million during the year ended december 31 , 2018 primarily due to unfavorable mark-to-market activity of $ 56 million , partly offset by a decrease of $ 13 million in interest expense associated with the sale of canadian holdings . benefits associated with differential membership interests - net for the year ended december 31 , 2017 , benefits associated with differential membership interests - net reflects benefits recognized by nep as third-party investors received their portion of the economic attributes , including income tax attributes , of the underlying wind projects , net of associated costs . nep recognized income related to differential membership interests of approximately $ 370 million for the year ended december 31 , 2018 which , due to the adoption of an accounting standards update , is reflected as a loss attributable to noncontrolling interests in the consolidated statements of income , of which approximately $ 231 million related to the change in federal corporate income tax rates that became effective january 1 , 2018. see note 2 - differential membership interests . approximately $ 240 million of the loss attributable to differential membership interests relates to nee 's noncontrolling interest and $ 130 million is reflected as net income attributable to nep . other - net the increase in other - net for the year ended december 31 , 2018 primarily reflects an approximately $ 17 million increase related to 2018 gains on foreign currency exchange contracts ( see note 7 ) and the difference between the total net identifiable assets at fair value and the total consideration transferred for an acquisition in december 2018 ( see note 3 ) . income taxes for periods through december 31 , 2017 , when nep acquired a neer project , income taxes were calculated on the predecessor method using the separate return method applied to the group of renewable energy projects acquired . as a result of the governance changes discussed in note 3 , beginning in january 1 , 2018 , acquisitions from neer are no longer treated as common control acquisitions , and income taxes are calculated on the successor method under which taxes are calculated for nep as a single taxpaying corporation for u.s. federal and state income taxes ( based on its election to be taxed as a corporation ) . because nep opco is a limited partnership , nep only recognizes in income its applicable ownership share of u.s. income taxes related to the u.s. projects and , prior to the sale of canadian holdings , the canadian projects . nep 's former canadian subsidiaries were all canadian taxpayers , and therefore nep recognized in income all of the canadian taxes . income taxes include nep 's applicable ownership share of u.s. taxes and 100 % of canadian taxes . net income or loss attributable to noncontrolling interests includes no u.s. taxes and neer 's applicable ownership share of canadian taxes . net income attributable to nep includes nep 's applicable ownership share of u.s. and canadian taxes . for the year ended december 31 , 2018 , nep recorded income tax expense of approximately $ 6 million on income before income taxes of $ 273 million , resulting in an effective tax rate of approximately 2 % . story_separator_special_tag no u.s. income taxes were provided with regard to these entities for periods prior to the nep acquisition date . see note 5 . impairment of long-lived assets nep evaluates long-lived assets , including finite-lived intangible assets , for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable . an impairment loss is required to be recognized if the carrying value of the asset exceeds the undiscounted future net cash flows associated with that asset . the impairment loss to be recognized is the amount by which the carrying value of the long-lived asset exceeds the asset 's fair value . in most instances , the fair value is determined by discounting estimated future cash flows using an appropriate interest rate . the amount of future net cash flows , the timing of such cash flows and the determination of an appropriate interest rate all involve estimates and judgments about future events . in particular , the aggregate amount of cash flows determines whether an impairment exists , and the timing of the cash flows is critical in determining fair value for the purposes of determining the impairment loss to be recognized . because each assessment is based on the facts and circumstances associated with each long-lived asset , the effects of changes in assumptions can not be generalized . see note 15 - pg & e bankruptcy for a discussion of an impairment analysis related to the pg & e bankruptcy filing . business combinations certain assumptions and estimates are employed in determining the fair value of assets acquired , evaluating the fair value of liabilities assumed , as well as in determining the allocation of goodwill to a reporting unit . these estimates may be affected by factors such as changing market conditions , technological advances in the energy industry or changes in regulations governing that industry . other key inputs that require judgment include discount rates , comparable market transactions , estimated useful lives and probability of future transactions . the most significant assumptions requiring the most judgment involve identifying and estimating the fair value of intangible assets and property , plant and equipment and the associated useful lives for establishing amortization periods . to finalize purchase accounting for significant transactions , nep may utilize the services of independent valuation specialists to assist in the determination of the fair value of acquired intangible assets and property , plant and equipment . the allocation of the purchase price may be modified up to one year from the date of the acquisition if new information is obtained about the fair value of assets acquired and liabilities assumed . there are also significant judgments involved in estimating the value of any contingent purchase consideration , for example , additional cash or stock consideration to be earned based on the future results or performance of the acquired business . the value of this potential additional consideration is required to be estimated and recorded as part of the purchase accounting for the acquisition in the period when the transaction is effective . each quarter these estimates must be reevaluated based on actual results achieved and changes in circumstances , and the contingent consideration adjusted to reflect any change in fair value . see note 6 - contingent consideration . 49 goodwill and other intangible assets goodwill acquired in connection with business combinations represents the excess of consideration over the fair value of net assets acquired . for goodwill and intangible assets with indefinite lives , an assessment for impairment is performed annually or whenever an event indicating impairment may have occurred . nep completes the annual impairment test for goodwill and indefinite-lived intangibles using an assessment date of october 1. goodwill is reviewed for impairment by comparing the carrying value of a reporting unit 's net assets , including allocated goodwill , to the estimated fair value of a reporting unit . nep estimates the fair value of a reporting unit using a combination of the income , market and cost approaches . determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions . such estimates and assumptions include revenue growth rates , future operating margins , the weighted average cost of capital , and future market conditions , among others . if a reporting unit 's carrying value is greater than its fair value , a second step is performed whereby the implied fair value of goodwill is estimated by allocating the fair value of a reporting unit in a hypothetical purchase price allocation analysis . a goodwill impairment charge would be recognized for the amount by which the carrying value of goodwill exceeds its reassessed fair value . nep performed its annual goodwill impairment test in october 2018 and determined , based on the results , that no goodwill impairment charge was required . quantitative and qualitative disclosures about market risk nep is exposed to several market risks in its normal business activities . market risk is the potential loss that may result from market changes associated with its business . the types of market risks include interest rate and counterparty credit risks . interest rate risk nep is exposed to risk resulting from changes in interest rates associated with outstanding and expected future debt issuances and borrowings . nep manages interest rate exposure by monitoring current interest rates , entering into interest rate swap contracts and using a combination of fixed rate and variable rate debt . interest rate swaps are used to mitigate and adjust interest rate exposure when deemed appropriate based upon market conditions or when required by financing agreements . nep has long-term debt instruments that subject it to the risk of loss associated with movements in market interest rates . at december 31 , 2018 , approximately 2 % of the long-term debt , including current maturities , was exposed to fluctuations in interest expense as the remaining balance was
| capital resources . as of december 31 , 2016 , we had a cash balance of $ 32.5 million , less than half of which was domiciled outside of the united states . we also have a line of credit , which we can use to finance capital expenditures and working capital needs throughout the year . the bank line provides availability of up to $ 35 million . borrowings under the credit agreement are secured by our assets and a pledge of 65 % of our ownership interest in certain of our foreign subsidiaries . the credit agreement expires on december 31 , 2017 and contains various restrictions on indebtedness , liens , guarantees , redemptions , mergers , acquisitions or sale of assets , loans , transactions with affiliates and investments . it also prohibits us from declaring dividends without the bank 's prior consent , unless such payment of dividends would not violate any terms of the credit agreement . we are also prohibited from repurchasing shares of our common stock unless such repurchase of shares would not violate any terms of the credit agreement ; we may not use the proceeds of the line of credit to repurchase shares . borrowings bear interest at libor plus 1.8 % . financial covenants include maintaining a minimum tangible net worth , maintaining a minimum fixed charge coverage ratio ( as defined in the credit agreement ) and not exceeding a maximum funded debt to earnings before interest , depreciation and amortization ratio . in 2016 , we exceeded the maximum lease payments for personal property of $ 100,000 permitted in the financial covenants , resulting in non-compliance . we have subsequently obtained a waiver of the personal property lease payments covenant for 2016. as of december 31 , 2016 : ( i ) we were in compliance with all remaining covenants ; ( ii ) there were no borrowings under the line of credit ; and ( iii ) there was $ 35.0 million available for borrowing under the line of credit . most of our retail stores are located within shopping malls and all are operated under leases classified as operating leases .
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operating expenses operations and maintenance o & m expenses include interconnection costs , labor expenses , turbine servicing costs , land payments , insurance , materials , supplies , shared services and administrative expenses attributable to nep 's projects , and costs and expenses under the msa , asas and o & m agreements ( see note 13 ) . o & m expenses also include the cost of maintaining and replacing certain parts for the projects in the portfolio to maintain , over the long term , operating income or operating capacity . o & m expenses increased $ 9 million during the year ended december 31 , 2018 primarily due to an increase of approximately $ 12 million in idr fees related to growth in nep 's distributions to its common unitholders and increases in o & m expenses at various projects , partly offset by a decrease of approximately $ 8 million as a result of the sale of canadian holdings . 41 o & m expenses related to the existing portfolio are expected to remain relatively stable from year to year . however , nep 's o & m expenses are likely to increase as nep acquires new projects . depreciation and amortization depreciation and amortization expense reflects costs associated with depreciation and amortization of nep 's assets , based on depreciable asset lives and consistent depreciation methodologies . for certain of the renewable energy projects , citcs have been elected and are recorded as a reduction in property , plant and equipment - net on the consolidated balance sheets and amortized as a reduction to depreciation and amortization expense over the estimated life of the related property . depreciation and amortization expense also includes a provision for wind and solar facility dismantlement , asset removal costs and accretion related to asset retirement obligations and the amortization of finite-lived intangible assets . depreciation and amortization expense decreased $ 23 million during the year ended december 31 , 2018 primarily as a result of the sale of canadian holdings . gain on disposal of canadian holdings during the year ended december 31 , 2018 , a subsidiary of nep completed the sale of canadian holdings and nep recognized a pre-tax gain of approximately $ 153 million . see note 2 - disposal of canadian holdings . other income ( deductions ) interest expense interest expense primarily consists of interest under long-term debt agreements and mark-to-market gains and losses on interest rate contracts . interest expense increased approximately $ 49 million during the year ended december 31 , 2018 primarily due to unfavorable mark-to-market activity of $ 56 million , partly offset by a decrease of $ 13 million in interest expense associated with the sale of canadian holdings . benefits associated with differential membership interests - net for the year ended december 31 , 2017 , benefits associated with differential membership interests - net reflects benefits recognized by nep as third-party investors received their portion of the economic attributes , including income tax attributes , of the underlying wind projects , net of associated costs . nep recognized income related to differential membership interests of approximately $ 370 million for the year ended december 31 , 2018 which , due to the adoption of an accounting standards update , is reflected as a loss attributable to noncontrolling interests in the consolidated statements of income , of which approximately $ 231 million related to the change in federal corporate income tax rates that became effective january 1 , 2018. see note 2 - differential membership interests . approximately $ 240 million of the loss attributable to differential membership interests relates to nee 's noncontrolling interest and $ 130 million is reflected as net income attributable to nep . other - net the increase in other - net for the year ended december 31 , 2018 primarily reflects an approximately $ 17 million increase related to 2018 gains on foreign currency exchange contracts ( see note 7 ) and the difference between the total net identifiable assets at fair value and the total consideration transferred for an acquisition in december 2018 ( see note 3 ) . income taxes for periods through december 31 , 2017 , when nep acquired a neer project , income taxes were calculated on the predecessor method using the separate return method applied to the group of renewable energy projects acquired . as a result of the governance changes discussed in note 3 , beginning in january 1 , 2018 , acquisitions from neer are no longer treated as common control acquisitions , and income taxes are calculated on the successor method under which taxes are calculated for nep as a single taxpaying corporation for u.s. federal and state income taxes ( based on its election to be taxed as a corporation ) . because nep opco is a limited partnership , nep only recognizes in income its applicable ownership share of u.s. income taxes related to the u.s. projects and , prior to the sale of canadian holdings , the canadian projects . nep 's former canadian subsidiaries were all canadian taxpayers , and therefore nep recognized in income all of the canadian taxes . income taxes include nep 's applicable ownership share of u.s. taxes and 100 % of canadian taxes . net income or loss attributable to noncontrolling interests includes no u.s. taxes and neer 's applicable ownership share of canadian taxes . net income attributable to nep includes nep 's applicable ownership share of u.s. and canadian taxes . for the year ended december 31 , 2018 , nep recorded income tax expense of approximately $ 6 million on income before income taxes of $ 273 million , resulting in an effective tax rate of approximately 2 % . story_separator_special_tag no u.s. income taxes were provided with regard to these entities for periods prior to the nep acquisition date . see note 5 . impairment of long-lived assets nep evaluates long-lived assets , including finite-lived intangible assets , for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable . an impairment loss is required to be recognized if the carrying value of the asset exceeds the undiscounted future net cash flows associated with that asset . the impairment loss to be recognized is the amount by which the carrying value of the long-lived asset exceeds the asset 's fair value . in most instances , the fair value is determined by discounting estimated future cash flows using an appropriate interest rate . the amount of future net cash flows , the timing of such cash flows and the determination of an appropriate interest rate all involve estimates and judgments about future events . in particular , the aggregate amount of cash flows determines whether an impairment exists , and the timing of the cash flows is critical in determining fair value for the purposes of determining the impairment loss to be recognized . because each assessment is based on the facts and circumstances associated with each long-lived asset , the effects of changes in assumptions can not be generalized . see note 15 - pg & e bankruptcy for a discussion of an impairment analysis related to the pg & e bankruptcy filing . business combinations certain assumptions and estimates are employed in determining the fair value of assets acquired , evaluating the fair value of liabilities assumed , as well as in determining the allocation of goodwill to a reporting unit . these estimates may be affected by factors such as changing market conditions , technological advances in the energy industry or changes in regulations governing that industry . other key inputs that require judgment include discount rates , comparable market transactions , estimated useful lives and probability of future transactions . the most significant assumptions requiring the most judgment involve identifying and estimating the fair value of intangible assets and property , plant and equipment and the associated useful lives for establishing amortization periods . to finalize purchase accounting for significant transactions , nep may utilize the services of independent valuation specialists to assist in the determination of the fair value of acquired intangible assets and property , plant and equipment . the allocation of the purchase price may be modified up to one year from the date of the acquisition if new information is obtained about the fair value of assets acquired and liabilities assumed . there are also significant judgments involved in estimating the value of any contingent purchase consideration , for example , additional cash or stock consideration to be earned based on the future results or performance of the acquired business . the value of this potential additional consideration is required to be estimated and recorded as part of the purchase accounting for the acquisition in the period when the transaction is effective . each quarter these estimates must be reevaluated based on actual results achieved and changes in circumstances , and the contingent consideration adjusted to reflect any change in fair value . see note 6 - contingent consideration . 49 goodwill and other intangible assets goodwill acquired in connection with business combinations represents the excess of consideration over the fair value of net assets acquired . for goodwill and intangible assets with indefinite lives , an assessment for impairment is performed annually or whenever an event indicating impairment may have occurred . nep completes the annual impairment test for goodwill and indefinite-lived intangibles using an assessment date of october 1. goodwill is reviewed for impairment by comparing the carrying value of a reporting unit 's net assets , including allocated goodwill , to the estimated fair value of a reporting unit . nep estimates the fair value of a reporting unit using a combination of the income , market and cost approaches . determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions . such estimates and assumptions include revenue growth rates , future operating margins , the weighted average cost of capital , and future market conditions , among others . if a reporting unit 's carrying value is greater than its fair value , a second step is performed whereby the implied fair value of goodwill is estimated by allocating the fair value of a reporting unit in a hypothetical purchase price allocation analysis . a goodwill impairment charge would be recognized for the amount by which the carrying value of goodwill exceeds its reassessed fair value . nep performed its annual goodwill impairment test in october 2018 and determined , based on the results , that no goodwill impairment charge was required . quantitative and qualitative disclosures about market risk nep is exposed to several market risks in its normal business activities . market risk is the potential loss that may result from market changes associated with its business . the types of market risks include interest rate and counterparty credit risks . interest rate risk nep is exposed to risk resulting from changes in interest rates associated with outstanding and expected future debt issuances and borrowings . nep manages interest rate exposure by monitoring current interest rates , entering into interest rate swap contracts and using a combination of fixed rate and variable rate debt . interest rate swaps are used to mitigate and adjust interest rate exposure when deemed appropriate based upon market conditions or when required by financing agreements . nep has long-term debt instruments that subject it to the risk of loss associated with movements in market interest rates . at december 31 , 2018 , approximately 2 % of the long-term debt , including current maturities , was exposed to fluctuations in interest expense as the remaining balance was
| liquidity and capital resources nep 's ongoing operations use cash to fund o & m expenses , maintenance capital expenditures , debt service payments and distributions to common and preferred unitholders and holders of noncontrolling interests . nep expects to satisfy these requirements primarily with internally generated cash flow . in addition , as a growth-oriented limited partnership , nep expects from time to time to make acquisitions and other investments . these acquisitions and investments are expected to be funded with borrowings under credit facilities or term loans , issuances of indebtedness , issuances of additional nep common units or preferred units , capital raised pursuant to other financing structures , cash on hand and cash generated from operations . these sources of funds are expected to be adequate to provide for nep 's short-term and long-term liquidity and capital needs , although its ability to make future acquisitions , expand existing projects and increase its distributions to common unitholders will depend on its ability to access the capital markets on acceptable terms . as a normal part of its business , depending on market conditions , nep expects from time to time to consider opportunities to repay , redeem , repurchase or refinance its indebtedness . in addition , nep expects from time to time to consider potential investments in new acquisitions . these events may cause nep to seek additional debt or equity financing , which may not be available on acceptable terms or at all . additional debt financing , if available , could impose operating restrictions , additional cash payment obligations and additional covenants . nep opco has agreed to allow neer or one of its affiliates to withdraw funds received by nep opco or its subsidiaries and to hold those funds in accounts of neer or one of its affiliates to the extent the funds are not required to pay project costs or otherwise required to be maintained by nep 's subsidiaries , until the financing agreements permit distributions to be made , or , in the case of nep opco , until such funds are required to make distributions or to pay expenses or other operating costs .
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additionally , economic tensions and changes in international trade policies , including higher tariffs on imported goods and materials and renegotiation of free trade agreements , could impact the global market for defense products , services and solutions . u.s. political and economic environment the u.s. continues to face an uncertain political environment and substantial fiscal and economic challenges , which affect funding for discretionary and non-discretionary budgets . the budget control act of 2011 ( bca ) mandated spending caps for all federal discretionary spending across a ten-year period ( fy 2012 through fy 2021 ) , including specific limits for defense and non-defense spending . in prior years , these spending caps have been revised by separate bills for specific fiscal years . most recently , on february 9 , 2018 , congress passed the bipartisan budget act ( bba ) of 2018 , which raised the statutory budget caps for defense spending , including for overseas contingency operations ( oco ) , by $ 80 billion for fy 2018 and by $ 85 billion for fy 2019. the bba also raised non-defense spending by $ 63 billion for fy 2018 and $ 68 billion for fy 2019 and suspended the debt ceiling until march 1 , 2019. the original spending caps - 25 - northrop grumman corporation established by the bca will return for fy 2020 and fy 2021 without another statutory change . similarly , the suspension of the debt ceiling is expected to end on march 1 , 2019 absent further action . on march 23 , 2018 , the president signed the omnibus appropriations act for fy 2018 , which provided $ 1.3 trillion in discretionary funding for federal agencies . in total for fy 2018 , congress appropriated approximately $ 700 billion for national security , including approximately $ 630 billion for base discretionary funding and approximately $ 70 billion in oco funding . on september 28 , 2018 , full-year appropriations for fy 2019 were enacted representing over half of discretionary federal spending . for fy 2019 , congress appropriated approximately $ 716 billion for national security , including approximately $ 647 billion for base discretionary funding and approximately $ 69 billion in oco funding . a continuing resolution was approved to provide further funding for other agencies ( including nasa and other civil agencies ) through december 7 , 2018 , which was subsequently extended through december 21 , 2018. on december 22 , 2018 , u.s. government agencies that had not yet received full-year appropriations and did not otherwise have funding entered into a temporary shutdown . on january 25 , 2019 , a third continuing resolution was enacted , which funds these agencies through february 15 , 2019. the federal budget and debt ceiling are expected to continue to be the subject of considerable debate , which could have significant impacts on defense spending broadly and the company 's programs in particular . for further information on the risks we face from the current political and economic environment , see “ risk factors . ” operating performance assessment and reporting we manage and assess our business based on our performance on contracts and programs ( typically larger contracts or two or more closely-related contracts ) . we recognize sales from our portfolio of long-term contracts as control is transferred to the customer , primarily over time on a cost-to-cost basis ( cost incurred relative to costs estimated at completion ) . as a result , sales tend to fluctuate in concert with costs incurred across our large portfolio of contracts . due to federal acquisition regulation ( far ) rules that govern our u.s. government business and related cost accounting standards ( cas ) , most types of costs are allocable to u.s. government contracts . as such , we do not focus on individual cost groupings ( such as manufacturing , engineering and design labor , subcontractor , material , overhead and general and administrative ( g & a ) costs ) , as much as we do on total contract cost , which is the key driver of our sales and operating income . in evaluating our operating performance , we look primarily at changes in sales and operating income . where applicable , significant fluctuations in operating performance attributable to individual contracts or programs , or changes in a specific cost element across multiple contracts , are described in our analysis . based on this approach and the nature of our operations , the discussion of results of operations below first focuses on our four segments before distinguishing between products and services . changes in sales are generally described in terms of volume , while changes in margin rates are generally described in terms of performance and or contract mix . for purposes of this discussion , volume generally refers to increases or decreases in sales or cost from production/service activity levels and performance generally refers to non-volume related changes in profitability . contract mix generally refers to changes in the ratio of contract type and or lifecycle ( e.g . , cost-type , fixed-price , development , production , and or sustainment ) . consolidated operating results for purposes of the operating results discussion below , we assess our financial and operating performance using certain financial measures that are not calculated in accordance with gaap . these non-gaap financial measures exclude mtm ( expense ) benefit and related tax impacts , and are described as mtm-adjusted net earnings and mtm-adjusted diluted earnings per share . these non-gaap measures may be useful to investors and other users of our financial statements as supplemental measures in evaluating the company 's underlying financial performance by presenting the company 's operating results before the non-operational impact of pension and opb actuarial gains and losses . story_separator_special_tag space sales increased primarily due to higher restricted sales , partially offset by lower volume on the jwst and advanced extremely high frequency ( aehf ) programs . operating income for 2017 increased $ 91 million , or 8 percent , primarily due to higher sales , partially offset by a lower operating margin rate . operating margin rate decreased to 10.6 percent from 11.0 percent principally due to changes in contract mix on manned aircraft programs and a gain of $ 45 million recognized in the prior year associated with the sale of a property , partially offset by the previously discussed $ 56 million favorable eac adjustment largely related to performance incentives . innovation systems replace_table_token_15_th the sales and operating income above reflect the operating results of innovation systems subsequent to the merger date . in our comparative discussion below , we reference pro forma sales prepared in accordance with article 11 of regulation s-x and computed as if the merger had been completed as of january 1 , 2017. refer to note 2 to the consolidated financial statements for additional supplemental consolidated pro forma financial information . this pro forma financial information should not be considered indicative of the results that would have actually occurred if the merger had been consummated on january 1 , 2017 , nor are they indicative of future results . 2018 – innovation systems sales for 2018 were $ 5.6 billion and for 2017 were $ 4.8 billion , each on a pro forma basis . the $ 0.8 billion , or 17 percent , increase reflects higher volume in each business area . defense systems sales reflect increased international volume on armament systems programs and increased volume on the anti-radiation guided missile program and small caliber ammunition programs . flight systems sales were primarily driven by higher ground-based midcourse defense , a350 and f-35 volume . space systems sales increased primarily due to higher government satellite volume . - 32 - northrop grumman corporation mission systems replace_table_token_16_th 2018 – mission systems sales for 2018 increased $ 239 million , or 2 percent , as compared with 2017 , primarily due to higher sensors and processing volume , partially offset by lower cyber and isr and advanced capabilities volume . sensors and processing sales increased principally due to higher volume on restricted programs , communications programs , f-35 and electro-optical/infrared ( eo/ir ) self-protection programs . cyber and isr sales decreased primarily due to ramp-down on a restricted isr program . advanced capabilities sales reflect lower volume on the joint national integration center research and development ( jrdc ) program and follow on activity , partially offset by higher volume on several programs , including the integrated air and missile defense battle command system program . operating income for 2018 increased $ 78 million , or 5 percent , due to a higher operating margin rate and higher sales . operating margin rate increased to 13.0 percent from 12.6 percent primarily due to improved performance on cyber and isr and sensors and processing programs , partially offset by a $ 32 million benefit recognized in the prior year in connection with the 2017 cost claim described above . 2017 – mission systems sales for 2017 increased $ 309 million , or 3 percent , as compared with 2016 primarily due to higher sensors and processing volume , partially offset by lower cyber and isr volume . sensors and processing sales increased principally due to higher volume on f-35 sensors , eo/ir self-protection programs , communications programs and the sabr program . these increases were partially offset by lower volume on international ground-based radar programs . cyber and isr sales decreased primarily due to lower volume on restricted isr programs . operating income for 2017 decreased $ 26 million , or 2 percent , primarily due to a lower operating margin rate , partially offset by higher sales and $ 32 million recognized in connection with the 2017 cost claim described above . operating margin rate decreased to 12.6 percent from 13.2 percent primarily due to lower margin rates on sensors and processing and cyber and isr programs principally resulting from lower performance and changes in contract mix . this decrease was partially offset by improved margin rates at advanced capabilities primarily due to the prior year including a $ 49 million forward loss provision on an advanced capabilities program . technology services replace_table_token_17_th 2018 – technology services sales for 2018 decreased $ 390 million , or 8 percent , as compared with 2017 , due to lower volume on advanced defense services and system modernization and services programs , partially offset by higher volume on global logistics and modernization programs . advanced defense services and system modernization and services sales decreased primarily due to the completion of several programs , including jrdc , partially offset by higher volume on the saudi arabian ministry of national guard training support program ( through our interest in a joint venture for which we consolidate the financial results ) . global logistics and modernization sales increased primarily due to higher volume for several programs , including the special electronic mission aircraft program , partially offset by lower volume from the completion of the kc-10 program . operating income for 2018 decreased $ 6 million , or 1 percent , primarily due to lower sales , partially offset by a higher operating margin rate . operating margin rate increased to 10.3 percent from 9.6 percent primarily due to the close-out of a state it outsourcing program . 2017 – technology services sales for 2017 decreased $ 78 million , or 2 percent , as compared with 2016 , primarily due to lower volume on system modernization and services programs , partially offset by higher volume on global logistics and modernization programs . system modernization and services sales decreased principally due to the completion of several programs in 2016 and 2017. global logistics and modernization sales increased primarily
| liquidity and capital resources nep 's ongoing operations use cash to fund o & m expenses , maintenance capital expenditures , debt service payments and distributions to common and preferred unitholders and holders of noncontrolling interests . nep expects to satisfy these requirements primarily with internally generated cash flow . in addition , as a growth-oriented limited partnership , nep expects from time to time to make acquisitions and other investments . these acquisitions and investments are expected to be funded with borrowings under credit facilities or term loans , issuances of indebtedness , issuances of additional nep common units or preferred units , capital raised pursuant to other financing structures , cash on hand and cash generated from operations . these sources of funds are expected to be adequate to provide for nep 's short-term and long-term liquidity and capital needs , although its ability to make future acquisitions , expand existing projects and increase its distributions to common unitholders will depend on its ability to access the capital markets on acceptable terms . as a normal part of its business , depending on market conditions , nep expects from time to time to consider opportunities to repay , redeem , repurchase or refinance its indebtedness . in addition , nep expects from time to time to consider potential investments in new acquisitions . these events may cause nep to seek additional debt or equity financing , which may not be available on acceptable terms or at all . additional debt financing , if available , could impose operating restrictions , additional cash payment obligations and additional covenants . nep opco has agreed to allow neer or one of its affiliates to withdraw funds received by nep opco or its subsidiaries and to hold those funds in accounts of neer or one of its affiliates to the extent the funds are not required to pay project costs or otherwise required to be maintained by nep 's subsidiaries , until the financing agreements permit distributions to be made , or , in the case of nep opco , until such funds are required to make distributions or to pay expenses or other operating costs .
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additionally , economic tensions and changes in international trade policies , including higher tariffs on imported goods and materials and renegotiation of free trade agreements , could impact the global market for defense products , services and solutions . u.s. political and economic environment the u.s. continues to face an uncertain political environment and substantial fiscal and economic challenges , which affect funding for discretionary and non-discretionary budgets . the budget control act of 2011 ( bca ) mandated spending caps for all federal discretionary spending across a ten-year period ( fy 2012 through fy 2021 ) , including specific limits for defense and non-defense spending . in prior years , these spending caps have been revised by separate bills for specific fiscal years . most recently , on february 9 , 2018 , congress passed the bipartisan budget act ( bba ) of 2018 , which raised the statutory budget caps for defense spending , including for overseas contingency operations ( oco ) , by $ 80 billion for fy 2018 and by $ 85 billion for fy 2019. the bba also raised non-defense spending by $ 63 billion for fy 2018 and $ 68 billion for fy 2019 and suspended the debt ceiling until march 1 , 2019. the original spending caps - 25 - northrop grumman corporation established by the bca will return for fy 2020 and fy 2021 without another statutory change . similarly , the suspension of the debt ceiling is expected to end on march 1 , 2019 absent further action . on march 23 , 2018 , the president signed the omnibus appropriations act for fy 2018 , which provided $ 1.3 trillion in discretionary funding for federal agencies . in total for fy 2018 , congress appropriated approximately $ 700 billion for national security , including approximately $ 630 billion for base discretionary funding and approximately $ 70 billion in oco funding . on september 28 , 2018 , full-year appropriations for fy 2019 were enacted representing over half of discretionary federal spending . for fy 2019 , congress appropriated approximately $ 716 billion for national security , including approximately $ 647 billion for base discretionary funding and approximately $ 69 billion in oco funding . a continuing resolution was approved to provide further funding for other agencies ( including nasa and other civil agencies ) through december 7 , 2018 , which was subsequently extended through december 21 , 2018. on december 22 , 2018 , u.s. government agencies that had not yet received full-year appropriations and did not otherwise have funding entered into a temporary shutdown . on january 25 , 2019 , a third continuing resolution was enacted , which funds these agencies through february 15 , 2019. the federal budget and debt ceiling are expected to continue to be the subject of considerable debate , which could have significant impacts on defense spending broadly and the company 's programs in particular . for further information on the risks we face from the current political and economic environment , see “ risk factors . ” operating performance assessment and reporting we manage and assess our business based on our performance on contracts and programs ( typically larger contracts or two or more closely-related contracts ) . we recognize sales from our portfolio of long-term contracts as control is transferred to the customer , primarily over time on a cost-to-cost basis ( cost incurred relative to costs estimated at completion ) . as a result , sales tend to fluctuate in concert with costs incurred across our large portfolio of contracts . due to federal acquisition regulation ( far ) rules that govern our u.s. government business and related cost accounting standards ( cas ) , most types of costs are allocable to u.s. government contracts . as such , we do not focus on individual cost groupings ( such as manufacturing , engineering and design labor , subcontractor , material , overhead and general and administrative ( g & a ) costs ) , as much as we do on total contract cost , which is the key driver of our sales and operating income . in evaluating our operating performance , we look primarily at changes in sales and operating income . where applicable , significant fluctuations in operating performance attributable to individual contracts or programs , or changes in a specific cost element across multiple contracts , are described in our analysis . based on this approach and the nature of our operations , the discussion of results of operations below first focuses on our four segments before distinguishing between products and services . changes in sales are generally described in terms of volume , while changes in margin rates are generally described in terms of performance and or contract mix . for purposes of this discussion , volume generally refers to increases or decreases in sales or cost from production/service activity levels and performance generally refers to non-volume related changes in profitability . contract mix generally refers to changes in the ratio of contract type and or lifecycle ( e.g . , cost-type , fixed-price , development , production , and or sustainment ) . consolidated operating results for purposes of the operating results discussion below , we assess our financial and operating performance using certain financial measures that are not calculated in accordance with gaap . these non-gaap financial measures exclude mtm ( expense ) benefit and related tax impacts , and are described as mtm-adjusted net earnings and mtm-adjusted diluted earnings per share . these non-gaap measures may be useful to investors and other users of our financial statements as supplemental measures in evaluating the company 's underlying financial performance by presenting the company 's operating results before the non-operational impact of pension and opb actuarial gains and losses . story_separator_special_tag space sales increased primarily due to higher restricted sales , partially offset by lower volume on the jwst and advanced extremely high frequency ( aehf ) programs . operating income for 2017 increased $ 91 million , or 8 percent , primarily due to higher sales , partially offset by a lower operating margin rate . operating margin rate decreased to 10.6 percent from 11.0 percent principally due to changes in contract mix on manned aircraft programs and a gain of $ 45 million recognized in the prior year associated with the sale of a property , partially offset by the previously discussed $ 56 million favorable eac adjustment largely related to performance incentives . innovation systems replace_table_token_15_th the sales and operating income above reflect the operating results of innovation systems subsequent to the merger date . in our comparative discussion below , we reference pro forma sales prepared in accordance with article 11 of regulation s-x and computed as if the merger had been completed as of january 1 , 2017. refer to note 2 to the consolidated financial statements for additional supplemental consolidated pro forma financial information . this pro forma financial information should not be considered indicative of the results that would have actually occurred if the merger had been consummated on january 1 , 2017 , nor are they indicative of future results . 2018 – innovation systems sales for 2018 were $ 5.6 billion and for 2017 were $ 4.8 billion , each on a pro forma basis . the $ 0.8 billion , or 17 percent , increase reflects higher volume in each business area . defense systems sales reflect increased international volume on armament systems programs and increased volume on the anti-radiation guided missile program and small caliber ammunition programs . flight systems sales were primarily driven by higher ground-based midcourse defense , a350 and f-35 volume . space systems sales increased primarily due to higher government satellite volume . - 32 - northrop grumman corporation mission systems replace_table_token_16_th 2018 – mission systems sales for 2018 increased $ 239 million , or 2 percent , as compared with 2017 , primarily due to higher sensors and processing volume , partially offset by lower cyber and isr and advanced capabilities volume . sensors and processing sales increased principally due to higher volume on restricted programs , communications programs , f-35 and electro-optical/infrared ( eo/ir ) self-protection programs . cyber and isr sales decreased primarily due to ramp-down on a restricted isr program . advanced capabilities sales reflect lower volume on the joint national integration center research and development ( jrdc ) program and follow on activity , partially offset by higher volume on several programs , including the integrated air and missile defense battle command system program . operating income for 2018 increased $ 78 million , or 5 percent , due to a higher operating margin rate and higher sales . operating margin rate increased to 13.0 percent from 12.6 percent primarily due to improved performance on cyber and isr and sensors and processing programs , partially offset by a $ 32 million benefit recognized in the prior year in connection with the 2017 cost claim described above . 2017 – mission systems sales for 2017 increased $ 309 million , or 3 percent , as compared with 2016 primarily due to higher sensors and processing volume , partially offset by lower cyber and isr volume . sensors and processing sales increased principally due to higher volume on f-35 sensors , eo/ir self-protection programs , communications programs and the sabr program . these increases were partially offset by lower volume on international ground-based radar programs . cyber and isr sales decreased primarily due to lower volume on restricted isr programs . operating income for 2017 decreased $ 26 million , or 2 percent , primarily due to a lower operating margin rate , partially offset by higher sales and $ 32 million recognized in connection with the 2017 cost claim described above . operating margin rate decreased to 12.6 percent from 13.2 percent primarily due to lower margin rates on sensors and processing and cyber and isr programs principally resulting from lower performance and changes in contract mix . this decrease was partially offset by improved margin rates at advanced capabilities primarily due to the prior year including a $ 49 million forward loss provision on an advanced capabilities program . technology services replace_table_token_17_th 2018 – technology services sales for 2018 decreased $ 390 million , or 8 percent , as compared with 2017 , due to lower volume on advanced defense services and system modernization and services programs , partially offset by higher volume on global logistics and modernization programs . advanced defense services and system modernization and services sales decreased primarily due to the completion of several programs , including jrdc , partially offset by higher volume on the saudi arabian ministry of national guard training support program ( through our interest in a joint venture for which we consolidate the financial results ) . global logistics and modernization sales increased primarily due to higher volume for several programs , including the special electronic mission aircraft program , partially offset by lower volume from the completion of the kc-10 program . operating income for 2018 decreased $ 6 million , or 1 percent , primarily due to lower sales , partially offset by a higher operating margin rate . operating margin rate increased to 10.3 percent from 9.6 percent primarily due to the close-out of a state it outsourcing program . 2017 – technology services sales for 2017 decreased $ 78 million , or 2 percent , as compared with 2016 , primarily due to lower volume on system modernization and services programs , partially offset by higher volume on global logistics and modernization programs . system modernization and services sales decreased principally due to the completion of several programs in 2016 and 2017. global logistics and modernization sales increased primarily
| liquidity and capital resources we endeavor to ensure the most efficient conversion of operating income into cash for deployment in our business and to maximize shareholder value through cash deployment activities . in addition to our cash position , we use various financial measures to assist in capital deployment decision-making , including cash provided by operating activities and free cash flow , a non-gaap measure described in more detail below . as of december 31 , 2018 , we had cash and cash equivalents of $ 1.6 billion ; approximately $ 250 million was held outside of the u.s. by foreign subsidiaries . cash and cash equivalents and cash generated from operating activities , supplemented by borrowings under credit facilities , commercial paper and or in the capital markets , if needed , are expected to be sufficient to fund our operations for at least the next 12 months . capital expenditure commitments were $ 784 million at december 31 , 2018 , and are expected to be paid with cash on hand . - 35 - northrop grumman corporation operating cash flow the table below summarizes key components of cash flow provided by operating activities : replace_table_token_20_th ( 1 ) includes depreciation and amortization , mtm ( expense ) benefit , stock based compensation expense and deferred income taxes . 2018 – net cash provided by operating activities for 2018 increased by $ 1.2 billion , or 46 percent , as compared with 2017 , principally due to higher net earnings , which include the addition of innovation systems , and improved trade working capital performance .
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accounts receivable from direct customers and distributors ( excluding those distributors discussed in the immediately preceding paragraph ) are recognized and inventory is relieved upon shipment as title to inventories generally transfers upon shipment at which point we have a legally enforceable right to collection under normal terms . accounts receivable related to consigned inventory is recognized when the customer takes title to such inventory from its consigned location at which point inventory is relieved , title transfers , and we have a legally enforceable right to collection under the terms of our agreement with the related customers . we estimate potential future returns and sales allowances related to current period product revenue . management analyzes historical returns , changes in customer demand and acceptance of products when evaluating the adequacy of returns and sales allowances . estimates made by us may differ from actual returns and sales allowances . these differences may materially impact reported revenue and amounts ultimately collected on accounts receivable . historically , such differences have not been material . 23 at june 27 , 2015 and june 28 , 2014 , we had $ 17.4 million and $ 16.2 million accrued for returns and allowances against accounts receivable , respectively . during fiscal years 2015 and 2014 , we recorded $ 81.5 million and $ 75.3 million for estimated returns and allowances against revenues , respectively . these amounts were offset by $ 80.2 million and $ 71.6 million for actual returns and allowances given during fiscal years 2015 and 2014 , respectively . inventories inventories are stated at the lower of ( i ) standard cost , which approximates actual cost on a first-in-first-out basis , or ( ii ) market value . our standard cost revision policy is to continuously monitor manufacturing variances and revise standard costs on a quarterly basis . because of the cyclical nature of the market , inventory levels , obsolescence of technology , and product life cycles , we generally write-down inventories to net realizable value based on forecasted product demand . actual demand and market conditions may be lower than those projected by us . this difference could have a material adverse effect on our gross margin should inventory write-downs beyond those initially recorded become necessary . alternatively , should actual demand and market conditions be more favorable than those estimated by us , gross margin could be favorably impacted as we release these reserves upon the ultimate product shipment . during fiscal years 2015 , 2014 and 2013 , we had net inventory write-downs of $ 28.6 million , $ 35.1 million and $ 19.2 million , respectively . long-lived assets we evaluate the recoverability of property , plant and equipment in accordance with accounting standards codification ( “ asc ” ) no . 360 , property , plant , and equipment ( “ asc 360 ” ) . we perform periodic reviews to determine whether facts and circumstances exist that would indicate that the carrying amounts of property , plant and equipment might not be fully recoverable . if facts and circumstances indicate that the carrying amount of property , plant and equipment might not be fully recoverable , we compare projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful lives against their respective carrying amounts . in the event that the projected undiscounted cash flows are not sufficient to recover the carrying value of the assets , the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets . evaluation of impairment of property , plant and equipment requires estimates in the forecast of future operating results that are used in the preparation of the expected future undiscounted cash flows . actual future operating results and the remaining economic lives of our property , plant and equipment could differ from our estimates used in assessing the recoverability of these assets . these differences could result in impairment charges , which could have a material adverse impact on our results of operations . we recorded impairment charges of $ 67.0 million , $ 11.6 million , and $ 24.9 million during fiscal years 2015 , 2014 and 2013 , respectively . intangible assets and goodwill we account for intangible assets in accordance with asc no . 350 , intangibles-goodwill and other ( “ asc 350 ” ) , we review goodwill and purchased intangible assets with indefinite lives for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable , such as when reductions in demand or significant economic slowdowns in the semiconductor industry are present . intangible asset reviews are performed when indicators exist that could indicate the carrying value may not be recoverable based on comparisons to undiscounted expected future cash flows . if this comparison indicates that there is impairment , the impaired asset is written down to fair value , which is typically calculated using : ( i ) quoted market prices or ( ii ) discounted expected future cash flows utilizing a discount rate consistent with the guidance provided in fasb concepts statement no . 7 , using cash flow information and present value in accounting measurements . impairment is based on the excess of the carrying amount over the fair value of those assets . during fiscal years 2015 , 2014 and 2013 , we recorded impairment of intangible assets of $ 8.9 million , $ 2.6 million and $ 2.8 million , respectively , related to write-offs of acquired in-process research and development . goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired . story_separator_special_tag million decrease was primarily due to lower levels of certain assets classified as excess property , plant and equipment and certain assets classified as held for sale written down to fair value less cost to sell , including used fabrication tools and test equipment . impairment of goodwill and intangible assets impairment of goodwill and intangible assets was $ 93.0 million in fiscal year 2015 and $ 2.6 million in fiscal year 2014 . the $ 90.4 million increase was primarily driven by impairments to goodwill and in-process research and development for the sensing solutions reporting unit . the sensing solutions reporting unit develops integrated circuits that are primarily sold in the consumer and automotive end customer markets . the impairment was the result of our decision within the quarter ended december 27 , 2014 to exit certain market offerings that have competitive dynamics which are no longer consistent with our business objectives . for details , please refer to note 8 : “ goodwill and intangible assets ” in our consolidated financial statements included in part iv , item 15 ( a ) to this annual report . impairment of goodwill and intangible assets was $ 2.6 million in fiscal year 2014 and $ 2.8 million in fiscal year 2013. there were no significant fluctuations in any specific items making up the impairment of goodwill and intangible assets expenses . severance and restructuring expenses severance and restructuring expenses were $ 30.6 million in fiscal year 2015 and $ 24.9 million in fiscal year 2014 , which represented 1.3 % and 1.0 % of net revenues , respectively . the $ 5.7 million increase was primarily due to restructuring activities which took place during fiscal 2015 , primarily $ 23.9 million associated with the major reorganization of the company 's business units as well as $ 6.7 million associated with the decision to shut down our san jose wafer fabrication facility . for details , please refer to note 18 : “ restructuring activities ” in our consolidated financial statements included in part iv , item 15 ( a ) to this annual report . during the fiscal year 2015 , we commenced activities to close down the operations in our san jose wafer fabrication facility , our hillsboro , oregon testing site , and our batangas , the philippines manufacturing site . additionally , we announced the planned transfer of our wafer manufacturing facility in san antonio , texas to a foundry partner and to close our wafer level packaging manufacturing facility in dallas , texas during our fourth fiscal quarter of 2015 earnings call . as a result of these actions , we expect to incur additional severance and restructuring expenses throughout our fiscal year 2016. severance and restructuring expenses were $ 24.9 million in fiscal year 2014 and $ 2.8 million in fiscal year 2013 , which represented 1.0 % and 0.1 % of net revenues , respectively . the $ 22.1 million increase was primarily due to a $ 10.8 million increase in severance and restructuring expenses associated with the reorganization of certain business units and an $ 11.0 million increase in severance costs associated with restructuring plans arising from the volterra acquisition . the reorganizations were driven by the desire to focus on specific investment areas , simplify business processes and eliminate redundant positions . acquisition-related costs acquisition-related costs were $ 7.0 million in fiscal year 2014 , and included banker , legal , and other volterra acquisition-related costs . other operating expenses ( income ) , net other operating expenses ( income ) , net were $ ( 2.0 ) million and $ 15.8 million in fiscal year 2015 and 2014 , respectively , which represented ( 0.1 ) % and 0.6 % of net revenues , respectively . the net decrease in other operating expenses of $ 17.8 million was primarily driven by a change in estimate to an expected loss on rent expense for vacated office space of $ 3.4 million as well as the absence of one-time expenses incurred in fiscal year 2014 such as the $ 6.0 million intellectual property infringement legal settlement and the impairment of notes receivable of $ 4.1 million related to a divestiture . other operating expenses ( income ) , net were $ 15.8 million and $ 3.1 million in fiscal years 2014 and 2013 , respectively , which represented 0.6 % and 0.1 % of net revenues , respectively . the net increase in other operating expenses ( income ) of $ 12.7 million was primarily attributable to a $ 6.0 million intellectual property infringement legal settlement and an impairment of notes receivable of $ 4.1 million related to a divestiture . 29 interest and other income ( expense ) , net interest and other income ( expense ) , net were $ 8.9 million in fiscal year 2015 and $ ( 13.1 ) million in fiscal year 2014 , which represented 0.4 % and ( 0.5 ) % of net revenues , respectively . the net decrease in expenses of $ 22.0 million to an income position was primarily attributable to the gain of $ 35.8 million on the sale of our captive touch business , which occurred in june 2015. this gain was partially offset by a $ 14.0 million decrease in income from licensing intellectual property and $ 5.5 million in additional interest expense resulting from the issuance of long-term notes . interest and other income ( expense ) , net were $ ( 13.1 ) million in fiscal year 2014 and $ ( 18.0 ) million in fiscal year 2013 , which represented ( 0.5 ) % and ( 0.7 ) % of net revenues , respectively . the net decrease in expenses of $ 5.0 million was primarily driven by income from licensing intellectual property of $ 17.1 million offset by $ 10.6 million in additional interest expense resulting from the issuance of long-term notes . provision for income
| liquidity and capital resources we endeavor to ensure the most efficient conversion of operating income into cash for deployment in our business and to maximize shareholder value through cash deployment activities . in addition to our cash position , we use various financial measures to assist in capital deployment decision-making , including cash provided by operating activities and free cash flow , a non-gaap measure described in more detail below . as of december 31 , 2018 , we had cash and cash equivalents of $ 1.6 billion ; approximately $ 250 million was held outside of the u.s. by foreign subsidiaries . cash and cash equivalents and cash generated from operating activities , supplemented by borrowings under credit facilities , commercial paper and or in the capital markets , if needed , are expected to be sufficient to fund our operations for at least the next 12 months . capital expenditure commitments were $ 784 million at december 31 , 2018 , and are expected to be paid with cash on hand . - 35 - northrop grumman corporation operating cash flow the table below summarizes key components of cash flow provided by operating activities : replace_table_token_20_th ( 1 ) includes depreciation and amortization , mtm ( expense ) benefit , stock based compensation expense and deferred income taxes . 2018 – net cash provided by operating activities for 2018 increased by $ 1.2 billion , or 46 percent , as compared with 2017 , principally due to higher net earnings , which include the addition of innovation systems , and improved trade working capital performance .
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