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the company has set a goal to commercialize its first durastim® hydraulic 33 fracturing equipment to our customer wellsites in the second half of 2021. we also have an option to purchase up to an additional 108,000 hhp of durastim® hydraulic fracturing equipment in the future through july 31 , 2022. the durastim® equipment is powered by electricity . we currently have gas turbines to provide electrical power to our durastim® fleet . the electrical power sources for future durastim® fleets are still being evaluated and could be supplied by the company , customers or a third-party supplier . pioneer pressure pumping acquisition on december 31 , 2018 , we consummated the purchase of pressure pumping and related assets of pioneer and pioneer pumping services , llc in the pioneer pressure pumping acquisition . the pressure pumping assets acquired included hydraulic fracturing pumps of 510,000 hhp , four coiled tubing units and the associated equipment maintenance facility . in connection with the acquisition , we became a long-term service provider to pioneer under the pioneer services agreement , providing pressure pumping and related services for a term of up to 10 years ; provided , that pioneer has the right to terminate the pioneer services agreement , in whole or part , effective as of december 31 of each of the calendar years of 2022 , 2024 and 2026. pioneer can increase the number of committed fleets prior to december 31 , 2022. pursuant to the pioneer services agreement , the company is entitled to receive compensation if pioneer were to idle committed fleets ( “ idle fees ” ) ; however , we are first required to use all economically reasonable effort to deploy the idled fleets to another customer . at the present , we have eight fleets committed to pioneer . during times when there is a significant reduction in overall demand for our services , the idle fees could represent a material portion of our revenues . while management believes our relationship with pioneer will continue beyond december 31 , 2022 , if pioneer elects to terminate the pioneer services agreement effective december 31 , 2022 , or seeks to renegotiate the terms on which we provide services to pioneer , it could have a material adverse effect on our financial condition , results of operations and cash flows . commodity price and other economic conditions the global public health crisis associated with the covid-19 pandemic has and is anticipated to continue to have an adverse effect on global economic activity for the immediate future and has resulted in travel restrictions , business closures and the institution of quarantining and other activity restrictions in many communities . the slowdown in global economic activity attributable to covid-19 has resulted in a dramatic decline in the demand for energy which directly impacts our industry and the company . in addition , global crude oil prices experienced a collapse starting in early march 2020 as a direct result of failed negotiations between opec and russia . as the breadth of the covid-19 health crisis expanded throughout the month of march 2020 and governmental authorities implemented more restrictive measures to limit person-to-person contact , global economic activity continued to decline commensurately . the associated impact on the energy industry has been adverse and continued to be exacerbated by the depressed demand in the energy sector and uncertainty in global production levels . in response to the global economic slowdown and depressed demand in the oil and gas industry , opec+ has made adjustments to production levels with the objective of rebalancing the energy market . after the march 2020 failed negotiations , opec+ subsequently agreed to cut production by 7.7 million bopd . in january 2021 , opec+ reconvened to discuss the matter of production cuts in light of unprecedented disruption and supply and demand imbalances . agreements were reached to gradually increase production by 0.5 million bopd , starting in january 2021 , and adjusting the production reduction from 7.7 million bopd to 7.2 million bopd . opec+ members have shown compliance with previously agreed upon production levels , and we have seen recovery in crude oil prices from its low point in 2020. the combined effect of covid-19 and the energy industry disruptions led to a decline in wti crude oil prices of approximately 67 percent from the beginning of january 2020 , when prices were approximately $ 62 per barrel , through the end of march 2020 , when they were just above $ 20 per barrel . overall , with opec+ managing production levels and with the development and distribution of covid-19 vaccines , there has been a gradual recovery in crude oil prices from the low point in march 2020. however , with the uncertainty in the global market resulting from the covid-19 pandemic , the risk that currently developed vaccines may not be successful in preventing the covid-19 virus or the outbreak of a new virus , the global demand for crude oil could continue to 34 be depressed and crude oil prices could decline . as of march 3 , 2021 , the wti price for a barrel of crude oil was approximately $ 62. in light of the covid-19 pandemic and the energy industry disruptions , the permian basin rig count decreased significantly from approximately 403 at the beginning of january 2020 to approximately 175 at the end of december 2020 , according to baker hughes . however , the rig count slowly increased exiting 2020 from its august low of 117 rigs . if the rig count and market conditions do not continue to improve or worsen , the company expects a material adverse impact on its business , results of operations and cash flows , resulting from a decrease in customer activity and pricing pressure from its customers . story_separator_special_tag ( 3 ) for definitions of the non‑gaap financial measures of adjusted ebitda and adjusted ebitda margin and reconciliation of adjusted ebitda and adjusted ebitda margin to our most directly comparable financial measures calculated in accordance with gaap , please read “ how we evaluate our operations . ” included in our adjusted ebitda is idle fees of $ 47.2 million and $ 13.3 million for the years ended december 31 , 2020 and 2019 , respectively . ( 4 ) the non‑gaap financial measure of adjusted ebitda margin for the pressure pumping segment is calculated by taking adjusted ebitda for the pressure pumping segment as a percentage of our revenues for the pressure pumping segment . 41 revenue . revenue decreased 61.5 % , or $ 1,263.1 million , to $ 789.2 million for the year ended december 31 , 2020 , as compared to $ 2,052.3 million for the year ended december 31 , 2019. our pressure pumping segment revenues decreased 61.4 % , or $ 1,228.2 million for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. the decreases were primarily attributable to the significant decrease in demand for pressure pumping services , as well as pricing discounts we provided to our customers following the depressed oil prices and slowdown in economic activity resulting from the covid-19 pandemic . the decrease in demand for our pressure pumping services resulted in a significant decrease in our average effectively utilized fleet count to approximately 10.2 active fleets in 2020 from 23.9 active fleets in 2019. furthermore , the decrease in our revenue was also driven by the increase in our customers directly sourcing from vendors certain consumables like sand , chemicals and fuel . included in our revenue for the years ended december 31 , 2020 and 2019 was revenue generated from idle fees charged to our customer of approximately $ 47.2 million and $ 13.3 million , respectively . revenues from services other than pressure pumping decreased 68.9 % , or approximately $ 34.9 million , for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. the decrease in revenues from services other than pressure pumping during the year ended december 31 , 2020 , was primarily attributable to the shutdown of our flowback operations and also a significant reduction in utilization experienced in our coiled tubing operations , which was driven by lower e & p completions activity following the depressed oil prices and impact of the covid-19 pandemic . cost of services . cost of services decreased 60.3 % , or $ 886.1 million , to $ 584.3 million for the year ended december 31 , 2020 , from $ 1,470.4 million during the year ended december 31 , 2019. cost of services in our pressure pumping segment decreased $ 858.2 million during the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. the decreases were primarily attributable to our lower utilization and activity levels , following the depressed oil prices and economic slowdown caused by the covid-19 pandemic that negatively impacted e & p completions activity . as a percentage of pressure pumping segment revenues ( including idle fees ) , pressure pumping cost of services increased to 73.8 % for the year ended december 31 , 2020 , as compared to 71.4 % for the year ended december 31 , 2019. excluding idle fees revenue of $ 47.2 million and $ 13.3 million for the years ended december 31 , 2020 and 2019 , respectively , our pressure pumping cost of services as a percentage of pressure pumping revenues for the years ended december 31 , 2020 and 2019 was approximately 78.5 % and 71.9 % , respectively . the increase in our cost of services percentage was primarily attributable to pricing pressure on our services resulting from customer discounts . our pricing in 2020 was significantly depressed following the economic slowdown caused by covid-19 pandemic and depressed oil prices . general and administrative expenses . general and administrative expenses decreased 17.4 % , or $ 18.3 million , to $ 86.8 million for the year ended december 31 , 2020 , as compared to $ 105.1 million for the year ended december 31 , 2019. the net decrease was primarily attributable to a decrease during 2020 in ( i ) nonrecurring professional fees of $ 12.2 million , which was primarily attributable to the company 's expanded audit committee internal review , pending sec investigation and shareholder litigation , ( ii ) retention and other bonuses , and severance expense of $ 8.1 million ; ( iii ) property taxes of $ 1.6 million , and ( iv ) $ 5.0 million in other remaining general and administrative expenses , which was partially offset by a net increase of approximately $ 7.2 million paid in legal , accounting and consulting professional fees , and stock based compensation expense of $ 1.3 million . depreciation and amortization . depreciation and amortization increased 5.5 % , or $ 8.0 million , to $ 153.3 million for the year ended december 31 , 2020 , as compared to $ 145.3 million for the year ended december 31 , 2019. the increase was primarily attributable to the overall increase in our fixed asset base as of december 31 , 2020. impairment expense . during the year ended december 31 , 2020 , the depressed market conditions , crude oil prices and negative near-term outlook for the utilization of certain of our equipment , resulted in the company recording an impairment expense of approximately $ 38.0 million , of which $ 9.4 million relates to goodwill impairment and $ 28.6 million relates to property and equipment impairment . the substantial portion of our impairment expense relates to our pressure pumping segment . during the year ended december 31 , 2019 , we
| cash and cash flows the following table sets forth our net cash provided by ( used in ) operating , investing and financing activities during the years ended december 31 , 2020 and 2019 , respectively . replace_table_token_6_th operating activities net cash provided by operating activities was $ 139.1 million for the year ended december 31 , 2020 , as compared to $ 455.3 million for the year ended december 31 , 2019. the net decrease of $ 316.2 million was primarily due to the reduction in our activity levels in 2020 , resulting from the depressed oil prices and economic slowdown caused by the covid-19 pandemic that negatively impacted our o perations . the net decrease in cash provided by operating activities was also impacted by the timing of our receivable collections from our customers and payment to our vendors . investing activities net cash used in investing activities decreased to $ 94.2 million for the year ended december 31 , 2020 , from $ 495.3 million for the year ended december 31 , 2019. the net decrease in our cash used in investing activities was primarily attributable to the reduction in growth and maintenance capital expenditures in 2020 following the lower number of pressure pumping active fleets , equipment rotation ( resulting in lower intensity on our pressure pumping equipment ) and the depressed demand for our pressure pumping services . during the year ended december 31 , 2019 , the company made a cash payment of approximately $ 110.0 million in connection with the pioneer pressure pumping acquisition and paid approximately $ 145.3 million for 108,000 hhp of durastim® hydraulic fracturing equipment and turbines ( including an option payment of $ 6.1 million to purchase an additional 108,000 hhp of durastim® equipment ) .
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it also features an easy-to-navigate software architecture , a vivid color touch screen and a micro-usb connection that supports both a rechargeable battery and t : connect , our custom cloud-based data management application that provides a fast , easy and visual way to display therapy management data from the pump and supported blood glucose meters . we began commercial sales of our first product , t : slim , in august 2012. during 2015 , we commenced commercial sales of two additional insulin pumps : t : flex in may 2015 and t : slim g4 in september 2015. since inception , we have derived nearly all of our revenue from the sale of insulin pumps and associated supplies in the united states . we consider the number of units shipped per quarter to be an important metric for managing our business . we have shipped nearly 34,000 insulin pumps since the initiation of our commercial efforts in 2012. pump shipments are broken down by product , and by quarter as follows : 56 replace_table_token_4_th ( 1 ) this table does not reflect returns or exchanges of pump products that occurred in the ordinary course of business . ( 2 ) during the fourth quarter of 2015 , 148 t : slim pumps and two t : flex pumps originally shipped in the third quarter of 2015 were exchanged for t : slim g4 pumps under a limited product exchange program ( as described below ) . amounts for the fourth quarter of 2015 in the table above are adjusted to reflect the impact of the exchange program . for the years ended december 31 , 2015 , 2014 and 2013 , our sales were $ 72.9 million , $ 49.7 million and $ 29.0 million , respectively . for the years ended december 31 , 2015 , 2014 and 2013 , our net loss was $ 72.4 million , $ 79.5 million and $ 63.1 million , respectively . our accumulated deficit as of december 31 , 2015 was $ 321.1 million . in connection with t : slim g4 commercial launch , we offered a limited product exchange program , referred to as the exchange program for eligible customers . the exchange program offered customers who received a t : slim or t : flex pump on or after august 1 , 2015 , a limited period in which to elect to exchange their pump for a t : slim g4 . the ability to elect an exchange ended in the early part of october 2015. at the close of the exchange program , a total of 150 t : slim or t : flex pumps were exchanged for t : slim g4 pumps . we accrued for estimated exchanges and associated costs by reducing sales and deferring cost of sales in the third quarter of 2015. the deferred sales and the cost of sales under the exchange program were recognized either upon delivery of t : slim g4 to the customer during the fourth quarter of 2015 or expiration of the program for those that were not exchanged . in the fourth quarter , t : slim g4 made up majority of our overall shipments . while there is some cannibalization of t : slim , and this high percentage may also reflect some pent up demand , we also believe this trend demonstrates that there is significant interest in this product . we expect that t : slim g4 will represent the largest percentage of our pump shipments in 2016. a substantial portion of the purchase price of an insulin pump is typically paid for by third-party payors , including private insurance companies , preferred provider organizations and other managed care providers . access to adequate coverage and reimbursement for our current and future products by third-party payors is essential to the acceptance of our products by customers . future sales of our current and future products will be limited unless our customers can rely on third-party payors to pay for all or part of the associated purchase cost . in circumstances in which we do not have contracts established with third-party payors , to the extent possible , we utilize our network of national and regional distributors to service our customers . 57 we believe we can achieve profitability because our proprietary technology platform will allow us to maximize efficiencies in the development , production and sale of our products . by offering a family of products , all of which are based on our proprietary technology platform , we believe we can develop and bring to market products more rapidly , while significantly reducing our design and development costs . due to shared product design features , ou r production system is adaptable to new products and we intend to leverage our shared manufacturing infrastructure to reduce our product costs and drive operational efficiencies . further , we expect to continue to increase production volume and to reduce th e per-unit production overhead cost for our pump products and their associated disposable cartridges over time . by expanding our product offerings to address people in different segments of the large and growing insulin-dependent diabetes market , we believ e we can increase the productivity of our sales , clinical and marketing organization , and utilize the expertise of our customer , technical and support services , thereby improving our operating margin . from inception through december 31 , 2015 , we have primarily financed our operations through sales of equity securities , and to a lesser extent , debt financings . we expect to continue to incur net losses for the next several years , and may require additional capital through equity and debt financings in order to fund our operations until we reach a level of revenue adequate to support our cost structure . story_separator_special_tag sales from t : slim pump accounted for 86 % and 90 % of sales , respectively , for the years ended december 31 , 2014 and 2013 , while pump-related supplies primarily accounted for the remainder in each year . sales of accessories were not material in either year . the growth in sales was primarily driven by a 67 % increase in t : slim pump shipments from 6,472 in 2013 to 10,822 in 2014. we expanded the number of sales territories in the united states from 36 at the end of 2013 to 60 at the end of the second quarter of 2014. as a result of our sales force expansion , our field personnel experienced some initial disruption in their sales productivity as their territories were realigned and responsibilities adjusted . 61 sales to distributors accounted for 75 % and 69 % of our total sales for the years ended december 31 , 2014 and 2013 , respectively . the increase in the percentage of our sales to distributors is primarily attributable to certain arrangements between insurance payors and our distributors that becam e effective during the third quarter of 2014. as a result of these arrangements , a portion of our business that previously involved an opportunity to make a direct sale to the customer transitioned to an opportunity to make a sale through a distributor . th e new arrangement afforded certain members easier access to our products as an in-network benefit and provided access to our products to a large portion of members who were previously unable to obtain coverage for our products at all . cost of sales and gross profit . our cost of sales in 2014 was $ 34.5 million , resulting in gross profit of $ 15.2 million , compared to $ 22.8 million in cost of sales and gross profit of $ 6.2 million in 2013. the gross margin in 2014 was 31 % , compared to 21 % in 2013. the improvement in the gross margin was primarily a result of manufacturing efficiencies associated with an increase in production output and improvement in our manufacturing processes . our pump manufacturing overhead spending decreased 19 % while our pump units produced increased 56 % in 2014 compared to 2013 , and our cartridge manufacturing overhead spending increased 40 % while our cartridge units produced increased 143 % in 2014 compared to 2013. included in cost of sales for the year ended december 31 , 2014 were costs of $ 0.4 million associated with our voluntary product recall of selected lots of cartridges initiated in january 2014. the voluntary recall resulted in a less than one percentage point reduction in the gross margin for the year ended december 31 , 2014. by comparison , the 2013 gross margin included $ 1.3 million of recall-associated costs , or a reduction of the gross margin of five percentage points . also included in cost of sales in 2013 were costs of $ 1.1 million that were previously deferred at the end of the fourth quarter of 2012 due to our lack of history for estimating product returns at that time . these costs , along with the previously deferred sales of $ 1.9 million recognized in the first quarter of 2013 , resulted in a two-percentage point increase in gross margin for the year ended december 31 , 2013. selling , general and administrative expenses . sg & a expenses increased 69 % to $ 75.1 million in 2014 from $ 44.5 million in 2013. the increase in sg & a expenses was primarily associated with the expansion of our commercial operations during 2014. as of december 31 , 2014 , our headcount for sales , general and administrative functions increased 43 % compared to december 31 , 2013. this includes an expansion from 36 to 60 territories during 2014 , as well as the growth of the administrative infrastructure to support operations . territories are maintained by sales representatives , field clinical specialists , managed care liaisons , additional sales management and other customer support personnel . employee-related expenses for our sales , general and administrative functions comprise the majority of the sg & a expenses . such employee-related expenses increased $ 24.9 million during 2014 compared to 2013 , including an increase of $ 8.3 million in stock-based compensation associated with equity awards . sg & a expenses also increased $ 5.7 million associated with marketing and promotional activities , tradeshows , travel expenses and facility expansion . research and development expenses . r & d expenses increased 43 % to $ 15.8 million in 2014 from $ 11.1 million in 2013. the increase in r & d expenses in 2014 consisted primarily of an increase of $ 2.5 million in employee-related expenses . at december 31 , 2014 , our headcount for research and development functions increased 17 % compared to december 31 , 2013. the increase in r & d expenses also consisted of a milestone payment of $ 1.0 million to dexcom under our development and commercialization agreement related to our submission of a pma for t : slim g4 to the fda in july 2014. other income ( expense ) . other expense in 2014 was $ 3.8 million , compared to $ 13.7 million in 2013. other expense in 2014 primarily consisted of interest expense associated with the term loan agreement with capital royalty partners in december 2012 and subsequently amended and restated in april 2014 , and further amended in june 2014 , february 2015 and january 2016. we borrowed $ 30 million under the term loan agreement with capital royalty partners in january 2013. in comparison , other expense in 2013 was primarily comprised of $ 9.0 million of expense associated with the revaluation of the fair value of common and preferred stock warrants and $ 4.7 million of interest expense associated with our term loan agreement with capital royalty partners .
| cash and cash flows the following table sets forth our net cash provided by ( used in ) operating , investing and financing activities during the years ended december 31 , 2020 and 2019 , respectively . replace_table_token_6_th operating activities net cash provided by operating activities was $ 139.1 million for the year ended december 31 , 2020 , as compared to $ 455.3 million for the year ended december 31 , 2019. the net decrease of $ 316.2 million was primarily due to the reduction in our activity levels in 2020 , resulting from the depressed oil prices and economic slowdown caused by the covid-19 pandemic that negatively impacted our o perations . the net decrease in cash provided by operating activities was also impacted by the timing of our receivable collections from our customers and payment to our vendors . investing activities net cash used in investing activities decreased to $ 94.2 million for the year ended december 31 , 2020 , from $ 495.3 million for the year ended december 31 , 2019. the net decrease in our cash used in investing activities was primarily attributable to the reduction in growth and maintenance capital expenditures in 2020 following the lower number of pressure pumping active fleets , equipment rotation ( resulting in lower intensity on our pressure pumping equipment ) and the depressed demand for our pressure pumping services . during the year ended december 31 , 2019 , the company made a cash payment of approximately $ 110.0 million in connection with the pioneer pressure pumping acquisition and paid approximately $ 145.3 million for 108,000 hhp of durastim® hydraulic fracturing equipment and turbines ( including an option payment of $ 6.1 million to purchase an additional 108,000 hhp of durastim® equipment ) .
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it also features an easy-to-navigate software architecture , a vivid color touch screen and a micro-usb connection that supports both a rechargeable battery and t : connect , our custom cloud-based data management application that provides a fast , easy and visual way to display therapy management data from the pump and supported blood glucose meters . we began commercial sales of our first product , t : slim , in august 2012. during 2015 , we commenced commercial sales of two additional insulin pumps : t : flex in may 2015 and t : slim g4 in september 2015. since inception , we have derived nearly all of our revenue from the sale of insulin pumps and associated supplies in the united states . we consider the number of units shipped per quarter to be an important metric for managing our business . we have shipped nearly 34,000 insulin pumps since the initiation of our commercial efforts in 2012. pump shipments are broken down by product , and by quarter as follows : 56 replace_table_token_4_th ( 1 ) this table does not reflect returns or exchanges of pump products that occurred in the ordinary course of business . ( 2 ) during the fourth quarter of 2015 , 148 t : slim pumps and two t : flex pumps originally shipped in the third quarter of 2015 were exchanged for t : slim g4 pumps under a limited product exchange program ( as described below ) . amounts for the fourth quarter of 2015 in the table above are adjusted to reflect the impact of the exchange program . for the years ended december 31 , 2015 , 2014 and 2013 , our sales were $ 72.9 million , $ 49.7 million and $ 29.0 million , respectively . for the years ended december 31 , 2015 , 2014 and 2013 , our net loss was $ 72.4 million , $ 79.5 million and $ 63.1 million , respectively . our accumulated deficit as of december 31 , 2015 was $ 321.1 million . in connection with t : slim g4 commercial launch , we offered a limited product exchange program , referred to as the exchange program for eligible customers . the exchange program offered customers who received a t : slim or t : flex pump on or after august 1 , 2015 , a limited period in which to elect to exchange their pump for a t : slim g4 . the ability to elect an exchange ended in the early part of october 2015. at the close of the exchange program , a total of 150 t : slim or t : flex pumps were exchanged for t : slim g4 pumps . we accrued for estimated exchanges and associated costs by reducing sales and deferring cost of sales in the third quarter of 2015. the deferred sales and the cost of sales under the exchange program were recognized either upon delivery of t : slim g4 to the customer during the fourth quarter of 2015 or expiration of the program for those that were not exchanged . in the fourth quarter , t : slim g4 made up majority of our overall shipments . while there is some cannibalization of t : slim , and this high percentage may also reflect some pent up demand , we also believe this trend demonstrates that there is significant interest in this product . we expect that t : slim g4 will represent the largest percentage of our pump shipments in 2016. a substantial portion of the purchase price of an insulin pump is typically paid for by third-party payors , including private insurance companies , preferred provider organizations and other managed care providers . access to adequate coverage and reimbursement for our current and future products by third-party payors is essential to the acceptance of our products by customers . future sales of our current and future products will be limited unless our customers can rely on third-party payors to pay for all or part of the associated purchase cost . in circumstances in which we do not have contracts established with third-party payors , to the extent possible , we utilize our network of national and regional distributors to service our customers . 57 we believe we can achieve profitability because our proprietary technology platform will allow us to maximize efficiencies in the development , production and sale of our products . by offering a family of products , all of which are based on our proprietary technology platform , we believe we can develop and bring to market products more rapidly , while significantly reducing our design and development costs . due to shared product design features , ou r production system is adaptable to new products and we intend to leverage our shared manufacturing infrastructure to reduce our product costs and drive operational efficiencies . further , we expect to continue to increase production volume and to reduce th e per-unit production overhead cost for our pump products and their associated disposable cartridges over time . by expanding our product offerings to address people in different segments of the large and growing insulin-dependent diabetes market , we believ e we can increase the productivity of our sales , clinical and marketing organization , and utilize the expertise of our customer , technical and support services , thereby improving our operating margin . from inception through december 31 , 2015 , we have primarily financed our operations through sales of equity securities , and to a lesser extent , debt financings . we expect to continue to incur net losses for the next several years , and may require additional capital through equity and debt financings in order to fund our operations until we reach a level of revenue adequate to support our cost structure . story_separator_special_tag sales from t : slim pump accounted for 86 % and 90 % of sales , respectively , for the years ended december 31 , 2014 and 2013 , while pump-related supplies primarily accounted for the remainder in each year . sales of accessories were not material in either year . the growth in sales was primarily driven by a 67 % increase in t : slim pump shipments from 6,472 in 2013 to 10,822 in 2014. we expanded the number of sales territories in the united states from 36 at the end of 2013 to 60 at the end of the second quarter of 2014. as a result of our sales force expansion , our field personnel experienced some initial disruption in their sales productivity as their territories were realigned and responsibilities adjusted . 61 sales to distributors accounted for 75 % and 69 % of our total sales for the years ended december 31 , 2014 and 2013 , respectively . the increase in the percentage of our sales to distributors is primarily attributable to certain arrangements between insurance payors and our distributors that becam e effective during the third quarter of 2014. as a result of these arrangements , a portion of our business that previously involved an opportunity to make a direct sale to the customer transitioned to an opportunity to make a sale through a distributor . th e new arrangement afforded certain members easier access to our products as an in-network benefit and provided access to our products to a large portion of members who were previously unable to obtain coverage for our products at all . cost of sales and gross profit . our cost of sales in 2014 was $ 34.5 million , resulting in gross profit of $ 15.2 million , compared to $ 22.8 million in cost of sales and gross profit of $ 6.2 million in 2013. the gross margin in 2014 was 31 % , compared to 21 % in 2013. the improvement in the gross margin was primarily a result of manufacturing efficiencies associated with an increase in production output and improvement in our manufacturing processes . our pump manufacturing overhead spending decreased 19 % while our pump units produced increased 56 % in 2014 compared to 2013 , and our cartridge manufacturing overhead spending increased 40 % while our cartridge units produced increased 143 % in 2014 compared to 2013. included in cost of sales for the year ended december 31 , 2014 were costs of $ 0.4 million associated with our voluntary product recall of selected lots of cartridges initiated in january 2014. the voluntary recall resulted in a less than one percentage point reduction in the gross margin for the year ended december 31 , 2014. by comparison , the 2013 gross margin included $ 1.3 million of recall-associated costs , or a reduction of the gross margin of five percentage points . also included in cost of sales in 2013 were costs of $ 1.1 million that were previously deferred at the end of the fourth quarter of 2012 due to our lack of history for estimating product returns at that time . these costs , along with the previously deferred sales of $ 1.9 million recognized in the first quarter of 2013 , resulted in a two-percentage point increase in gross margin for the year ended december 31 , 2013. selling , general and administrative expenses . sg & a expenses increased 69 % to $ 75.1 million in 2014 from $ 44.5 million in 2013. the increase in sg & a expenses was primarily associated with the expansion of our commercial operations during 2014. as of december 31 , 2014 , our headcount for sales , general and administrative functions increased 43 % compared to december 31 , 2013. this includes an expansion from 36 to 60 territories during 2014 , as well as the growth of the administrative infrastructure to support operations . territories are maintained by sales representatives , field clinical specialists , managed care liaisons , additional sales management and other customer support personnel . employee-related expenses for our sales , general and administrative functions comprise the majority of the sg & a expenses . such employee-related expenses increased $ 24.9 million during 2014 compared to 2013 , including an increase of $ 8.3 million in stock-based compensation associated with equity awards . sg & a expenses also increased $ 5.7 million associated with marketing and promotional activities , tradeshows , travel expenses and facility expansion . research and development expenses . r & d expenses increased 43 % to $ 15.8 million in 2014 from $ 11.1 million in 2013. the increase in r & d expenses in 2014 consisted primarily of an increase of $ 2.5 million in employee-related expenses . at december 31 , 2014 , our headcount for research and development functions increased 17 % compared to december 31 , 2013. the increase in r & d expenses also consisted of a milestone payment of $ 1.0 million to dexcom under our development and commercialization agreement related to our submission of a pma for t : slim g4 to the fda in july 2014. other income ( expense ) . other expense in 2014 was $ 3.8 million , compared to $ 13.7 million in 2013. other expense in 2014 primarily consisted of interest expense associated with the term loan agreement with capital royalty partners in december 2012 and subsequently amended and restated in april 2014 , and further amended in june 2014 , february 2015 and january 2016. we borrowed $ 30 million under the term loan agreement with capital royalty partners in january 2013. in comparison , other expense in 2013 was primarily comprised of $ 9.0 million of expense associated with the revaluation of the fair value of common and preferred stock warrants and $ 4.7 million of interest expense associated with our term loan agreement with capital royalty partners .
| liquidity and capital resources at december 31 , 2015 , we had $ 73.1 million in cash and cash equivalents and short-term investments , which included $ 2.0 million of restricted cash . we borrowed $ 15.0 million in january 2016 , under the third amendment to our term loan agreement with capital royalty partners . the third amendment also provides us with a one-time option to borrow up to an additional $ 35.0 million in increments of $ 5.0 million on or before december 31 , 2016. we believe that our cash on hand , cash generated from operations , cash available under the third amendment to our term loan agreement with capital royalty partners , and proceeds from the exercise of options and warrants , as well as proceeds from employee contributions for the purchase of our common stock through our espp , will be sufficient to satisfy our liquidity requirements for at least the next 12 months . we expect that our sales performance and the resulting operating income or loss , as well as the status of each of our new product development programs , will significantly impact our cash management decisions . we have utilized , and may continue to utilize , debt arrangements with debt providers and financial institutions to finance our operations . factors such as interest rates , repayment terms and available cash will impact our decision to continue to utilize debt arrangements as a source of cash . in november 2013 , we completed an initial public offering of common stock that resulted in net proceeds of approximately $ 125.0 million , and in the first quarter of 2015 we completed a public offering of common stock that resulted in net proceeds of approximately $ 64.9 million . in the future , we may give consideration to additional public offerings of equity securities as a source of financing .
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management is in the process of finalizing the impact of the adoption of this guidance on united 's financial condition , results of operations , liquidity , and regulatory capital ratios . based on current economic conditions , management expects the allowance for credit losses to increase by 20 % to 30 % . for additional discussion of accounting pronouncements pending adoption , see note a of the notes to the condensed consolidated financial statements in part ii , item 8 of this form 10-k. 31 transition from the london interbank offerered rate ( libor ) in 2017 , the united kingdom 's financial conduct authority , which regulates libor , publicly announced that it intends to stop persuading or compelling banks to submit the rates used to calculate libor after 2021. currently , it is unclear whether these banks , as a group or individually , will continue to submit the rates used to calculate libor after 2021. it is also unclear whether libor will continue to be viewed as an acceptable market benchmark , what rate or rates may become accepted alternatives to libor , or what the effect of any such changes may be on the markets for libor-indexed financial instruments . working groups comprised of various regulators and other industry groups have been formed in the united states and other countries in order to provide guidance on this topic . in particular , the alternative reference rates committee ( arrc ) has been formed in the united states by the federal reserve board and the federal reserve bank of new york . the arrc has identified the secured overnight financing rate ( sofr ) as its preferred alternative reference rate for u.s. dollar libor . the arrc has also published recommended fall-back language for libor-linked financial instruments , among numerous other areas of guidance . at this time , however , it is unclear whether these recommendations will be broadly accepted by industry participants , whether they will continue to evolve , and what impact they will ultimately have on the broader markets that utilize libor as a reference rate . united has loans , derivative contracts , borrowings , and other financial instruments that are directly or indirectly dependent on libor . the transition from libor will cause changes to payment calculations for existing contracts that use libor as the reference rate . these changes will create various risks surrounding the financial , operational , compliance and legal aspects associated with changing certain elements of existing contracts . united will also be subject to risks surrounding changes to models and systems that currently use libor reference rates , as well as market and strategic risks that could arise from the use of alternative reference rates . additionally , united could face reputational risks if this transition is not managed appropriately with its customers . while the full impact of the transition is not yet known , failure to adequately manage the transition could have a material adverse effect on our business , financial condition and results of operations . introduction the following discussion and analysis presents the more significant changes in financial condition as of december 31 , 2019 and 2018 and the results of operations of united and its subsidiaries for each of the years then ended . this discussion and the consolidated financial statements and the notes to consolidated financial statements include the accounts of united bankshares , inc. and its wholly-owned subsidiaries , unless otherwise indicated . management has evaluated all significant events and transactions that occurred after december 31 , 2019 , but prior to the date these financial statements were issued , for potential recognition or disclosure required in these financial statements . refer to management 's discussion and analysis of financial condition and results of operations included in our annual report on form 10-k filed with the sec on march 1 , 2019 ( the 2018 form 10-k ) for a discussion and analysis of the more significant factors that affected periods prior to 2018. this discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and accompanying notes thereto , which are included elsewhere in this document . use of non-gaap financial measures this discussion and analysis contains certain financial measures that are not recognized under gaap . under sec regulation g , public companies making disclosures containing financial measures that are not in accordance with gaap must also disclose , along with each “ non-gaap ” financial measure , certain additional information , including a reconciliation of the non-gaap financial measure to the closest comparable gaap financial measure , as well as a statement of the company 's reasons for utilizing the non-gaap financial measure . generally , united has presented a non-gaap financial measure because it believes that this measure provides meaningful additional information to assist in the evaluation of united 's results of operations or financial position . presentation of a non-gaap financial measure is consistent with how united 's management evaluates its performance internally and this non-gaap financial measure is frequently used by securities analysts , investors and other interested parties in the evaluation of companies in the banking industry . specifically , this discussion contains certain references to financial measures identified as tax-equivalent ( fte ) net interest income and return on average tangible equity . management believes these non-gaap financial measures to be helpful in understanding united 's results of operations or financial position . 32 net interest income is presented in this discussion on a tax-equivalent basis . the tax-equivalent basis adjusts for the tax-favored status of income from certain loans and investments . although this is a non-gaap measure , united 's management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and tax-exempt sources . story_separator_special_tag the following discussion explains in more detail the changes in financial condition by major category . story_separator_special_tag justify ; font-family : times new roman ; font-size : 10pt ; margin-top : 12pt ; margin-bottom : 0px ; `` > during 2019 , united recognized other-than-temporary impairment totaling $ 198 thousand on three investment securities . with the exception of these three securities , management does not believe that any other individual security with an unrealized loss as of december 31 , 2019 is other-than-temporarily impaired . united believes the decline in value resulted from changes in market interest rates , credit spreads and liquidity , not an adverse change in the expected contractual cash flows . based on a review of each of the securities in the investment portfolio , management concluded that it was not probable that it would be unable to realize the cost basis investment and appropriate interest payments on such securities . united has the intent and the ability to hold these securities until such time as the value recovers or the securities mature . however , united acknowledges that any impaired securities may be sold in future periods in response to significant , unanticipated changes in asset/liability management decisions , unanticipated future market movements or business plan changes . further information regarding the amortized cost and estimated fair value of investment securities , including remaining maturities as well as a more detailed discussion of management 's other-than-temporary impairment analysis , is presented in note c , notes to consolidated financial statements . loans held for sale loans held for sale increased $ 137.67 million or 55.10 % from year-end 2018. loan originations in the secondary market exceeded sales during the year of 2019. loan originations were $ 2.57 billion while loans sales were $ 2.44 billion . loans held for sale were $ 387.51 million at december 31 , 2019 as compared to $ 249.85 million at year-end 2018. portfolio loans loans , net of unearned income , increased $ 289.91 million or 2.16 % . since year-end 2018 , commercial , financial and agricultural loans decreased $ 100.40 million or 1.33 % as commercial real estate loans decreased $ 427.79 million or 7.65 % which was mostly offset by a $ 327.40 million or 16.72 % increase in commercial loans ( not secured by real estate ) . residential real estate loans increased $ 185.01 million or 5.28 % due mainly to an increase in first lien mortgage loans , and consumer loans increased $ 201.67 million or 20.91 % due to an increase in indirect automobile financing . construction and land development loans remained flat from prior year , decreasing $ 2.26 million or less than 1 % . 38 a summary of loans outstanding is as follows : replace_table_token_7_th the following table summarizes the outstanding balances of portfolio loans originated and acquired , by type , as of december 31 , 2019 and december 31 , 2018 : replace_table_token_8_th replace_table_token_9_th the following table shows the maturity of commercial , financial , and agricultural loans and real estate construction and land development loans as of december 31 , 2019 : replace_table_token_10_th 39 at december 31 , 2019 , commercial , financial and agricultural loans and real estate construction and land development loans by maturity are as follows : replace_table_token_11_th more information relating to loans is presented in note d , notes to consolidated financial statements . other assets other assets decreased $ 15.23 million or 3.33 % from year-end 2018 , mainly due to deferred tax assets decreasing $ 18.32 million . in addition , core deposit intangibles decreased $ 7.02 million due to amortization . partially offsetting these decreases were increases of $ 7.72 million in accounts receivables and $ 4.28 million in prepaid assets . deposits deposits represent united 's primary source of funding . total deposits at december 31 , 2019 decreased $ 142.33 million or 1.02 % . in terms of composition , interest-bearing deposits decreased $ 346.88 million or 3.62 % while noninterest-bearing deposits increased $ 204.55 million or 4.63 % from december 31 , 2018. noninterest-bearing deposits consist of demand deposit and noninterest bearing money market ( mmda ) account balances . the $ 204.55 million increase in noninterest-bearing deposits was due mainly to increases in commercial noninterest-bearing deposits of $ 139.67 million or 6.19 % and personal noninterest-bearing deposits of $ 23.38 million or 3.25 % . in addition , in process items increased $ 9.44 million . interest-bearing deposits consist of interest-bearing checking ( now ) , regular savings , interest-bearing mmda , and time deposit account balances . interest-bearing mmdas decreased $ 300.89 million or 5.05 % while now accounts decreased $ 2.32 million or less than 1 % since year-end 2018. in particular , interest-bearing mmdas decreased $ 300.89 million as commercial mmdas decreased $ 162.79 million , brokered mmdas decreased $ 126.95 million , and public funds mmdas decreased $ 61.10 million . excluding sweep activity from now accounts to interest-bearing mmdas to reduce united 's reserve requirement at its federal reserve bank , now accounts decreased $ 159.34 million or 8.05 % mainly due to a decrease of $ 137.70 million in personal now accounts and a $ 73.10 million decrease in public funds now accounts . partially offsetting these decreases was an increase of $ 51.46 million in commercial now accounts . regular savings decreased $ 72.07 million or 7.55 % from year-end 2018 mainly due to a $ 68.18 million decrease in personal savings accounts , a $ 4.60 million decrease in commercial savings accounts , and a $ 3.25 million decrease in retirement savings accounts . time deposits under $ 100,000 increased $ 11.63 million or 1.63 % from year-end 2018. this increase in time deposits under $ 100,000 is the result of a $ 9.52 million increase in certificate of deposit account registry service ( cdars ) balances and a $ 4.59 million increase in fixed cds
| liquidity and capital resources at december 31 , 2015 , we had $ 73.1 million in cash and cash equivalents and short-term investments , which included $ 2.0 million of restricted cash . we borrowed $ 15.0 million in january 2016 , under the third amendment to our term loan agreement with capital royalty partners . the third amendment also provides us with a one-time option to borrow up to an additional $ 35.0 million in increments of $ 5.0 million on or before december 31 , 2016. we believe that our cash on hand , cash generated from operations , cash available under the third amendment to our term loan agreement with capital royalty partners , and proceeds from the exercise of options and warrants , as well as proceeds from employee contributions for the purchase of our common stock through our espp , will be sufficient to satisfy our liquidity requirements for at least the next 12 months . we expect that our sales performance and the resulting operating income or loss , as well as the status of each of our new product development programs , will significantly impact our cash management decisions . we have utilized , and may continue to utilize , debt arrangements with debt providers and financial institutions to finance our operations . factors such as interest rates , repayment terms and available cash will impact our decision to continue to utilize debt arrangements as a source of cash . in november 2013 , we completed an initial public offering of common stock that resulted in net proceeds of approximately $ 125.0 million , and in the first quarter of 2015 we completed a public offering of common stock that resulted in net proceeds of approximately $ 64.9 million . in the future , we may give consideration to additional public offerings of equity securities as a source of financing .
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management is in the process of finalizing the impact of the adoption of this guidance on united 's financial condition , results of operations , liquidity , and regulatory capital ratios . based on current economic conditions , management expects the allowance for credit losses to increase by 20 % to 30 % . for additional discussion of accounting pronouncements pending adoption , see note a of the notes to the condensed consolidated financial statements in part ii , item 8 of this form 10-k. 31 transition from the london interbank offerered rate ( libor ) in 2017 , the united kingdom 's financial conduct authority , which regulates libor , publicly announced that it intends to stop persuading or compelling banks to submit the rates used to calculate libor after 2021. currently , it is unclear whether these banks , as a group or individually , will continue to submit the rates used to calculate libor after 2021. it is also unclear whether libor will continue to be viewed as an acceptable market benchmark , what rate or rates may become accepted alternatives to libor , or what the effect of any such changes may be on the markets for libor-indexed financial instruments . working groups comprised of various regulators and other industry groups have been formed in the united states and other countries in order to provide guidance on this topic . in particular , the alternative reference rates committee ( arrc ) has been formed in the united states by the federal reserve board and the federal reserve bank of new york . the arrc has identified the secured overnight financing rate ( sofr ) as its preferred alternative reference rate for u.s. dollar libor . the arrc has also published recommended fall-back language for libor-linked financial instruments , among numerous other areas of guidance . at this time , however , it is unclear whether these recommendations will be broadly accepted by industry participants , whether they will continue to evolve , and what impact they will ultimately have on the broader markets that utilize libor as a reference rate . united has loans , derivative contracts , borrowings , and other financial instruments that are directly or indirectly dependent on libor . the transition from libor will cause changes to payment calculations for existing contracts that use libor as the reference rate . these changes will create various risks surrounding the financial , operational , compliance and legal aspects associated with changing certain elements of existing contracts . united will also be subject to risks surrounding changes to models and systems that currently use libor reference rates , as well as market and strategic risks that could arise from the use of alternative reference rates . additionally , united could face reputational risks if this transition is not managed appropriately with its customers . while the full impact of the transition is not yet known , failure to adequately manage the transition could have a material adverse effect on our business , financial condition and results of operations . introduction the following discussion and analysis presents the more significant changes in financial condition as of december 31 , 2019 and 2018 and the results of operations of united and its subsidiaries for each of the years then ended . this discussion and the consolidated financial statements and the notes to consolidated financial statements include the accounts of united bankshares , inc. and its wholly-owned subsidiaries , unless otherwise indicated . management has evaluated all significant events and transactions that occurred after december 31 , 2019 , but prior to the date these financial statements were issued , for potential recognition or disclosure required in these financial statements . refer to management 's discussion and analysis of financial condition and results of operations included in our annual report on form 10-k filed with the sec on march 1 , 2019 ( the 2018 form 10-k ) for a discussion and analysis of the more significant factors that affected periods prior to 2018. this discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and accompanying notes thereto , which are included elsewhere in this document . use of non-gaap financial measures this discussion and analysis contains certain financial measures that are not recognized under gaap . under sec regulation g , public companies making disclosures containing financial measures that are not in accordance with gaap must also disclose , along with each “ non-gaap ” financial measure , certain additional information , including a reconciliation of the non-gaap financial measure to the closest comparable gaap financial measure , as well as a statement of the company 's reasons for utilizing the non-gaap financial measure . generally , united has presented a non-gaap financial measure because it believes that this measure provides meaningful additional information to assist in the evaluation of united 's results of operations or financial position . presentation of a non-gaap financial measure is consistent with how united 's management evaluates its performance internally and this non-gaap financial measure is frequently used by securities analysts , investors and other interested parties in the evaluation of companies in the banking industry . specifically , this discussion contains certain references to financial measures identified as tax-equivalent ( fte ) net interest income and return on average tangible equity . management believes these non-gaap financial measures to be helpful in understanding united 's results of operations or financial position . 32 net interest income is presented in this discussion on a tax-equivalent basis . the tax-equivalent basis adjusts for the tax-favored status of income from certain loans and investments . although this is a non-gaap measure , united 's management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and tax-exempt sources . story_separator_special_tag the following discussion explains in more detail the changes in financial condition by major category . story_separator_special_tag justify ; font-family : times new roman ; font-size : 10pt ; margin-top : 12pt ; margin-bottom : 0px ; `` > during 2019 , united recognized other-than-temporary impairment totaling $ 198 thousand on three investment securities . with the exception of these three securities , management does not believe that any other individual security with an unrealized loss as of december 31 , 2019 is other-than-temporarily impaired . united believes the decline in value resulted from changes in market interest rates , credit spreads and liquidity , not an adverse change in the expected contractual cash flows . based on a review of each of the securities in the investment portfolio , management concluded that it was not probable that it would be unable to realize the cost basis investment and appropriate interest payments on such securities . united has the intent and the ability to hold these securities until such time as the value recovers or the securities mature . however , united acknowledges that any impaired securities may be sold in future periods in response to significant , unanticipated changes in asset/liability management decisions , unanticipated future market movements or business plan changes . further information regarding the amortized cost and estimated fair value of investment securities , including remaining maturities as well as a more detailed discussion of management 's other-than-temporary impairment analysis , is presented in note c , notes to consolidated financial statements . loans held for sale loans held for sale increased $ 137.67 million or 55.10 % from year-end 2018. loan originations in the secondary market exceeded sales during the year of 2019. loan originations were $ 2.57 billion while loans sales were $ 2.44 billion . loans held for sale were $ 387.51 million at december 31 , 2019 as compared to $ 249.85 million at year-end 2018. portfolio loans loans , net of unearned income , increased $ 289.91 million or 2.16 % . since year-end 2018 , commercial , financial and agricultural loans decreased $ 100.40 million or 1.33 % as commercial real estate loans decreased $ 427.79 million or 7.65 % which was mostly offset by a $ 327.40 million or 16.72 % increase in commercial loans ( not secured by real estate ) . residential real estate loans increased $ 185.01 million or 5.28 % due mainly to an increase in first lien mortgage loans , and consumer loans increased $ 201.67 million or 20.91 % due to an increase in indirect automobile financing . construction and land development loans remained flat from prior year , decreasing $ 2.26 million or less than 1 % . 38 a summary of loans outstanding is as follows : replace_table_token_7_th the following table summarizes the outstanding balances of portfolio loans originated and acquired , by type , as of december 31 , 2019 and december 31 , 2018 : replace_table_token_8_th replace_table_token_9_th the following table shows the maturity of commercial , financial , and agricultural loans and real estate construction and land development loans as of december 31 , 2019 : replace_table_token_10_th 39 at december 31 , 2019 , commercial , financial and agricultural loans and real estate construction and land development loans by maturity are as follows : replace_table_token_11_th more information relating to loans is presented in note d , notes to consolidated financial statements . other assets other assets decreased $ 15.23 million or 3.33 % from year-end 2018 , mainly due to deferred tax assets decreasing $ 18.32 million . in addition , core deposit intangibles decreased $ 7.02 million due to amortization . partially offsetting these decreases were increases of $ 7.72 million in accounts receivables and $ 4.28 million in prepaid assets . deposits deposits represent united 's primary source of funding . total deposits at december 31 , 2019 decreased $ 142.33 million or 1.02 % . in terms of composition , interest-bearing deposits decreased $ 346.88 million or 3.62 % while noninterest-bearing deposits increased $ 204.55 million or 4.63 % from december 31 , 2018. noninterest-bearing deposits consist of demand deposit and noninterest bearing money market ( mmda ) account balances . the $ 204.55 million increase in noninterest-bearing deposits was due mainly to increases in commercial noninterest-bearing deposits of $ 139.67 million or 6.19 % and personal noninterest-bearing deposits of $ 23.38 million or 3.25 % . in addition , in process items increased $ 9.44 million . interest-bearing deposits consist of interest-bearing checking ( now ) , regular savings , interest-bearing mmda , and time deposit account balances . interest-bearing mmdas decreased $ 300.89 million or 5.05 % while now accounts decreased $ 2.32 million or less than 1 % since year-end 2018. in particular , interest-bearing mmdas decreased $ 300.89 million as commercial mmdas decreased $ 162.79 million , brokered mmdas decreased $ 126.95 million , and public funds mmdas decreased $ 61.10 million . excluding sweep activity from now accounts to interest-bearing mmdas to reduce united 's reserve requirement at its federal reserve bank , now accounts decreased $ 159.34 million or 8.05 % mainly due to a decrease of $ 137.70 million in personal now accounts and a $ 73.10 million decrease in public funds now accounts . partially offsetting these decreases was an increase of $ 51.46 million in commercial now accounts . regular savings decreased $ 72.07 million or 7.55 % from year-end 2018 mainly due to a $ 68.18 million decrease in personal savings accounts , a $ 4.60 million decrease in commercial savings accounts , and a $ 3.25 million decrease in retirement savings accounts . time deposits under $ 100,000 increased $ 11.63 million or 1.63 % from year-end 2018. this increase in time deposits under $ 100,000 is the result of a $ 9.52 million increase in certificate of deposit account registry service ( cdars ) balances and a $ 4.59 million increase in fixed cds
| cash and cash equivalents cash and cash equivalents at december 31 , 2019 decreased $ 182.90 million or 17.92 % from year-end 2018. in particular , interest-bearing deposits with other banks decreased $ 180.27 million or 21.67 % as united placed less cash in an interest-bearing account with the federal reserve . in addition , cash and due from banks decreased $ 2.65 million or 1.41 % . federal funds sold increased $ 17 thousand or 2.12 % . during the year of 2019 , net cash of $ 147.69 million and $ 48.45 million were provided by operating and financing activities , respectively , while net cash of $ 379.05 million was used in investing activities . further details related to changes in cash and cash equivalents are presented in the consolidated statements of cash flows . securities total investment securities at december 31 , 2019 increased $ 126.07 million or 4.96 % from year-end 2018. securities available for sale increased $ 100.26 million or 4.29 % . this change in securities available for sale reflects $ 712.56 million in sales , maturities and calls of securities , $ 771.29 million in purchases , and an increase of $ 32.47 million in market value . the majority of the purchase activity was related to corporate securities which were almost exclusively issued by investment grade rated , single-name issuers , and have maturity dates of less than five years . securities held to maturity declined $ 18.55 million or 92.77 % from year-end 2018 due mainly to the transfer of $ 11.54 million of investment securities to available for sale securities upon the adoption of asu no . 2017-12. equity securities were $ 8.89 million at december 31 , 2019 , a decrease of $ 840 thousand or 8.63
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both cap-1002 and cap-1001 are derived from cardiospheres , or csps , and we do not plan to develop csps as a therapeutic . cap-1002 for the treatment of duchenne muscular dystrophy : based on our understanding of the mechanism of action of cap-1002 which has been seen in pre-clinical models of dmd , we believe that cap-1002 has the potential to decrease inflammation and muscle degeneration while exerting positive effects on muscle regeneration , all of which may translate into patients retaining muscle function for a longer period of time . data supporting peripheral intravenous route of administration of cap-1002 in the dmd setting has been provided by pre-clinical mouse studies where cdcs , the active ingredient in cap-1002 , have been shown to increase exercise capacity and diaphragmatic function . 61 phase ii hope-2 clinical trial hope-2 is a randomized , double-blind , placebo-controlled clinical trial which is being conducted at multiple sites located in the united states . originally , hope-2 was designed as an 84 patient clinical trial , but we are pursuing a sample size re-estimation that will likely lead to a significant reduction in the number of dmd patients . to date , we have enrolled 20 patients in our hope-2 clinical trial . the clinical trial will evaluate the safety and efficacy of repeat , intravenous , or iv , doses of cap-1002 , in boys and young men with evidence of skeletal muscle impairment regardless of ambulatory status and on a stable regimen of systemic glucocorticoids . while there are many clinical initiatives in dmd , hope-2 is one of the very few to focus on non-ambulant patients . these boys and young men are looking to maintain what function they have in their arms and hands , and capricor 's previous study of a single intracoronary dose of cap-1002 provided preliminary evidence of efficacy that cap-1002 may be able to help dmd patients retain , or slow the loss of , upper limb function . after a patient in the trial had a serious adverse event in the form of anaphylaxis , we put a voluntary hold on dosing in december 2018 to develop a plan to manage potential allergic reactions . the investigation suggests that the patient may have been allergic to something contained in the investigational product , including an excipient , or inactive ingredient , in the formulation . to reduce the risk of future events , we initiated a pre-medication strategy commonly used by physicians to prevent and treat allergic reactions . after an approximate one month period , the fda and the data and safety monitoring board ( dsmb ) granted us permission to resume enrollment in the study . in june 2017 , we had a meeting with the fda to discuss potential clinical endpoints that could be used for registration strategies for cap-1002 in the dmd indication . the minutes of the meeting indicated the fda 's willingness to accept capricor 's proposal to use the performance of the upper limb , or pul , test as the basis for the primary efficacy endpoint for clinical studies in support of a biologics license application , or bla . the pul test is an outcomes instrument that was specifically designed to assess upper limb function in ambulant and non-ambulant patients with dmd . in december 2018 , we met again with the fda as part of the expedited review afforded under the rmat designation . the fda grants the rmat designation to investigational regenerative medicine therapies intended to treat a serious condition and for which preliminary clinical evidence indicates a potential to address unmet medical needs for that condition . during the rmat discussion , which was reflected in subsequent meeting minutes issued by the fda , capricor asked whether the fda would agree if hope-2 , could serve as a registration study if hope-2 provides evidence that cap-1002 is safe and effective in treating duchenne muscular dystrophy . the fda advised capricor to request an end of phase meeting after completion of the trial to determine whether hope-2 could serve as the registration study . the fda also reiterated its support for the use of the performance of the upper limb ( pul ) 2.0 mid-level test , or the pul 2.0 , which is described in more detail below , as the primary efficacy endpoint for hope-2 . in addition , the agency stated that the trial would need to provide evidence of clinically meaningful changes in the pul , as well as other evidence supportive of cap-1002 efficacy for patients with advanced duchenne muscular dystrophy , in order to potentially serve as a registration trial . the primary efficacy endpoint will be the relative change in patients ' abilities to perform manual tasks that relate to activities of daily living and are important to their quality of life . these abilities will be measured through the pul test , a validated test for skeletal muscle function in dmd . hope-2 will focus on the mid-level dimension of the pul 2.0 – or the ability to use muscles from the elbow to the fingers , which are essential for operating wheelchairs and performing other daily functions . in hope-2 , we may include additional secondary and exploratory endpoints such as cardiac function , pulmonary function testing , quality of life and additional measures . currently , we are evaluating several options with respect to the hope-2 trial , which includes a reduction in the number of patients to 20 , a reduction in the dosing protocol for certain subjects as well as a data analysis to be conducted at the 6-month time-point as opposed to the originally designed 12-month time-point for certain subjects . story_separator_special_tag we are currently conducting studies in pre-clinical models of various conditions to explore the possible therapeutic benefits that cap-2003 may possess . it is unknown at this time when an ind will be submitted for any particular indication . additionally , in pre-clinical studies , we are exploring the use of cap-2003 as a potential vehicle for delivering therapies to targeted tissues in the human body . in july 2018 , capricor , inc. entered into a cooperative research and development agreement with the u.s. army institute of surgical research pursuant to which the parties agreed to cooperate in research and development on the evaluation of cap-2003 for the treatment of trauma related injuries and conditions , which are now the third leading cause of death in the u.s. at this time , we are considering various strategic options with respect to this program . inactive or discontinued product candidates cap-1001 : cap-1001 consists of autologous cdcs . this product candidate was evaluated in the randomized , double-blind , placebo-controlled phase i caduceus clinical trial in patients who had recently experienced an mi . the study was sponsored and conducted by csmc in collaboration with jhu . at present , there is no plan for another clinical trial for cap-1001 . csps : csps are a 3d micro-tissue from which cdcs are derived , and have shown significant healing effects in pre-clinical models of heart failure . while we consider csps an important asset , at present there is no plan to develop csps as a therapeutic agent . natriuretic peptides : in february 2017 , we elected to terminate our former natriuretic peptide development program , consisting of cenderitide ( cd-np ) and cu-np , so as to more efficiently focus our resources and efforts on our cap-1002 and cap-2003 programs . financial operations overview we have no commercial product sales to date and will not have the ability to generate any commercial product revenue until after we have received approval from the fda or equivalent foreign regulatory bodies to begin selling our pharmaceutical product candidates . developing pharmaceutical products is a lengthy and very expensive process . even if we obtain the capital necessary to continue the development of our product candidates , whether through a strategic transaction or otherwise , we do not expect to complete the development of a product candidate for several years , if ever . to date , most of our development expenses have related to our product candidates , consisting of cap-1002 , cap-2003 and our former product candidate , cenderitide . as we proceed with the clinical development of cap-1002 , and as we further develop cap-2003 and other additional products , our expenses will further increase . accordingly , our success depends not only on the safety and efficacy of our product candidates , but also on our ability to finance the development of the products and our clinical programs . our major sources of working capital to date have been proceeds from private and public equity sales , grants received from the nih and the department of defense , or dod , a payment from janssen and a loan and grant award from cirm . research and development , or r & d , expenses consist primarily of salaries and related personnel costs , supplies , clinical trial costs , patient treatment costs , rent for laboratories and manufacturing facilities , consulting fees , costs of personnel and supplies for manufacturing , costs of service providers for pre-clinical , clinical and manufacturing , and certain legal expenses resulting from intellectual property prosecution , stock compensation expense and other expenses relating to the design , development , testing and enhancement of our product candidates . except for certain capitalized intangible assets , r & d costs are expensed as incurred . 66 general and administrative , or g & a , expenses consist primarily of salaries and related expenses for executive , finance and other administrative personnel , stock compensation expense , accounting , legal and other professional fees , consulting expenses , rent for corporate offices , business insurance and other corporate expenses . our results have included non-cash compensation expense due to the issuance of stock options and warrants , as applicable . we expense the fair value of stock options and warrants over their vesting period as applicable . when more precise pricing data is unavailable , we determine the fair value of stock options using the black-scholes option-pricing model . the terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee . generally , the awards vest based upon time-based or performance-based conditions . performance-based conditions generally include the attainment of goals related to our financial performance and product development . stock-based compensation expense is included in the consolidated statements of operations under g & a or r & d expenses , as applicable . we expect to record additional non-cash compensation expense in the future , which may be significant . results of operations for the fiscal years ended december 31 , 2018 and 2017 revenue collaboration income . as a result of the janssen agreement , collaboration income for the years ended december 31 , 2018 and 2017 was zero and approximately $ 1.4 million , respectively . on june 30 , 2017 , capricor was informed by janssen that janssen would not be exercising its exclusive license option under the janssen agreement . additionally , there are no further activities ongoing in connection with the collaboration with janssen and all revenue was recognized as of june 30 , 2017. grant income . grant income for the years ended december 31 , 2018 and 2017 was approximately $ 1.0 million and $ 1.1 million , respectively . the decrease in grant income of approximately $ 0.1 million in 2018 as compared to 2017 is primarily due to the timing of grant activities . the pre-clinical
| cash and cash equivalents cash and cash equivalents at december 31 , 2019 decreased $ 182.90 million or 17.92 % from year-end 2018. in particular , interest-bearing deposits with other banks decreased $ 180.27 million or 21.67 % as united placed less cash in an interest-bearing account with the federal reserve . in addition , cash and due from banks decreased $ 2.65 million or 1.41 % . federal funds sold increased $ 17 thousand or 2.12 % . during the year of 2019 , net cash of $ 147.69 million and $ 48.45 million were provided by operating and financing activities , respectively , while net cash of $ 379.05 million was used in investing activities . further details related to changes in cash and cash equivalents are presented in the consolidated statements of cash flows . securities total investment securities at december 31 , 2019 increased $ 126.07 million or 4.96 % from year-end 2018. securities available for sale increased $ 100.26 million or 4.29 % . this change in securities available for sale reflects $ 712.56 million in sales , maturities and calls of securities , $ 771.29 million in purchases , and an increase of $ 32.47 million in market value . the majority of the purchase activity was related to corporate securities which were almost exclusively issued by investment grade rated , single-name issuers , and have maturity dates of less than five years . securities held to maturity declined $ 18.55 million or 92.77 % from year-end 2018 due mainly to the transfer of $ 11.54 million of investment securities to available for sale securities upon the adoption of asu no . 2017-12. equity securities were $ 8.89 million at december 31 , 2019 , a decrease of $ 840 thousand or 8.63
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both cap-1002 and cap-1001 are derived from cardiospheres , or csps , and we do not plan to develop csps as a therapeutic . cap-1002 for the treatment of duchenne muscular dystrophy : based on our understanding of the mechanism of action of cap-1002 which has been seen in pre-clinical models of dmd , we believe that cap-1002 has the potential to decrease inflammation and muscle degeneration while exerting positive effects on muscle regeneration , all of which may translate into patients retaining muscle function for a longer period of time . data supporting peripheral intravenous route of administration of cap-1002 in the dmd setting has been provided by pre-clinical mouse studies where cdcs , the active ingredient in cap-1002 , have been shown to increase exercise capacity and diaphragmatic function . 61 phase ii hope-2 clinical trial hope-2 is a randomized , double-blind , placebo-controlled clinical trial which is being conducted at multiple sites located in the united states . originally , hope-2 was designed as an 84 patient clinical trial , but we are pursuing a sample size re-estimation that will likely lead to a significant reduction in the number of dmd patients . to date , we have enrolled 20 patients in our hope-2 clinical trial . the clinical trial will evaluate the safety and efficacy of repeat , intravenous , or iv , doses of cap-1002 , in boys and young men with evidence of skeletal muscle impairment regardless of ambulatory status and on a stable regimen of systemic glucocorticoids . while there are many clinical initiatives in dmd , hope-2 is one of the very few to focus on non-ambulant patients . these boys and young men are looking to maintain what function they have in their arms and hands , and capricor 's previous study of a single intracoronary dose of cap-1002 provided preliminary evidence of efficacy that cap-1002 may be able to help dmd patients retain , or slow the loss of , upper limb function . after a patient in the trial had a serious adverse event in the form of anaphylaxis , we put a voluntary hold on dosing in december 2018 to develop a plan to manage potential allergic reactions . the investigation suggests that the patient may have been allergic to something contained in the investigational product , including an excipient , or inactive ingredient , in the formulation . to reduce the risk of future events , we initiated a pre-medication strategy commonly used by physicians to prevent and treat allergic reactions . after an approximate one month period , the fda and the data and safety monitoring board ( dsmb ) granted us permission to resume enrollment in the study . in june 2017 , we had a meeting with the fda to discuss potential clinical endpoints that could be used for registration strategies for cap-1002 in the dmd indication . the minutes of the meeting indicated the fda 's willingness to accept capricor 's proposal to use the performance of the upper limb , or pul , test as the basis for the primary efficacy endpoint for clinical studies in support of a biologics license application , or bla . the pul test is an outcomes instrument that was specifically designed to assess upper limb function in ambulant and non-ambulant patients with dmd . in december 2018 , we met again with the fda as part of the expedited review afforded under the rmat designation . the fda grants the rmat designation to investigational regenerative medicine therapies intended to treat a serious condition and for which preliminary clinical evidence indicates a potential to address unmet medical needs for that condition . during the rmat discussion , which was reflected in subsequent meeting minutes issued by the fda , capricor asked whether the fda would agree if hope-2 , could serve as a registration study if hope-2 provides evidence that cap-1002 is safe and effective in treating duchenne muscular dystrophy . the fda advised capricor to request an end of phase meeting after completion of the trial to determine whether hope-2 could serve as the registration study . the fda also reiterated its support for the use of the performance of the upper limb ( pul ) 2.0 mid-level test , or the pul 2.0 , which is described in more detail below , as the primary efficacy endpoint for hope-2 . in addition , the agency stated that the trial would need to provide evidence of clinically meaningful changes in the pul , as well as other evidence supportive of cap-1002 efficacy for patients with advanced duchenne muscular dystrophy , in order to potentially serve as a registration trial . the primary efficacy endpoint will be the relative change in patients ' abilities to perform manual tasks that relate to activities of daily living and are important to their quality of life . these abilities will be measured through the pul test , a validated test for skeletal muscle function in dmd . hope-2 will focus on the mid-level dimension of the pul 2.0 – or the ability to use muscles from the elbow to the fingers , which are essential for operating wheelchairs and performing other daily functions . in hope-2 , we may include additional secondary and exploratory endpoints such as cardiac function , pulmonary function testing , quality of life and additional measures . currently , we are evaluating several options with respect to the hope-2 trial , which includes a reduction in the number of patients to 20 , a reduction in the dosing protocol for certain subjects as well as a data analysis to be conducted at the 6-month time-point as opposed to the originally designed 12-month time-point for certain subjects . story_separator_special_tag we are currently conducting studies in pre-clinical models of various conditions to explore the possible therapeutic benefits that cap-2003 may possess . it is unknown at this time when an ind will be submitted for any particular indication . additionally , in pre-clinical studies , we are exploring the use of cap-2003 as a potential vehicle for delivering therapies to targeted tissues in the human body . in july 2018 , capricor , inc. entered into a cooperative research and development agreement with the u.s. army institute of surgical research pursuant to which the parties agreed to cooperate in research and development on the evaluation of cap-2003 for the treatment of trauma related injuries and conditions , which are now the third leading cause of death in the u.s. at this time , we are considering various strategic options with respect to this program . inactive or discontinued product candidates cap-1001 : cap-1001 consists of autologous cdcs . this product candidate was evaluated in the randomized , double-blind , placebo-controlled phase i caduceus clinical trial in patients who had recently experienced an mi . the study was sponsored and conducted by csmc in collaboration with jhu . at present , there is no plan for another clinical trial for cap-1001 . csps : csps are a 3d micro-tissue from which cdcs are derived , and have shown significant healing effects in pre-clinical models of heart failure . while we consider csps an important asset , at present there is no plan to develop csps as a therapeutic agent . natriuretic peptides : in february 2017 , we elected to terminate our former natriuretic peptide development program , consisting of cenderitide ( cd-np ) and cu-np , so as to more efficiently focus our resources and efforts on our cap-1002 and cap-2003 programs . financial operations overview we have no commercial product sales to date and will not have the ability to generate any commercial product revenue until after we have received approval from the fda or equivalent foreign regulatory bodies to begin selling our pharmaceutical product candidates . developing pharmaceutical products is a lengthy and very expensive process . even if we obtain the capital necessary to continue the development of our product candidates , whether through a strategic transaction or otherwise , we do not expect to complete the development of a product candidate for several years , if ever . to date , most of our development expenses have related to our product candidates , consisting of cap-1002 , cap-2003 and our former product candidate , cenderitide . as we proceed with the clinical development of cap-1002 , and as we further develop cap-2003 and other additional products , our expenses will further increase . accordingly , our success depends not only on the safety and efficacy of our product candidates , but also on our ability to finance the development of the products and our clinical programs . our major sources of working capital to date have been proceeds from private and public equity sales , grants received from the nih and the department of defense , or dod , a payment from janssen and a loan and grant award from cirm . research and development , or r & d , expenses consist primarily of salaries and related personnel costs , supplies , clinical trial costs , patient treatment costs , rent for laboratories and manufacturing facilities , consulting fees , costs of personnel and supplies for manufacturing , costs of service providers for pre-clinical , clinical and manufacturing , and certain legal expenses resulting from intellectual property prosecution , stock compensation expense and other expenses relating to the design , development , testing and enhancement of our product candidates . except for certain capitalized intangible assets , r & d costs are expensed as incurred . 66 general and administrative , or g & a , expenses consist primarily of salaries and related expenses for executive , finance and other administrative personnel , stock compensation expense , accounting , legal and other professional fees , consulting expenses , rent for corporate offices , business insurance and other corporate expenses . our results have included non-cash compensation expense due to the issuance of stock options and warrants , as applicable . we expense the fair value of stock options and warrants over their vesting period as applicable . when more precise pricing data is unavailable , we determine the fair value of stock options using the black-scholes option-pricing model . the terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee . generally , the awards vest based upon time-based or performance-based conditions . performance-based conditions generally include the attainment of goals related to our financial performance and product development . stock-based compensation expense is included in the consolidated statements of operations under g & a or r & d expenses , as applicable . we expect to record additional non-cash compensation expense in the future , which may be significant . results of operations for the fiscal years ended december 31 , 2018 and 2017 revenue collaboration income . as a result of the janssen agreement , collaboration income for the years ended december 31 , 2018 and 2017 was zero and approximately $ 1.4 million , respectively . on june 30 , 2017 , capricor was informed by janssen that janssen would not be exercising its exclusive license option under the janssen agreement . additionally , there are no further activities ongoing in connection with the collaboration with janssen and all revenue was recognized as of june 30 , 2017. grant income . grant income for the years ended december 31 , 2018 and 2017 was approximately $ 1.0 million and $ 1.1 million , respectively . the decrease in grant income of approximately $ 0.1 million in 2018 as compared to 2017 is primarily due to the timing of grant activities . the pre-clinical
| restricted cash we had 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 ( “ asu ” ) 2014-09 , revenue from contracts with customers ( topic 606 ) ( “ asu 2014-09 ” ) . asu 2014-09 amended the existing accounting standards for revenue recognition . asu 2014-09 establishes principles for recognizing revenue based on the value of transferred goods or services as they occur in the contract . asu 2014-09 also requires 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 . the company adopted asu 2014-09 and all subsequent updates related to this topic in the first quarter of 2018 using the modified retrospective approach . the adoption of this asu was applied to only those contracts that were not completed upon the initial application . the adoption of this update did not have a material impact on the company 's financial statements .
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patheon has agreed to undertake certain technical transfer activities and construction services needed to prepare its swindon , united kingdom facility for the manufacture and packaging of exparel in two dedicated manufacturing suites . we expect the first suite to begin commercial production in the second half of 2016 and the second suite to become operational in the 2018 or 2019 timeframe . we expect that the expansion of our manufacturing capacity with patheon , coupled with our manufacturing facility at our science center campus , will enable us to meet the future demand for exparel . in april 2014 , we completed a follow-on underwritten public offering , selling 1,840,000 shares of common stock , which included the underwriters ' exercise of the over-allotment option , at an offering price of $ 64.00 per share . we received net proceeds after underwriting fees and related expenses of $ 110.5 million . in april 2014 , we and mundipharma amended our agreements to , among other things , ( i ) extend the term of such agreements by an additional 15 years to june 2033 and ( ii ) expand the territory where mundipharma can market 51 and distribute depocyte to all countries other than the united states of america , canada and japan . in connection with the agreements , we received a non-refundable upfront payment of $ 8.0 million from mundipharma . the revenue has been deferred and will be recognized over the contractual term . in march 2014 , the fda approved an additional bulk manufacturing suite , or suite c , for exparel at our science center campus in san diego , california , which has more than doubled our manufacturing capacity . exparel we are pursuing several additional indications for exparel . in may 2014 , we submitted an snda for nerve block administration and expect pdufa action on march 5 , 2015. we believe that this additional indication for exparel presents a method of pain control that has the potential to reduce the need for opioids and replace the costly and cumbersome perineural catheter , drug reservoir and pump with a single injection to continuously deliver bupivacaine , and will allow us to fully leverage our manufacturing and commercial infrastructure . in addition to the nerve block indication , we are also pursuing an expansion into oral surgery and chronic pain indications for exparel . we plan on initiating a phase 3 study in 2015 and expect to file an snda for oral surgery procedures in 2016. for chronic pain , we intend to initiate a phase 2 trial in 2015 with patients suffering from chronic lower back pain caused by facet joint dysfunction with exparel as a single dose administration to define the duration of efficacy and determine the optimal dose , which will better inform the phase 3 study design planned for 2016. we also plan on commencing pediatric trials , which have been required by the fda . our development pipeline projects include line extensions and the generation of additional clinical data for exparel . we are also focused on the lifecycle management of exparel , including seeking to enhance our intellectual property rights . our current patents for exparel expire in the u.s. in november 2018. we currently have a pending non-provisional patent application that claims a continuous spray manufacturing process for depofoam-based products , including a process for making exparel . we believe the spray process offers many advantages to the current process , including larger scale production and lower manufacturing costs . if this patent application is granted , it could prevent others from using this process until 2031. we can make no assurances that such a patent will be granted . we have focused significant resources on building our commercial team for the launch and commercial sale of exparel . in 2013 , we contracted with crosslink to promote and sell exparel to orthopedic surgeons . we continue to run prospective outcome studies designed for commercial purposes , which do not have any regulatory endpoints . we expect to continue to implement a variety of programs to educate customers about exparel . our commercial team , consisting of both sales representatives and scientific and medical affairs professionals , executes on a full range of activities for exparel , including providing publications and abstracts showing the exparel clinical program efficacy and safety , health outcomes programs and review articles on pain management . we also provide access and resources for drug utilization or medication use evaluations and health outcomes studies , which provide retrospective and prospective analyses for our hospital customers using their own hospital data to demonstrate the true cost of opioid-based postsurgical pain control . in september 2014 , we received a warning letter from the fda 's office of prescription drug promotion , or opdp , pertaining to certain promotional aspects of exparel , and in february 2015 , agreement was reached with the opdp on the content and mechanisms for distribution of corrective action , which will consist of a dear healthcare provider letter and a corrective journal advertisement . we are actively working to ensure that our sales force and other promotional channels communicate these points to customers thoroughly and accurately : exparel is broadly indicated for administration into the surgical site to produce postsurgical analgesia . fda approval of exparel was based on pivotal trials conducted in excisional hemorrhoidectomy and bunionectomy surgical models , and thus , the basis for assessment of safety and efficacy was limited to those two procedures . regarding duration of efficacy , in both pivotal trials , exparel demonstrated a significant reduction in pain intensity scores compared to placebo for up to 24 hours . story_separator_special_tag during the three months ended december 31 , 2014 , the requirements with respect to the consecutive sales price were met and , as a result , the notes are classified as a current obligation and are convertible until march 31 , 2015. the future convertibility and resulting balance sheet classification of the notes will be monitored on a quarterly basis . prior to february 1 , 2018 , in the event such requirements are not met in a given quarter , the notes would be reclassified as a long-term liability . see note 8 , debt , and note 19 , subsequent events , to our consolidated financial statements included herein for further discussion of the notes and a conversion election received in february 2015. royalty interests assignment agreement on march 23 , 2007 , we entered into the amended and restated royalty interests assignment agreement with paul capital , pursuant to which we assigned to paul capital the right to receive up to approximately 20 % of our royalty payments from depocyt ( e ) and the no-longer marketed depodur . the agreement expired on december 31 , 2014. future capital requirements we believe that our existing cash and cash equivalents , restricted cash , short and long-term investments and cash received from product sales will be sufficient to enable us to fund our operating expenses , capital expenditure requirements , payment of the principal on any conversions of the notes and to service our indebtedness for at least the next 12 months . the holders of the notes have the ability to elect to convert them at any time during the quarter ended march 31 , 2015. in the event of conversion , holders would forgo all future interest payments and the possibility of further stock price appreciation . if all the notes were converted , we would be required to repay the $ 120.0 million in principal value and approximately $ 309 million of cash or issue 58 approximately 3.5 million shares of our common stock ( or a combination of cash and shares of our common stock ) to settle the conversion premium as of december 31 , 2014 , causing significant expenditures of our cash and liquid securities and or dilution to our current shareholders . our future use of operating cash and capital requirements will depend on many forward-looking factors , including , but not limited to , the following : our ability to successfully continue our commercialization of exparel ; the cost and timing of expanding our manufacturing facilities for exparel and our other product candidates , including costs associated with certain technical transfer activities and the construction of manufacturing suites at patheon 's swindon , united kingdom facility ; the extent to which the holders of our notes elect to convert the notes ; the cost and timing of potential milestone payments to skyepharma ; the costs of performing additional clinical trials for exparel , including the pediatric trials required by the fda as a condition of approval , and costs of developing our other product candidates ; and the extent to which we acquire or invest in products , businesses and technologies . we may require additional debt or equity financing to meet our future operating and capital requirements . we have no committed external sources of funds , and additional equity or debt financing may not be available on acceptable terms , if at all . contractual obligations the table below presents a summary of our contractual obligations as of december 31 , 2014 ( in thousands ) : replace_table_token_13_th ( 1 ) this table does not include potential future milestone payments to skyepharma which could be up to an aggregate of $ 44.0 million if certain milestones pertaining to net sales of exparel are met . this contingency is described further in note 6 , goodwill and intangible assets , of our consolidated financial statements included herein for additional details . ( 2 ) the amounts displayed in the table above represent management 's best estimate of timing with respect to the future convertibility of these instruments . see note 8 , debt , of our consolidated financial statements included herein for further discussion . additionally , it excludes any conversion premium on the notes , which may be settled in cash or stock at the company 's discretion . if the notes were converted at december 31 , 2014 , it would result in an approximate premium of 3.5 million shares or $ 309 million of cash or a combination thereof . ( 3 ) in february 2015 , we received notice of an election for conversion from one of the holders of the notes in the amount of $ 1.5 million of principal , which is reflected in the above table as due in less than one year . the conversion premium will be settled in shares of our common stock . see note 19 , subsequent events , of our consolidated financial statements included herein for further discussion . ( 4 ) the amounts consist of operating leases for our corporate headquarters in parsippany , new jersey and manufacturing , research and warehouse space in san diego , california . ( 5 ) the amounts consist of minimum non-cancelable contractual commitments for the purchase of certain raw materials . in april 2014 , we and patheon entered into a strategic co-production agreement and technical transfer and service agreement to collaborate in the manufacture and packaging of exparel . under the terms of the technical transfer and service agreement , patheon has agreed to undertake certain technical transfer activities and construction services needed to prepare its swindon , united kingdom facility for the manufacture and packaging of exparel in two dedicated manufacturing suites . upon an early termination of this agreement ( other than termination by us in the event that patheon does not meet the construction and manufacturing milestones or for a breach by patheon
| restricted cash we had 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 ( “ asu ” ) 2014-09 , revenue from contracts with customers ( topic 606 ) ( “ asu 2014-09 ” ) . asu 2014-09 amended the existing accounting standards for revenue recognition . asu 2014-09 establishes principles for recognizing revenue based on the value of transferred goods or services as they occur in the contract . asu 2014-09 also requires 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 . the company adopted asu 2014-09 and all subsequent updates related to this topic in the first quarter of 2018 using the modified retrospective approach . the adoption of this asu was applied to only those contracts that were not completed upon the initial application . the adoption of this update did not have a material impact on the company 's financial statements .
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patheon has agreed to undertake certain technical transfer activities and construction services needed to prepare its swindon , united kingdom facility for the manufacture and packaging of exparel in two dedicated manufacturing suites . we expect the first suite to begin commercial production in the second half of 2016 and the second suite to become operational in the 2018 or 2019 timeframe . we expect that the expansion of our manufacturing capacity with patheon , coupled with our manufacturing facility at our science center campus , will enable us to meet the future demand for exparel . in april 2014 , we completed a follow-on underwritten public offering , selling 1,840,000 shares of common stock , which included the underwriters ' exercise of the over-allotment option , at an offering price of $ 64.00 per share . we received net proceeds after underwriting fees and related expenses of $ 110.5 million . in april 2014 , we and mundipharma amended our agreements to , among other things , ( i ) extend the term of such agreements by an additional 15 years to june 2033 and ( ii ) expand the territory where mundipharma can market 51 and distribute depocyte to all countries other than the united states of america , canada and japan . in connection with the agreements , we received a non-refundable upfront payment of $ 8.0 million from mundipharma . the revenue has been deferred and will be recognized over the contractual term . in march 2014 , the fda approved an additional bulk manufacturing suite , or suite c , for exparel at our science center campus in san diego , california , which has more than doubled our manufacturing capacity . exparel we are pursuing several additional indications for exparel . in may 2014 , we submitted an snda for nerve block administration and expect pdufa action on march 5 , 2015. we believe that this additional indication for exparel presents a method of pain control that has the potential to reduce the need for opioids and replace the costly and cumbersome perineural catheter , drug reservoir and pump with a single injection to continuously deliver bupivacaine , and will allow us to fully leverage our manufacturing and commercial infrastructure . in addition to the nerve block indication , we are also pursuing an expansion into oral surgery and chronic pain indications for exparel . we plan on initiating a phase 3 study in 2015 and expect to file an snda for oral surgery procedures in 2016. for chronic pain , we intend to initiate a phase 2 trial in 2015 with patients suffering from chronic lower back pain caused by facet joint dysfunction with exparel as a single dose administration to define the duration of efficacy and determine the optimal dose , which will better inform the phase 3 study design planned for 2016. we also plan on commencing pediatric trials , which have been required by the fda . our development pipeline projects include line extensions and the generation of additional clinical data for exparel . we are also focused on the lifecycle management of exparel , including seeking to enhance our intellectual property rights . our current patents for exparel expire in the u.s. in november 2018. we currently have a pending non-provisional patent application that claims a continuous spray manufacturing process for depofoam-based products , including a process for making exparel . we believe the spray process offers many advantages to the current process , including larger scale production and lower manufacturing costs . if this patent application is granted , it could prevent others from using this process until 2031. we can make no assurances that such a patent will be granted . we have focused significant resources on building our commercial team for the launch and commercial sale of exparel . in 2013 , we contracted with crosslink to promote and sell exparel to orthopedic surgeons . we continue to run prospective outcome studies designed for commercial purposes , which do not have any regulatory endpoints . we expect to continue to implement a variety of programs to educate customers about exparel . our commercial team , consisting of both sales representatives and scientific and medical affairs professionals , executes on a full range of activities for exparel , including providing publications and abstracts showing the exparel clinical program efficacy and safety , health outcomes programs and review articles on pain management . we also provide access and resources for drug utilization or medication use evaluations and health outcomes studies , which provide retrospective and prospective analyses for our hospital customers using their own hospital data to demonstrate the true cost of opioid-based postsurgical pain control . in september 2014 , we received a warning letter from the fda 's office of prescription drug promotion , or opdp , pertaining to certain promotional aspects of exparel , and in february 2015 , agreement was reached with the opdp on the content and mechanisms for distribution of corrective action , which will consist of a dear healthcare provider letter and a corrective journal advertisement . we are actively working to ensure that our sales force and other promotional channels communicate these points to customers thoroughly and accurately : exparel is broadly indicated for administration into the surgical site to produce postsurgical analgesia . fda approval of exparel was based on pivotal trials conducted in excisional hemorrhoidectomy and bunionectomy surgical models , and thus , the basis for assessment of safety and efficacy was limited to those two procedures . regarding duration of efficacy , in both pivotal trials , exparel demonstrated a significant reduction in pain intensity scores compared to placebo for up to 24 hours . story_separator_special_tag during the three months ended december 31 , 2014 , the requirements with respect to the consecutive sales price were met and , as a result , the notes are classified as a current obligation and are convertible until march 31 , 2015. the future convertibility and resulting balance sheet classification of the notes will be monitored on a quarterly basis . prior to february 1 , 2018 , in the event such requirements are not met in a given quarter , the notes would be reclassified as a long-term liability . see note 8 , debt , and note 19 , subsequent events , to our consolidated financial statements included herein for further discussion of the notes and a conversion election received in february 2015. royalty interests assignment agreement on march 23 , 2007 , we entered into the amended and restated royalty interests assignment agreement with paul capital , pursuant to which we assigned to paul capital the right to receive up to approximately 20 % of our royalty payments from depocyt ( e ) and the no-longer marketed depodur . the agreement expired on december 31 , 2014. future capital requirements we believe that our existing cash and cash equivalents , restricted cash , short and long-term investments and cash received from product sales will be sufficient to enable us to fund our operating expenses , capital expenditure requirements , payment of the principal on any conversions of the notes and to service our indebtedness for at least the next 12 months . the holders of the notes have the ability to elect to convert them at any time during the quarter ended march 31 , 2015. in the event of conversion , holders would forgo all future interest payments and the possibility of further stock price appreciation . if all the notes were converted , we would be required to repay the $ 120.0 million in principal value and approximately $ 309 million of cash or issue 58 approximately 3.5 million shares of our common stock ( or a combination of cash and shares of our common stock ) to settle the conversion premium as of december 31 , 2014 , causing significant expenditures of our cash and liquid securities and or dilution to our current shareholders . our future use of operating cash and capital requirements will depend on many forward-looking factors , including , but not limited to , the following : our ability to successfully continue our commercialization of exparel ; the cost and timing of expanding our manufacturing facilities for exparel and our other product candidates , including costs associated with certain technical transfer activities and the construction of manufacturing suites at patheon 's swindon , united kingdom facility ; the extent to which the holders of our notes elect to convert the notes ; the cost and timing of potential milestone payments to skyepharma ; the costs of performing additional clinical trials for exparel , including the pediatric trials required by the fda as a condition of approval , and costs of developing our other product candidates ; and the extent to which we acquire or invest in products , businesses and technologies . we may require additional debt or equity financing to meet our future operating and capital requirements . we have no committed external sources of funds , and additional equity or debt financing may not be available on acceptable terms , if at all . contractual obligations the table below presents a summary of our contractual obligations as of december 31 , 2014 ( in thousands ) : replace_table_token_13_th ( 1 ) this table does not include potential future milestone payments to skyepharma which could be up to an aggregate of $ 44.0 million if certain milestones pertaining to net sales of exparel are met . this contingency is described further in note 6 , goodwill and intangible assets , of our consolidated financial statements included herein for additional details . ( 2 ) the amounts displayed in the table above represent management 's best estimate of timing with respect to the future convertibility of these instruments . see note 8 , debt , of our consolidated financial statements included herein for further discussion . additionally , it excludes any conversion premium on the notes , which may be settled in cash or stock at the company 's discretion . if the notes were converted at december 31 , 2014 , it would result in an approximate premium of 3.5 million shares or $ 309 million of cash or a combination thereof . ( 3 ) in february 2015 , we received notice of an election for conversion from one of the holders of the notes in the amount of $ 1.5 million of principal , which is reflected in the above table as due in less than one year . the conversion premium will be settled in shares of our common stock . see note 19 , subsequent events , of our consolidated financial statements included herein for further discussion . ( 4 ) the amounts consist of operating leases for our corporate headquarters in parsippany , new jersey and manufacturing , research and warehouse space in san diego , california . ( 5 ) the amounts consist of minimum non-cancelable contractual commitments for the purchase of certain raw materials . in april 2014 , we and patheon entered into a strategic co-production agreement and technical transfer and service agreement to collaborate in the manufacture and packaging of exparel . under the terms of the technical transfer and service agreement , patheon has agreed to undertake certain technical transfer activities and construction services needed to prepare its swindon , united kingdom facility for the manufacture and packaging of exparel in two dedicated manufacturing suites . upon an early termination of this agreement ( other than termination by us in the event that patheon does not meet the construction and manufacturing milestones or for a breach by patheon
| debt , to our consolidated financial statements included herein . the holders of the notes have the ability to elect to convert the notes at any time during the quarter ended march 31 , 2015. in the event of 56 conversion , holders would forgo all future interest payments and the possibility of further stock price appreciation . in the event that all of the notes are converted , we would be required to repay the $ 120.0 million in principal value and approximately $ 309 million of cash or issue approximately 3.5 million shares of our common stock ( or a combination of cash and shares of our common stock ) to settle the conversion premium as of december 31 , 2014 , causing dilution to our current shareholders and or significant expenditures of our cash and liquid securities . in february 2015 , we received notice of an election for conversion from one of the holders of the notes . the principal amount of the conversion request was $ 1.5 million which must be paid in cash pursuant to the terms of the indenture . we elected to settle the conversion premium in shares of our common stock , calculated using a 40 trading-day observation period ending april 8 , 2015. summary of cash flows the following table summarizes our cash flows from operating , investing and financing activities for the years ended december 31 , 2014 , 2013 and 2012 ( in thousands ) : replace_table_token_12_th operating activities in 2014 , net cash provided by operating activities increased by $ 68.7 million . this increase was primarily driven by higher exparel product sales and improved gross margins , which were partially offset by expenditures for additional field-based personnel and related educational , selling and promotional initiatives , as well as additional administrative support .
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we also typically receive a performance fee from an investment fund , which may be either an incentive fee or a special residual allocation of income , which we refer to as a carried interest , in the event that specified investment returns are achieved by the fund . under u.s. generally accepted accounting principles ( “ u.s . gaap ” ) , we are required to consolidate some of the investment funds that we advise . however , for segment reporting purposes , we present revenues and expenses on a basis that deconsolidates these investment funds . accordingly , our segment revenues primarily consist of fund management and related advisory fees and other income , realized performance revenues ( consisting of incentive fees and carried interest allocations ) , realized principal investment income , including realized gains on our investments in our funds and other trading securities , as well as interest income . our segment expenses primarily consist of cash compensation and benefits expenses , including salaries , bonuses , and realized performance payment arrangements , and general and administrative expenses . while our segment expenses include depreciation and interest expense , our segment expenses exclude acquisition-related charges and amortization of intangibles and impairment . refer to note 17 to the consolidated financial statements included in this annual report on form 10-k for 84 more information on the differences between our financial results reported pursuant to u.s. gaap and our financial results for segment reporting purposes . trends affecting our business market expectations for global economic growth continued to moderate into the fourth quarter of 2019. in the u.s. , growth decelerated relative to 2018 due to weakness in the industrial sector , business spending , and exports . although at a more moderate pace than 2018 , during 2019 and into early 2020 the economy continued to grow due to a housing sector rebound driven by lower mortgage rates tied to three federal reserve rate cuts during 2019 , and strong consumption growth due to low unemployment , robust real wage growth and generally solid household balance sheets during the year . the softness in business spending during 2019 and continuing into early 2020 appears to be attributable to a combination of weak corporate earnings , heightened “ late-cycle ” fears among business managers and ongoing geopolitical tensions . rising compensation and input costs have led to a decline in operating margins , while a strong dollar continues to weigh on the domestic value of foreign sales and earnings . in china , official data indicate real gdp grew by 6 % over the course of 2019 , unchanged from the third quarter . the deceleration in growth relative to prior periods was driven by ongoing softness in exports , housing and manufacturing . data over the course of 2019 highlights the degree to which the costs of the trade dispute have negatively affected the overall global economy . in its january 2020 update to the world economic outlook , the international monetary fund estimates that global growth amounted to just 2.9 % in 2019 and that the bulk of the slowdown from 4 % growth at the start of 2018 can be attributed to weak global trade . trends in manufacturing surveys , sentiment indices , and long-term yields all closely tracked the fall in global trade volumes throughout the year . since the global trade system is based on integrated , cross-border value chains , negative effects in one part of the network quickly spread to the rest . geopolitical uncertainty , trade frictions , and other downside risks continue to exert a significant impact on the overall economy into early 2020. although investors ' optimism rose in the immediate aftermath of the finalization of the “ phase-one ” trade agreement between the u.s. and china ( the s & p 500 , msci acwi-all cap , eurostoxx 600 and shanghai composite each rose 8.5 % , 8.6 % , 5.8 % , and 5.0 % , respectively , in the fourth quarter , bringing 2019 returns into the double digits across indices ) , sentiment has shifted once more in light of new concerns . the global market exuberance of the fourth quarter was likely due to investor hopes for a rebound in growth after the easing of trade tensions , particularly in china . the rapid proliferation of the novel coronavirus , however , threatens such a rebound , and highlights the fragility of the macro economy . from december 31 through january 31 , 2020 , the hang seng index fell nearly 7 % . brent crude spot prices fell nearly 16 % in january 2020 on fears that virus containment efforts will choke off demand . in the u.s. , valuations remain high , as prices belie underlying fundamentals . earnings for companies in the s & p 500 declined year-over-year in each of the first three quarters of 2019 , and are estimated to have risen just 0.7 % in the fourth quarter . if the growth that investors anticipate fails to materialize , or if the expected stabilization in trade does not come to fruition , equity markets may react in kind . the global monetary policy easing cycle that characterized the first three quarters of 2019 appears to have significantly slowed , with most ( but not all ) central banks on hold for now . story_separator_special_tag as a result , the performance allocations earned in an applicable reporting period are not indicative of any future period , as fair values are based on conditions prevalent as of the reporting date . refer to “ — trends affecting our business ” for further discussion . in addition to the performance allocations from our corporate private equity and real assets funds and most of our closed-end carry funds in the global credit segment , we are also entitled to receive performance allocations from our investment solutions , carlyle aviation and ngp carry funds . the timing of performance allocations realizations for these funds is typically later than in our other carry funds based on the terms of such arrangements . our performance allocations are generated by a diverse set of funds with different vintages , geographic concentration , investment strategies and industry specialties . for an explanation of the fund acronyms used throughout this management 's discussion and analysis of financial condition and results of operations section , see “ item 1. business — our family of funds . ” 88 performance allocations in excess of 10 % of the total for the years ended december 31 , 2019 , 2018 and 2017 were generated from the following funds : replace_table_token_7_th no other fund generated over 10 % of performance allocations in the periods presented above . under our arrangements with the historical owners and management team of alpinvest , we generally do not retain any carried interest in respect of the historical investments and commitments to our fund vehicles that existed as of july 1 , 2011 ( including any options to increase any such commitments exercised after such date ) . we are entitled to 15 % of the carried interest in respect of commitments from the historical owners of alpinvest for the period between 2011 and 2020 and 40 % of the carried interest in respect of all other commitments ( including all future commitments from third parties ) . in certain instances , carried interest associated with the alpinvest fund vehicles is subject to entity level income taxes in the netherlands . realized carried interest may be clawed back or given back to the fund if the fund 's investment values decline below certain return hurdles , which vary from fund to fund . when the fair value of a fund 's investments remains constant or falls below certain return hurdles , previously recognized performance allocations are reversed . in all cases , each investment fund is considered separately in evaluating carried interest and potential giveback obligations . for any given period , performance allocations revenue on our statement of operations may include reversals of previously recognized performance allocations due to a decrease in the value of a particular fund that results in a decrease of cumulative performance allocations earned to date . since fund return hurdles are cumulative , previously recognized performance allocations also may be reversed in a period of appreciation that is lower than the particular fund 's hurdle rate . for the years ended december 31 , 2019 , 2018 , and 2017 , the reversals of performance allocations were $ 215.8 million , $ 364.4 million and $ 74.2 million , respectively . additionally , unrealized performance allocations reverse when performance allocations are realized , and unrealized performance allocations can be negative if the amount of realized performance allocations exceed total performance allocations generated in the period . as of december 31 , 2019 , accrued performance allocations and accrued giveback obligations were approximately $ 3.9 billion and $ 22.2 million , respectively . each balance assumes a hypothetical liquidation of the funds ' investments at december 31 , 2019 at their then current fair values . these assets and liabilities will continue to fluctuate in accordance with the fair values of the fund investments until they are realized . as of december 31 , 2019 , approximately $ 14.1 million of the accrued giveback obligation is the responsibility of various current and former senior carlyle professionals and other limited partners of the carlyle holdings partnerships , and the net accrued giveback obligation attributable to carlyle holdings is $ 8.1 million . the company uses “ net accrued performance revenues ” to refer to the aggregation of the accrued performance allocations and incentive fees net of ( i ) accrued giveback obligations , ( ii ) accrued performance allocations and incentive fee-related compensation , ( iii ) performance allocations and incentive fee-related tax obligations , and ( iv ) accrued performance allocations and incentive fees attributable to non-controlling interests and excludes any net accrued performance allocations and incentive fees that have been realized but will be collected in subsequent periods . the net accrued performance revenues as of december 31 , 2019 are $ 1.7 billion . in addition , realized performance allocations may be reversed in future periods to the extent that such amounts become subject to a giveback obligation . if at december 31 , 2019 , all investments held by our carry funds were deemed worthless , a possibility that management views as remote , the amount of realized and previously distributed performance allocations subject to potential giveback would be approximately $ 0.4 billion , on an after-tax basis where applicable . see the related discussion of “ contingent obligations ( giveback ) ” within “ — liquidity and capital resources . ” 89 the following table summarizes the total amount of aggregate giveback obligations that we have realized since carlyle 's inception . given various current and former senior carlyle professionals and other limited partners of the carlyle holdings partnerships are responsible for paying the majority of the realized giveback obligation , the table below also summarizes the amount that was attributable to carlyle holdings : inception through december 31 , 2019 total giveback giveback attributable to carlyle holdings ( dollars in millions ) various legacy energy funds $ 155.2 $ 55.0 all other carlyle
| debt , to our consolidated financial statements included herein . the holders of the notes have the ability to elect to convert the notes at any time during the quarter ended march 31 , 2015. in the event of 56 conversion , holders would forgo all future interest payments and the possibility of further stock price appreciation . in the event that all of the notes are converted , we would be required to repay the $ 120.0 million in principal value and approximately $ 309 million of cash or issue approximately 3.5 million shares of our common stock ( or a combination of cash and shares of our common stock ) to settle the conversion premium as of december 31 , 2014 , causing dilution to our current shareholders and or significant expenditures of our cash and liquid securities . in february 2015 , we received notice of an election for conversion from one of the holders of the notes . the principal amount of the conversion request was $ 1.5 million which must be paid in cash pursuant to the terms of the indenture . we elected to settle the conversion premium in shares of our common stock , calculated using a 40 trading-day observation period ending april 8 , 2015. summary of cash flows the following table summarizes our cash flows from operating , investing and financing activities for the years ended december 31 , 2014 , 2013 and 2012 ( in thousands ) : replace_table_token_12_th operating activities in 2014 , net cash provided by operating activities increased by $ 68.7 million . this increase was primarily driven by higher exparel product sales and improved gross margins , which were partially offset by expenditures for additional field-based personnel and related educational , selling and promotional initiatives , as well as additional administrative support .
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we also typically receive a performance fee from an investment fund , which may be either an incentive fee or a special residual allocation of income , which we refer to as a carried interest , in the event that specified investment returns are achieved by the fund . under u.s. generally accepted accounting principles ( “ u.s . gaap ” ) , we are required to consolidate some of the investment funds that we advise . however , for segment reporting purposes , we present revenues and expenses on a basis that deconsolidates these investment funds . accordingly , our segment revenues primarily consist of fund management and related advisory fees and other income , realized performance revenues ( consisting of incentive fees and carried interest allocations ) , realized principal investment income , including realized gains on our investments in our funds and other trading securities , as well as interest income . our segment expenses primarily consist of cash compensation and benefits expenses , including salaries , bonuses , and realized performance payment arrangements , and general and administrative expenses . while our segment expenses include depreciation and interest expense , our segment expenses exclude acquisition-related charges and amortization of intangibles and impairment . refer to note 17 to the consolidated financial statements included in this annual report on form 10-k for 84 more information on the differences between our financial results reported pursuant to u.s. gaap and our financial results for segment reporting purposes . trends affecting our business market expectations for global economic growth continued to moderate into the fourth quarter of 2019. in the u.s. , growth decelerated relative to 2018 due to weakness in the industrial sector , business spending , and exports . although at a more moderate pace than 2018 , during 2019 and into early 2020 the economy continued to grow due to a housing sector rebound driven by lower mortgage rates tied to three federal reserve rate cuts during 2019 , and strong consumption growth due to low unemployment , robust real wage growth and generally solid household balance sheets during the year . the softness in business spending during 2019 and continuing into early 2020 appears to be attributable to a combination of weak corporate earnings , heightened “ late-cycle ” fears among business managers and ongoing geopolitical tensions . rising compensation and input costs have led to a decline in operating margins , while a strong dollar continues to weigh on the domestic value of foreign sales and earnings . in china , official data indicate real gdp grew by 6 % over the course of 2019 , unchanged from the third quarter . the deceleration in growth relative to prior periods was driven by ongoing softness in exports , housing and manufacturing . data over the course of 2019 highlights the degree to which the costs of the trade dispute have negatively affected the overall global economy . in its january 2020 update to the world economic outlook , the international monetary fund estimates that global growth amounted to just 2.9 % in 2019 and that the bulk of the slowdown from 4 % growth at the start of 2018 can be attributed to weak global trade . trends in manufacturing surveys , sentiment indices , and long-term yields all closely tracked the fall in global trade volumes throughout the year . since the global trade system is based on integrated , cross-border value chains , negative effects in one part of the network quickly spread to the rest . geopolitical uncertainty , trade frictions , and other downside risks continue to exert a significant impact on the overall economy into early 2020. although investors ' optimism rose in the immediate aftermath of the finalization of the “ phase-one ” trade agreement between the u.s. and china ( the s & p 500 , msci acwi-all cap , eurostoxx 600 and shanghai composite each rose 8.5 % , 8.6 % , 5.8 % , and 5.0 % , respectively , in the fourth quarter , bringing 2019 returns into the double digits across indices ) , sentiment has shifted once more in light of new concerns . the global market exuberance of the fourth quarter was likely due to investor hopes for a rebound in growth after the easing of trade tensions , particularly in china . the rapid proliferation of the novel coronavirus , however , threatens such a rebound , and highlights the fragility of the macro economy . from december 31 through january 31 , 2020 , the hang seng index fell nearly 7 % . brent crude spot prices fell nearly 16 % in january 2020 on fears that virus containment efforts will choke off demand . in the u.s. , valuations remain high , as prices belie underlying fundamentals . earnings for companies in the s & p 500 declined year-over-year in each of the first three quarters of 2019 , and are estimated to have risen just 0.7 % in the fourth quarter . if the growth that investors anticipate fails to materialize , or if the expected stabilization in trade does not come to fruition , equity markets may react in kind . the global monetary policy easing cycle that characterized the first three quarters of 2019 appears to have significantly slowed , with most ( but not all ) central banks on hold for now . story_separator_special_tag as a result , the performance allocations earned in an applicable reporting period are not indicative of any future period , as fair values are based on conditions prevalent as of the reporting date . refer to “ — trends affecting our business ” for further discussion . in addition to the performance allocations from our corporate private equity and real assets funds and most of our closed-end carry funds in the global credit segment , we are also entitled to receive performance allocations from our investment solutions , carlyle aviation and ngp carry funds . the timing of performance allocations realizations for these funds is typically later than in our other carry funds based on the terms of such arrangements . our performance allocations are generated by a diverse set of funds with different vintages , geographic concentration , investment strategies and industry specialties . for an explanation of the fund acronyms used throughout this management 's discussion and analysis of financial condition and results of operations section , see “ item 1. business — our family of funds . ” 88 performance allocations in excess of 10 % of the total for the years ended december 31 , 2019 , 2018 and 2017 were generated from the following funds : replace_table_token_7_th no other fund generated over 10 % of performance allocations in the periods presented above . under our arrangements with the historical owners and management team of alpinvest , we generally do not retain any carried interest in respect of the historical investments and commitments to our fund vehicles that existed as of july 1 , 2011 ( including any options to increase any such commitments exercised after such date ) . we are entitled to 15 % of the carried interest in respect of commitments from the historical owners of alpinvest for the period between 2011 and 2020 and 40 % of the carried interest in respect of all other commitments ( including all future commitments from third parties ) . in certain instances , carried interest associated with the alpinvest fund vehicles is subject to entity level income taxes in the netherlands . realized carried interest may be clawed back or given back to the fund if the fund 's investment values decline below certain return hurdles , which vary from fund to fund . when the fair value of a fund 's investments remains constant or falls below certain return hurdles , previously recognized performance allocations are reversed . in all cases , each investment fund is considered separately in evaluating carried interest and potential giveback obligations . for any given period , performance allocations revenue on our statement of operations may include reversals of previously recognized performance allocations due to a decrease in the value of a particular fund that results in a decrease of cumulative performance allocations earned to date . since fund return hurdles are cumulative , previously recognized performance allocations also may be reversed in a period of appreciation that is lower than the particular fund 's hurdle rate . for the years ended december 31 , 2019 , 2018 , and 2017 , the reversals of performance allocations were $ 215.8 million , $ 364.4 million and $ 74.2 million , respectively . additionally , unrealized performance allocations reverse when performance allocations are realized , and unrealized performance allocations can be negative if the amount of realized performance allocations exceed total performance allocations generated in the period . as of december 31 , 2019 , accrued performance allocations and accrued giveback obligations were approximately $ 3.9 billion and $ 22.2 million , respectively . each balance assumes a hypothetical liquidation of the funds ' investments at december 31 , 2019 at their then current fair values . these assets and liabilities will continue to fluctuate in accordance with the fair values of the fund investments until they are realized . as of december 31 , 2019 , approximately $ 14.1 million of the accrued giveback obligation is the responsibility of various current and former senior carlyle professionals and other limited partners of the carlyle holdings partnerships , and the net accrued giveback obligation attributable to carlyle holdings is $ 8.1 million . the company uses “ net accrued performance revenues ” to refer to the aggregation of the accrued performance allocations and incentive fees net of ( i ) accrued giveback obligations , ( ii ) accrued performance allocations and incentive fee-related compensation , ( iii ) performance allocations and incentive fee-related tax obligations , and ( iv ) accrued performance allocations and incentive fees attributable to non-controlling interests and excludes any net accrued performance allocations and incentive fees that have been realized but will be collected in subsequent periods . the net accrued performance revenues as of december 31 , 2019 are $ 1.7 billion . in addition , realized performance allocations may be reversed in future periods to the extent that such amounts become subject to a giveback obligation . if at december 31 , 2019 , all investments held by our carry funds were deemed worthless , a possibility that management views as remote , the amount of realized and previously distributed performance allocations subject to potential giveback would be approximately $ 0.4 billion , on an after-tax basis where applicable . see the related discussion of “ contingent obligations ( giveback ) ” within “ — liquidity and capital resources . ” 89 the following table summarizes the total amount of aggregate giveback obligations that we have realized since carlyle 's inception . given various current and former senior carlyle professionals and other limited partners of the carlyle holdings partnerships are responsible for paying the majority of the realized giveback obligation , the table below also summarizes the amount that was attributable to carlyle holdings : inception through december 31 , 2019 total giveback giveback attributable to carlyle holdings ( dollars in millions ) various legacy energy funds $ 155.2 $ 55.0 all other carlyle
| net cash used in investing activities . our investing activities generally reflect cash used for acquisitions and fixed assets and software for internal use . purchases of fixed assets were $ 27.8 million , $ 31.3 million and $ 34.0 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . during the year ended december 31 , 2018 , cash used in investing activities principally reflects the acquisition of carlyle aviation partners . net cash provided by financing activities . in 2019 , we received net proceeds of $ 420.6 million from the issuance of $ 425 million of 3.500 % senior notes , and $ 41.0 million from the issuance of various clo borrowings , paid $ 405.4 million to repurchase our outstanding preferred units , paid $ 34.5 million to repurchase 1.6 million units under our repurchase program 146 and paid off a $ 25 million term loan . in 2018 , we received net proceeds of $ 345.7 million from the issuance of $ 350 million of 5.650 % senior notes , paid $ 255 million to repurchase $ 250 million of 3.875 % senior note , and paid $ 108.8 million to prepay the remaining balance outstanding under a promissory note to bnri . in 2017 , we received net proceeds of $ 387.5 million from the issuance of preferred units and $ 265.6 million from the issuance of various clo term loans . dividends to our common stockholders were $ 154.9 million , $ 129.8 million , and $ 118.1 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . distributions to the non-controlling interest holders in carlyle holdings were $ 313.3 million , $ 288.8 million , and $ 295.6 million the years ended december 31 , 2019 , 2018 and 2017 , respectively . the net ( payments ) borrowings on loans payable by our consolidated funds during the years ended december 31 , 2019 , 2018 and 2017 were $ 224.8 million , $ 818.0 million , and $ 147.2 million , respectively .
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our vm solutions ( including vm , cm , tp , cloud agent for vm , allocated scanner revenue and qualys private cloud platform ) have provided a substantial majority of our revenues to date , representing 74 % , 74 % and 76 % of total revenues in 2018 , 2017 and 2016 , respectively . we provide our solutions through a software-as-a-service model , primarily with renewable annual subscriptions . these subscriptions require customers to pay a fee in order to access each of our cloud solutions . we generally invoice our customers for the entire subscription amount at the start of the subscription term , and the invoiced amounts are treated as deferred revenues and are recognized ratably over the term of each subscription . we continue to experience significant revenue growth from our existing customers as they renew and purchase additional subscriptions . 43 we market and sell our solutions to enterprises , government entities and small and medium-sized businesses across a broad range of industries , including education , financial services , government , healthcare , insurance , manufacturing , media , retail , technology and utilities . as of december 31 , 2018 , we had over 12,200 customers and active users in more than 130 countries , including a majority of each of the forbes global 100 and fortune 100. in 2018 , 2017 and 2016 , approximately 67 % , 70 % and 71 % , respectively , of our revenues were derived from customers in the united states . we sell our solutions to enterprises and government entities primarily through our field sales force and to small and medium-sized businesses through our inside sales force . we generate a significant portion of sales through our channel partners , including managed service providers , value-added resellers and consulting firms in the united states and internationally . we have had continued revenue growth over the past three years . our revenues increased from $ 197.9 million in 2016 to $ 230.8 million in 2017 , and reached $ 278.9 million in 2018 , representing period-over-period increases of $ 32.9 million and $ 48.1 million in 2017 and 2018 , or 17 % and 21 % , respectively . we generated net income of $ 19.2 million in 2016 , $ 40.4 million in 2017 , and $ 57.3 million in 2018 . key metric in addition to measures of financial performance presented in our consolidated financial statements , we monitor the key metric set forth below to help us evaluate growth trends , establish budgets , measure the effectiveness of our sales and marketing efforts and assess operational efficiencies . replace_table_token_3_th adjusted ebitda we monitor adjusted ebitda , a non-gaap financial measure , to analyze our financial results and believe that it is useful to investors , as a supplement to u.s. gaap measures , in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance . we believe that adjusted ebitda helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that we exclude in adjusted ebitda . furthermore , we use this measure to establish budgets and operational goals for managing our business and evaluating our performance . we also believe that adjusted ebitda provides an additional tool for investors to use in comparing our recurring core business operating results over multiple periods with other companies in our industry . adjusted ebitda should not be considered in isolation from , or as a substitute for , financial information prepared in accordance with u.s. gaap . we calculate adjusted ebitda as net income before ( 1 ) other ( income ) expense , net , which includes interest income , interest expense and other income and expense , ( 2 ) provision for ( benefit from ) income taxes , ( 3 ) depreciation of property and equipment , ( 4 ) amortization of intangible assets , ( 5 ) stock-based compensation , ( 6 ) non-recurring expenses and ( 7 ) cash acquisition-related expense that do not reflect ongoing costs of operating the business . 44 the following unaudited table presents the reconciliation of net income to adjusted ebitda for each of the periods presented . replace_table_token_4_th ( 1 ) relates to compensation expense from the acquisition of netwatcher and layered insight . ( 2 ) adjusted ebitda for 2016 excludes approximately $ 0.7 million of a non-recurring expense related to the remittance of payroll taxes from fiscal year 2013 through may 2016. during this same period , we have not excluded any amounts related to other non-recurring items from adjusted ebitda because we have considered such amounts to be immaterial . limitations of adjusted ebitda adjusted ebitda , a non-gaap financial measure , has limitations as an analytical tool , and should not be considered in isolation from or as a substitute for the measures presented in accordance with u.s. gaap . some of these limitations are : adjusted ebitda does not reflect certain cash and non-cash charges that are recurring ; adjusted ebitda does not reflect income tax payments that reduce cash available to us ; adjusted ebitda excludes depreciation of property and equipment and amortization of intangible assets , although these are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future ; and other companies , including companies in our industry , may calculate adjusted ebitda differently or not at all , which reduces its usefulness as a comparative measure . because of these limitations , adjusted ebitda should be considered alongside other financial performance measures , including revenues , net income , cash flows from operating activities and our financial results presented in accordance with u.s. gaap . story_separator_special_tag in connection with this lease , we have provided the landlord with a $ 1.2 million standby letter of credit to secure our obligations through the end of the lease term , which is classified as restricted cash in the accompanying consolidated balance sheets . operating lease obligations represent our obligations to make payments under the lease agreements for our facilities , data centers , and office equipment leases . during the year ended december 31 , 2018 , our rent expense under operating lease obligations was $ 9.9 million . off-balance sheet arrangements during the periods presented , we did not have , nor do we currently have , any relationships with unconsolidated entities or financial partnerships , such as entities often referred to as structured finance or special purpose entities . recent accounting pronouncements see note 1 to the consolidated financial statements in part ii , item 8 of this annual report on form10-k for a discussion of recent accounting pronouncements . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and related disclosures . on an ongoing basis , we evaluate our estimates and assumptions . our actual results may differ from these estimates under different assumptions or conditions . we believe that of our significant accounting policies , which are described in the notes to our consolidated financial statements , the following accounting policies involve the greatest degree of judgment and complexity and have the greatest potential impact on our consolidated financial statements . a critical accounting policy is one that is material to the presentation of our consolidated financial statements and requires us to make difficult , subjective or complex judgments for uncertain matters that could have a material effect on our financial condition and results of operations . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . for further information on all of our significant accounting policies , see note 1 - the company and summary of significant accounting policies in the accompanying notes to the consolidated financial statements included in part ii , item 8 , `` financial statements and supplementary data `` of this annual report on form 10-k. revenue recognition we derive revenues from the sale of subscriptions to our security and compliance solutions , which are delivered on our cloud platform . subscriptions to our solutions allow customers to access our cloud-based security and compliance solutions through a unified , web-based interface . customers generally enter into one year renewable subscriptions 55 though some customers do enter into subscriptions with longer terms . the subscription fee entitles the customer to an unlimited number of scans for a specified number of devices or web applications and , if requested by a customer as part of their subscription , a specified number of physical or virtual scanner appliances . our physical and virtual scanner appliances are requested by certain customers as part of their subscriptions in order to scan it infrastructures within their firewalls and do not function without , and are not sold separately from , subscriptions for our solutions . in some limited cases , we also provide certain computer equipment used to extend our qualys cloud platform into our customers ' private cloud environment . customers are required to return physical scanner appliances and computer equipment if they do not renew their subscriptions . subscriptions for unlimited scans and certain limited scan arrangements with firm expiration dates are recognized ratably over the period in which the services are performed , generally one year . we recognize revenues on a usage basis for certain other limited scan arrangements , where expiration dates can be extended . physical equipment ( scanners and private cloud platforms ) are accounted for as operating leases and revenue is recognized ratably over the related subscription period due to the terms of the hardware and software subscriptions being commensurate and the customer 's access to our cloud solutions being delivered at the same time or within close proximity to the delivery of the hardware . costs of shipping and handling charges associated with physical scanner appliances and other computer equipment are included in cost of revenues . deferred r evenues consist of customer contracts billed or cash received that will be recognized in the future under subscriptions existing at the balance sheet date . we adopted asc 606 , `` revenue from contracts with customers `` with a date of initial application of january 1 , 2018. we adopted asc 606 using the modified retrospective method and recognized the cumulative effect as an adjustment to the opening balance of equity at january 1 , 2018. therefore , the comparative information has not been adjusted and continues to be reported under asc 605. the significant impact of adopting asc 606 was related to the deferral of sales commission costs for new business and when customers increase their renewal orders ( “ upsells ” ) . we previously expensed sales commission as incurred . under asc 606 , sales commissions cost related to new business and upsells are recorded as an asset . we amortize the capitalized commission cost as a selling expense on a straight-line basis over a period of five years . five years represents the estimated life of the customer relationship taking into account factors such as peer estimates of technology lives and customer lives as well as our own historical data . applying the practical expedient in asc 340-40-25-4 , we expense commissions related to renewals with a contract term of one year or less . the current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets , and other noncurrent assets , respectively , in
| net cash used in investing activities . our investing activities generally reflect cash used for acquisitions and fixed assets and software for internal use . purchases of fixed assets were $ 27.8 million , $ 31.3 million and $ 34.0 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . during the year ended december 31 , 2018 , cash used in investing activities principally reflects the acquisition of carlyle aviation partners . net cash provided by financing activities . in 2019 , we received net proceeds of $ 420.6 million from the issuance of $ 425 million of 3.500 % senior notes , and $ 41.0 million from the issuance of various clo borrowings , paid $ 405.4 million to repurchase our outstanding preferred units , paid $ 34.5 million to repurchase 1.6 million units under our repurchase program 146 and paid off a $ 25 million term loan . in 2018 , we received net proceeds of $ 345.7 million from the issuance of $ 350 million of 5.650 % senior notes , paid $ 255 million to repurchase $ 250 million of 3.875 % senior note , and paid $ 108.8 million to prepay the remaining balance outstanding under a promissory note to bnri . in 2017 , we received net proceeds of $ 387.5 million from the issuance of preferred units and $ 265.6 million from the issuance of various clo term loans . dividends to our common stockholders were $ 154.9 million , $ 129.8 million , and $ 118.1 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . distributions to the non-controlling interest holders in carlyle holdings were $ 313.3 million , $ 288.8 million , and $ 295.6 million the years ended december 31 , 2019 , 2018 and 2017 , respectively . the net ( payments ) borrowings on loans payable by our consolidated funds during the years ended december 31 , 2019 , 2018 and 2017 were $ 224.8 million , $ 818.0 million , and $ 147.2 million , respectively .
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our vm solutions ( including vm , cm , tp , cloud agent for vm , allocated scanner revenue and qualys private cloud platform ) have provided a substantial majority of our revenues to date , representing 74 % , 74 % and 76 % of total revenues in 2018 , 2017 and 2016 , respectively . we provide our solutions through a software-as-a-service model , primarily with renewable annual subscriptions . these subscriptions require customers to pay a fee in order to access each of our cloud solutions . we generally invoice our customers for the entire subscription amount at the start of the subscription term , and the invoiced amounts are treated as deferred revenues and are recognized ratably over the term of each subscription . we continue to experience significant revenue growth from our existing customers as they renew and purchase additional subscriptions . 43 we market and sell our solutions to enterprises , government entities and small and medium-sized businesses across a broad range of industries , including education , financial services , government , healthcare , insurance , manufacturing , media , retail , technology and utilities . as of december 31 , 2018 , we had over 12,200 customers and active users in more than 130 countries , including a majority of each of the forbes global 100 and fortune 100. in 2018 , 2017 and 2016 , approximately 67 % , 70 % and 71 % , respectively , of our revenues were derived from customers in the united states . we sell our solutions to enterprises and government entities primarily through our field sales force and to small and medium-sized businesses through our inside sales force . we generate a significant portion of sales through our channel partners , including managed service providers , value-added resellers and consulting firms in the united states and internationally . we have had continued revenue growth over the past three years . our revenues increased from $ 197.9 million in 2016 to $ 230.8 million in 2017 , and reached $ 278.9 million in 2018 , representing period-over-period increases of $ 32.9 million and $ 48.1 million in 2017 and 2018 , or 17 % and 21 % , respectively . we generated net income of $ 19.2 million in 2016 , $ 40.4 million in 2017 , and $ 57.3 million in 2018 . key metric in addition to measures of financial performance presented in our consolidated financial statements , we monitor the key metric set forth below to help us evaluate growth trends , establish budgets , measure the effectiveness of our sales and marketing efforts and assess operational efficiencies . replace_table_token_3_th adjusted ebitda we monitor adjusted ebitda , a non-gaap financial measure , to analyze our financial results and believe that it is useful to investors , as a supplement to u.s. gaap measures , in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance . we believe that adjusted ebitda helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that we exclude in adjusted ebitda . furthermore , we use this measure to establish budgets and operational goals for managing our business and evaluating our performance . we also believe that adjusted ebitda provides an additional tool for investors to use in comparing our recurring core business operating results over multiple periods with other companies in our industry . adjusted ebitda should not be considered in isolation from , or as a substitute for , financial information prepared in accordance with u.s. gaap . we calculate adjusted ebitda as net income before ( 1 ) other ( income ) expense , net , which includes interest income , interest expense and other income and expense , ( 2 ) provision for ( benefit from ) income taxes , ( 3 ) depreciation of property and equipment , ( 4 ) amortization of intangible assets , ( 5 ) stock-based compensation , ( 6 ) non-recurring expenses and ( 7 ) cash acquisition-related expense that do not reflect ongoing costs of operating the business . 44 the following unaudited table presents the reconciliation of net income to adjusted ebitda for each of the periods presented . replace_table_token_4_th ( 1 ) relates to compensation expense from the acquisition of netwatcher and layered insight . ( 2 ) adjusted ebitda for 2016 excludes approximately $ 0.7 million of a non-recurring expense related to the remittance of payroll taxes from fiscal year 2013 through may 2016. during this same period , we have not excluded any amounts related to other non-recurring items from adjusted ebitda because we have considered such amounts to be immaterial . limitations of adjusted ebitda adjusted ebitda , a non-gaap financial measure , has limitations as an analytical tool , and should not be considered in isolation from or as a substitute for the measures presented in accordance with u.s. gaap . some of these limitations are : adjusted ebitda does not reflect certain cash and non-cash charges that are recurring ; adjusted ebitda does not reflect income tax payments that reduce cash available to us ; adjusted ebitda excludes depreciation of property and equipment and amortization of intangible assets , although these are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future ; and other companies , including companies in our industry , may calculate adjusted ebitda differently or not at all , which reduces its usefulness as a comparative measure . because of these limitations , adjusted ebitda should be considered alongside other financial performance measures , including revenues , net income , cash flows from operating activities and our financial results presented in accordance with u.s. gaap . story_separator_special_tag in connection with this lease , we have provided the landlord with a $ 1.2 million standby letter of credit to secure our obligations through the end of the lease term , which is classified as restricted cash in the accompanying consolidated balance sheets . operating lease obligations represent our obligations to make payments under the lease agreements for our facilities , data centers , and office equipment leases . during the year ended december 31 , 2018 , our rent expense under operating lease obligations was $ 9.9 million . off-balance sheet arrangements during the periods presented , we did not have , nor do we currently have , any relationships with unconsolidated entities or financial partnerships , such as entities often referred to as structured finance or special purpose entities . recent accounting pronouncements see note 1 to the consolidated financial statements in part ii , item 8 of this annual report on form10-k for a discussion of recent accounting pronouncements . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and related disclosures . on an ongoing basis , we evaluate our estimates and assumptions . our actual results may differ from these estimates under different assumptions or conditions . we believe that of our significant accounting policies , which are described in the notes to our consolidated financial statements , the following accounting policies involve the greatest degree of judgment and complexity and have the greatest potential impact on our consolidated financial statements . a critical accounting policy is one that is material to the presentation of our consolidated financial statements and requires us to make difficult , subjective or complex judgments for uncertain matters that could have a material effect on our financial condition and results of operations . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . for further information on all of our significant accounting policies , see note 1 - the company and summary of significant accounting policies in the accompanying notes to the consolidated financial statements included in part ii , item 8 , `` financial statements and supplementary data `` of this annual report on form 10-k. revenue recognition we derive revenues from the sale of subscriptions to our security and compliance solutions , which are delivered on our cloud platform . subscriptions to our solutions allow customers to access our cloud-based security and compliance solutions through a unified , web-based interface . customers generally enter into one year renewable subscriptions 55 though some customers do enter into subscriptions with longer terms . the subscription fee entitles the customer to an unlimited number of scans for a specified number of devices or web applications and , if requested by a customer as part of their subscription , a specified number of physical or virtual scanner appliances . our physical and virtual scanner appliances are requested by certain customers as part of their subscriptions in order to scan it infrastructures within their firewalls and do not function without , and are not sold separately from , subscriptions for our solutions . in some limited cases , we also provide certain computer equipment used to extend our qualys cloud platform into our customers ' private cloud environment . customers are required to return physical scanner appliances and computer equipment if they do not renew their subscriptions . subscriptions for unlimited scans and certain limited scan arrangements with firm expiration dates are recognized ratably over the period in which the services are performed , generally one year . we recognize revenues on a usage basis for certain other limited scan arrangements , where expiration dates can be extended . physical equipment ( scanners and private cloud platforms ) are accounted for as operating leases and revenue is recognized ratably over the related subscription period due to the terms of the hardware and software subscriptions being commensurate and the customer 's access to our cloud solutions being delivered at the same time or within close proximity to the delivery of the hardware . costs of shipping and handling charges associated with physical scanner appliances and other computer equipment are included in cost of revenues . deferred r evenues consist of customer contracts billed or cash received that will be recognized in the future under subscriptions existing at the balance sheet date . we adopted asc 606 , `` revenue from contracts with customers `` with a date of initial application of january 1 , 2018. we adopted asc 606 using the modified retrospective method and recognized the cumulative effect as an adjustment to the opening balance of equity at january 1 , 2018. therefore , the comparative information has not been adjusted and continues to be reported under asc 605. the significant impact of adopting asc 606 was related to the deferral of sales commission costs for new business and when customers increase their renewal orders ( “ upsells ” ) . we previously expensed sales commission as incurred . under asc 606 , sales commissions cost related to new business and upsells are recorded as an asset . we amortize the capitalized commission cost as a selling expense on a straight-line basis over a period of five years . five years represents the estimated life of the customer relationship taking into account factors such as peer estimates of technology lives and customer lives as well as our own historical data . applying the practical expedient in asc 340-40-25-4 , we expense commissions related to renewals with a contract term of one year or less . the current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets , and other noncurrent assets , respectively , in
| liquidity and capital resources at december 31 , 2018 , our principal source of liquidity was cash , cash equivalents and short-term and long-term investments of $ 365.9 million , including $ 8.0 million of cash held outside of the united states by our foreign subsidiaries . we do not anticipate that we will need funds generated from foreign operations to fund our domestic operations . however , if we repatriate these funds , we could be subject to foreign withholding taxes . we have experienced positive cash flows from operations during the years ended december 31 , 2018 , 2017 and 2016 . we believe our existing cash , cash equivalents , short-term and long-term investments , and cash from operations will be sufficient to fund our operations for at least the next twelve months . in 2019 we expect capital expenditures to be in a range of $ 26.0 million to $ 31.0 million . our future capital requirements will depend on many factors , including our rate of revenue growth , the expansion of our sales and marketing activities , the timing , type and extent of our spending on research and development efforts , international expansion and investment in data centers . we may also seek to invest in or acquire complementary businesses or technologies . cash flows the following summary of cash flows for the periods indicated has been derived from our consolidated financial statements included elsewhere in this report : replace_table_token_20_th 53 cash flows from operating activities in 2018 , cash provided by operating activities of $ 125.5 million was primarily due to $ 57.3 million of net income , as adjusted by increases in deferred revenues of $ 24.7 million , attributable to our continued growth in sales ; non-cash items including depreciation and amortization expense of $ 28.9 million and stock-based compensation expense of $ 30.1 million ; and an increase in accounts payable of $ 3.5 million and other accrued liabilities of $ 1.4 million .
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if any of our product candidates are approved , we plan to commercialize them with a specialty team of 30 to 40 sales and medical marketing professionals to target the approximately 1,900 uveitis and retina specialists in the united states , and we may also pursue collaborations with third parties to commercialize any of our drugs approved for marketing outside the united states . we have incurred net losses since our inception in may 2011. our operations to date have been limited to organizing and staffing our company , raising capital , undertaking preclinical studies and other research and development initiatives and , beginning in 2013 , conducting clinical trials of our most advanced product candidates . to date , we have not generated any revenue , other than license and collaboration revenue , and we have primarily financed our operations through public offerings and private placements of our equity securities , issuances of convertible promissory notes and loan agreements . as of december 31 , 2018 , we had an accumulated deficit of $ 206.9 million . we recorded net losses of $ 82.8 million , $ 59.0 million and $ 25.9 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . we anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the necessary development for and obtaining regulatory approval and preparing for potential commercialization of our product candidates , as well as for commercializing xipere for the treatment of macular edema associated with uveitis , if approved . we expect to continue to incur significant and increasing operating losses at least for the next several years . we do not expect to generate product revenue unless and until we successfully complete necessary development of , and obtain regulatory approval for , one 60 or more of our product candidates . our net losses may fluctuate significantly from quarter to quarter and year to year , depending on the timing of our clinical trials and our expenditures o n other research and development activities . we anticipate that our clinical trial expenses will decrease over the near term as we have discontinue d our sapphire and topaz clinical trials . however , we will continue our efforts to seek to discover , research and develop additional product candidates and seek regulatory approvals for xipere for the treatment of macular edema associated with uveitis and other developmental efforts necessary to seek such approvals . we anticipate that our general and administrati ve expenses will increase substantially as we : establish sales and distribution infrastructure and scale up external manufacturing capabilities to commercialize xipere for the treatment of macular edema associated with uveitis , if approved ; maintain , expand and protect our intellectual property portfolio ; add operational , financial and management information systems and personnel , including personnel to support our development and potential future commercialization efforts ; and operate as a public company . components of operating results revenue we have not generated any revenue from the sale of any drugs , and we do not expect to generate any revenue unless or until we obtain regulatory approval of and commercialize our product candidates . in 2014 , we executed a license agreement with novamedica llc , or novamedica , and in 2015 , we executed a license agreement with spark therapeutics , inc. , or spark . in connection with these agreements , we received up-front payments of $ 200,000 from novamedica and $ 500,000 from spark . we deferred recognizing these payments through 2015. in the first quarter of 2016 , we began recognizing revenue related to the novamedica payment and we recognized the entire payment from spark . in the first quarter of 2018 , upon our adoption asu 2014-09 , revenue from contracts with customers , the remaining $ 160,000 of deferred revenue related to the novamedica license agreement was recorded as a cumulative adjustment to our accumulated deficit . we may enter into additional collaboration agreements to evaluate the potential use of our proprietary scs microinjector with third-party product candidates for the treatment of various eye diseases . we recognized $ 30,000 and $ 325,000 in collaboration revenue from these agreements during the years ended december 31 , 2018 and 2017 , respectively . research and development since our inception , we have focused on our development programs . research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical product candidates , which include : employee-related expenses , including salaries , benefits , travel and share-based compensation expense for research and development personnel ; expenses incurred under agreements with contract research organizations , or cros , as well as contract manufacturing organizations and consultants that conduct clinical trials and preclinical studies ; costs associated with preclinical and development activities ; costs associated with submitting regulatory approval applications for our product candidates ; costs associated with technology and intellectual property licenses ; costs for our research and development facility ; and depreciation expense for assets used in research and development activities . we expense research and development costs to operations as incurred . the costs for some of our development activities , such as clinical trials , are recognized based on the terms of underlying agreements , as well as an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations and additional information provided to us by our vendors about their actual costs occurred . expenses related to activities , such as manufacturing and stability and toxicology studies , that are supportive of a product candidate itself , are classified as direct preclinical costs . expenses related to clinical trials and similar activities , including costs associated with cros , are classified as direct clinical costs . story_separator_special_tag research and development expense increased by $ 19.2 million , from $ 49.1 million for the year ended december 31 , 2017 to $ 68.3 million for the year ended december 31 , 2018. this was primarily attributable to an increase in costs related to our clinical program in rvo . costs for our rvo program increased $ 20.9 million , which included purchases of clinical drug supply for sapphire , start-up costs and purchases of clinical drug supply for topaz and the accelerated close-out costs in connection with discontinuing both trials due to failing to achieve the primary endpoint of sapphire . we also incurred a $ 1.4 million increase in regulatory costs in preparation of the nda submission for xipere for the treatment of macular edema associated with uveitis , a $ 1.4 million increase in employee-related costs due to an increase in headcount and a $ 0.8 million increase in costs related to device and drug manufacturing . these increases were partially offset by a $ 4.3 million decrease in clinical costs for our uveitis program , as peachtree was completed during the first quarter of 2018 , and a $ 0.2 million decrease in costs associated with our wet amd program , which was discontinued in the first quarter of 2017. general and administrative . general and administrative expenses increased by $ 5.0 million , from $ 9.7 million for the year ended december 31 , 2017 to $ 14.7 million for the year ended december 31 , 2018. the increase was primarily attributable to a $ 2.5 million increase in employee-related costs and an increase of $ 2.0 million in marketing-related expenses as we prepared for the potential commercialization of xipere for the treatment of macular edema associated with uveitis . 66 other income ( expense ) . other income ( expense ) for each of the years ended december 31 , 2018 and 2017 primarily consisted of interest on long-term debt , the amortization of financing costs , the accretion of warrants and the final payment related to our lo an agreements , offset by interest income from our short-term investments . the increase in income for 2018 compared to 2017 was the result of higher short-term investment balances from the net proceeds of our public offering of common stock in the first qua rter of 2018. results of operations for the years ended december 31 , 2017 and 2016 the following table sets forth our results of operations for the years ended december 31 , 2017 and 2016. replace_table_token_4_th revenue . in each of the years ended december 31 , 2017 and 2016 , we recognized $ 20,000 of revenue associated with our novamedica agreement . in the year ended december 31 , 2017 , we recognized $ 0.3 million of revenue associated with our other collaboration agreements . in the year ended december 31 , 2016 , we recognized $ 0.5 million of revenue associated with our collaboration agreement with spark . research and development . research and development expense increased by $ 29.6 million , from $ 19.5 million for the year ended december 31 , 2016 to $ 49.1 million for the year ended december 31 , 2017. this increase was primarily attributable to an increase in costs related to our clinical programs . costs for our uveitis program increased $ 4.2 million , costs for our rvo program increased $ 21.3 million , which included purchases of eylea for sapphire and start-up costs for topaz , and costs for our dme program increased $ 4.2 million . in addition to the increase in the cost of our clinical programs , we also incurred a $ 0.7 million increase in the cost of producing drug product for the registration batches to support our nda submission , a $ 0.3 million increase in regulatory costs in preparation for the nda submission , a $ 0.7 million increase in other research and development activities and a $ 2.4 million increase in employee-related costs due to an increase in headcount to support the increased clinical trial activities . these increases were partially offset by a $ 2.0 million decrease resulting from the completion in 2016 of two phase 2 clinical trials for xipere and a $ 2.7 million decrease in costs resulting from the discontinuation of nonclinical development for our wet amd program in the first quarter of 2017. general and administrative . general and administrative expenses increased by $ 3.4 million , from $ 6.3 million for the year ended december 31 , 2016 to $ 9.7 million for the year ended december 31 , 2017. the increase was primarily attributable to an increase of $ 1.6 million of employee-related costs , a $ 0.4 million increase in patent and trademark costs , a $ 0.2 million increase in marketing expenses and a $ 0.8 million increase related to the costs of operating as a public company for a full year , including an increase in director and officer insurance premiums , professional fees and non-employee director compensation . other expense . other expense for the year ended december 31 , 2017 was $ 0.6 million , compared to $ 0.7 million for the year ended december 31 , 2016 , in each case primarily consisting of interest on long-term debt and the amortization of financing costs , partially offset by interest income from our short-term investments . other expense in the year ended december 31 , 2016 also included a change in the mark-to-market warrant liability and the acceleration of the final payment from the original loan agreement with silicon valley bank , or svb . story_separator_special_tag our product candidates is highly uncertain . as such , at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of xipere or any future product candidates . we are also unable
| liquidity and capital resources at december 31 , 2018 , our principal source of liquidity was cash , cash equivalents and short-term and long-term investments of $ 365.9 million , including $ 8.0 million of cash held outside of the united states by our foreign subsidiaries . we do not anticipate that we will need funds generated from foreign operations to fund our domestic operations . however , if we repatriate these funds , we could be subject to foreign withholding taxes . we have experienced positive cash flows from operations during the years ended december 31 , 2018 , 2017 and 2016 . we believe our existing cash , cash equivalents , short-term and long-term investments , and cash from operations will be sufficient to fund our operations for at least the next twelve months . in 2019 we expect capital expenditures to be in a range of $ 26.0 million to $ 31.0 million . our future capital requirements will depend on many factors , including our rate of revenue growth , the expansion of our sales and marketing activities , the timing , type and extent of our spending on research and development efforts , international expansion and investment in data centers . we may also seek to invest in or acquire complementary businesses or technologies . cash flows the following summary of cash flows for the periods indicated has been derived from our consolidated financial statements included elsewhere in this report : replace_table_token_20_th 53 cash flows from operating activities in 2018 , cash provided by operating activities of $ 125.5 million was primarily due to $ 57.3 million of net income , as adjusted by increases in deferred revenues of $ 24.7 million , attributable to our continued growth in sales ; non-cash items including depreciation and amortization expense of $ 28.9 million and stock-based compensation expense of $ 30.1 million ; and an increase in accounts payable of $ 3.5 million and other accrued liabilities of $ 1.4 million .
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if any of our product candidates are approved , we plan to commercialize them with a specialty team of 30 to 40 sales and medical marketing professionals to target the approximately 1,900 uveitis and retina specialists in the united states , and we may also pursue collaborations with third parties to commercialize any of our drugs approved for marketing outside the united states . we have incurred net losses since our inception in may 2011. our operations to date have been limited to organizing and staffing our company , raising capital , undertaking preclinical studies and other research and development initiatives and , beginning in 2013 , conducting clinical trials of our most advanced product candidates . to date , we have not generated any revenue , other than license and collaboration revenue , and we have primarily financed our operations through public offerings and private placements of our equity securities , issuances of convertible promissory notes and loan agreements . as of december 31 , 2018 , we had an accumulated deficit of $ 206.9 million . we recorded net losses of $ 82.8 million , $ 59.0 million and $ 25.9 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . we anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the necessary development for and obtaining regulatory approval and preparing for potential commercialization of our product candidates , as well as for commercializing xipere for the treatment of macular edema associated with uveitis , if approved . we expect to continue to incur significant and increasing operating losses at least for the next several years . we do not expect to generate product revenue unless and until we successfully complete necessary development of , and obtain regulatory approval for , one 60 or more of our product candidates . our net losses may fluctuate significantly from quarter to quarter and year to year , depending on the timing of our clinical trials and our expenditures o n other research and development activities . we anticipate that our clinical trial expenses will decrease over the near term as we have discontinue d our sapphire and topaz clinical trials . however , we will continue our efforts to seek to discover , research and develop additional product candidates and seek regulatory approvals for xipere for the treatment of macular edema associated with uveitis and other developmental efforts necessary to seek such approvals . we anticipate that our general and administrati ve expenses will increase substantially as we : establish sales and distribution infrastructure and scale up external manufacturing capabilities to commercialize xipere for the treatment of macular edema associated with uveitis , if approved ; maintain , expand and protect our intellectual property portfolio ; add operational , financial and management information systems and personnel , including personnel to support our development and potential future commercialization efforts ; and operate as a public company . components of operating results revenue we have not generated any revenue from the sale of any drugs , and we do not expect to generate any revenue unless or until we obtain regulatory approval of and commercialize our product candidates . in 2014 , we executed a license agreement with novamedica llc , or novamedica , and in 2015 , we executed a license agreement with spark therapeutics , inc. , or spark . in connection with these agreements , we received up-front payments of $ 200,000 from novamedica and $ 500,000 from spark . we deferred recognizing these payments through 2015. in the first quarter of 2016 , we began recognizing revenue related to the novamedica payment and we recognized the entire payment from spark . in the first quarter of 2018 , upon our adoption asu 2014-09 , revenue from contracts with customers , the remaining $ 160,000 of deferred revenue related to the novamedica license agreement was recorded as a cumulative adjustment to our accumulated deficit . we may enter into additional collaboration agreements to evaluate the potential use of our proprietary scs microinjector with third-party product candidates for the treatment of various eye diseases . we recognized $ 30,000 and $ 325,000 in collaboration revenue from these agreements during the years ended december 31 , 2018 and 2017 , respectively . research and development since our inception , we have focused on our development programs . research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical product candidates , which include : employee-related expenses , including salaries , benefits , travel and share-based compensation expense for research and development personnel ; expenses incurred under agreements with contract research organizations , or cros , as well as contract manufacturing organizations and consultants that conduct clinical trials and preclinical studies ; costs associated with preclinical and development activities ; costs associated with submitting regulatory approval applications for our product candidates ; costs associated with technology and intellectual property licenses ; costs for our research and development facility ; and depreciation expense for assets used in research and development activities . we expense research and development costs to operations as incurred . the costs for some of our development activities , such as clinical trials , are recognized based on the terms of underlying agreements , as well as an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations and additional information provided to us by our vendors about their actual costs occurred . expenses related to activities , such as manufacturing and stability and toxicology studies , that are supportive of a product candidate itself , are classified as direct preclinical costs . expenses related to clinical trials and similar activities , including costs associated with cros , are classified as direct clinical costs . story_separator_special_tag research and development expense increased by $ 19.2 million , from $ 49.1 million for the year ended december 31 , 2017 to $ 68.3 million for the year ended december 31 , 2018. this was primarily attributable to an increase in costs related to our clinical program in rvo . costs for our rvo program increased $ 20.9 million , which included purchases of clinical drug supply for sapphire , start-up costs and purchases of clinical drug supply for topaz and the accelerated close-out costs in connection with discontinuing both trials due to failing to achieve the primary endpoint of sapphire . we also incurred a $ 1.4 million increase in regulatory costs in preparation of the nda submission for xipere for the treatment of macular edema associated with uveitis , a $ 1.4 million increase in employee-related costs due to an increase in headcount and a $ 0.8 million increase in costs related to device and drug manufacturing . these increases were partially offset by a $ 4.3 million decrease in clinical costs for our uveitis program , as peachtree was completed during the first quarter of 2018 , and a $ 0.2 million decrease in costs associated with our wet amd program , which was discontinued in the first quarter of 2017. general and administrative . general and administrative expenses increased by $ 5.0 million , from $ 9.7 million for the year ended december 31 , 2017 to $ 14.7 million for the year ended december 31 , 2018. the increase was primarily attributable to a $ 2.5 million increase in employee-related costs and an increase of $ 2.0 million in marketing-related expenses as we prepared for the potential commercialization of xipere for the treatment of macular edema associated with uveitis . 66 other income ( expense ) . other income ( expense ) for each of the years ended december 31 , 2018 and 2017 primarily consisted of interest on long-term debt , the amortization of financing costs , the accretion of warrants and the final payment related to our lo an agreements , offset by interest income from our short-term investments . the increase in income for 2018 compared to 2017 was the result of higher short-term investment balances from the net proceeds of our public offering of common stock in the first qua rter of 2018. results of operations for the years ended december 31 , 2017 and 2016 the following table sets forth our results of operations for the years ended december 31 , 2017 and 2016. replace_table_token_4_th revenue . in each of the years ended december 31 , 2017 and 2016 , we recognized $ 20,000 of revenue associated with our novamedica agreement . in the year ended december 31 , 2017 , we recognized $ 0.3 million of revenue associated with our other collaboration agreements . in the year ended december 31 , 2016 , we recognized $ 0.5 million of revenue associated with our collaboration agreement with spark . research and development . research and development expense increased by $ 29.6 million , from $ 19.5 million for the year ended december 31 , 2016 to $ 49.1 million for the year ended december 31 , 2017. this increase was primarily attributable to an increase in costs related to our clinical programs . costs for our uveitis program increased $ 4.2 million , costs for our rvo program increased $ 21.3 million , which included purchases of eylea for sapphire and start-up costs for topaz , and costs for our dme program increased $ 4.2 million . in addition to the increase in the cost of our clinical programs , we also incurred a $ 0.7 million increase in the cost of producing drug product for the registration batches to support our nda submission , a $ 0.3 million increase in regulatory costs in preparation for the nda submission , a $ 0.7 million increase in other research and development activities and a $ 2.4 million increase in employee-related costs due to an increase in headcount to support the increased clinical trial activities . these increases were partially offset by a $ 2.0 million decrease resulting from the completion in 2016 of two phase 2 clinical trials for xipere and a $ 2.7 million decrease in costs resulting from the discontinuation of nonclinical development for our wet amd program in the first quarter of 2017. general and administrative . general and administrative expenses increased by $ 3.4 million , from $ 6.3 million for the year ended december 31 , 2016 to $ 9.7 million for the year ended december 31 , 2017. the increase was primarily attributable to an increase of $ 1.6 million of employee-related costs , a $ 0.4 million increase in patent and trademark costs , a $ 0.2 million increase in marketing expenses and a $ 0.8 million increase related to the costs of operating as a public company for a full year , including an increase in director and officer insurance premiums , professional fees and non-employee director compensation . other expense . other expense for the year ended december 31 , 2017 was $ 0.6 million , compared to $ 0.7 million for the year ended december 31 , 2016 , in each case primarily consisting of interest on long-term debt and the amortization of financing costs , partially offset by interest income from our short-term investments . other expense in the year ended december 31 , 2016 also included a change in the mark-to-market warrant liability and the acceleration of the final payment from the original loan agreement with silicon valley bank , or svb . story_separator_special_tag our product candidates is highly uncertain . as such , at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of xipere or any future product candidates . we are also unable
| liquidity and capital resources sources of liquidity as of december 31 , 2018 , we had an accumulated deficit of $ 206.9 million and cash , cash equivalents and short-term investments of $ 40.9 million . we invest any cash in excess of our immediate requirements primarily with a view to liquidity and capital preservation . as of december 31 , 2018 , our funds were held in cash , money market funds , commercial paper and treasury bills . 67 on june 7 , 2016 , we closed our ipo and on june 30 , 2016 , the underwriters exercised their option to purchase additional shares . these issuances resulted in net proceeds of $ 51.4 million after deductin g underwriting discounts and commissions and offering expenses . on december 14 , 2016 , we closed a follow-on public offering and on december 30 , 2016 , the underwriters exercised their option to purchase additional shares . we received net proceeds of $ 38.5 million from these issuances after deducting underwriting discounts and commissions and offering expenses . on june 30 , 2017 , we entered into an at-the-market sales agreement , or the atm agreement , with cowen and company llc , or cowen , under which we may offer and sell , from time to time at our sole discretion , shares of our common stock having an aggregate offering price of up to $ 50.0 million through cowen acting as our sales agent . subsequent to december 31 , 2018 , we have sold 3.9 million shares of our common stock for net proceeds of $ 5.6 million under the atm agreement . on march 12 , 2018 , we closed a follow-on public offering in which we sold 6,538,462 shares of common stock at a public offering price of $ 13.00 per share , resulting in net proceeds of $ 79.6 million after deducting underwriting discounts and commissions and estimated offering expenses . prior to our ipo , we funded operations primarily through the sale of convertible preferred stock , a long-term loan agreement and the issuance of convertible promissory notes .
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on august 31 , 2017 , straight path ventures demonstrated its prototype 39 ghz gigarray ® solutions that achieved 800 megabits per second at a distance of 500 meters . straight path ip group on april 9 , 2017 , we and idt entered into the idt term sheet to settle claims potential under agreements related to the spin-off , and the sale of our interest in straight path ip group to idt . for further discussion , please see note 3 to the consolidated financial statements in this annual report – settlement of claims with idt and sale of straight path ip group . on october 9 , 2014 , the ptab issued an administrative decision stating that claims 1-7 and 32-42 of the ‘ 704 patent are unpatentable . straight path ip group appealed that decision . on november 25 , 2015 , the cafc reversed the ptab 's decision and remanded the case back to the ptab for further proceedings . on may 23 , 2016 , the ptab issued a final written decision finding none of the challenged claims unpatentable . following the favorable cafc decision , the ptab denied pending petitions for ipr of the ‘ 704 patent and other patents held by straight path ip group . as well , the ptab found nearly all the claims patentable over the prior art in pending iprs . the petitioners have appealed to the cafc . on june 23 , 2017 , the cafc affirmed the ptab 's decision . following the second affirmance by the cafc , the stays that had been in place in the civil actions pending in federal district court , except in the suit against several verizon affiliates . in that suit , on july 5 , 2017 , the court lifted the stay that had been in place pending the outcome of the cafc appeal and set a scheduling conference for september 15 , 2017. however , on september 11 , 2017 , the parties jointly agreed to a 90-day stay . the court granted the stay until december 8 , 2017. straight path ip group has also filed complaints against apple , avaya , and cisco . expert discovery is underway in the apple and cisco actions . however , avaya recently filed voluntary petitions under chapter 11 of the u.s. bankruptcy code . on may 2 , 2017 , straight path ip group filed a proof of claim in the avaya bankruptcy proceeding . in addition , on september 13 , 2017 , apple filed a request for ex parte reexamination of u.s. patent no . 7,149,208 in the uspto . for further discussion of these actions and other legal proceedings , please see item 3 to part i “ legal proceedings ” in this annual report . 36 critical accounting policies and estimates our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the united states of america , or u.s. gaap . the preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , and expenses as well as the disclosure of contingent assets and liabilities . critical accounting estimates are those that require application of management 's most subjective or complex judgments , often as a result of matters that are inherently uncertain and may change in subsequent periods . our critical accounting estimates are as follows : 1. the valuation of warrants issued to the lenders . 2. the valuation of stock options issued to officers and employees 3. the valuation of intangible assets with indefinite useful lives . management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . see note 1 to the consolidated financial statements in this annual report for a complete discussion of our significant accounting policies and estimates . 37 emerging growth company we qualify as an “ emerging growth company ” as defined in the jumpstart our business startups act of 2012 , or the jobs act . an emerging growth company may take advantage of reduced reporting and other burdens that are otherwise applicable generally to public companies . these provisions include : ● an extended transition period to comply with new or revised accounting standards applicable to public companies ; and ● an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the sarbanes-oxley act of 2002. we are able to take advantage of these provisions until the end of the fiscal year ending after the fifth anniversary of our initial registration statement filed related to our spin-off from idt , which is july 31 , 2018 , or such earlier time that we are no longer an emerging growth company and , if we do , the information that we provide stockholders may be different than you might receive from other public companies in which you hold equity . we would cease to be an emerging growth company if we have more than $ 1.0 billion in annual revenue , have more than $ 700 million in market value of our shares of common stock held by non-affiliates as of the last business day of the second quarter of our fiscal year end , or issue more than $ 1.0 billion of non-convertible debt over a three-year period . results of operations year ended july 31 , 2017 ( “ fiscal 2017 ” ) compared to year ended july 31 , 2016 ( “ fiscal 2016 ” ) we evaluate the performance of our operating business segments based primarily on income ( loss ) from operations . story_separator_special_tag research and development consists of expenses related to a development agreement in september 2015 to expedite production of a pmp radio for a total fee of $ 1,000,000. selling , general and administrative expense . selling , general and administrative expenses increased in fiscal 2016 compared to fiscal 2015 primarily as a result of the hiring of new employees , and the related increase in compensation costs , including stock-based compensation for the issuances of restricted common stock to employees , marketing expenses related to the installation of radio links , and increased legal costs due to the putative shareholder class action , derivative action , and regulatory enforcement activity . straight path ip group segment replace_table_token_9_th 43 revenues . we have filed a series of lawsuits claiming infringement of a number of our key patents seeking both damages and injunctive relief . many of these actions have been settled and we have entered into licensing agreements with the former defendants . in connection with the settlements and license agreements , straight path ip group recognized revenue of approximately $ 1.7 million and $ 12.8 million in fiscal 2016 and fiscal 2015 , respectively . the gross payments under settlement and licensing agreements that have been secured since our spin-off ( the beginning of fiscal 2014 ) totaled $ 18.3 million as of july 31 , 2016 , all of which has been collected . most of these settlement agreements included license fees for the duration of the license term , and were allocated across fiscal 2014 , 2015 and 2016 in the amounts of $ 4.2 million , $ 12.5 million and $ 1.6 million respectively , based on the settlement dates and if the settlement included a look back period for damages . the license term was through the expiration of the licensed patents . primarily all of the revenue from these settlements was recognized as of september 30 , 2015. the ptab 's october 2014 decision on the ‘ 704 patent previously had a materially adverse impact on our ongoing enforcement efforts . during the pendency of the appeal from that decision and related iprs , a number of pending civil actions brought by straight path ip group against various defendants were stayed or dismissed without prejudice . in light of the favorable outcome on appeal , the favorable ptab rulings in the related ipr proceedings , and the subsequent affirmance on a second appeal , straight path ip group has re-commenced all of its civil litigations in federal district court ( except for one that is stayed by agreement of the parties and one that is subject to a bankruptcy proceeding ) . for further discussion of these litigations , please see item 3 to part i “ legal proceedings ” in this annual report . direct cost of revenues . direct cost of revenues consisted of legal expenses directly related to revenues from the litigation settlements described above . we incurred an aggregate of $ 9.0 million in expenses directly related to these settlements , which was recognized ratably in proportion to the recognition of the related revenue . we generally paid law firms that represented us in litigation against alleged infringers of our intellectual property rights a percentage of the amounts recovered ranging from 0 % to 40 % depending on several factors . in addition , beginning on october 2 , 2017 , straight path ip group will pay one of the law firms $ 100,000 per month as a non-refundable fee creditable against any contingency payment that may be paid to that firm in the future ; there are also other directly related legal expenses , such as expert testimony , travel , filing fees , and others . selling , general and administrative expense . selling , general and administrative expenses increased in fiscal 2016 compared to fiscal 2015 primarily as a result of the increase in compensation costs , including stock-based compensation for the issuances of restricted common stock to employees , and increased legal costs due to straight path ip group 's appeal of the ptab 's decision on the ‘ 704 patent and related iprs . straight path ventures segment replace_table_token_10_th research and development . research and development consists of expenses related to development by our gigabit mobility lab of next generation wireless technology for 39 ghz . selling , general and administrative . selling , general and administrative expenses consist primarily of payroll and related payroll taxes and benefits as well as stock compensation expenses . story_separator_special_tag roman , times , serif ; margin : 0 `` > investing activities cash flows used in investing activities in fiscal 2017 totaled approximately $ 1.0 million . we incurred costs of approximately $ 1.0 million for the sale of straight path ip group to idt . these costs will be offset against the gain or loss recognized on the consummation of the transaction . financing activities cash flows provided by financing activities in fiscal 2017 totaled approximately $ 19.2 million . in february 2017 , we borrowed $ 17.5 million under the loan agreement , primarily to fund the payment of the initial civil penalty under the consent decree with the fcc . we incurred costs of approximately $ 80,000 to obtain the loan agreement . in addition , we received $ 1.8 million received for the exercise of stock options . we do not anticipate paying any additional dividends on our common stock until we achieve sustainable profitability ( after satisfying all of our operational needs , including payments to the former spsi ceo and retaining certain minimum cash reserves . following that time , we will retain sufficient cash to provide for investment in growth opportunities and provide for the creation of long-term stockholder value , particularly through development of the straight path spectrum and straight path ventures businesses and possibly the acquisition of complementary businesses or assets . however , we do not intend to retain
| liquidity and capital resources sources of liquidity as of december 31 , 2018 , we had an accumulated deficit of $ 206.9 million and cash , cash equivalents and short-term investments of $ 40.9 million . we invest any cash in excess of our immediate requirements primarily with a view to liquidity and capital preservation . as of december 31 , 2018 , our funds were held in cash , money market funds , commercial paper and treasury bills . 67 on june 7 , 2016 , we closed our ipo and on june 30 , 2016 , the underwriters exercised their option to purchase additional shares . these issuances resulted in net proceeds of $ 51.4 million after deductin g underwriting discounts and commissions and offering expenses . on december 14 , 2016 , we closed a follow-on public offering and on december 30 , 2016 , the underwriters exercised their option to purchase additional shares . we received net proceeds of $ 38.5 million from these issuances after deducting underwriting discounts and commissions and offering expenses . on june 30 , 2017 , we entered into an at-the-market sales agreement , or the atm agreement , with cowen and company llc , or cowen , under which we may offer and sell , from time to time at our sole discretion , shares of our common stock having an aggregate offering price of up to $ 50.0 million through cowen acting as our sales agent . subsequent to december 31 , 2018 , we have sold 3.9 million shares of our common stock for net proceeds of $ 5.6 million under the atm agreement . on march 12 , 2018 , we closed a follow-on public offering in which we sold 6,538,462 shares of common stock at a public offering price of $ 13.00 per share , resulting in net proceeds of $ 79.6 million after deducting underwriting discounts and commissions and estimated offering expenses . prior to our ipo , we funded operations primarily through the sale of convertible preferred stock , a long-term loan agreement and the issuance of convertible promissory notes .
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on august 31 , 2017 , straight path ventures demonstrated its prototype 39 ghz gigarray ® solutions that achieved 800 megabits per second at a distance of 500 meters . straight path ip group on april 9 , 2017 , we and idt entered into the idt term sheet to settle claims potential under agreements related to the spin-off , and the sale of our interest in straight path ip group to idt . for further discussion , please see note 3 to the consolidated financial statements in this annual report – settlement of claims with idt and sale of straight path ip group . on october 9 , 2014 , the ptab issued an administrative decision stating that claims 1-7 and 32-42 of the ‘ 704 patent are unpatentable . straight path ip group appealed that decision . on november 25 , 2015 , the cafc reversed the ptab 's decision and remanded the case back to the ptab for further proceedings . on may 23 , 2016 , the ptab issued a final written decision finding none of the challenged claims unpatentable . following the favorable cafc decision , the ptab denied pending petitions for ipr of the ‘ 704 patent and other patents held by straight path ip group . as well , the ptab found nearly all the claims patentable over the prior art in pending iprs . the petitioners have appealed to the cafc . on june 23 , 2017 , the cafc affirmed the ptab 's decision . following the second affirmance by the cafc , the stays that had been in place in the civil actions pending in federal district court , except in the suit against several verizon affiliates . in that suit , on july 5 , 2017 , the court lifted the stay that had been in place pending the outcome of the cafc appeal and set a scheduling conference for september 15 , 2017. however , on september 11 , 2017 , the parties jointly agreed to a 90-day stay . the court granted the stay until december 8 , 2017. straight path ip group has also filed complaints against apple , avaya , and cisco . expert discovery is underway in the apple and cisco actions . however , avaya recently filed voluntary petitions under chapter 11 of the u.s. bankruptcy code . on may 2 , 2017 , straight path ip group filed a proof of claim in the avaya bankruptcy proceeding . in addition , on september 13 , 2017 , apple filed a request for ex parte reexamination of u.s. patent no . 7,149,208 in the uspto . for further discussion of these actions and other legal proceedings , please see item 3 to part i “ legal proceedings ” in this annual report . 36 critical accounting policies and estimates our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the united states of america , or u.s. gaap . the preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , and expenses as well as the disclosure of contingent assets and liabilities . critical accounting estimates are those that require application of management 's most subjective or complex judgments , often as a result of matters that are inherently uncertain and may change in subsequent periods . our critical accounting estimates are as follows : 1. the valuation of warrants issued to the lenders . 2. the valuation of stock options issued to officers and employees 3. the valuation of intangible assets with indefinite useful lives . management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . see note 1 to the consolidated financial statements in this annual report for a complete discussion of our significant accounting policies and estimates . 37 emerging growth company we qualify as an “ emerging growth company ” as defined in the jumpstart our business startups act of 2012 , or the jobs act . an emerging growth company may take advantage of reduced reporting and other burdens that are otherwise applicable generally to public companies . these provisions include : ● an extended transition period to comply with new or revised accounting standards applicable to public companies ; and ● an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the sarbanes-oxley act of 2002. we are able to take advantage of these provisions until the end of the fiscal year ending after the fifth anniversary of our initial registration statement filed related to our spin-off from idt , which is july 31 , 2018 , or such earlier time that we are no longer an emerging growth company and , if we do , the information that we provide stockholders may be different than you might receive from other public companies in which you hold equity . we would cease to be an emerging growth company if we have more than $ 1.0 billion in annual revenue , have more than $ 700 million in market value of our shares of common stock held by non-affiliates as of the last business day of the second quarter of our fiscal year end , or issue more than $ 1.0 billion of non-convertible debt over a three-year period . results of operations year ended july 31 , 2017 ( “ fiscal 2017 ” ) compared to year ended july 31 , 2016 ( “ fiscal 2016 ” ) we evaluate the performance of our operating business segments based primarily on income ( loss ) from operations . story_separator_special_tag research and development consists of expenses related to a development agreement in september 2015 to expedite production of a pmp radio for a total fee of $ 1,000,000. selling , general and administrative expense . selling , general and administrative expenses increased in fiscal 2016 compared to fiscal 2015 primarily as a result of the hiring of new employees , and the related increase in compensation costs , including stock-based compensation for the issuances of restricted common stock to employees , marketing expenses related to the installation of radio links , and increased legal costs due to the putative shareholder class action , derivative action , and regulatory enforcement activity . straight path ip group segment replace_table_token_9_th 43 revenues . we have filed a series of lawsuits claiming infringement of a number of our key patents seeking both damages and injunctive relief . many of these actions have been settled and we have entered into licensing agreements with the former defendants . in connection with the settlements and license agreements , straight path ip group recognized revenue of approximately $ 1.7 million and $ 12.8 million in fiscal 2016 and fiscal 2015 , respectively . the gross payments under settlement and licensing agreements that have been secured since our spin-off ( the beginning of fiscal 2014 ) totaled $ 18.3 million as of july 31 , 2016 , all of which has been collected . most of these settlement agreements included license fees for the duration of the license term , and were allocated across fiscal 2014 , 2015 and 2016 in the amounts of $ 4.2 million , $ 12.5 million and $ 1.6 million respectively , based on the settlement dates and if the settlement included a look back period for damages . the license term was through the expiration of the licensed patents . primarily all of the revenue from these settlements was recognized as of september 30 , 2015. the ptab 's october 2014 decision on the ‘ 704 patent previously had a materially adverse impact on our ongoing enforcement efforts . during the pendency of the appeal from that decision and related iprs , a number of pending civil actions brought by straight path ip group against various defendants were stayed or dismissed without prejudice . in light of the favorable outcome on appeal , the favorable ptab rulings in the related ipr proceedings , and the subsequent affirmance on a second appeal , straight path ip group has re-commenced all of its civil litigations in federal district court ( except for one that is stayed by agreement of the parties and one that is subject to a bankruptcy proceeding ) . for further discussion of these litigations , please see item 3 to part i “ legal proceedings ” in this annual report . direct cost of revenues . direct cost of revenues consisted of legal expenses directly related to revenues from the litigation settlements described above . we incurred an aggregate of $ 9.0 million in expenses directly related to these settlements , which was recognized ratably in proportion to the recognition of the related revenue . we generally paid law firms that represented us in litigation against alleged infringers of our intellectual property rights a percentage of the amounts recovered ranging from 0 % to 40 % depending on several factors . in addition , beginning on october 2 , 2017 , straight path ip group will pay one of the law firms $ 100,000 per month as a non-refundable fee creditable against any contingency payment that may be paid to that firm in the future ; there are also other directly related legal expenses , such as expert testimony , travel , filing fees , and others . selling , general and administrative expense . selling , general and administrative expenses increased in fiscal 2016 compared to fiscal 2015 primarily as a result of the increase in compensation costs , including stock-based compensation for the issuances of restricted common stock to employees , and increased legal costs due to straight path ip group 's appeal of the ptab 's decision on the ‘ 704 patent and related iprs . straight path ventures segment replace_table_token_10_th research and development . research and development consists of expenses related to development by our gigabit mobility lab of next generation wireless technology for 39 ghz . selling , general and administrative . selling , general and administrative expenses consist primarily of payroll and related payroll taxes and benefits as well as stock compensation expenses . story_separator_special_tag roman , times , serif ; margin : 0 `` > investing activities cash flows used in investing activities in fiscal 2017 totaled approximately $ 1.0 million . we incurred costs of approximately $ 1.0 million for the sale of straight path ip group to idt . these costs will be offset against the gain or loss recognized on the consummation of the transaction . financing activities cash flows provided by financing activities in fiscal 2017 totaled approximately $ 19.2 million . in february 2017 , we borrowed $ 17.5 million under the loan agreement , primarily to fund the payment of the initial civil penalty under the consent decree with the fcc . we incurred costs of approximately $ 80,000 to obtain the loan agreement . in addition , we received $ 1.8 million received for the exercise of stock options . we do not anticipate paying any additional dividends on our common stock until we achieve sustainable profitability ( after satisfying all of our operational needs , including payments to the former spsi ceo and retaining certain minimum cash reserves . following that time , we will retain sufficient cash to provide for investment in growth opportunities and provide for the creation of long-term stockholder value , particularly through development of the straight path spectrum and straight path ventures businesses and possibly the acquisition of complementary businesses or assets . however , we do not intend to retain
| liquidity and capital resources general historically , we have primarily satisfied our cash requirements through the initial funding provided in connection with the spin-off , proceeds from the sale or lease of rights in spectrum licenses , and settlements or licensing fees received . in connection with the spin-off , idt transferred cash to us such that we had approximately $ 15 million in cash at the time of the spin-off . since that time , we have satisfied our cash requirements through straight path ip group 's settlement and licensing agreements and straight path spectrum 's revenue from spectrum leases . in february 2017 , we borrowed $ 17.5 million pursuant to the loan agreement . for a further discussion , see note 8 to the consolidated financial statements . we currently expect that our cash and cash equivalents on-hand at july 31 , 2017 and the proceeds to be received upon consummation of the settlement with idt , will be sufficient to meet our anticipated cash requirements during the twelve months ending july 31 , 2018. as discussed above , we signed the consent decree with the fcc and incurred an initial civil penalty of $ 15 million which is being paid in four installments through the earlier of october 11 , 2017 or the consummation of the merger . to fund the payments of the initial civil penalty , we entered into the loan agreement pursuant to which we borrowed the $ 17.5 million , which matures on december 29 , 2017 . $ 15 million of the loan amount is being used to pay the initial civil penalty provided for in the consent decree in accordance with the payment requirements set forth in the consent decree . the first three installments totaling $ 11.5 million were paid . the remainder of the loan amount is being used for general corporate purposes and working capital needs .
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revenue lost from either cancellations of leases at the end of their terms or rent negotiations historically has not had a material adverse effect on the revenues generated by our property operations . during the year ended december 31 , 2015 , loss of revenue from tenant lease cancellations or renegotiations represented less than 2 % of our property operations revenues . property operations revenue growth . due to our diversified communications site portfolio , our tenant lease rates vary considerably depending upon numerous factors , including , but not limited to , amount and type of tenant equipment on the tower , remaining tower capacity and tower location . we measure the remaining tower capacity by assessing several factors , including tower height , tower type , environmental conditions , existing equipment on the tower and zoning and permitting 25 regulations in effect in the jurisdiction where the tower is located . in many instances , tower capacity can be increased with relatively modest tower augmentation expenditures . the primary factors affecting the revenue growth in our property segments are : organic revenue from tenant leases attributable to sites that existed in our portfolio as of the beginning of the prior year period ( “ legacy sites ” ) ; contractual rent escalations on existing tenant leases , net of churn ; new revenue attributable to leasing additional space on our legacy sites ; and new revenue attributable to sites acquired or constructed since the beginning of the prior year period ( “ new sites ” ) . we continue to believe that our site leasing revenue is likely to increase due to the growing use of wireless services and our ability to meet the corresponding incremental demand for our wireless real estate . by adding new tenants and new equipment for existing tenants on our sites , we are able to increase these sites ' utilization and profitability . we believe the majority of our site leasing activity will continue to come from wireless service providers . our legacy site portfolio and our established tenant base provide us with new business opportunities , which have historically resulted in consistent and predictable organic revenue growth as wireless carriers seek to increase the coverage and capacity of their existing networks , while also deploying next generation wireless technologies . in addition , we intend to continue to supplement the organic growth on our legacy sites by selectively developing or acquiring new sites in our existing and new markets where we can achieve our risk-adjusted return on investment objectives . in a majority of our international markets , revenue also often includes the reimbursement of direct costs such as ground rent or power and fuel costs . property operations organic revenue growth . consistent with our strategy to increase the utilization and return on investment of our legacy sites , our objective is to add new tenants and new equipment for existing tenants through collocation and lease amendments . our ability to lease additional space on our sites is primarily a function of the rate at which wireless carriers deploy capital to improve and expand their wireless networks . this rate , in turn , is influenced by the growth of wireless services , the penetration of advanced wireless devices , the financial performance of our tenants and their access to capital and general economic conditions . based on industry research and projections , we expect that a number of key industry trends will result in incremental revenue opportunities for us : in less advanced wireless markets where initial voice and data networks are still being deployed , we expect these deployments to drive demand for our tower space as carriers seek to expand their footprints and increase the scope and density of their networks . we have established operations in many of these markets at the early stages of wireless development , which we believe will enable us to meaningfully participate in these deployments . subscribers ' use of wireless data continues to grow rapidly given increasing smartphone and other advanced device penetration , the proliferation of bandwidth-intensive applications on these devices and the continuing evolution of the mobile ecosystem . we believe carriers will be compelled to deploy additional equipment on existing networks while also rolling out more advanced wireless networks to address coverage and capacity needs resulting from this increasing wireless data usage . the deployment of advanced wireless technology across existing wireless networks will provide higher speed data services and further enable fixed broadband substitution . as a result , we expect our tenants to continue deploying additional equipment across their existing networks . wireless service providers compete based on the quality of their existing wireless networks , which is driven by capacity and coverage . to maintain or improve their network performance as overall network usage increases , our tenants continue deploying additional equipment across their existing sites while also adding new cell sites . we anticipate increasing network densification over the next several years , as existing network infrastructure is anticipated to be insufficient to account for rapidly increasing levels of wireless data usage . wireless service providers continue to acquire additional spectrum , and as a result are expected to add additional sites and equipment to their network as they seek to optimize their network configuration and utilize additional spectrum . as part of our international expansion initiatives , we have targeted markets in various stages of network development to diversify our international exposure and position us to benefit from a number of different wireless technology deployments over 26 the long term . in addition , we have focused on building relationships with large multinational carriers such as airtel , telefónica s.a. and vodafone group plc . we believe that consistent carrier investments in their networks across our international markets position us to generate meaningful organic revenue growth going forward . story_separator_special_tag gross margin growth was partially offset 30 by a decrease of 31 % attributable to the negative impact from foreign currency translation , which included , among others , 20 % related to fluctuations in brl and 8 % related to fluctuations in mxn . the increase in services segment gross margin was primarily attributable to efficiencies in our tower services . for the year ended december 31 , 2014 : the increase in u.s. property segment gross margin was primarily attributable to growth of 10 % due to new sites from our acquisition of mipt , as well as 9 % from legacy sites , primarily associated with the increase in revenue as described above . the remaining gross margin growth was due to new sites ( excluding mipt ) , partially offset by the impact of straight-line lease accounting . the increase in asia property segment gross margin was primarily attributable to growth of 13 % from legacy sites and 11 % due to new sites , primarily associated with the increase in revenue described above . the remaining gross margin growth was due to the impact of straight-line lease accounting . gross margin growth was partially offset by 5 % attributable to the negative impact from foreign currency translation related to fluctuations in inr . the increase in emea property segment gross margin was primarily attributable to growth of 19 % from legacy sites and 6 % due to new sites , primarily associated with the increase in revenue described above . the remaining gross margin growth was due to the impact of straight-line lease accounting . gross margin growth was partially offset by a decrease of 18 % attributable to the negative impact from foreign currency translation , which included , among others , 14 % related to fluctuations in ghs . the increase in latin america property segment gross margin was primarily attributable to growth of 20 % due to new sites ( including mipt ) as well as 11 % from legacy sites , primarily associated with the increase in revenue described above , and included the negative impact of 1 % as a result of the early termination of a portion of the notes receivable with tv azteca , which provided a positive impact to 2013 gross margin . the remaining gross margin growth was due to the impact of straight-line lease accounting . gross margin growth was partially offset by 8 % attributable to the negative impact from foreign currency translation , which included , among others , 5 % related to fluctuations in brl . the increase in services segment gross margin was due to the increase in revenue as described above . selling , general , administrative and development expense replace_table_token_12_th _ ( 1 ) certain expenses previously reflected in segment sg & a for the years ended december 31 , 2014 and 2013 have been reclassified and are now reflected as other sg & a . year ended december 31 , 2015 the increases in our u.s. , asia and emea property segments ' selling , general , administrative and development expense ( “ sg & a ” ) were primarily driven by increasing personnel costs to support our business , including additional costs associated with transactions such as the verizon transaction in our u.s. property segment and the airtel acquisition in our emea property segment . the emea property sg & a increase included an increase in bad debt expense and was partially offset by a decrease attributable to the impacts of foreign currency fluctuations . 31 the decrease in our latin america property segment sg & a was primarily due to the impacts of foreign currency fluctuations , partially offset by increased personnel costs to support the growth of our business and an increase in bad debt expense . the increase in services segment sg & a was primarily due to increased personnel costs . the increase in other sg & a was due to an increase in corporate sg & a of $ 16.7 million and an increase in stock-based compensation expense of $ 10.2 million . corporate sg & a reflects an increase in legal costs , as corporate sg & a during the year ended december 31 , 2014 was favorably impacted by the recovery of legal expenses . in addition , during the year ended december 31 , 2015 , corporate sg & a increased due to an increase in personnel costs to support our business . year ended december 31 , 2014 the increases in our property segments ' sg & a were primarily driven by increasing personnel costs to support our business , including additional costs associated with our acquisitions , such as mipt in our u.s. property segment . u.s. property segment sg & a also included an increase of $ 11.0 million associated with project cancellation costs . the asia , emea and latin america property segment sg & a increases were partially offset by decreases attributable to impacts of foreign currency fluctuations . in each of our latin america and emea property segments , the increase was partially offset by the reversal of bad debt expense for amounts previously reserved . the increase in services segment sg & a was primarily due to higher personnel costs related to the additional site acquisition , zoning and permitting services associated with certain tenants ' next generation technology network upgrade projects , including an increase in volume as a result of the additional sites acquired as part of the acquisition of mipt . the decrease in other sg & a was primarily due to a decrease in corporate sg & a of $ 15.5 million , which was partially offset by an increase of $ 11.7 million related to stock-based compensation expense . the decrease in corporate sg & a was primarily related to a reduction in legal expenses of $ 22.5 million , including the recovery of expenses during the
| liquidity and capital resources general historically , we have primarily satisfied our cash requirements through the initial funding provided in connection with the spin-off , proceeds from the sale or lease of rights in spectrum licenses , and settlements or licensing fees received . in connection with the spin-off , idt transferred cash to us such that we had approximately $ 15 million in cash at the time of the spin-off . since that time , we have satisfied our cash requirements through straight path ip group 's settlement and licensing agreements and straight path spectrum 's revenue from spectrum leases . in february 2017 , we borrowed $ 17.5 million pursuant to the loan agreement . for a further discussion , see note 8 to the consolidated financial statements . we currently expect that our cash and cash equivalents on-hand at july 31 , 2017 and the proceeds to be received upon consummation of the settlement with idt , will be sufficient to meet our anticipated cash requirements during the twelve months ending july 31 , 2018. as discussed above , we signed the consent decree with the fcc and incurred an initial civil penalty of $ 15 million which is being paid in four installments through the earlier of october 11 , 2017 or the consummation of the merger . to fund the payments of the initial civil penalty , we entered into the loan agreement pursuant to which we borrowed the $ 17.5 million , which matures on december 29 , 2017 . $ 15 million of the loan amount is being used to pay the initial civil penalty provided for in the consent decree in accordance with the payment requirements set forth in the consent decree . the first three installments totaling $ 11.5 million were paid . the remainder of the loan amount is being used for general corporate purposes and working capital needs .
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revenue lost from either cancellations of leases at the end of their terms or rent negotiations historically has not had a material adverse effect on the revenues generated by our property operations . during the year ended december 31 , 2015 , loss of revenue from tenant lease cancellations or renegotiations represented less than 2 % of our property operations revenues . property operations revenue growth . due to our diversified communications site portfolio , our tenant lease rates vary considerably depending upon numerous factors , including , but not limited to , amount and type of tenant equipment on the tower , remaining tower capacity and tower location . we measure the remaining tower capacity by assessing several factors , including tower height , tower type , environmental conditions , existing equipment on the tower and zoning and permitting 25 regulations in effect in the jurisdiction where the tower is located . in many instances , tower capacity can be increased with relatively modest tower augmentation expenditures . the primary factors affecting the revenue growth in our property segments are : organic revenue from tenant leases attributable to sites that existed in our portfolio as of the beginning of the prior year period ( “ legacy sites ” ) ; contractual rent escalations on existing tenant leases , net of churn ; new revenue attributable to leasing additional space on our legacy sites ; and new revenue attributable to sites acquired or constructed since the beginning of the prior year period ( “ new sites ” ) . we continue to believe that our site leasing revenue is likely to increase due to the growing use of wireless services and our ability to meet the corresponding incremental demand for our wireless real estate . by adding new tenants and new equipment for existing tenants on our sites , we are able to increase these sites ' utilization and profitability . we believe the majority of our site leasing activity will continue to come from wireless service providers . our legacy site portfolio and our established tenant base provide us with new business opportunities , which have historically resulted in consistent and predictable organic revenue growth as wireless carriers seek to increase the coverage and capacity of their existing networks , while also deploying next generation wireless technologies . in addition , we intend to continue to supplement the organic growth on our legacy sites by selectively developing or acquiring new sites in our existing and new markets where we can achieve our risk-adjusted return on investment objectives . in a majority of our international markets , revenue also often includes the reimbursement of direct costs such as ground rent or power and fuel costs . property operations organic revenue growth . consistent with our strategy to increase the utilization and return on investment of our legacy sites , our objective is to add new tenants and new equipment for existing tenants through collocation and lease amendments . our ability to lease additional space on our sites is primarily a function of the rate at which wireless carriers deploy capital to improve and expand their wireless networks . this rate , in turn , is influenced by the growth of wireless services , the penetration of advanced wireless devices , the financial performance of our tenants and their access to capital and general economic conditions . based on industry research and projections , we expect that a number of key industry trends will result in incremental revenue opportunities for us : in less advanced wireless markets where initial voice and data networks are still being deployed , we expect these deployments to drive demand for our tower space as carriers seek to expand their footprints and increase the scope and density of their networks . we have established operations in many of these markets at the early stages of wireless development , which we believe will enable us to meaningfully participate in these deployments . subscribers ' use of wireless data continues to grow rapidly given increasing smartphone and other advanced device penetration , the proliferation of bandwidth-intensive applications on these devices and the continuing evolution of the mobile ecosystem . we believe carriers will be compelled to deploy additional equipment on existing networks while also rolling out more advanced wireless networks to address coverage and capacity needs resulting from this increasing wireless data usage . the deployment of advanced wireless technology across existing wireless networks will provide higher speed data services and further enable fixed broadband substitution . as a result , we expect our tenants to continue deploying additional equipment across their existing networks . wireless service providers compete based on the quality of their existing wireless networks , which is driven by capacity and coverage . to maintain or improve their network performance as overall network usage increases , our tenants continue deploying additional equipment across their existing sites while also adding new cell sites . we anticipate increasing network densification over the next several years , as existing network infrastructure is anticipated to be insufficient to account for rapidly increasing levels of wireless data usage . wireless service providers continue to acquire additional spectrum , and as a result are expected to add additional sites and equipment to their network as they seek to optimize their network configuration and utilize additional spectrum . as part of our international expansion initiatives , we have targeted markets in various stages of network development to diversify our international exposure and position us to benefit from a number of different wireless technology deployments over 26 the long term . in addition , we have focused on building relationships with large multinational carriers such as airtel , telefónica s.a. and vodafone group plc . we believe that consistent carrier investments in their networks across our international markets position us to generate meaningful organic revenue growth going forward . story_separator_special_tag gross margin growth was partially offset 30 by a decrease of 31 % attributable to the negative impact from foreign currency translation , which included , among others , 20 % related to fluctuations in brl and 8 % related to fluctuations in mxn . the increase in services segment gross margin was primarily attributable to efficiencies in our tower services . for the year ended december 31 , 2014 : the increase in u.s. property segment gross margin was primarily attributable to growth of 10 % due to new sites from our acquisition of mipt , as well as 9 % from legacy sites , primarily associated with the increase in revenue as described above . the remaining gross margin growth was due to new sites ( excluding mipt ) , partially offset by the impact of straight-line lease accounting . the increase in asia property segment gross margin was primarily attributable to growth of 13 % from legacy sites and 11 % due to new sites , primarily associated with the increase in revenue described above . the remaining gross margin growth was due to the impact of straight-line lease accounting . gross margin growth was partially offset by 5 % attributable to the negative impact from foreign currency translation related to fluctuations in inr . the increase in emea property segment gross margin was primarily attributable to growth of 19 % from legacy sites and 6 % due to new sites , primarily associated with the increase in revenue described above . the remaining gross margin growth was due to the impact of straight-line lease accounting . gross margin growth was partially offset by a decrease of 18 % attributable to the negative impact from foreign currency translation , which included , among others , 14 % related to fluctuations in ghs . the increase in latin america property segment gross margin was primarily attributable to growth of 20 % due to new sites ( including mipt ) as well as 11 % from legacy sites , primarily associated with the increase in revenue described above , and included the negative impact of 1 % as a result of the early termination of a portion of the notes receivable with tv azteca , which provided a positive impact to 2013 gross margin . the remaining gross margin growth was due to the impact of straight-line lease accounting . gross margin growth was partially offset by 8 % attributable to the negative impact from foreign currency translation , which included , among others , 5 % related to fluctuations in brl . the increase in services segment gross margin was due to the increase in revenue as described above . selling , general , administrative and development expense replace_table_token_12_th _ ( 1 ) certain expenses previously reflected in segment sg & a for the years ended december 31 , 2014 and 2013 have been reclassified and are now reflected as other sg & a . year ended december 31 , 2015 the increases in our u.s. , asia and emea property segments ' selling , general , administrative and development expense ( “ sg & a ” ) were primarily driven by increasing personnel costs to support our business , including additional costs associated with transactions such as the verizon transaction in our u.s. property segment and the airtel acquisition in our emea property segment . the emea property sg & a increase included an increase in bad debt expense and was partially offset by a decrease attributable to the impacts of foreign currency fluctuations . 31 the decrease in our latin america property segment sg & a was primarily due to the impacts of foreign currency fluctuations , partially offset by increased personnel costs to support the growth of our business and an increase in bad debt expense . the increase in services segment sg & a was primarily due to increased personnel costs . the increase in other sg & a was due to an increase in corporate sg & a of $ 16.7 million and an increase in stock-based compensation expense of $ 10.2 million . corporate sg & a reflects an increase in legal costs , as corporate sg & a during the year ended december 31 , 2014 was favorably impacted by the recovery of legal expenses . in addition , during the year ended december 31 , 2015 , corporate sg & a increased due to an increase in personnel costs to support our business . year ended december 31 , 2014 the increases in our property segments ' sg & a were primarily driven by increasing personnel costs to support our business , including additional costs associated with our acquisitions , such as mipt in our u.s. property segment . u.s. property segment sg & a also included an increase of $ 11.0 million associated with project cancellation costs . the asia , emea and latin america property segment sg & a increases were partially offset by decreases attributable to impacts of foreign currency fluctuations . in each of our latin america and emea property segments , the increase was partially offset by the reversal of bad debt expense for amounts previously reserved . the increase in services segment sg & a was primarily due to higher personnel costs related to the additional site acquisition , zoning and permitting services associated with certain tenants ' next generation technology network upgrade projects , including an increase in volume as a result of the additional sites acquired as part of the acquisition of mipt . the decrease in other sg & a was primarily due to a decrease in corporate sg & a of $ 15.5 million , which was partially offset by an increase of $ 11.7 million related to stock-based compensation expense . the decrease in corporate sg & a was primarily related to a reduction in legal expenses of $ 22.5 million , including the recovery of expenses during the
| cash flows from investing activities our significant investing activities during the year ended december 31 , 2015 are highlighted below : we spent $ 5.059 billion for the verizon transaction . we spent $ 796.9 million for the acquisition of 5,483 communications sites from tim in brazil . we spent $ 1.1 billion for the acquisition of 4,716 communications sites from certain of airtel 's subsidiaries in nigeria . we spent $ 728.8 million for capital expenditures , as follows ( in millions ) : replace_table_token_25_th _ ( 1 ) includes the construction of 3,235 communications sites globally and the installation of 17 shared generators domestically . our significant investing transactions in 2014 included the following : we completed the acquisition of 100 % of the equity interests of br towers for a preliminary purchase price of $ 568.9 million , net of debt assumed and outstanding preferred stock . 38 we spent $ 441.7 million for the acquisition of approximately 400 communications sites in brazil , ghana , mexico , uganda and the united states , as well as to satisfy obligations related to sites acquired during the year ended december 31 , 2013 in brazil , south africa and the united states . we spent $ 974.4 million for capital expenditures , as follows ( in millions ) : replace_table_token_26_th _ ( 1 ) includes the construction of 3,133 communications sites globally and the installation of 530 shared generators domestically . we plan to continue to allocate our available capital , after satisfying our distribution requirements , among investment alternatives that meet our return on investment criteria , while taking into account the repayment of debt , as necessary , consistent with our long-term financial policies . accordingly , we expect to continue to deploy our capital through our annual capital expenditure program , including land purchases and new site construction , and through acquisitions . we expect that our 2016 total capital expenditures , including expected capital expenditures related to viom , will be between $ 700 million and $ 800 million , as follows ( in millions ) : replace_table_token_27_th _ ( 1 ) includes the construction of approximately 2,500 to 3,000 communications sites globally .
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revenue replace_table_token_4_th revenue increased for the year ended december 31 , 2020 compared to december 31 , 2019 , primarily as a result of improved revenue unit economics . the average order size increased to $ 41.86 from $ 36.15 , an improvement of 16 % , while average daily orders decreased in the year ended december 31 , 2020 compared to december 31 , 2019 , partially as a result of market closures in late 2019 and early 2020. included in revenue for the year ended december 31 , 2019 is $ 3,005 related to a cumulative adjustment to setup and integration fee revenue as a result of contract modifications made in july 2019 and the effect of such modifications on our measure of progress towards the performance obligations . the cumulative adjustment to revenue was partially offset by write-offs of uncollected setup and integration fees within accounts receivable of $ 797 and refunds of previously paid setup and integration fees of $ 320. operations and support replace_table_token_5_th operations and support expenses decreased in dollar terms and as a percentage of revenue for the year ended december 31 , 2020 compared to december 31 , 2019 , primarily as a result of lower driver operations cost relating to the change to independent contractor drivers . sales and marketing replace_table_token_6_th sales and marketing expense decreased in dollar terms and as a percentage of revenue in the year ended december 31 , 2020 compared to december 31 , 2019 , primarily as a result of decreased advertising spend of approximately $ 28,483 , as well as staff reductions and the consolidation of sales and marketing functions in the second half of 2019 and early 2020. research and development replace_table_token_7_th research and development expense decreased in dollar terms and as a percentage of revenue in the year ended december 31 , 2020 compared to december 31 , 2019 , primarily due to the capitalization of increased software development costs during 2020 as further features and functionality were incorporated into the platforms . 38 general and administrative replace_table_token_8_th general and administrative expense decreased in dollar terms and as a percentage of revenue in the year ended december 31 , 2020 compared to december 31 , 2019 , due to decreased travel , entertainment and other related expenses as a result of covid-19 and stock-based compensation expenses . additionally , included in general and administrative expense during the year ended december 31 , 2019 are $ 6,956 of business combination-related professional and other costs associated with the bite squad merger . depreciation and amortization replace_table_token_9_th depreciation and amortization expense decreased in dollar terms and as a percentage of revenue in the year ended december 31 , 2020 compared to december 31 , 2019 , primarily as a result of the write-down of the carrying value of intangible assets to their implied fair values in september 2019 in connection with the company 's goodwill impairment analysis . goodwill impairment during the year ended december 31 , 2019 , we recognized a non-cash goodwill impairment charge of $ 119,212 to write down the carrying value of goodwill to its implied fair value . the primary factor contributing to a reduction in the fair value was the sustained decline in the company 's stock price in 2019 , resulting in a market capitalization that was significantly lower than the carrying value of the company 's consolidated stockholders ' equity . see part ii , item 8 , note 7 – goodwill and intangible assets for additional details . intangible and other asset impairments replace_table_token_10_th the sustained decline in the company 's stock price during 2019 resulted in a non-cash intangible asset impairment charge in the year ended december 31 , 2019 of $ 71,982 to write down the carrying value of certain intangible assets to their implied fair values . the impairment charge included the write-offs of capitalized contracts costs of $ 3,815 , customer relationships of $ 57,295 and developed technology of $ 10,872. during the year ended december 31 , 2019 , we recognized $ 852 in impairment charges related to non-recoverable capitalized costs to obtain and fulfill contracts as a result of the termination by certain restaurants of their contracts in connection with the modified fee structure introduced by the company in july 2019. other expenses ( income ) and losses ( gains ) , net replace_table_token_11_th 39 other expenses ( income ) and losses ( gains ) , net for the year ended december 31 , 2020 primarily consisted of interest expense of $ 9,318 associated with the term loans and notes and a $ 1,023 stock-based compensation expense accrual related to the settlement of the halley and montgomery legal contingencies ( see part i , item 3 , legal proceedings ) . other expenses ( income ) and losses ( gains ) , net for the year ended december 31 , 2019 primarily consisted of $ 9,268 of interest expense associated with the term loans and notes and a $ 2,000 stock-based compensation expense accrual related to the halley and montgomery legal contingencies . see part ii , item 8 , note 9 – debt for definitions of term loans and notes . other expenses ( income ) and losses ( gains ) , net for the year ended december 31 , 2018 primarily consisted of $ 17,505 related to a medical contingency claim . see part ii , item 8 , note 11 – correction of prior period error for additional details . story_separator_special_tag income tax expense ( benefit ) income tax expense for the years ended december 31 , 2020 and 2019 was $ 122 and $ 81 , respectively , entirely related to state taxes in various jurisdictions . we have historically generated net operating losses ; therefore , a valuation allowance has been recorded on our net deferred tax assets . liquidity and capital resources overview as of december 31 , 2020 , we had cash on hand of $ 84,706. our primary sources of liquidity have been cash flow from operations and proceeds from the issuance of stock , long-term convertible debt and term loans . the implementation of various initiatives throughout 2020 , with a focus on improving revenue per order , costs per order , cash flow , operations and liquidity , resulted in positive results for the company during the year ended december 31 , 2020. additionally , proceeds from the sales of our common stock pursuant to our atm program launched in march and may 2020 enhanced our liquidity position at december 31 , 2020. we used a portion of the proceeds to repay our debt obligations , as discussed below , and intend to use the remaining proceeds for working capital and general corporate purposes , and to further enhance our ability to execute our strategic , operational and growth initiatives . in may 2020 , the company entered into a limited waiver and conversion agreement , pursuant to which the lenders agreed to waive the requirement to prepay the term loans arising as a result of the may 2020 atm program . in consideration of the prepayment waiver , the company made a payment of $ 12,500 on the term loans and the lenders converted $ 12,500 of the notes into shares of the company 's common stock . in july 2020 , the company entered into amendments to the agreements governing the term loans and notes , pursuant to which the interest rates for the term loans and notes were reduced by 200 basis points for a one-year period , to 5.125 % and 4.0 % per annum , respectively , and the maturity dates for the term loans and notes were extended by one year to november 15 , 2023 upon the payment of $ 10,500 of the term loans . the aggregate principal amount of outstanding long-term debt totaled $ 99,137 as of december 31 , 2020 , consisting of $ 49,479 of term loans , $ 49,504 of notes and $ 154 of promissory notes . as of december 31 , 2020 , the company had $ 2,726 of outstanding short-term loans for insurance financing . we currently expect that our cash on hand and estimated cash flow from operations will be sufficient to meet our working capital needs beyond twelve months ; however , there can be no assurance that we will generate cash flow at the levels we anticipate . we may use cash on hand to repay additional debt or to acquire or invest in complementary businesses , products and technologies . we continually evaluate additional opportunities to strengthen our liquidity position , fund growth initiatives and or combine with other businesses by issuing equity or equity-linked securities ( in public or private offerings ) and or incurring additional debt . however , market conditions , our future financial performance or other factors may make it difficult or impossible for us to access sources of capital , on favorable terms or at all , should we determine in the future to raise additional funds . we are continuously reviewing our liquidity and anticipated working capital needs , particularly in light of the uncertainty created by the covid-19 pandemic . thus far , we have been able to operate effectively during the pandemic , however , the potential impacts and duration of the covid-19 pandemic on the economy and on our business , in particular , may be difficult to assess or predict . capital expenditures our main capital expenditures relate to the purchase of tablets for restaurants on the platforms and investments in the development of the platforms , which are expected to increase as we continue to grow our business . our future capital requirements and the adequacy of available funds will depend on many factors , including those set forth under part i , item 1a , risk factors in this form 10-k. 40 story_separator_special_tag loan agreements include principal payments due under short-term loans to finance certain insurance premiums and principal payments for promissory notes related to acquisitions . see part ii , item 8 , note 9 – debt of this form 10-k for additional details . ( 3 ) interest due on debt assumes all interest payments are paid in cash . interest on the notes assumes no conversion prior to the maturity of the notes . ( 4 ) in november 2017 , guarantee insurance company ( “ gic ” ) , the company 's former workers ' compensation insurer , was ordered into receivership for purposes of liquidation by the second judicial circuit court in leon county , florida . at the time of the court order , gic was administering the company 's outstanding workers ' compensation claims . upon entering receivership , the guaranty associations of the states where gic operated began reviewing outstanding claims administered by gic for continued claim coverage eligibility based on guaranty associations ' eligibility criteria . louisiana insurance guaranty association , the agency created by the louisiana insurance guaranty act to pay for claims of insolvent members ( “ liga ” ) , determined that the company 's enterprise value exceeded the $ 25,000 eligibility threshold for claims coverage . as such , liga assessed one of the company 's outstanding claims as ineligible for coverage . the company has accrued an estimated amount of loss exposure for the workers ' compensation claim ( the medical contingency claim ) . see part ii ,
| cash flows from investing activities our significant investing activities during the year ended december 31 , 2015 are highlighted below : we spent $ 5.059 billion for the verizon transaction . we spent $ 796.9 million for the acquisition of 5,483 communications sites from tim in brazil . we spent $ 1.1 billion for the acquisition of 4,716 communications sites from certain of airtel 's subsidiaries in nigeria . we spent $ 728.8 million for capital expenditures , as follows ( in millions ) : replace_table_token_25_th _ ( 1 ) includes the construction of 3,235 communications sites globally and the installation of 17 shared generators domestically . our significant investing transactions in 2014 included the following : we completed the acquisition of 100 % of the equity interests of br towers for a preliminary purchase price of $ 568.9 million , net of debt assumed and outstanding preferred stock . 38 we spent $ 441.7 million for the acquisition of approximately 400 communications sites in brazil , ghana , mexico , uganda and the united states , as well as to satisfy obligations related to sites acquired during the year ended december 31 , 2013 in brazil , south africa and the united states . we spent $ 974.4 million for capital expenditures , as follows ( in millions ) : replace_table_token_26_th _ ( 1 ) includes the construction of 3,133 communications sites globally and the installation of 530 shared generators domestically . we plan to continue to allocate our available capital , after satisfying our distribution requirements , among investment alternatives that meet our return on investment criteria , while taking into account the repayment of debt , as necessary , consistent with our long-term financial policies . accordingly , we expect to continue to deploy our capital through our annual capital expenditure program , including land purchases and new site construction , and through acquisitions . we expect that our 2016 total capital expenditures , including expected capital expenditures related to viom , will be between $ 700 million and $ 800 million , as follows ( in millions ) : replace_table_token_27_th _ ( 1 ) includes the construction of approximately 2,500 to 3,000 communications sites globally .
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revenue replace_table_token_4_th revenue increased for the year ended december 31 , 2020 compared to december 31 , 2019 , primarily as a result of improved revenue unit economics . the average order size increased to $ 41.86 from $ 36.15 , an improvement of 16 % , while average daily orders decreased in the year ended december 31 , 2020 compared to december 31 , 2019 , partially as a result of market closures in late 2019 and early 2020. included in revenue for the year ended december 31 , 2019 is $ 3,005 related to a cumulative adjustment to setup and integration fee revenue as a result of contract modifications made in july 2019 and the effect of such modifications on our measure of progress towards the performance obligations . the cumulative adjustment to revenue was partially offset by write-offs of uncollected setup and integration fees within accounts receivable of $ 797 and refunds of previously paid setup and integration fees of $ 320. operations and support replace_table_token_5_th operations and support expenses decreased in dollar terms and as a percentage of revenue for the year ended december 31 , 2020 compared to december 31 , 2019 , primarily as a result of lower driver operations cost relating to the change to independent contractor drivers . sales and marketing replace_table_token_6_th sales and marketing expense decreased in dollar terms and as a percentage of revenue in the year ended december 31 , 2020 compared to december 31 , 2019 , primarily as a result of decreased advertising spend of approximately $ 28,483 , as well as staff reductions and the consolidation of sales and marketing functions in the second half of 2019 and early 2020. research and development replace_table_token_7_th research and development expense decreased in dollar terms and as a percentage of revenue in the year ended december 31 , 2020 compared to december 31 , 2019 , primarily due to the capitalization of increased software development costs during 2020 as further features and functionality were incorporated into the platforms . 38 general and administrative replace_table_token_8_th general and administrative expense decreased in dollar terms and as a percentage of revenue in the year ended december 31 , 2020 compared to december 31 , 2019 , due to decreased travel , entertainment and other related expenses as a result of covid-19 and stock-based compensation expenses . additionally , included in general and administrative expense during the year ended december 31 , 2019 are $ 6,956 of business combination-related professional and other costs associated with the bite squad merger . depreciation and amortization replace_table_token_9_th depreciation and amortization expense decreased in dollar terms and as a percentage of revenue in the year ended december 31 , 2020 compared to december 31 , 2019 , primarily as a result of the write-down of the carrying value of intangible assets to their implied fair values in september 2019 in connection with the company 's goodwill impairment analysis . goodwill impairment during the year ended december 31 , 2019 , we recognized a non-cash goodwill impairment charge of $ 119,212 to write down the carrying value of goodwill to its implied fair value . the primary factor contributing to a reduction in the fair value was the sustained decline in the company 's stock price in 2019 , resulting in a market capitalization that was significantly lower than the carrying value of the company 's consolidated stockholders ' equity . see part ii , item 8 , note 7 – goodwill and intangible assets for additional details . intangible and other asset impairments replace_table_token_10_th the sustained decline in the company 's stock price during 2019 resulted in a non-cash intangible asset impairment charge in the year ended december 31 , 2019 of $ 71,982 to write down the carrying value of certain intangible assets to their implied fair values . the impairment charge included the write-offs of capitalized contracts costs of $ 3,815 , customer relationships of $ 57,295 and developed technology of $ 10,872. during the year ended december 31 , 2019 , we recognized $ 852 in impairment charges related to non-recoverable capitalized costs to obtain and fulfill contracts as a result of the termination by certain restaurants of their contracts in connection with the modified fee structure introduced by the company in july 2019. other expenses ( income ) and losses ( gains ) , net replace_table_token_11_th 39 other expenses ( income ) and losses ( gains ) , net for the year ended december 31 , 2020 primarily consisted of interest expense of $ 9,318 associated with the term loans and notes and a $ 1,023 stock-based compensation expense accrual related to the settlement of the halley and montgomery legal contingencies ( see part i , item 3 , legal proceedings ) . other expenses ( income ) and losses ( gains ) , net for the year ended december 31 , 2019 primarily consisted of $ 9,268 of interest expense associated with the term loans and notes and a $ 2,000 stock-based compensation expense accrual related to the halley and montgomery legal contingencies . see part ii , item 8 , note 9 – debt for definitions of term loans and notes . other expenses ( income ) and losses ( gains ) , net for the year ended december 31 , 2018 primarily consisted of $ 17,505 related to a medical contingency claim . see part ii , item 8 , note 11 – correction of prior period error for additional details . story_separator_special_tag income tax expense ( benefit ) income tax expense for the years ended december 31 , 2020 and 2019 was $ 122 and $ 81 , respectively , entirely related to state taxes in various jurisdictions . we have historically generated net operating losses ; therefore , a valuation allowance has been recorded on our net deferred tax assets . liquidity and capital resources overview as of december 31 , 2020 , we had cash on hand of $ 84,706. our primary sources of liquidity have been cash flow from operations and proceeds from the issuance of stock , long-term convertible debt and term loans . the implementation of various initiatives throughout 2020 , with a focus on improving revenue per order , costs per order , cash flow , operations and liquidity , resulted in positive results for the company during the year ended december 31 , 2020. additionally , proceeds from the sales of our common stock pursuant to our atm program launched in march and may 2020 enhanced our liquidity position at december 31 , 2020. we used a portion of the proceeds to repay our debt obligations , as discussed below , and intend to use the remaining proceeds for working capital and general corporate purposes , and to further enhance our ability to execute our strategic , operational and growth initiatives . in may 2020 , the company entered into a limited waiver and conversion agreement , pursuant to which the lenders agreed to waive the requirement to prepay the term loans arising as a result of the may 2020 atm program . in consideration of the prepayment waiver , the company made a payment of $ 12,500 on the term loans and the lenders converted $ 12,500 of the notes into shares of the company 's common stock . in july 2020 , the company entered into amendments to the agreements governing the term loans and notes , pursuant to which the interest rates for the term loans and notes were reduced by 200 basis points for a one-year period , to 5.125 % and 4.0 % per annum , respectively , and the maturity dates for the term loans and notes were extended by one year to november 15 , 2023 upon the payment of $ 10,500 of the term loans . the aggregate principal amount of outstanding long-term debt totaled $ 99,137 as of december 31 , 2020 , consisting of $ 49,479 of term loans , $ 49,504 of notes and $ 154 of promissory notes . as of december 31 , 2020 , the company had $ 2,726 of outstanding short-term loans for insurance financing . we currently expect that our cash on hand and estimated cash flow from operations will be sufficient to meet our working capital needs beyond twelve months ; however , there can be no assurance that we will generate cash flow at the levels we anticipate . we may use cash on hand to repay additional debt or to acquire or invest in complementary businesses , products and technologies . we continually evaluate additional opportunities to strengthen our liquidity position , fund growth initiatives and or combine with other businesses by issuing equity or equity-linked securities ( in public or private offerings ) and or incurring additional debt . however , market conditions , our future financial performance or other factors may make it difficult or impossible for us to access sources of capital , on favorable terms or at all , should we determine in the future to raise additional funds . we are continuously reviewing our liquidity and anticipated working capital needs , particularly in light of the uncertainty created by the covid-19 pandemic . thus far , we have been able to operate effectively during the pandemic , however , the potential impacts and duration of the covid-19 pandemic on the economy and on our business , in particular , may be difficult to assess or predict . capital expenditures our main capital expenditures relate to the purchase of tablets for restaurants on the platforms and investments in the development of the platforms , which are expected to increase as we continue to grow our business . our future capital requirements and the adequacy of available funds will depend on many factors , including those set forth under part i , item 1a , risk factors in this form 10-k. 40 story_separator_special_tag loan agreements include principal payments due under short-term loans to finance certain insurance premiums and principal payments for promissory notes related to acquisitions . see part ii , item 8 , note 9 – debt of this form 10-k for additional details . ( 3 ) interest due on debt assumes all interest payments are paid in cash . interest on the notes assumes no conversion prior to the maturity of the notes . ( 4 ) in november 2017 , guarantee insurance company ( “ gic ” ) , the company 's former workers ' compensation insurer , was ordered into receivership for purposes of liquidation by the second judicial circuit court in leon county , florida . at the time of the court order , gic was administering the company 's outstanding workers ' compensation claims . upon entering receivership , the guaranty associations of the states where gic operated began reviewing outstanding claims administered by gic for continued claim coverage eligibility based on guaranty associations ' eligibility criteria . louisiana insurance guaranty association , the agency created by the louisiana insurance guaranty act to pay for claims of insolvent members ( “ liga ” ) , determined that the company 's enterprise value exceeded the $ 25,000 eligibility threshold for claims coverage . as such , liga assessed one of the company 's outstanding claims as ineligible for coverage . the company has accrued an estimated amount of loss exposure for the workers ' compensation claim ( the medical contingency claim ) . see part ii ,
| cash flow the following table sets forth our summary cash flow information for the periods indicated : replace_table_token_12_th cash flows provided by ( used in ) operating activities for the year ended december 31 , 2020 , net cash provided by operating activities was $ 38,445 , compared to net cash used in operating activities of $ 73,477 for the year ended december 31 , 2019 , primarily reflecting the effects of the implementation of various initiatives aimed at improving operations and profitability . the increase in net cash used in operating activities for the year ended december 31 , 2019 compared to 2018 primarily reflected an increase in new market launch activities in 2019 relative to 2018. operating activities during the years ended december 31 , 2019 and 2018 included the payment of business combination-related expenses of $ 6,956 and $ 5,768 , respectively . cash flows used in investing activities for the year ended december 31 , 2020 , net cash used in investing activities included $ 3,982 of costs for internally developed software , $ 1,555 for the purchase of property and equipment and $ 628 for the acquisition of intangible assets . net cash used in investing activities for the year ended december 31 , 2019 included $ 192,568 for the acquisition of bite squad , $ 1,805 for internally developed software , $ 1,636 for the purchase of property and equipment , and $ 695 forthe acquisition of intangible assets .
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client retention , dollar retention , enrichment , and the number of clients have all increased from 2009 levels , which is consistent with an improved economic environment , and our retention metrics are near historic highs at december 31 , 2011. critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( gaap ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our policies and estimates , including but not limited to , those related to our revenue recognition , stock-based compensation , non-marketable investments , goodwill and intangible assets , income taxes , and valuation and impairment of marketable investments . management bases its estimates on historical experience , data available at the time the estimates are made and various assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we consider the following accounting policies to be those that require the most subjective judgment or that involve uncertainty that could have a material impact on our financial statements . if actual results differ significantly from management 's estimates and projections , there could be a material effect on our financial statements . this is not a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap , with no need for management 's judgment 15 in its application . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . for a discussion of our other accounting policies , see note 1 of the notes to consolidated financial statements beginning on page f-7 . revenue recognition . effective january 1 , 2011 we adopted update no . 2009-13 , multiple-deliverable revenue arrangements a consensus of the fasb emerging issues task force ( asu 2009-13 ) . asu 2009-13 updates the previous multiple-element revenue arrangements guidance . the revised guidance primarily provides three significant changes : 1 ) it eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting ; 2 ) it eliminates the residual method to allocate the arrangement consideration ; and 3 ) it modifies the fair value requirements of eitf issue 00-21 by providing best estimate of selling price in addition to vendor specific objective evidence and vendor objective evidence for determining the selling price of a deliverable . the adoption of asu 2009-13 did not have a material impact on our financial position , results of operations or cash flows . we generate revenues from licensing memberships to our research ( including our data products ) , performing advisory services and consulting projects and hosting events . we execute contracts that govern the terms and conditions of each arrangement . revenues are recognized when persuasive evidence of an arrangement exists , the fee is fixed or determinable , services have been provided to the customer , and collectability is reasonably assured . our contracts may include either a single product or service or a combination of multiple products and services . revenues from contracts that contain multiple products or services are allocated among the separate units of accounting based on their relative selling prices ; however , the amount recognized is limited to the amount that is not contingent on future performance conditions . for example , when a discount off of list price is provided in a multiple element contract , the discount is applied ratably to the research and data products only ( which commence delivery on the first day of the contract ) , as the undelivered products in the contract ( advisory services or events ) would be refundable to the customer at list price . we obtain the selling prices of our products and services based upon an analysis of standalone sales of these products and services during the year . research service revenues are recognized ratably over the term of the contract . advisory service revenues are recognized when the customer receives the agreed upon deliverable and consulting project revenues are recognized as the services are provided . reimbursed out-of-pocket expenses are recorded as advisory services revenue . event revenues are recognized upon completion of the event . annual subscriptions to our roleview research include access to all or a designated portion of our research , and depending on the type of license , membership in one or more of our forrester leadership boards , unlimited phone or email analyst inquiry , unlimited participation in forrester teleconferences , and the right to attend one event . contracts for roleview research entered into prior to the adoption of asu 2009-13 on january 1 , 2011 , were accounted for as one unit of accounting and recognized ratably as research services revenue over the membership period . story_separator_special_tag increased sales of our syndicated research services products are generally recognized over a twelve-month period , which typically results in an increase in selling and marketing expense as a percentage of revenue during periods of sales force expansion . the increase is also attributable to increased travel and entertainment expense and increased facility costs . facility costs recorded in selling and marketing increased approximately $ 2.1 million during 2011 primarily due to us incurring duplicate lease costs as described above under cost of services and fulfillment . in the first quarter of 2012 , we realigned our sales force to simplify the selling process to our customers and to increase the productivity of our sales organization . the realignment resulted in the elimination of approximately 11 sales and marketing positions in the first quarter of 2012 . 21 general and administrative replace_table_token_9_th the decrease in general and administrative expense in dollars and as percent of total revenue during 2011 is primarily due a reduction of approximately $ 1.6 million of incentive compensation earned with respect to the third and fourth quarters of 2011 , the capitalization of approximately $ 1.6 million of internal information technology salary costs in 2011 for the build of our new client-facing website that was launched in 2012 , and a decrease of approximately $ 0.6 million in stock compensation expense . these decreases were partially offset by an increase in facility costs , an increase in compensation and benefits costs resulting from an increase in the number of general and administrative employees and salary increases during 2011 , and acquisition and integration costs for springboard research of approximately $ 0.7 million . facility costs recorded in general and administrative expense increased approximately $ 0.8 million during 2011 primarily due to us incurring duplicate lease costs as described above under cost of services and fulfillment . depreciation replace_table_token_10_th the increase in depreciation expense during 2011 is primarily due to the initiation of depreciation for our new corporate headquarters in august 2011. we expect depreciation expense in future periods to increase from the current period level due to our new corporate headquarters and the launch of our website and other customer facing technologies in 2012. amortization of intangible assets replace_table_token_11_th the decrease in amortization expense during 2011 is primarily due to certain intangible assets from the acquisition of strategic oxygen in december 2009 becoming fully amortized in the first quarter of 2011 , partially offset by an increase in amortization from the acquisition of springboard research in may 2011. reorganization costs absolute percentage increase increase 2011 2010 ( decrease ) ( decrease ) reorganization costs ( dollars in millions ) $ 0.4 $ $ 0.4 n/a reorganization costs as a percentage of total revenues 0.1 % 0.1 n/a 22 in the first quarter of 2012 we realigned our sales force to simplify the selling process to our customers and to increase the productivity of our sales force . the reorganization costs incurred in 2011 consist of severance and related benefits for three employees located outside of the u.s. based on statutory termination benefits in their country of employment and the fact that termination was considered probable at december 31 , 2011. we expect to incur approximately $ 1.3 million to $ 1.5 million of additional costs in the first half of 2012 for severance and related costs for the termination of approximately 17 additional employees related to the sales realignment and other related cost reduction initiatives . other income , net replace_table_token_12_th the decrease in other income , net during 2011 is primarily due to lower interest income from lower returns on our investments . gains ( losses ) on investments , net replace_table_token_13_th gains ( losses ) on investments primarily represent our share of equity method investment gains and losses from our technology-related investment funds . the decrease in gains during 2011 is primarily due to a smaller increase in the valuations of certain assets within the funds in 2011 as compared to 2010. provision for income taxes replace_table_token_14_th the effective tax rate has remained relatively consistent from 2010 to 2011 . 2010 compared to 2009 revenues replace_table_token_15_th 23 the increase in total revenues in 2010 is principally the result of increased demand for our products and services and the acquisition of strategic oxygen in december 2009 , which accounted for approximately 1.9 % of revenue growth . the effects of foreign exchange resulted in an approximate 1 % decrease in total revenues during 2010. revenue growth in 2010 was driven by a 12 % increase in the technology industry client group ( approximately 6.7 % due to strategic oxygen ) , a 12 % increase in the marketing and strategy client group and a 16 % increase for events . revenue in the business technology client group was essentially flat for the year . overall revenue growth was due in part to the improvement in the economy and an increase in the number of sales personnel in 2010. revenue growth in the u.s. outpaced the growth in europe , due in part to a stronger economy in the u.s. relative to europe , resulting in a decrease of 2 % in the percentage of revenue earned outside of the u.s. we count co-located events , which enable our clients to attend multiple events with one event ticket , as a single event in the table above . cost of services and fulfillment replace_table_token_16_th the increase in the dollar amount of cost of services and fulfillment during 2010 is primarily the result of increased compensation and benefit costs resulting from an increase in the number of employees and an increase in incentive compensation , increased travel-related costs and costs resulting from the acquisition of strategic oxygen in december 2009. this increase was partially offset by stock-based compensation expense in 2009 from the accelerated vesting of performance-based stock options . selling and marketing replace_table_token_17_th the increase in selling and marketing expenses in dollars and as
| cash flow the following table sets forth our summary cash flow information for the periods indicated : replace_table_token_12_th cash flows provided by ( used in ) operating activities for the year ended december 31 , 2020 , net cash provided by operating activities was $ 38,445 , compared to net cash used in operating activities of $ 73,477 for the year ended december 31 , 2019 , primarily reflecting the effects of the implementation of various initiatives aimed at improving operations and profitability . the increase in net cash used in operating activities for the year ended december 31 , 2019 compared to 2018 primarily reflected an increase in new market launch activities in 2019 relative to 2018. operating activities during the years ended december 31 , 2019 and 2018 included the payment of business combination-related expenses of $ 6,956 and $ 5,768 , respectively . cash flows used in investing activities for the year ended december 31 , 2020 , net cash used in investing activities included $ 3,982 of costs for internally developed software , $ 1,555 for the purchase of property and equipment and $ 628 for the acquisition of intangible assets . net cash used in investing activities for the year ended december 31 , 2019 included $ 192,568 for the acquisition of bite squad , $ 1,805 for internally developed software , $ 1,636 for the purchase of property and equipment , and $ 695 forthe acquisition of intangible assets .
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client retention , dollar retention , enrichment , and the number of clients have all increased from 2009 levels , which is consistent with an improved economic environment , and our retention metrics are near historic highs at december 31 , 2011. critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( gaap ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our policies and estimates , including but not limited to , those related to our revenue recognition , stock-based compensation , non-marketable investments , goodwill and intangible assets , income taxes , and valuation and impairment of marketable investments . management bases its estimates on historical experience , data available at the time the estimates are made and various assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we consider the following accounting policies to be those that require the most subjective judgment or that involve uncertainty that could have a material impact on our financial statements . if actual results differ significantly from management 's estimates and projections , there could be a material effect on our financial statements . this is not a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap , with no need for management 's judgment 15 in its application . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . for a discussion of our other accounting policies , see note 1 of the notes to consolidated financial statements beginning on page f-7 . revenue recognition . effective january 1 , 2011 we adopted update no . 2009-13 , multiple-deliverable revenue arrangements a consensus of the fasb emerging issues task force ( asu 2009-13 ) . asu 2009-13 updates the previous multiple-element revenue arrangements guidance . the revised guidance primarily provides three significant changes : 1 ) it eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting ; 2 ) it eliminates the residual method to allocate the arrangement consideration ; and 3 ) it modifies the fair value requirements of eitf issue 00-21 by providing best estimate of selling price in addition to vendor specific objective evidence and vendor objective evidence for determining the selling price of a deliverable . the adoption of asu 2009-13 did not have a material impact on our financial position , results of operations or cash flows . we generate revenues from licensing memberships to our research ( including our data products ) , performing advisory services and consulting projects and hosting events . we execute contracts that govern the terms and conditions of each arrangement . revenues are recognized when persuasive evidence of an arrangement exists , the fee is fixed or determinable , services have been provided to the customer , and collectability is reasonably assured . our contracts may include either a single product or service or a combination of multiple products and services . revenues from contracts that contain multiple products or services are allocated among the separate units of accounting based on their relative selling prices ; however , the amount recognized is limited to the amount that is not contingent on future performance conditions . for example , when a discount off of list price is provided in a multiple element contract , the discount is applied ratably to the research and data products only ( which commence delivery on the first day of the contract ) , as the undelivered products in the contract ( advisory services or events ) would be refundable to the customer at list price . we obtain the selling prices of our products and services based upon an analysis of standalone sales of these products and services during the year . research service revenues are recognized ratably over the term of the contract . advisory service revenues are recognized when the customer receives the agreed upon deliverable and consulting project revenues are recognized as the services are provided . reimbursed out-of-pocket expenses are recorded as advisory services revenue . event revenues are recognized upon completion of the event . annual subscriptions to our roleview research include access to all or a designated portion of our research , and depending on the type of license , membership in one or more of our forrester leadership boards , unlimited phone or email analyst inquiry , unlimited participation in forrester teleconferences , and the right to attend one event . contracts for roleview research entered into prior to the adoption of asu 2009-13 on january 1 , 2011 , were accounted for as one unit of accounting and recognized ratably as research services revenue over the membership period . story_separator_special_tag increased sales of our syndicated research services products are generally recognized over a twelve-month period , which typically results in an increase in selling and marketing expense as a percentage of revenue during periods of sales force expansion . the increase is also attributable to increased travel and entertainment expense and increased facility costs . facility costs recorded in selling and marketing increased approximately $ 2.1 million during 2011 primarily due to us incurring duplicate lease costs as described above under cost of services and fulfillment . in the first quarter of 2012 , we realigned our sales force to simplify the selling process to our customers and to increase the productivity of our sales organization . the realignment resulted in the elimination of approximately 11 sales and marketing positions in the first quarter of 2012 . 21 general and administrative replace_table_token_9_th the decrease in general and administrative expense in dollars and as percent of total revenue during 2011 is primarily due a reduction of approximately $ 1.6 million of incentive compensation earned with respect to the third and fourth quarters of 2011 , the capitalization of approximately $ 1.6 million of internal information technology salary costs in 2011 for the build of our new client-facing website that was launched in 2012 , and a decrease of approximately $ 0.6 million in stock compensation expense . these decreases were partially offset by an increase in facility costs , an increase in compensation and benefits costs resulting from an increase in the number of general and administrative employees and salary increases during 2011 , and acquisition and integration costs for springboard research of approximately $ 0.7 million . facility costs recorded in general and administrative expense increased approximately $ 0.8 million during 2011 primarily due to us incurring duplicate lease costs as described above under cost of services and fulfillment . depreciation replace_table_token_10_th the increase in depreciation expense during 2011 is primarily due to the initiation of depreciation for our new corporate headquarters in august 2011. we expect depreciation expense in future periods to increase from the current period level due to our new corporate headquarters and the launch of our website and other customer facing technologies in 2012. amortization of intangible assets replace_table_token_11_th the decrease in amortization expense during 2011 is primarily due to certain intangible assets from the acquisition of strategic oxygen in december 2009 becoming fully amortized in the first quarter of 2011 , partially offset by an increase in amortization from the acquisition of springboard research in may 2011. reorganization costs absolute percentage increase increase 2011 2010 ( decrease ) ( decrease ) reorganization costs ( dollars in millions ) $ 0.4 $ $ 0.4 n/a reorganization costs as a percentage of total revenues 0.1 % 0.1 n/a 22 in the first quarter of 2012 we realigned our sales force to simplify the selling process to our customers and to increase the productivity of our sales force . the reorganization costs incurred in 2011 consist of severance and related benefits for three employees located outside of the u.s. based on statutory termination benefits in their country of employment and the fact that termination was considered probable at december 31 , 2011. we expect to incur approximately $ 1.3 million to $ 1.5 million of additional costs in the first half of 2012 for severance and related costs for the termination of approximately 17 additional employees related to the sales realignment and other related cost reduction initiatives . other income , net replace_table_token_12_th the decrease in other income , net during 2011 is primarily due to lower interest income from lower returns on our investments . gains ( losses ) on investments , net replace_table_token_13_th gains ( losses ) on investments primarily represent our share of equity method investment gains and losses from our technology-related investment funds . the decrease in gains during 2011 is primarily due to a smaller increase in the valuations of certain assets within the funds in 2011 as compared to 2010. provision for income taxes replace_table_token_14_th the effective tax rate has remained relatively consistent from 2010 to 2011 . 2010 compared to 2009 revenues replace_table_token_15_th 23 the increase in total revenues in 2010 is principally the result of increased demand for our products and services and the acquisition of strategic oxygen in december 2009 , which accounted for approximately 1.9 % of revenue growth . the effects of foreign exchange resulted in an approximate 1 % decrease in total revenues during 2010. revenue growth in 2010 was driven by a 12 % increase in the technology industry client group ( approximately 6.7 % due to strategic oxygen ) , a 12 % increase in the marketing and strategy client group and a 16 % increase for events . revenue in the business technology client group was essentially flat for the year . overall revenue growth was due in part to the improvement in the economy and an increase in the number of sales personnel in 2010. revenue growth in the u.s. outpaced the growth in europe , due in part to a stronger economy in the u.s. relative to europe , resulting in a decrease of 2 % in the percentage of revenue earned outside of the u.s. we count co-located events , which enable our clients to attend multiple events with one event ticket , as a single event in the table above . cost of services and fulfillment replace_table_token_16_th the increase in the dollar amount of cost of services and fulfillment during 2010 is primarily the result of increased compensation and benefit costs resulting from an increase in the number of employees and an increase in incentive compensation , increased travel-related costs and costs resulting from the acquisition of strategic oxygen in december 2009. this increase was partially offset by stock-based compensation expense in 2009 from the accelerated vesting of performance-based stock options . selling and marketing replace_table_token_17_th the increase in selling and marketing expenses in dollars and as
| liquidity and capital resources we have financed our operations primarily through funds generated from operations . memberships for research services , which constituted approximately 68 % of our revenues during 2011 , are annually renewable and are generally payable in advance . we generated cash from operating activities of $ 55.4 million , $ 38.7 million and $ 43.1 million during 2011 , 2010 and 2009 , respectively . the increase in cash provided from operations in 2011 compared to 2010 is primarily attributable to both a reduction in the amount of income taxes paid during 2011 of $ 10.7 million , primarily due to a deferral of payments , and to an increase in net income of $ 2.5 million . the decrease in cash provided from operations in 2010 compared to 2009 is primarily attributable a lower amount of cash generated from working capital in 2010 of $ 1.9 million compared to $ 5.4 million in 2009. during 2011 we used $ 53.0 million of cash from investing activities , consisting primarily of $ 20.8 million of net purchases of marketable investments , $ 39.8 million of purchases of property and equipment and $ 7.5 million for acquisitions . the property and equipment purchases were partially funded by $ 14.5 million of restricted cash that had been placed in escrow in 2009 for such purchases . property and equipment purchases during 2011 consisted primarily of leasehold improvements for new facilities and also included purchases of software and computer equipment .
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the $ 11.9 million is recorded in other liabilities at october 31 , 2016. we have paid quarterly dividends to our shareholders continuously since our founding in 1969 and have increased the level of dividend payments to our shareholders for 22 consecutive years . we derive substantially all of our revenues from rents and operating expense reimbursements received pursuant to long-term leases and focus our investment activities on community and neighborhood shopping centers , anchored principally by regional supermarket chains . we believe that because consumers need to purchase food and other types of staple goods and services generally available at supermarket-anchored shopping centers , the nature of our investments provides for relatively stable revenue flows even during difficult economic times . we have a conservative capital structure and do not have any secured debt maturing until october 2017 , for which we have entered into a commitment to refinance in july 2017. see `` significant financings and debt transactions in fiscal 2016 `` below in this item 7. we focus on increasing cash flow , and consequently the value of our properties , and seek continued growth through strategic re-leasing , renovations and expansions of our existing properties and selective acquisitions of income-producing properties . key elements of our growth strategies and operating policies are to : · acquire quality neighborhood and community shopping centers in the northeastern part of the united states with a concentration on properties in the metropolitan new york tri-state area outside of the city of new york , and unlock further value in these properties with selective enhancements to both the property and tenant mix , as well as improvements to management and leasing fundamentals ; · selectively dispose of underperforming properties and re-deploy the proceeds into potentially higher performing properties that meet our acquisition criteria ; · invest in our properties for the long term through regular maintenance , periodic renovations and capital improvements , enhancing their attractiveness to tenants and customers , as well as increasing their value ; · leverage opportunities to increase gla at existing properties , through development of pad sites and reconfiguring of existing square footage , to meet the needs of existing or new tenants ; · proactively manage our leasing strategy by aggressively marketing available gla , renewing existing leases with strong tenants , and replacing weak ones when necessary , with an eye towards securing leases that include regular or fixed contractual increases to minimum rents , replacing below-market-rent leases with increased market rents when possible and further improving the quality of our tenant mix at our shopping centers ; · maintain strong working relationships with our tenants , particularly our anchor tenants ; · maintain a conservative capital structure with low leverage levels ; and · control property operating and administrative costs . 16 highlights of fiscal 2016 ; recent developments set forth below are highlights of our acquisitions , other investments , dispositions and financings during fiscal 2016 : · in july 2016 , we purchased , for $ 45.3 million , the 72,000 square foot newfield green shopping center located in stamford , ct. · in july 2016 , we completed a follow-on class a common stock offering , raising proceeds of $ 73.7 million , of which we used $ 60.1 million to repay borrowings on our unsecured revolving credit facility ( the `` facility `` ) . · in july 2016 , we entered into a commitment to refinance our $ 44 million mortgage secured by our ridgeway shopping center in stamford , ct on july 17 , 2017 , the first day the current ridgeway mortgage can be repaid without penalty . the new mortgage will be in the amount of $ 50 million and will have a term of ten years and will require payment of principal and interest at the rate of libor plus 1.9 % . concurrent with entering into the commitment , we also entered into an interest rate swap contract which will convert the variable interest rate ( based on libor ) to a fixed rate of 3.398 % per annum . · in august 2016 , we refinanced our existing facility , increasing the capacity to $ 100 million from $ 80 million , with the ability under certain conditions to additionally increase the capacity to $ 150 million . · in september 2016 , we refinanced our $ 7.2 million mortgage secured by two greenwich , ct. properties with the existing lender . the new mortgage principal balance will be $ 11 million and have a term of ten years and will require payments of principal and interest at the rate of libor plus 2.0 % . concurrent with entering into the mortgage , we also entered into an interest rate swap contract which will convert the variable interest rate ( based on libor ) to a fixed rate of 3.475 % per annum . · in october 2016 , we purchased , for $ 13.3 million , the 27,000 square foot 970 high ridge road shopping center located in stamford , ct. · in october 2016 , we originated a loan in the amount of $ 13.5 million , bearing interest at one-month libor plus 3.25 % per annum , secured by a first mortgage on a shopping center located in rockland county , ny , and maturing october 10 , 2017. known trends ; outlook we believe that shopping center reits face opportunities and challenges that are both common to and unique from other reits and real estate companies . as a reit , we are susceptible to changes in interest rates , the lending environment , the availability of capital markets and the general economy . for example , some experts are predicting an increased interest rate environment , which could negatively impact the attractiveness of reit stock to investors and our borrowing activities . story_separator_special_tag the company 's ability to borrow under the facility is subject to its compliance with the covenants and other restrictions on an ongoing basis . the principal financial covenants limit the company 's level of secured and unsecured indebtedness and additionally require the company to maintain certain debt coverage ratios . the company was in compliance with such covenants at october 31 , 2016 . · during the fiscal years ended october 31 , 2016 and 2015 , we borrowed $ 52 million and $ 104.8 million , respectively , on our facility to fund a portion of the equity for property acquisitions and capital improvements to our properties . during the fiscal years ended october 31 , 2016 and 2015 , we re-paid $ 66.8 million and $ 97.6 million , respectively , on our facility with proceeds from a combination of non-recourse mortgage financings , secured mortgage financings and available cash . · in september 2016 , we refinanced our $ 7.2 million mortgage secured by two properties with the existing lender . the new mortgage has a principal balance of $ 11 million , a term of ten years and requires payments of principal and interest at the rate of libor plus 2.0 % . concurrent with entering into the mortgage , we also entered into an interest rate swap contract which converts the variable interest rate ( based on libor ) to a fixed rate of 3.475 % per annum . · in july 2016 , we entered into a commitment to refinance our $ 44 million mortgage secured by our ridgeway shopping center in stamford , ct on july 17 , 2017 , the first day the current ridgeway mortgage can be repaid without penalty . the new mortgage will be in the amount of $ 50 million , have a term of ten years and require payment of principal and interest at the rate of libor plus 1.9 % . concurrent with entering into the commitment , we also entered into an interest rate swap contract which will convert the variable interest rate ( based on libor ) to a fixed rate of 3.398 % per annum . · in july 2016 , we placed a $ 22.7 million mortgage secured by our newly acquired newfield green shopping center located in stamford , ct. the new mortgage has a term of fifteen years and requires payments of principal and interest at the fixed rate of 3.89 % per annum . · in july 2016 , we sold 2,750,000 shares of class a common stock in an underwritten follow-on common stock offering for $ 23.29 per share and raised net proceeds of $ 64.1 million . in august 2016 , the underwriters exercised their over-allotment option and purchased an additional 412,500 shares of class a common stock that raised additional net proceeds of $ 9.6 million . · in may 2016 , we repaid a $ 7.5 million mortgage that was secured by our bloomfield , nj property . 19 net cash flows from operating activities increase from fiscal 2015 to fiscal 2016 : the increase was primarily due to an increase in operating income at various properties in fiscal 2016 when compared with fiscal 2015 , resulting from new leasing completed in fiscal 2015 and fiscal 2016 and $ 4.8 million in extension fees collected from the entity under contract to purchase our white plains property . in addition , the increase was further aided by an increase in the collection of tenant receivables in fiscal 2016 when compared with fiscal 2015. increase from fiscal 2014 to fiscal 2015 : the increase was due primarily to an increase in the operating income generated by our properties in the year ended october 31 , 2015 versus fiscal 2014 offset by an increase in receivable and other assets and other liabilities . net cash flows from investing activities decrease in cash used from fiscal 2015 to fiscal 2016 : the decrease in cash flows used in investing activities in fiscal 2016 when compared to the prior fiscal year was the result of the purchase of two properties totaling $ 58.6 million is fiscal 2016 versus purchasing six properties totaling $ 138.5 million in fiscal 2015 , offset by the company receiving $ 42.9 million in fiscal 2015 in proceeds from the sale of the meriden property . in addition , we initiated a first mortgage loan in the amount of $ 13.5 million in fiscal 2016. increase in cash used from fiscal 2014 to fiscal 2015 : the increase in cash flows used in investing activities in fiscal 2015 when compared to the prior fiscal year was the result of the purchase of six properties totaling $ 138.5 million in fiscal 2015 , versus purchasing eight properties in fiscal 2014 totaling $ 81.7 million . we regularly make capital investments in our properties for property improvements , tenant improvements costs and leasing commissions . net cash flows from financing activities cash generated : fiscal 2016 : ( total $ 159.5 million ) · proceeds from issuance of class a common stock in the amount of $ 73.7 million . · proceeds from revolving credit line borrowings in the amount of $ 52.0 million . · proceeds from mortgage financings in the amount of $ 34.7 million . fiscal 2015 : ( total $ 237.6 million ) · proceeds from mortgage financings in the amount of $ 68.2 million . · proceeds from revolving credit line borrowings in the amount of $ 104.8 million . · proceeds from the issuance of series g preferred stock in the amount of $ 4.6 million . · proceeds from the issuance of class a common stock in the amount of $ 59.8 million . fiscal 2014 : ( total $ 198.8 million ) · proceeds from revolving credit line borrowings of $ 65.1 million . · proceeds from unsecured term loan borrowing of $ 25 million . · proceeds from
| liquidity and capital resources we have financed our operations primarily through funds generated from operations . memberships for research services , which constituted approximately 68 % of our revenues during 2011 , are annually renewable and are generally payable in advance . we generated cash from operating activities of $ 55.4 million , $ 38.7 million and $ 43.1 million during 2011 , 2010 and 2009 , respectively . the increase in cash provided from operations in 2011 compared to 2010 is primarily attributable to both a reduction in the amount of income taxes paid during 2011 of $ 10.7 million , primarily due to a deferral of payments , and to an increase in net income of $ 2.5 million . the decrease in cash provided from operations in 2010 compared to 2009 is primarily attributable a lower amount of cash generated from working capital in 2010 of $ 1.9 million compared to $ 5.4 million in 2009. during 2011 we used $ 53.0 million of cash from investing activities , consisting primarily of $ 20.8 million of net purchases of marketable investments , $ 39.8 million of purchases of property and equipment and $ 7.5 million for acquisitions . the property and equipment purchases were partially funded by $ 14.5 million of restricted cash that had been placed in escrow in 2009 for such purchases . property and equipment purchases during 2011 consisted primarily of leasehold improvements for new facilities and also included purchases of software and computer equipment .
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the $ 11.9 million is recorded in other liabilities at october 31 , 2016. we have paid quarterly dividends to our shareholders continuously since our founding in 1969 and have increased the level of dividend payments to our shareholders for 22 consecutive years . we derive substantially all of our revenues from rents and operating expense reimbursements received pursuant to long-term leases and focus our investment activities on community and neighborhood shopping centers , anchored principally by regional supermarket chains . we believe that because consumers need to purchase food and other types of staple goods and services generally available at supermarket-anchored shopping centers , the nature of our investments provides for relatively stable revenue flows even during difficult economic times . we have a conservative capital structure and do not have any secured debt maturing until october 2017 , for which we have entered into a commitment to refinance in july 2017. see `` significant financings and debt transactions in fiscal 2016 `` below in this item 7. we focus on increasing cash flow , and consequently the value of our properties , and seek continued growth through strategic re-leasing , renovations and expansions of our existing properties and selective acquisitions of income-producing properties . key elements of our growth strategies and operating policies are to : · acquire quality neighborhood and community shopping centers in the northeastern part of the united states with a concentration on properties in the metropolitan new york tri-state area outside of the city of new york , and unlock further value in these properties with selective enhancements to both the property and tenant mix , as well as improvements to management and leasing fundamentals ; · selectively dispose of underperforming properties and re-deploy the proceeds into potentially higher performing properties that meet our acquisition criteria ; · invest in our properties for the long term through regular maintenance , periodic renovations and capital improvements , enhancing their attractiveness to tenants and customers , as well as increasing their value ; · leverage opportunities to increase gla at existing properties , through development of pad sites and reconfiguring of existing square footage , to meet the needs of existing or new tenants ; · proactively manage our leasing strategy by aggressively marketing available gla , renewing existing leases with strong tenants , and replacing weak ones when necessary , with an eye towards securing leases that include regular or fixed contractual increases to minimum rents , replacing below-market-rent leases with increased market rents when possible and further improving the quality of our tenant mix at our shopping centers ; · maintain strong working relationships with our tenants , particularly our anchor tenants ; · maintain a conservative capital structure with low leverage levels ; and · control property operating and administrative costs . 16 highlights of fiscal 2016 ; recent developments set forth below are highlights of our acquisitions , other investments , dispositions and financings during fiscal 2016 : · in july 2016 , we purchased , for $ 45.3 million , the 72,000 square foot newfield green shopping center located in stamford , ct. · in july 2016 , we completed a follow-on class a common stock offering , raising proceeds of $ 73.7 million , of which we used $ 60.1 million to repay borrowings on our unsecured revolving credit facility ( the `` facility `` ) . · in july 2016 , we entered into a commitment to refinance our $ 44 million mortgage secured by our ridgeway shopping center in stamford , ct on july 17 , 2017 , the first day the current ridgeway mortgage can be repaid without penalty . the new mortgage will be in the amount of $ 50 million and will have a term of ten years and will require payment of principal and interest at the rate of libor plus 1.9 % . concurrent with entering into the commitment , we also entered into an interest rate swap contract which will convert the variable interest rate ( based on libor ) to a fixed rate of 3.398 % per annum . · in august 2016 , we refinanced our existing facility , increasing the capacity to $ 100 million from $ 80 million , with the ability under certain conditions to additionally increase the capacity to $ 150 million . · in september 2016 , we refinanced our $ 7.2 million mortgage secured by two greenwich , ct. properties with the existing lender . the new mortgage principal balance will be $ 11 million and have a term of ten years and will require payments of principal and interest at the rate of libor plus 2.0 % . concurrent with entering into the mortgage , we also entered into an interest rate swap contract which will convert the variable interest rate ( based on libor ) to a fixed rate of 3.475 % per annum . · in october 2016 , we purchased , for $ 13.3 million , the 27,000 square foot 970 high ridge road shopping center located in stamford , ct. · in october 2016 , we originated a loan in the amount of $ 13.5 million , bearing interest at one-month libor plus 3.25 % per annum , secured by a first mortgage on a shopping center located in rockland county , ny , and maturing october 10 , 2017. known trends ; outlook we believe that shopping center reits face opportunities and challenges that are both common to and unique from other reits and real estate companies . as a reit , we are susceptible to changes in interest rates , the lending environment , the availability of capital markets and the general economy . for example , some experts are predicting an increased interest rate environment , which could negatively impact the attractiveness of reit stock to investors and our borrowing activities . story_separator_special_tag the company 's ability to borrow under the facility is subject to its compliance with the covenants and other restrictions on an ongoing basis . the principal financial covenants limit the company 's level of secured and unsecured indebtedness and additionally require the company to maintain certain debt coverage ratios . the company was in compliance with such covenants at october 31 , 2016 . · during the fiscal years ended october 31 , 2016 and 2015 , we borrowed $ 52 million and $ 104.8 million , respectively , on our facility to fund a portion of the equity for property acquisitions and capital improvements to our properties . during the fiscal years ended october 31 , 2016 and 2015 , we re-paid $ 66.8 million and $ 97.6 million , respectively , on our facility with proceeds from a combination of non-recourse mortgage financings , secured mortgage financings and available cash . · in september 2016 , we refinanced our $ 7.2 million mortgage secured by two properties with the existing lender . the new mortgage has a principal balance of $ 11 million , a term of ten years and requires payments of principal and interest at the rate of libor plus 2.0 % . concurrent with entering into the mortgage , we also entered into an interest rate swap contract which converts the variable interest rate ( based on libor ) to a fixed rate of 3.475 % per annum . · in july 2016 , we entered into a commitment to refinance our $ 44 million mortgage secured by our ridgeway shopping center in stamford , ct on july 17 , 2017 , the first day the current ridgeway mortgage can be repaid without penalty . the new mortgage will be in the amount of $ 50 million , have a term of ten years and require payment of principal and interest at the rate of libor plus 1.9 % . concurrent with entering into the commitment , we also entered into an interest rate swap contract which will convert the variable interest rate ( based on libor ) to a fixed rate of 3.398 % per annum . · in july 2016 , we placed a $ 22.7 million mortgage secured by our newly acquired newfield green shopping center located in stamford , ct. the new mortgage has a term of fifteen years and requires payments of principal and interest at the fixed rate of 3.89 % per annum . · in july 2016 , we sold 2,750,000 shares of class a common stock in an underwritten follow-on common stock offering for $ 23.29 per share and raised net proceeds of $ 64.1 million . in august 2016 , the underwriters exercised their over-allotment option and purchased an additional 412,500 shares of class a common stock that raised additional net proceeds of $ 9.6 million . · in may 2016 , we repaid a $ 7.5 million mortgage that was secured by our bloomfield , nj property . 19 net cash flows from operating activities increase from fiscal 2015 to fiscal 2016 : the increase was primarily due to an increase in operating income at various properties in fiscal 2016 when compared with fiscal 2015 , resulting from new leasing completed in fiscal 2015 and fiscal 2016 and $ 4.8 million in extension fees collected from the entity under contract to purchase our white plains property . in addition , the increase was further aided by an increase in the collection of tenant receivables in fiscal 2016 when compared with fiscal 2015. increase from fiscal 2014 to fiscal 2015 : the increase was due primarily to an increase in the operating income generated by our properties in the year ended october 31 , 2015 versus fiscal 2014 offset by an increase in receivable and other assets and other liabilities . net cash flows from investing activities decrease in cash used from fiscal 2015 to fiscal 2016 : the decrease in cash flows used in investing activities in fiscal 2016 when compared to the prior fiscal year was the result of the purchase of two properties totaling $ 58.6 million is fiscal 2016 versus purchasing six properties totaling $ 138.5 million in fiscal 2015 , offset by the company receiving $ 42.9 million in fiscal 2015 in proceeds from the sale of the meriden property . in addition , we initiated a first mortgage loan in the amount of $ 13.5 million in fiscal 2016. increase in cash used from fiscal 2014 to fiscal 2015 : the increase in cash flows used in investing activities in fiscal 2015 when compared to the prior fiscal year was the result of the purchase of six properties totaling $ 138.5 million in fiscal 2015 , versus purchasing eight properties in fiscal 2014 totaling $ 81.7 million . we regularly make capital investments in our properties for property improvements , tenant improvements costs and leasing commissions . net cash flows from financing activities cash generated : fiscal 2016 : ( total $ 159.5 million ) · proceeds from issuance of class a common stock in the amount of $ 73.7 million . · proceeds from revolving credit line borrowings in the amount of $ 52.0 million . · proceeds from mortgage financings in the amount of $ 34.7 million . fiscal 2015 : ( total $ 237.6 million ) · proceeds from mortgage financings in the amount of $ 68.2 million . · proceeds from revolving credit line borrowings in the amount of $ 104.8 million . · proceeds from the issuance of series g preferred stock in the amount of $ 4.6 million . · proceeds from the issuance of class a common stock in the amount of $ 59.8 million . fiscal 2014 : ( total $ 198.8 million ) · proceeds from revolving credit line borrowings of $ 65.1 million . · proceeds from unsecured term loan borrowing of $ 25 million . · proceeds from
| cash used : fiscal 2016 : ( total $ 138.9 million ) · dividends to shareholders in the amount of $ 51.4 million . · repayment of mortgage notes payable in the amount of $ 21.7 million . · repayment of revolving credit line borrowings in the amount of $ 66.8 million . fiscal 2015 : ( total $ 250.1 million ) · dividends to shareholders in the amount of $ 50.0 million . · repayment of mortgage notes payable in the amount of $ 12.9 million . · repayment of revolving credit line borrowings in the amount of $ 97.6 million . · repayment of the unsecured term loan in the amount of $ 25 million . · redemption of preferred stock in the amount of $ 61.3 million . · repurchase of class a common stock in the amount of $ 3.4 million . fiscal 2014 : ( total $ 125.0 million ) · dividends to shareholders in the amount of $ 45.9 million . · repayments of mortgage notes payable in the amount of $ 20.3 million . · repayments of revolving credit line borrowings in the amount of $ 58.8 million . 20 results of operations fiscal 2016 vs. fiscal 2015 the following information summarizes our results of operations for the years ended october 31 , 2016 and 2015 ( amounts in thousands ) : replace_table_token_8_th note 1 – properties held in both periods includes only properties owned for the entire periods of 2016 and 2015 including the company 's white plains property ( see executive summary above ) . all other properties are included in the property acquisition/sales column . there are no properties excluded from the analysis .
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it resulted in government restrictions , such as “ stay-at-home ” or “ shelter-in-place ” directives , quarantines , travel advisories and the implementation of social distancing measures , leading to the closure of businesses and weakened economic conditions resulting in an economic slowdown and recession . the homebuilding industry started to experience slowing sales trends in mid-march through april of 2020 at the outset of the widespread uncertainty concerning the pandemic . however , home sales began to sharply rebound in may and june of 2020 , aided by historically low interest rates , lack of supply , and potentially renewed desire from customers to move out of urban areas and or apartments and into new homes in suburban areas , which desire was likely accelerated by the covid-19 pandemic . these positive trends continued throughout the remainder of 2020. in response to the pandemic and government restrictions , we shifted our sales process to offer additional virtual online tours and appointments and , where permitted , appointment-only in-person meetings that comply with social distancing and other health and safety requirements and protocols . construction and sale of residential real estate were deemed essential businesses in almost all of our markets ; and accordingly , our operations , other than in certain markets during the first weeks of april , were exempted from applicable health orders . while these circumstances did not materially adversely affect our 2020 financial results , we recognize that long term macro-economic effects of the pandemic that could ultimately impact the homebuilding industry have yet to be known . there is still uncertainty regarding the extent and duration of the covid-19 pandemic as the situation has continued to evolve and associated government and consumer responses have remained in a state of flux . recent increases in covid-19 positive cases have resulted and could continue to result in the slowing or altering of the “ re-opening ” plans of numerous state and local municipalities . despite overall strong demand and sales of our homes during the remainder of 2020 , continued future demand is uncertain as economic conditions are uncertain , in particular with respect to unemployment levels , which remain at historically high levels , and the extent to which and how long covid-19 and related government directives , actions , and economic relief efforts will impact the u.s. economy , unemployment levels , financial markets , credit and mortgage markets , consumer confidence , availability of mortgage loans to homebuyers , and other factors , including those described elsewhere in this report . a decrease in demand for our homes would adversely affect our operating results in future periods , as well as have a direct effect on the origination volume of and revenues from our financial services segment . in addition , because the full magnitude and duration of the covid-19 pandemic is uncertain and difficult to predict , changes in our cash flow projections may change our conclusions on the recoverability of inventories in the future . given the significant uncertainty regarding the impact of covid-19 , and in particular during the late march and april 2020 timeframe , we took significant steps to preserve cash and ensure we were positioned appropriately from a working capital perspective , including but not limited to initially extending the timing of certain land acquisitions , slowing or altering our land development activities , drawing additional amounts on our revolving line of credit , and implementing a reduction in our workforce , along with other cost savings measures . as a result , and aided by strong demand for our homes during the remainder of 2020 , we ended 2020 with no amounts outstanding on our revolving line of credit , $ 394.0 million of cash and cash equivalents , $ 23.1 million of cash held in escrow , and a net homebuilding debt to net capital ratio of 27.2 % . driven by the strong housing market , we increased our land acquisition and development activities during the second half of 2020 to bolster our lot pipeline and support future community growth , which resulted in 49,965 lots owned and controlled at december 31 , 2020 , a 43.4 % increase as compared to june 30 , 2020 and a 28.3 % increase as compared to december 31 , 2019. although the trajectory and strength of our markets continues to remain strong , we experienced some building cost pressures , particularly with respect to lumber , that could negatively impact our margins in future periods . while the impact 43 of the covid-19 pandemic will continue to evolve and at any given time recovery could be slowed or reversed by a number of factors , we believe we are well positioned from a cash and liquidity standpoint not only to operate in an uncertain environment , but also continue to grow with the market , pay down debt and pursue other ways to properly deploy capital to enhance returns , which may include taking advantage of strategic opportunities as they arise . results of operations – years ended december 31 , 2020 and 2019 during the year ended december 31 , 2020 , we generated record home sales revenues of $ 3.0 billion , an increase of 22.0 % over 2019. the increase was fueled by an 18.2 % increase in the number of homes delivered to 9,453 and a 3.2 % increase in the average sales price per home to $ 320,200. this increase in home sales revenue , combined with a $ 37.8 million increase in income from our financial services segment , a 70 basis point increase in homebuilding gross margin percent , and a 90 basis point decrease in the percentage of selling , general and administrative expense as a percent of home sales revenues , resulted in a record $ 270.2 million in income before income tax expense for the year ended december 31 , 2020. our financial results for story_separator_special_tag on december 27 , 2020 , an additional extension of the federal energy credit was enacted which extended the current provisions through december 31 , 2021 . 49 segment assets ( dollars in thousands ) replace_table_token_7_th replace_table_token_8_th of our total lots owned and controlled as of december 31 , 2020 , 41.6 % were owned and 58.4 % were controlled , as compared to 48.1 % owned and 51.9 % controlled as of december 31 , 2019. total assets increased by $ 345.1 million , or 13.8 % , to $ 2.8 billion at december 31 , 2020 , as compared to $ 2.5 billion at december 31 , 2019. the increase is primarily driven by excess cash generated from homes sales in 2020 and an increase in mortgage loans originated and closed in our financial services segment . other homebuilding operating data replace_table_token_9_th net new home contracts ( new home contracts net of cancellations ) for the year ended december 31 , 2020 increased by 2,961 homes , or 37.7 % , to 10,822 , as compared to 7,861 for the year ended december 31 , 2019. the increase in our net new home contracts was primarily driven by stronger sales across all of our segments as the homebuilding industry continued to experience positive trends during 2020. since the market conditions and future impacts from covid-19 remain uncertain , it is difficult to predict our future net new home contracts . our overall monthly “ absorption rate ” ( the rate at which home orders are contracted , net of cancelations ) for the years ended december 31 , 2020 and 2019 by segment is included in the table below : replace_table_token_10_th 50 replace_table_token_11_th our absorption rate increased from 3.1 per month for the year ended december 31 , 2019 to 4.6 per month during the year ended december 31 , 2020. replace_table_token_12_th our selling communities decreased by 14 communities to 198 communities at december 31 , 2020 , as compared to 212 communities at december 31 , 2019. the decrease was a result of the strong sales environment , which outpaced new community openings . century complete sells primarily from retail studios and online via the internet , instead of from traditional model homes . while century complete has historically purchased land and constructed homes within traditional communities similar to our century communities brand , we also purchase land and construct a significant number of homes on scattered lots outside of traditional communities . as the brand has grown , entered new markets and expanded its land pipeline , we have increasingly operated within traditional communities , and now rely , to a lesser degree , on scattered lots . additionally , we have organized our construction and sales operations for scattered lot positions within “ pods ” which are clustered together lot positions , which we operate more like a traditional community . accordingly , our selling communities at period end for the 2019 period has been updated from amounts previously disclosed to reflect the above for our century complete brand . replace_table_token_13_th backlog reflects the number of homes , net of cancellations experienced during the period , for which we have entered into a sales contract with a customer but for which we have not yet delivered the home . at december 31 , 2020 , we had 3,439 homes in backlog with a total value of $ 1.3 billion , which represents an increase of 66.1 % and 102.9 % , respectively , as compared to 2,070 homes in backlog with a total value of $ 637.8 million at december 31 , 2019. the increase in backlog value is primarily attributable to the increase in backlog units and a 22.1 % increase in the backlog average sales price . liquidity and capital resources overview our principal uses of capital for the year ended december 31 , 2020 were our land purchases , land development , home construction , and 51 the payment of routine liabilities . we use funds generated by operations , available borrowings under our revolving credit facility , and proceeds from sales of common stock , including our current at-the-market facility , to fund our short term working capital obligations and fund our purchases of land , as well as land development and home construction activities . cash flows for each of our communities depend on the stage in the development cycle , and can differ substantially from reported earnings . early stages of development or expansion require significant cash outlays for land acquisitions , entitlements and other approvals , and construction of model homes , roads , utilities , general landscaping and other amenities . because these costs are a component of our inventory and not recognized in our statements of operations until a home closes , we incur significant cash outlays prior to our recognition of earnings . in the later stages of community development , cash inflows may significantly exceed earnings reported for financial statement purposes , as the cash outflow associated with home and land construction was previously incurred . from a liquidity standpoint , we are actively acquiring and developing lots in our markets to maintain and grow our lot supply and active selling communities . as we continue to expand our business , our cash outlays for land purchases and land development to grow our lot inventory may exceed our cash generated by operations . in response to the covid-19 pandemic , we took certain measures to ensure we were positioned with cash flow and liquidity to endure an extended period of lower demand for our homes , should it arise . specifically commencing in mid-march of 2020 , we slowed our land acquisition and development activities and instituted a variety of actions designed to reduce our operating expenses , including a reduction in the size of our workforce through a targeted layoff in april 2020. in addition , given the uncertainty surrounding the covid-19 pandemic
| cash used : fiscal 2016 : ( total $ 138.9 million ) · dividends to shareholders in the amount of $ 51.4 million . · repayment of mortgage notes payable in the amount of $ 21.7 million . · repayment of revolving credit line borrowings in the amount of $ 66.8 million . fiscal 2015 : ( total $ 250.1 million ) · dividends to shareholders in the amount of $ 50.0 million . · repayment of mortgage notes payable in the amount of $ 12.9 million . · repayment of revolving credit line borrowings in the amount of $ 97.6 million . · repayment of the unsecured term loan in the amount of $ 25 million . · redemption of preferred stock in the amount of $ 61.3 million . · repurchase of class a common stock in the amount of $ 3.4 million . fiscal 2014 : ( total $ 125.0 million ) · dividends to shareholders in the amount of $ 45.9 million . · repayments of mortgage notes payable in the amount of $ 20.3 million . · repayments of revolving credit line borrowings in the amount of $ 58.8 million . 20 results of operations fiscal 2016 vs. fiscal 2015 the following information summarizes our results of operations for the years ended october 31 , 2016 and 2015 ( amounts in thousands ) : replace_table_token_8_th note 1 – properties held in both periods includes only properties owned for the entire periods of 2016 and 2015 including the company 's white plains property ( see executive summary above ) . all other properties are included in the property acquisition/sales column . there are no properties excluded from the analysis .
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it resulted in government restrictions , such as “ stay-at-home ” or “ shelter-in-place ” directives , quarantines , travel advisories and the implementation of social distancing measures , leading to the closure of businesses and weakened economic conditions resulting in an economic slowdown and recession . the homebuilding industry started to experience slowing sales trends in mid-march through april of 2020 at the outset of the widespread uncertainty concerning the pandemic . however , home sales began to sharply rebound in may and june of 2020 , aided by historically low interest rates , lack of supply , and potentially renewed desire from customers to move out of urban areas and or apartments and into new homes in suburban areas , which desire was likely accelerated by the covid-19 pandemic . these positive trends continued throughout the remainder of 2020. in response to the pandemic and government restrictions , we shifted our sales process to offer additional virtual online tours and appointments and , where permitted , appointment-only in-person meetings that comply with social distancing and other health and safety requirements and protocols . construction and sale of residential real estate were deemed essential businesses in almost all of our markets ; and accordingly , our operations , other than in certain markets during the first weeks of april , were exempted from applicable health orders . while these circumstances did not materially adversely affect our 2020 financial results , we recognize that long term macro-economic effects of the pandemic that could ultimately impact the homebuilding industry have yet to be known . there is still uncertainty regarding the extent and duration of the covid-19 pandemic as the situation has continued to evolve and associated government and consumer responses have remained in a state of flux . recent increases in covid-19 positive cases have resulted and could continue to result in the slowing or altering of the “ re-opening ” plans of numerous state and local municipalities . despite overall strong demand and sales of our homes during the remainder of 2020 , continued future demand is uncertain as economic conditions are uncertain , in particular with respect to unemployment levels , which remain at historically high levels , and the extent to which and how long covid-19 and related government directives , actions , and economic relief efforts will impact the u.s. economy , unemployment levels , financial markets , credit and mortgage markets , consumer confidence , availability of mortgage loans to homebuyers , and other factors , including those described elsewhere in this report . a decrease in demand for our homes would adversely affect our operating results in future periods , as well as have a direct effect on the origination volume of and revenues from our financial services segment . in addition , because the full magnitude and duration of the covid-19 pandemic is uncertain and difficult to predict , changes in our cash flow projections may change our conclusions on the recoverability of inventories in the future . given the significant uncertainty regarding the impact of covid-19 , and in particular during the late march and april 2020 timeframe , we took significant steps to preserve cash and ensure we were positioned appropriately from a working capital perspective , including but not limited to initially extending the timing of certain land acquisitions , slowing or altering our land development activities , drawing additional amounts on our revolving line of credit , and implementing a reduction in our workforce , along with other cost savings measures . as a result , and aided by strong demand for our homes during the remainder of 2020 , we ended 2020 with no amounts outstanding on our revolving line of credit , $ 394.0 million of cash and cash equivalents , $ 23.1 million of cash held in escrow , and a net homebuilding debt to net capital ratio of 27.2 % . driven by the strong housing market , we increased our land acquisition and development activities during the second half of 2020 to bolster our lot pipeline and support future community growth , which resulted in 49,965 lots owned and controlled at december 31 , 2020 , a 43.4 % increase as compared to june 30 , 2020 and a 28.3 % increase as compared to december 31 , 2019. although the trajectory and strength of our markets continues to remain strong , we experienced some building cost pressures , particularly with respect to lumber , that could negatively impact our margins in future periods . while the impact 43 of the covid-19 pandemic will continue to evolve and at any given time recovery could be slowed or reversed by a number of factors , we believe we are well positioned from a cash and liquidity standpoint not only to operate in an uncertain environment , but also continue to grow with the market , pay down debt and pursue other ways to properly deploy capital to enhance returns , which may include taking advantage of strategic opportunities as they arise . results of operations – years ended december 31 , 2020 and 2019 during the year ended december 31 , 2020 , we generated record home sales revenues of $ 3.0 billion , an increase of 22.0 % over 2019. the increase was fueled by an 18.2 % increase in the number of homes delivered to 9,453 and a 3.2 % increase in the average sales price per home to $ 320,200. this increase in home sales revenue , combined with a $ 37.8 million increase in income from our financial services segment , a 70 basis point increase in homebuilding gross margin percent , and a 90 basis point decrease in the percentage of selling , general and administrative expense as a percent of home sales revenues , resulted in a record $ 270.2 million in income before income tax expense for the year ended december 31 , 2020. our financial results for story_separator_special_tag on december 27 , 2020 , an additional extension of the federal energy credit was enacted which extended the current provisions through december 31 , 2021 . 49 segment assets ( dollars in thousands ) replace_table_token_7_th replace_table_token_8_th of our total lots owned and controlled as of december 31 , 2020 , 41.6 % were owned and 58.4 % were controlled , as compared to 48.1 % owned and 51.9 % controlled as of december 31 , 2019. total assets increased by $ 345.1 million , or 13.8 % , to $ 2.8 billion at december 31 , 2020 , as compared to $ 2.5 billion at december 31 , 2019. the increase is primarily driven by excess cash generated from homes sales in 2020 and an increase in mortgage loans originated and closed in our financial services segment . other homebuilding operating data replace_table_token_9_th net new home contracts ( new home contracts net of cancellations ) for the year ended december 31 , 2020 increased by 2,961 homes , or 37.7 % , to 10,822 , as compared to 7,861 for the year ended december 31 , 2019. the increase in our net new home contracts was primarily driven by stronger sales across all of our segments as the homebuilding industry continued to experience positive trends during 2020. since the market conditions and future impacts from covid-19 remain uncertain , it is difficult to predict our future net new home contracts . our overall monthly “ absorption rate ” ( the rate at which home orders are contracted , net of cancelations ) for the years ended december 31 , 2020 and 2019 by segment is included in the table below : replace_table_token_10_th 50 replace_table_token_11_th our absorption rate increased from 3.1 per month for the year ended december 31 , 2019 to 4.6 per month during the year ended december 31 , 2020. replace_table_token_12_th our selling communities decreased by 14 communities to 198 communities at december 31 , 2020 , as compared to 212 communities at december 31 , 2019. the decrease was a result of the strong sales environment , which outpaced new community openings . century complete sells primarily from retail studios and online via the internet , instead of from traditional model homes . while century complete has historically purchased land and constructed homes within traditional communities similar to our century communities brand , we also purchase land and construct a significant number of homes on scattered lots outside of traditional communities . as the brand has grown , entered new markets and expanded its land pipeline , we have increasingly operated within traditional communities , and now rely , to a lesser degree , on scattered lots . additionally , we have organized our construction and sales operations for scattered lot positions within “ pods ” which are clustered together lot positions , which we operate more like a traditional community . accordingly , our selling communities at period end for the 2019 period has been updated from amounts previously disclosed to reflect the above for our century complete brand . replace_table_token_13_th backlog reflects the number of homes , net of cancellations experienced during the period , for which we have entered into a sales contract with a customer but for which we have not yet delivered the home . at december 31 , 2020 , we had 3,439 homes in backlog with a total value of $ 1.3 billion , which represents an increase of 66.1 % and 102.9 % , respectively , as compared to 2,070 homes in backlog with a total value of $ 637.8 million at december 31 , 2019. the increase in backlog value is primarily attributable to the increase in backlog units and a 22.1 % increase in the backlog average sales price . liquidity and capital resources overview our principal uses of capital for the year ended december 31 , 2020 were our land purchases , land development , home construction , and 51 the payment of routine liabilities . we use funds generated by operations , available borrowings under our revolving credit facility , and proceeds from sales of common stock , including our current at-the-market facility , to fund our short term working capital obligations and fund our purchases of land , as well as land development and home construction activities . cash flows for each of our communities depend on the stage in the development cycle , and can differ substantially from reported earnings . early stages of development or expansion require significant cash outlays for land acquisitions , entitlements and other approvals , and construction of model homes , roads , utilities , general landscaping and other amenities . because these costs are a component of our inventory and not recognized in our statements of operations until a home closes , we incur significant cash outlays prior to our recognition of earnings . in the later stages of community development , cash inflows may significantly exceed earnings reported for financial statement purposes , as the cash outflow associated with home and land construction was previously incurred . from a liquidity standpoint , we are actively acquiring and developing lots in our markets to maintain and grow our lot supply and active selling communities . as we continue to expand our business , our cash outlays for land purchases and land development to grow our lot inventory may exceed our cash generated by operations . in response to the covid-19 pandemic , we took certain measures to ensure we were positioned with cash flow and liquidity to endure an extended period of lower demand for our homes , should it arise . specifically commencing in mid-march of 2020 , we slowed our land acquisition and development activities and instituted a variety of actions designed to reduce our operating expenses , including a reduction in the size of our workforce through a targeted layoff in april 2020. in addition , given the uncertainty surrounding the covid-19 pandemic
| debt our outstanding debt obligations included the following as of december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_14_th ( 1 ) the carrying value of senior notes reflects the impact of premiums , discounts , and issuance costs that are amortized to interest cost over the respective terms of the senior notes . 52 we may from time to time seek to retire or purchase our outstanding debt through cash purchases and or exchanges for equity securities , in open market purchases , privately negotiated transactions or otherwise . such repurchases or exchanges , if any , will depend on prevailing market conditions , our liquidity requirements , contractual restrictions and other factors . the amounts involved may or may not be material during any particular reporting period . 6.750 % senior notes due 2027 in may 2019 , we completed a private offering of $ 500.0 million aggregate principal amount of our initial 6.750 % senior notes due 2027 ( which we refer to as the “ initial notes due 2027 ” ) in reliance on rule 144a and regulation s under the securities act of 1933 ( which we refer to as the “ securities act ” ) . the initial notes due 2027 were issued under the indenture , dated as of may 23 , 2019 , among the company , our subsidiary guarantors party thereto , and u.s. bank national association , as trustee ( which we refer to as the “ may 2019 indenture , ” as it may be supplemented or amended from time to time ) . the initial notes due 2027 were issued at 100 % of their principal amount and we received net proceeds of $ 493.9 million . in connection with this issuance , we deferred $ 6.1 million of issuance costs , which is presented in the notes payable line item of the consolidated balance sheet .
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audit-related fees : grant thornton billed the company $ 29,120 and $ 28,080 for audit-related services as defined by the sec for the fiscal years ended june 30 , 2012 and 2011 , respectively . the audit-related services were for the audits of the company 's pension plan . tax fees : story_separator_special_tag results of operations : the following discussion and analysis provides information which the company 's management believes is relevant to an assessment and understanding of the company 's results of operations and financial condition . this discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere herein . unless otherwise specified , this discussion relates solely to the company 's continuing operations . all of the company 's sales to date have been derived from the sale of medical device products , which include manufacture and distribution of ultrasonic medical device products , and laboratory and scientific products , which include ductless fume enclosures for filtration of gaseous emissions in laboratory and forensic markets . see “ item 1. business – discontinued operations – laboratory and forensic safety products business . ” fiscal years ended june 30 , 2012 and 2011 : net sales : net sales increased $ 3,304,971 to $ 15,678,000 in fiscal 2012 , from $ 12,373,029 in fiscal 2011. the increase in sales is primarily due to higher bonescalpel revenue of $ 2,276,928 , higher sonastar revenue of $ 1,787,434 , higher lysonix revenue of $ 473,960 , higher service revenue of $ 329,402 and higher sonicone revenue of $ 191,602 , partially offset by lower autosonix revenue of $ 1,875,276. set forth below are tables showing the company 's net sales by ( i ) product category and ( ii ) geographic region for the years ended june 30 , 2012 and june 30 , 2011 : replace_table_token_5_th replace_table_token_6_th 18 net sales for the three months ended june 30 , 2012 were $ 5,300,520 , an increase of $ 1,535,086 as compared to $ 3,765,434 for the three months ended june 30 , 2011. the sales increase is due to higher bonescalpel revenue of $ 746,820 , higher sonastar revenue of $ 303,936 , higher sonicone revenue of $ 243,966 and higher lysonix revenue of $ 222,650. set forth below are tables showing the company 's net sales by ( i ) product category and ( ii ) geographic region for the three months ended june 30 , 2012 and june 30 , 2011 : replace_table_token_7_th replace_table_token_8_th 19 gross profit : gross profit increased to 58.8 % in fiscal 2012 from 57.3 % in fiscal 2011. gross profit for the three months ended june 30 , 2012 was 57.7 % as compared to 56.7 % for the three months ended june 30 , 2011 due to increased sales of the bonescalpel . selling expenses : selling expenses increased $ 1,146,047 to $ 5,031,831 ( 32.2 % of sales ) in fiscal 2012 from $ 3,885,784 ( 31.4 % of sales ) in fiscal 2011. the increase in selling expenses is related to higher salary expenses of $ 358,821 , higher commissions of $ 286,308 , higher advertising expenses of $ 192,679 , higher travel expenses of $ 147,773 , higher depreciation of demonstration equipment units related to more evaluation units in the field of $ 151,127 and other unfavorable expenses of $ 9,339. selling expenses for the three months ended june 30 , 2012 increased $ 226,349 to $ 1,411,752 ( 26.9 % of sales ) from $ 1,185,403 ( 31.5 % of sales ) for the three months ended june 30 , 2011. the increase in selling expenses is due to increased salary expense of $ 145,277 ( increased headcount ) higher travel expense of $ 43,700 , higher depreciation expenses of $ 23,961 due to new demonstration units in the field and higher advertising expense of $ 15,901 , partially offset by other favorable expenses of $ 2,490. general and administrative expenses : general and administrative expenses decreased $ 122,967 to $ 4,376,554 in fiscal 2012 from $ 4,499,521 in fiscal 2011. the decrease in expenses is mainly due to lower accounting expenses of $ 59,125 , lower insurance cost of $ 49,581 and lower rent expense of $ 36,141 , partially offset by higher consulting expense of $ 17,264 and other unfavorable expenses of $ 4,616. for the three months ended june 30 , 2012 , general and administrative expenses decreased $ 62,863. this decrease is due to lower legal expense of $ 23,548 , lower employee welfare expense of $ 16,082 , lower insurance expense of $ 11,186 , and other favorable expenses of $ 12,047. research and development expenses : research and development expenses decreased $ 139,402 to $ 1,292,225 in fiscal 2012 from $ 1,431,627 in fiscal 2011. the decrease is related to lower product development material costs of $ 112,105 and lower employee welfare costs of $ 27,481 , partially offset by other unfavorable expenses of $ 184. for the three months ended june 30 , 2012 , research and development expenses increased $ 9,347 to $ 345,241 from $ 335,894 for the three months ending june 30 , 2011. other income : other income decreased $ 3,689 to $ 686,189 in fiscal 2012 from $ 689,878 in fiscal 2011. for the three months ended june 30 , 2012 , other income increased $ 24,583 to $ 136,768 from $ 112,185 for the three months ended june 30 , 2011. the increase is due to lower royalty expenses of $ 11,936 , favorable foreign exchange of $ 5,483 , higher royalty income of $3,130 and other favorable expenses of $ 4,034. income taxes : in fiscal 2012 the income tax benefit for continuing operations had an effective tax rate of 24 % . story_separator_special_tag overall , when considering discontinued operations , the company had minimal income tax expense . in prior years the company established a valuation allowance against deferred tax assets due to the net loss from operations over the past 5 years which caused management to conclude that it is more likely than not that its deferred tax assets may not be fully realized . 20 discontinued operations : the following represents the results of the laboratory and forensic safety products business along with legal and other expenses associated with labcaire and misonix hifu technologies limited which are included in discontinued operations : replace_table_token_9_th refer to note 1 of the notes to consolidated financial statements included in item 8 for further discussion of the nature of discontinued operations . story_separator_special_tag projections of future demand by product , the risk of technological or competitive obsolescence for our products , general market conditions , and the feasibility of reworking or using excess or obsolete products or components in the production or assembly of other products that are not obsolete or for which we do not have excess quantities in inventory . to the extent that we determine there are excess or obsolete quantities , we record valuation reserves against all or a portion of the value of the related products to adjust their carrying value to estimated net realizable value . if future demand or market conditions are different from our projections , or if we are unable to rework excess or obsolete quantities into other products , we may change the recorded amount of inventory valuation reserves through a charge or reduction in cost of product revenues in the period the revision is made . long lived assets : property , plant and equipment are recorded at cost . minor replacements and maintenance and repair expenses are charged to expense as incurred . depreciation of property and equipment is provided using the straight-line method over estimated useful lives ranging from 3 to 5 years . leasehold improvements are amortized over the life of the lease or the useful life of the related asset , whichever is shorter . inventory items included in property , plant and equipment are depreciated using the straight line method over estimated useful lives of 3 to 5 years . we evaluate long-lived assets , including property , plant and equipment and intangible assets other than goodwill , for impairment whenever events or changes in circumstances indicate that the carrying amounts of specific assets or group of assets may not be recoverable . when an evaluation is required , we estimate the future undiscounted cash flows associated with the specific asset or group of assets . if the cost of the asset or group of assets can not be recovered by these undiscounted cash flows , an impairment charge would be recorded . our estimates of future cash flows are based on our experience and internal business plans . our internal business plans require judgments regarding future economic conditions , product demand and pricing . although we believe our estimates are appropriate , significant differences in the actual performance of an asset or group of assets may materially affect our evaluation of the recoverability of the asset values currently recorded . 22 revenue recognition : the company records revenue upon shipment for products shipped f.o.b . shipping point . products shipped f.o.b . destination points are recorded as revenue when received at the point of destination . shipments under agreements with distributors are not subject to return and payment for these shipments is not contingent on sales by the distributor . accordingly , the company recognizes revenue on shipments to distributors in the same manner as with other customers . fees from exclusive license agreements are recognized ratably over the terms of the respective agreements . service contract and royalty income are recognized when earned . goodwill : goodwill is not amortized . we review goodwill for impairment annually and whenever events or changes indicate that the carrying value of an asset may not be recoverable . these events or circumstances could include a significant change in the business climate , legal factors , operating performance indicators , competition , or sale or disposition of significant assets or products . application of these impairment tests requires significant judgments , including estimation of cash flows , which is dependent on internal forecasts , estimation of the long-term rate of growth for our business , the useful life over which cash flows will occur and determination of our weighted-average cost of capital . changes in the projected cash flows and discount rate estimates and assumptions underlying the valuation of goodwill could materially affect the determination of fair value at acquisition or during subsequent periods when tested for impairment . the company completed its annual goodwill impairment tests for fiscal 2012 and 2011 in the respective fourth quarter . no impairment of goodwill was deemed to exist . income taxes : deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . significant judgment is required in determining the realizability of deferred tax assets including estimates of future sufficient taxable income to support the recovery of tax assets . financial accounting standards establish guidance for the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements . the company may recognize the tax benefits from an uncertain tax position only it is
| debt our outstanding debt obligations included the following as of december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_14_th ( 1 ) the carrying value of senior notes reflects the impact of premiums , discounts , and issuance costs that are amortized to interest cost over the respective terms of the senior notes . 52 we may from time to time seek to retire or purchase our outstanding debt through cash purchases and or exchanges for equity securities , in open market purchases , privately negotiated transactions or otherwise . such repurchases or exchanges , if any , will depend on prevailing market conditions , our liquidity requirements , contractual restrictions and other factors . the amounts involved may or may not be material during any particular reporting period . 6.750 % senior notes due 2027 in may 2019 , we completed a private offering of $ 500.0 million aggregate principal amount of our initial 6.750 % senior notes due 2027 ( which we refer to as the “ initial notes due 2027 ” ) in reliance on rule 144a and regulation s under the securities act of 1933 ( which we refer to as the “ securities act ” ) . the initial notes due 2027 were issued under the indenture , dated as of may 23 , 2019 , among the company , our subsidiary guarantors party thereto , and u.s. bank national association , as trustee ( which we refer to as the “ may 2019 indenture , ” as it may be supplemented or amended from time to time ) . the initial notes due 2027 were issued at 100 % of their principal amount and we received net proceeds of $ 493.9 million . in connection with this issuance , we deferred $ 6.1 million of issuance costs , which is presented in the notes payable line item of the consolidated balance sheet .
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audit-related fees : grant thornton billed the company $ 29,120 and $ 28,080 for audit-related services as defined by the sec for the fiscal years ended june 30 , 2012 and 2011 , respectively . the audit-related services were for the audits of the company 's pension plan . tax fees : story_separator_special_tag results of operations : the following discussion and analysis provides information which the company 's management believes is relevant to an assessment and understanding of the company 's results of operations and financial condition . this discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere herein . unless otherwise specified , this discussion relates solely to the company 's continuing operations . all of the company 's sales to date have been derived from the sale of medical device products , which include manufacture and distribution of ultrasonic medical device products , and laboratory and scientific products , which include ductless fume enclosures for filtration of gaseous emissions in laboratory and forensic markets . see “ item 1. business – discontinued operations – laboratory and forensic safety products business . ” fiscal years ended june 30 , 2012 and 2011 : net sales : net sales increased $ 3,304,971 to $ 15,678,000 in fiscal 2012 , from $ 12,373,029 in fiscal 2011. the increase in sales is primarily due to higher bonescalpel revenue of $ 2,276,928 , higher sonastar revenue of $ 1,787,434 , higher lysonix revenue of $ 473,960 , higher service revenue of $ 329,402 and higher sonicone revenue of $ 191,602 , partially offset by lower autosonix revenue of $ 1,875,276. set forth below are tables showing the company 's net sales by ( i ) product category and ( ii ) geographic region for the years ended june 30 , 2012 and june 30 , 2011 : replace_table_token_5_th replace_table_token_6_th 18 net sales for the three months ended june 30 , 2012 were $ 5,300,520 , an increase of $ 1,535,086 as compared to $ 3,765,434 for the three months ended june 30 , 2011. the sales increase is due to higher bonescalpel revenue of $ 746,820 , higher sonastar revenue of $ 303,936 , higher sonicone revenue of $ 243,966 and higher lysonix revenue of $ 222,650. set forth below are tables showing the company 's net sales by ( i ) product category and ( ii ) geographic region for the three months ended june 30 , 2012 and june 30 , 2011 : replace_table_token_7_th replace_table_token_8_th 19 gross profit : gross profit increased to 58.8 % in fiscal 2012 from 57.3 % in fiscal 2011. gross profit for the three months ended june 30 , 2012 was 57.7 % as compared to 56.7 % for the three months ended june 30 , 2011 due to increased sales of the bonescalpel . selling expenses : selling expenses increased $ 1,146,047 to $ 5,031,831 ( 32.2 % of sales ) in fiscal 2012 from $ 3,885,784 ( 31.4 % of sales ) in fiscal 2011. the increase in selling expenses is related to higher salary expenses of $ 358,821 , higher commissions of $ 286,308 , higher advertising expenses of $ 192,679 , higher travel expenses of $ 147,773 , higher depreciation of demonstration equipment units related to more evaluation units in the field of $ 151,127 and other unfavorable expenses of $ 9,339. selling expenses for the three months ended june 30 , 2012 increased $ 226,349 to $ 1,411,752 ( 26.9 % of sales ) from $ 1,185,403 ( 31.5 % of sales ) for the three months ended june 30 , 2011. the increase in selling expenses is due to increased salary expense of $ 145,277 ( increased headcount ) higher travel expense of $ 43,700 , higher depreciation expenses of $ 23,961 due to new demonstration units in the field and higher advertising expense of $ 15,901 , partially offset by other favorable expenses of $ 2,490. general and administrative expenses : general and administrative expenses decreased $ 122,967 to $ 4,376,554 in fiscal 2012 from $ 4,499,521 in fiscal 2011. the decrease in expenses is mainly due to lower accounting expenses of $ 59,125 , lower insurance cost of $ 49,581 and lower rent expense of $ 36,141 , partially offset by higher consulting expense of $ 17,264 and other unfavorable expenses of $ 4,616. for the three months ended june 30 , 2012 , general and administrative expenses decreased $ 62,863. this decrease is due to lower legal expense of $ 23,548 , lower employee welfare expense of $ 16,082 , lower insurance expense of $ 11,186 , and other favorable expenses of $ 12,047. research and development expenses : research and development expenses decreased $ 139,402 to $ 1,292,225 in fiscal 2012 from $ 1,431,627 in fiscal 2011. the decrease is related to lower product development material costs of $ 112,105 and lower employee welfare costs of $ 27,481 , partially offset by other unfavorable expenses of $ 184. for the three months ended june 30 , 2012 , research and development expenses increased $ 9,347 to $ 345,241 from $ 335,894 for the three months ending june 30 , 2011. other income : other income decreased $ 3,689 to $ 686,189 in fiscal 2012 from $ 689,878 in fiscal 2011. for the three months ended june 30 , 2012 , other income increased $ 24,583 to $ 136,768 from $ 112,185 for the three months ended june 30 , 2011. the increase is due to lower royalty expenses of $ 11,936 , favorable foreign exchange of $ 5,483 , higher royalty income of $3,130 and other favorable expenses of $ 4,034. income taxes : in fiscal 2012 the income tax benefit for continuing operations had an effective tax rate of 24 % . story_separator_special_tag overall , when considering discontinued operations , the company had minimal income tax expense . in prior years the company established a valuation allowance against deferred tax assets due to the net loss from operations over the past 5 years which caused management to conclude that it is more likely than not that its deferred tax assets may not be fully realized . 20 discontinued operations : the following represents the results of the laboratory and forensic safety products business along with legal and other expenses associated with labcaire and misonix hifu technologies limited which are included in discontinued operations : replace_table_token_9_th refer to note 1 of the notes to consolidated financial statements included in item 8 for further discussion of the nature of discontinued operations . story_separator_special_tag projections of future demand by product , the risk of technological or competitive obsolescence for our products , general market conditions , and the feasibility of reworking or using excess or obsolete products or components in the production or assembly of other products that are not obsolete or for which we do not have excess quantities in inventory . to the extent that we determine there are excess or obsolete quantities , we record valuation reserves against all or a portion of the value of the related products to adjust their carrying value to estimated net realizable value . if future demand or market conditions are different from our projections , or if we are unable to rework excess or obsolete quantities into other products , we may change the recorded amount of inventory valuation reserves through a charge or reduction in cost of product revenues in the period the revision is made . long lived assets : property , plant and equipment are recorded at cost . minor replacements and maintenance and repair expenses are charged to expense as incurred . depreciation of property and equipment is provided using the straight-line method over estimated useful lives ranging from 3 to 5 years . leasehold improvements are amortized over the life of the lease or the useful life of the related asset , whichever is shorter . inventory items included in property , plant and equipment are depreciated using the straight line method over estimated useful lives of 3 to 5 years . we evaluate long-lived assets , including property , plant and equipment and intangible assets other than goodwill , for impairment whenever events or changes in circumstances indicate that the carrying amounts of specific assets or group of assets may not be recoverable . when an evaluation is required , we estimate the future undiscounted cash flows associated with the specific asset or group of assets . if the cost of the asset or group of assets can not be recovered by these undiscounted cash flows , an impairment charge would be recorded . our estimates of future cash flows are based on our experience and internal business plans . our internal business plans require judgments regarding future economic conditions , product demand and pricing . although we believe our estimates are appropriate , significant differences in the actual performance of an asset or group of assets may materially affect our evaluation of the recoverability of the asset values currently recorded . 22 revenue recognition : the company records revenue upon shipment for products shipped f.o.b . shipping point . products shipped f.o.b . destination points are recorded as revenue when received at the point of destination . shipments under agreements with distributors are not subject to return and payment for these shipments is not contingent on sales by the distributor . accordingly , the company recognizes revenue on shipments to distributors in the same manner as with other customers . fees from exclusive license agreements are recognized ratably over the terms of the respective agreements . service contract and royalty income are recognized when earned . goodwill : goodwill is not amortized . we review goodwill for impairment annually and whenever events or changes indicate that the carrying value of an asset may not be recoverable . these events or circumstances could include a significant change in the business climate , legal factors , operating performance indicators , competition , or sale or disposition of significant assets or products . application of these impairment tests requires significant judgments , including estimation of cash flows , which is dependent on internal forecasts , estimation of the long-term rate of growth for our business , the useful life over which cash flows will occur and determination of our weighted-average cost of capital . changes in the projected cash flows and discount rate estimates and assumptions underlying the valuation of goodwill could materially affect the determination of fair value at acquisition or during subsequent periods when tested for impairment . the company completed its annual goodwill impairment tests for fiscal 2012 and 2011 in the respective fourth quarter . no impairment of goodwill was deemed to exist . income taxes : deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . significant judgment is required in determining the realizability of deferred tax assets including estimates of future sufficient taxable income to support the recovery of tax assets . financial accounting standards establish guidance for the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements . the company may recognize the tax benefits from an uncertain tax position only it is
| liquidity and capital resources : working capital at june 30 , 2012 and june 30 , 2011 was $ 11,734,000 and $ 10,233,000 , respectively . for the year ended june 30 , 2012 , cash used in operations totaled $ 1,492,000. the major use of cash from operations was related to higher accounts receivables of $ 1,112,000 and lower accounts payables and other accrued expenses of $ 432,000 during the year ended june 30 , 2012. for the fiscal year 2012 , cash used in investing activities totaled $ 734,000 , primarily consisting of the purchase of property , plant and equipment and increased demonstration equipment for the bonescalpel during the regular course of business along with the purchase of assets from aesculap . for the fiscal year 2012 , cash used in financing activities was $ 11,000. cash provided by discontinued operations was $ 1,628,000. as of june 30 , 2012 the company has a cash balance of $ 6,273,015 and believes it has sufficient cash to finance operations for at least the next 12 months . the company maintains cash balances at various financial institutions . at june 30 , 2012 , these financial institutions held cash that was approximately $ 6,034,000 in excess of amounts insured by the federal deposit insurance corporation and other government agencies . commitments the company has commitments under operating leases that will be funded from operating sources .
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we expect to launch a proof-of-concept model for visionology in the first half of 2020 within a certain region of the u.s. , and if successful , expand the launch on a nationwide basis later in 2020 and 2021. pharmaceutical compounding businesses pharmaceutical compounding pharmaceutical compounding is the science of combining different active pharmaceutical ingredients ( apis ) , all of which are approved by the fda ( either as a finished form product or as a bulk drug ingredient ) and excipients , to create specialized pharmaceutical preparations . physicians and healthcare institutions use compounded drugs when commercially available drugs do not optimally treat a patient 's needs . in many cases , compounded drugs , such as ours , have wide market utility and may be clinically appropriate for large patient populations . examples of compounded formulations include medications with alternative dosage strengths or unique dosage forms , such as topical creams or gels , suspensions , or solutions with more tolerable drug delivery vehicles . almost all of our sales revenue is derived from making , selling and dispensing our compounded prescription drug formulations as cash pay transactions between us and our end-user customer . as such , the majority of our commercial transactions do not involve distributors , wholesalers , insurance companies , pharmacy benefit managers or other middle parties . by not being reliant on insurance company formulary inclusion and pharmacy benefit manager payment clawbacks , we are able to simplify the prescription transaction process . we believe the outcome of our business model is a simple transaction , involving a patient-in-need , a physician 's diagnosis , a fair price and great service for a quality pharmaceutical product . we sell our products through a network of employees and independent contractors and we dispense our formulations in all 50 states , puerto rico and in selected markets outside the united states . 35 our compounding facilities pharmaceutical compounding businesses are governed by sections 503a and 503b of the federal food drug and cosmetic act ( the “ fdca ” ) . section 503a of the fdca provides that a pharmacy is only permitted to compound a drug for an individually identified patient based on a prescription for a patient , and is only permitted to distribute the drug interstate if the pharmacy is licensed to do so in the states where it is compounded and where the medication is received . section 503b of the fdca provides that a pharmacy engaged in preparing sterile compounded drug formulations may voluntarily elect to register as an “ outsourcing facility . ” outsourcing facilities are permitted to compound large quantities of drugs without a prescription and distribute them out of state with certain limitations such as the formulation appearing on the fda 's drug shortage list or the bulk drug substances contained in the formulations appearing on the fda 's “ clinical need ” list . entities voluntarily registering with fda as outsourcing facilities are subject to additional requirements that do not apply to compounding pharmacies ( operating under section 503a of the fdca ) , including adhering to standards such as current good manufacturing practices ( cgmp ) or other fda guidance documents and being subject to regular fda inspection . we operate two compounding facilities located in ledgewood , new jersey . our new jersey operations are comprised of two separate entities and facilities , one of which is registered with the fda as an outsourcing facility ( “ njof ” ) under section 503b of the fdca . the other new jersey facility ( “ rxnj ” ) , is a licensed pharmacy operating under section 503a of the fdca . all products that we sell , produce and dispense are made in the united states . we believe that , with our current compounding pharmacy facilities and licenses and fda registration of njof , we have the infrastructure to scale our business appropriately under the current regulatory landscape and meet the potential growth in demand we are targeting . we plan to invest in one or more of our facilities to further their capacity and efficiencies . also , we may seek to access greater pharmacy and production related redundancy and markets through acquisitions , partnerships or other strategic transactions . pharmaceutical development businesses we have ownership interests in eton , surface , melt , mayfield , stowe and radley and hold royalty interests in certain of their drug candidates . these companies are pursuing market approval for their drug candidates under the fdca , including in some instances under the abbreviated pathway described in section 505 ( b ) ( 2 ) which permits the submission of a new drug application ( “ nda ” ) where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference . in 2018 and 2019 , we formed and created subsidiaries named radley , mayfield , and stowe , which we intend to operate similar to eton , surface and melt . in addition , we intend to create additional subsidiaries that will be focused on the development and fda approval of certain proprietary drug formulations that we currently own , will in-license/acquire and or otherwise develop . consolidated businesses stowe pharmaceuticals , inc. stowe is a consolidated subsidiary of harrow that was formed in 2019 , focused on the development of its proprietary ophthalmic drug candidate ste-006 . ste-006 is a patented , new chemical entity , small molecule topical drug candidate intended to treat various bacterial , fungal , and viral infections in the eye . in initial preclinical models , ste-006 was shown to be significantly more effective compared to current conventional therapies against numerous bacterial and viral pathogens , including strains of methicillin-resistant staphylococcus aureus , or mrsa , and herpes simplex virus . story_separator_special_tag park restructuring on august 30 , 2019 , park compounding , inc. ( “ park ” ) a wholly owned subsidiary of harrow health , inc. , and noice rx , llc ( “ noice ” ) terminated the asset purchase agreement , dated july 26 , 2019 ( the “ purchase agreement ” ) , between the parties . under the terms of the purchase agreement , park had agreed to sell substantially all its assets associated with its non-ophthalmology pharmaceutical compounding business to noice , including its pharmacy facility and equipment located in irvine , california . the closing of the sale transaction was dependent on the california state board of pharmacy approving of the sale and issuing a temporary pharmacy and sterile license permit to noice , which did not occur and led to park ceasing operations at the close of business on august 27 , 2019 . 39 following closure of the park pharmacy , the company elected to restructure the park business and facilitate the transition of certain compounded formulations and related equipment from park to the company 's new jersey-based compounded pharmaceutical production facilities ( the “ park restructuring ” ) . as a result of the park restructuring , the company incurred non-cash impairment costs of approximately $ 3,781,000 related to assets held at park , primarily associated with property , plant , equipment , goodwill and other intangible assets and , in addition , to incur approximately $ 480,000 in one-time costs related to severance packages and other costs associated with the park restructuring , during the year ended december 31 , 2019. since the park restructuring , all compounding business has been consolidated into the company 's imprimisrx business . we have reduced the park compounded product formulary to seven base formulations , based on factors including unit order volumes , revenues and gross margin percentages . during the first quarter of 2020 , we believe imprimisrx was able to retain and re-acquire approximately half of park 's historical revenue . results of operations the following period-to-period comparisons of our financial results are not necessarily indicative of results for the current period or any future period . comparison of years ended december 31 , 2019 and 2018 revenues our revenues include amounts recorded from sales of proprietary and non-proprietary pharmaceutical compounded drug formulations and revenues received from royalty and milestone payments owed to us pursuant to out-license arrangements . the following presents our revenues for the years ended december 31 , 2019 and 2018 : replace_table_token_0_th the increase in revenue between periods was largely attributable to increased sales of our proprietary formulations and furtherance of our ophthalmology related compounded formulations . our gross ophthalmology related sales were approximately $ 47,692,000 for the year ended december 31 , 2019 , compared to $ 34,135,000 in 2018. net revenues generated from our new jersey based outsourcing facility ( “ njof ” ) ( which include certain ophthalmology related sales ) totaled $ 33,240,000 for the year ended december 31 , 2019 , compared to $ 22,490,000 in 2018. cost of sales our cost of sales includes direct and indirect costs to manufacture formulations and sell products , including active pharmaceutical ingredients , personnel costs , packaging , storage , royalties , shipping and handling costs , manufacturing equipment and tenant improvements depreciation , the write-off of obsolete inventory and other related expenses . the following presents our cost of sales for the years ended december 31 , 2019 and 2018 : for the year ended december 31 , $ 2019 2018 variance cost of sales $ 16,749,000 $ 16,521,000 $ 228,000 the increase in our cost of sales between periods was largely attributable to an increase in the volume of unit sales of our formulations and products and our associated costs of such sales . gross profit and margin replace_table_token_1_th 40 the increase in gross profit and gross margin between periods is largely attributable to increased efficiencies in our production process and increased utilization of capacities as a result of increased output , in particular , at njof and increased per unit sales prices . we estimate gross margins at njof were greater than 70 % during 2019. selling , general and administrative expenses our selling , general and administrative expenses include personnel costs , including wages and stock-based compensation , corporate facility expenses , and investor relations , consulting , insurance , filing , legal and accounting fees and expenses as well as costs associated with our marketing activities and sales of our proprietary compounded formulations and other non-proprietary pharmacy products and formulations . the following presents our selling , general and administrative expenses for the year ended december 31 , 2019 and 2018 : for the year ended december 31 , $ 2019 2018 variance selling , general and administrative $ 33,096,000 $ 29,243,000 $ 3,853,000 the increase in general and administrative expenses between periods was largely attributable to increased sales commission amounts and costs related to the operations of mayfield , radley and stowe . research and development expenses our research and development expenses primarily include expenses related to the development of acquired intellectual property , investigator-initiated research and evaluations and other costs related to the clinical development of our assets . the following presents our research and development expenses for the years ended december 31 , 2019 and 2018 : for the year ended december 31 , $ 2019 2018 variance research and development $ 2,083,000 $ 825,000 $ 1,258,000 the increase in research and development expenses between periods was primarily attributable to the increase in formulation development studies with our imprimisrx subsidiary and the clinical development programs for our subsidiaries radley , mayfield and stowe that occurred during the year ended december 31 , 2019. impairment and disposal of long-lived assets during the year ended december 31 , 2019 , we recorded a loss of $ 4,040,000 related to the impairment and disposal of long-lived assets . $
| liquidity and capital resources : working capital at june 30 , 2012 and june 30 , 2011 was $ 11,734,000 and $ 10,233,000 , respectively . for the year ended june 30 , 2012 , cash used in operations totaled $ 1,492,000. the major use of cash from operations was related to higher accounts receivables of $ 1,112,000 and lower accounts payables and other accrued expenses of $ 432,000 during the year ended june 30 , 2012. for the fiscal year 2012 , cash used in investing activities totaled $ 734,000 , primarily consisting of the purchase of property , plant and equipment and increased demonstration equipment for the bonescalpel during the regular course of business along with the purchase of assets from aesculap . for the fiscal year 2012 , cash used in financing activities was $ 11,000. cash provided by discontinued operations was $ 1,628,000. as of june 30 , 2012 the company has a cash balance of $ 6,273,015 and believes it has sufficient cash to finance operations for at least the next 12 months . the company maintains cash balances at various financial institutions . at june 30 , 2012 , these financial institutions held cash that was approximately $ 6,034,000 in excess of amounts insured by the federal deposit insurance corporation and other government agencies . commitments the company has commitments under operating leases that will be funded from operating sources .
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we expect to launch a proof-of-concept model for visionology in the first half of 2020 within a certain region of the u.s. , and if successful , expand the launch on a nationwide basis later in 2020 and 2021. pharmaceutical compounding businesses pharmaceutical compounding pharmaceutical compounding is the science of combining different active pharmaceutical ingredients ( apis ) , all of which are approved by the fda ( either as a finished form product or as a bulk drug ingredient ) and excipients , to create specialized pharmaceutical preparations . physicians and healthcare institutions use compounded drugs when commercially available drugs do not optimally treat a patient 's needs . in many cases , compounded drugs , such as ours , have wide market utility and may be clinically appropriate for large patient populations . examples of compounded formulations include medications with alternative dosage strengths or unique dosage forms , such as topical creams or gels , suspensions , or solutions with more tolerable drug delivery vehicles . almost all of our sales revenue is derived from making , selling and dispensing our compounded prescription drug formulations as cash pay transactions between us and our end-user customer . as such , the majority of our commercial transactions do not involve distributors , wholesalers , insurance companies , pharmacy benefit managers or other middle parties . by not being reliant on insurance company formulary inclusion and pharmacy benefit manager payment clawbacks , we are able to simplify the prescription transaction process . we believe the outcome of our business model is a simple transaction , involving a patient-in-need , a physician 's diagnosis , a fair price and great service for a quality pharmaceutical product . we sell our products through a network of employees and independent contractors and we dispense our formulations in all 50 states , puerto rico and in selected markets outside the united states . 35 our compounding facilities pharmaceutical compounding businesses are governed by sections 503a and 503b of the federal food drug and cosmetic act ( the “ fdca ” ) . section 503a of the fdca provides that a pharmacy is only permitted to compound a drug for an individually identified patient based on a prescription for a patient , and is only permitted to distribute the drug interstate if the pharmacy is licensed to do so in the states where it is compounded and where the medication is received . section 503b of the fdca provides that a pharmacy engaged in preparing sterile compounded drug formulations may voluntarily elect to register as an “ outsourcing facility . ” outsourcing facilities are permitted to compound large quantities of drugs without a prescription and distribute them out of state with certain limitations such as the formulation appearing on the fda 's drug shortage list or the bulk drug substances contained in the formulations appearing on the fda 's “ clinical need ” list . entities voluntarily registering with fda as outsourcing facilities are subject to additional requirements that do not apply to compounding pharmacies ( operating under section 503a of the fdca ) , including adhering to standards such as current good manufacturing practices ( cgmp ) or other fda guidance documents and being subject to regular fda inspection . we operate two compounding facilities located in ledgewood , new jersey . our new jersey operations are comprised of two separate entities and facilities , one of which is registered with the fda as an outsourcing facility ( “ njof ” ) under section 503b of the fdca . the other new jersey facility ( “ rxnj ” ) , is a licensed pharmacy operating under section 503a of the fdca . all products that we sell , produce and dispense are made in the united states . we believe that , with our current compounding pharmacy facilities and licenses and fda registration of njof , we have the infrastructure to scale our business appropriately under the current regulatory landscape and meet the potential growth in demand we are targeting . we plan to invest in one or more of our facilities to further their capacity and efficiencies . also , we may seek to access greater pharmacy and production related redundancy and markets through acquisitions , partnerships or other strategic transactions . pharmaceutical development businesses we have ownership interests in eton , surface , melt , mayfield , stowe and radley and hold royalty interests in certain of their drug candidates . these companies are pursuing market approval for their drug candidates under the fdca , including in some instances under the abbreviated pathway described in section 505 ( b ) ( 2 ) which permits the submission of a new drug application ( “ nda ” ) where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference . in 2018 and 2019 , we formed and created subsidiaries named radley , mayfield , and stowe , which we intend to operate similar to eton , surface and melt . in addition , we intend to create additional subsidiaries that will be focused on the development and fda approval of certain proprietary drug formulations that we currently own , will in-license/acquire and or otherwise develop . consolidated businesses stowe pharmaceuticals , inc. stowe is a consolidated subsidiary of harrow that was formed in 2019 , focused on the development of its proprietary ophthalmic drug candidate ste-006 . ste-006 is a patented , new chemical entity , small molecule topical drug candidate intended to treat various bacterial , fungal , and viral infections in the eye . in initial preclinical models , ste-006 was shown to be significantly more effective compared to current conventional therapies against numerous bacterial and viral pathogens , including strains of methicillin-resistant staphylococcus aureus , or mrsa , and herpes simplex virus . story_separator_special_tag park restructuring on august 30 , 2019 , park compounding , inc. ( “ park ” ) a wholly owned subsidiary of harrow health , inc. , and noice rx , llc ( “ noice ” ) terminated the asset purchase agreement , dated july 26 , 2019 ( the “ purchase agreement ” ) , between the parties . under the terms of the purchase agreement , park had agreed to sell substantially all its assets associated with its non-ophthalmology pharmaceutical compounding business to noice , including its pharmacy facility and equipment located in irvine , california . the closing of the sale transaction was dependent on the california state board of pharmacy approving of the sale and issuing a temporary pharmacy and sterile license permit to noice , which did not occur and led to park ceasing operations at the close of business on august 27 , 2019 . 39 following closure of the park pharmacy , the company elected to restructure the park business and facilitate the transition of certain compounded formulations and related equipment from park to the company 's new jersey-based compounded pharmaceutical production facilities ( the “ park restructuring ” ) . as a result of the park restructuring , the company incurred non-cash impairment costs of approximately $ 3,781,000 related to assets held at park , primarily associated with property , plant , equipment , goodwill and other intangible assets and , in addition , to incur approximately $ 480,000 in one-time costs related to severance packages and other costs associated with the park restructuring , during the year ended december 31 , 2019. since the park restructuring , all compounding business has been consolidated into the company 's imprimisrx business . we have reduced the park compounded product formulary to seven base formulations , based on factors including unit order volumes , revenues and gross margin percentages . during the first quarter of 2020 , we believe imprimisrx was able to retain and re-acquire approximately half of park 's historical revenue . results of operations the following period-to-period comparisons of our financial results are not necessarily indicative of results for the current period or any future period . comparison of years ended december 31 , 2019 and 2018 revenues our revenues include amounts recorded from sales of proprietary and non-proprietary pharmaceutical compounded drug formulations and revenues received from royalty and milestone payments owed to us pursuant to out-license arrangements . the following presents our revenues for the years ended december 31 , 2019 and 2018 : replace_table_token_0_th the increase in revenue between periods was largely attributable to increased sales of our proprietary formulations and furtherance of our ophthalmology related compounded formulations . our gross ophthalmology related sales were approximately $ 47,692,000 for the year ended december 31 , 2019 , compared to $ 34,135,000 in 2018. net revenues generated from our new jersey based outsourcing facility ( “ njof ” ) ( which include certain ophthalmology related sales ) totaled $ 33,240,000 for the year ended december 31 , 2019 , compared to $ 22,490,000 in 2018. cost of sales our cost of sales includes direct and indirect costs to manufacture formulations and sell products , including active pharmaceutical ingredients , personnel costs , packaging , storage , royalties , shipping and handling costs , manufacturing equipment and tenant improvements depreciation , the write-off of obsolete inventory and other related expenses . the following presents our cost of sales for the years ended december 31 , 2019 and 2018 : for the year ended december 31 , $ 2019 2018 variance cost of sales $ 16,749,000 $ 16,521,000 $ 228,000 the increase in our cost of sales between periods was largely attributable to an increase in the volume of unit sales of our formulations and products and our associated costs of such sales . gross profit and margin replace_table_token_1_th 40 the increase in gross profit and gross margin between periods is largely attributable to increased efficiencies in our production process and increased utilization of capacities as a result of increased output , in particular , at njof and increased per unit sales prices . we estimate gross margins at njof were greater than 70 % during 2019. selling , general and administrative expenses our selling , general and administrative expenses include personnel costs , including wages and stock-based compensation , corporate facility expenses , and investor relations , consulting , insurance , filing , legal and accounting fees and expenses as well as costs associated with our marketing activities and sales of our proprietary compounded formulations and other non-proprietary pharmacy products and formulations . the following presents our selling , general and administrative expenses for the year ended december 31 , 2019 and 2018 : for the year ended december 31 , $ 2019 2018 variance selling , general and administrative $ 33,096,000 $ 29,243,000 $ 3,853,000 the increase in general and administrative expenses between periods was largely attributable to increased sales commission amounts and costs related to the operations of mayfield , radley and stowe . research and development expenses our research and development expenses primarily include expenses related to the development of acquired intellectual property , investigator-initiated research and evaluations and other costs related to the clinical development of our assets . the following presents our research and development expenses for the years ended december 31 , 2019 and 2018 : for the year ended december 31 , $ 2019 2018 variance research and development $ 2,083,000 $ 825,000 $ 1,258,000 the increase in research and development expenses between periods was primarily attributable to the increase in formulation development studies with our imprimisrx subsidiary and the clinical development programs for our subsidiaries radley , mayfield and stowe that occurred during the year ended december 31 , 2019. impairment and disposal of long-lived assets during the year ended december 31 , 2019 , we recorded a loss of $ 4,040,000 related to the impairment and disposal of long-lived assets . $
| liquidity and capital resources liquidity our cash on hand ( including restricted cash ) at december 31 , 2019 was $ 4,949,000 , compared to $ 6,838,000 at december 31 , 2018. since inception through december 31 , 2019 , we have incurred aggregate losses of $ 74,043,000. these losses are primarily due to selling , general and administrative and research and development expenses incurred in connection with developing and seeking regulatory approval for a former drug candidate , which activities we have now discontinued , the development and commercialization of novel compounded formulations and the development of our pharmacy operations . as of the date of this annual report , we believe that cash and cash equivalents of $ 4,749,000 and restricted investments of $ 200,000 , totaling approximately $ 4,949,000 at december 31 , 2019 , will be sufficient to sustain our planned level of operations and capital expenditures for at least the next 12 months . we also may consider the sale of certain assets including , but not limited to , part of , or all of , our ownership interest in eton , surface , melt , and or any of our consolidated subsidiaries . however , our plans for this period may change , our estimates of our operating expenses , capital expenditures and working capital requirements could be inaccurate , we may pursue acquisitions of pharmacies or other strategic transactions that involve large expenditures or we may experience growth more quickly or on a larger scale than we expect , any of which could result in the depletion of capital resources more rapidly than anticipated and could require us to seek additional financing earlier than we expect to support our operations . we expect to use our current cash position and funds generated from our operations and any financing to pursue our business plan , which includes developing and commercializing compounded formulations and technologies , integrating and developing our compounding operations , pursuing potential future strategic transactions as opportunities arise , including potential acquisitions of additional pharmacy , outsourcing facilities , drug company and manufacturers , and or assets or technologies , and otherwise fund our operations .
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15 covid-19 pandemic an unprecedented , near-total shutdown of the u.s. economy beginning in march due to the covid-19 pandemic heightened fears of extremely high credit default levels and recession , leading to de-risking occurring at all levels of the fixed income markets . credit asset pricing came under severe pressure destabilizing fixed income markets and leading to lender margin calls , feeding additional selling as levered and even unlevered investors across the spectrum were forced to sell their most liquid positions to raise cash to meet additional margin calls and or fund redemptions . investors were already coming under stress due to declining treasury rates which led to losses on derivatives held for hedging purposes and variation ( valuation-based ) margin calls . as the crisis deepened this additional drain on liquidity became more pronounced and included increased initial ( base haircut ) margin requirements for derivatives due to heightened market volatility . the result was sharply falling asset prices even as market interest rates declined . during this period of extreme volatility , the company sold a portion of its portfolio late in march and reduced its swap positions in order to ensure it had sufficient flexibility to meet future projected liquidity requirements while maintaining portfolio leverage at comfortable levels . intervention by the federal reserve beginning in late march in the form of the buying of fixed-rate agency securities helped stabilize this key market sector leading to improved pricing levels for fixed-rate agency securities . while the federal reserve has not purchased arm agency securities specifically , these actions contributed to improved pricing levels for mortgage assets in general and a more stable operating environment for capstead . the company met all of its funding requirements during the year . at december 31 , 2020 , the company 's potential liquidity was $ 524 million and it believes it has ample access to necessary financing through its existing lending counterparties to meet its liquidity needs . see “ utilization of long-term investment capital and potential liquidity ” for further discussion . the company continues to operate portions of its business continuity plan in response to the pandemic and has not experienced any operational disruption due to its small number of employees who are all able to work remotely . management will continue to closely monitor the situation and adapt its response as necessary to avoid any operational disruptions . common equity issuances during february 2020 , capstead issued 1.6 million shares of common stock through an at-the-market continuous offering program at an average issue price of $ 8.21 , net of fees and other costs , for net proceeds of $ 12.9 million . during 2019 the company completed a public offering for nine million shares of common stock raising $ 75 million for a net price of $ 8.34 after underwriting discounts and offering expenses . additional amounts of equity capital may be raised in the future under continuous offering programs or by other means , subject to market conditions , compliance with federal securities laws and blackout periods . book value per common share book value per common share ( total stockholder 's equity , less liquidation preferences for outstanding shares of preferred stock , divided by outstanding shares of common stock ) as of december 31 , 2020 was $ 6.76 , a decrease of $ 1.86 or 21.6 % from december 31 , 2019 book value of $ 8.62 , primarily reflecting $ 1.60 in derivative-related declines in value along with $ 0.70 of declines related to the $ 2.62 billion of portfolio sales late in the first quarter . these declines were partially offset by $ 0.41 in portfolio valuation-related increases . all of capstead 's residential mortgage investments portfolio and its derivatives are recorded at fair value on the company 's balance sheet and are therefore included in the calculation of book value per share of common stock . none of the company 's borrowings are recorded at fair value . fair value is impacted by 16 market conditions , including changes in interest rates , and the availability of financing at reasonable rates and leverage levels , among other factors . see note 8 to the consolidated financial statements for additional disclosures regarding fair values of financial instruments held or issued by the company . residential mortgage investments the following table illustrates the progression of capstead 's portfolio of residential mortgage investments for the indicated periods ( in thousands ) : replace_table_token_2_th capstead 's investment strategy focuses on managing a portfolio of residential mortgage investments primarily consisting of arm agency securities . agency securities are considered to have limited , if any , credit risk because the timely payment of principal and interest is guaranteed by fannie mae and freddie mac , which are government-sponsored enterprises , or ginnie mae , which is an agency of the federal government . federal government support for fannie mae and freddie mac has largely alleviated market concerns regarding the ability of fannie mae and freddie mac to fulfill their guarantee obligations . by focusing primarily on investing in arm agency securities , changes in fair value caused by changes in interest rates are typically relatively modest compared to changes in fair value of longer-duration fixed-rate assets . declines in fair value caused by increases in interest rates are generally recoverable in a relatively short period of time as coupon interest rates on the underlying mortgage loans reset to rates more reflective of the then-current interest rate environment . this investment strategy positions the company to benefit from potential recoveries in financing spreads that typically contract during periods of rising interest rates . story_separator_special_tag unutilized capital loss carryforwards totaling $ 17.5 million expired in 2019. at december 31 , 2020 the company had remaining net capital loss carryforwards of $ 1.3 million that expire after 2024 and $ 66.9 million that expire after 2025. at december 31 , 2020 , the company had net operating loss ( nol ) carryforwards totaling $ 13 million generated in 2019 and $ 77 million generated in 2020. under the provisions of the tax cuts and jobs act of 2017 ( “ tax act ” ) , nols no longer expire , but a taxpayer can only offset up to 80 % of its income in any given year with an nol . under the provisions of the coronavirus aid , relief , and economic security act ( “ cares act ” ) of 2020 , the 80 % limitation is deferred to tax years starting after december 31 , 2020. for tax years beginning before january 1 , 2021 , a taxpayer can offset 100 % of its income in any given year with an nol . see the investor relations section of the company 's website at www.capstead.com for additional dividend characterization information . due to the complex nature of applicable tax rules , it is recommended that stockholders consult their tax advisors to ensure proper tax treatment of dividends received . 23 results of operations replace_table_token_8_th ( a ) see “ reconciliation of gaap and non-gaap financial measures ” for a reconciliation of these financial measures and the company 's rationale for using these non-gaap financial measures . ( b ) to better compare the components of financing spreads on residential mortgage investments with prior periods , secured borrowing rates exclude the effects of amortization of the net unrealized gains and losses included in accumulated other comprehensive income ( loss ) upon de-designation on march 1 , 2019 of related derivatives held for hedging purpose of 0.00 % and ( 0.14 ) % , and include net interest cash flows from that date on non-designated derivatives of ( 0.20 ) % and 0.21 % during 2020 and 2019 , respectively . ( c ) calculated using core earnings less preferred dividends on an annualized basis over average common equity for the period . 24 20 20 compared to 201 9 capstead reported for gaap purposes a net loss of $ 130 million or $ ( 1.56 ) per diluted common share during 2020. this compares to a net loss of $ 35 million or $ ( 0.62 ) per diluted common share for 2019. gaap net loss was negatively affected during 2020 primarily by losses on hedging-related derivatives of $ 160 million due largely to lower prevailing interest rates and losses on sales of investments of $ 68 million due to covid-19 pandemic related disruptions to the fixed income markets . capstead 's core earnings , a non-gaap financial measure , totaled $ 81 million or $ 0.64 per diluted common share during 2020 , compared to core earnings of $ 64 million or $ 0.50 per diluted common share for 2019. core earnings in 2020 benefited from lower borrowing rates while being hampered by lower yields on residential mortgage investments and lower average portfolio balances following asset sales in response to the covid-19 pandemic in late march . interest income on residential mortgage investments was lower by $ 134 million in 2020 compared to 2019. the decrease is attributable to $ 67 million in decreases related to lower average yields and $ 67 million in decreases related to lower average portfolio balances during 2020. yields on residential mortgage investments were 65 basis points lower , averaging 2.10 % during 2020 , compared to 2.75 % reported for 2019 , primarily due to lower coupon interest rates on loans underlying the company 's arm agency securities that have reset based on lower prevailing interest rates , as well as lower coupons on acquisitions and other changes in portfolio composition . yields were also negatively impacted by higher premium amortization compared to 2019 due primarily to higher prepayment rates experienced on the portfolio . historically low interest rates have led to exceedingly high prepayment speeds across all mortgage products as homeowners have taken advantage of this opportunity to refinance their mortgage loans . while arm securities are priced to incur higher prepayment speeds than fixed rate securities , and fixed rate securities have incurred higher percentage increases than arm securities over previous levels , the company 's arm securities have experienced elevated prepayment speeds ultimately hurting yields on its investments . the company expects prepayment speeds will remain elevated due to the interest rate environment in 2021. interest expense on secured borrowings was lower by $ 178 million in 2020 compared to 2019. the decrease is attributable to $ 130 million in decreases related to lower average borrowing rates and $ 48 million in decreases related to lower average borrowings during 2020. secured borrowing rates , after adjusting for hedging activities , decreased 119 basis points to average 1.03 % in 2020 , compared to 2.22 % reported for 2019. market conditions contributed to lower borrowing rates , including 75 basis points in decreases to the federal funds rate during the last half of 2019 followed by 150 basis points in rate cuts in march 2020. average fixed-rate swap payments were 1.19 % in 2020 compared to 2.07 % in 2019. this decline was due to efforts to reposition the swap portfolio to take advantage of declining market interest rates and maturing high-cost swap positions over the course of 2019 and 2020 , as well as a reduction in swap positions due to asset sales in march 2020. swap balances were lower , averaging $ 4.75 billion in 2020 compared to $ 7.46 billion reported for 2019. future secured borrowing rates will be dependent on market conditions , including overall levels of market interest rates as well as the availability of longer-maturity borrowings and interest rate
| liquidity and capital resources liquidity our cash on hand ( including restricted cash ) at december 31 , 2019 was $ 4,949,000 , compared to $ 6,838,000 at december 31 , 2018. since inception through december 31 , 2019 , we have incurred aggregate losses of $ 74,043,000. these losses are primarily due to selling , general and administrative and research and development expenses incurred in connection with developing and seeking regulatory approval for a former drug candidate , which activities we have now discontinued , the development and commercialization of novel compounded formulations and the development of our pharmacy operations . as of the date of this annual report , we believe that cash and cash equivalents of $ 4,749,000 and restricted investments of $ 200,000 , totaling approximately $ 4,949,000 at december 31 , 2019 , will be sufficient to sustain our planned level of operations and capital expenditures for at least the next 12 months . we also may consider the sale of certain assets including , but not limited to , part of , or all of , our ownership interest in eton , surface , melt , and or any of our consolidated subsidiaries . however , our plans for this period may change , our estimates of our operating expenses , capital expenditures and working capital requirements could be inaccurate , we may pursue acquisitions of pharmacies or other strategic transactions that involve large expenditures or we may experience growth more quickly or on a larger scale than we expect , any of which could result in the depletion of capital resources more rapidly than anticipated and could require us to seek additional financing earlier than we expect to support our operations . we expect to use our current cash position and funds generated from our operations and any financing to pursue our business plan , which includes developing and commercializing compounded formulations and technologies , integrating and developing our compounding operations , pursuing potential future strategic transactions as opportunities arise , including potential acquisitions of additional pharmacy , outsourcing facilities , drug company and manufacturers , and or assets or technologies , and otherwise fund our operations .
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15 covid-19 pandemic an unprecedented , near-total shutdown of the u.s. economy beginning in march due to the covid-19 pandemic heightened fears of extremely high credit default levels and recession , leading to de-risking occurring at all levels of the fixed income markets . credit asset pricing came under severe pressure destabilizing fixed income markets and leading to lender margin calls , feeding additional selling as levered and even unlevered investors across the spectrum were forced to sell their most liquid positions to raise cash to meet additional margin calls and or fund redemptions . investors were already coming under stress due to declining treasury rates which led to losses on derivatives held for hedging purposes and variation ( valuation-based ) margin calls . as the crisis deepened this additional drain on liquidity became more pronounced and included increased initial ( base haircut ) margin requirements for derivatives due to heightened market volatility . the result was sharply falling asset prices even as market interest rates declined . during this period of extreme volatility , the company sold a portion of its portfolio late in march and reduced its swap positions in order to ensure it had sufficient flexibility to meet future projected liquidity requirements while maintaining portfolio leverage at comfortable levels . intervention by the federal reserve beginning in late march in the form of the buying of fixed-rate agency securities helped stabilize this key market sector leading to improved pricing levels for fixed-rate agency securities . while the federal reserve has not purchased arm agency securities specifically , these actions contributed to improved pricing levels for mortgage assets in general and a more stable operating environment for capstead . the company met all of its funding requirements during the year . at december 31 , 2020 , the company 's potential liquidity was $ 524 million and it believes it has ample access to necessary financing through its existing lending counterparties to meet its liquidity needs . see “ utilization of long-term investment capital and potential liquidity ” for further discussion . the company continues to operate portions of its business continuity plan in response to the pandemic and has not experienced any operational disruption due to its small number of employees who are all able to work remotely . management will continue to closely monitor the situation and adapt its response as necessary to avoid any operational disruptions . common equity issuances during february 2020 , capstead issued 1.6 million shares of common stock through an at-the-market continuous offering program at an average issue price of $ 8.21 , net of fees and other costs , for net proceeds of $ 12.9 million . during 2019 the company completed a public offering for nine million shares of common stock raising $ 75 million for a net price of $ 8.34 after underwriting discounts and offering expenses . additional amounts of equity capital may be raised in the future under continuous offering programs or by other means , subject to market conditions , compliance with federal securities laws and blackout periods . book value per common share book value per common share ( total stockholder 's equity , less liquidation preferences for outstanding shares of preferred stock , divided by outstanding shares of common stock ) as of december 31 , 2020 was $ 6.76 , a decrease of $ 1.86 or 21.6 % from december 31 , 2019 book value of $ 8.62 , primarily reflecting $ 1.60 in derivative-related declines in value along with $ 0.70 of declines related to the $ 2.62 billion of portfolio sales late in the first quarter . these declines were partially offset by $ 0.41 in portfolio valuation-related increases . all of capstead 's residential mortgage investments portfolio and its derivatives are recorded at fair value on the company 's balance sheet and are therefore included in the calculation of book value per share of common stock . none of the company 's borrowings are recorded at fair value . fair value is impacted by 16 market conditions , including changes in interest rates , and the availability of financing at reasonable rates and leverage levels , among other factors . see note 8 to the consolidated financial statements for additional disclosures regarding fair values of financial instruments held or issued by the company . residential mortgage investments the following table illustrates the progression of capstead 's portfolio of residential mortgage investments for the indicated periods ( in thousands ) : replace_table_token_2_th capstead 's investment strategy focuses on managing a portfolio of residential mortgage investments primarily consisting of arm agency securities . agency securities are considered to have limited , if any , credit risk because the timely payment of principal and interest is guaranteed by fannie mae and freddie mac , which are government-sponsored enterprises , or ginnie mae , which is an agency of the federal government . federal government support for fannie mae and freddie mac has largely alleviated market concerns regarding the ability of fannie mae and freddie mac to fulfill their guarantee obligations . by focusing primarily on investing in arm agency securities , changes in fair value caused by changes in interest rates are typically relatively modest compared to changes in fair value of longer-duration fixed-rate assets . declines in fair value caused by increases in interest rates are generally recoverable in a relatively short period of time as coupon interest rates on the underlying mortgage loans reset to rates more reflective of the then-current interest rate environment . this investment strategy positions the company to benefit from potential recoveries in financing spreads that typically contract during periods of rising interest rates . story_separator_special_tag unutilized capital loss carryforwards totaling $ 17.5 million expired in 2019. at december 31 , 2020 the company had remaining net capital loss carryforwards of $ 1.3 million that expire after 2024 and $ 66.9 million that expire after 2025. at december 31 , 2020 , the company had net operating loss ( nol ) carryforwards totaling $ 13 million generated in 2019 and $ 77 million generated in 2020. under the provisions of the tax cuts and jobs act of 2017 ( “ tax act ” ) , nols no longer expire , but a taxpayer can only offset up to 80 % of its income in any given year with an nol . under the provisions of the coronavirus aid , relief , and economic security act ( “ cares act ” ) of 2020 , the 80 % limitation is deferred to tax years starting after december 31 , 2020. for tax years beginning before january 1 , 2021 , a taxpayer can offset 100 % of its income in any given year with an nol . see the investor relations section of the company 's website at www.capstead.com for additional dividend characterization information . due to the complex nature of applicable tax rules , it is recommended that stockholders consult their tax advisors to ensure proper tax treatment of dividends received . 23 results of operations replace_table_token_8_th ( a ) see “ reconciliation of gaap and non-gaap financial measures ” for a reconciliation of these financial measures and the company 's rationale for using these non-gaap financial measures . ( b ) to better compare the components of financing spreads on residential mortgage investments with prior periods , secured borrowing rates exclude the effects of amortization of the net unrealized gains and losses included in accumulated other comprehensive income ( loss ) upon de-designation on march 1 , 2019 of related derivatives held for hedging purpose of 0.00 % and ( 0.14 ) % , and include net interest cash flows from that date on non-designated derivatives of ( 0.20 ) % and 0.21 % during 2020 and 2019 , respectively . ( c ) calculated using core earnings less preferred dividends on an annualized basis over average common equity for the period . 24 20 20 compared to 201 9 capstead reported for gaap purposes a net loss of $ 130 million or $ ( 1.56 ) per diluted common share during 2020. this compares to a net loss of $ 35 million or $ ( 0.62 ) per diluted common share for 2019. gaap net loss was negatively affected during 2020 primarily by losses on hedging-related derivatives of $ 160 million due largely to lower prevailing interest rates and losses on sales of investments of $ 68 million due to covid-19 pandemic related disruptions to the fixed income markets . capstead 's core earnings , a non-gaap financial measure , totaled $ 81 million or $ 0.64 per diluted common share during 2020 , compared to core earnings of $ 64 million or $ 0.50 per diluted common share for 2019. core earnings in 2020 benefited from lower borrowing rates while being hampered by lower yields on residential mortgage investments and lower average portfolio balances following asset sales in response to the covid-19 pandemic in late march . interest income on residential mortgage investments was lower by $ 134 million in 2020 compared to 2019. the decrease is attributable to $ 67 million in decreases related to lower average yields and $ 67 million in decreases related to lower average portfolio balances during 2020. yields on residential mortgage investments were 65 basis points lower , averaging 2.10 % during 2020 , compared to 2.75 % reported for 2019 , primarily due to lower coupon interest rates on loans underlying the company 's arm agency securities that have reset based on lower prevailing interest rates , as well as lower coupons on acquisitions and other changes in portfolio composition . yields were also negatively impacted by higher premium amortization compared to 2019 due primarily to higher prepayment rates experienced on the portfolio . historically low interest rates have led to exceedingly high prepayment speeds across all mortgage products as homeowners have taken advantage of this opportunity to refinance their mortgage loans . while arm securities are priced to incur higher prepayment speeds than fixed rate securities , and fixed rate securities have incurred higher percentage increases than arm securities over previous levels , the company 's arm securities have experienced elevated prepayment speeds ultimately hurting yields on its investments . the company expects prepayment speeds will remain elevated due to the interest rate environment in 2021. interest expense on secured borrowings was lower by $ 178 million in 2020 compared to 2019. the decrease is attributable to $ 130 million in decreases related to lower average borrowing rates and $ 48 million in decreases related to lower average borrowings during 2020. secured borrowing rates , after adjusting for hedging activities , decreased 119 basis points to average 1.03 % in 2020 , compared to 2.22 % reported for 2019. market conditions contributed to lower borrowing rates , including 75 basis points in decreases to the federal funds rate during the last half of 2019 followed by 150 basis points in rate cuts in march 2020. average fixed-rate swap payments were 1.19 % in 2020 compared to 2.07 % in 2019. this decline was due to efforts to reposition the swap portfolio to take advantage of declining market interest rates and maturing high-cost swap positions over the course of 2019 and 2020 , as well as a reduction in swap positions due to asset sales in march 2020. swap balances were lower , averaging $ 4.75 billion in 2020 compared to $ 7.46 billion reported for 2019. future secured borrowing rates will be dependent on market conditions , including overall levels of market interest rates as well as the availability of longer-maturity borrowings and interest rate
| liquidity and capital resources capstead 's primary sources of funds are secured borrowings and monthly principal and interest payments on its investments . other sources of funds may include proceeds from debt and equity offerings and asset sales . the timing , manner , price and amount of any future common and preferred issuances and any common stock repurchases will be made in the open market at the company 's discretion , subject to economic and market conditions , stock price , compliance with federal securities laws and tax regulations as well as blackout periods associated with the dissemination of important company-specific news . the company generally uses its liquidity to pay down secured borrowings to reduce borrowing costs and otherwise efficiently manage its long-term investment capital . because the level of these borrowings can generally be adjusted on a daily basis , the company 's potential liquidity inherent in its unencumbered residential mortgage investments is as important as the level of cash and cash equivalents carried on the balance sheet . the table included under “ utilization of long-term investment capital and potential liquidity ” illustrates management 's estimate of additional funds potentially available to the company at december 31 , 2020. the discussion accompanying this table and under “ covid-19 pandemic ” provides insight into the company 's current liquidity position and perspective on what level of portfolio leverage to employ under current market conditions . the company currently believes that it has sufficient liquidity and capital resources available for the acquisition of additional investments , repayments on borrowings and the payment of cash dividends as required for the company 's continued qualification as a reit . capstead finances its residential mortgage investments primarily by borrowing under repurchase arrangements , the terms and conditions of which are negotiated on a transaction-by-transaction basis , when each such borrowing is initiated or renewed .
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57 according to the bank of international settlements ( `` bis `` ) market review for the first half of 2009 , both the otc and exchange-traded derivative markets experienced contraction in 2009 versus the same period in 2008. according to the bis , as of june 30 , 2009 , the latest period reported , notional amounts outstanding for all otc derivatives was $ 604.6 trillion , down 11.6 % compared to $ 683.8 trillion in june 2008 , while the notional amounts outstanding for all exchange traded derivatives was $ 63.4 trillion on june 30 , 2009 , down 22.6 % from $ 82.0 trillion on june 30 , 2008. these declines compare to compound annual growth rates of 32.2 % and 16.5 % for notional amounts outstanding in otc and exchange-traded derivative markets , respectively , from june 30 , 2003 through june 30 , 2008. all otc product categories were down in notional amounts outstanding year-over-year according to the bis study , with credit default swaps down 37.2 % , commodities down 71.8 % , equity-linked derivatives down 35.0 % , foreign exchange derivatives down 22.6 % and interest rate derivatives down 4.6 % . interest rate derivatives represent the largest product category with $ 437.2 trillion outstanding as of june 30 , 2009. similarly , all exchange-traded derivative categories also realized significant declines in notional amounts outstanding year-over-year . we believe that the declines in notional amounts outstanding can be attributed , in large part , to macroeconomic and industry factors such as the general global economic climate , the deleveraging undertaken by certain market participants and regulatory uncertainty . additionally , industry efforts to net derivative exposure , especially in credit derivatives , has been a significant factor in bringing down notional amounts outstanding . except for energy related products , the same general trend was also evidenced by the reduced transactional volumes or slowing growth rate of certain products traded on futures exchanges . for several years , exchange traded derivatives have exhibited similar growth rates to those of related otc derivative markets . in 2009 , the cme reported a year over year decline in average daily volumes of 20 % with interest rate product volumes down 30 % , equity index products down 20 % , metal products down 4 % and energy products ( including cme clearport ) up 4 % . reflecting the increased activity in energy-related products , ice 's otc energy average daily commissions were up 8 % in 2009 compared to the prior year . we believe that the cme clearport and ice products benefited from a shift in trader focus towards the short-end of the maturity curve . ice 's otc credit ( excluding credit derivative clearing ) revenues were down 22.6 % year over year . in addition , newer products and our expansion into growing markets and new geographical areas have historically contributed to the growth in our brokerage revenues . for example , in 2008 and 2009 we invested in our fixed income product brokerage capabilities as the markets shifted in favor of cash products following the credit crisis . additionally , both our chile and dubai offices , which were opened in 2008 , showed significant growth year-over-year . competitive and regulatory environment another major external market factor affecting our business and results of operations is competition , which may take the form of competitive pressure on the commissions we charge for our brokerage services or competition for brokerage personnel with extensive experience in the specialized markets we serve . competition for the services of productive brokers was intense in 2009. in april of 2008 , almost two dozen of our credit division personnel in new york defected to a competitor , notwithstanding that many of them did so in breach of contractual obligations . this event resulted in increased competition , legal expenses and costs related to restaffing our north american credit operations that continued into 2009. the consolidation and personnel layoffs by dealers , hedge funds and other market participants that began in 2008 and continued into the first half of 2009 also led to increased competition to provide brokerage services to a smaller number of market participants in the near term . during 2009 , there was a continuing effort to establish new regulations for the global otc derivatives markets . we believe that the legislative and regulatory proposals for increased transparency , position limits and collateral or capital requirements have caused uncertainty in these markets as 58 market participants await any final regulations . this increased uncertainty in the markets has led investors and banks to commit less capital to many otc markets . nevertheless , we are optimistic that the regulatory solutions that are likely to emerge , including centralized clearing , increased transparency , automation and electronic execution , will be generally beneficial to the long-term health of the broader financial markets . the proposed legislation in the u.s. would require certain otc derivatives to be executed through a registered exchange or `` swap execution facility . `` we believe that we will be able to qualify as a swap execution facility and we believe that our expertise , technology and scale makes us well-positioned to capture any newly created opportunities in these markets . financial overview our results for the last three years reflect the challenging conditions in the financial markets over that time , including unprecedented conditions in the world economy and the financial markets in which we provide our services . our global and product diversification enabled us to take advantage of areas of market strength over this period , even as certain otc derivative markets were negatively affected by the financial crisis . as more fully discussed below , our results of operations are significantly impacted by the amount of our revenues and the amount of compensation and benefits we provide to our employees . story_separator_special_tag we also use the services of stock exchanges and floor brokers to assist in the execution of transactions . fees paid to floor brokers and execution fees paid to exchanges in these circumstances are included in clearing fees . in addition , clearing fees also include fees incurred in certain equity transactions executed on an agency basis . the decrease in interest expense of $ 3.8 million was primarily due to a decrease in the average borrowings outstanding under our credit agreement , as well as lower prevailing interest rates . in addition , we benefited from lower interest expense on balances maintained with clearing organizations . these decreases were partially offset by the full year impact of the increase in the applicable interest rate on our senior notes in july 2008. other expenses decreased $ 5.3 million in 2009 from 2008 due primarily to the $ 3.1 million write-off of an investment in an unconsolidated affiliate during 2008. in addition , there was a decrease in spending on third party licensing fees , a reduction in certain investment losses , and a decrease in net litigation settlements and awards compared to the same period in the prior year , offset by an increase in restructuring costs related to a joint venture and certain software and systems charges . our effective tax rate was 30.0 % for the year ended december 31 , 2009 as compared to 36.0 % for 2008. the reduction in our effective tax rate was primarily due to the shifting of the geographic mix of our earnings for the year ended december 31 , 2009 in favor of jurisdictions with lower tax rates , resulting in a lower aggregate effective tax rate . additionally , the united kingdom lowered its statutory corporate income tax rate from 30 % to 28 % on april 1 , 2008. year ended december 31 , 2008 compared to the year ended december 31 , 2007 net income net income for the year ended december 31 , 2008 was $ 53.1 million as compared to net income of $ 94.9 million for the year ended december 31 , 2007 , a decrease of approximately $ 41.8 million or 44.0 % . total revenues increased by $ 45.0 million , or 4.6 % , to $ 1,015.5 million for the year ended december 31 , 2008 from $ 970.5 million for 2007. our increased revenues were primarily due to increased equity brokerage revenues and the acquisition of trayport , which was partially offset by 66 declines in credit and financial brokerage revenues . revenues declined in the second half of 2008 due to the defection of two dozen north american credit brokers to a competitor in april 2008 , deleveraging in the dealer and hedge fund community , the transfer of our global u.s. dollar interest rate swap business to a third party in the first quarter of 2008 , the brokerage desk restructuring initiative announced in the third quarter 2008 , losses from unsettled trades directly related to the lehman brothers bankruptcy , and uncertainty around the regulatory and operating environment of certain otc markets in the second half of 2008. our total brokerage personnel headcount was 1,037 employees at december 31 , 2008 , equal to that at december 31 , 2007. our brokerage headcount declined in the fourth quarter due to the front office restructuring launched in the third quarter . total expenses increased by $ 112.7 million , or 13.8 % , to $ 932.5 million for 2008 from $ 819.8 million in 2007. expenses increased in large part due to higher sign-on and retention bonus expenses and a higher salary base due to a greater average employee headcount as compared to the same period in 2007. in addition , we recorded a number of non-recurring items in 2008. these items included a $ 12.9 million charge for severance and other expenses related to a front office restructuring initiative that involved closing certain under-performing brokerage desks and reducing headcount by approximately 55 employees , a $ 6.4 million accrual for broker bonus compensation which were paid in cash rather than , as originally contemplated , in restricted stock units , $ 7.8 million in costs related to the abandonment of our offices at 100 wall street and our move to 55 water street in new york , and expense of $ 1.8 million related to discontinued merger discussions . we also wrote-off a $ 3.1 million investment in an unconsolidated affiliate which was deemed to be permanently impaired . clearing fees increased $ 10.7 million to $ 43.4 million for 2008 from $ 32.7 million in 2007 , due in large part to the growth of matched principal brokerage revenues from our cash equities and cash bond businesses . professional fees increased $ 8.3 million , or 46.4 % , primarily due to legal fees regarding the credit broker departures and the discontinued merger discussions . revenues the following table sets forth the changes in revenues for the year ended december 31 , 2008 as compared to the same period in 2007 ( dollars in thousands , except percentage data ) : replace_table_token_11_th * denotes % of total revenues * * denotes % change in 2008 as compared to 2007 brokerage revenues we offer our brokerage services in four broad product categories : credit , equity , financial , and commodity . below is a discussion on our brokerage revenues by product category for the year ended december 31 , 2008 . 67 broker productivity ( defined as total brokerage revenues during the period divided by average monthly brokerage personnel headcount for the period ) across all product categories decreased by approximately 2.6 % for 2008 , as compared to 2007. the decrease in credit product brokerage revenues of $ 13.3 million in 2008 as compared with 2007 was due to a number of factors , including the defection of nearly two dozen of our north american credit
| liquidity and capital resources capstead 's primary sources of funds are secured borrowings and monthly principal and interest payments on its investments . other sources of funds may include proceeds from debt and equity offerings and asset sales . the timing , manner , price and amount of any future common and preferred issuances and any common stock repurchases will be made in the open market at the company 's discretion , subject to economic and market conditions , stock price , compliance with federal securities laws and tax regulations as well as blackout periods associated with the dissemination of important company-specific news . the company generally uses its liquidity to pay down secured borrowings to reduce borrowing costs and otherwise efficiently manage its long-term investment capital . because the level of these borrowings can generally be adjusted on a daily basis , the company 's potential liquidity inherent in its unencumbered residential mortgage investments is as important as the level of cash and cash equivalents carried on the balance sheet . the table included under “ utilization of long-term investment capital and potential liquidity ” illustrates management 's estimate of additional funds potentially available to the company at december 31 , 2020. the discussion accompanying this table and under “ covid-19 pandemic ” provides insight into the company 's current liquidity position and perspective on what level of portfolio leverage to employ under current market conditions . the company currently believes that it has sufficient liquidity and capital resources available for the acquisition of additional investments , repayments on borrowings and the payment of cash dividends as required for the company 's continued qualification as a reit . capstead finances its residential mortgage investments primarily by borrowing under repurchase arrangements , the terms and conditions of which are negotiated on a transaction-by-transaction basis , when each such borrowing is initiated or renewed .
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57 according to the bank of international settlements ( `` bis `` ) market review for the first half of 2009 , both the otc and exchange-traded derivative markets experienced contraction in 2009 versus the same period in 2008. according to the bis , as of june 30 , 2009 , the latest period reported , notional amounts outstanding for all otc derivatives was $ 604.6 trillion , down 11.6 % compared to $ 683.8 trillion in june 2008 , while the notional amounts outstanding for all exchange traded derivatives was $ 63.4 trillion on june 30 , 2009 , down 22.6 % from $ 82.0 trillion on june 30 , 2008. these declines compare to compound annual growth rates of 32.2 % and 16.5 % for notional amounts outstanding in otc and exchange-traded derivative markets , respectively , from june 30 , 2003 through june 30 , 2008. all otc product categories were down in notional amounts outstanding year-over-year according to the bis study , with credit default swaps down 37.2 % , commodities down 71.8 % , equity-linked derivatives down 35.0 % , foreign exchange derivatives down 22.6 % and interest rate derivatives down 4.6 % . interest rate derivatives represent the largest product category with $ 437.2 trillion outstanding as of june 30 , 2009. similarly , all exchange-traded derivative categories also realized significant declines in notional amounts outstanding year-over-year . we believe that the declines in notional amounts outstanding can be attributed , in large part , to macroeconomic and industry factors such as the general global economic climate , the deleveraging undertaken by certain market participants and regulatory uncertainty . additionally , industry efforts to net derivative exposure , especially in credit derivatives , has been a significant factor in bringing down notional amounts outstanding . except for energy related products , the same general trend was also evidenced by the reduced transactional volumes or slowing growth rate of certain products traded on futures exchanges . for several years , exchange traded derivatives have exhibited similar growth rates to those of related otc derivative markets . in 2009 , the cme reported a year over year decline in average daily volumes of 20 % with interest rate product volumes down 30 % , equity index products down 20 % , metal products down 4 % and energy products ( including cme clearport ) up 4 % . reflecting the increased activity in energy-related products , ice 's otc energy average daily commissions were up 8 % in 2009 compared to the prior year . we believe that the cme clearport and ice products benefited from a shift in trader focus towards the short-end of the maturity curve . ice 's otc credit ( excluding credit derivative clearing ) revenues were down 22.6 % year over year . in addition , newer products and our expansion into growing markets and new geographical areas have historically contributed to the growth in our brokerage revenues . for example , in 2008 and 2009 we invested in our fixed income product brokerage capabilities as the markets shifted in favor of cash products following the credit crisis . additionally , both our chile and dubai offices , which were opened in 2008 , showed significant growth year-over-year . competitive and regulatory environment another major external market factor affecting our business and results of operations is competition , which may take the form of competitive pressure on the commissions we charge for our brokerage services or competition for brokerage personnel with extensive experience in the specialized markets we serve . competition for the services of productive brokers was intense in 2009. in april of 2008 , almost two dozen of our credit division personnel in new york defected to a competitor , notwithstanding that many of them did so in breach of contractual obligations . this event resulted in increased competition , legal expenses and costs related to restaffing our north american credit operations that continued into 2009. the consolidation and personnel layoffs by dealers , hedge funds and other market participants that began in 2008 and continued into the first half of 2009 also led to increased competition to provide brokerage services to a smaller number of market participants in the near term . during 2009 , there was a continuing effort to establish new regulations for the global otc derivatives markets . we believe that the legislative and regulatory proposals for increased transparency , position limits and collateral or capital requirements have caused uncertainty in these markets as 58 market participants await any final regulations . this increased uncertainty in the markets has led investors and banks to commit less capital to many otc markets . nevertheless , we are optimistic that the regulatory solutions that are likely to emerge , including centralized clearing , increased transparency , automation and electronic execution , will be generally beneficial to the long-term health of the broader financial markets . the proposed legislation in the u.s. would require certain otc derivatives to be executed through a registered exchange or `` swap execution facility . `` we believe that we will be able to qualify as a swap execution facility and we believe that our expertise , technology and scale makes us well-positioned to capture any newly created opportunities in these markets . financial overview our results for the last three years reflect the challenging conditions in the financial markets over that time , including unprecedented conditions in the world economy and the financial markets in which we provide our services . our global and product diversification enabled us to take advantage of areas of market strength over this period , even as certain otc derivative markets were negatively affected by the financial crisis . as more fully discussed below , our results of operations are significantly impacted by the amount of our revenues and the amount of compensation and benefits we provide to our employees . story_separator_special_tag we also use the services of stock exchanges and floor brokers to assist in the execution of transactions . fees paid to floor brokers and execution fees paid to exchanges in these circumstances are included in clearing fees . in addition , clearing fees also include fees incurred in certain equity transactions executed on an agency basis . the decrease in interest expense of $ 3.8 million was primarily due to a decrease in the average borrowings outstanding under our credit agreement , as well as lower prevailing interest rates . in addition , we benefited from lower interest expense on balances maintained with clearing organizations . these decreases were partially offset by the full year impact of the increase in the applicable interest rate on our senior notes in july 2008. other expenses decreased $ 5.3 million in 2009 from 2008 due primarily to the $ 3.1 million write-off of an investment in an unconsolidated affiliate during 2008. in addition , there was a decrease in spending on third party licensing fees , a reduction in certain investment losses , and a decrease in net litigation settlements and awards compared to the same period in the prior year , offset by an increase in restructuring costs related to a joint venture and certain software and systems charges . our effective tax rate was 30.0 % for the year ended december 31 , 2009 as compared to 36.0 % for 2008. the reduction in our effective tax rate was primarily due to the shifting of the geographic mix of our earnings for the year ended december 31 , 2009 in favor of jurisdictions with lower tax rates , resulting in a lower aggregate effective tax rate . additionally , the united kingdom lowered its statutory corporate income tax rate from 30 % to 28 % on april 1 , 2008. year ended december 31 , 2008 compared to the year ended december 31 , 2007 net income net income for the year ended december 31 , 2008 was $ 53.1 million as compared to net income of $ 94.9 million for the year ended december 31 , 2007 , a decrease of approximately $ 41.8 million or 44.0 % . total revenues increased by $ 45.0 million , or 4.6 % , to $ 1,015.5 million for the year ended december 31 , 2008 from $ 970.5 million for 2007. our increased revenues were primarily due to increased equity brokerage revenues and the acquisition of trayport , which was partially offset by 66 declines in credit and financial brokerage revenues . revenues declined in the second half of 2008 due to the defection of two dozen north american credit brokers to a competitor in april 2008 , deleveraging in the dealer and hedge fund community , the transfer of our global u.s. dollar interest rate swap business to a third party in the first quarter of 2008 , the brokerage desk restructuring initiative announced in the third quarter 2008 , losses from unsettled trades directly related to the lehman brothers bankruptcy , and uncertainty around the regulatory and operating environment of certain otc markets in the second half of 2008. our total brokerage personnel headcount was 1,037 employees at december 31 , 2008 , equal to that at december 31 , 2007. our brokerage headcount declined in the fourth quarter due to the front office restructuring launched in the third quarter . total expenses increased by $ 112.7 million , or 13.8 % , to $ 932.5 million for 2008 from $ 819.8 million in 2007. expenses increased in large part due to higher sign-on and retention bonus expenses and a higher salary base due to a greater average employee headcount as compared to the same period in 2007. in addition , we recorded a number of non-recurring items in 2008. these items included a $ 12.9 million charge for severance and other expenses related to a front office restructuring initiative that involved closing certain under-performing brokerage desks and reducing headcount by approximately 55 employees , a $ 6.4 million accrual for broker bonus compensation which were paid in cash rather than , as originally contemplated , in restricted stock units , $ 7.8 million in costs related to the abandonment of our offices at 100 wall street and our move to 55 water street in new york , and expense of $ 1.8 million related to discontinued merger discussions . we also wrote-off a $ 3.1 million investment in an unconsolidated affiliate which was deemed to be permanently impaired . clearing fees increased $ 10.7 million to $ 43.4 million for 2008 from $ 32.7 million in 2007 , due in large part to the growth of matched principal brokerage revenues from our cash equities and cash bond businesses . professional fees increased $ 8.3 million , or 46.4 % , primarily due to legal fees regarding the credit broker departures and the discontinued merger discussions . revenues the following table sets forth the changes in revenues for the year ended december 31 , 2008 as compared to the same period in 2007 ( dollars in thousands , except percentage data ) : replace_table_token_11_th * denotes % of total revenues * * denotes % change in 2008 as compared to 2007 brokerage revenues we offer our brokerage services in four broad product categories : credit , equity , financial , and commodity . below is a discussion on our brokerage revenues by product category for the year ended december 31 , 2008 . 67 broker productivity ( defined as total brokerage revenues during the period divided by average monthly brokerage personnel headcount for the period ) across all product categories decreased by approximately 2.6 % for 2008 , as compared to 2007. the decrease in credit product brokerage revenues of $ 13.3 million in 2008 as compared with 2007 was due to a number of factors , including the defection of nearly two dozen of our north american credit
| liquidity and capital resources throughout the year ended december 31 , 2009 , we have financed our operations primarily through cash flows from operations . our debt consists of amounts outstanding under our credit agreement with bank of america and certain other lenders , which expires on february 24 , 2011 , and pursuant to our senior notes , which mature on january 30 , 2013. in april 2009 , we amended our credit agreement to reduce the maximum permitted borrowings to $ 175.0 million . in addition , we repaid $ 50 million of the outstanding credit agreement balance during 2009. in january 2008 , we completed a private placement of the senior notes . see note 9 to the consolidated financial statements in part ii-item 8 for further details on the amendment to our credit agreement and our senior notes . cash and cash equivalents consist of cash and highly liquid investments with maturities , when purchased , of three months or less . at december 31 , 2009 , we had $ 342.4 million of cash and cash equivalents compared to $ 342.4 million and $ 240.4 million at december 31 , 2008 and 2007 , respectively . the changes to our cash and cash equivalents balances for these periods are due to our operating , investing and financing activities as discussed below . the following table sets forth our cash flows from operating activities , investing activities and financing activities for the indicated periods .
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overview we are a leading provider of wireless broadband access solutions for the energy industry . our primary business strategy is to develop and provide a long-term terrestrial wireless broadband solution for the exploration , drilling , and production sectors of the energy industry in rural and remote locations in north america that lack existing communications infrastructure . we intend to continue to build upon our market position in the areas in which we operate by offering an integrated and comprehensive package of services that will allow us to provide our oil and gas customers with wellsite it communications services required throughout their drilling locations . we intend to continue to supplement our wellsite communications business with our enterprise , commercial and residential bandwidth delivery to maximize the return from our investment in network infrastructure throughout the regions in which we operate . historically , our revenues have been generated primarily from internet and construction services . our internet revenues result from our offering of broadband and basic communications services to residential and enterprise customers . our construction revenues result from the construction of bank networks and other services associated with providing wireless products and services to the regional banking industry . during fiscal 2013 , approximately 34 % of our revenues were generated from internet services , 60 % of our revenues were generated from providing broadband services to the energy industry and 6 % of our revenues were generated from construction services . we expect that the most growth during fiscal 2014 will continue to come from devoting significant capital resources to developing the oil and gas market utilizing wireless services . 26 the company 's financial condition declined in 2013 as compared to the prior fiscal year ended december 31 , 2012 , as follows : · the company reported revenues of $ 7,156,000 for the year ended december 31 , 2013 , as compared to revenues of $ 7,328,000 for the same prior year ended december 31 , 2012 ; a decrease of $ 172,000 or 2 % . · we reported gross profit of $ 2,997,000 for the year ended december 31 , 2013 , compared to $ 3,353,000 for the same prior year period ended december 31 , 2012 , a decrease of $ 356,000 or 11 % . · the company reported total comprehensive loss of $ 7,264,000 for the year ended december 31 , 2013 , as compared to a total comprehensive loss of $ 4,821,000 for the same prior year ended december 31 , 2012 ; an increase of $ 2,443,000 or 51 % . · the company 's energy broadband , inc. subsidiary reported revenues of $ 4,311,000 for the year ended december 31 , 2013 , as compared to revenues of $ 4,642,000 for the same prior year ended december 31 , 2012 ; a decrease of $ 331,000 or 7 % . · the company reported an increase of $ 558,000 or 8 % in operating expenses in the year ended december 31 , 2013 , as compared to the same prior year ended december 31 , 2012. the increase is primarily related to employment and professional expense . · lastly , the company invested $ 346,000 in cash during the year ended december 31 , 2013 , primarily for the purchase of assets in its energy broadband , inc. subsidiary for the continued expansion of networks and infrastructure . critical accounting policies revenue recognition our revenue is generated primarily from the sale of wireless communications products and services on a nationwide basis , including providing enterprise-class wireless broadband services . we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable , and collectibility is probable . we record revenues from our fixed-price , long-term contracts using the percentage-of-completion method . revenues are recorded based on construction costs incurred to date as a percentage of estimated total cost at completion . the percentage-of-completion , determined by using total costs incurred to date as a percentage of estimated total costs at completion , reflects the actual physical completion of the project . if the current projected costs on a fixed fee contract exceed projected revenue , the entire amount of the loss is recognized in the period such loss is identified . we recognize product sales generally at the time the product is shipped . concurrent with the recognition of revenue , we provide for the estimated cost of product warranties and reduce revenue for estimated product returns . sales incentives are generally classified as a reduction of revenue and are recognized at the later of when revenue is recognized or when the incentive is offered . shipping and handling costs are included in cost of goods sold . service revenue is principally derived from wireless broadband services , including internet , voice , and data and monitoring service . subscriber fees are recorded as revenues in the period during which the service is provided . property and equipment property and equipment are stated at cost less accumulated depreciation . major renewals and improvements are capitalized ; minor replacements , maintenance and repairs are charged to current operations . depreciation is computed by applying the straight-line method over the estimated useful lives which are generally three to seven years . long-lived assets we review our long-lived assets , to include intangible assets subject to amortization , for recoverability whenever events or changes in circumstances indicate that the carrying amount of such long-lived asset or group of long-lived assets ( collectively referred to as `` the asset `` ) may not be recoverable . story_separator_special_tag the holder may require the company to convert the outstanding principal balance ( including any unpaid interest ) into shares of restricted common stock at any time during the twelve months term of the note or thereafter . the common stock issued will be valued using a conversion factor of 85 % the average vwap trading price during the five ( 5 ) trading day period ending on the latest complete trading day prior to the conversion date . 32 on october 3 , 2013 , the company entered into a twelve month convertible promissory note unsecured debt financing agreement with group 10 holdings , llc , for $ 157,500 , bearing interest at a rate of 12 % per annum and maturing october 2 , 2014. the note also includes a 5 % oid of $ 7,500 based on the consideration funded . the company also paid holder a commitment fee in the amount of $ 45,000 in 144 stock ( 1,125 post-split shares ) at the closing bid price of the company 's common stock . the holder may require the company to convert the outstanding principal balance ( including any unpaid interest ) into shares of restricted common stock at any time after the twelve months term of the note . the common stock issued will be valued using a conversion factor of 55 % multiplied by the lowest closing bid price of the ( 20 ) trading days prior to the conversions , which represents a discount rate of 45 % . issuance of common stock and preferred stock during the year ended december 31 , 2013 , we issued to various accredited investors ( i ) 98,000 shares for services rendered and debt conversions , and ( ii ) 10,000 shares upon conversion of series a preferred stock . we relied on section 4 ( 2 ) of the securities act in effecting these transactions . use of working capital we believe our cash and available credit facilities afford us adequate liquidity for the balance of fiscal 2014. we anticipate that we will need additional capital in the future to continue to expand our business operations . we have historically financed our operations through private equity and debt financings . we do not have any commitments for equity or debt funding at this time , and additional funding may not be available to us on favorable terms , if at all . as such there is no assurance that we can raise additional capital from external sources , the failure of which could cause us to curtail operations . contractual obligations the following table sets forth contractual obligations as of december 31 , 2013 : replace_table_token_8_th the company 's contractual obligations consist of long-term debt of $ 8,914,000 net of unamortized discount of $ 628,000 , and interest expense of $ 1,046,000 as set forth in note 11 to the company 's financial statements , notes payable and long-term debt . the capital lease obligations consist of $ 426,000 and interest expense of $ 131,000 as set forth in note 11 in the future minimum lease payments schedule and certain obligations for operating leases requiring future minimal commitments under non-cancelable leases set forth in note 12 - commitments . off-balance sheet arrangements as of december 31 , 2013 , the company did not have any significant off-balance-sheet arrangements other than certain office and tower facility operating leases requiring minimal commitments under non-cancelable leases disclosed in the table above . critical accounting policies and estimates property and equipment property and equipment are stated at cost less accumulated depreciation . major renewals and improvements are capitalized ; minor replacements , maintenance and repairs are charged to current operations . depreciation is computed by applying the straight-line method over the estimated useful lives which are generally three to seven years . 33 long-lived assets we review our long-lived assets , to include intangible assets subject to amortization , for recoverability whenever events or changes in circumstances indicate that the carrying amount of such long-lived asset or group of long-lived assets ( collectively referred to as `` the asset `` ) may not be recoverable . such circumstances include , but are not limited to : · a significant decrease in the market price of the asset ; · a significant change in the extent or manner in which the asset is being used ; · a significant change in the business climate that could affect the value of the asset ; · a current period loss combined with projection of continuing loss associated with use of the asset ; · a current expectation that , more likely than not , the asset will be sold or otherwise disposed of before the end of its previously estimated useful life ; we continually evaluate whether such events and circumstances have occurred . when such events or circumstances exist , the recoverability of the asset 's carrying value shall be determined by estimating the undiscounted future cash flows ( cash inflows less associated cash outflows ) that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset . to date , no such impairment has occurred . to the extent such events or circumstances occur that could affect the recoverability of our long-lived assets , we may incur charges for impairment in the future . derivative instruments in connection with the sale of debt or equity instruments , the company may sell options or warrants to purchase our common stock . in certain circumstances , these options or warrants may be classified as derivative liabilities , rather than as equity . additionally , the debt or equity instruments may contain embedded derivative instruments , such as embedded derivative features which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability . the company 's derivative
| liquidity and capital resources throughout the year ended december 31 , 2009 , we have financed our operations primarily through cash flows from operations . our debt consists of amounts outstanding under our credit agreement with bank of america and certain other lenders , which expires on february 24 , 2011 , and pursuant to our senior notes , which mature on january 30 , 2013. in april 2009 , we amended our credit agreement to reduce the maximum permitted borrowings to $ 175.0 million . in addition , we repaid $ 50 million of the outstanding credit agreement balance during 2009. in january 2008 , we completed a private placement of the senior notes . see note 9 to the consolidated financial statements in part ii-item 8 for further details on the amendment to our credit agreement and our senior notes . cash and cash equivalents consist of cash and highly liquid investments with maturities , when purchased , of three months or less . at december 31 , 2009 , we had $ 342.4 million of cash and cash equivalents compared to $ 342.4 million and $ 240.4 million at december 31 , 2008 and 2007 , respectively . the changes to our cash and cash equivalents balances for these periods are due to our operating , investing and financing activities as discussed below . the following table sets forth our cash flows from operating activities , investing activities and financing activities for the indicated periods .
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overview we are a leading provider of wireless broadband access solutions for the energy industry . our primary business strategy is to develop and provide a long-term terrestrial wireless broadband solution for the exploration , drilling , and production sectors of the energy industry in rural and remote locations in north america that lack existing communications infrastructure . we intend to continue to build upon our market position in the areas in which we operate by offering an integrated and comprehensive package of services that will allow us to provide our oil and gas customers with wellsite it communications services required throughout their drilling locations . we intend to continue to supplement our wellsite communications business with our enterprise , commercial and residential bandwidth delivery to maximize the return from our investment in network infrastructure throughout the regions in which we operate . historically , our revenues have been generated primarily from internet and construction services . our internet revenues result from our offering of broadband and basic communications services to residential and enterprise customers . our construction revenues result from the construction of bank networks and other services associated with providing wireless products and services to the regional banking industry . during fiscal 2013 , approximately 34 % of our revenues were generated from internet services , 60 % of our revenues were generated from providing broadband services to the energy industry and 6 % of our revenues were generated from construction services . we expect that the most growth during fiscal 2014 will continue to come from devoting significant capital resources to developing the oil and gas market utilizing wireless services . 26 the company 's financial condition declined in 2013 as compared to the prior fiscal year ended december 31 , 2012 , as follows : · the company reported revenues of $ 7,156,000 for the year ended december 31 , 2013 , as compared to revenues of $ 7,328,000 for the same prior year ended december 31 , 2012 ; a decrease of $ 172,000 or 2 % . · we reported gross profit of $ 2,997,000 for the year ended december 31 , 2013 , compared to $ 3,353,000 for the same prior year period ended december 31 , 2012 , a decrease of $ 356,000 or 11 % . · the company reported total comprehensive loss of $ 7,264,000 for the year ended december 31 , 2013 , as compared to a total comprehensive loss of $ 4,821,000 for the same prior year ended december 31 , 2012 ; an increase of $ 2,443,000 or 51 % . · the company 's energy broadband , inc. subsidiary reported revenues of $ 4,311,000 for the year ended december 31 , 2013 , as compared to revenues of $ 4,642,000 for the same prior year ended december 31 , 2012 ; a decrease of $ 331,000 or 7 % . · the company reported an increase of $ 558,000 or 8 % in operating expenses in the year ended december 31 , 2013 , as compared to the same prior year ended december 31 , 2012. the increase is primarily related to employment and professional expense . · lastly , the company invested $ 346,000 in cash during the year ended december 31 , 2013 , primarily for the purchase of assets in its energy broadband , inc. subsidiary for the continued expansion of networks and infrastructure . critical accounting policies revenue recognition our revenue is generated primarily from the sale of wireless communications products and services on a nationwide basis , including providing enterprise-class wireless broadband services . we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable , and collectibility is probable . we record revenues from our fixed-price , long-term contracts using the percentage-of-completion method . revenues are recorded based on construction costs incurred to date as a percentage of estimated total cost at completion . the percentage-of-completion , determined by using total costs incurred to date as a percentage of estimated total costs at completion , reflects the actual physical completion of the project . if the current projected costs on a fixed fee contract exceed projected revenue , the entire amount of the loss is recognized in the period such loss is identified . we recognize product sales generally at the time the product is shipped . concurrent with the recognition of revenue , we provide for the estimated cost of product warranties and reduce revenue for estimated product returns . sales incentives are generally classified as a reduction of revenue and are recognized at the later of when revenue is recognized or when the incentive is offered . shipping and handling costs are included in cost of goods sold . service revenue is principally derived from wireless broadband services , including internet , voice , and data and monitoring service . subscriber fees are recorded as revenues in the period during which the service is provided . property and equipment property and equipment are stated at cost less accumulated depreciation . major renewals and improvements are capitalized ; minor replacements , maintenance and repairs are charged to current operations . depreciation is computed by applying the straight-line method over the estimated useful lives which are generally three to seven years . long-lived assets we review our long-lived assets , to include intangible assets subject to amortization , for recoverability whenever events or changes in circumstances indicate that the carrying amount of such long-lived asset or group of long-lived assets ( collectively referred to as `` the asset `` ) may not be recoverable . story_separator_special_tag the holder may require the company to convert the outstanding principal balance ( including any unpaid interest ) into shares of restricted common stock at any time during the twelve months term of the note or thereafter . the common stock issued will be valued using a conversion factor of 85 % the average vwap trading price during the five ( 5 ) trading day period ending on the latest complete trading day prior to the conversion date . 32 on october 3 , 2013 , the company entered into a twelve month convertible promissory note unsecured debt financing agreement with group 10 holdings , llc , for $ 157,500 , bearing interest at a rate of 12 % per annum and maturing october 2 , 2014. the note also includes a 5 % oid of $ 7,500 based on the consideration funded . the company also paid holder a commitment fee in the amount of $ 45,000 in 144 stock ( 1,125 post-split shares ) at the closing bid price of the company 's common stock . the holder may require the company to convert the outstanding principal balance ( including any unpaid interest ) into shares of restricted common stock at any time after the twelve months term of the note . the common stock issued will be valued using a conversion factor of 55 % multiplied by the lowest closing bid price of the ( 20 ) trading days prior to the conversions , which represents a discount rate of 45 % . issuance of common stock and preferred stock during the year ended december 31 , 2013 , we issued to various accredited investors ( i ) 98,000 shares for services rendered and debt conversions , and ( ii ) 10,000 shares upon conversion of series a preferred stock . we relied on section 4 ( 2 ) of the securities act in effecting these transactions . use of working capital we believe our cash and available credit facilities afford us adequate liquidity for the balance of fiscal 2014. we anticipate that we will need additional capital in the future to continue to expand our business operations . we have historically financed our operations through private equity and debt financings . we do not have any commitments for equity or debt funding at this time , and additional funding may not be available to us on favorable terms , if at all . as such there is no assurance that we can raise additional capital from external sources , the failure of which could cause us to curtail operations . contractual obligations the following table sets forth contractual obligations as of december 31 , 2013 : replace_table_token_8_th the company 's contractual obligations consist of long-term debt of $ 8,914,000 net of unamortized discount of $ 628,000 , and interest expense of $ 1,046,000 as set forth in note 11 to the company 's financial statements , notes payable and long-term debt . the capital lease obligations consist of $ 426,000 and interest expense of $ 131,000 as set forth in note 11 in the future minimum lease payments schedule and certain obligations for operating leases requiring future minimal commitments under non-cancelable leases set forth in note 12 - commitments . off-balance sheet arrangements as of december 31 , 2013 , the company did not have any significant off-balance-sheet arrangements other than certain office and tower facility operating leases requiring minimal commitments under non-cancelable leases disclosed in the table above . critical accounting policies and estimates property and equipment property and equipment are stated at cost less accumulated depreciation . major renewals and improvements are capitalized ; minor replacements , maintenance and repairs are charged to current operations . depreciation is computed by applying the straight-line method over the estimated useful lives which are generally three to seven years . 33 long-lived assets we review our long-lived assets , to include intangible assets subject to amortization , for recoverability whenever events or changes in circumstances indicate that the carrying amount of such long-lived asset or group of long-lived assets ( collectively referred to as `` the asset `` ) may not be recoverable . such circumstances include , but are not limited to : · a significant decrease in the market price of the asset ; · a significant change in the extent or manner in which the asset is being used ; · a significant change in the business climate that could affect the value of the asset ; · a current period loss combined with projection of continuing loss associated with use of the asset ; · a current expectation that , more likely than not , the asset will be sold or otherwise disposed of before the end of its previously estimated useful life ; we continually evaluate whether such events and circumstances have occurred . when such events or circumstances exist , the recoverability of the asset 's carrying value shall be determined by estimating the undiscounted future cash flows ( cash inflows less associated cash outflows ) that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset . to date , no such impairment has occurred . to the extent such events or circumstances occur that could affect the recoverability of our long-lived assets , we may incur charges for impairment in the future . derivative instruments in connection with the sale of debt or equity instruments , the company may sell options or warrants to purchase our common stock . in certain circumstances , these options or warrants may be classified as derivative liabilities , rather than as equity . additionally , the debt or equity instruments may contain embedded derivative instruments , such as embedded derivative features which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability . the company 's derivative
| liquidity and capital resources general at december 31 , 2013 , the company 's current assets totaled $ 2,082,000 ( including cash and cash equivalents of $ 42,000 ) total current liabilities were $ 6,582,000 , resulting in negative working capital of $ 4,500,000. the company has funded operations to date primarily through a combination of utilizing cash on hand and borrowings . the company 's operations for the year ended december 31 , 2013 , were primarily funded by the company 's line of credit , net totaling $ 1,148,000 and convertible debt financing of $ 3,116,000. current debt facilities and instruments in december 2013 , the company extended the maturity date of its $ 12.0 million unsecured revolving credit facility with angus capital partners , a related party , from december 31 , 2015 to december 31 , 2017. the terms of the unsecured revolving credit facility allow the company to draw upon the facility as financing requirements dictate and provide for quarterly interest payments at a 3 % rate per annum . the payment of principal may be paid in cash , common shares or preferred shares at the lender 's election . the payment of interest may only be paid in cash . the loan may be prepaid without penalty or repaid at maturity . at december 31 , 2013 the outstanding balance on the line of credit totaled $ 4,281,000. the remaining line of credit available at december 31 , 2013 was $ 7,719,000 . 30 for the year ended december 31 , 2013 , the company issued 36,784 shares of its common stock for the settlement of $ 1,808,739 of principal and $ 349,261 of accrued interest for a total principal and interest amount of $ 2,158,000 owed to angus capital partners . the company issued common stock at an average price of $ 58.67 per share calculated based on the closing price the day the debt was settled .
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on july 5 , 2018 , commerce granted our request and revoked the countervailing duties retroactively to august 3 , 2015 , the date the tariffs were originally imposed , which will result in a refund to canadian producers of supercalendered papers of the countervailing duties previously collected on supercalendered papers imported into the united states from such producers . pursuant to the settlement agreement , irving and port hawkesbury agreed to pay us a percentage , totaling up to $ 42 million , of the duties refunded to such parties over time . during the year ended december 31 , 2018 , we received $ 42 million in settlement payments which are included in other ( income ) expense on our consolidated statements of operations . 24 sale of wickliffe mill on august 16 , 2018 , verso paper entered into a purchase agreement with global win wickliffe llc , pursuant to which verso paper agreed to sell one of verso 's subsidiaries , verso wickliffe llc ( “ verso wickliffe ” ) for a purchase price of $ 16 million in cash . verso wickliffe owned substantially all of the assets that comprised the wickliffe mill and related operations . we previously announced our decision to permanently close the wickliffe mill in april 2016. the sale closed on september 5 , 2018 , and resulted in a gain of $ 9 million , included in other operating ( income ) expense on our consolidated statements of operations for the year ended december 31 , 2018. selected factors affecting operating results net sales our sales , which we report net of rebates , allowances and discounts , are a function of the number of tons of paper that we sell and the price at which we sell our paper . paper prices historically have been a function of macro-economic factors which influence supply and demand . price has historically been substantially more variable than volume and can change significantly over relatively short time periods . we are primarily focused on serving the following end-user categories : specialty converters , containerboard converters , general commercial print , catalogs and magazine publishers . coated papers demand is primarily driven by advertising and print media usage . to offset the decline in demand for graphic papers , we are constantly looking at new product development and production improvements to reposition our assets into more stable markets with increased focus on specialty papers , packaging papers and pulp . many of our customers provide us with forecasts of their paper needs , which allows us to plan our production runs in advance , optimizing production over our integrated mill system and thereby reducing costs and increasing overall efficiency . generally , our sales agreements do not extend beyond the calendar year , and they typically provide for quarterly or semiannual price adjustments based on market price movements . we reach our end-users through several channels , including merchants , brokers , printers and direct sales to end-users . we sell our products to approximately 300 customers which comprise approximately 1,600 end-user accounts . in 2018 , our largest customer , veritiv corporation , accounted for 19 % of our net sales . cost of products sold we are subject to changes in our cost of sales caused by movements in underlying commodity prices . the principal components of our cost of sales are chemicals , wood fiber , energy , labor and maintenance . costs for commodities , including chemicals , wood fiber and energy , are the most variable component of our cost of sales because their prices can fluctuate substantially , sometimes within a relatively short period of time . in addition , our aggregate commodity purchases fluctuate based on the volume of paper that we produce . chemicals . chemicals utilized in the manufacturing of coated papers include latex , clay , starch , calcium carbonate , caustic soda , sodium chlorate and titanium dioxide . we purchase these chemicals from a variety of suppliers and are not dependent on any single supplier to satisfy our chemical needs . we expect imbalances in supply and demand to periodically create volatility in prices for certain chemicals . wood fiber . we source our wood fiber from a broad group of timberland and sawmill owners located in the regions around our mills . our cost to purchase wood is affected directly by market price of wood in our regional markets and indirectly by the effect of higher fuel cost of logging and transportation of timber to our facilities . while we have in place fiber supply agreements that ensure delivery of a substantial portion of our wood requirements , purchases under these agreements are typically at market rates . energy . we produce a significant portion of our energy needs for our paper mills from sources such as waste wood , waste water , hydroelectric facilities , liquid biomass from our pulping process and internal energy cogeneration facilities . our external energy purchases vary across each of our mills and include fuel oil , natural gas , coal and electricity . our overall energy expenditures are mitigated by our internal energy production capacity and ability to switch between certain energy sources . we also from time to time utilize derivative contracts as part of our risk management strategy to manage our exposure to market fluctuations in energy prices . 25 labor . labor cost includes wages , salary and benefit expenses attributable to our mill personnel . mill employees at a non-managerial level are compensated on an hourly basis . management employees at our mills are compensated on a salaried basis . wages , salary and benefit expenses included in cost of sales do not vary significantly from year to year . in addition , we have not experienced significant labor shortages . maintenance . story_separator_special_tag the provisions of the u.s. tax cuts and jobs act of 2017 , or the “ tax act , ” included a reduction in the corporate income tax rate from 35 % to 21 % , as well as a repeal of the alternative minimum tax and provisions allowing for the refund of any minimum tax credit carryovers . we recognized a tax benefit of $ 6 million in 2017 related to the recognition of a minimum tax credit carryover receivable . we expect to receive this refund over time starting in 2019 through 2022 . 2017 compared to 2016 net sales . net sales for the year ended december 31 , 2017 decreased by $ 180 million or 7 % compared to the prior year . this decrease was attributable to a 6 % decrease in total sales volume , from 3,149 thousand tons in 2016 to 2,959 thousand tons in 2017 , and a 1 % reduction in average price/mix from $ 839 per ton in 2016 to $ 832 per ton in 2017. the decrease in sales volume resulted in a $ 159 million decrease in revenue , while the reduced pricing , partially offset by improvement in product mix , resulted in an additional $ 21 million decrease in revenue . the decreases in volume and pricing were driven by general softening of demand for coated papers and our capacity reductions at our androscoggin mill . cost of sales . cost of products sold , excluding depreciation and amortization expenses , decreased $ 126 million or 5 % in the year ended december 31 , 2017 compared to the prior year . our gross margin , excluding depreciation and amortization expenses , was 8.6 % for the year ended december 31 , 2017 compared to 10.0 % for the year ended december 31 , 2016 reflecting an incremental decrease of $ 54 million in gross margin . gross margin was negatively impacted by lower sales volume , lower sales prices , inflation in chemicals and energy costs and inventory reduction initiatives , partially offset by lower wood fiber costs , reductions in manufacturing overhead costs and inventory fair value adjustments associated with fresh start accounting in 2016. depreciation and amortization . depreciation and amortization expenses decreased $ 78 million or 40 % from the prior year . the reduction in depreciation and amortization is attributable to the capacity reductions at our androscoggin mill , the closure of the wickliffe mill and the reduction in the carrying value of our property , plant and equipment , net , as a result of the adoption of fresh start accounting . 30 selling , general and administrative expenses . selling , general and administrative expenses for the year ended december 31 , 2017 decreased $ 42 million or 28 % compared to the prior year primarily attributable to cost reduction initiatives implemented across the company and a change in accounting policy adopted in connection with fresh start accounting related to certain centralized manufacturing overhead costs of $ 15 million previously presented in selling , general and administrative expenses of the predecessor that are now presented in cost of products sold of the successor . in addition , selling , general and administrative expenses for the year ended december 31 , 2016 included $ 6 million in costs incurred in connection with pre-reorganization advisory and legal services related to planning for the chapter 11 cases . as a percentage of net sales , selling , general and administrative expense was 4 % for the year ended december 31 , 2017 and 6 % for the year ended december 31 , 2016. restructuring charges . restructuring charges for the year ended december 31 , 2017 decreased $ 153 million from the prior year . restructuring charges for the year ended december 31 , 2017 are primarily associated with the announced closure and relocation of the memphis office headquarters and closure of the wickliffe mill . restructuring charges for the year ended december 31 , 2016 consisted primarily of non-cash fixed asset write-down charges of $ 127 million and $ 15 million of severance and benefit costs related primarily to the production capacity reductions and permanent closure of our wickliffe mill . other operating ( income ) expense . other operating income for the year ended december 31 , 2017 decreased $ 50 million , primarily attributable to the sale of hydroelectric facilities in january 2016 , partially offset by costs incurred for professional fees paid for legal , consulting and other bankruptcy related costs and services . interest expense . interest expense for the year ended december 31 , 2017 decreased $ 18 million or 32 % compared to the prior year . for the year ended december 31 , 2016 , we ceased recording interest expense as of the petition date on outstanding pre-petition debt classified as liabilities subject to compromise , or “ lstc . ” such interest on pre-petition debt was stayed by the bankruptcy court effective on the petition date . during the pendency of the bankruptcy , the predecessor incurred interest expense on its debtor-in-possession facilities . for periods subsequent to the effective date , the successor incurred interest expense on the outstanding balance of our abl facility and prior term loan facility . other ( income ) expense . other income for the year ended december 31 , 2017 and december 31 , 2016 include income of $ 14 million and $ 32 million , respectively , associated with the non-operating components of net periodic pension and other postretirement cost ( income ) in connection with the adoption of asu 2017-07 ( see note 2 to our consolidated financial statements included elsewhere in this report ) . in addition , other income for the year ended december 31 , 2017 includes $ 7 million related to the extinguishment of our obligation in december 2017 in connection with the unwind of a new market tax credit
| liquidity and capital resources general at december 31 , 2013 , the company 's current assets totaled $ 2,082,000 ( including cash and cash equivalents of $ 42,000 ) total current liabilities were $ 6,582,000 , resulting in negative working capital of $ 4,500,000. the company has funded operations to date primarily through a combination of utilizing cash on hand and borrowings . the company 's operations for the year ended december 31 , 2013 , were primarily funded by the company 's line of credit , net totaling $ 1,148,000 and convertible debt financing of $ 3,116,000. current debt facilities and instruments in december 2013 , the company extended the maturity date of its $ 12.0 million unsecured revolving credit facility with angus capital partners , a related party , from december 31 , 2015 to december 31 , 2017. the terms of the unsecured revolving credit facility allow the company to draw upon the facility as financing requirements dictate and provide for quarterly interest payments at a 3 % rate per annum . the payment of principal may be paid in cash , common shares or preferred shares at the lender 's election . the payment of interest may only be paid in cash . the loan may be prepaid without penalty or repaid at maturity . at december 31 , 2013 the outstanding balance on the line of credit totaled $ 4,281,000. the remaining line of credit available at december 31 , 2013 was $ 7,719,000 . 30 for the year ended december 31 , 2013 , the company issued 36,784 shares of its common stock for the settlement of $ 1,808,739 of principal and $ 349,261 of accrued interest for a total principal and interest amount of $ 2,158,000 owed to angus capital partners . the company issued common stock at an average price of $ 58.67 per share calculated based on the closing price the day the debt was settled .
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on july 5 , 2018 , commerce granted our request and revoked the countervailing duties retroactively to august 3 , 2015 , the date the tariffs were originally imposed , which will result in a refund to canadian producers of supercalendered papers of the countervailing duties previously collected on supercalendered papers imported into the united states from such producers . pursuant to the settlement agreement , irving and port hawkesbury agreed to pay us a percentage , totaling up to $ 42 million , of the duties refunded to such parties over time . during the year ended december 31 , 2018 , we received $ 42 million in settlement payments which are included in other ( income ) expense on our consolidated statements of operations . 24 sale of wickliffe mill on august 16 , 2018 , verso paper entered into a purchase agreement with global win wickliffe llc , pursuant to which verso paper agreed to sell one of verso 's subsidiaries , verso wickliffe llc ( “ verso wickliffe ” ) for a purchase price of $ 16 million in cash . verso wickliffe owned substantially all of the assets that comprised the wickliffe mill and related operations . we previously announced our decision to permanently close the wickliffe mill in april 2016. the sale closed on september 5 , 2018 , and resulted in a gain of $ 9 million , included in other operating ( income ) expense on our consolidated statements of operations for the year ended december 31 , 2018. selected factors affecting operating results net sales our sales , which we report net of rebates , allowances and discounts , are a function of the number of tons of paper that we sell and the price at which we sell our paper . paper prices historically have been a function of macro-economic factors which influence supply and demand . price has historically been substantially more variable than volume and can change significantly over relatively short time periods . we are primarily focused on serving the following end-user categories : specialty converters , containerboard converters , general commercial print , catalogs and magazine publishers . coated papers demand is primarily driven by advertising and print media usage . to offset the decline in demand for graphic papers , we are constantly looking at new product development and production improvements to reposition our assets into more stable markets with increased focus on specialty papers , packaging papers and pulp . many of our customers provide us with forecasts of their paper needs , which allows us to plan our production runs in advance , optimizing production over our integrated mill system and thereby reducing costs and increasing overall efficiency . generally , our sales agreements do not extend beyond the calendar year , and they typically provide for quarterly or semiannual price adjustments based on market price movements . we reach our end-users through several channels , including merchants , brokers , printers and direct sales to end-users . we sell our products to approximately 300 customers which comprise approximately 1,600 end-user accounts . in 2018 , our largest customer , veritiv corporation , accounted for 19 % of our net sales . cost of products sold we are subject to changes in our cost of sales caused by movements in underlying commodity prices . the principal components of our cost of sales are chemicals , wood fiber , energy , labor and maintenance . costs for commodities , including chemicals , wood fiber and energy , are the most variable component of our cost of sales because their prices can fluctuate substantially , sometimes within a relatively short period of time . in addition , our aggregate commodity purchases fluctuate based on the volume of paper that we produce . chemicals . chemicals utilized in the manufacturing of coated papers include latex , clay , starch , calcium carbonate , caustic soda , sodium chlorate and titanium dioxide . we purchase these chemicals from a variety of suppliers and are not dependent on any single supplier to satisfy our chemical needs . we expect imbalances in supply and demand to periodically create volatility in prices for certain chemicals . wood fiber . we source our wood fiber from a broad group of timberland and sawmill owners located in the regions around our mills . our cost to purchase wood is affected directly by market price of wood in our regional markets and indirectly by the effect of higher fuel cost of logging and transportation of timber to our facilities . while we have in place fiber supply agreements that ensure delivery of a substantial portion of our wood requirements , purchases under these agreements are typically at market rates . energy . we produce a significant portion of our energy needs for our paper mills from sources such as waste wood , waste water , hydroelectric facilities , liquid biomass from our pulping process and internal energy cogeneration facilities . our external energy purchases vary across each of our mills and include fuel oil , natural gas , coal and electricity . our overall energy expenditures are mitigated by our internal energy production capacity and ability to switch between certain energy sources . we also from time to time utilize derivative contracts as part of our risk management strategy to manage our exposure to market fluctuations in energy prices . 25 labor . labor cost includes wages , salary and benefit expenses attributable to our mill personnel . mill employees at a non-managerial level are compensated on an hourly basis . management employees at our mills are compensated on a salaried basis . wages , salary and benefit expenses included in cost of sales do not vary significantly from year to year . in addition , we have not experienced significant labor shortages . maintenance . story_separator_special_tag the provisions of the u.s. tax cuts and jobs act of 2017 , or the “ tax act , ” included a reduction in the corporate income tax rate from 35 % to 21 % , as well as a repeal of the alternative minimum tax and provisions allowing for the refund of any minimum tax credit carryovers . we recognized a tax benefit of $ 6 million in 2017 related to the recognition of a minimum tax credit carryover receivable . we expect to receive this refund over time starting in 2019 through 2022 . 2017 compared to 2016 net sales . net sales for the year ended december 31 , 2017 decreased by $ 180 million or 7 % compared to the prior year . this decrease was attributable to a 6 % decrease in total sales volume , from 3,149 thousand tons in 2016 to 2,959 thousand tons in 2017 , and a 1 % reduction in average price/mix from $ 839 per ton in 2016 to $ 832 per ton in 2017. the decrease in sales volume resulted in a $ 159 million decrease in revenue , while the reduced pricing , partially offset by improvement in product mix , resulted in an additional $ 21 million decrease in revenue . the decreases in volume and pricing were driven by general softening of demand for coated papers and our capacity reductions at our androscoggin mill . cost of sales . cost of products sold , excluding depreciation and amortization expenses , decreased $ 126 million or 5 % in the year ended december 31 , 2017 compared to the prior year . our gross margin , excluding depreciation and amortization expenses , was 8.6 % for the year ended december 31 , 2017 compared to 10.0 % for the year ended december 31 , 2016 reflecting an incremental decrease of $ 54 million in gross margin . gross margin was negatively impacted by lower sales volume , lower sales prices , inflation in chemicals and energy costs and inventory reduction initiatives , partially offset by lower wood fiber costs , reductions in manufacturing overhead costs and inventory fair value adjustments associated with fresh start accounting in 2016. depreciation and amortization . depreciation and amortization expenses decreased $ 78 million or 40 % from the prior year . the reduction in depreciation and amortization is attributable to the capacity reductions at our androscoggin mill , the closure of the wickliffe mill and the reduction in the carrying value of our property , plant and equipment , net , as a result of the adoption of fresh start accounting . 30 selling , general and administrative expenses . selling , general and administrative expenses for the year ended december 31 , 2017 decreased $ 42 million or 28 % compared to the prior year primarily attributable to cost reduction initiatives implemented across the company and a change in accounting policy adopted in connection with fresh start accounting related to certain centralized manufacturing overhead costs of $ 15 million previously presented in selling , general and administrative expenses of the predecessor that are now presented in cost of products sold of the successor . in addition , selling , general and administrative expenses for the year ended december 31 , 2016 included $ 6 million in costs incurred in connection with pre-reorganization advisory and legal services related to planning for the chapter 11 cases . as a percentage of net sales , selling , general and administrative expense was 4 % for the year ended december 31 , 2017 and 6 % for the year ended december 31 , 2016. restructuring charges . restructuring charges for the year ended december 31 , 2017 decreased $ 153 million from the prior year . restructuring charges for the year ended december 31 , 2017 are primarily associated with the announced closure and relocation of the memphis office headquarters and closure of the wickliffe mill . restructuring charges for the year ended december 31 , 2016 consisted primarily of non-cash fixed asset write-down charges of $ 127 million and $ 15 million of severance and benefit costs related primarily to the production capacity reductions and permanent closure of our wickliffe mill . other operating ( income ) expense . other operating income for the year ended december 31 , 2017 decreased $ 50 million , primarily attributable to the sale of hydroelectric facilities in january 2016 , partially offset by costs incurred for professional fees paid for legal , consulting and other bankruptcy related costs and services . interest expense . interest expense for the year ended december 31 , 2017 decreased $ 18 million or 32 % compared to the prior year . for the year ended december 31 , 2016 , we ceased recording interest expense as of the petition date on outstanding pre-petition debt classified as liabilities subject to compromise , or “ lstc . ” such interest on pre-petition debt was stayed by the bankruptcy court effective on the petition date . during the pendency of the bankruptcy , the predecessor incurred interest expense on its debtor-in-possession facilities . for periods subsequent to the effective date , the successor incurred interest expense on the outstanding balance of our abl facility and prior term loan facility . other ( income ) expense . other income for the year ended december 31 , 2017 and december 31 , 2016 include income of $ 14 million and $ 32 million , respectively , associated with the non-operating components of net periodic pension and other postretirement cost ( income ) in connection with the adoption of asu 2017-07 ( see note 2 to our consolidated financial statements included elsewhere in this report ) . in addition , other income for the year ended december 31 , 2017 includes $ 7 million related to the extinguishment of our obligation in december 2017 in connection with the unwind of a new market tax credit
| liquidity and capital resources our principal cash requirements include ongoing operating costs : working capital needs , capital expenditures for maintenance and strategic investments and pension contributions . while changes in these ongoing operating costs can impact operating cash generation , we believe that our planning and strategies on pricing and cost control have resulted in our improved cash flows from operations in recent years . we also from time to time utilize factoring of accounts receivable ( for example , quick pay programs sponsored by customers ) as an alternative source of funds when cost is favorable to our abl facility or due to other considerations . we believe our cash and cash equivalents at december 31 , 2018 , future cash generated from operations and , to the extent necessary , the availability under our abl facility will be sufficient to meet these needs for at least the next twelve months . our ability to sustain our working capital position is subject to a number of risks that we discuss in “ part i , item 1a , risk factors , ” included elsewhere in this report . as of december 31 , 2018 , we had cash and cash equivalents of $ 26 million while the outstanding balance of our abl facility was zero , with $ 34 million issued in letters of credit and $ 283 million available for future borrowings . as of february 15 , 2019 , we had outstanding borrowings of $ 35 million under our abl facility , which reflect normal first quarter working capital activity . during the year ended december 31 , 2018 , we repaid in full our prior term loan facility .
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while the impact of sequestration is yet to be determined , automatic across-the-board budget cuts would approximately double the amount of the ten-year $ 487 billion top line reduction already reflected in the defense funding over a ten-year period , with a $ 52 billion reduction occurring in the government 's fiscal year 2013. the resulting automatic across-the-board budget cuts in sequestration would have significant consequences to our business and industry . there would be disruption of ongoing programs and initiatives , facilities closures and personnel reductions that would severely impact advanced manufacturing operations and engineering expertise , and accelerate the loss of skills and knowledge , directly undermining a key provision of the new security strategy , which is to preserve the industrial base . the administration 's spending priorities were released on february 13 , 2012 with the submission of the president 's budget request for fiscal year 2013. the government 's 2013 fiscal year runs from october 2012 to september 2013. every year , congress must approve or revise the proposals contained in the president 's annual budget request through enactment of appropriations bills and other policy legislation , which then require final presidential approval . the outcome of the federal budget process has a direct effect on our business . department of defense business the passage of the budget act signaled the end of ten years of growth in the dod base budget and imposed specific caps on security and non-security spending beginning in fiscal year 2013. the fiscal year 2013 request of $ 525 billion for the dod base budget is the first to reflect the reduced spending levels imposed by the budget act and is consistent with its caps on discretionary spending . the fiscal year 2013 request represents a decline of about 1 % below the fiscal year 2012 dod baseline appropriated level of $ 531 billion . preliminary insights into national security funding priorities for fiscal year 2013 and beyond were revealed on january 26 , 2012 by secretary of defense leon panetta , which were consistent with the fiscal year 2013 budget request . specifically , the defense spending proposal estimates dod base budgets that are essentially flat in real terms from fiscal year 2013 through fiscal year 2017. in prior years , the administration has requested and congress has provided funds for u.s. military operations in afghanistan and iraq , and other unforeseeable contingency or peacekeeping operations , through a separate overseas contingency operations ( oco ) funding outside of the base dod budget . the oco funding for fiscal year 2012 totaled $ 115 billion , and the administration has requested $ 88 billion for fiscal year 2013. this significant reduction reflects the completion of u.s. military operations in iraq in 2011. our net sales historically have not been significantly dependent on overseas contingency or supplemental funding requests , and therefore , we continue to focus our attention on the dod 's base budget for support and funding of our programs . in december 2011 , congress passed an omnibus appropriations act for fiscal year 2012 to finance all u.s. government activities through september 30 , 2012 , the end of its fiscal year . this full year method of financing eliminated much of the uncertainty and inefficiency in procurement of products and services that characterized the first quarter of the government 's fiscal year 2012 when the operations of the federal government were financed through a series of continuing resolution temporary funding measures . as we begin 2012 , presidential election year activities will likely mean a shortened session for congress that will have to address the annual spending bills but also broader and more contentious policy issues associated with sequestration and tax policy . given the complexity and sensitivity of these issues , congress may resort to returning for a lame duck session after the november 2012 elections in order to deal with these more contentious issues . the fiscal year 2013 budget proposal reflects the administration 's new national security strategy and is consistent with the lower spending levels imposed by the budget act . despite the reduced defense spending levels in the president 's fiscal year 2013 budget proposal , we believe our broad mix of programs and capabilities continue to position us favorably to support the current and future needs of the dod and our programs are well supported in the fiscal year 2013 budget request . this view was strongly supported by the secretary of defense 's initial public release of elements of the fiscal year 2013 defense budget request on january 26 , 2012. for example , the budget supports continuation of all three variants of the f-35 and still maintains the same ultimate inventory objective of 2,443 aircraft for the u.s. government as last year , although ramp up of production will be slowed due to budgetary constraints in the near term to allow for more testing and to minimize design changes impacting production aircraft . additionally , the secretary 's preliminary release specifically cited continued support for systems where we are the prime contractor or a major subcontractor such as the global positioning satellite program , the advanced extremely high frequency system , the space-based infrared system , phased adaptive approach missile defense system , ddg-51 aegis destroyer , and continued operation of the u-2 manned isr aircraft . 23 given the administration 's emphasis on affordability and the need to find further efficiencies in the management and operations of dod , the need for more affordable logistics and sustainment , expansive use of information technology and knowledge-based solutions , and vastly improved levels of network and cyber security , all appear to continue to be national priorities . story_separator_special_tag product sales at space systems decreased about $ 460 million in 2010 compared to 2009 primarily due to lower volume on defensive missile systems , activities on the nasa external tank program due to the wind down of the space shuttle program and volume from commercial satellite and launch vehicle activities . there was one commercial satellite delivery in both 2010 and 2009 , and there were no commercial launches in 2010 compared to one commercial launch in 2009 . 27 services sales services sales at electronic systems increased about $ 165 million in 2011 compared to 2010 primarily due to growth on the special operations forces contractor logistics support services ( sof clss ) program partially offset by lower volume on various other logistic and training services programs . services sales at is & gs increased approximately $ 155 million in 2011 compared to 2010 due to activities on a number of smaller contracts . most of our services sales are in the electronic systems and is & gs business segments . services sales at electronic systems increased about $ 645 million in 2010 compared to 2009 primarily due to growth on various logistic and training programs and the start of the sof clss program in the third quarter of 2010. is & gs ' services sales increased about $ 310 million in 2010 compared to 2009 due to activities on the hanford mission support contract and numerous other services contracts at is & gs . cost of sales cost of sales , for both products and services , consist of materials , labor , and subcontracting costs , as well as an allocation of indirect costs ( overhead and general and administrative ) . for each of our contracts , we manage the nature and amount of costs at the contract level , which form the basis for estimating our total costs at completion of the contract . management evaluates performance on our contracts by focusing on net sales and operating profit , and not by type or amount of operating expense . consequently , our discussion of business segment performance focuses on net sales and operating profit , consistent with our approach for managing the business . this approach is consistent with the overall life cycle of our contracts , as management assesses the bidding of each contract by focusing on net sales and operating profit , and monitors performance on our contracts in a similar manner through their completion . we regularly provide customers with reports of our costs as the contract progresses . the cost information in the reports is accumulated in a manner specified by the requirements of each contract . for example , cost data provided to our customer for a product would typically align to the subcomponents of that product ( such as a wing-box on an aircraft ) or for services , the type of work being performed ( such as help-desk support ) . our contracts generally are cost-based , which allows for the recovery of costs in the pricing of our products and services . most of our contracts generally are bid and negotiated with our customers based on the mutual awareness of our estimated costs to provide the product or service . this approach for negotiating contracts with our u.s. government customers generally allows for the recovery of our costs . we also may enter into long-term supply contracts for certain materials or components , to coincide with the production schedule of certain products and to ensure their availability at known unit prices . replace_table_token_7_th due to the nature of poc accounting , changes in our cost of product and services sales are typically accompanied by changes in our net sales . the following discussion of material changes in our consolidated cost of sales should be read in tandem with the preceding discussion of changes in our consolidated net sales and with our discussion of business segments. cost of sales was $ 42.8 billion in 2011 , a $ 912 million or 2 % increase over 2010 cost of sales of $ 41.9 billion . the increase was due to a $ 429 million increase in cost of product sales , a $ 132 million increase in cost of services sales and a $ 435 million increase in other unallocated corporate costs , partially offset by a reduction in severance and other charges of $ 84 million as further discussed in the following sections . cost of sales was $ 41.9 billion in 2010 , a $ 2.2 billion or 5 % increase over 2009 cost of sales of $ 39.7 billion . the increase was due to a $ 896 million increase in cost of product sales , a $ 976 million increase in cost of services sales , a $ 71 million increase in other unallocated corporate costs and an increase for severance and other charges of $ 220 million , as further discussed in the following sections . 28 cost of product sales cost of product sales at aeronautics increased by about $ 1.1 billion in 2011 compared to 2010 primarily due to production volume on various programs , including f-35 lrip contracts , and the impact of additional aircraft deliveries . cost of product sales for electronic systems was relatively unchanged between 2011 and 2010. cost of product sales at is & gs decreased about $ 560 million in 2011 compared to 2010 primarily due to the absence of the dris program and lower volume on the jtrs program . cost of product sales decreased at space systems by about $ 120 million in 2011 compared to 2010 primarily due to lower volume on the nasa external tank and orion programs . cost of product sales at aeronautics increased by about $ 1.1 billion in 2010 compared to 2009 primarily due to production activities on various programs , including f-35 lrip contracts , and the impact of aircraft deliveries . cost of product sales
| liquidity and capital resources our principal cash requirements include ongoing operating costs : working capital needs , capital expenditures for maintenance and strategic investments and pension contributions . while changes in these ongoing operating costs can impact operating cash generation , we believe that our planning and strategies on pricing and cost control have resulted in our improved cash flows from operations in recent years . we also from time to time utilize factoring of accounts receivable ( for example , quick pay programs sponsored by customers ) as an alternative source of funds when cost is favorable to our abl facility or due to other considerations . we believe our cash and cash equivalents at december 31 , 2018 , future cash generated from operations and , to the extent necessary , the availability under our abl facility will be sufficient to meet these needs for at least the next twelve months . our ability to sustain our working capital position is subject to a number of risks that we discuss in “ part i , item 1a , risk factors , ” included elsewhere in this report . as of december 31 , 2018 , we had cash and cash equivalents of $ 26 million while the outstanding balance of our abl facility was zero , with $ 34 million issued in letters of credit and $ 283 million available for future borrowings . as of february 15 , 2019 , we had outstanding borrowings of $ 35 million under our abl facility , which reflect normal first quarter working capital activity . during the year ended december 31 , 2018 , we repaid in full our prior term loan facility .
| 0 |
while the impact of sequestration is yet to be determined , automatic across-the-board budget cuts would approximately double the amount of the ten-year $ 487 billion top line reduction already reflected in the defense funding over a ten-year period , with a $ 52 billion reduction occurring in the government 's fiscal year 2013. the resulting automatic across-the-board budget cuts in sequestration would have significant consequences to our business and industry . there would be disruption of ongoing programs and initiatives , facilities closures and personnel reductions that would severely impact advanced manufacturing operations and engineering expertise , and accelerate the loss of skills and knowledge , directly undermining a key provision of the new security strategy , which is to preserve the industrial base . the administration 's spending priorities were released on february 13 , 2012 with the submission of the president 's budget request for fiscal year 2013. the government 's 2013 fiscal year runs from october 2012 to september 2013. every year , congress must approve or revise the proposals contained in the president 's annual budget request through enactment of appropriations bills and other policy legislation , which then require final presidential approval . the outcome of the federal budget process has a direct effect on our business . department of defense business the passage of the budget act signaled the end of ten years of growth in the dod base budget and imposed specific caps on security and non-security spending beginning in fiscal year 2013. the fiscal year 2013 request of $ 525 billion for the dod base budget is the first to reflect the reduced spending levels imposed by the budget act and is consistent with its caps on discretionary spending . the fiscal year 2013 request represents a decline of about 1 % below the fiscal year 2012 dod baseline appropriated level of $ 531 billion . preliminary insights into national security funding priorities for fiscal year 2013 and beyond were revealed on january 26 , 2012 by secretary of defense leon panetta , which were consistent with the fiscal year 2013 budget request . specifically , the defense spending proposal estimates dod base budgets that are essentially flat in real terms from fiscal year 2013 through fiscal year 2017. in prior years , the administration has requested and congress has provided funds for u.s. military operations in afghanistan and iraq , and other unforeseeable contingency or peacekeeping operations , through a separate overseas contingency operations ( oco ) funding outside of the base dod budget . the oco funding for fiscal year 2012 totaled $ 115 billion , and the administration has requested $ 88 billion for fiscal year 2013. this significant reduction reflects the completion of u.s. military operations in iraq in 2011. our net sales historically have not been significantly dependent on overseas contingency or supplemental funding requests , and therefore , we continue to focus our attention on the dod 's base budget for support and funding of our programs . in december 2011 , congress passed an omnibus appropriations act for fiscal year 2012 to finance all u.s. government activities through september 30 , 2012 , the end of its fiscal year . this full year method of financing eliminated much of the uncertainty and inefficiency in procurement of products and services that characterized the first quarter of the government 's fiscal year 2012 when the operations of the federal government were financed through a series of continuing resolution temporary funding measures . as we begin 2012 , presidential election year activities will likely mean a shortened session for congress that will have to address the annual spending bills but also broader and more contentious policy issues associated with sequestration and tax policy . given the complexity and sensitivity of these issues , congress may resort to returning for a lame duck session after the november 2012 elections in order to deal with these more contentious issues . the fiscal year 2013 budget proposal reflects the administration 's new national security strategy and is consistent with the lower spending levels imposed by the budget act . despite the reduced defense spending levels in the president 's fiscal year 2013 budget proposal , we believe our broad mix of programs and capabilities continue to position us favorably to support the current and future needs of the dod and our programs are well supported in the fiscal year 2013 budget request . this view was strongly supported by the secretary of defense 's initial public release of elements of the fiscal year 2013 defense budget request on january 26 , 2012. for example , the budget supports continuation of all three variants of the f-35 and still maintains the same ultimate inventory objective of 2,443 aircraft for the u.s. government as last year , although ramp up of production will be slowed due to budgetary constraints in the near term to allow for more testing and to minimize design changes impacting production aircraft . additionally , the secretary 's preliminary release specifically cited continued support for systems where we are the prime contractor or a major subcontractor such as the global positioning satellite program , the advanced extremely high frequency system , the space-based infrared system , phased adaptive approach missile defense system , ddg-51 aegis destroyer , and continued operation of the u-2 manned isr aircraft . 23 given the administration 's emphasis on affordability and the need to find further efficiencies in the management and operations of dod , the need for more affordable logistics and sustainment , expansive use of information technology and knowledge-based solutions , and vastly improved levels of network and cyber security , all appear to continue to be national priorities . story_separator_special_tag product sales at space systems decreased about $ 460 million in 2010 compared to 2009 primarily due to lower volume on defensive missile systems , activities on the nasa external tank program due to the wind down of the space shuttle program and volume from commercial satellite and launch vehicle activities . there was one commercial satellite delivery in both 2010 and 2009 , and there were no commercial launches in 2010 compared to one commercial launch in 2009 . 27 services sales services sales at electronic systems increased about $ 165 million in 2011 compared to 2010 primarily due to growth on the special operations forces contractor logistics support services ( sof clss ) program partially offset by lower volume on various other logistic and training services programs . services sales at is & gs increased approximately $ 155 million in 2011 compared to 2010 due to activities on a number of smaller contracts . most of our services sales are in the electronic systems and is & gs business segments . services sales at electronic systems increased about $ 645 million in 2010 compared to 2009 primarily due to growth on various logistic and training programs and the start of the sof clss program in the third quarter of 2010. is & gs ' services sales increased about $ 310 million in 2010 compared to 2009 due to activities on the hanford mission support contract and numerous other services contracts at is & gs . cost of sales cost of sales , for both products and services , consist of materials , labor , and subcontracting costs , as well as an allocation of indirect costs ( overhead and general and administrative ) . for each of our contracts , we manage the nature and amount of costs at the contract level , which form the basis for estimating our total costs at completion of the contract . management evaluates performance on our contracts by focusing on net sales and operating profit , and not by type or amount of operating expense . consequently , our discussion of business segment performance focuses on net sales and operating profit , consistent with our approach for managing the business . this approach is consistent with the overall life cycle of our contracts , as management assesses the bidding of each contract by focusing on net sales and operating profit , and monitors performance on our contracts in a similar manner through their completion . we regularly provide customers with reports of our costs as the contract progresses . the cost information in the reports is accumulated in a manner specified by the requirements of each contract . for example , cost data provided to our customer for a product would typically align to the subcomponents of that product ( such as a wing-box on an aircraft ) or for services , the type of work being performed ( such as help-desk support ) . our contracts generally are cost-based , which allows for the recovery of costs in the pricing of our products and services . most of our contracts generally are bid and negotiated with our customers based on the mutual awareness of our estimated costs to provide the product or service . this approach for negotiating contracts with our u.s. government customers generally allows for the recovery of our costs . we also may enter into long-term supply contracts for certain materials or components , to coincide with the production schedule of certain products and to ensure their availability at known unit prices . replace_table_token_7_th due to the nature of poc accounting , changes in our cost of product and services sales are typically accompanied by changes in our net sales . the following discussion of material changes in our consolidated cost of sales should be read in tandem with the preceding discussion of changes in our consolidated net sales and with our discussion of business segments. cost of sales was $ 42.8 billion in 2011 , a $ 912 million or 2 % increase over 2010 cost of sales of $ 41.9 billion . the increase was due to a $ 429 million increase in cost of product sales , a $ 132 million increase in cost of services sales and a $ 435 million increase in other unallocated corporate costs , partially offset by a reduction in severance and other charges of $ 84 million as further discussed in the following sections . cost of sales was $ 41.9 billion in 2010 , a $ 2.2 billion or 5 % increase over 2009 cost of sales of $ 39.7 billion . the increase was due to a $ 896 million increase in cost of product sales , a $ 976 million increase in cost of services sales , a $ 71 million increase in other unallocated corporate costs and an increase for severance and other charges of $ 220 million , as further discussed in the following sections . 28 cost of product sales cost of product sales at aeronautics increased by about $ 1.1 billion in 2011 compared to 2010 primarily due to production volume on various programs , including f-35 lrip contracts , and the impact of additional aircraft deliveries . cost of product sales for electronic systems was relatively unchanged between 2011 and 2010. cost of product sales at is & gs decreased about $ 560 million in 2011 compared to 2010 primarily due to the absence of the dris program and lower volume on the jtrs program . cost of product sales decreased at space systems by about $ 120 million in 2011 compared to 2010 primarily due to lower volume on the nasa external tank and orion programs . cost of product sales at aeronautics increased by about $ 1.1 billion in 2010 compared to 2009 primarily due to production activities on various programs , including f-35 lrip contracts , and the impact of aircraft deliveries . cost of product sales
| liquidity and cash flows our access to capital resources that provide liquidity has not been materially affected by the changing economic and market conditions over the past few years . we continually monitor changes in such conditions so that we can timely respond to any related developments . we have generated strong operating cash flows which have been the primary source of funding for our operations , debt service and repayments , capital expenditures , share repurchases , dividends , acquisitions , and postretirement benefit plan funding . we have accessed the capital markets on limited occasions , as needed or when opportunistic . we expect our cash from operations to continue to be sufficient to support our operations and anticipated capital expenditures for the foreseeable future . we have financing resources available to fund potential cash outflows that are less predictable or more discretionary , as discussed under capital structure , resources , and other . we have access to the credit markets , if needed , for liquidity or general corporate purposes , including letters of credit to support customer advance payments and for other trade finance purposes such as guaranteeing our performance on particular contracts . cash received from customers , either from the payment of invoices for work performed or for advances in excess of costs incurred , is our primary source of cash . we generally do not begin work on contracts until funding is appropriated by the customer . billing timetables and payment terms on our contracts vary based on a number of factors , including the contract type . we generally bill and collect cash more frequently under cost-reimbursable and time-and-materials contracts , which together represent approximately 55 % of the sales we recorded in 2011 , as we are authorized to bill as the costs are incurred or work is performed . in contrast to cost-reimbursable contracts , for fixed-price contracts , which represented approximately 45 % of the revenues we recorded in 2011 , we generally do not bill until milestones , including deliveries , are achieved .
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the delivery of the goods to the customer completes the earnings process . net sales consist of product sales and related delivery charge revenue , net of adjustments for returns and allowances . shipping and handling costs are included in cost of goods sold . recently issued accounting pronouncements see item 8. note 1 to the company 's consolidated financial statements . results of operations the following table has been prepared as an aid in understanding the company 's results of operations on a comparative basis for the fiscal years ended june 30 , 2015 , 2014 and 2013. amounts presented are percentages of the company 's net sales . replace_table_token_7_th 9 fiscal 2015 compared to fiscal 2014 net sales for fiscal 2015 were $ 467.0 million compared to $ 438.5 million in the prior fiscal year , an increase of 6.5 % . for the fiscal year ended june 30 , 2015 , residential net sales were $ 393.1 million compared to $ 359.5 million for the year ended june 30 , 2014 , an increase of 9.3 % . the residential net sales increase of $ 33.6 million for the year ended june 30 , 2015 resulted from capturing demand for upholstered and ready-to-assemble products . commercial net sales were $ 73.8 million for the year ended june 30 , 2015 , a decrease of 6.6 % from net sales of $ 79.0 million for the year ended june 30 , 2014. gross margin for the fiscal year ended june 30 , 2015 was 23.5 % compared to 22.9 % for the prior fiscal year . the improvement in gross margin for the fiscal year is primarily driven by declining inventory write downs . selling , general and administrative expenses ( sg & a ) for the fiscal year ended june 30 , 2015 were 16.2 % of net sales compared to 16.4 % in the prior fiscal year . the company incurred approximately $ 0.6 million of legal defense costs during the current fiscal year which has been recorded in sg & a expense . the company received reimbursements of legal defense costs of approximately $ 0.2 million from insurers which has been reflected as a reduction of legal expenses in sg & a expenses for the current fiscal year . the prior fiscal year included $ 2.1 million in legal defense costs which was offset by reimbursements of $ 2.8 million from insurers . the effective tax rate was 37.3 % and 37.0 % for fiscal years ended june 30 , 2015 and 2014. the fiscal year 2015 net income increased $ 7.3 million to $ 22.3 million , the highest ever reported for the company . the number of diluted shares increased during fiscal 2015 due to additional shares outstanding and the impact of more dilutive stock options at june 30 , 2015 based on the company 's higher stock trading price , resulting in the company reporting diluted earnings per share of $ 2.89 for fiscal year 2015 versus $ 2.00 for fiscal year 2014. all earnings per share amounts are on a diluted basis . fiscal 2014 compared to fiscal 2013 net sales for fiscal 2014 were $ 438.5 million compared to $ 386.2 million in fiscal 2013 , an increase of 13.6 % . for the fiscal year ended june 30 , 2014 , residential net sales were $ 359.6 million compared to $ 311.2 million for the year ended june 30 , 2013 , an increase of 15.5 % . the residential net sales increase of $ 48.3 million for the year ended june 30 , 2014 resulted from capturing demand for upholstered and ready-to-assemble products . commercial net sales were $ 79.0 million for the year ended june 30 , 2014 , an increase of 5.3 % from net sales of $ 75.0 million for the year ended june 30 , 2013. gross margin for the fiscal year ended june 30 , 2014 was 22.9 % compared to 23.4 % for the fiscal year ended june 30 , 2013. the decrease in fiscal 2014 was primarily due to price discounting on certain case goods to address changing customer requirements . selling , general and administrative expenses ( sg & a ) for the fiscal year ended june 30 , 2014 were 16.4 % of net sales compared to 18.2 % in the fiscal year ended june 30 , 2013. the company incurred approximately $ 2.1 million of legal defense costs during the 2014 fiscal year which has been recorded in sg & a expense . the company received reimbursements of legal defense costs of approximately $ 2.8 million from insurers which has been reflected as a reduction of legal expenses in sg & a expenses for the 2014 fiscal year . fiscal year 2013 included $ 2.3 million in legal defense costs . in december 2013 , the company entered into an agreement to settle the indiana civil litigation in order to eliminate the ongoing costs and distraction of the litigation . in february 2014 , the company contributed $ 6.25 million to the settlement as part of an agreement . in reaching the agreement , the company did not admit any wrongdoing and believes that it did not cause or contribute to the contamination at issue . this amount is recorded as litigation settlement costs in the consolidated statements of income . the effective tax rate was 37.0 % for fiscal years ended june 30 , 2014 and 2013. the fiscal year 2014 net income increased $ 1.8 million to $ 15.0 million . the number of diluted shares increased during fiscal 2014 due to additional shares outstanding and the impact of more dilutive stock options at june 30 , 2014 based on the company 's higher stock trading price , resulting in the company reporting diluted earnings per share of $ 2.00 for fiscal year 2014 versus $ 1.80 for fiscal year 2013. all earnings per share amounts story_separator_special_tag the delivery of the goods to the customer completes the earnings process . net sales consist of product sales and related delivery charge revenue , net of adjustments for returns and allowances . shipping and handling costs are included in cost of goods sold . recently issued accounting pronouncements see item 8. note 1 to the company 's consolidated financial statements . results of operations the following table has been prepared as an aid in understanding the company 's results of operations on a comparative basis for the fiscal years ended june 30 , 2015 , 2014 and 2013. amounts presented are percentages of the company 's net sales . replace_table_token_7_th 9 fiscal 2015 compared to fiscal 2014 net sales for fiscal 2015 were $ 467.0 million compared to $ 438.5 million in the prior fiscal year , an increase of 6.5 % . for the fiscal year ended june 30 , 2015 , residential net sales were $ 393.1 million compared to $ 359.5 million for the year ended june 30 , 2014 , an increase of 9.3 % . the residential net sales increase of $ 33.6 million for the year ended june 30 , 2015 resulted from capturing demand for upholstered and ready-to-assemble products . commercial net sales were $ 73.8 million for the year ended june 30 , 2015 , a decrease of 6.6 % from net sales of $ 79.0 million for the year ended june 30 , 2014. gross margin for the fiscal year ended june 30 , 2015 was 23.5 % compared to 22.9 % for the prior fiscal year . the improvement in gross margin for the fiscal year is primarily driven by declining inventory write downs . selling , general and administrative expenses ( sg & a ) for the fiscal year ended june 30 , 2015 were 16.2 % of net sales compared to 16.4 % in the prior fiscal year . the company incurred approximately $ 0.6 million of legal defense costs during the current fiscal year which has been recorded in sg & a expense . the company received reimbursements of legal defense costs of approximately $ 0.2 million from insurers which has been reflected as a reduction of legal expenses in sg & a expenses for the current fiscal year . the prior fiscal year included $ 2.1 million in legal defense costs which was offset by reimbursements of $ 2.8 million from insurers . the effective tax rate was 37.3 % and 37.0 % for fiscal years ended june 30 , 2015 and 2014. the fiscal year 2015 net income increased $ 7.3 million to $ 22.3 million , the highest ever reported for the company . the number of diluted shares increased during fiscal 2015 due to additional shares outstanding and the impact of more dilutive stock options at june 30 , 2015 based on the company 's higher stock trading price , resulting in the company reporting diluted earnings per share of $ 2.89 for fiscal year 2015 versus $ 2.00 for fiscal year 2014. all earnings per share amounts are on a diluted basis . fiscal 2014 compared to fiscal 2013 net sales for fiscal 2014 were $ 438.5 million compared to $ 386.2 million in fiscal 2013 , an increase of 13.6 % . for the fiscal year ended june 30 , 2014 , residential net sales were $ 359.6 million compared to $ 311.2 million for the year ended june 30 , 2013 , an increase of 15.5 % . the residential net sales increase of $ 48.3 million for the year ended june 30 , 2014 resulted from capturing demand for upholstered and ready-to-assemble products . commercial net sales were $ 79.0 million for the year ended june 30 , 2014 , an increase of 5.3 % from net sales of $ 75.0 million for the year ended june 30 , 2013. gross margin for the fiscal year ended june 30 , 2014 was 22.9 % compared to 23.4 % for the fiscal year ended june 30 , 2013. the decrease in fiscal 2014 was primarily due to price discounting on certain case goods to address changing customer requirements . selling , general and administrative expenses ( sg & a ) for the fiscal year ended june 30 , 2014 were 16.4 % of net sales compared to 18.2 % in the fiscal year ended june 30 , 2013. the company incurred approximately $ 2.1 million of legal defense costs during the 2014 fiscal year which has been recorded in sg & a expense . the company received reimbursements of legal defense costs of approximately $ 2.8 million from insurers which has been reflected as a reduction of legal expenses in sg & a expenses for the 2014 fiscal year . fiscal year 2013 included $ 2.3 million in legal defense costs . in december 2013 , the company entered into an agreement to settle the indiana civil litigation in order to eliminate the ongoing costs and distraction of the litigation . in february 2014 , the company contributed $ 6.25 million to the settlement as part of an agreement . in reaching the agreement , the company did not admit any wrongdoing and believes that it did not cause or contribute to the contamination at issue . this amount is recorded as litigation settlement costs in the consolidated statements of income . the effective tax rate was 37.0 % for fiscal years ended june 30 , 2014 and 2013. the fiscal year 2014 net income increased $ 1.8 million to $ 15.0 million . the number of diluted shares increased during fiscal 2014 due to additional shares outstanding and the impact of more dilutive stock options at june 30 , 2014 based on the company 's higher stock trading price , resulting in the company reporting diluted earnings per share of $ 2.00 for fiscal year 2014 versus $ 1.80 for fiscal year 2013. all earnings per share amounts
| liquidity and cash flows our access to capital resources that provide liquidity has not been materially affected by the changing economic and market conditions over the past few years . we continually monitor changes in such conditions so that we can timely respond to any related developments . we have generated strong operating cash flows which have been the primary source of funding for our operations , debt service and repayments , capital expenditures , share repurchases , dividends , acquisitions , and postretirement benefit plan funding . we have accessed the capital markets on limited occasions , as needed or when opportunistic . we expect our cash from operations to continue to be sufficient to support our operations and anticipated capital expenditures for the foreseeable future . we have financing resources available to fund potential cash outflows that are less predictable or more discretionary , as discussed under capital structure , resources , and other . we have access to the credit markets , if needed , for liquidity or general corporate purposes , including letters of credit to support customer advance payments and for other trade finance purposes such as guaranteeing our performance on particular contracts . cash received from customers , either from the payment of invoices for work performed or for advances in excess of costs incurred , is our primary source of cash . we generally do not begin work on contracts until funding is appropriated by the customer . billing timetables and payment terms on our contracts vary based on a number of factors , including the contract type . we generally bill and collect cash more frequently under cost-reimbursable and time-and-materials contracts , which together represent approximately 55 % of the sales we recorded in 2011 , as we are authorized to bill as the costs are incurred or work is performed . in contrast to cost-reimbursable contracts , for fixed-price contracts , which represented approximately 45 % of the revenues we recorded in 2011 , we generally do not bill until milestones , including deliveries , are achieved .
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the delivery of the goods to the customer completes the earnings process . net sales consist of product sales and related delivery charge revenue , net of adjustments for returns and allowances . shipping and handling costs are included in cost of goods sold . recently issued accounting pronouncements see item 8. note 1 to the company 's consolidated financial statements . results of operations the following table has been prepared as an aid in understanding the company 's results of operations on a comparative basis for the fiscal years ended june 30 , 2015 , 2014 and 2013. amounts presented are percentages of the company 's net sales . replace_table_token_7_th 9 fiscal 2015 compared to fiscal 2014 net sales for fiscal 2015 were $ 467.0 million compared to $ 438.5 million in the prior fiscal year , an increase of 6.5 % . for the fiscal year ended june 30 , 2015 , residential net sales were $ 393.1 million compared to $ 359.5 million for the year ended june 30 , 2014 , an increase of 9.3 % . the residential net sales increase of $ 33.6 million for the year ended june 30 , 2015 resulted from capturing demand for upholstered and ready-to-assemble products . commercial net sales were $ 73.8 million for the year ended june 30 , 2015 , a decrease of 6.6 % from net sales of $ 79.0 million for the year ended june 30 , 2014. gross margin for the fiscal year ended june 30 , 2015 was 23.5 % compared to 22.9 % for the prior fiscal year . the improvement in gross margin for the fiscal year is primarily driven by declining inventory write downs . selling , general and administrative expenses ( sg & a ) for the fiscal year ended june 30 , 2015 were 16.2 % of net sales compared to 16.4 % in the prior fiscal year . the company incurred approximately $ 0.6 million of legal defense costs during the current fiscal year which has been recorded in sg & a expense . the company received reimbursements of legal defense costs of approximately $ 0.2 million from insurers which has been reflected as a reduction of legal expenses in sg & a expenses for the current fiscal year . the prior fiscal year included $ 2.1 million in legal defense costs which was offset by reimbursements of $ 2.8 million from insurers . the effective tax rate was 37.3 % and 37.0 % for fiscal years ended june 30 , 2015 and 2014. the fiscal year 2015 net income increased $ 7.3 million to $ 22.3 million , the highest ever reported for the company . the number of diluted shares increased during fiscal 2015 due to additional shares outstanding and the impact of more dilutive stock options at june 30 , 2015 based on the company 's higher stock trading price , resulting in the company reporting diluted earnings per share of $ 2.89 for fiscal year 2015 versus $ 2.00 for fiscal year 2014. all earnings per share amounts are on a diluted basis . fiscal 2014 compared to fiscal 2013 net sales for fiscal 2014 were $ 438.5 million compared to $ 386.2 million in fiscal 2013 , an increase of 13.6 % . for the fiscal year ended june 30 , 2014 , residential net sales were $ 359.6 million compared to $ 311.2 million for the year ended june 30 , 2013 , an increase of 15.5 % . the residential net sales increase of $ 48.3 million for the year ended june 30 , 2014 resulted from capturing demand for upholstered and ready-to-assemble products . commercial net sales were $ 79.0 million for the year ended june 30 , 2014 , an increase of 5.3 % from net sales of $ 75.0 million for the year ended june 30 , 2013. gross margin for the fiscal year ended june 30 , 2014 was 22.9 % compared to 23.4 % for the fiscal year ended june 30 , 2013. the decrease in fiscal 2014 was primarily due to price discounting on certain case goods to address changing customer requirements . selling , general and administrative expenses ( sg & a ) for the fiscal year ended june 30 , 2014 were 16.4 % of net sales compared to 18.2 % in the fiscal year ended june 30 , 2013. the company incurred approximately $ 2.1 million of legal defense costs during the 2014 fiscal year which has been recorded in sg & a expense . the company received reimbursements of legal defense costs of approximately $ 2.8 million from insurers which has been reflected as a reduction of legal expenses in sg & a expenses for the 2014 fiscal year . fiscal year 2013 included $ 2.3 million in legal defense costs . in december 2013 , the company entered into an agreement to settle the indiana civil litigation in order to eliminate the ongoing costs and distraction of the litigation . in february 2014 , the company contributed $ 6.25 million to the settlement as part of an agreement . in reaching the agreement , the company did not admit any wrongdoing and believes that it did not cause or contribute to the contamination at issue . this amount is recorded as litigation settlement costs in the consolidated statements of income . the effective tax rate was 37.0 % for fiscal years ended june 30 , 2014 and 2013. the fiscal year 2014 net income increased $ 1.8 million to $ 15.0 million . the number of diluted shares increased during fiscal 2014 due to additional shares outstanding and the impact of more dilutive stock options at june 30 , 2014 based on the company 's higher stock trading price , resulting in the company reporting diluted earnings per share of $ 2.00 for fiscal year 2014 versus $ 1.80 for fiscal year 2013. all earnings per share amounts story_separator_special_tag the delivery of the goods to the customer completes the earnings process . net sales consist of product sales and related delivery charge revenue , net of adjustments for returns and allowances . shipping and handling costs are included in cost of goods sold . recently issued accounting pronouncements see item 8. note 1 to the company 's consolidated financial statements . results of operations the following table has been prepared as an aid in understanding the company 's results of operations on a comparative basis for the fiscal years ended june 30 , 2015 , 2014 and 2013. amounts presented are percentages of the company 's net sales . replace_table_token_7_th 9 fiscal 2015 compared to fiscal 2014 net sales for fiscal 2015 were $ 467.0 million compared to $ 438.5 million in the prior fiscal year , an increase of 6.5 % . for the fiscal year ended june 30 , 2015 , residential net sales were $ 393.1 million compared to $ 359.5 million for the year ended june 30 , 2014 , an increase of 9.3 % . the residential net sales increase of $ 33.6 million for the year ended june 30 , 2015 resulted from capturing demand for upholstered and ready-to-assemble products . commercial net sales were $ 73.8 million for the year ended june 30 , 2015 , a decrease of 6.6 % from net sales of $ 79.0 million for the year ended june 30 , 2014. gross margin for the fiscal year ended june 30 , 2015 was 23.5 % compared to 22.9 % for the prior fiscal year . the improvement in gross margin for the fiscal year is primarily driven by declining inventory write downs . selling , general and administrative expenses ( sg & a ) for the fiscal year ended june 30 , 2015 were 16.2 % of net sales compared to 16.4 % in the prior fiscal year . the company incurred approximately $ 0.6 million of legal defense costs during the current fiscal year which has been recorded in sg & a expense . the company received reimbursements of legal defense costs of approximately $ 0.2 million from insurers which has been reflected as a reduction of legal expenses in sg & a expenses for the current fiscal year . the prior fiscal year included $ 2.1 million in legal defense costs which was offset by reimbursements of $ 2.8 million from insurers . the effective tax rate was 37.3 % and 37.0 % for fiscal years ended june 30 , 2015 and 2014. the fiscal year 2015 net income increased $ 7.3 million to $ 22.3 million , the highest ever reported for the company . the number of diluted shares increased during fiscal 2015 due to additional shares outstanding and the impact of more dilutive stock options at june 30 , 2015 based on the company 's higher stock trading price , resulting in the company reporting diluted earnings per share of $ 2.89 for fiscal year 2015 versus $ 2.00 for fiscal year 2014. all earnings per share amounts are on a diluted basis . fiscal 2014 compared to fiscal 2013 net sales for fiscal 2014 were $ 438.5 million compared to $ 386.2 million in fiscal 2013 , an increase of 13.6 % . for the fiscal year ended june 30 , 2014 , residential net sales were $ 359.6 million compared to $ 311.2 million for the year ended june 30 , 2013 , an increase of 15.5 % . the residential net sales increase of $ 48.3 million for the year ended june 30 , 2014 resulted from capturing demand for upholstered and ready-to-assemble products . commercial net sales were $ 79.0 million for the year ended june 30 , 2014 , an increase of 5.3 % from net sales of $ 75.0 million for the year ended june 30 , 2013. gross margin for the fiscal year ended june 30 , 2014 was 22.9 % compared to 23.4 % for the fiscal year ended june 30 , 2013. the decrease in fiscal 2014 was primarily due to price discounting on certain case goods to address changing customer requirements . selling , general and administrative expenses ( sg & a ) for the fiscal year ended june 30 , 2014 were 16.4 % of net sales compared to 18.2 % in the fiscal year ended june 30 , 2013. the company incurred approximately $ 2.1 million of legal defense costs during the 2014 fiscal year which has been recorded in sg & a expense . the company received reimbursements of legal defense costs of approximately $ 2.8 million from insurers which has been reflected as a reduction of legal expenses in sg & a expenses for the 2014 fiscal year . fiscal year 2013 included $ 2.3 million in legal defense costs . in december 2013 , the company entered into an agreement to settle the indiana civil litigation in order to eliminate the ongoing costs and distraction of the litigation . in february 2014 , the company contributed $ 6.25 million to the settlement as part of an agreement . in reaching the agreement , the company did not admit any wrongdoing and believes that it did not cause or contribute to the contamination at issue . this amount is recorded as litigation settlement costs in the consolidated statements of income . the effective tax rate was 37.0 % for fiscal years ended june 30 , 2014 and 2013. the fiscal year 2014 net income increased $ 1.8 million to $ 15.0 million . the number of diluted shares increased during fiscal 2014 due to additional shares outstanding and the impact of more dilutive stock options at june 30 , 2014 based on the company 's higher stock trading price , resulting in the company reporting diluted earnings per share of $ 2.00 for fiscal year 2014 versus $ 1.80 for fiscal year 2013. all earnings per share amounts
| liquidity and capital resources working capital ( current assets less current liabilities ) at june 30 , 2015 was $ 119.9 million as compared to $ 128.6 million at june 30 , 2014. significant changes in working capital during fiscal year 2015 included a decrease in cash of $ 20.9 million and increases in inventories of $ 15.9 million , short term borrowings of $ 11.9 million , accounts receivable of $ 6.6 million and accounts payable of $ 2.5 million . during the fiscal year , the company utilized cash and borrowings to acquire and ready a distribution center in edgerton , kansas . the increase in inventory primarily supports anticipated increased sales volume in upholstered and case goods product categories . the increase in accounts receivable is due to the increase in sales volume and timing of collections . the increase in accounts payable is due to timing of payments . the company 's main sources of liquidity are cash , cash flows from operations and credit arrangements . as of june 30 , 2015 and 2014 , the company had cash totaling $ 1.3 million and $ 22.2 million , respectively . the company maintains an unsecured credit agreement which was amended on june 29 , 2015 , and provides short-term working capital financing up to $ 30.0 million with interest of libor plus 1 % , including up to $ 4.0 million of letters of credit . the amendment reduced the borrowing availability from $ 65.0 million to $ 30.0 million . letters of credit outstanding at june 30 , 2015 totaled $ 2.9 million . as of june 30 , 2015 , the company utilized $ 10.6 million of borrowing availability under the credit facility during the year , other than the aforementioned letters of credit , leaving borrowing availability of $ 16.5 million .
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performance metrics we utilize several performance metrics to analyze and assess our overall performance , make operating decisions , and forecast and plan for future periods , including : annual contract value ( “ acv ” ) | increased 21 % since december 31 , 2019 acv , as reported , represents the annualized value of our active contracts as of the measurement date . the contract 's total value is divided by its duration in years to calculate acv for term license and pega cloud contracts . maintenance revenue for the quarter then ended is multiplied by four to calculate acv for maintenance . client cloud acv is composed of maintenance acv and acv from term license contracts . acv is a performance measure that we believe provides useful information to our management and investors , particularly during our cloud transition . reported amounts have not been adjusted for changes in foreign exchange rates . foreign currency contributed 1 % -2 % to acv growth in 2020 . 25 remaining performance obligations ( “ backlog ” ) | increased 28 % since december 31 , 2019 backlog represents contracted revenue that has not yet been recognized and includes deferred revenue and non-cancellable amounts expected to be invoiced and recognized as revenue in future periods . pega cloud revenue | increased 56 % since 2019 pega cloud revenue is revenue as reported under u.s. gaap for cloud contracts . 26 results of operations revenue cloud transition we are in the process of transitioning our business to sell software primarily through subscription arrangements , particularly pega cloud . revenue growth has and is expected to continue to be slower during this transition revenue from pega cloud arrangements is typically recognized over the contract term . in contrast , revenue from license sales is generally recognized upfront when the license rights become effective . replace_table_token_2_th ( 1 ) reflects client arrangements subject to renewal ( pega cloud , maintenance , and term license ) . the change in total revenue since 2019 generally reflects the impact of our cloud transition . additional contributing factors were : an increasing portion of our term license contracts include multi-year committed maintenance periods instead of annually renewable maintenance periods . under such arrangements , a larger portion of the total contract value is recognized as maintenance revenue over the contract term rather than as term license revenue upon effectiveness of the license rights . in 2020 , multi-year committed maintenance contributed $ 10.2 million to maintenance revenue growth and reduced term revenue growth by $ 20.8 million . maintenance renewal rates remained over 90 % in 2020. the slight increase in consulting revenue in 2020 was primarily due to increased billable hours , which offset the impact of reduced billable travel expenses due to covid-19 . as part of our long-term strategy , we intend to continue growing and increasingly leveraging our ecosystem of partners on future implementation projects , potentially reducing our future consulting revenue growth rate . gross profit replace_table_token_3_th the increase in gross profit in 2020 was primarily due to cost-efficiency gains as pega cloud grows and scales as a result of our cloud transition and overall revenue growth . the increase in consulting gross profit in 2020 was primarily due to a decrease in travel and entertainment expenses and an increase in consultant utilization . consultant utilization is impacted by several factors , including the timing of new implementation projects and our scope and level of involvement in these projects compared to that of our consulting partners and enabled clients . operating expenses replace_table_token_4_th the increase in selling and marketing in 2020 was primarily due to an increase in compensation and benefits of $ 97.2 million , attributable to increases in headcount and equity compensation , partially offset by a decrease in travel and entertainment of $ 27.2 million due to covid-19 . the increase in headcount reflects our efforts to increase our sales capacity to deepen relationships with existing clients and target new accounts . the increase in research and development in 2020 was primarily due to an increase in compensation and benefits of $ 30.2 million , attributable to increases in headcount and equity compensation . the increase in headcount reflects additional investments in the development of our products , particularly for pega cloud . 27 the increase in general and administrative in 2020 was primarily due to an increase in compensation and benefits of $ 4.0 million , attributable to increases in headcount and equity compensation to support the growth in our operations and an increase in professional services fees of $ 4.2 million . other income ( expense ) , net replace_table_token_5_th * not meaningful the change in foreign currency transaction gain ( loss ) in 2020 was primarily due to the impact of fluctuations in foreign currency exchange rates associated with our foreign currency-denominated cash , accounts receivable , and intercompany receivables and payables held by our united kingdom ( “ u.k. ” ) subsidiary . the decrease in interest income in 2020 was due to the significant decline in market interest rates despite the significant increase in our interest-bearing investment balances . the increase in interest expense in 2020 was due to our issuance of $ 600 million in aggregate principal amount of the notes on february 24 , 2020. see `` note 10. debt `` in item 8 of this annual report for additional information . interest expense related to the notes : replace_table_token_6_th the increase in the gain on capped call transactions in 2020 was due to fair value adjustments on the capped call transactions . see `` note 10. debt `` in item 8 of this annual report for additional information . the increase in other ( loss ) income , net in 2020 was due to a gain from our venture investments portfolio . story_separator_special_tag we evaluate our intangible assets for impairment whenever events or changes in circumstances indicate that such assets ' carrying amount may not be recoverable . in evaluating potential impairment of these assets , we specifically consider whether any indicators of impairment are present , including , but not limited to : whether there has been a significant adverse change in the business climate that affects the value of an asset ; whether there has been a significant change in the extent or way an asset is used ; and whether it is expected that the asset will be sold or disposed of before the end of its originally estimated useful life . if indicators of impairment are present , we compare the estimated undiscounted cash flows that the specific asset is expected to generate to its carrying value . the key assumptions of the cash flow model involve significant subjectivity . if such assets are impaired , an impairment is measured by the amount by which the carrying amount of the asset exceeds its fair value . 31 as of december 31 , 2020 , we had $ 79.2 million of goodwill and $ 15.7 million of intangible assets . changes in the valuation of long-lived assets could materially impact our operating results and financial position . to date , there have been no impairments of goodwill or intangible assets . accounting for income taxes significant judgment is required to determine our provision for income taxes and income tax assets and liabilities , including evaluating uncertainties in applying accounting principles and complex tax laws . changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact our financial statements . we regularly assess the need for a valuation allowance against our deferred tax assets . future realization of our deferred tax assets ultimately depends on sufficient taxable income within the available carryback or carryforward periods . we record a valuation allowance to reduce our deferred tax assets to an amount we believe is more likely than not to be realized . changes in our valuation allowance impact income tax expense in the period of adjustment . our deferred tax valuation allowance requires significant judgment and uncertainties , including assumptions about future taxable income based on historical and projected information . we assess our income tax positions and record tax benefits based upon management 's evaluation of the facts , circumstances , and information available at the reporting date . for those tax positions where it is more-likely-than-not that a tax benefit will be sustained , we record the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information . for those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained , no tax benefit is recognized in the financial statements . as a global company , we use significant judgment to calculate and provide for income taxes in each of the tax jurisdictions in which we operate . in the ordinary course of our business , there are transactions and calculations undertaken whose ultimate tax outcome can not be certain . some of these uncertainties arise due to transfer pricing for transactions with our subsidiaries , the determination of tax nexus , and tax credit estimates . in addition , the calculation of acquired tax attributes and the associated limitations are complex . we estimate our exposure to unfavorable outcomes related to these uncertainties and estimate the probability of such outcomes . although we believe our estimates are reasonable , no assurance can be given that the final tax outcome will not be different from what is reflected in our historical income tax provisions , returns , and accruals . such differences , or changes in estimates relating to potential differences , could have a material impact on our income tax provision and operating results in the period in which such a determination is made . see `` note 16. income taxes `` in item 8 of this annual report for additional information . convertible senior notes and capped call transactions in february 2020 , we issued convertible senior notes ( the `` notes `` ) with an aggregate principal amount of $ 600 million , due march 1 , 2025 , in a private placement . we also entered into privately negotiated capped call transactions ( “ capped call transactions ” ) with certain financial institutions . the capped call transactions cover 4.4 million shares ( representing the number of shares for which the notes are initially convertible ) of our common stock and are generally expected to reduce potential dilution of our common stock upon any conversion of the notes . in accounting for the convertible senior notes and capped call transactions : the initial carrying amount of the liability component was calculated by measuring a similar debt instrument 's fair value that does not have an associated conversion feature . the excess of the notes ' principal amount over the initial carrying amount of the liability component , the debt discount , is amortized as interest expense over the notes ' contractual term . the fair value was determined utilizing a discounted cash flow model and required us to make various estimates including , implied credit spread , expected volatility , and the risk-free rate for notes with a similar term . the equity component was recorded as an increase to additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification . the carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the convertible senior notes . the capped call transactions are accounted for as derivative instruments . the capped call transactions do not qualify for the
| liquidity and capital resources working capital ( current assets less current liabilities ) at june 30 , 2015 was $ 119.9 million as compared to $ 128.6 million at june 30 , 2014. significant changes in working capital during fiscal year 2015 included a decrease in cash of $ 20.9 million and increases in inventories of $ 15.9 million , short term borrowings of $ 11.9 million , accounts receivable of $ 6.6 million and accounts payable of $ 2.5 million . during the fiscal year , the company utilized cash and borrowings to acquire and ready a distribution center in edgerton , kansas . the increase in inventory primarily supports anticipated increased sales volume in upholstered and case goods product categories . the increase in accounts receivable is due to the increase in sales volume and timing of collections . the increase in accounts payable is due to timing of payments . the company 's main sources of liquidity are cash , cash flows from operations and credit arrangements . as of june 30 , 2015 and 2014 , the company had cash totaling $ 1.3 million and $ 22.2 million , respectively . the company maintains an unsecured credit agreement which was amended on june 29 , 2015 , and provides short-term working capital financing up to $ 30.0 million with interest of libor plus 1 % , including up to $ 4.0 million of letters of credit . the amendment reduced the borrowing availability from $ 65.0 million to $ 30.0 million . letters of credit outstanding at june 30 , 2015 totaled $ 2.9 million . as of june 30 , 2015 , the company utilized $ 10.6 million of borrowing availability under the credit facility during the year , other than the aforementioned letters of credit , leaving borrowing availability of $ 16.5 million .
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performance metrics we utilize several performance metrics to analyze and assess our overall performance , make operating decisions , and forecast and plan for future periods , including : annual contract value ( “ acv ” ) | increased 21 % since december 31 , 2019 acv , as reported , represents the annualized value of our active contracts as of the measurement date . the contract 's total value is divided by its duration in years to calculate acv for term license and pega cloud contracts . maintenance revenue for the quarter then ended is multiplied by four to calculate acv for maintenance . client cloud acv is composed of maintenance acv and acv from term license contracts . acv is a performance measure that we believe provides useful information to our management and investors , particularly during our cloud transition . reported amounts have not been adjusted for changes in foreign exchange rates . foreign currency contributed 1 % -2 % to acv growth in 2020 . 25 remaining performance obligations ( “ backlog ” ) | increased 28 % since december 31 , 2019 backlog represents contracted revenue that has not yet been recognized and includes deferred revenue and non-cancellable amounts expected to be invoiced and recognized as revenue in future periods . pega cloud revenue | increased 56 % since 2019 pega cloud revenue is revenue as reported under u.s. gaap for cloud contracts . 26 results of operations revenue cloud transition we are in the process of transitioning our business to sell software primarily through subscription arrangements , particularly pega cloud . revenue growth has and is expected to continue to be slower during this transition revenue from pega cloud arrangements is typically recognized over the contract term . in contrast , revenue from license sales is generally recognized upfront when the license rights become effective . replace_table_token_2_th ( 1 ) reflects client arrangements subject to renewal ( pega cloud , maintenance , and term license ) . the change in total revenue since 2019 generally reflects the impact of our cloud transition . additional contributing factors were : an increasing portion of our term license contracts include multi-year committed maintenance periods instead of annually renewable maintenance periods . under such arrangements , a larger portion of the total contract value is recognized as maintenance revenue over the contract term rather than as term license revenue upon effectiveness of the license rights . in 2020 , multi-year committed maintenance contributed $ 10.2 million to maintenance revenue growth and reduced term revenue growth by $ 20.8 million . maintenance renewal rates remained over 90 % in 2020. the slight increase in consulting revenue in 2020 was primarily due to increased billable hours , which offset the impact of reduced billable travel expenses due to covid-19 . as part of our long-term strategy , we intend to continue growing and increasingly leveraging our ecosystem of partners on future implementation projects , potentially reducing our future consulting revenue growth rate . gross profit replace_table_token_3_th the increase in gross profit in 2020 was primarily due to cost-efficiency gains as pega cloud grows and scales as a result of our cloud transition and overall revenue growth . the increase in consulting gross profit in 2020 was primarily due to a decrease in travel and entertainment expenses and an increase in consultant utilization . consultant utilization is impacted by several factors , including the timing of new implementation projects and our scope and level of involvement in these projects compared to that of our consulting partners and enabled clients . operating expenses replace_table_token_4_th the increase in selling and marketing in 2020 was primarily due to an increase in compensation and benefits of $ 97.2 million , attributable to increases in headcount and equity compensation , partially offset by a decrease in travel and entertainment of $ 27.2 million due to covid-19 . the increase in headcount reflects our efforts to increase our sales capacity to deepen relationships with existing clients and target new accounts . the increase in research and development in 2020 was primarily due to an increase in compensation and benefits of $ 30.2 million , attributable to increases in headcount and equity compensation . the increase in headcount reflects additional investments in the development of our products , particularly for pega cloud . 27 the increase in general and administrative in 2020 was primarily due to an increase in compensation and benefits of $ 4.0 million , attributable to increases in headcount and equity compensation to support the growth in our operations and an increase in professional services fees of $ 4.2 million . other income ( expense ) , net replace_table_token_5_th * not meaningful the change in foreign currency transaction gain ( loss ) in 2020 was primarily due to the impact of fluctuations in foreign currency exchange rates associated with our foreign currency-denominated cash , accounts receivable , and intercompany receivables and payables held by our united kingdom ( “ u.k. ” ) subsidiary . the decrease in interest income in 2020 was due to the significant decline in market interest rates despite the significant increase in our interest-bearing investment balances . the increase in interest expense in 2020 was due to our issuance of $ 600 million in aggregate principal amount of the notes on february 24 , 2020. see `` note 10. debt `` in item 8 of this annual report for additional information . interest expense related to the notes : replace_table_token_6_th the increase in the gain on capped call transactions in 2020 was due to fair value adjustments on the capped call transactions . see `` note 10. debt `` in item 8 of this annual report for additional information . the increase in other ( loss ) income , net in 2020 was due to a gain from our venture investments portfolio . story_separator_special_tag we evaluate our intangible assets for impairment whenever events or changes in circumstances indicate that such assets ' carrying amount may not be recoverable . in evaluating potential impairment of these assets , we specifically consider whether any indicators of impairment are present , including , but not limited to : whether there has been a significant adverse change in the business climate that affects the value of an asset ; whether there has been a significant change in the extent or way an asset is used ; and whether it is expected that the asset will be sold or disposed of before the end of its originally estimated useful life . if indicators of impairment are present , we compare the estimated undiscounted cash flows that the specific asset is expected to generate to its carrying value . the key assumptions of the cash flow model involve significant subjectivity . if such assets are impaired , an impairment is measured by the amount by which the carrying amount of the asset exceeds its fair value . 31 as of december 31 , 2020 , we had $ 79.2 million of goodwill and $ 15.7 million of intangible assets . changes in the valuation of long-lived assets could materially impact our operating results and financial position . to date , there have been no impairments of goodwill or intangible assets . accounting for income taxes significant judgment is required to determine our provision for income taxes and income tax assets and liabilities , including evaluating uncertainties in applying accounting principles and complex tax laws . changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact our financial statements . we regularly assess the need for a valuation allowance against our deferred tax assets . future realization of our deferred tax assets ultimately depends on sufficient taxable income within the available carryback or carryforward periods . we record a valuation allowance to reduce our deferred tax assets to an amount we believe is more likely than not to be realized . changes in our valuation allowance impact income tax expense in the period of adjustment . our deferred tax valuation allowance requires significant judgment and uncertainties , including assumptions about future taxable income based on historical and projected information . we assess our income tax positions and record tax benefits based upon management 's evaluation of the facts , circumstances , and information available at the reporting date . for those tax positions where it is more-likely-than-not that a tax benefit will be sustained , we record the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information . for those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained , no tax benefit is recognized in the financial statements . as a global company , we use significant judgment to calculate and provide for income taxes in each of the tax jurisdictions in which we operate . in the ordinary course of our business , there are transactions and calculations undertaken whose ultimate tax outcome can not be certain . some of these uncertainties arise due to transfer pricing for transactions with our subsidiaries , the determination of tax nexus , and tax credit estimates . in addition , the calculation of acquired tax attributes and the associated limitations are complex . we estimate our exposure to unfavorable outcomes related to these uncertainties and estimate the probability of such outcomes . although we believe our estimates are reasonable , no assurance can be given that the final tax outcome will not be different from what is reflected in our historical income tax provisions , returns , and accruals . such differences , or changes in estimates relating to potential differences , could have a material impact on our income tax provision and operating results in the period in which such a determination is made . see `` note 16. income taxes `` in item 8 of this annual report for additional information . convertible senior notes and capped call transactions in february 2020 , we issued convertible senior notes ( the `` notes `` ) with an aggregate principal amount of $ 600 million , due march 1 , 2025 , in a private placement . we also entered into privately negotiated capped call transactions ( “ capped call transactions ” ) with certain financial institutions . the capped call transactions cover 4.4 million shares ( representing the number of shares for which the notes are initially convertible ) of our common stock and are generally expected to reduce potential dilution of our common stock upon any conversion of the notes . in accounting for the convertible senior notes and capped call transactions : the initial carrying amount of the liability component was calculated by measuring a similar debt instrument 's fair value that does not have an associated conversion feature . the excess of the notes ' principal amount over the initial carrying amount of the liability component , the debt discount , is amortized as interest expense over the notes ' contractual term . the fair value was determined utilizing a discounted cash flow model and required us to make various estimates including , implied credit spread , expected volatility , and the risk-free rate for notes with a similar term . the equity component was recorded as an increase to additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification . the carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the convertible senior notes . the capped call transactions are accounted for as derivative instruments . the capped call transactions do not qualify for the
| liquidity and capital resources replace_table_token_8_th replace_table_token_9_th we believe that our current cash , cash flow from operations , and borrowing capacity will be sufficient to fund our operations , stock repurchases , and quarterly cash dividends for at least the next 12 months . whether these resources are adequate to meet our liquidity needs beyond that period will depend on our growth , operating results , and the investments required to respond to the possible increased demand for our services . if we require additional capital resources to grow our business , we may seek to finance our operations from available funds or additional external financing . if it became necessary to repatriate foreign funds , we may be required to pay u.s. and foreign taxes upon repatriation . due to the complexity of income tax laws and regulations , and the tax reform act 's effects , it is impracticable to estimate the amount of taxes we would have to pay . see risk factor `` if it becomes necessary or desirable to repatriate any of our foreign cash balances to the united states , we may be subject to increased taxes , other restrictions , and limitations '' in item 1a of this annual report for additional information . cash ( used in ) operating activities we are in the process of transitioning our business to sell software primarily through subscription arrangements , particularly pega cloud . this transition has and is expected to continue to impact our billings and resulting timing of cash collections . pega cloud and term license arrangements are generally billed and collected over the contract term while perpetual license arrangements are generally billed in full and collected upfront when the license rights become effective . as client preferences continue to shift in favor of pega cloud arrangements , we could continue to experience slower operating cash flow growth , or negative cash flow , in the near term in 2020 , covid-19 did not have a material impact on our cash flows from operations .
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the story_separator_special_tag overview communications systems , inc. provides physical connectivity infrastructure products and services for global deployments of broadband networks through the following business units : suttle founded in 1910 , suttle provides network solutions that meet service providers ' needs at the edge of the network and inside the home/business . suttle 's product portfolio incorporates technology that leverages existing infrastructure and lays the foundation for future growth . products are designed to comply with the most stringent industry standards . quality management systems are iso 9001 and tl9000 certified . suttle 's newest brands are futurelink tm and mediamax . futurelink tm provides high-speed connectivity solutions in the last mile of a network . the futurelink tm stackable fiber interface terminal ( sfit ) —among other platforms that feature grow-as-you-go capability—is part of suttle 's fttx solution . mediamax is designed for gigabit services for the connected home/business . mediamax optimizes installation cost while maximizing coverage and high-bandwidth . transition networks with over 30 years of growth and expertise in hardware and software development , transition networks offers customers the ability to affordably integrate the benefits of fiber optics into any data network , in any application , and in any environment . offering support for multiple protocols , any interface , and a multitude of hardware platforms , transition networks ' portfolio gives customers the power to deliver and manage network traffic reliably over fiber . transition networks distributes hardware-based connectivity solutions through a network of resellers in over 90 countries . jdl technologies jdl technologies provides technology services and infrastructure to the commercial , healthcare and education market segments . jdl 's portfolio of technology solutions includes managed services , virtualization and cloud solutions , wired and wireless network design and implementation services , and converged infrastructure configuration and deployment . jdl has provided many of these technology services to the school board of broward county , florida , the sixth largest public school district in the u.s. , for more than a decade , and also provides these services to a number of commercial and healthcare clients . net2edge net2edge has been created to focus on the service provider/communications markets . net2edge designs , manufactures and markets carrier ethernet based network access devices and software designed to revolutionize the near future evolution to the next wave of network modernization . carrier ethernet is the standard universal service provider delivery system based on the internationally recognized mef service standards . net2edge has created significant market differentiation by enabling legacy services over carrier ethernet access devices . service providers all over the world still deploy old networks that are expensive to operate , maintain and manage , yet have millions of subscribers . net2edge helps resolve that challenge by bringing these legacy services in to the 21 st century network . key 2017 developments ● the company 's 2017 sales were $ 82.3 million , a 17 % decrease from 2016 sales of $ 99.4 million . ● the company 's 2017 net loss was $ 11.8 million , or ( $ 1.32 ) per diluted share , compared to net loss of $ 8.1 million or ( $ 0.92 ) per diluted share in fiscal 2016 . ● at 2017 year end , the company had cash , cash equivalents and investments of $ 18.0 million and positive working capital of $ 36.5 million compared to cash , cash equivalents and investments of $ 16.2 million and working capital of $ 44.0 million at december 31 , 2016 . ● suttle sales decreased 23 % to $ 32.4 million in 2017 from $ 42.1 million in 2016. suttle incurred $ 2.3 million in restructuring expense in 2017 related to the planned closure of its costa rica facility . suttle had an operating loss of $ 9.8 million in 2017 compared to an operating loss of $ 8.6 million in 2016 . ● transition networks sales decreased 6 % to $ 38.5 million in 2017 from $ 41.1 million in 2016. transition had operating income of $ 1.4 million in 2017 compared to operating income of $ 0.3 million in 2016 . 22 ● jdl technologies sales decreased 28 % to $ 11.2 million in 2017 from $ 15.5 million in 2016. jdl had an operating loss of $ 0.8 million in 2017 compared to operating income of $ 1.9 million in 2016 , due to a $ 1.5 million goodwill impairment loss recognized in the second quarter of 2017 . ● net2edge sales decreased 42 % to $ 1.1 million in 2017 from $ 1.9 million in 2016. net2edge had an operating loss of $ 2.6 million in 2017 compared to an operating loss of $ 2.2 million in 2016. forward looking statements in this report and from time to time , in reports filed with the securities and exchange commission , in press releases , and in other communications to shareholders or the investing public , we may make “ forward looking statements ” within the meaning of the private securities litigation reform act of 1995. we may make these forward looking statements concerning possible or anticipated future financial performance , business activities , plans , pending claims , investigations or litigation , which are typically preceded by the words “ believes , ” “ expects , ” “ anticipates , ” “ intends ” or similar expressions . for these forward-looking statements , the company claims the protection of the safe harbor for forward-looking statements contained in federal securities laws . story_separator_special_tag suttle incurred $ 528,000 and $ 2,596,000 in research and development expenses in 2017 and 2016 , respectively . suttle incurred $ 2,285,000 in restructuring expense in 2017 related to the planned closure of its costa rica facility . suttle had an operating loss of $ 9,765,000 in 2017 compared to an operating loss of $ 8,642,000 in 2016. transition networks results transition networks develops , markets , and sells active networking hardware devices . characteristics of the business include a rapid pace of change in technologies and alternative solutions to our products . transition networks derives the majority of its revenues from customer network upgrade projects , which tend not to recur . the core markets for these products are enterprise , service providers , government , and industrial users . roughly 81 % of transition networks revenue comes from north america , but we continue to see opportunity for long-term growth outside of north america and we will invest resources in sales , marketing , and infrastructure to grow that business . 24 transition networks sales decreased 6 % to $ 38,541,000 in 2017 compared to $ 41,093,000 in 2016. transition networks organizes its sales force by vertical markets and segments its customers geographically . sales by customer groups in 2017 and 2016 were : replace_table_token_6_th the following table summarizes transition networks ' 2017 and 2016 sales by product group : replace_table_token_7_th sales in north america decreased 4 % or $ 1,426,000 compared to 2016 due to delays in federal projects and disruptions in our supply chain . international sales decreased $ 1,126,000 , or 13 % , due to continued weakness in the emea region and project timing . sales of media converters decreased 15 % or $ 3,803,000 due to delays in federal projects and supply chain disruption . sales of ethernet switches and adapters increased 11 % or $ 872,000 due to the success of several new products launched in the year . all other products increased 5 % or $ 379,000 , due to strong accessory sales . gross margin decreased 4 % to $ 16,762,000 in 2017 compared to $ 17,486,000 in 2016. gross margin as a percentage of sales remained stable at 43 % in both 2017 and 2016. selling , general and administrative expenses decreased 11 % to $ 15,371,000 , or 40 % of sales , in 2017 from $ 17,180,000 , or 42 % of sales in 2016 due to a continued focus on reducing operational costs . operating income was $ 1,391,000 in 2017 compared to operating income of $ 306,000 in 2016. transition networks continues to develop products based on market needs as well as by following industry standards set by such organizations as the institute of electrical and electronics engineers ( ieee ) and the metro ethernet forum ( mef ) . it also continues to invest in sales and marketing to grow revenues in our target markets and expand sales outside of north america . jdl technologies , inc. results sales by jdl technologies decreased 28 % to $ 11,210,000 in 2017 compared to $ 15,464,000 in 2016. the following table summarizes jdl 's revenues by customer group in 2017 and 2016 : replace_table_token_8_th revenues earned from the education sector decreased $ 3,109,000 or 28 % in 2017 due to a decrease in the number of network related projects completed during the year . federal and local funding for public school district investments in it infrastructure and services varies substantially from year to year , and jdl technologies expects to continue to experience notable swings in quarterly and annual revenues as a result . 25 revenue from jdl technologies ' sales to small and medium-sized commercial businesses ( smbs ) , which are primarily healthcare and commercial clients , decreased by 27 % or $ 1,145,000 due to a decrease in the number of infrastructure and professional services projects completed in 2017 , due , in part , to jdl 's continued focus on building managed services revenue rather than incident-based or project-based opportunities , and fewer bids for , and therefore , contracts for infrastructure refresh projects . jdl gross margin decreased 47 % to $ 2,773,000 in 2017 compared to $ 5,219,000 in 2016. gross margin as a percentage of sales decreased to 25 % in 2017 from 34 % in 2016 due to a lower margin project in our education sector during the second quarter of 2017. selling , general and administrative expenses decreased 36 % in 2017 to $ 2,101,000 , or 19 % of sales , compared to $ 3,296,000 in 2016 , or 21 % of sales due to cost saving measures we implemented over the past year . jdl reported an operating loss of $ 791,000 in 2017 compared to operating income of $ 1,923,000 in 2016 , which included a $ 1,463,000 goodwill impairment loss recognized in the second quarter of 2017. jdl technologies continues to aggressively leverage opportunities to provide managed services , cloud migration and virtualization services , hipaa-compliant technology services , and other network and infrastructure services to the commercial and healthcare markets . this strategic , multiyear plan to reduce the impact of volatile government funding is beginning to produce results . net2edge results net2edge 's sales decreased 42 % to $ 1,079,000 in 2017 compared to $ 1,873,000 in 2016 due to declines in legacy product sales and delays in the release of new products . gross margin decreased 30 % to $ 681,000 in 2017 compared to $ 969,000 in 2016. gross margin as a percentage of sales increased to 63 % in 2017 from 52 % in 2016 due to low margins realized on a large customer project in 2016. selling , general and administrative expenses remained fairly flat at $ 3,127,000 in 2017 compared to $ 3,141,000 in 2016. net2edge reported an operating loss of $ 2,600,000 in 2017 compared to a loss of $ 2,172,000 in 2016 ,
| liquidity and capital resources replace_table_token_8_th replace_table_token_9_th we believe that our current cash , cash flow from operations , and borrowing capacity will be sufficient to fund our operations , stock repurchases , and quarterly cash dividends for at least the next 12 months . whether these resources are adequate to meet our liquidity needs beyond that period will depend on our growth , operating results , and the investments required to respond to the possible increased demand for our services . if we require additional capital resources to grow our business , we may seek to finance our operations from available funds or additional external financing . if it became necessary to repatriate foreign funds , we may be required to pay u.s. and foreign taxes upon repatriation . due to the complexity of income tax laws and regulations , and the tax reform act 's effects , it is impracticable to estimate the amount of taxes we would have to pay . see risk factor `` if it becomes necessary or desirable to repatriate any of our foreign cash balances to the united states , we may be subject to increased taxes , other restrictions , and limitations '' in item 1a of this annual report for additional information . cash ( used in ) operating activities we are in the process of transitioning our business to sell software primarily through subscription arrangements , particularly pega cloud . this transition has and is expected to continue to impact our billings and resulting timing of cash collections . pega cloud and term license arrangements are generally billed and collected over the contract term while perpetual license arrangements are generally billed in full and collected upfront when the license rights become effective . as client preferences continue to shift in favor of pega cloud arrangements , we could continue to experience slower operating cash flow growth , or negative cash flow , in the near term in 2020 , covid-19 did not have a material impact on our cash flows from operations .
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the story_separator_special_tag overview communications systems , inc. provides physical connectivity infrastructure products and services for global deployments of broadband networks through the following business units : suttle founded in 1910 , suttle provides network solutions that meet service providers ' needs at the edge of the network and inside the home/business . suttle 's product portfolio incorporates technology that leverages existing infrastructure and lays the foundation for future growth . products are designed to comply with the most stringent industry standards . quality management systems are iso 9001 and tl9000 certified . suttle 's newest brands are futurelink tm and mediamax . futurelink tm provides high-speed connectivity solutions in the last mile of a network . the futurelink tm stackable fiber interface terminal ( sfit ) —among other platforms that feature grow-as-you-go capability—is part of suttle 's fttx solution . mediamax is designed for gigabit services for the connected home/business . mediamax optimizes installation cost while maximizing coverage and high-bandwidth . transition networks with over 30 years of growth and expertise in hardware and software development , transition networks offers customers the ability to affordably integrate the benefits of fiber optics into any data network , in any application , and in any environment . offering support for multiple protocols , any interface , and a multitude of hardware platforms , transition networks ' portfolio gives customers the power to deliver and manage network traffic reliably over fiber . transition networks distributes hardware-based connectivity solutions through a network of resellers in over 90 countries . jdl technologies jdl technologies provides technology services and infrastructure to the commercial , healthcare and education market segments . jdl 's portfolio of technology solutions includes managed services , virtualization and cloud solutions , wired and wireless network design and implementation services , and converged infrastructure configuration and deployment . jdl has provided many of these technology services to the school board of broward county , florida , the sixth largest public school district in the u.s. , for more than a decade , and also provides these services to a number of commercial and healthcare clients . net2edge net2edge has been created to focus on the service provider/communications markets . net2edge designs , manufactures and markets carrier ethernet based network access devices and software designed to revolutionize the near future evolution to the next wave of network modernization . carrier ethernet is the standard universal service provider delivery system based on the internationally recognized mef service standards . net2edge has created significant market differentiation by enabling legacy services over carrier ethernet access devices . service providers all over the world still deploy old networks that are expensive to operate , maintain and manage , yet have millions of subscribers . net2edge helps resolve that challenge by bringing these legacy services in to the 21 st century network . key 2017 developments ● the company 's 2017 sales were $ 82.3 million , a 17 % decrease from 2016 sales of $ 99.4 million . ● the company 's 2017 net loss was $ 11.8 million , or ( $ 1.32 ) per diluted share , compared to net loss of $ 8.1 million or ( $ 0.92 ) per diluted share in fiscal 2016 . ● at 2017 year end , the company had cash , cash equivalents and investments of $ 18.0 million and positive working capital of $ 36.5 million compared to cash , cash equivalents and investments of $ 16.2 million and working capital of $ 44.0 million at december 31 , 2016 . ● suttle sales decreased 23 % to $ 32.4 million in 2017 from $ 42.1 million in 2016. suttle incurred $ 2.3 million in restructuring expense in 2017 related to the planned closure of its costa rica facility . suttle had an operating loss of $ 9.8 million in 2017 compared to an operating loss of $ 8.6 million in 2016 . ● transition networks sales decreased 6 % to $ 38.5 million in 2017 from $ 41.1 million in 2016. transition had operating income of $ 1.4 million in 2017 compared to operating income of $ 0.3 million in 2016 . 22 ● jdl technologies sales decreased 28 % to $ 11.2 million in 2017 from $ 15.5 million in 2016. jdl had an operating loss of $ 0.8 million in 2017 compared to operating income of $ 1.9 million in 2016 , due to a $ 1.5 million goodwill impairment loss recognized in the second quarter of 2017 . ● net2edge sales decreased 42 % to $ 1.1 million in 2017 from $ 1.9 million in 2016. net2edge had an operating loss of $ 2.6 million in 2017 compared to an operating loss of $ 2.2 million in 2016. forward looking statements in this report and from time to time , in reports filed with the securities and exchange commission , in press releases , and in other communications to shareholders or the investing public , we may make “ forward looking statements ” within the meaning of the private securities litigation reform act of 1995. we may make these forward looking statements concerning possible or anticipated future financial performance , business activities , plans , pending claims , investigations or litigation , which are typically preceded by the words “ believes , ” “ expects , ” “ anticipates , ” “ intends ” or similar expressions . for these forward-looking statements , the company claims the protection of the safe harbor for forward-looking statements contained in federal securities laws . story_separator_special_tag suttle incurred $ 528,000 and $ 2,596,000 in research and development expenses in 2017 and 2016 , respectively . suttle incurred $ 2,285,000 in restructuring expense in 2017 related to the planned closure of its costa rica facility . suttle had an operating loss of $ 9,765,000 in 2017 compared to an operating loss of $ 8,642,000 in 2016. transition networks results transition networks develops , markets , and sells active networking hardware devices . characteristics of the business include a rapid pace of change in technologies and alternative solutions to our products . transition networks derives the majority of its revenues from customer network upgrade projects , which tend not to recur . the core markets for these products are enterprise , service providers , government , and industrial users . roughly 81 % of transition networks revenue comes from north america , but we continue to see opportunity for long-term growth outside of north america and we will invest resources in sales , marketing , and infrastructure to grow that business . 24 transition networks sales decreased 6 % to $ 38,541,000 in 2017 compared to $ 41,093,000 in 2016. transition networks organizes its sales force by vertical markets and segments its customers geographically . sales by customer groups in 2017 and 2016 were : replace_table_token_6_th the following table summarizes transition networks ' 2017 and 2016 sales by product group : replace_table_token_7_th sales in north america decreased 4 % or $ 1,426,000 compared to 2016 due to delays in federal projects and disruptions in our supply chain . international sales decreased $ 1,126,000 , or 13 % , due to continued weakness in the emea region and project timing . sales of media converters decreased 15 % or $ 3,803,000 due to delays in federal projects and supply chain disruption . sales of ethernet switches and adapters increased 11 % or $ 872,000 due to the success of several new products launched in the year . all other products increased 5 % or $ 379,000 , due to strong accessory sales . gross margin decreased 4 % to $ 16,762,000 in 2017 compared to $ 17,486,000 in 2016. gross margin as a percentage of sales remained stable at 43 % in both 2017 and 2016. selling , general and administrative expenses decreased 11 % to $ 15,371,000 , or 40 % of sales , in 2017 from $ 17,180,000 , or 42 % of sales in 2016 due to a continued focus on reducing operational costs . operating income was $ 1,391,000 in 2017 compared to operating income of $ 306,000 in 2016. transition networks continues to develop products based on market needs as well as by following industry standards set by such organizations as the institute of electrical and electronics engineers ( ieee ) and the metro ethernet forum ( mef ) . it also continues to invest in sales and marketing to grow revenues in our target markets and expand sales outside of north america . jdl technologies , inc. results sales by jdl technologies decreased 28 % to $ 11,210,000 in 2017 compared to $ 15,464,000 in 2016. the following table summarizes jdl 's revenues by customer group in 2017 and 2016 : replace_table_token_8_th revenues earned from the education sector decreased $ 3,109,000 or 28 % in 2017 due to a decrease in the number of network related projects completed during the year . federal and local funding for public school district investments in it infrastructure and services varies substantially from year to year , and jdl technologies expects to continue to experience notable swings in quarterly and annual revenues as a result . 25 revenue from jdl technologies ' sales to small and medium-sized commercial businesses ( smbs ) , which are primarily healthcare and commercial clients , decreased by 27 % or $ 1,145,000 due to a decrease in the number of infrastructure and professional services projects completed in 2017 , due , in part , to jdl 's continued focus on building managed services revenue rather than incident-based or project-based opportunities , and fewer bids for , and therefore , contracts for infrastructure refresh projects . jdl gross margin decreased 47 % to $ 2,773,000 in 2017 compared to $ 5,219,000 in 2016. gross margin as a percentage of sales decreased to 25 % in 2017 from 34 % in 2016 due to a lower margin project in our education sector during the second quarter of 2017. selling , general and administrative expenses decreased 36 % in 2017 to $ 2,101,000 , or 19 % of sales , compared to $ 3,296,000 in 2016 , or 21 % of sales due to cost saving measures we implemented over the past year . jdl reported an operating loss of $ 791,000 in 2017 compared to operating income of $ 1,923,000 in 2016 , which included a $ 1,463,000 goodwill impairment loss recognized in the second quarter of 2017. jdl technologies continues to aggressively leverage opportunities to provide managed services , cloud migration and virtualization services , hipaa-compliant technology services , and other network and infrastructure services to the commercial and healthcare markets . this strategic , multiyear plan to reduce the impact of volatile government funding is beginning to produce results . net2edge results net2edge 's sales decreased 42 % to $ 1,079,000 in 2017 compared to $ 1,873,000 in 2016 due to declines in legacy product sales and delays in the release of new products . gross margin decreased 30 % to $ 681,000 in 2017 compared to $ 969,000 in 2016. gross margin as a percentage of sales increased to 63 % in 2017 from 52 % in 2016 due to low margins realized on a large customer project in 2016. selling , general and administrative expenses remained fairly flat at $ 3,127,000 in 2017 compared to $ 3,141,000 in 2016. net2edge reported an operating loss of $ 2,600,000 in 2017 compared to a loss of $ 2,172,000 in 2016 ,
| liquidity and capital resources as of december 31 , 2017 , the company had approximately $ 17,994,000 in cash , cash equivalents and investments . of this amount , $ 6,193,000 was invested in short-term money market funds that are not considered to be bank deposits and are not insured or guaranteed by the fdic or other government agency . these money market funds seek to preserve the value of the investment at $ 1.00 per share ; however , it is possible to lose money investing in these funds . the remainder in cash and cash equivalents is operating cash . the company also had $ 5,541,000 in investments consisting of corporate notes and bonds and commercial paper that are traded on the open market and are classified as available-for-sale at december 31 , 2017 . 26 the company had working capital of $ 36,506,000 , consisting of current assets of approximately $ 45,466,000 and current liabilities of $ 8,960,000 at december 31 , 2017 , compared to working capital of $ 44,005,000 , consisting of current assets of $ 55,373,000 and current liabilities of $ 11,368,000 at the end of 2016. the company 's working capital at december 31 , 2017 decreased from the prior year-end as the company decreased its inventory as part of a concerted effort to more efficiently manage its inventory and begin to phase out specific legacy products .
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the 2020 senior notes were used to finance a portion of the 2013 ef acquisition as well as adjust our total capitalization by retiring our high-cost $ 300 million of 10.375 % senior notes due 2016 , or 2016 senior notes resulting in an annual reduction of interest payments of $ 5.6 million . we also issued 10 million shares of common stock to the seller in connection with the 2013 ef acquisition . key developments the following general business developments and corporate actions had or will have a significant impact on the financial reporting and disclosure of our financial position , results of operations and cash flows : ( i ) drilling results and future development plans for the eagle ford shale , ( ii ) the 2013 ef acquisition , ( iii ) the amendment , or amendment , of the revolver , and the borrowing base redetermination thereunder , ( iv ) the sale of our natural gas gathering assets in south texas , ( v ) hedging a portion of our oil and gas production through calendar year 2015 to the levels permitted by our revolver and our internal policies , ( vi ) the tender offer and the redemption , or the tender offer and the redemption , of our 2016 senior notes and ( vii ) the private placement and subsequent registration of our 2020 senior notes to finance the 2013 ef acquisition , the tender offer and the redemption . drilling results and future development plans for the eagle ford shale during 2013 , we drilled 49 gross ( 30.8 net ) successful wells , and our joint venture partner drilled seven ( 2.8 net ) successful non-operated wells in the eagle ford shale . we also drilled one ( 0.5 net ) well that is currently under evaluation . our eagle ford shale production was approximately 11,169 net boepd during 2013 and 13,111 net boepd during the fourth quarter of 2013 with oil comprising approximately 78 percent , ngls approximately 12 percent and natural gas approximately 10 percent . in the eagle ford shale , we have a total of 179 gross ( 116.7 net ) producing wells , 13 gross ( 10.1 net ) operated wells completing or waiting on completion , two gross ( 0.9 net ) outside operated wells being completed , six gross ( 4.2 net ) operated wells being drilled and no outside operated wells being drilled as of february 19 , 2014. while our production during the fourth quarter was consistent with previous guidance , we had a number of wells brought on line later than anticipated and these wells did not contribute as much to the fourth quarter results as we had expected . in addition , our non-operated partner has suspended its drilling program . in response , we have increased our operated drilling rig count to six rigs where we intend to remain during 2014 , subject to market conditions . the average total drilling and completion cost per frac stage for our operated eagle ford shale wells was approximately $ 380,000 in the fourth quarter of 2013 , as compared to $ 390,000 in the third quarter of 2013. in addition to the sequential decrease in costs per frac stage , our well productivity per stage increased as a result of pumping additional proppant and the continued use of multi-well pads and “ zipper fracs . ” a total of 22 of our recently drilled wells were drilled off of ten multi-well pads , with an average effective nominal spacing of approximately 60 acres . we have approximately 118,000 gross ( 80,000 net ) acres as of february 19 , 2014 , which to a large extent are contiguous and the majority of which are in the “ volatile oil window ” of the eagle ford shale . approximately 96,800 gross ( 70,300 net ) acres are operated by us . 28 acquisition and integration of new eagle ford shale assets we closed the 2013 ef acquisition on april 24 , 2013 , or the acquisition date , and acquired approximately 40,600 gross ( 17,700 net ) mineral acres , including producing and undeveloped property , located in gonzales and lavaca counties , texas most of which was adjacent to our existing eagle ford shale position . the 2013 ef acquisition was originally valued at $ 401 million with an effective date of january 1 , 2013 , or the effective date . on the acquisition date , we paid approximately $ 380 million in cash , including approximately $ 19 million of initial purchase price adjustments related to the period from the effective date to the acquisition date utilizing a portion of the proceeds from the 2020 senior notes offering , and issued to the seller 10 million shares of our common stock , or shares , with a fair value of $ 4.23 per share . shortly after the acquisition date , certain of our joint interest partners exercised preferential rights related to the 2013 ef acquisition . we received approximately $ 21 million from the exercise of those rights , which was recorded as a decrease to the purchase price of the 2013 ef acquisition . in september 2013 , the seller divested all of the shares . see item 3 , “ legal proceedings ” for information regarding an arbitration in which we are involved with the seller . the 2013 ef acquisition included working interests in 46 gross ( 22.1 net ) producing wells . at the time of the 2013 ef acquisition , the estimated net oil and gas production for the acquired assets was approximately 2,700 boepd . based on the seller 's third-party reserve engineering firm ' s year-end 2012 review of the acquired assets , proved reserves were approximately 12.0 mmboe , 96 percent of which were oil and ngls and 37 percent of which were proved developed . story_separator_special_tag included in the price variance for natural gas was approximately $ 0.7 million of unfavorable adjustments attributable to the change in prices associated with gas imbalances due to us from partners in the mid-continent region . 37 the following table provides an analysis of the change in our revenues for 2012 as compared to 2011. replace_table_token_43_th effects of derivatives in 2012 and 2011 , we received $ 28.3 million and $ 23.6 million , respectively , in cash settlements of oil and gas derivatives . the following table reconciles crude oil and natural gas revenues to realized prices , as adjusted for derivative activities , for the periods presented : replace_table_token_44_th gain on sales of property and equipment in 2012 , we recognized a gain of $ 3.3 million attributable to the sale of substantially all of our appalachian natural gas assets for proceeds of $ 95.7 million , net of transaction costs . in 2011 , we sold approximately 2,700 net undeveloped acres in butler and armstrong counties in pennsylvania for proceeds of $ 8.1 million , net of transaction costs , and recognized a gain of $ 3.3 million . we also recognized a gain of $ 0.6 million in 2012 attributable to the sale of our remaining undeveloped acreage in those counties . in addition , we recognized several individually insignificant gains on the sale of property , equipment , tubular inventory and well material during both periods . production and lifting costs replace_table_token_45_th lease operating expense decreased on an absolute basis during 2012 due primarily to the effect of the sale of our higher-cost appalachian and arkoma basin natural gas properties . in addition to the effect of property sales , we incurred lower repair and maintenance expenses and lower compression costs during 2012. cost decreases were partially offset by higher environmental and regulatory compliance , chemical treatment , field contracting and well tending costs attributable to our significantly expanded oil drilling program . 38 replace_table_token_46_th gathering , processing and transportation charges decreased on an absolute basis during 2012 due primarily to the effect of the sale of our appalachian and arkoma basin natural gas properties , partially offset by higher processing costs related to increased natural gas production in the eagle ford shale as well as higher transportation costs in the appalachian region in 2012 for periods prior to the sale . production and ad valorem taxes replace_table_token_47_th production and ad valorem taxes decreased during 2012 due primarily to the recognition of oklahoma severance tax rebates of $ 2.8 million attributable to horizontal and ultra-deep wells for the period of july 1 , 2009 through june 30 , 2011. reductions were also recognized for production taxes on certain texas wells in 2012 and for a property tax recovery attributable to west virginia wells in 2011. production taxes also decreased due to the appalachian and arkoma basin natural gas properties sales as well as lower overall natural gas volumes and prices in 2012 as compared to 2011. general and administrative replace_table_token_48_th recurring general and administrative expenses decreased due to reduced headcount and lower support costs following the sale of our appalachian and arkoma basin natural gas properties . liability-classified share-based compensation is attributable to our pbrsus , which were issued for the first time in 2012. the 2012 grant of pbrsus are payable in cash in 2015 upon achievement of specified market-based performance metrics . equity-classified share-based compensation attributable to stock options and restricted stock units decreased during 2012 due primarily to a lower number of awards granted . restructuring expenses for both the 2012 and 2011 periods include employee termination benefits and office relocation costs . the 2012 charge includes a provision for lease costs associated with the closing of our canonsburg , pennsylvania office , partially offset by a favorable adjustment to the lease obligation for our former tulsa , oklahoma office due to a change in estimated sub-lease rental income . 39 exploration the following table sets forth the components of exploration expenses for the periods presented : replace_table_token_49_th unproved leasehold amortization declined during 2012 as costs related to successful eagle ford shale wells were transferred to proved properties . geological and geophysical costs decreased during 2012 because our efforts in 2012 were concentrated on development drilling in the eagle ford shale whereas in 2011 we conducted exploratory prospect activities in multiple areas . dry hole costs in 2011 related to several unsuccessful wells in the mid-continent region . we also recorded drilling rig standby charges in 2011 in connection with the suspension of our exploratory drilling program in the marcellus shale . depreciation , depletion and amortization the following tables set forth the nature of the dd & a variances for the periods presented : replace_table_token_50_th the effect of lower overall production volumes on dd & a was more than offset by higher depletion rates associated with oil and ngl production . our average dd & a rate increased due primarily to higher capitalized finding and development costs attributable to our drilling program in the eagle ford shale as well as lower natural gas reserves due to revisions . impairments the following table summarizes the impairments recorded for the periods presented : replace_table_token_51_th in 2012 , we recognized a $ 28.4 million impairment of our appalachian natural gas assets triggered by the expected disposition of those properties , and a $ 75.0 million impairment of our marcellus shale assets due primarily to market declines in natural gas prices and the resultant reduction in proved natural gas reserves . in 2012 , we also recognized an impairment of certain tubular inventory and well materials triggered primarily by declines in asset quality . in 2011 , we recognized an impairment of our arkoma basin natural gas assets for $ 71.1 million , which was triggered by the expected disposition of those properties . also during 2011 , we recognized impairments of our horizontal coal bed methane properties in the appalachian region for $ 26.6
| liquidity and capital resources as of december 31 , 2017 , the company had approximately $ 17,994,000 in cash , cash equivalents and investments . of this amount , $ 6,193,000 was invested in short-term money market funds that are not considered to be bank deposits and are not insured or guaranteed by the fdic or other government agency . these money market funds seek to preserve the value of the investment at $ 1.00 per share ; however , it is possible to lose money investing in these funds . the remainder in cash and cash equivalents is operating cash . the company also had $ 5,541,000 in investments consisting of corporate notes and bonds and commercial paper that are traded on the open market and are classified as available-for-sale at december 31 , 2017 . 26 the company had working capital of $ 36,506,000 , consisting of current assets of approximately $ 45,466,000 and current liabilities of $ 8,960,000 at december 31 , 2017 , compared to working capital of $ 44,005,000 , consisting of current assets of $ 55,373,000 and current liabilities of $ 11,368,000 at the end of 2016. the company 's working capital at december 31 , 2017 decreased from the prior year-end as the company decreased its inventory as part of a concerted effort to more efficiently manage its inventory and begin to phase out specific legacy products .
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the 2020 senior notes were used to finance a portion of the 2013 ef acquisition as well as adjust our total capitalization by retiring our high-cost $ 300 million of 10.375 % senior notes due 2016 , or 2016 senior notes resulting in an annual reduction of interest payments of $ 5.6 million . we also issued 10 million shares of common stock to the seller in connection with the 2013 ef acquisition . key developments the following general business developments and corporate actions had or will have a significant impact on the financial reporting and disclosure of our financial position , results of operations and cash flows : ( i ) drilling results and future development plans for the eagle ford shale , ( ii ) the 2013 ef acquisition , ( iii ) the amendment , or amendment , of the revolver , and the borrowing base redetermination thereunder , ( iv ) the sale of our natural gas gathering assets in south texas , ( v ) hedging a portion of our oil and gas production through calendar year 2015 to the levels permitted by our revolver and our internal policies , ( vi ) the tender offer and the redemption , or the tender offer and the redemption , of our 2016 senior notes and ( vii ) the private placement and subsequent registration of our 2020 senior notes to finance the 2013 ef acquisition , the tender offer and the redemption . drilling results and future development plans for the eagle ford shale during 2013 , we drilled 49 gross ( 30.8 net ) successful wells , and our joint venture partner drilled seven ( 2.8 net ) successful non-operated wells in the eagle ford shale . we also drilled one ( 0.5 net ) well that is currently under evaluation . our eagle ford shale production was approximately 11,169 net boepd during 2013 and 13,111 net boepd during the fourth quarter of 2013 with oil comprising approximately 78 percent , ngls approximately 12 percent and natural gas approximately 10 percent . in the eagle ford shale , we have a total of 179 gross ( 116.7 net ) producing wells , 13 gross ( 10.1 net ) operated wells completing or waiting on completion , two gross ( 0.9 net ) outside operated wells being completed , six gross ( 4.2 net ) operated wells being drilled and no outside operated wells being drilled as of february 19 , 2014. while our production during the fourth quarter was consistent with previous guidance , we had a number of wells brought on line later than anticipated and these wells did not contribute as much to the fourth quarter results as we had expected . in addition , our non-operated partner has suspended its drilling program . in response , we have increased our operated drilling rig count to six rigs where we intend to remain during 2014 , subject to market conditions . the average total drilling and completion cost per frac stage for our operated eagle ford shale wells was approximately $ 380,000 in the fourth quarter of 2013 , as compared to $ 390,000 in the third quarter of 2013. in addition to the sequential decrease in costs per frac stage , our well productivity per stage increased as a result of pumping additional proppant and the continued use of multi-well pads and “ zipper fracs . ” a total of 22 of our recently drilled wells were drilled off of ten multi-well pads , with an average effective nominal spacing of approximately 60 acres . we have approximately 118,000 gross ( 80,000 net ) acres as of february 19 , 2014 , which to a large extent are contiguous and the majority of which are in the “ volatile oil window ” of the eagle ford shale . approximately 96,800 gross ( 70,300 net ) acres are operated by us . 28 acquisition and integration of new eagle ford shale assets we closed the 2013 ef acquisition on april 24 , 2013 , or the acquisition date , and acquired approximately 40,600 gross ( 17,700 net ) mineral acres , including producing and undeveloped property , located in gonzales and lavaca counties , texas most of which was adjacent to our existing eagle ford shale position . the 2013 ef acquisition was originally valued at $ 401 million with an effective date of january 1 , 2013 , or the effective date . on the acquisition date , we paid approximately $ 380 million in cash , including approximately $ 19 million of initial purchase price adjustments related to the period from the effective date to the acquisition date utilizing a portion of the proceeds from the 2020 senior notes offering , and issued to the seller 10 million shares of our common stock , or shares , with a fair value of $ 4.23 per share . shortly after the acquisition date , certain of our joint interest partners exercised preferential rights related to the 2013 ef acquisition . we received approximately $ 21 million from the exercise of those rights , which was recorded as a decrease to the purchase price of the 2013 ef acquisition . in september 2013 , the seller divested all of the shares . see item 3 , “ legal proceedings ” for information regarding an arbitration in which we are involved with the seller . the 2013 ef acquisition included working interests in 46 gross ( 22.1 net ) producing wells . at the time of the 2013 ef acquisition , the estimated net oil and gas production for the acquired assets was approximately 2,700 boepd . based on the seller 's third-party reserve engineering firm ' s year-end 2012 review of the acquired assets , proved reserves were approximately 12.0 mmboe , 96 percent of which were oil and ngls and 37 percent of which were proved developed . story_separator_special_tag included in the price variance for natural gas was approximately $ 0.7 million of unfavorable adjustments attributable to the change in prices associated with gas imbalances due to us from partners in the mid-continent region . 37 the following table provides an analysis of the change in our revenues for 2012 as compared to 2011. replace_table_token_43_th effects of derivatives in 2012 and 2011 , we received $ 28.3 million and $ 23.6 million , respectively , in cash settlements of oil and gas derivatives . the following table reconciles crude oil and natural gas revenues to realized prices , as adjusted for derivative activities , for the periods presented : replace_table_token_44_th gain on sales of property and equipment in 2012 , we recognized a gain of $ 3.3 million attributable to the sale of substantially all of our appalachian natural gas assets for proceeds of $ 95.7 million , net of transaction costs . in 2011 , we sold approximately 2,700 net undeveloped acres in butler and armstrong counties in pennsylvania for proceeds of $ 8.1 million , net of transaction costs , and recognized a gain of $ 3.3 million . we also recognized a gain of $ 0.6 million in 2012 attributable to the sale of our remaining undeveloped acreage in those counties . in addition , we recognized several individually insignificant gains on the sale of property , equipment , tubular inventory and well material during both periods . production and lifting costs replace_table_token_45_th lease operating expense decreased on an absolute basis during 2012 due primarily to the effect of the sale of our higher-cost appalachian and arkoma basin natural gas properties . in addition to the effect of property sales , we incurred lower repair and maintenance expenses and lower compression costs during 2012. cost decreases were partially offset by higher environmental and regulatory compliance , chemical treatment , field contracting and well tending costs attributable to our significantly expanded oil drilling program . 38 replace_table_token_46_th gathering , processing and transportation charges decreased on an absolute basis during 2012 due primarily to the effect of the sale of our appalachian and arkoma basin natural gas properties , partially offset by higher processing costs related to increased natural gas production in the eagle ford shale as well as higher transportation costs in the appalachian region in 2012 for periods prior to the sale . production and ad valorem taxes replace_table_token_47_th production and ad valorem taxes decreased during 2012 due primarily to the recognition of oklahoma severance tax rebates of $ 2.8 million attributable to horizontal and ultra-deep wells for the period of july 1 , 2009 through june 30 , 2011. reductions were also recognized for production taxes on certain texas wells in 2012 and for a property tax recovery attributable to west virginia wells in 2011. production taxes also decreased due to the appalachian and arkoma basin natural gas properties sales as well as lower overall natural gas volumes and prices in 2012 as compared to 2011. general and administrative replace_table_token_48_th recurring general and administrative expenses decreased due to reduced headcount and lower support costs following the sale of our appalachian and arkoma basin natural gas properties . liability-classified share-based compensation is attributable to our pbrsus , which were issued for the first time in 2012. the 2012 grant of pbrsus are payable in cash in 2015 upon achievement of specified market-based performance metrics . equity-classified share-based compensation attributable to stock options and restricted stock units decreased during 2012 due primarily to a lower number of awards granted . restructuring expenses for both the 2012 and 2011 periods include employee termination benefits and office relocation costs . the 2012 charge includes a provision for lease costs associated with the closing of our canonsburg , pennsylvania office , partially offset by a favorable adjustment to the lease obligation for our former tulsa , oklahoma office due to a change in estimated sub-lease rental income . 39 exploration the following table sets forth the components of exploration expenses for the periods presented : replace_table_token_49_th unproved leasehold amortization declined during 2012 as costs related to successful eagle ford shale wells were transferred to proved properties . geological and geophysical costs decreased during 2012 because our efforts in 2012 were concentrated on development drilling in the eagle ford shale whereas in 2011 we conducted exploratory prospect activities in multiple areas . dry hole costs in 2011 related to several unsuccessful wells in the mid-continent region . we also recorded drilling rig standby charges in 2011 in connection with the suspension of our exploratory drilling program in the marcellus shale . depreciation , depletion and amortization the following tables set forth the nature of the dd & a variances for the periods presented : replace_table_token_50_th the effect of lower overall production volumes on dd & a was more than offset by higher depletion rates associated with oil and ngl production . our average dd & a rate increased due primarily to higher capitalized finding and development costs attributable to our drilling program in the eagle ford shale as well as lower natural gas reserves due to revisions . impairments the following table summarizes the impairments recorded for the periods presented : replace_table_token_51_th in 2012 , we recognized a $ 28.4 million impairment of our appalachian natural gas assets triggered by the expected disposition of those properties , and a $ 75.0 million impairment of our marcellus shale assets due primarily to market declines in natural gas prices and the resultant reduction in proved natural gas reserves . in 2012 , we also recognized an impairment of certain tubular inventory and well materials triggered primarily by declines in asset quality . in 2011 , we recognized an impairment of our arkoma basin natural gas assets for $ 71.1 million , which was triggered by the expected disposition of those properties . also during 2011 , we recognized impairments of our horizontal coal bed methane properties in the appalachian region for $ 26.6
| cash flows from financing activities . in april 2013 , we issued the the 2020 senior notes which were used to fund the 2013 ef acquisition and a portion of the tender offer and the redemption of our outstanding 2016 senior notes . we incurred and paid costs associated with the issuance of the 2020 senior notes as well as costs associated with an amendment to our revolver . cash flows from financing activities for 2013 include net borrowings under the revolver while the 2012 period includes net repayments under the revolver which were funded by the proceeds from the sale of our appalachian natural gas assets and a federal income tax refund . dividends paid in the 2013 period were attributable to our 6 % series a convertible perpetual preferred stock , or the 6 % preferred stock , and dividends paid in 2012 were attributable to our common stock . capitalization the following table summarizes our total capitalization as of the dates presented : replace_table_token_60_th _ 1 the 2016 senior notes were retired in 2013 in connection with the tender offer and the redemption . 2 includes 11,500 shares of the 6 % preferred stock which has a liquidation preference of $ 10,000 per share , or $ 115 million . revolving credit facility . borrowings under the revolver bear interest , at our option , at either ( i ) a rate derived from libor , as adjusted for statutory reserve requirements for eurocurrency liabilities , or adjusted libor , plus an applicable margin ( ranging from 1.500 % to 2.500 % ) or ( ii ) the greater of ( a ) the prime rate , ( b ) the federal funds effective rate plus 0.5 % or ( c ) the one-month adjusted libor plus 1.0 % , and , in each case , plus an applicable margin ( ranging from 0.500 % to 1.500 % ) . in each case , the applicable margin is determined based on the ratio of our outstanding borrowings to the available revolver capacity .
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the company recorded net income of $ 33.2 million in fiscal 2016 compared to $ 18.1 million in fiscal 2015 . the primary reason for the increase in net income was a significant rise in non-interest income , bolstered by growth in net interest income . in fiscal 2016 , non-interest income increased to $ 100.8 million from $ 58.2 million in fiscal 2015 , due to tax product fee income and an increase in card fee income . the company 's net interest income grew to $ 77.3 million in fiscal 2016 , compared to $ 59.2 million in fiscal 2015 . the increase was driven by growth in both loan and investment volumes as well as the expansion in yields on these interest-earning assets . additionally , the continuous improvement in the overall asset mix also contributed to the increased net interest income , which was highlighted by loan growth and purchases of highly rated tax-exempt municipal securities at relatively high tax equivalent yields . partially offsetting the higher non-interest income and net interest income was non-interest expense , which rose $ 38.1 million , from $ 96.5 million in fiscal 2015 , to $ 134.6 million in fiscal 2016 and income tax expense which rose from $ 19.4 million to $ 38.8 million year over year . the company 's banking segment 2016 fiscal year income before tax was $ 16.1 million , compared to $ 14.8 million in fiscal 2015 . retail bank total loans increased $ 146.8 million during the fiscal year , or 25 % , to $ 737.4 million , from strong growth in residential real estate and commercial and multi-family real estate . retail bank checking balances continued to grow from $ 88.7 million at september 30 , 2015 , to $ 97.7 million , or 10 % , at september 30 , 2016 . the company 's payments segment 2016 fiscal year income before tax was $ 29.7 million , compared to $ 14.1 million in fiscal 2015 . this improvement was primarily the result of increases in card fee income from new and existing business partners along with tax product fee income . average mps deposits increased $ 398.9 million during fiscal 2016 , or 25 % , to $ 2.00 billion , compared to fiscal 2015 . overall , the cost of funds at metabank averaged 0.15 % during fiscal 2016 , compared to 0.11 % for 2015 . tangible book value per common share increased by $ 6.97 , or 28 % , to $ 31.57 per share at september 30 , 2016 , from $ 24.60 per share at september 30 , 2015 . this growth is attributable to increases in net income and accumulated other comprehensive income ( “ aoci ” ) along with higher additional paid-in capital due to the company 's first quarter capital raise of approximately $ 11.7 million . the tangible book value per common share , excluding ( “ aoci ” ) was $ 28.89 as of september 30 , 2016 , compared to $ 24.30 as of september 30 , 2015 . book value per common share outstanding increased by $ 6.06 , or 18 % , to $ 39.30 per share at september 30 , 2016 , from $ 33.24 per share at september 30 , 2015 . 74 the company 's non-performing assets ( “ npas ” ) were 0.03 % of total assets at september 30 , 2016 , compared to 0.31 % at september 30 , 2015 . the decrease from september 2015 was mainly due to the previously reported partial charge-off of a large non-performing agriculture relationship , which has no remaining loan balance . excluding the afs/ibex portfolio , npas were 0.01 % of total assets at september 30 , 2016 . financial condition as of september 30 , 2016 , the company 's assets grew by $ 1.48 billion , or 58 % , to $ 4.01 billion , compared to $ 2.53 billion at september 30 , 2015 . the growth in assets resulted from a variety of factors , including increases in the company 's cash and cash equivalents , loan balances , and investment securities portfolio . total cash and cash equivalents was $ 773.8 million at september 30 , 2016 , an increase of $ 746.1 million from $ 27.7 million at september 30 , 2015 . the majority of this increase was related to a temporary repositioning of the balance sheet in september 2016 to prepare the company for potential strategic opportunities , including the h & r block® agreement signed in october 2016. the company anticipated utilizing the excess cash it held at its fiscal year end to repay overnight borrowings in october 2016. in general , the company maintains its cash investments in interest-bearing overnight deposits with the fhlb of des moines and the frb of minneapolis . at september 30 , 2016 , the company had no federal funds sold . the total of mbs and investment securities increased $ 487.3 million , or 30 % , to $ 2.09 billion at september 30 , 2016 , compared to september 30 , 2015 , as investment purchases exceeded related maturities , sales and principal pay downs . the company 's portfolio of securities consists primarily of mbs , which have relatively short expected lives , non-bank qualified obligations of states and political subdivisions ( “ nbq ” ) which mature in approximately 15 years or less , and other tax exempt municipal mortgage related pass through securities which have average lives much shorter than their stated final maturities . all mbs held by the company are issued by a u.s. government agency or instrumentality . of the total $ 692.7 million of mbs , $ 558.9 million are classified as available for sale ( “ afs ” ) , and $ 133.8 million are classified as held to maturity ( “ htm ” ) . story_separator_special_tag the increase in net income was primarily caused by a $ 9.9 million increase in loan income , a $ 5.8 million increase in card fee income , a $ 3.1 million increase related to the securities portfolio and a decrease in tax expense of $ 1.5 million . the net income increase was offset in part by an increase in compensation and benefits expense of $ 8.3 million , increased occupancy and equipment expense of $ 2.4 million , an increased loss on sale of securities of $ 1.7 million , increased intangible amortization expense of $ 1.3 million , increased regulatory expense of $ 1.1 million and increased card processing expense of $ 1.0 million . net interest income . net interest income for fiscal 2015 increased by $ 12.9 million , or 28.0 % , to $ 59.2 million from $ 46.3 million for the prior year . net interest margin increased to 3.03 % in fiscal 2015 as compared to 2.80 % in 2014 . the company 's average earning assets increased $ 363.8 million , or 20.0 % , to $ 2.2 billion during fiscal 2015 from $ 1.8 billion during 2014 . the increase is primarily the result of the increase in the company 's investment securities and non-bank qualified , high-quality municipal portfolios as well as loans receivable . the company 's average total deposits and interest-bearing liabilities increased $ 343.2 million , or 19.7 % , to $ 2.1 billion during fiscal 2015 from $ 1.7 billion during 2014. the increase resulted mainly from an increase in the company 's non-interest-bearing deposits and federal funds purchased . the average outstanding balance of non-interest-bearing deposits increased from $ 1.3 billion in fiscal 2014 to $ 1.6 billion in fiscal 2015. the company 's cost of total deposits and interest-bearing liabilities declined three basis points to 0.11 % during fiscal 2015 from 0.14 % during 2014 , primarily due to continued migration to low- and no-cost deposits provided by mps . provision for loan losses . in fiscal 2015 , the company recorded $ 1.5 million in provision for loan loss , compared to $ 1.2 million in 2014 . the increased provision was primarily due to loan growth . non-interest income . non-interest income increased by $ 6.4 million , or 12.4 % , to $ 58.2 million for fiscal 2015 from $ 51.7 million for 2014 primarily due to an increase in fees earned on prepaid debit cards , credit products and other payment systems products of $ 5.8 million due to the addition of multiple new partners and growth in existing mps programs . loan fees also increased by $ 1.4 million from retail loan growth and the addition of afs/ibex . these increases in non-interest income were partially offset by an increased loss on the securities available for sale of $ 1.7 million sold primarily to fund the afs/ibex transaction . non-interest expense . non-interest expense increased by $ 18.3 million , or 23.4 % , to $ 96.5 million for fiscal 2015 from $ 78.2 million for fiscal 2014 . compensation expense increased $ 8.3 million during fiscal 2015 compared to 2014 , occupancy and equipment increased $ 2.4 million , and intangible amortization expense increased $ 1.3 million . these increases were principally due to the refund advantage and afs/ibex acquisitions and to additional product development and it developer staffing to support the company 's growth initiatives and prepare for other business opportunities . in addition , regulatory expense increased $ 1.1 million primarily relating to an increase in fdic insurance due to brokered deposit classification guidance published in january 2015 and higher deposit balances . 80 income tax expense . income tax expense for fiscal 2015 was $ 1.4 million , resulting in an effective tax rate of 7.0 % , compared to a tax expense of $ 2.9 million and an effective tax rate of 15.6 % , in fiscal 2014. the decrease in the company 's recorded income tax expense for 2015 was impacted primarily by an increase in the amount of tax-exempt municipal bond income as a percent of net income before tax . critical accounting estimates the company 's financial statements are prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . the financial information contained within these statements is , to a significant extent , financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred . based on its consideration of accounting policies that : ( i ) involve the most complex and subjective decisions and assessments which may be uncertain at the time the estimate was made , and ( ii ) different estimates that reasonably could have been used in the current period , or changes in the accounting estimate that are reasonably likely to occur from period to period , would have a material impact on the financial statements , management has identified the policies described below as critical accounting policies . allowance for loan losses . the company 's allowance for loan loss methodology incorporates a variety of risk considerations , both quantitative and qualitative , in establishing an allowance for loan loss that management believes is appropriate at each reporting date . quantitative factors include the company 's historical loss experience , delinquency and charge-off trends , collateral values , changes in non-performing loans and other factors . quantitative factors also incorporate known information about individual loans , including borrowers ' sensitivity to interest rate movements . qualitative factors include the general economic environment in the company 's markets , including economic conditions throughout the midwest and , in particular , the state of certain industries . size and complexity of individual credits in relation to loan structure , existing loan policies and pace of portfolio growth are other qualitative factors that are considered in the methodology . although management believes the
| cash flows from financing activities . in april 2013 , we issued the the 2020 senior notes which were used to fund the 2013 ef acquisition and a portion of the tender offer and the redemption of our outstanding 2016 senior notes . we incurred and paid costs associated with the issuance of the 2020 senior notes as well as costs associated with an amendment to our revolver . cash flows from financing activities for 2013 include net borrowings under the revolver while the 2012 period includes net repayments under the revolver which were funded by the proceeds from the sale of our appalachian natural gas assets and a federal income tax refund . dividends paid in the 2013 period were attributable to our 6 % series a convertible perpetual preferred stock , or the 6 % preferred stock , and dividends paid in 2012 were attributable to our common stock . capitalization the following table summarizes our total capitalization as of the dates presented : replace_table_token_60_th _ 1 the 2016 senior notes were retired in 2013 in connection with the tender offer and the redemption . 2 includes 11,500 shares of the 6 % preferred stock which has a liquidation preference of $ 10,000 per share , or $ 115 million . revolving credit facility . borrowings under the revolver bear interest , at our option , at either ( i ) a rate derived from libor , as adjusted for statutory reserve requirements for eurocurrency liabilities , or adjusted libor , plus an applicable margin ( ranging from 1.500 % to 2.500 % ) or ( ii ) the greater of ( a ) the prime rate , ( b ) the federal funds effective rate plus 0.5 % or ( c ) the one-month adjusted libor plus 1.0 % , and , in each case , plus an applicable margin ( ranging from 0.500 % to 1.500 % ) . in each case , the applicable margin is determined based on the ratio of our outstanding borrowings to the available revolver capacity .
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the company recorded net income of $ 33.2 million in fiscal 2016 compared to $ 18.1 million in fiscal 2015 . the primary reason for the increase in net income was a significant rise in non-interest income , bolstered by growth in net interest income . in fiscal 2016 , non-interest income increased to $ 100.8 million from $ 58.2 million in fiscal 2015 , due to tax product fee income and an increase in card fee income . the company 's net interest income grew to $ 77.3 million in fiscal 2016 , compared to $ 59.2 million in fiscal 2015 . the increase was driven by growth in both loan and investment volumes as well as the expansion in yields on these interest-earning assets . additionally , the continuous improvement in the overall asset mix also contributed to the increased net interest income , which was highlighted by loan growth and purchases of highly rated tax-exempt municipal securities at relatively high tax equivalent yields . partially offsetting the higher non-interest income and net interest income was non-interest expense , which rose $ 38.1 million , from $ 96.5 million in fiscal 2015 , to $ 134.6 million in fiscal 2016 and income tax expense which rose from $ 19.4 million to $ 38.8 million year over year . the company 's banking segment 2016 fiscal year income before tax was $ 16.1 million , compared to $ 14.8 million in fiscal 2015 . retail bank total loans increased $ 146.8 million during the fiscal year , or 25 % , to $ 737.4 million , from strong growth in residential real estate and commercial and multi-family real estate . retail bank checking balances continued to grow from $ 88.7 million at september 30 , 2015 , to $ 97.7 million , or 10 % , at september 30 , 2016 . the company 's payments segment 2016 fiscal year income before tax was $ 29.7 million , compared to $ 14.1 million in fiscal 2015 . this improvement was primarily the result of increases in card fee income from new and existing business partners along with tax product fee income . average mps deposits increased $ 398.9 million during fiscal 2016 , or 25 % , to $ 2.00 billion , compared to fiscal 2015 . overall , the cost of funds at metabank averaged 0.15 % during fiscal 2016 , compared to 0.11 % for 2015 . tangible book value per common share increased by $ 6.97 , or 28 % , to $ 31.57 per share at september 30 , 2016 , from $ 24.60 per share at september 30 , 2015 . this growth is attributable to increases in net income and accumulated other comprehensive income ( “ aoci ” ) along with higher additional paid-in capital due to the company 's first quarter capital raise of approximately $ 11.7 million . the tangible book value per common share , excluding ( “ aoci ” ) was $ 28.89 as of september 30 , 2016 , compared to $ 24.30 as of september 30 , 2015 . book value per common share outstanding increased by $ 6.06 , or 18 % , to $ 39.30 per share at september 30 , 2016 , from $ 33.24 per share at september 30 , 2015 . 74 the company 's non-performing assets ( “ npas ” ) were 0.03 % of total assets at september 30 , 2016 , compared to 0.31 % at september 30 , 2015 . the decrease from september 2015 was mainly due to the previously reported partial charge-off of a large non-performing agriculture relationship , which has no remaining loan balance . excluding the afs/ibex portfolio , npas were 0.01 % of total assets at september 30 , 2016 . financial condition as of september 30 , 2016 , the company 's assets grew by $ 1.48 billion , or 58 % , to $ 4.01 billion , compared to $ 2.53 billion at september 30 , 2015 . the growth in assets resulted from a variety of factors , including increases in the company 's cash and cash equivalents , loan balances , and investment securities portfolio . total cash and cash equivalents was $ 773.8 million at september 30 , 2016 , an increase of $ 746.1 million from $ 27.7 million at september 30 , 2015 . the majority of this increase was related to a temporary repositioning of the balance sheet in september 2016 to prepare the company for potential strategic opportunities , including the h & r block® agreement signed in october 2016. the company anticipated utilizing the excess cash it held at its fiscal year end to repay overnight borrowings in october 2016. in general , the company maintains its cash investments in interest-bearing overnight deposits with the fhlb of des moines and the frb of minneapolis . at september 30 , 2016 , the company had no federal funds sold . the total of mbs and investment securities increased $ 487.3 million , or 30 % , to $ 2.09 billion at september 30 , 2016 , compared to september 30 , 2015 , as investment purchases exceeded related maturities , sales and principal pay downs . the company 's portfolio of securities consists primarily of mbs , which have relatively short expected lives , non-bank qualified obligations of states and political subdivisions ( “ nbq ” ) which mature in approximately 15 years or less , and other tax exempt municipal mortgage related pass through securities which have average lives much shorter than their stated final maturities . all mbs held by the company are issued by a u.s. government agency or instrumentality . of the total $ 692.7 million of mbs , $ 558.9 million are classified as available for sale ( “ afs ” ) , and $ 133.8 million are classified as held to maturity ( “ htm ” ) . story_separator_special_tag the increase in net income was primarily caused by a $ 9.9 million increase in loan income , a $ 5.8 million increase in card fee income , a $ 3.1 million increase related to the securities portfolio and a decrease in tax expense of $ 1.5 million . the net income increase was offset in part by an increase in compensation and benefits expense of $ 8.3 million , increased occupancy and equipment expense of $ 2.4 million , an increased loss on sale of securities of $ 1.7 million , increased intangible amortization expense of $ 1.3 million , increased regulatory expense of $ 1.1 million and increased card processing expense of $ 1.0 million . net interest income . net interest income for fiscal 2015 increased by $ 12.9 million , or 28.0 % , to $ 59.2 million from $ 46.3 million for the prior year . net interest margin increased to 3.03 % in fiscal 2015 as compared to 2.80 % in 2014 . the company 's average earning assets increased $ 363.8 million , or 20.0 % , to $ 2.2 billion during fiscal 2015 from $ 1.8 billion during 2014 . the increase is primarily the result of the increase in the company 's investment securities and non-bank qualified , high-quality municipal portfolios as well as loans receivable . the company 's average total deposits and interest-bearing liabilities increased $ 343.2 million , or 19.7 % , to $ 2.1 billion during fiscal 2015 from $ 1.7 billion during 2014. the increase resulted mainly from an increase in the company 's non-interest-bearing deposits and federal funds purchased . the average outstanding balance of non-interest-bearing deposits increased from $ 1.3 billion in fiscal 2014 to $ 1.6 billion in fiscal 2015. the company 's cost of total deposits and interest-bearing liabilities declined three basis points to 0.11 % during fiscal 2015 from 0.14 % during 2014 , primarily due to continued migration to low- and no-cost deposits provided by mps . provision for loan losses . in fiscal 2015 , the company recorded $ 1.5 million in provision for loan loss , compared to $ 1.2 million in 2014 . the increased provision was primarily due to loan growth . non-interest income . non-interest income increased by $ 6.4 million , or 12.4 % , to $ 58.2 million for fiscal 2015 from $ 51.7 million for 2014 primarily due to an increase in fees earned on prepaid debit cards , credit products and other payment systems products of $ 5.8 million due to the addition of multiple new partners and growth in existing mps programs . loan fees also increased by $ 1.4 million from retail loan growth and the addition of afs/ibex . these increases in non-interest income were partially offset by an increased loss on the securities available for sale of $ 1.7 million sold primarily to fund the afs/ibex transaction . non-interest expense . non-interest expense increased by $ 18.3 million , or 23.4 % , to $ 96.5 million for fiscal 2015 from $ 78.2 million for fiscal 2014 . compensation expense increased $ 8.3 million during fiscal 2015 compared to 2014 , occupancy and equipment increased $ 2.4 million , and intangible amortization expense increased $ 1.3 million . these increases were principally due to the refund advantage and afs/ibex acquisitions and to additional product development and it developer staffing to support the company 's growth initiatives and prepare for other business opportunities . in addition , regulatory expense increased $ 1.1 million primarily relating to an increase in fdic insurance due to brokered deposit classification guidance published in january 2015 and higher deposit balances . 80 income tax expense . income tax expense for fiscal 2015 was $ 1.4 million , resulting in an effective tax rate of 7.0 % , compared to a tax expense of $ 2.9 million and an effective tax rate of 15.6 % , in fiscal 2014. the decrease in the company 's recorded income tax expense for 2015 was impacted primarily by an increase in the amount of tax-exempt municipal bond income as a percent of net income before tax . critical accounting estimates the company 's financial statements are prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . the financial information contained within these statements is , to a significant extent , financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred . based on its consideration of accounting policies that : ( i ) involve the most complex and subjective decisions and assessments which may be uncertain at the time the estimate was made , and ( ii ) different estimates that reasonably could have been used in the current period , or changes in the accounting estimate that are reasonably likely to occur from period to period , would have a material impact on the financial statements , management has identified the policies described below as critical accounting policies . allowance for loan losses . the company 's allowance for loan loss methodology incorporates a variety of risk considerations , both quantitative and qualitative , in establishing an allowance for loan loss that management believes is appropriate at each reporting date . quantitative factors include the company 's historical loss experience , delinquency and charge-off trends , collateral values , changes in non-performing loans and other factors . quantitative factors also incorporate known information about individual loans , including borrowers ' sensitivity to interest rate movements . qualitative factors include the general economic environment in the company 's markets , including economic conditions throughout the midwest and , in particular , the state of certain industries . size and complexity of individual credits in relation to loan structure , existing loan policies and pace of portfolio growth are other qualitative factors that are considered in the methodology . although management believes the
| liquidity and capital resources on august 15 , 2016 , the company announced that it had completed the public offering of $ 75 million of its 5.75 % fixed-to-floating rate subordinated debentures due august 15 , 2026. use of proceeds from the offering are for general purposes , acquisitions and investments in metabank as tier 1 capital to support growth the company 's primary sources of funds are deposits , derived principally through its mps division , and to a lesser extent through its retail bank division , borrowings , principal and interest payments on loans and mortgage-backed securities , and maturing investment securities . while scheduled loan repayments and maturing investments are relatively predictable , deposit flows and early loan repayments are influenced by the level of interest rates , general economic conditions and competition . the company relies on advertising , quality customer service , convenient locations and competitive pricing to attract and retain its retail bank deposits and primarily solicits these deposits from its core market areas . based on its experience , the company believes that its consumer checking , savings and money market accounts are relatively stable sources of deposits . the company 's ability to attract and retain time deposits has been , and will continue to be , affected by market conditions . however , the company does not foresee any significant retail bank funding issues resulting from the sensitivity of time deposits to such market factors .
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specifically , subsequent evaluations of the loan portfolio , in light of the factors then prevailing , may result in significant changes in the alll in future periods , and the inability to collect on outstanding loans could result in increased loan losses . in addition , the valuation of certain securities in the company 's investment portfolio could be negatively impacted by illiquidity or dislocation in marketplaces resulting in significantly depressed market prices thus leading to further impairment losses . allowance for loan and lease losses the alll is established as losses are estimated to have occurred through a provision for loan losses charged to earnings , and is maintained at a level that management considers adequate to absorb losses in the loan portfolio . loans are charged against the alll when management believes the uncollectability of a loan balance is confirmed . subsequent recoveries , if any , are credited to the alll . the alll represents management 's estimate of probable loan losses inherent in the loan portfolio . determining the amount of the alll is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans , estimated losses on pools of homogeneous loans based on historical loss experience , qualitative factors , and consideration of current economic trends and conditions , all of which may be susceptible to significant change . various banking regulators , as an integral part of their examination of the company , also review the alll . such regulators may require , based on their judgments about information available to them at the time of their examination , that certain loan 30 balances be charged off or require that adjustments be made to the alll . additionally , the alll is determined , in part , by the composition and size of the loan portfolio . the alll consists of specific and general components . the specific component relates to loans that are classified as impaired . for such loans an allowance is established when the discounted cash flows , collateral value or observable market price of the impaired loan is lower than the carrying value of that loan . the general component covers all other loans and is based on historical loss experience adjusted by qualitative factors . the general reserve component of the alll is based on pools of unimpaired loans segregated generally by loan type and risk rating categories of pass , special mention or substandard and accruing , and historical loss factors and varied qualitative factor basis point allocations are applied based on the risk profile in each pool to determine the appropriate reserve related to those loans . substandard loans on nonaccrual status are included in impaired loans . see note 2-summary of significant accounting policies and note 5-loans of the consolidated financial statements included in item 8-financial statements and supplementary data for additional information about the alll . securities valuation management utilizes various inputs to determine the fair value of its investment portfolio . to the extent they exist , unadjusted quoted market prices in active markets ( level 1 ) or quoted prices on similar assets or models using inputs that are observable , either directly or indirectly ( level 2 ) are utilized to determine the fair value of each investment in the portfolio . in the absence of observable inputs or if markets are illiquid , valuation techniques would be used to determine fair value of any investments that require inputs that are both unobservable and significant to the fair value measurement ( level 3 ) . for level 3 inputs , valuation techniques are based on various assumptions , including , but not limited to cash flows , discount rates , adjustments for nonperformance and liquidity , and liquidation values . a significant degree of judgment is involved in valuing investments using level 3 inputs . the use of different assumptions could have a positive or negative effect on the consolidated financial condition or results of operations . see note 4-securities and note 18-fair value measurements of the consolidated financial statements included in item 8 hereof for more information about our securities valuation techniques . management must periodically evaluate if unrealized losses ( as determined based on the securities valuation methodologies discussed above ) on individual securities classified as held-to-maturity or available-for-sale in the investment portfolio are considered to be otti . the analysis of otti requires the use of various assumptions , including but not limited to , the length of time an investment 's fair value is less than book value , the severity of the investment 's decline , any credit deterioration of the issuer , whether management intends to sell the security , and whether it is more-likely-than-not that the company will be required to sell the security prior to recovery of its amortized cost basis . debt investment securities deemed to be otti are written down by the impairment related to the estimated credit loss and the non-credit related impairment loss is recognized in other comprehensive income . the company recognized otti charges on securities of $ 0.8 million , $ 4.3 million , and $ 20.6 in 2011 , 2010 , and 2009 , respectively , within the consolidated statements of operations . for 2011 , the otti charges relate to estimated credit losses on pooled trust preferred securities . see note 4-securities included in item 8-financial statements and supplementary data to the consolidated financial statements for additional information about our otti charges . other real estate owned other real estate owned ( oreo ) consists of property acquired by foreclosure or deed in-lieu of foreclosure . it is held for sale and is initially recorded at fair value less cost to sell at the date of foreclosure , which establishes a new cost basis . story_separator_special_tag fees , both primarily attributable to increased audit , regulatory compliance , and restatement expenses , and a $ 1.0 million increase in salary and benefits expenses . the company 's return on average assets for the years ended december 31 , 2011 and 2010 was ( 0.03 % ) and ( 2.44 % ) , respectively , while the return on average equity was ( 0.98 % ) and ( 59.44 % ) , respectively . net interest income net interest income consists of interest income and fees on interest-earning assets less interest expense on deposits and borrowed funds . it represents the largest component of the company 's operating income and , as such , is the primary determinant of profitability . the net interest margin on a fully tax-equivalent basis is calculated by dividing tax-equivalent net interest income by average interest-earning assets and is a key measurement used in the banking industry to measure income from earning assets . the net interest margin was 3.10 % for the year ended december 31 , 2011 , an increase of 3 basis points compared to the same period in 2010. this increase in the net interest margin was primarily due to a 15.9 % decrease in interest-bearing liabilities , partially offset by a 14.8 % decrease in interest-earning assets . rate spread , the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities shown on a fully tax-equivalent basis was 3.0 % for 2011 , an increase of 6 basis points versus 2010. net interest income on a tax-equivalent basis decreased $ 5.2 million to $ 32.5 million for 2011 compared with $ 37.7 million for 2010. during 2011 , lower average securities and loan balances and lower yields on interest-earning assets negatively impacted our net interest income . the yield on loans and investments declined 31 basis points and 21 basis points , respectively , partially offset by a 47 basis point decline in the cost of average interest-bearing liabilities and lower average interest-bearing liabilities as compared to 2010. the federal reserve kept interest rates stable during 2011 leaving the federal funds rate at an historic low of 25 basis points . the company 's floating rate loans are largely indexed to the national prime rate and many of these loans are now at their floors and will remain there until the prime rate moves up enough for their rates to move above their floors . in addition , most of the time deposits in the company 's funding portfolio matured and renewed at lower market rates in 2011. average loans totaled $ 723.7 million for the year ended december 31 , 2011 , a decrease of $ 155.3 million , or 17.7 % , compared to the same period for 2010. the reduction is primarily due to the net pay downs of real estate loans and commercial and industrial loans of $ 51.6 million and $ 23.5 million , respectively ; the transfer of $ 4.0 million of foreclosed loans into oreo ; and a smaller portfolio at the onset of 2011. during 2011 , loan satisfactions continued to outpace originations and the company continued to focus its efforts on reducing exposure to higher risk construction , land acquisition and development loans by allowing $ 43.9 million of this segment of the portfolio to pay-off . interest income on a tax equivalent basis for loans decreased $ 10.3 million due to the decrease in average loans and a 31 basis point decrease in the average loan yield as loans continued to reset at lower rates and new business was originated at lower market rates compared with 2010. the interest income that would have been earned on non-accrual and restructured loans outstanding at december 31 , 2011 , 2010 and 2009 in accordance with their original terms approximated $ 2.2 million , $ 2.9 million , and $ 2.8 million , respectively . interest income on impaired loans of $ 238 thousand , $ 619 thousand , and $ 976 thousand was recognized based on payments received in 2011 , 2010 and 2009. average investment securities totaled $ 232.8 million , a decrease of $ 49.2 million , or 17.5 % , in 2011 compared to 2010. interest income on a tax equivalent basis for investment securities decreased $ 2.9 million primarily due to reinvestment of pay downs and maturities into more liquid lower yielding securities . average interest-bearing deposits in other banks increased $ 23.0 million as the company increased its holdings of liquid assets . interest income on interest-bearing deposits in other banks increased $ 17 thousand as the increase in volume more than offset the 4 basis point decline in yield earned . 35 average interest-bearing liabilities totaled $ 969.6 million for the year ended december 31 , 2011 , a decrease of $ 182.8 million , or 15.9 % , during 2011 compared to the same period in 2010 due to a decrease in interest-bearing deposits of $ 97.9 million , or 10.2 % , and a decrease in borrowings of $ 84.9 million , or 43.2 % . average interest-bearing demand deposits , savings deposits , time deposits over $ 100 thousand , and other time deposits decreased $ 18.4 million , $ 4.1 million , $ 44.3 million and $ 31.1 million , respectively . during 2011 , the company implemented a pricing strategy to reduce its cost of funds and to concentrate deposit growth on short-term maturities . the company repositioned maturing longer term time deposits into short-term products , whenever possible , and allowed the residual to run-off . the company used the net proceeds from the sale of investment securities and a portion of the funds provided from loan repayments to fund deposit withdrawals and the maturities of the higher cost time deposits . the cost of interest-bearing demand deposits , savings deposits , time deposits over $ 100 thousand , and other
| liquidity and capital resources on august 15 , 2016 , the company announced that it had completed the public offering of $ 75 million of its 5.75 % fixed-to-floating rate subordinated debentures due august 15 , 2026. use of proceeds from the offering are for general purposes , acquisitions and investments in metabank as tier 1 capital to support growth the company 's primary sources of funds are deposits , derived principally through its mps division , and to a lesser extent through its retail bank division , borrowings , principal and interest payments on loans and mortgage-backed securities , and maturing investment securities . while scheduled loan repayments and maturing investments are relatively predictable , deposit flows and early loan repayments are influenced by the level of interest rates , general economic conditions and competition . the company relies on advertising , quality customer service , convenient locations and competitive pricing to attract and retain its retail bank deposits and primarily solicits these deposits from its core market areas . based on its experience , the company believes that its consumer checking , savings and money market accounts are relatively stable sources of deposits . the company 's ability to attract and retain time deposits has been , and will continue to be , affected by market conditions . however , the company does not foresee any significant retail bank funding issues resulting from the sensitivity of time deposits to such market factors .
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specifically , subsequent evaluations of the loan portfolio , in light of the factors then prevailing , may result in significant changes in the alll in future periods , and the inability to collect on outstanding loans could result in increased loan losses . in addition , the valuation of certain securities in the company 's investment portfolio could be negatively impacted by illiquidity or dislocation in marketplaces resulting in significantly depressed market prices thus leading to further impairment losses . allowance for loan and lease losses the alll is established as losses are estimated to have occurred through a provision for loan losses charged to earnings , and is maintained at a level that management considers adequate to absorb losses in the loan portfolio . loans are charged against the alll when management believes the uncollectability of a loan balance is confirmed . subsequent recoveries , if any , are credited to the alll . the alll represents management 's estimate of probable loan losses inherent in the loan portfolio . determining the amount of the alll is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans , estimated losses on pools of homogeneous loans based on historical loss experience , qualitative factors , and consideration of current economic trends and conditions , all of which may be susceptible to significant change . various banking regulators , as an integral part of their examination of the company , also review the alll . such regulators may require , based on their judgments about information available to them at the time of their examination , that certain loan 30 balances be charged off or require that adjustments be made to the alll . additionally , the alll is determined , in part , by the composition and size of the loan portfolio . the alll consists of specific and general components . the specific component relates to loans that are classified as impaired . for such loans an allowance is established when the discounted cash flows , collateral value or observable market price of the impaired loan is lower than the carrying value of that loan . the general component covers all other loans and is based on historical loss experience adjusted by qualitative factors . the general reserve component of the alll is based on pools of unimpaired loans segregated generally by loan type and risk rating categories of pass , special mention or substandard and accruing , and historical loss factors and varied qualitative factor basis point allocations are applied based on the risk profile in each pool to determine the appropriate reserve related to those loans . substandard loans on nonaccrual status are included in impaired loans . see note 2-summary of significant accounting policies and note 5-loans of the consolidated financial statements included in item 8-financial statements and supplementary data for additional information about the alll . securities valuation management utilizes various inputs to determine the fair value of its investment portfolio . to the extent they exist , unadjusted quoted market prices in active markets ( level 1 ) or quoted prices on similar assets or models using inputs that are observable , either directly or indirectly ( level 2 ) are utilized to determine the fair value of each investment in the portfolio . in the absence of observable inputs or if markets are illiquid , valuation techniques would be used to determine fair value of any investments that require inputs that are both unobservable and significant to the fair value measurement ( level 3 ) . for level 3 inputs , valuation techniques are based on various assumptions , including , but not limited to cash flows , discount rates , adjustments for nonperformance and liquidity , and liquidation values . a significant degree of judgment is involved in valuing investments using level 3 inputs . the use of different assumptions could have a positive or negative effect on the consolidated financial condition or results of operations . see note 4-securities and note 18-fair value measurements of the consolidated financial statements included in item 8 hereof for more information about our securities valuation techniques . management must periodically evaluate if unrealized losses ( as determined based on the securities valuation methodologies discussed above ) on individual securities classified as held-to-maturity or available-for-sale in the investment portfolio are considered to be otti . the analysis of otti requires the use of various assumptions , including but not limited to , the length of time an investment 's fair value is less than book value , the severity of the investment 's decline , any credit deterioration of the issuer , whether management intends to sell the security , and whether it is more-likely-than-not that the company will be required to sell the security prior to recovery of its amortized cost basis . debt investment securities deemed to be otti are written down by the impairment related to the estimated credit loss and the non-credit related impairment loss is recognized in other comprehensive income . the company recognized otti charges on securities of $ 0.8 million , $ 4.3 million , and $ 20.6 in 2011 , 2010 , and 2009 , respectively , within the consolidated statements of operations . for 2011 , the otti charges relate to estimated credit losses on pooled trust preferred securities . see note 4-securities included in item 8-financial statements and supplementary data to the consolidated financial statements for additional information about our otti charges . other real estate owned other real estate owned ( oreo ) consists of property acquired by foreclosure or deed in-lieu of foreclosure . it is held for sale and is initially recorded at fair value less cost to sell at the date of foreclosure , which establishes a new cost basis . story_separator_special_tag fees , both primarily attributable to increased audit , regulatory compliance , and restatement expenses , and a $ 1.0 million increase in salary and benefits expenses . the company 's return on average assets for the years ended december 31 , 2011 and 2010 was ( 0.03 % ) and ( 2.44 % ) , respectively , while the return on average equity was ( 0.98 % ) and ( 59.44 % ) , respectively . net interest income net interest income consists of interest income and fees on interest-earning assets less interest expense on deposits and borrowed funds . it represents the largest component of the company 's operating income and , as such , is the primary determinant of profitability . the net interest margin on a fully tax-equivalent basis is calculated by dividing tax-equivalent net interest income by average interest-earning assets and is a key measurement used in the banking industry to measure income from earning assets . the net interest margin was 3.10 % for the year ended december 31 , 2011 , an increase of 3 basis points compared to the same period in 2010. this increase in the net interest margin was primarily due to a 15.9 % decrease in interest-bearing liabilities , partially offset by a 14.8 % decrease in interest-earning assets . rate spread , the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities shown on a fully tax-equivalent basis was 3.0 % for 2011 , an increase of 6 basis points versus 2010. net interest income on a tax-equivalent basis decreased $ 5.2 million to $ 32.5 million for 2011 compared with $ 37.7 million for 2010. during 2011 , lower average securities and loan balances and lower yields on interest-earning assets negatively impacted our net interest income . the yield on loans and investments declined 31 basis points and 21 basis points , respectively , partially offset by a 47 basis point decline in the cost of average interest-bearing liabilities and lower average interest-bearing liabilities as compared to 2010. the federal reserve kept interest rates stable during 2011 leaving the federal funds rate at an historic low of 25 basis points . the company 's floating rate loans are largely indexed to the national prime rate and many of these loans are now at their floors and will remain there until the prime rate moves up enough for their rates to move above their floors . in addition , most of the time deposits in the company 's funding portfolio matured and renewed at lower market rates in 2011. average loans totaled $ 723.7 million for the year ended december 31 , 2011 , a decrease of $ 155.3 million , or 17.7 % , compared to the same period for 2010. the reduction is primarily due to the net pay downs of real estate loans and commercial and industrial loans of $ 51.6 million and $ 23.5 million , respectively ; the transfer of $ 4.0 million of foreclosed loans into oreo ; and a smaller portfolio at the onset of 2011. during 2011 , loan satisfactions continued to outpace originations and the company continued to focus its efforts on reducing exposure to higher risk construction , land acquisition and development loans by allowing $ 43.9 million of this segment of the portfolio to pay-off . interest income on a tax equivalent basis for loans decreased $ 10.3 million due to the decrease in average loans and a 31 basis point decrease in the average loan yield as loans continued to reset at lower rates and new business was originated at lower market rates compared with 2010. the interest income that would have been earned on non-accrual and restructured loans outstanding at december 31 , 2011 , 2010 and 2009 in accordance with their original terms approximated $ 2.2 million , $ 2.9 million , and $ 2.8 million , respectively . interest income on impaired loans of $ 238 thousand , $ 619 thousand , and $ 976 thousand was recognized based on payments received in 2011 , 2010 and 2009. average investment securities totaled $ 232.8 million , a decrease of $ 49.2 million , or 17.5 % , in 2011 compared to 2010. interest income on a tax equivalent basis for investment securities decreased $ 2.9 million primarily due to reinvestment of pay downs and maturities into more liquid lower yielding securities . average interest-bearing deposits in other banks increased $ 23.0 million as the company increased its holdings of liquid assets . interest income on interest-bearing deposits in other banks increased $ 17 thousand as the increase in volume more than offset the 4 basis point decline in yield earned . 35 average interest-bearing liabilities totaled $ 969.6 million for the year ended december 31 , 2011 , a decrease of $ 182.8 million , or 15.9 % , during 2011 compared to the same period in 2010 due to a decrease in interest-bearing deposits of $ 97.9 million , or 10.2 % , and a decrease in borrowings of $ 84.9 million , or 43.2 % . average interest-bearing demand deposits , savings deposits , time deposits over $ 100 thousand , and other time deposits decreased $ 18.4 million , $ 4.1 million , $ 44.3 million and $ 31.1 million , respectively . during 2011 , the company implemented a pricing strategy to reduce its cost of funds and to concentrate deposit growth on short-term maturities . the company repositioned maturing longer term time deposits into short-term products , whenever possible , and allowed the residual to run-off . the company used the net proceeds from the sale of investment securities and a portion of the funds provided from loan repayments to fund deposit withdrawals and the maturities of the higher cost time deposits . the cost of interest-bearing demand deposits , savings deposits , time deposits over $ 100 thousand , and other
| liquidity the term liquidity refers to the ability of the company to generate sufficient amounts of cash to meet its cash flow needs . liquidity is required to fulfill the borrowing needs of the company 's credit customers and the withdrawal and maturity requirements of its deposit customers , as well as to meet other financial commitments . cash and cash equivalents ( cash and due from banks , interest-bearing deposits in other banks and federal funds sold ) are the company 's most liquid assets . at december 31 , 2011 , cash and cash equivalents totaled $ 168.6 million , compared to $ 74.5 million at december 31 , 2010 , an increase of $ 94.1 million . cash flows from investing activities provided $ 170.2 million and operating activities provided $ 3.3 million of cash and cash equivalents during the year , while financing activities utilized $ 79.3 million . the cash flows provided by investing activities were largely attributable to the $ 74.0 million in net loan repayments by customers and $ 88.7 million net reduction in investments . the $ 79.3 million used by financing activities reflected $ 53.6 million of repayments of fhlb advances , net of new advances , as well as the run-off of $ 41.5 million of higher-cost time deposits . cash flows from financing activities were positively affected by the $ 16.2 million increase in lower-cost transaction and savings accounts . core deposits , which represent the company 's primary source of liquidity , averaged $ 745 million in 2011 , a decrease of $ 34 million from the $ 779 million in 2010. core deposits are comprised of total deposit liabilities less : brokered deposits , deposits generated through the certificate of deposit account registry service ( cdars ) and all certificates of deposit accounts with balances greater than $ 100 thousand . the company has other potential sources of liquidity including the ability to borrow on credit lines established at the federal home loan bank of pittsburgh and access to the federal reserve discount window .
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million in finance receivables . this included 3.4 thousand large loan convenience checks , representing $ 9.8 million in finance receivables . retail loans as of december 31 , 2018 , we had 21.2 thousand retail purchase loans outstanding , representing $ 30.4 million in finance receivables . optional insurance products we offer optional payment and collateral protection insurance to our direct loan customers . regional management corp. | 2018 annual report on form 10-k | 48 small and large installment loans are our core loan products and will be the drivers of our future growth . we ceased originating automobile purchase loans in november 2017 to focus on growing our core loan portfolio , but we continue to own and service the automobile loans that we previously originated . as of december 31 , 2018 , we had approximately 3.7 thousand automobile loans outstanding , representing $ 26.2 million in finance receivables . our primary sources of revenue are interest and fee income from our loan products , of which interest and fees relating to small and large installment loans are the largest component . in addition to interest and fee income from loans , we derive revenue from optional insurance products purchased by customers of our direct loan products . for additional information regarding our business operations , see part i , item 1 , business. factors affecting our results of operations our business is driven by several factors affecting our revenues , costs , and results of operations , including the following : quarterly information and seasonality . our loan volume and contractual delinquency follow seasonal trends . demand for our small and large loans is typically highest during the second , third , and fourth quarters , which we believe is largely due to customers borrowing money for vacation , back-to-school , and holiday spending . with the exception of retail loans , loan demand has generally been the lowest during the first quarter , which we believe is largely due to the timing of income tax refunds . delinquencies generally reach their lowest point in the first quarter of the year and rise throughout the remainder of the fiscal year . consequently , we experience seasonal fluctuations in our operating results and cash needs . growth in loan portfolio . the revenue that we derive from interest and fees is largely driven by the balance of loans that we originate and purchase . average finance receivables grew 14.8 % from $ 572.8 million in 2015 to $ 657.4 million in 2016 , grew 13.2 % to $ 744.2 million in 2017 , and grew 14.7 % to $ 853.8 million in 2018. we source our loans through our branches , direct mail program , retail partners , digital partners , and our consumer website . our loans are made almost exclusively in geographic markets served by our network of branches . increasing the number of loans per branch and the number of branches we operate allows us to increase the number of loans that we are able to service . we opened 17 , 3 , and 8 net new branches in 2018 , 2017 , and 2016 , respectively . we believe that we have the opportunity to add as many as 700 additional branches in states where it is currently favorable for us to conduct business , and we have plans to continue to grow our branch network . product mix . we are exposed to different credit risks and charge different interest rates and fees with respect to the various types of loans we offer . our product mix also varies to some extent by state , and we may further diversify our product mix in the future . the interest rates and fees vary from state to state , depending on the competitive environment and relevant laws and regulations . asset quality and allowance for credit losses . our results of operations are highly dependent upon the credit quality of our loan portfolio . the credit quality of our loan portfolio is the result of our ability to enforce sound underwriting standards , maintain diligent servicing of the portfolio , and respond to changing economic conditions as we grow our loan portfolio . the allowance for credit losses calculation uses the current delinquency profile and historical delinquency roll rates as key data points in estimating the allowance . we believe that the primary underlying factors driving the provision for credit losses for each loan type are our underwriting standards , the general economic conditions in the areas in which we conduct business , loan portfolio growth , and the effectiveness of our collection efforts . in addition , the market for repossessed automobiles at auction is another underlying factor that we believe influences the provision for credit losses for automobile purchase loans and , to a lesser extent , large loans . we monitor these factors , and the amount and past due status of all loans one or more days past due , to identify trends that might require us to modify the allowance for credit losses . regional management corp. | 2018 annual report on form 10-k | 49 interest rates . our costs of funds are affected by changes in interest rates , as the interest rates that we pay on certain of our credit facilities are variable . as a component of our strategy to manage the interest rate risk associated with future interest payments on our variable-rate debt , we have purchased interest rate cap contracts . as of december 31 , 2018 , we held four interest rate cap contracts with an aggregate notional principal amount of $ 400.0 million . story_separator_special_tag other income increased $ 1.4 million , or 13.8 % , to $ 11.8 million in 2018 , from $ 10.4 million in 2017 , due to a $ 1.2 million increase in commissions earned from the sale of our auto club product and a $ 0.4 million increase in loan deferral fee income . these increases were offset by a decrease of $ 0.2 million in income from late charges . the decrease in late charges was primarily due to large loan customers with higher credit quality comprising a greater percentage of our total loan portfolio in 2018 , compared to 2017 , and our expanded use of electronic payments to reduce early-stage delinquency . as large loans continue to represent a greater percentage of our total loan portfolio and we continue to leverage electronic payment options , we expect lower late charges per active account . other income represented 1.4 % and 1.3 % of average finance receivables in 2018 and 2017 , respectively . provision for credit losses . our provision for credit losses increased $ 9.7 million , or 12.6 % , to $ 87.1 million in 2018 , from $ 77.3 million in 2017. the increase was primarily due to an increase in net credit losses of $ 8.0 million and a $ 1.7 million increase in the allowance for credit losses compared to 2017. the provision for credit losses as a percentage of average finance receivables in 2018 was 10.2 % , compared to 10.4 % in 2017. fiscal 2018 included a 0.4 % impact from the net $ 3.7 million hurricane-related provision and a 0.3 % impact from the $ 2.9 million increase in net credit losses discussed in the insurance income , net paragraph above . fiscal 2017 included a 0.4 % impact from the hurricane-related $ 2.9 million provision and a 0.6 % impact from the $ 4.4 million increase in net credit losses discussed in the insurance income , net paragraph above , offset by a 0.1 % benefit from the bulk sale of previously charged-off customer accounts in bankruptcy ( the 2017 bulk sale ) . regional management corp. | 2018 annual report on form 10-k | 55 the increase in the provision for credit losses is explained in greater detail below . hurricane impact . during 2018 , our provision for credit losses was impacted by a $ 3.9 million increase in the allowance for credit losses related to estimated incremental credit losses on customer accounts impacted by a hurricane . in late 2018 , we released $ 0.3 million of the hurricane allowance for credit losses to cover hurricane-related net credit losses . as of december 31 , 2018 , the allowance for credit losses related to the hurricane was $ 3.6 million . during 2017 , our provision for credit losses was impacted by a $ 3.0 million increase in the allowance for credit losses related to estimated incremental credit losses on customer accounts impacted by two hurricanes . in late 2017 , we released $ 0.2 million of the hurricane allowance for credit losses to cover hurricane-related net credit losses . as of december 31 , 2017 , the allowance for credit losses related to the hurricanes was $ 2.8 million . bulk sale . we recognized a recovery of $ 1.0 million in 2017 from the 2017 bulk sale . these accounts were excluded from prior sales of charged-off loans . net credit losses . net credit losses increased $ 8.0 million , or 11.5 % , to $ 77.7 million in 2018 , from $ 69.7 million in 2017. the increase was primarily due to a $ 109.6 million increase in average finance receivables in 2018. net credit losses as a percentage of average finance receivables were 9.1 % in 2018 , compared to 9.4 % in 2017. fiscal 2018 included a 0.2 % impact from the $ 1.7 million increase in net credit losses resulting from the 2017 hurricanes and a 0.3 % impact from the $ 2.9 million increase in net credit losses discussed in the insurance income , net paragraph above . fiscal 2017 included a 0.6 % impact from the $ 4.4 million increase in net credit losses discussed in the insurance income , net paragraph above , offset by a 0.1 % benefit from the $ 1.0 million 2017 bulk sale . the following table provides net credit losses and the benefit to net credit losses associated with non-file insurance claims payments as a percentage of average finance receivables for the periods indicated : replace_table_token_17_th we have evaluated various ways to lower our non-file insurance claims , and we decided to reduce our utilization of non-file insurance beginning in the fourth quarter of 2018. as a result , we expect that the benefit provided by non-file insurance will decrease by approximately 0.65 % as a percentage of average finance receivables over the next four quarters , resulting in a corresponding increase in our net credit loss rate . our allowance for credit losses contains sufficient reserves for this anticipated increase in net credit losses . see note 4 , finance receivables , credit quality information , and allowance for credit losses , of the notes to consolidated financial statements in part ii , item 8 , financial statements and supplementary data. in addition , due to the decrease in non-file insurance claims , our insurance income , net will increase by an amount comparable to the anticipated increase in net credit losses , resulting in an income statement offset . therefore , we do not expect this policy change to impact our profitability in future periods . delinquency performance . our december 31 , 2018 contractual delinquency as a percentage of total finance receivables increased to 7.7 % from 7.5 % as of december 31 , 2017 , primarily due to credit tightening and the maturation of our large loan portfolio . total contractual delinquency
| liquidity the term liquidity refers to the ability of the company to generate sufficient amounts of cash to meet its cash flow needs . liquidity is required to fulfill the borrowing needs of the company 's credit customers and the withdrawal and maturity requirements of its deposit customers , as well as to meet other financial commitments . cash and cash equivalents ( cash and due from banks , interest-bearing deposits in other banks and federal funds sold ) are the company 's most liquid assets . at december 31 , 2011 , cash and cash equivalents totaled $ 168.6 million , compared to $ 74.5 million at december 31 , 2010 , an increase of $ 94.1 million . cash flows from investing activities provided $ 170.2 million and operating activities provided $ 3.3 million of cash and cash equivalents during the year , while financing activities utilized $ 79.3 million . the cash flows provided by investing activities were largely attributable to the $ 74.0 million in net loan repayments by customers and $ 88.7 million net reduction in investments . the $ 79.3 million used by financing activities reflected $ 53.6 million of repayments of fhlb advances , net of new advances , as well as the run-off of $ 41.5 million of higher-cost time deposits . cash flows from financing activities were positively affected by the $ 16.2 million increase in lower-cost transaction and savings accounts . core deposits , which represent the company 's primary source of liquidity , averaged $ 745 million in 2011 , a decrease of $ 34 million from the $ 779 million in 2010. core deposits are comprised of total deposit liabilities less : brokered deposits , deposits generated through the certificate of deposit account registry service ( cdars ) and all certificates of deposit accounts with balances greater than $ 100 thousand . the company has other potential sources of liquidity including the ability to borrow on credit lines established at the federal home loan bank of pittsburgh and access to the federal reserve discount window .
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million in finance receivables . this included 3.4 thousand large loan convenience checks , representing $ 9.8 million in finance receivables . retail loans as of december 31 , 2018 , we had 21.2 thousand retail purchase loans outstanding , representing $ 30.4 million in finance receivables . optional insurance products we offer optional payment and collateral protection insurance to our direct loan customers . regional management corp. | 2018 annual report on form 10-k | 48 small and large installment loans are our core loan products and will be the drivers of our future growth . we ceased originating automobile purchase loans in november 2017 to focus on growing our core loan portfolio , but we continue to own and service the automobile loans that we previously originated . as of december 31 , 2018 , we had approximately 3.7 thousand automobile loans outstanding , representing $ 26.2 million in finance receivables . our primary sources of revenue are interest and fee income from our loan products , of which interest and fees relating to small and large installment loans are the largest component . in addition to interest and fee income from loans , we derive revenue from optional insurance products purchased by customers of our direct loan products . for additional information regarding our business operations , see part i , item 1 , business. factors affecting our results of operations our business is driven by several factors affecting our revenues , costs , and results of operations , including the following : quarterly information and seasonality . our loan volume and contractual delinquency follow seasonal trends . demand for our small and large loans is typically highest during the second , third , and fourth quarters , which we believe is largely due to customers borrowing money for vacation , back-to-school , and holiday spending . with the exception of retail loans , loan demand has generally been the lowest during the first quarter , which we believe is largely due to the timing of income tax refunds . delinquencies generally reach their lowest point in the first quarter of the year and rise throughout the remainder of the fiscal year . consequently , we experience seasonal fluctuations in our operating results and cash needs . growth in loan portfolio . the revenue that we derive from interest and fees is largely driven by the balance of loans that we originate and purchase . average finance receivables grew 14.8 % from $ 572.8 million in 2015 to $ 657.4 million in 2016 , grew 13.2 % to $ 744.2 million in 2017 , and grew 14.7 % to $ 853.8 million in 2018. we source our loans through our branches , direct mail program , retail partners , digital partners , and our consumer website . our loans are made almost exclusively in geographic markets served by our network of branches . increasing the number of loans per branch and the number of branches we operate allows us to increase the number of loans that we are able to service . we opened 17 , 3 , and 8 net new branches in 2018 , 2017 , and 2016 , respectively . we believe that we have the opportunity to add as many as 700 additional branches in states where it is currently favorable for us to conduct business , and we have plans to continue to grow our branch network . product mix . we are exposed to different credit risks and charge different interest rates and fees with respect to the various types of loans we offer . our product mix also varies to some extent by state , and we may further diversify our product mix in the future . the interest rates and fees vary from state to state , depending on the competitive environment and relevant laws and regulations . asset quality and allowance for credit losses . our results of operations are highly dependent upon the credit quality of our loan portfolio . the credit quality of our loan portfolio is the result of our ability to enforce sound underwriting standards , maintain diligent servicing of the portfolio , and respond to changing economic conditions as we grow our loan portfolio . the allowance for credit losses calculation uses the current delinquency profile and historical delinquency roll rates as key data points in estimating the allowance . we believe that the primary underlying factors driving the provision for credit losses for each loan type are our underwriting standards , the general economic conditions in the areas in which we conduct business , loan portfolio growth , and the effectiveness of our collection efforts . in addition , the market for repossessed automobiles at auction is another underlying factor that we believe influences the provision for credit losses for automobile purchase loans and , to a lesser extent , large loans . we monitor these factors , and the amount and past due status of all loans one or more days past due , to identify trends that might require us to modify the allowance for credit losses . regional management corp. | 2018 annual report on form 10-k | 49 interest rates . our costs of funds are affected by changes in interest rates , as the interest rates that we pay on certain of our credit facilities are variable . as a component of our strategy to manage the interest rate risk associated with future interest payments on our variable-rate debt , we have purchased interest rate cap contracts . as of december 31 , 2018 , we held four interest rate cap contracts with an aggregate notional principal amount of $ 400.0 million . story_separator_special_tag other income increased $ 1.4 million , or 13.8 % , to $ 11.8 million in 2018 , from $ 10.4 million in 2017 , due to a $ 1.2 million increase in commissions earned from the sale of our auto club product and a $ 0.4 million increase in loan deferral fee income . these increases were offset by a decrease of $ 0.2 million in income from late charges . the decrease in late charges was primarily due to large loan customers with higher credit quality comprising a greater percentage of our total loan portfolio in 2018 , compared to 2017 , and our expanded use of electronic payments to reduce early-stage delinquency . as large loans continue to represent a greater percentage of our total loan portfolio and we continue to leverage electronic payment options , we expect lower late charges per active account . other income represented 1.4 % and 1.3 % of average finance receivables in 2018 and 2017 , respectively . provision for credit losses . our provision for credit losses increased $ 9.7 million , or 12.6 % , to $ 87.1 million in 2018 , from $ 77.3 million in 2017. the increase was primarily due to an increase in net credit losses of $ 8.0 million and a $ 1.7 million increase in the allowance for credit losses compared to 2017. the provision for credit losses as a percentage of average finance receivables in 2018 was 10.2 % , compared to 10.4 % in 2017. fiscal 2018 included a 0.4 % impact from the net $ 3.7 million hurricane-related provision and a 0.3 % impact from the $ 2.9 million increase in net credit losses discussed in the insurance income , net paragraph above . fiscal 2017 included a 0.4 % impact from the hurricane-related $ 2.9 million provision and a 0.6 % impact from the $ 4.4 million increase in net credit losses discussed in the insurance income , net paragraph above , offset by a 0.1 % benefit from the bulk sale of previously charged-off customer accounts in bankruptcy ( the 2017 bulk sale ) . regional management corp. | 2018 annual report on form 10-k | 55 the increase in the provision for credit losses is explained in greater detail below . hurricane impact . during 2018 , our provision for credit losses was impacted by a $ 3.9 million increase in the allowance for credit losses related to estimated incremental credit losses on customer accounts impacted by a hurricane . in late 2018 , we released $ 0.3 million of the hurricane allowance for credit losses to cover hurricane-related net credit losses . as of december 31 , 2018 , the allowance for credit losses related to the hurricane was $ 3.6 million . during 2017 , our provision for credit losses was impacted by a $ 3.0 million increase in the allowance for credit losses related to estimated incremental credit losses on customer accounts impacted by two hurricanes . in late 2017 , we released $ 0.2 million of the hurricane allowance for credit losses to cover hurricane-related net credit losses . as of december 31 , 2017 , the allowance for credit losses related to the hurricanes was $ 2.8 million . bulk sale . we recognized a recovery of $ 1.0 million in 2017 from the 2017 bulk sale . these accounts were excluded from prior sales of charged-off loans . net credit losses . net credit losses increased $ 8.0 million , or 11.5 % , to $ 77.7 million in 2018 , from $ 69.7 million in 2017. the increase was primarily due to a $ 109.6 million increase in average finance receivables in 2018. net credit losses as a percentage of average finance receivables were 9.1 % in 2018 , compared to 9.4 % in 2017. fiscal 2018 included a 0.2 % impact from the $ 1.7 million increase in net credit losses resulting from the 2017 hurricanes and a 0.3 % impact from the $ 2.9 million increase in net credit losses discussed in the insurance income , net paragraph above . fiscal 2017 included a 0.6 % impact from the $ 4.4 million increase in net credit losses discussed in the insurance income , net paragraph above , offset by a 0.1 % benefit from the $ 1.0 million 2017 bulk sale . the following table provides net credit losses and the benefit to net credit losses associated with non-file insurance claims payments as a percentage of average finance receivables for the periods indicated : replace_table_token_17_th we have evaluated various ways to lower our non-file insurance claims , and we decided to reduce our utilization of non-file insurance beginning in the fourth quarter of 2018. as a result , we expect that the benefit provided by non-file insurance will decrease by approximately 0.65 % as a percentage of average finance receivables over the next four quarters , resulting in a corresponding increase in our net credit loss rate . our allowance for credit losses contains sufficient reserves for this anticipated increase in net credit losses . see note 4 , finance receivables , credit quality information , and allowance for credit losses , of the notes to consolidated financial statements in part ii , item 8 , financial statements and supplementary data. in addition , due to the decrease in non-file insurance claims , our insurance income , net will increase by an amount comparable to the anticipated increase in net credit losses , resulting in an income statement offset . therefore , we do not expect this policy change to impact our profitability in future periods . delinquency performance . our december 31 , 2018 contractual delinquency as a percentage of total finance receivables increased to 7.7 % from 7.5 % as of december 31 , 2017 , primarily due to credit tightening and the maturation of our large loan portfolio . total contractual delinquency
| cash flow . operating activities . net cash provided by operating activities increased by $ 30.9 million , or 26.7 % , to $ 146.3 million in 2018 , from $ 115.4 million in 2017. the increase was primarily due to the growth in our business described above , which produced an increase in net income , before provision for credit losses . investing activities . investing activities consist of originations and purchases of finance receivables , purchases of intangible assets , and purchases of property and equipment for new and existing branches . net cash used in investing activities in 2018 was $ 199.2 million , compared to $ 179.9 million in 2017 , a net increase of $ 19.3 million . the increase in cash used was primarily due to increased net originations of finance receivables . financing activities . financing activities consist of borrowings and payments on our outstanding indebtedness and issuances of common stock . in 2018 , net cash provided by financing activities was $ 81.1 million , an increase of $ 7.3 million compared to $ 73.8 million in 2017. the increase was primarily a result of advances on the rmit 2018-1 and rmit 2018-2 securitizations of $ 150.2 million and $ 130.4 million , respectively . the increase was partially offset by an increase in net payments on debt and debt issuance costs of $ 274.2 million . financing arrangements . senior revolving credit facility . in june 2017 , we amended and restated our senior revolving credit facility to , among other things , increase the availability under the facility from $ 585 million to $ 638 million and extend the maturity of the facility from august 2019 to june 2020. the facility has an accordion provision that allows for the expansion of the facility to $ 700 million . excluding the receivables held by our variable interest entities ( each , a vie ) , the senior revolving credit facility is secured by substantially all of our finance receivables and equity interests of the majority of our subsidiaries . advances on the senior revolving credit facility are capped at 85 % of eligible secured finance receivables and 70 % of eligible unsecured finance receivables .
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( 3 ) net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities . 17 index replace_table_token_6_th ( 1 ) includes nonaccrual loans . ( 2 ) net interest margin is computed by dividing net interest income by total average earning assets . ( 3 ) net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities . the table below sets forth the relative impact on net interest income of changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by the company on such assets and liabilities . for purposes of this table , nonaccrual loans have been included in the average loan balances . replace_table_token_7_th ( 1 ) changes due to both volume and rate have been allocated to volume changes . 18 index comparison of interest income , interest expense and net interest margin the company 's primary source of revenue is interest income . interest income for the year ended december 31 , 2017 was $ 37.4 million , an increase from $ 32.2 million and $ 30.2 million , respectively , for the years ended december 31 , 2016 and 2015. the interest income was positively impacted by increased average earning assets , primarily loans , in 2017. average loans for the year increased 20.5 % over 2016 and 34.4 % over 2015. average earning asset yields declined for 2017 as competition for new quality loans continued to further compress the interest rates and the margin . in 2016 the margin benefited by 8 basis points from the payoff of one large nonaccrual loan relationship . interest expense for the year ended december 31 , 2017 increased by $ 1.6 million compared to 2016 and increased by $ 2.2 million compared to 2015 , respectively , to $ 4.7 million . the increase for 2017 compared to 2016 was mostly the result of the increased volume of deposits and increased rates . average interest-bearing deposits increased 3.7 % in 2017 compared to 2016. the average cost on interest-bearing deposits also increased to 42 basis points in 2017 compared to 37 basis points in 2016. the net impact of the changes in yields on interest-earning assets and the rates paid on interest-bearing liabilities was to decrease the margin for 2017 compared to 2016. the net interest margin was 4.34 % for 2017 compared to 4.60 % for 2016 and 4.80 % in 2015. net interest income increased by $ 3.6 million for 2017 compared to 2016 and $ 5.0 million , compared to 2015. total interest income increased by $ 3.6 million to $ 32.2 million in 2016 compared to 2015. the interest income was negatively impacted by decreased yields on earning assets in 2016 which decreased to 5.09 % compared to 5.23 % for 2015. the average yield on loans decreased to 5.43 % for 2016 compared to 5.67 % for 2015 as the company benefited from 22 basis points from the payoff of two large nonaccrual loan relationships in 2015. total interest expense increased by $ 0.6 million in 2016 compared to 2015. this increase was primarily due to increased total cost of funds which include non-interest bearing deposits from 49 basis points for 2015 to 54 basis points for 2016. net interest income increased by $ 1.4 million for 2016 compared to 2015 . 19 index provision for loan losses the provision for loan losses in each period is reflected as a charge against earnings in that period . the provision for loan losses is equal to the amount required to maintain the allowance for loan losses at a level that is adequate to absorb probable losses inherent in the loan portfolio . the provision ( credit ) for loan losses was $ 0.4 million in 2017 compared to ( $ 48,000 ) in 2016 and ( $ 2.3 ) million in 2015. the provision for loan losses for 2017 resulted primarily from loan growth and change in loan portfolio mix . the credit to provision for 2016 resulted from $ 0.6 million net recoveries , reduced historical loss factors partially offset by loan growth . as a result of improvements in credit quality , decreased historical loss rates , and net recoveries for the year , the ratio of the allowance for loan losses to loans held for investment decreased to 1.24 % at december 31 , 2017 from 1.31 % at december 31 , 2016. additional information regarding improved credit quality can be found beginning on page 27. the following table summarizes the provision ( credit ) , charge-offs ( recoveries ) by loan category for the year ended december 31 , 2017 , 2016 and 2015 : replace_table_token_8_th the percentage of net non-accrual loans ( net of government guarantees ) to the total loan portfolio increased to 0.61 % as of december 31 , 2017 from 0.38 % at december 31 , 2016 primarily due to the addition of one large commercial loan relationship . the allowance for loan losses compared to net non-accrual loans decreased to 188 % as of december 31 , 2017 from 314 % as of december 31 , 2016. total past due loans remained at $ 0.2 million as of december 31 , 2017 compared to december 31 , 2016 . 20 index non-interest income the company earned non-interest income primarily through fees related to services provided to loan and deposit customers . the following tables present a summary of non-interest income for the periods presented : replace_table_token_9_th total non-interest income increased $ 0.7 million for 2017 compared to 2016. the increase was mostly from higher loan origination and document processing fees due to loan growth . also contributing to the increase , was a $ 0.1 million increase in income from interest only strip fair market adjustments . these increases were partially offset by decreased loan servicing fees . story_separator_special_tag the following table presents total gross loans based on remaining scheduled contractual repayments of principal as of the periods indicated : replace_table_token_14_th concentrations of lending activities the company 's lending activities are primarily driven by the customers served in the market areas where the company has branch offices in the central coast of california . the company monitors concentrations within selected categories such as geography and product . the company makes manufactured housing , commercial , sba , construction , commercial real estate and consumer loans to customers through branch offices located in the company 's primary markets . the company 's business is concentrated in these areas and the loan portfolio includes significant credit exposure to the manufactured housing and commercial real estate markets of these areas . as of december 31 , 2017 and 2016 , manufactured housing loans comprised 30.3 % and 30.8 % , of total loans , respectively . as of december 31 , 2017 and 2016 , commercial real estate loans accounted for approximately 48.2 % and 43.1 % of total loans , respectively . approximately 33.9 % and 32.3 % of these commercial real estate loans were owner occupied at december 31 , 2017 and 2016 , respectively . substantially all of these loans are secured by first liens with an average loan to value ratios of 55.0 % and 54.6 % at december 31 , 2017 and 2016 , respectively . the company was within established policy limits at december 31 , 2017 and 2016 . 26 index interest reserves interest reserves are generally established at the time of the loan origination as an expense item in the budget for a construction and land development loan . the company 's practice is to monitor the construction , sales and or leasing progress to determine the feasibility of ongoing construction and development projects . if , at any time during the life of the loan , the project is determined not to be viable , the company discontinues the use of the interest reserve and may take appropriate action to protect its collateral position via renegotiation and or legal action as deemed appropriate . at december 31 , 2017 , the company had 18 loans with an outstanding balance of $ 45.7 million with available interest reserves of $ 3.9 million . total construction and land loans are approximately 8 % and 5 % of the company 's loan portfolio and december 31 , 2017 and 2016. impaired loans a loan is considered impaired when , based on current information , it is probable that the company will be unable to collect the scheduled payments of principal and or interest under the contractual terms of the loan agreement . factors considered by management in determining impairment include payment status , collateral value and the probability of collecting scheduled principal and or interest payments . loans that experience insignificant payment delays or payment shortfalls generally are not classified as impaired . management determines the significance of payment delays or payment shortfalls on a case-by-case basis . when determining the possibility of impairment , management considers the circumstances surrounding the loan and the borrower , including the length of the delay , the reasons for the delay , the borrower 's prior payment record and the amount of the shortfall in relation to the principal and interest owed . for collateral-dependent loans , the company uses the fair value of collateral method to measure impairment . all other loans are measured for impairment based on the present value of future cash flows . impairment is measured on a loan-by-loan basis for all impaired loans in the portfolio . a loan is considered a troubled debt restructured loan ( “ tdr ” ) when concessions have been made to the borrower and the borrower is in financial difficulty . these concessions include but are not limited to term extensions , rate reductions and principal reductions . forgiveness of principal is rarely granted and modifications for all classes of loans are predominantly term extensions . tdr loans are also considered impaired . the recorded investment in loans that are considered impaired is as follows : replace_table_token_15_th the following schedule summarizes impaired loans and specific reserves by loan class as of the periods indicated : replace_table_token_16_th $ 2.6 million of the above impaired loans are government guaranteed . 27 index replace_table_token_17_th $ 1.0 million of the above impaired loans are government guaranteed . total impaired loans increased by $ 3.1 million at december 31 , 2017 compared to december 31 , 2016. the manufactured housing impaired loans decreased by $ 0.9 million and commercial real estate impaired loans decreased by $ 0.6 million in 2017 compared to 2016. both the sba and heloc impaired loans decreased by $ 0.2 million each in 2017 compared to 2016. offsetting these decreases was an increase of $ 4.8 million in commercial impaired loans . impaired manufactured housing loans decreased mainly due to pay-offs and pay-downs . additionally , $ 0.2 million in manufactured housing loans were transferred to other foreclosed assets during 2017. the number of impaired manufactured housing loans decreased , with approximately 134 impaired manufactured housing loans at december 31 , 2017 compared to 142 at december 31 , 2016. offsetting the decreases , 11 new manufactured housing loans were added in 2017. impaired commercial loans increased in 2017 compared to 2016 primarily due to the addition of two large loan relationships partially offset by payments on existing loans and one small pay-off . impaired commercial real estate loans decreased from the pay-off of a $ 0.5 million loan and pay-downs on existing loans . the following schedule reflects recorded investment in certain types of loans at the dates indicated : replace_table_token_18_th the accrual of interest is discontinued when substantial doubt exists as to collectibility of the loan ; generally at the time the loan is 90 days delinquent . any unpaid but accrued interest is reversed at that
| cash flow . operating activities . net cash provided by operating activities increased by $ 30.9 million , or 26.7 % , to $ 146.3 million in 2018 , from $ 115.4 million in 2017. the increase was primarily due to the growth in our business described above , which produced an increase in net income , before provision for credit losses . investing activities . investing activities consist of originations and purchases of finance receivables , purchases of intangible assets , and purchases of property and equipment for new and existing branches . net cash used in investing activities in 2018 was $ 199.2 million , compared to $ 179.9 million in 2017 , a net increase of $ 19.3 million . the increase in cash used was primarily due to increased net originations of finance receivables . financing activities . financing activities consist of borrowings and payments on our outstanding indebtedness and issuances of common stock . in 2018 , net cash provided by financing activities was $ 81.1 million , an increase of $ 7.3 million compared to $ 73.8 million in 2017. the increase was primarily a result of advances on the rmit 2018-1 and rmit 2018-2 securitizations of $ 150.2 million and $ 130.4 million , respectively . the increase was partially offset by an increase in net payments on debt and debt issuance costs of $ 274.2 million . financing arrangements . senior revolving credit facility . in june 2017 , we amended and restated our senior revolving credit facility to , among other things , increase the availability under the facility from $ 585 million to $ 638 million and extend the maturity of the facility from august 2019 to june 2020. the facility has an accordion provision that allows for the expansion of the facility to $ 700 million . excluding the receivables held by our variable interest entities ( each , a vie ) , the senior revolving credit facility is secured by substantially all of our finance receivables and equity interests of the majority of our subsidiaries . advances on the senior revolving credit facility are capped at 85 % of eligible secured finance receivables and 70 % of eligible unsecured finance receivables .
| 0 |
( 3 ) net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities . 17 index replace_table_token_6_th ( 1 ) includes nonaccrual loans . ( 2 ) net interest margin is computed by dividing net interest income by total average earning assets . ( 3 ) net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities . the table below sets forth the relative impact on net interest income of changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by the company on such assets and liabilities . for purposes of this table , nonaccrual loans have been included in the average loan balances . replace_table_token_7_th ( 1 ) changes due to both volume and rate have been allocated to volume changes . 18 index comparison of interest income , interest expense and net interest margin the company 's primary source of revenue is interest income . interest income for the year ended december 31 , 2017 was $ 37.4 million , an increase from $ 32.2 million and $ 30.2 million , respectively , for the years ended december 31 , 2016 and 2015. the interest income was positively impacted by increased average earning assets , primarily loans , in 2017. average loans for the year increased 20.5 % over 2016 and 34.4 % over 2015. average earning asset yields declined for 2017 as competition for new quality loans continued to further compress the interest rates and the margin . in 2016 the margin benefited by 8 basis points from the payoff of one large nonaccrual loan relationship . interest expense for the year ended december 31 , 2017 increased by $ 1.6 million compared to 2016 and increased by $ 2.2 million compared to 2015 , respectively , to $ 4.7 million . the increase for 2017 compared to 2016 was mostly the result of the increased volume of deposits and increased rates . average interest-bearing deposits increased 3.7 % in 2017 compared to 2016. the average cost on interest-bearing deposits also increased to 42 basis points in 2017 compared to 37 basis points in 2016. the net impact of the changes in yields on interest-earning assets and the rates paid on interest-bearing liabilities was to decrease the margin for 2017 compared to 2016. the net interest margin was 4.34 % for 2017 compared to 4.60 % for 2016 and 4.80 % in 2015. net interest income increased by $ 3.6 million for 2017 compared to 2016 and $ 5.0 million , compared to 2015. total interest income increased by $ 3.6 million to $ 32.2 million in 2016 compared to 2015. the interest income was negatively impacted by decreased yields on earning assets in 2016 which decreased to 5.09 % compared to 5.23 % for 2015. the average yield on loans decreased to 5.43 % for 2016 compared to 5.67 % for 2015 as the company benefited from 22 basis points from the payoff of two large nonaccrual loan relationships in 2015. total interest expense increased by $ 0.6 million in 2016 compared to 2015. this increase was primarily due to increased total cost of funds which include non-interest bearing deposits from 49 basis points for 2015 to 54 basis points for 2016. net interest income increased by $ 1.4 million for 2016 compared to 2015 . 19 index provision for loan losses the provision for loan losses in each period is reflected as a charge against earnings in that period . the provision for loan losses is equal to the amount required to maintain the allowance for loan losses at a level that is adequate to absorb probable losses inherent in the loan portfolio . the provision ( credit ) for loan losses was $ 0.4 million in 2017 compared to ( $ 48,000 ) in 2016 and ( $ 2.3 ) million in 2015. the provision for loan losses for 2017 resulted primarily from loan growth and change in loan portfolio mix . the credit to provision for 2016 resulted from $ 0.6 million net recoveries , reduced historical loss factors partially offset by loan growth . as a result of improvements in credit quality , decreased historical loss rates , and net recoveries for the year , the ratio of the allowance for loan losses to loans held for investment decreased to 1.24 % at december 31 , 2017 from 1.31 % at december 31 , 2016. additional information regarding improved credit quality can be found beginning on page 27. the following table summarizes the provision ( credit ) , charge-offs ( recoveries ) by loan category for the year ended december 31 , 2017 , 2016 and 2015 : replace_table_token_8_th the percentage of net non-accrual loans ( net of government guarantees ) to the total loan portfolio increased to 0.61 % as of december 31 , 2017 from 0.38 % at december 31 , 2016 primarily due to the addition of one large commercial loan relationship . the allowance for loan losses compared to net non-accrual loans decreased to 188 % as of december 31 , 2017 from 314 % as of december 31 , 2016. total past due loans remained at $ 0.2 million as of december 31 , 2017 compared to december 31 , 2016 . 20 index non-interest income the company earned non-interest income primarily through fees related to services provided to loan and deposit customers . the following tables present a summary of non-interest income for the periods presented : replace_table_token_9_th total non-interest income increased $ 0.7 million for 2017 compared to 2016. the increase was mostly from higher loan origination and document processing fees due to loan growth . also contributing to the increase , was a $ 0.1 million increase in income from interest only strip fair market adjustments . these increases were partially offset by decreased loan servicing fees . story_separator_special_tag the following table presents total gross loans based on remaining scheduled contractual repayments of principal as of the periods indicated : replace_table_token_14_th concentrations of lending activities the company 's lending activities are primarily driven by the customers served in the market areas where the company has branch offices in the central coast of california . the company monitors concentrations within selected categories such as geography and product . the company makes manufactured housing , commercial , sba , construction , commercial real estate and consumer loans to customers through branch offices located in the company 's primary markets . the company 's business is concentrated in these areas and the loan portfolio includes significant credit exposure to the manufactured housing and commercial real estate markets of these areas . as of december 31 , 2017 and 2016 , manufactured housing loans comprised 30.3 % and 30.8 % , of total loans , respectively . as of december 31 , 2017 and 2016 , commercial real estate loans accounted for approximately 48.2 % and 43.1 % of total loans , respectively . approximately 33.9 % and 32.3 % of these commercial real estate loans were owner occupied at december 31 , 2017 and 2016 , respectively . substantially all of these loans are secured by first liens with an average loan to value ratios of 55.0 % and 54.6 % at december 31 , 2017 and 2016 , respectively . the company was within established policy limits at december 31 , 2017 and 2016 . 26 index interest reserves interest reserves are generally established at the time of the loan origination as an expense item in the budget for a construction and land development loan . the company 's practice is to monitor the construction , sales and or leasing progress to determine the feasibility of ongoing construction and development projects . if , at any time during the life of the loan , the project is determined not to be viable , the company discontinues the use of the interest reserve and may take appropriate action to protect its collateral position via renegotiation and or legal action as deemed appropriate . at december 31 , 2017 , the company had 18 loans with an outstanding balance of $ 45.7 million with available interest reserves of $ 3.9 million . total construction and land loans are approximately 8 % and 5 % of the company 's loan portfolio and december 31 , 2017 and 2016. impaired loans a loan is considered impaired when , based on current information , it is probable that the company will be unable to collect the scheduled payments of principal and or interest under the contractual terms of the loan agreement . factors considered by management in determining impairment include payment status , collateral value and the probability of collecting scheduled principal and or interest payments . loans that experience insignificant payment delays or payment shortfalls generally are not classified as impaired . management determines the significance of payment delays or payment shortfalls on a case-by-case basis . when determining the possibility of impairment , management considers the circumstances surrounding the loan and the borrower , including the length of the delay , the reasons for the delay , the borrower 's prior payment record and the amount of the shortfall in relation to the principal and interest owed . for collateral-dependent loans , the company uses the fair value of collateral method to measure impairment . all other loans are measured for impairment based on the present value of future cash flows . impairment is measured on a loan-by-loan basis for all impaired loans in the portfolio . a loan is considered a troubled debt restructured loan ( “ tdr ” ) when concessions have been made to the borrower and the borrower is in financial difficulty . these concessions include but are not limited to term extensions , rate reductions and principal reductions . forgiveness of principal is rarely granted and modifications for all classes of loans are predominantly term extensions . tdr loans are also considered impaired . the recorded investment in loans that are considered impaired is as follows : replace_table_token_15_th the following schedule summarizes impaired loans and specific reserves by loan class as of the periods indicated : replace_table_token_16_th $ 2.6 million of the above impaired loans are government guaranteed . 27 index replace_table_token_17_th $ 1.0 million of the above impaired loans are government guaranteed . total impaired loans increased by $ 3.1 million at december 31 , 2017 compared to december 31 , 2016. the manufactured housing impaired loans decreased by $ 0.9 million and commercial real estate impaired loans decreased by $ 0.6 million in 2017 compared to 2016. both the sba and heloc impaired loans decreased by $ 0.2 million each in 2017 compared to 2016. offsetting these decreases was an increase of $ 4.8 million in commercial impaired loans . impaired manufactured housing loans decreased mainly due to pay-offs and pay-downs . additionally , $ 0.2 million in manufactured housing loans were transferred to other foreclosed assets during 2017. the number of impaired manufactured housing loans decreased , with approximately 134 impaired manufactured housing loans at december 31 , 2017 compared to 142 at december 31 , 2016. offsetting the decreases , 11 new manufactured housing loans were added in 2017. impaired commercial loans increased in 2017 compared to 2016 primarily due to the addition of two large loan relationships partially offset by payments on existing loans and one small pay-off . impaired commercial real estate loans decreased from the pay-off of a $ 0.5 million loan and pay-downs on existing loans . the following schedule reflects recorded investment in certain types of loans at the dates indicated : replace_table_token_18_th the accrual of interest is discontinued when substantial doubt exists as to collectibility of the loan ; generally at the time the loan is 90 days delinquent . any unpaid but accrued interest is reversed at that
| capital resources the federal reserve has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a bank holding company . in july 2013 , the federal banking agencies approved the final rules ( “ final rules ” ) to establish a new comprehensive regulatory capital framework with a phase-in period beginning january 1 , 2015 and ending january 1 , 2019. the final rules implement the third installment of the basel accords ( “ basel iii ” ) regulatory capital reforms and changes required by the dodd-frank wall street reform and consumer protection act ( “ dodd-frank act ” ) and substantially amend the regulatory risk-based capital rules applicable to the company . basel iii redefines the regulatory capital elements and minimum capital ratios , introduces regulatory capital buffers above those minimums , revises rules for calculating risk-weighted assets and adds a new component of tier 1 capital called common equity tier 1 , which includes common equity and retained earnings and excludes preferred equity . the following tables illustrates the bank 's regulatory ratios and the federal reserve 's current adequacy guidelines as of december 31 , 2017 and 2016. the federal reserve 's fully phased-in guidelines applicable on january 1 , 2019 are also summarized . replace_table_token_29_th 34 index contractual obligations and off-balance sheet arrangements the company enters into contracts for services in the ordinary course of business that may require payment for services to be provided in the future and may contain penalty clauses for early termination of the contracts . to meet the financing needs of customers , the company has financial instruments with off-balance sheet risk , including commitments to extend credit and standby letters of credit . the company does not believe that these off-balance sheet arrangements have or are reasonably likely to have a material effect on its financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures , or capital resources . however , there can be no assurance that such arrangements will not have a future effect .
| 1 |
partially offsetting the increase were reductions in net sales of $ 44.1 million due to manufacturing transfers to our apac segment , $ 35.4 million due to disengagements with customers , $ 27.2 million due to end-of-life products , $ 7.5 million due to program transitions and net decreased customer end-market demand . net sales for fiscal 2017 in the amer segment decreased $ 162.4 million , or 12.2 % , as compared to fiscal 2016 . the reduction in net sales was driven by overall decreased customer end-market demand as well as decreases of $ 38.7 million from disengagements with customers , $ 25.5 million due to manufacturing transfers to our apac and emea segments , $ 24.0 million due to a customer 's decision to manufacture product internally , $ 16.4 million from end-of-life products and $ 5.8 million that resulted from a program disengagement . partially offsetting these decreases were net sales increases of $ 36.6 million from the ramp of new programs for existing customers and $ 11.0 million from the ramp of production for new customers . apac . net sales for fiscal 2018 in the apac segment increased $ 218.7 million , or 17.1 % , as compared to fiscal 2017 . the increase in net sales was primarily the result of a $ 237.2 million increase due to the ramp of new products for existing customers , $ 44.1 million due to manufacturing transfers from our amer segment and net increased customer end-market demand . partially offsetting these increases were reductions in net sales of $ 70.5 million due to disengagements with customers and $ 11.5 million due to end-of-life products . net sales for fiscal 2017 in the apac segment increased $ 117.4 million , or 10.1 % , as compared to fiscal 2016 . the increase in net sales was primarily due to a $ 115.6 million increase due to the ramp of new programs for existing customers , net increased customer end-market demand and $ 21.4 million due to manufacturing transfers from our amer segment . these increases were partially offset by decreases of $ 50.3 million due to a program disengagement , $ 38.6 million due to a customer 's partial divestiture of one of its businesses and $ 14.6 million that resulted from an end-of-life product . emea . net sales for fiscal 2018 in the emea segment increased $ 88.7 million , or 46.0 % , as compared to fiscal 2017 . the increase in net sales was primarily due to a $ 77.6 million increase due to the ramp of new products for existing customers and net increased customer end-market demand . net sales for fiscal 2017 in the emea segment increased $ 22.4 million , or 13.1 % , as compared to fiscal 2016 . the increase in net sales was primarily attributable to a $ 34.6 million increase due to the ramp of new programs for existing customers and $ 4.1 million due to manufacturing transfers from our amer segment . partially offsetting the increases were net decreased customer end-market demand and a $ 3.2 million decrease from end-of-life products . our net sales by market sector for the indicated fiscal years were as follows ( in millions ) : replace_table_token_5_th healthcare/life sciences . net sales for fiscal 2018 in the healthcare/life sciences sector increased $ 181.1 million , or 21.1 % , as compared to fiscal 2017 . the increase was primarily driven by increases in net sales of $ 179.8 million due to the ramp of new products for existing customers , net increased customer end-market demand and $ 7.6 million from the ramp of production for new customers . partially offsetting the increases were decreases in net sales of $ 30.1 million due to end-of-life products . net sales for fiscal 2017 in the healthcare/life sciences sector increased $ 78.5 million or 10.1 % , as compared to fiscal 2016 . the increase was primarily driven by increases in net sales of $ 74.4 million due to the ramp of new programs for existing customers , net increased customer end-market demand and $ 7.0 million from the ramp of production for new customers . partially offsetting the increases were decreases in net sales of $ 24.8 million due to a customer 's decision to manufacture product internally and $ 2.1 million due to end-of-life products . industrial/commercial . net sales for fiscal 2018 in the industrial/commercial sector increased $ 129.4 million , or 16.4 % , as compared to fiscal 2017 . the increase was primarily driven by increases in net sales of $ 176.5 million due to the ramp of new products for existing customers , net increased customer end-market demand and $ 9.1 million from the ramp of production for new customers . partially offsetting the increases were decreases in net sales of $ 57.6 million related to end-of-life products and $ 38.4 million due to disengagements with customers . 26 net sales for fiscal 2017 in the industrial/commercial sector increased $ 14.1 million , or 1.8 % , as compared to fiscal 2016 . the increase was primarily driven by increases in net sales of $ 84.8 million due to the ramp of new programs for existing customers . partially offsetting the increases were decreases in net sales of $ 38.6 million due to a customer 's partial divestiture of one of its businesses , $ 17.1 million related to a disengagement with a customer and net decreased customer end-market demand . communications . net sales for fiscal 2018 in the communications sector decreased $ 6.9 million , or 1.4 % , as compared to fiscal 2017 . the reduction in net sales was primarily driven by a $ 64.5 million decrease in net sales due to disengagements with customers , which was partially offset by a $ 57.9 million increase in net sales due to the ramp of production of new products for existing customers . story_separator_special_tag in particular , we provide roic and economic return because we believe they offer insight into the metrics that are driving management decisions because we view roic and economic return as important measures in evaluating the efficiency and effectiveness of our long-term capital requirements . we also use a derivative measure of roic as a performance criteria in determining certain elements of compensation , and certain compensation incentives are based on economic return performance . we define roic as tax-effected operating income before restructuring and other special items divided by average invested capital over a rolling five-quarter period for the fiscal year . invested capital is defined as equity plus debt , less cash and cash equivalents . other companies may not define or calculate roic in the same way . roic and other non-gaap financial 30 measures should be considered in addition to , not as a substitute for , measures of our financial performance prepared in accordance with u.s. generally accepted accounting principles ( `` gaap `` ) . we review our internal calculation of wacc annually . our wacc was 9.5 % for fiscal year 2018 , 10.5 % for fiscal year 2017 , and 11.0 % for fiscal year 2016 . by exercising discipline to generate roic in excess of our wacc , our goal is to create value for our shareholders . roic was 16.1 % , 16.2 % , and 13.8 % for fiscal 2018 , 2017 and 2016 , respectively . fiscal 2018 roic of 16.1 % reflects an economic return of 6.6 % , based on our weighted average cost of capital of 9.5 % . for a reconciliation of roic , economic return and adjusted operating income ( tax effected ) to our financial statements that were prepared using gaap , see exhibit 99.1 to this annual report on form 10-k , which exhibit is incorporated herein by reference . refer to the table below , which includes the calculation of roic and economic return ( dollars in millions ) for the indicated periods : replace_table_token_10_th story_separator_special_tag > 2017 , a decrease of $ 129.2 million . non-gaap financial measures , including fcf , are used for internal management assessments because such measures provide additional insight to investors into ongoing financial performance . in particular , we provide fcf because we believe it offers insight into the metrics that are driving management decisions . we view fcf as an important financial metric as it demonstrates our ability to generate cash and can allow us to pursue opportunities that enhance shareholder value . fcf is a non-gaap financial measure that should be considered in addition to , not as a substitute for , measures of our financial performance prepared in accordance with gaap . a reconciliation of fcf to our financial statements that were prepared using gaap follows ( in millions ) : replace_table_token_14_th investing activities . cash flows used in investing activities were $ 74.6 million for fiscal 2018 compared to $ 37.8 million for fiscal 2017 . the increase in cash used in investing activities was due to a $ 24.3 million increase in capital expenditures primarily to fund the purchase of an additional manufacturing facility in penang , malaysia and to support new capabilities , new program ramps , and to replace or refresh older equipment . there was an additional $ 12.4 million increase in cash flows used in investing activities for the acquisition of the assets of one of the business lines of cascade controls , inc. ; see note 15 , `` acquisition , `` in notes to consolidated financial statements for further detail . cash flows used in investing activities were $ 37.8 million for fiscal 2017 compared to $ 26.5 million for fiscal 2016 . the increase in cash used in investing activities was due to a $ 7.4 million increase in capital expenditures primarily to support new capabilities , new program ramps , and to replace or refresh older equipment , and a $ 3.9 million decrease in proceeds received from the sale of property , plant and equipment , primarily related to the sale of our former engineering facility in neenah , wisconsin in fiscal 2016. we utilized available cash and operating cash flows as the sources for funding our operating requirements during fiscal 2018 . we currently estimate capital expenditures for fiscal 2019 will be approximately $ 70.0 million to $ 90.0 million . financing activities . cash flows used in financing activities were $ 265.5 million for fiscal 2018 compared to cash flows provided by financing activities of $ 1.3 million for fiscal 2017 . the increase was primarily attributable to a $ 141.0 million increase in pay-downs on our revolving credit facility , a $ 102.9 million increase in cash used to repurchase our common stock and a $ 25.0 million reduction in the balance of outstanding senior notes as a result of refinancing the notes , as discussed further below . cash flows provided by financing activities were $ 1.3 million for fiscal 2017 compared to cash flows used in financing activities of $ 21.3 million for fiscal 2016 . the increase was primarily attributable to a net $ 32.8 million increase in borrowings , which was partially offset by a $ 4.1 million increase in cash used to repurchase our shares under the stock repurchase program described below , a $ 3.5 million increase in payments related to tax withholding for share-based compensation and a $ 3.0 million decrease in proceeds received from stock option exercises . on february 14 , 2018 , the board of directors approved a new stock repurchase plan under which the company is authorized to repurchase $ 200.0 million of its common stock ( the `` 2018 program `` ) . the 2018 program commenced upon completion of the 33 2016 program , as defined below . during fiscal 2018 , the company repurchased 343,642 shares under the 2018 program for $
| capital resources the federal reserve has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a bank holding company . in july 2013 , the federal banking agencies approved the final rules ( “ final rules ” ) to establish a new comprehensive regulatory capital framework with a phase-in period beginning january 1 , 2015 and ending january 1 , 2019. the final rules implement the third installment of the basel accords ( “ basel iii ” ) regulatory capital reforms and changes required by the dodd-frank wall street reform and consumer protection act ( “ dodd-frank act ” ) and substantially amend the regulatory risk-based capital rules applicable to the company . basel iii redefines the regulatory capital elements and minimum capital ratios , introduces regulatory capital buffers above those minimums , revises rules for calculating risk-weighted assets and adds a new component of tier 1 capital called common equity tier 1 , which includes common equity and retained earnings and excludes preferred equity . the following tables illustrates the bank 's regulatory ratios and the federal reserve 's current adequacy guidelines as of december 31 , 2017 and 2016. the federal reserve 's fully phased-in guidelines applicable on january 1 , 2019 are also summarized . replace_table_token_29_th 34 index contractual obligations and off-balance sheet arrangements the company enters into contracts for services in the ordinary course of business that may require payment for services to be provided in the future and may contain penalty clauses for early termination of the contracts . to meet the financing needs of customers , the company has financial instruments with off-balance sheet risk , including commitments to extend credit and standby letters of credit . the company does not believe that these off-balance sheet arrangements have or are reasonably likely to have a material effect on its financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures , or capital resources . however , there can be no assurance that such arrangements will not have a future effect .
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partially offsetting the increase were reductions in net sales of $ 44.1 million due to manufacturing transfers to our apac segment , $ 35.4 million due to disengagements with customers , $ 27.2 million due to end-of-life products , $ 7.5 million due to program transitions and net decreased customer end-market demand . net sales for fiscal 2017 in the amer segment decreased $ 162.4 million , or 12.2 % , as compared to fiscal 2016 . the reduction in net sales was driven by overall decreased customer end-market demand as well as decreases of $ 38.7 million from disengagements with customers , $ 25.5 million due to manufacturing transfers to our apac and emea segments , $ 24.0 million due to a customer 's decision to manufacture product internally , $ 16.4 million from end-of-life products and $ 5.8 million that resulted from a program disengagement . partially offsetting these decreases were net sales increases of $ 36.6 million from the ramp of new programs for existing customers and $ 11.0 million from the ramp of production for new customers . apac . net sales for fiscal 2018 in the apac segment increased $ 218.7 million , or 17.1 % , as compared to fiscal 2017 . the increase in net sales was primarily the result of a $ 237.2 million increase due to the ramp of new products for existing customers , $ 44.1 million due to manufacturing transfers from our amer segment and net increased customer end-market demand . partially offsetting these increases were reductions in net sales of $ 70.5 million due to disengagements with customers and $ 11.5 million due to end-of-life products . net sales for fiscal 2017 in the apac segment increased $ 117.4 million , or 10.1 % , as compared to fiscal 2016 . the increase in net sales was primarily due to a $ 115.6 million increase due to the ramp of new programs for existing customers , net increased customer end-market demand and $ 21.4 million due to manufacturing transfers from our amer segment . these increases were partially offset by decreases of $ 50.3 million due to a program disengagement , $ 38.6 million due to a customer 's partial divestiture of one of its businesses and $ 14.6 million that resulted from an end-of-life product . emea . net sales for fiscal 2018 in the emea segment increased $ 88.7 million , or 46.0 % , as compared to fiscal 2017 . the increase in net sales was primarily due to a $ 77.6 million increase due to the ramp of new products for existing customers and net increased customer end-market demand . net sales for fiscal 2017 in the emea segment increased $ 22.4 million , or 13.1 % , as compared to fiscal 2016 . the increase in net sales was primarily attributable to a $ 34.6 million increase due to the ramp of new programs for existing customers and $ 4.1 million due to manufacturing transfers from our amer segment . partially offsetting the increases were net decreased customer end-market demand and a $ 3.2 million decrease from end-of-life products . our net sales by market sector for the indicated fiscal years were as follows ( in millions ) : replace_table_token_5_th healthcare/life sciences . net sales for fiscal 2018 in the healthcare/life sciences sector increased $ 181.1 million , or 21.1 % , as compared to fiscal 2017 . the increase was primarily driven by increases in net sales of $ 179.8 million due to the ramp of new products for existing customers , net increased customer end-market demand and $ 7.6 million from the ramp of production for new customers . partially offsetting the increases were decreases in net sales of $ 30.1 million due to end-of-life products . net sales for fiscal 2017 in the healthcare/life sciences sector increased $ 78.5 million or 10.1 % , as compared to fiscal 2016 . the increase was primarily driven by increases in net sales of $ 74.4 million due to the ramp of new programs for existing customers , net increased customer end-market demand and $ 7.0 million from the ramp of production for new customers . partially offsetting the increases were decreases in net sales of $ 24.8 million due to a customer 's decision to manufacture product internally and $ 2.1 million due to end-of-life products . industrial/commercial . net sales for fiscal 2018 in the industrial/commercial sector increased $ 129.4 million , or 16.4 % , as compared to fiscal 2017 . the increase was primarily driven by increases in net sales of $ 176.5 million due to the ramp of new products for existing customers , net increased customer end-market demand and $ 9.1 million from the ramp of production for new customers . partially offsetting the increases were decreases in net sales of $ 57.6 million related to end-of-life products and $ 38.4 million due to disengagements with customers . 26 net sales for fiscal 2017 in the industrial/commercial sector increased $ 14.1 million , or 1.8 % , as compared to fiscal 2016 . the increase was primarily driven by increases in net sales of $ 84.8 million due to the ramp of new programs for existing customers . partially offsetting the increases were decreases in net sales of $ 38.6 million due to a customer 's partial divestiture of one of its businesses , $ 17.1 million related to a disengagement with a customer and net decreased customer end-market demand . communications . net sales for fiscal 2018 in the communications sector decreased $ 6.9 million , or 1.4 % , as compared to fiscal 2017 . the reduction in net sales was primarily driven by a $ 64.5 million decrease in net sales due to disengagements with customers , which was partially offset by a $ 57.9 million increase in net sales due to the ramp of production of new products for existing customers . story_separator_special_tag in particular , we provide roic and economic return because we believe they offer insight into the metrics that are driving management decisions because we view roic and economic return as important measures in evaluating the efficiency and effectiveness of our long-term capital requirements . we also use a derivative measure of roic as a performance criteria in determining certain elements of compensation , and certain compensation incentives are based on economic return performance . we define roic as tax-effected operating income before restructuring and other special items divided by average invested capital over a rolling five-quarter period for the fiscal year . invested capital is defined as equity plus debt , less cash and cash equivalents . other companies may not define or calculate roic in the same way . roic and other non-gaap financial 30 measures should be considered in addition to , not as a substitute for , measures of our financial performance prepared in accordance with u.s. generally accepted accounting principles ( `` gaap `` ) . we review our internal calculation of wacc annually . our wacc was 9.5 % for fiscal year 2018 , 10.5 % for fiscal year 2017 , and 11.0 % for fiscal year 2016 . by exercising discipline to generate roic in excess of our wacc , our goal is to create value for our shareholders . roic was 16.1 % , 16.2 % , and 13.8 % for fiscal 2018 , 2017 and 2016 , respectively . fiscal 2018 roic of 16.1 % reflects an economic return of 6.6 % , based on our weighted average cost of capital of 9.5 % . for a reconciliation of roic , economic return and adjusted operating income ( tax effected ) to our financial statements that were prepared using gaap , see exhibit 99.1 to this annual report on form 10-k , which exhibit is incorporated herein by reference . refer to the table below , which includes the calculation of roic and economic return ( dollars in millions ) for the indicated periods : replace_table_token_10_th story_separator_special_tag > 2017 , a decrease of $ 129.2 million . non-gaap financial measures , including fcf , are used for internal management assessments because such measures provide additional insight to investors into ongoing financial performance . in particular , we provide fcf because we believe it offers insight into the metrics that are driving management decisions . we view fcf as an important financial metric as it demonstrates our ability to generate cash and can allow us to pursue opportunities that enhance shareholder value . fcf is a non-gaap financial measure that should be considered in addition to , not as a substitute for , measures of our financial performance prepared in accordance with gaap . a reconciliation of fcf to our financial statements that were prepared using gaap follows ( in millions ) : replace_table_token_14_th investing activities . cash flows used in investing activities were $ 74.6 million for fiscal 2018 compared to $ 37.8 million for fiscal 2017 . the increase in cash used in investing activities was due to a $ 24.3 million increase in capital expenditures primarily to fund the purchase of an additional manufacturing facility in penang , malaysia and to support new capabilities , new program ramps , and to replace or refresh older equipment . there was an additional $ 12.4 million increase in cash flows used in investing activities for the acquisition of the assets of one of the business lines of cascade controls , inc. ; see note 15 , `` acquisition , `` in notes to consolidated financial statements for further detail . cash flows used in investing activities were $ 37.8 million for fiscal 2017 compared to $ 26.5 million for fiscal 2016 . the increase in cash used in investing activities was due to a $ 7.4 million increase in capital expenditures primarily to support new capabilities , new program ramps , and to replace or refresh older equipment , and a $ 3.9 million decrease in proceeds received from the sale of property , plant and equipment , primarily related to the sale of our former engineering facility in neenah , wisconsin in fiscal 2016. we utilized available cash and operating cash flows as the sources for funding our operating requirements during fiscal 2018 . we currently estimate capital expenditures for fiscal 2019 will be approximately $ 70.0 million to $ 90.0 million . financing activities . cash flows used in financing activities were $ 265.5 million for fiscal 2018 compared to cash flows provided by financing activities of $ 1.3 million for fiscal 2017 . the increase was primarily attributable to a $ 141.0 million increase in pay-downs on our revolving credit facility , a $ 102.9 million increase in cash used to repurchase our common stock and a $ 25.0 million reduction in the balance of outstanding senior notes as a result of refinancing the notes , as discussed further below . cash flows provided by financing activities were $ 1.3 million for fiscal 2017 compared to cash flows used in financing activities of $ 21.3 million for fiscal 2016 . the increase was primarily attributable to a net $ 32.8 million increase in borrowings , which was partially offset by a $ 4.1 million increase in cash used to repurchase our shares under the stock repurchase program described below , a $ 3.5 million increase in payments related to tax withholding for share-based compensation and a $ 3.0 million decrease in proceeds received from stock option exercises . on february 14 , 2018 , the board of directors approved a new stock repurchase plan under which the company is authorized to repurchase $ 200.0 million of its common stock ( the `` 2018 program `` ) . the 2018 program commenced upon completion of the 33 2016 program , as defined below . during fiscal 2018 , the company repurchased 343,642 shares under the 2018 program for $
| liquidity and capital resources cash and cash equivalents and restricted cash were $ 297.7 million as of september 29 , 2018 , as compared to $ 569.3 million as of september 30 , 2017 . as of september 29 , 2018 , 68.6 % of our cash balance was held outside of the u.s. by our foreign subsidiaries . with the enactment of tax reform , we believe that our offshore cash can be accessed in a more tax efficient manner than before tax reform . as previously discussed , we recorded $ 85.9 million of tax expense during fiscal 2018 , which was associated with the deemed repatriation of undistributed foreign earnings and the reversal of our permanently reinvested assertion on foreign earnings in connection with tax reform . during fiscal 2018 we repatriated approximately $ 431.2 million from our apac region . we repaid $ 175.0 million in principal amount of our senior notes that matured on june 15 , 2018 ( the `` 2011 notes '' ) with $ 25.0 million of available cash and proceeds from the issuance of $ 150.0 million in principal of the 2018 notes ( as defined below ) . currently , we believe that our cash balance , together with cash available under our credit facility , will be sufficient to meet our liquidity needs , including potential share repurchases , for the next twelve months and for the foreseeable future . our future cash flows from operating activities will be reduced by $ 72.5 million due to cash payments for accrued income taxes related to tax reform . the table below provides the expected timing of these future cash outflows , excluding $ 11.5 million of foreign withholding taxes and state taxes on the deemed repatriation of undistributed foreign earnings since the exact timing of the payments is unknown as of september 29 , 2018 . the remaining $ 61.0 million represents u.s. federal taxes on the deemed repatriation of undistributed foreign earnings that are payable over an eight year period in accordance with the following installment schedule beginning in fiscal 2019 ( in millions ) : replace_table_token_11_th 31 cash flows .
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company-operated shop-in-shop/concession locations worldwide under our tommy hilfiger and calvin klein trademarks , and ( c ) digital commerce sites in over 30 countries under our tommy hilfiger and calvin klein trademarks and in the united states through our directly operated digital commerce sites for speedo , true & co . , van heusen , and izod , as well as our 32 stylebureau .com site . additionally , we generate royalty , advertising and other revenue from fees for licensing the use of our trademarks . we manage our operations through our operating divisions , which are presented as six reportable segments : ( i ) tommy hilfiger north america ; ( ii ) tommy hilfiger international ; ( iii ) calvin klein north america ; ( iv ) calvin klein international ; ( v ) heritage brands wholesale ; and ( vi ) heritage brands retail . we have entered into the following transactions that have impacted our results of operations and the comparability among the years , including our 2020 expectations as compared to 2019 , as discussed below : we entered into a definitive agreement on january 9 , 2020 to sell our speedo north america business to pentland for $ 170 million in cash , subject to a working capital adjustment , as described above . we recorded a pre-tax noncash loss of $ 142 million in the fourth quarter of 2019 related to the speedo transaction and expected deconsolidation of the net assets of the business , consisting of ( i ) a noncash impairment of our perpetual license right for the speedo trademark and ( ii ) a noncash loss to reduce the carrying value of the business to its estimated fair value , less costs to sell . we entered into agreements on july 3 , 2019 to terminate early the licenses for the global calvin klein and tommy hilfiger north america socks and hosiery businesses in order to consolidate the socks and hosiery businesses for all of our brands in the united states and canada in a newly formed joint venture , pvh legwear , in which we own a 49 % economic interest , and to bring in-house the international calvin klein socks and hosiery wholesale businesses . pvh legwear was formed with a wholly owned subsidiary of our former heritage brands socks and hosiery licensee , and licenses from us the rights to distribute and sell tommy hilfiger , calvin klein , izod , van heusen and warner 's socks and hosiery beginning in december 2019. we recorded a pre-tax charge of $ 60 million during 2019 in connection with these agreements . we completed the australia and th csap acquisitions in the second quarter of 2019. the australia acquisition closed on may 31 , 2019. prior to the closing , we , along with gazal , jointly owned and managed a joint venture , pvh australia , which licensed and operated businesses under the tommy hilfiger , calvin klein and van heusen brands , along with other owned and licensed brands . pvh australia came under our full control as a result of the australia acquisition and we now operate directly those businesses . the aggregate net purchase price for the shares acquired was $ 59 million , net of cash acquired and after taking into account the proceeds from the divestiture to a third party of an office building and warehouse owned by gazal in june 2019. we completed the th csap acquisition on july 1 , 2019 for $ 74 million , as a result of which we now operate directly the tommy hilfiger retail business in the central and southeast asia market . please see note 3 , “ acquisitions , ” in the notes to consolidated financial statements included in item 8 of this report for further discussion . in connection with the australia and th csap acquisitions , we recorded an aggregate net pre-tax gain of $ 83 million during 2019 , including ( i ) a noncash gain of $ 113 million to write up our existing equity investments in gazal and pvh australia to fair value , partially offset by ( ii ) $ 21 million of pre-tax costs , primarily consisting of noncash valuation adjustments and one-time expenses recorded on our equity investments in gazal and pvh australia prior to the australia acquisition closing , and ( iii ) a $ 9 million expense recorded in interest expense , net resulting from the remeasurement of our mandatorily redeemable non-controlling interest that was recognized in connection with the australia acquisition . we entered into a licensing agreement on may 30 , 2019 with g-iii for the design , production and wholesale distribution of calvin klein jeans women 's jeanswear collections in the united states and canada , which resulted in the discontinuation of our directly operated calvin klein north america women 's jeanswear wholesale business in 2019. we refinanced on april 29 , 2019 our senior credit facilities and recorded pre-tax debt modification and extinguishment charges of $ 5 million . please see the section entitled “ liquidity and capital resources ” below for further discussion . we closed our tommy hilfiger flagship and anchor stores in the united states ( the “ th u.s. store closures ” ) in the first quarter of 2019 and recorded pre-tax costs of $ 55 million , primarily consisting of noncash lease asset impairments . please see note 12 , “ fair value measurements , ” in the notes to consolidated financial statements included in item 8 of this report for further discussion of the noncash lease asset impairments . we announced on january 10 , 2019 a restructuring in connection with strategic changes for our calvin klein business ( the “ calvin klein restructuring ” ) . story_separator_special_tag the following table shows our revenue mix between net sales and royalty , advertising and other revenue , as well as our gross margin for 2019 , 2018 and 2017 : replace_table_token_3_th gross profit in 2019 was $ 5.388 billion , or 54.4 % of total revenue , as compared to $ 5.308 billion , or 55.0 % of total revenue , in 2018. the 60 basis point decrease in gross margin was principally driven by ( i ) a gross margin decline in our tommy hilfiger north america business due to more promotional selling as compared to the prior year , ( ii ) the impact of additional inventory reserves recorded in the fourth quarter of 2019 in anticipation of lower 2020 sales trends as a result of the onset of the covid-19 outbreak , ( iii ) short-lived noncash inventory valuation adjustments recorded in connection with the australia and th csap acquisitions , and ( iv ) the negative impact of tariffs imposed on goods imported from china into the united states . these decreases were partially offset by the favorable impact of faster growth in our tommy hilfiger 37 international and calvin klein international segments than in our north america segments , as our international segments generally carry higher gross margins , as well as gross margin improvements realized in our calvin klein north america business . gross profit in 2018 was $ 5.308 billion , or 55.0 % of total revenue , as compared to $ 4.894 billion , or 54.9 % of total revenue , in 2017. the 10 basis point increase in gross margin was principally driven by ( i ) a favorable mix of business due to faster growth in our tommy hilfiger international and calvin klein international segments than in our north america segments , as our international segments generally carry higher gross margins , and ( ii ) gross margin improvement in our tommy hilfiger business . partially offsetting these increases were gross margin declines in our calvin klein and heritage brands businesses principally due to more promotional selling . we currently expect that gross margin in 2020 will decrease as compared to 2019 primarily due to ( i ) the need for increased promotional selling and inventory liquidation as a result of the covid-19 outbreak and ( ii ) the unfavorable impact of the stronger united states dollar on our international businesses that purchase inventory in united states dollars , particularly our european businesses , as the increased local currency value of inventory results in higher cost of goods in local currency when the goods are sold . there is significant uncertainty with respect to the impact of the covid-19 outbreak on our business and the businesses of our licensees and other business partners . sg & a expenses our sg & a expenses were as follows : replace_table_token_4_th sg & a expenses in 2019 were $ 4.715 billion , or 47.6 % of total revenue , as compared to $ 4.433 billion , or 45.9 % of total revenue in 2018. the 170 basis point increase in sg & a expenses as a percentage of total revenue was principally attributable to ( i ) an increase in costs incurred in connection with the calvin klein restructuring , ( ii ) the costs incurred in connection with the socks and hosiery transaction , and ( iii ) the costs incurred in connection with the th u.s. store closures . also contributing to the increase was a change in the mix of business due to faster growth in our tommy hilfiger international and calvin klein international segments than in our north america segments , as our international segments generally carry higher sg & a expenses as percentages of total revenue . sg & a expenses in 2018 were $ 4.433 billion , or 45.9 % of total revenue , as compared to $ 4.245 billion , or 47.6 % of total revenue in 2017. the 170 basis point decrease in sg & a expenses as a percentage of total revenue was principally attributable to the absence in 2018 of costs that were recorded in 2017 in connection with ( i ) the mr. hilfiger amendment , ( ii ) the li & fung termination , and ( iii ) the relocation of our tommy hilfiger office in new york , including noncash depreciation expense . also contributing to the decrease was a leveraging of expenses in the tommy hilfiger business . these decreases were partially offset by ( i ) a change in the mix of business due to faster growth in our tommy hilfiger international and calvin klein international segments than in our north america segments , as our international segments generally carry higher sg & a expenses as percentages of total revenue , ( ii ) the costs incurred in connection with the calvin klein restructuring and ( iii ) an increase in corporate expenses due , in part , to investments in digital and information technology initiatives . in light of the negative impacts on our business resulting from the covid-19 outbreak , we are taking measures to significantly reduce sg & a expenses in 2020. as such , we currently expect our sg & a expenses in 2020 will be significantly lower as compared to 2019 , including as a result of the reductions resulting from these measures and the absence in 2020 of costs related to ( i ) the calvin klein restructuring , ( ii ) the socks and hosiery transaction and ( iii ) the th u.s. store closures . however , we expect our sg & a expenses as a percentage of total revenue in 2020 will increase as compared to 2019 primarily due to a deleveraging of expenses driven by the expected decline in revenue resulting from the covid-19 outbreak . there is significant uncertainty with respect to the impact of the covid-19 outbreak on our business and our sg & a
| liquidity and capital resources cash and cash equivalents and restricted cash were $ 297.7 million as of september 29 , 2018 , as compared to $ 569.3 million as of september 30 , 2017 . as of september 29 , 2018 , 68.6 % of our cash balance was held outside of the u.s. by our foreign subsidiaries . with the enactment of tax reform , we believe that our offshore cash can be accessed in a more tax efficient manner than before tax reform . as previously discussed , we recorded $ 85.9 million of tax expense during fiscal 2018 , which was associated with the deemed repatriation of undistributed foreign earnings and the reversal of our permanently reinvested assertion on foreign earnings in connection with tax reform . during fiscal 2018 we repatriated approximately $ 431.2 million from our apac region . we repaid $ 175.0 million in principal amount of our senior notes that matured on june 15 , 2018 ( the `` 2011 notes '' ) with $ 25.0 million of available cash and proceeds from the issuance of $ 150.0 million in principal of the 2018 notes ( as defined below ) . currently , we believe that our cash balance , together with cash available under our credit facility , will be sufficient to meet our liquidity needs , including potential share repurchases , for the next twelve months and for the foreseeable future . our future cash flows from operating activities will be reduced by $ 72.5 million due to cash payments for accrued income taxes related to tax reform . the table below provides the expected timing of these future cash outflows , excluding $ 11.5 million of foreign withholding taxes and state taxes on the deemed repatriation of undistributed foreign earnings since the exact timing of the payments is unknown as of september 29 , 2018 . the remaining $ 61.0 million represents u.s. federal taxes on the deemed repatriation of undistributed foreign earnings that are payable over an eight year period in accordance with the following installment schedule beginning in fiscal 2019 ( in millions ) : replace_table_token_11_th 31 cash flows .
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company-operated shop-in-shop/concession locations worldwide under our tommy hilfiger and calvin klein trademarks , and ( c ) digital commerce sites in over 30 countries under our tommy hilfiger and calvin klein trademarks and in the united states through our directly operated digital commerce sites for speedo , true & co . , van heusen , and izod , as well as our 32 stylebureau .com site . additionally , we generate royalty , advertising and other revenue from fees for licensing the use of our trademarks . we manage our operations through our operating divisions , which are presented as six reportable segments : ( i ) tommy hilfiger north america ; ( ii ) tommy hilfiger international ; ( iii ) calvin klein north america ; ( iv ) calvin klein international ; ( v ) heritage brands wholesale ; and ( vi ) heritage brands retail . we have entered into the following transactions that have impacted our results of operations and the comparability among the years , including our 2020 expectations as compared to 2019 , as discussed below : we entered into a definitive agreement on january 9 , 2020 to sell our speedo north america business to pentland for $ 170 million in cash , subject to a working capital adjustment , as described above . we recorded a pre-tax noncash loss of $ 142 million in the fourth quarter of 2019 related to the speedo transaction and expected deconsolidation of the net assets of the business , consisting of ( i ) a noncash impairment of our perpetual license right for the speedo trademark and ( ii ) a noncash loss to reduce the carrying value of the business to its estimated fair value , less costs to sell . we entered into agreements on july 3 , 2019 to terminate early the licenses for the global calvin klein and tommy hilfiger north america socks and hosiery businesses in order to consolidate the socks and hosiery businesses for all of our brands in the united states and canada in a newly formed joint venture , pvh legwear , in which we own a 49 % economic interest , and to bring in-house the international calvin klein socks and hosiery wholesale businesses . pvh legwear was formed with a wholly owned subsidiary of our former heritage brands socks and hosiery licensee , and licenses from us the rights to distribute and sell tommy hilfiger , calvin klein , izod , van heusen and warner 's socks and hosiery beginning in december 2019. we recorded a pre-tax charge of $ 60 million during 2019 in connection with these agreements . we completed the australia and th csap acquisitions in the second quarter of 2019. the australia acquisition closed on may 31 , 2019. prior to the closing , we , along with gazal , jointly owned and managed a joint venture , pvh australia , which licensed and operated businesses under the tommy hilfiger , calvin klein and van heusen brands , along with other owned and licensed brands . pvh australia came under our full control as a result of the australia acquisition and we now operate directly those businesses . the aggregate net purchase price for the shares acquired was $ 59 million , net of cash acquired and after taking into account the proceeds from the divestiture to a third party of an office building and warehouse owned by gazal in june 2019. we completed the th csap acquisition on july 1 , 2019 for $ 74 million , as a result of which we now operate directly the tommy hilfiger retail business in the central and southeast asia market . please see note 3 , “ acquisitions , ” in the notes to consolidated financial statements included in item 8 of this report for further discussion . in connection with the australia and th csap acquisitions , we recorded an aggregate net pre-tax gain of $ 83 million during 2019 , including ( i ) a noncash gain of $ 113 million to write up our existing equity investments in gazal and pvh australia to fair value , partially offset by ( ii ) $ 21 million of pre-tax costs , primarily consisting of noncash valuation adjustments and one-time expenses recorded on our equity investments in gazal and pvh australia prior to the australia acquisition closing , and ( iii ) a $ 9 million expense recorded in interest expense , net resulting from the remeasurement of our mandatorily redeemable non-controlling interest that was recognized in connection with the australia acquisition . we entered into a licensing agreement on may 30 , 2019 with g-iii for the design , production and wholesale distribution of calvin klein jeans women 's jeanswear collections in the united states and canada , which resulted in the discontinuation of our directly operated calvin klein north america women 's jeanswear wholesale business in 2019. we refinanced on april 29 , 2019 our senior credit facilities and recorded pre-tax debt modification and extinguishment charges of $ 5 million . please see the section entitled “ liquidity and capital resources ” below for further discussion . we closed our tommy hilfiger flagship and anchor stores in the united states ( the “ th u.s. store closures ” ) in the first quarter of 2019 and recorded pre-tax costs of $ 55 million , primarily consisting of noncash lease asset impairments . please see note 12 , “ fair value measurements , ” in the notes to consolidated financial statements included in item 8 of this report for further discussion of the noncash lease asset impairments . we announced on january 10 , 2019 a restructuring in connection with strategic changes for our calvin klein business ( the “ calvin klein restructuring ” ) . story_separator_special_tag the following table shows our revenue mix between net sales and royalty , advertising and other revenue , as well as our gross margin for 2019 , 2018 and 2017 : replace_table_token_3_th gross profit in 2019 was $ 5.388 billion , or 54.4 % of total revenue , as compared to $ 5.308 billion , or 55.0 % of total revenue , in 2018. the 60 basis point decrease in gross margin was principally driven by ( i ) a gross margin decline in our tommy hilfiger north america business due to more promotional selling as compared to the prior year , ( ii ) the impact of additional inventory reserves recorded in the fourth quarter of 2019 in anticipation of lower 2020 sales trends as a result of the onset of the covid-19 outbreak , ( iii ) short-lived noncash inventory valuation adjustments recorded in connection with the australia and th csap acquisitions , and ( iv ) the negative impact of tariffs imposed on goods imported from china into the united states . these decreases were partially offset by the favorable impact of faster growth in our tommy hilfiger 37 international and calvin klein international segments than in our north america segments , as our international segments generally carry higher gross margins , as well as gross margin improvements realized in our calvin klein north america business . gross profit in 2018 was $ 5.308 billion , or 55.0 % of total revenue , as compared to $ 4.894 billion , or 54.9 % of total revenue , in 2017. the 10 basis point increase in gross margin was principally driven by ( i ) a favorable mix of business due to faster growth in our tommy hilfiger international and calvin klein international segments than in our north america segments , as our international segments generally carry higher gross margins , and ( ii ) gross margin improvement in our tommy hilfiger business . partially offsetting these increases were gross margin declines in our calvin klein and heritage brands businesses principally due to more promotional selling . we currently expect that gross margin in 2020 will decrease as compared to 2019 primarily due to ( i ) the need for increased promotional selling and inventory liquidation as a result of the covid-19 outbreak and ( ii ) the unfavorable impact of the stronger united states dollar on our international businesses that purchase inventory in united states dollars , particularly our european businesses , as the increased local currency value of inventory results in higher cost of goods in local currency when the goods are sold . there is significant uncertainty with respect to the impact of the covid-19 outbreak on our business and the businesses of our licensees and other business partners . sg & a expenses our sg & a expenses were as follows : replace_table_token_4_th sg & a expenses in 2019 were $ 4.715 billion , or 47.6 % of total revenue , as compared to $ 4.433 billion , or 45.9 % of total revenue in 2018. the 170 basis point increase in sg & a expenses as a percentage of total revenue was principally attributable to ( i ) an increase in costs incurred in connection with the calvin klein restructuring , ( ii ) the costs incurred in connection with the socks and hosiery transaction , and ( iii ) the costs incurred in connection with the th u.s. store closures . also contributing to the increase was a change in the mix of business due to faster growth in our tommy hilfiger international and calvin klein international segments than in our north america segments , as our international segments generally carry higher sg & a expenses as percentages of total revenue . sg & a expenses in 2018 were $ 4.433 billion , or 45.9 % of total revenue , as compared to $ 4.245 billion , or 47.6 % of total revenue in 2017. the 170 basis point decrease in sg & a expenses as a percentage of total revenue was principally attributable to the absence in 2018 of costs that were recorded in 2017 in connection with ( i ) the mr. hilfiger amendment , ( ii ) the li & fung termination , and ( iii ) the relocation of our tommy hilfiger office in new york , including noncash depreciation expense . also contributing to the decrease was a leveraging of expenses in the tommy hilfiger business . these decreases were partially offset by ( i ) a change in the mix of business due to faster growth in our tommy hilfiger international and calvin klein international segments than in our north america segments , as our international segments generally carry higher sg & a expenses as percentages of total revenue , ( ii ) the costs incurred in connection with the calvin klein restructuring and ( iii ) an increase in corporate expenses due , in part , to investments in digital and information technology initiatives . in light of the negative impacts on our business resulting from the covid-19 outbreak , we are taking measures to significantly reduce sg & a expenses in 2020. as such , we currently expect our sg & a expenses in 2020 will be significantly lower as compared to 2019 , including as a result of the reductions resulting from these measures and the absence in 2020 of costs related to ( i ) the calvin klein restructuring , ( ii ) the socks and hosiery transaction and ( iii ) the th u.s. store closures . however , we expect our sg & a expenses as a percentage of total revenue in 2020 will increase as compared to 2019 primarily due to a deleveraging of expenses driven by the expected decline in revenue resulting from the covid-19 outbreak . there is significant uncertainty with respect to the impact of the covid-19 outbreak on our business and our sg & a
| cash flow summary cash and cash equivalents at february 2 , 2020 was $ 503 million , an increase of $ 51 million from the amount at february 3 , 2019 of $ 452 million . the change in cash and cash equivalents included the impact of ( i ) $ 325 million of common stock repurchases under the stock repurchase program , ( ii ) $ 71 million of long-term debt repayments , ( iii ) a $ 59 million net payment made in connection with the australia acquisition , and ( iv ) a $ 74 million payment made in connection with the th csap acquisition . cash flow in 2020 will be impacted by various factors in addition to those noted below in this “ liquidity and capital resources ” section , including ( i ) mandatory long-term debt repayments of approximately $ 14 million , subject to exchange rate fluctuations , ( ii ) common stock repurchases under the stock repurchase program of $ 111 million , which reflects stock repurchases through march 2020 with no further repurchases planned for the remainder of 2020 , and ( iii ) the expected proceeds of $ 170 million , subject to a working capital adjustment , related to the speedo transaction , which is expected to close in the first quarter of 2020. in addition , in march 2020 we increased the aggregate borrowings outstanding under our senior unsecured revolving credit facilities , other short-term revolving credit facilities and unsecured commercial paper note program to approximately $ 930 million , in order to increase our cash position and preserve financial flexibility in responding to the impacts of the covid-19 outbreak on our business .
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we generated cash flow from operations of approximately $ 3.3 billion in 2011 compared to $ 2.7 billion in 2010. our marketplaces segment total net revenues increased $ 921.1 million , or 16 % , in 2011 compared to 2010. the increase in total net revenues was driven primarily by a year-over-year increase in gmv excluding vehicles of 13 % , the acquisition of brands4friends in the first quarter of 2011 and an increase in revenue attributable to our classifieds and advertising businesses . marketplaces segment operating margin decreased 0.7 percentage points in 2011 compared to 2010 due to the impact of acquisitions , primarily brands4friends . our payments segment total net revenues increased $ 976.5 million , or 28 % , in 2011 compared to 2010. the increase in total net revenues was driven primarily by a year-over-year increase in net tpv of 29 % , growth in bill me later revenue and the impact of acquisitions . our payments segment operating margin increased 1.2 percentage points in 2011 compared to 2010 due primarily to productivity gains , improvement in bill me later 's operating performance and favorable impact of regulatory changes , partially offset by higher transactions losses and investments in our platform . our gsi segment was formed as a result of our acquisition of gsi in june 2011. from the acquisition date through december 31 , 2011 , gsi contributed $ 590.1 million in revenue and had a segment operating margin of 14 % . in 2010 , net revenues increased 5 % to $ 9.2 billion compared to $ 8.7 billion in 2009. excluding 2009 revenue from skype ( sold in november 2009 ) of $ 620.4 million , net revenues would have increased 13 % , from $ 8.1 billion in 2009 to $ 9.2 billion in 2010. these increases were driven by net revenue growth of 23 % and 8 % in our payments and marketplaces businesses , respectively . we achieved an operating margin of 22 % in 2010 compared to 17 % in 2009 , driven primarily by the impact of a skype-related legal settlement charge in 2009 and lower amortization costs associated with our acquired intangible assets . diluted earnings per share decreased to $ 1.36 in 2010 compared to $ 1.83 in 2009 driven primarily by the gain on sale of skype , partially offset by the impact of a skype-related legal settlement charge in 2009. cash flow from operations decreased to $ 2.7 billion in 2010 from $ 2.9 billion in 2009. some key operating metrics that members of our senior management regularly review to evaluate our financial results include net promoter score ( nps ) , market share , gmv , gmv excluding vehicles , number of sold items , net tpv , net number of payments , global ecommerce ( gec ) merchandise sales , penetration rates , funding mix ( the mix of payments vehicles such as credit cards , debit cards , bank accounts and paypal accounts , used by customers to make payments through our payments networks ) , free cash flow ( which we define as net cash provided by operating activities less purchases of property and equipment , net ) and revenue excluding acquisitions and foreign currency impact . outlook we expect our payments business to continue its strong performance from expanded merchant coverage and share of checkout . in addition , we expect solid performance from our marketplaces business in its core markets with continued investment in its platform and new products . finally , we expect strong performance from our gsi business driven by operational improvements and the realization of synergies . results of operations summary of net revenues we generate two types of net revenues : net transaction revenues and marketing services and other revenues . our net transaction revenues are derived principally from listing fees and final value fees ( which are fees payable on transactions completed on our marketplaces trading platforms ) , fees paid by merchants for payment processing services and ecommerce service fees . our marketing services revenues are derived principally from the sale of advertisements , revenue sharing arrangements , classifieds fees , marketing service fees and lead referral fees . other revenues are derived principally from interest and fees earned on the bill me later portfolio of receivables from loans , interest earned on certain paypal customer account balances and fees from contractual arrangements with third parties that provide services to our users . 54 the following table sets forth the breakdown of net revenues by type and geography for the periods presented . replace_table_token_6_th ( 1 ) includes communications segment revenue generated by skype until its sale on november 19 , 2009 . ( 2 ) represents revenues associated with our x.commerce initiative , which was launched in conjunction with our acquisition of magento in the third quarter of 2011. revenues are attributed to u.s. and international geographies based primarily upon the country in which the seller , payment recipient , customer , website that displays advertising , or other service provider , or until the sale of skype on november 19 , 2009 , the skype user 's internet protocol address , as the case may be , is located . because we generated the majority of our net revenues internationally in recent periods , including the years ended december 31 , 2011 , 2010 and 2009 , we are subject to the risks of doing business in foreign countries as discussed under “ item 1a : risk factors . ” in that regard , fluctuations in foreign currency exchange rates impact our results of operations . story_separator_special_tag general and administrative expenses decreased $ 339.0 million , or 24 % , in 2010 compared to 2009 . the decrease was due primarily to a charge of $ 343.2 million related to the settlement of a lawsuit between skype , joltid and entities controlled by joltid 's founders in 2009 , exclusion of costs attributable to skype following the sale and higher costs associated with our acquisition and divestiture activities in fiscal 2009. the decreases were partially offset by higher employee-related and consultant costs as well as a full fiscal year of costs attributable to gmarket . provision for transaction and loan losses provision for transaction and loan losses consists primarily of transaction loss expense associated with our customer protection programs , fraud , chargebacks and merchant credit losses ; bad debt expense associated with our accounts receivable balance ; and loan reserves associated with our loan receivables balance . we expect our provision for transaction and loan loss expense to fluctuate depending on many factors , including macroeconomic conditions , our customer protection programs and the impact of regulatory changes . provision for transaction and loan losses increased by $ 124.4 million , or 32 % , in 2011 compared to 2010 . this increase was due primarily to higher transaction volume and higher transaction loss rates , partially offset by improvements in loan loss and bad debt rates . transaction loss rates increased due primarily to strategic risk management decisions designed to improve the user experience and drive growth as well as the expansion of our protection programs . our loan loss and bad debt rates declined due to continued improvements in charge-off rates . provision for transaction and loan losses increased by $ 9.4 million , or 2 % , in 2010 compared to 2009 . the increase was due primarily to the ongoing roll-out of ebay 's buyer protection program and increases in transaction volume , partially offset by improvements in paypal 's transaction loss rate , bad debt rates and loan loss rates . paypal 's transaction loss rate declined due 60 to improvements in fraud loss detection , as well as the substitution of ebay 's buyer protection program for paypal 's program , partially offset by the recent launch of paypal 's purchase protection program for merchant services transactions . our bad debt rates declined from improved charge-off rates . bill me later loan loss rates declined due a lower charge-off rate and improved delinquency rates . amortization of acquired intangible assets from time to time we have purchased , and we expect to continue to purchase , assets and businesses . these purchase transactions generally result in the creation of acquired intangible assets with finite lives and lead to a corresponding increase in our amortization expense in periods subsequent to acquisition . we amortize intangible assets over the period of estimated benefit , using the straight-line method and estimated useful lives ranging from one to eight years . amortization of acquired intangible assets is also impacted by our sales of assets and businesses and timing of acquired intangible assets becoming fully amortized . see “ note 5 - goodwill and intangible assets ” to the consolidated financial statements included in this report . amortization of acquired intangible assets increased by $ 77.6 million , or 41 % , in 2011 compared to 2010 . the increase in amortization of acquired intangible assets was due to the thirteen acquisitions we completed in 2011 , with the acquisition of gsi having the most significant impact of approximately $ 60.5 million . amortization of acquired intangible assets decreased by $ 73.0 million , or 28 % , in 2010 compared to 2009 . the decrease in amortization of acquired intangible assets was due primarily to our sale of skype and the timing of acquired intangible assets becoming fully amortized , partially offset by amortization of intangibles that resulted from our acquisition of gmarket . restructuring in 2009 , we began the consolidation of certain customer service facilities in north america and europe to streamline our operations and deliver better and more efficient customer support to our users . we completed these activities during the first quarter of 2011. the consolidation impacted approximately 1,000 employees . in connection with the consolidation , we incurred aggregate restructuring costs of approximately $ 47.2 million , primarily related to employee severance and benefits . during 2011 , we recorded a reduction in restructuring costs of $ 0.5 million as a result of changes to our assumptions associated with sub-leasing our facility . during 2010 and 2009 , we incurred restructuring charges of $ 26.0 and $ 21.4 million , respectively , in connection with this consolidation . see “ note 11- restructuring ” to the consolidated financial statements included in this report . interest and other , net interest and other , net , consists of interest earned on cash , cash equivalents and investments , as well as foreign exchange transaction gains and losses , our portion of operating results from investments accounted for under the equity method of accounting , investment gain/loss on acquisitions , and interest expense , consisting of interest charges on amounts borrowed and commitment fees on unborrowed amounts under our credit agreement and interest expense on our outstanding commercial paper and debt securities . interest and other , net excludes interest expense on borrowings incurred to finance bill me later 's portfolio of loan receivables , which is included in cost of net revenues ( see `` note 20 - interest and other , net `` to the consolidated financial statements included in this report for more information ) . interest and other , net , increased $ 1.5 billion in 2011 compared to 2010 . the increase in interest and other , net was due primarily to an investment gain of approximately $ 1.7 billion associated with the sale of our remaining 30 % equity interest in skype , partially offset
| cash flow summary cash and cash equivalents at february 2 , 2020 was $ 503 million , an increase of $ 51 million from the amount at february 3 , 2019 of $ 452 million . the change in cash and cash equivalents included the impact of ( i ) $ 325 million of common stock repurchases under the stock repurchase program , ( ii ) $ 71 million of long-term debt repayments , ( iii ) a $ 59 million net payment made in connection with the australia acquisition , and ( iv ) a $ 74 million payment made in connection with the th csap acquisition . cash flow in 2020 will be impacted by various factors in addition to those noted below in this “ liquidity and capital resources ” section , including ( i ) mandatory long-term debt repayments of approximately $ 14 million , subject to exchange rate fluctuations , ( ii ) common stock repurchases under the stock repurchase program of $ 111 million , which reflects stock repurchases through march 2020 with no further repurchases planned for the remainder of 2020 , and ( iii ) the expected proceeds of $ 170 million , subject to a working capital adjustment , related to the speedo transaction , which is expected to close in the first quarter of 2020. in addition , in march 2020 we increased the aggregate borrowings outstanding under our senior unsecured revolving credit facilities , other short-term revolving credit facilities and unsecured commercial paper note program to approximately $ 930 million , in order to increase our cash position and preserve financial flexibility in responding to the impacts of the covid-19 outbreak on our business .
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we generated cash flow from operations of approximately $ 3.3 billion in 2011 compared to $ 2.7 billion in 2010. our marketplaces segment total net revenues increased $ 921.1 million , or 16 % , in 2011 compared to 2010. the increase in total net revenues was driven primarily by a year-over-year increase in gmv excluding vehicles of 13 % , the acquisition of brands4friends in the first quarter of 2011 and an increase in revenue attributable to our classifieds and advertising businesses . marketplaces segment operating margin decreased 0.7 percentage points in 2011 compared to 2010 due to the impact of acquisitions , primarily brands4friends . our payments segment total net revenues increased $ 976.5 million , or 28 % , in 2011 compared to 2010. the increase in total net revenues was driven primarily by a year-over-year increase in net tpv of 29 % , growth in bill me later revenue and the impact of acquisitions . our payments segment operating margin increased 1.2 percentage points in 2011 compared to 2010 due primarily to productivity gains , improvement in bill me later 's operating performance and favorable impact of regulatory changes , partially offset by higher transactions losses and investments in our platform . our gsi segment was formed as a result of our acquisition of gsi in june 2011. from the acquisition date through december 31 , 2011 , gsi contributed $ 590.1 million in revenue and had a segment operating margin of 14 % . in 2010 , net revenues increased 5 % to $ 9.2 billion compared to $ 8.7 billion in 2009. excluding 2009 revenue from skype ( sold in november 2009 ) of $ 620.4 million , net revenues would have increased 13 % , from $ 8.1 billion in 2009 to $ 9.2 billion in 2010. these increases were driven by net revenue growth of 23 % and 8 % in our payments and marketplaces businesses , respectively . we achieved an operating margin of 22 % in 2010 compared to 17 % in 2009 , driven primarily by the impact of a skype-related legal settlement charge in 2009 and lower amortization costs associated with our acquired intangible assets . diluted earnings per share decreased to $ 1.36 in 2010 compared to $ 1.83 in 2009 driven primarily by the gain on sale of skype , partially offset by the impact of a skype-related legal settlement charge in 2009. cash flow from operations decreased to $ 2.7 billion in 2010 from $ 2.9 billion in 2009. some key operating metrics that members of our senior management regularly review to evaluate our financial results include net promoter score ( nps ) , market share , gmv , gmv excluding vehicles , number of sold items , net tpv , net number of payments , global ecommerce ( gec ) merchandise sales , penetration rates , funding mix ( the mix of payments vehicles such as credit cards , debit cards , bank accounts and paypal accounts , used by customers to make payments through our payments networks ) , free cash flow ( which we define as net cash provided by operating activities less purchases of property and equipment , net ) and revenue excluding acquisitions and foreign currency impact . outlook we expect our payments business to continue its strong performance from expanded merchant coverage and share of checkout . in addition , we expect solid performance from our marketplaces business in its core markets with continued investment in its platform and new products . finally , we expect strong performance from our gsi business driven by operational improvements and the realization of synergies . results of operations summary of net revenues we generate two types of net revenues : net transaction revenues and marketing services and other revenues . our net transaction revenues are derived principally from listing fees and final value fees ( which are fees payable on transactions completed on our marketplaces trading platforms ) , fees paid by merchants for payment processing services and ecommerce service fees . our marketing services revenues are derived principally from the sale of advertisements , revenue sharing arrangements , classifieds fees , marketing service fees and lead referral fees . other revenues are derived principally from interest and fees earned on the bill me later portfolio of receivables from loans , interest earned on certain paypal customer account balances and fees from contractual arrangements with third parties that provide services to our users . 54 the following table sets forth the breakdown of net revenues by type and geography for the periods presented . replace_table_token_6_th ( 1 ) includes communications segment revenue generated by skype until its sale on november 19 , 2009 . ( 2 ) represents revenues associated with our x.commerce initiative , which was launched in conjunction with our acquisition of magento in the third quarter of 2011. revenues are attributed to u.s. and international geographies based primarily upon the country in which the seller , payment recipient , customer , website that displays advertising , or other service provider , or until the sale of skype on november 19 , 2009 , the skype user 's internet protocol address , as the case may be , is located . because we generated the majority of our net revenues internationally in recent periods , including the years ended december 31 , 2011 , 2010 and 2009 , we are subject to the risks of doing business in foreign countries as discussed under “ item 1a : risk factors . ” in that regard , fluctuations in foreign currency exchange rates impact our results of operations . story_separator_special_tag general and administrative expenses decreased $ 339.0 million , or 24 % , in 2010 compared to 2009 . the decrease was due primarily to a charge of $ 343.2 million related to the settlement of a lawsuit between skype , joltid and entities controlled by joltid 's founders in 2009 , exclusion of costs attributable to skype following the sale and higher costs associated with our acquisition and divestiture activities in fiscal 2009. the decreases were partially offset by higher employee-related and consultant costs as well as a full fiscal year of costs attributable to gmarket . provision for transaction and loan losses provision for transaction and loan losses consists primarily of transaction loss expense associated with our customer protection programs , fraud , chargebacks and merchant credit losses ; bad debt expense associated with our accounts receivable balance ; and loan reserves associated with our loan receivables balance . we expect our provision for transaction and loan loss expense to fluctuate depending on many factors , including macroeconomic conditions , our customer protection programs and the impact of regulatory changes . provision for transaction and loan losses increased by $ 124.4 million , or 32 % , in 2011 compared to 2010 . this increase was due primarily to higher transaction volume and higher transaction loss rates , partially offset by improvements in loan loss and bad debt rates . transaction loss rates increased due primarily to strategic risk management decisions designed to improve the user experience and drive growth as well as the expansion of our protection programs . our loan loss and bad debt rates declined due to continued improvements in charge-off rates . provision for transaction and loan losses increased by $ 9.4 million , or 2 % , in 2010 compared to 2009 . the increase was due primarily to the ongoing roll-out of ebay 's buyer protection program and increases in transaction volume , partially offset by improvements in paypal 's transaction loss rate , bad debt rates and loan loss rates . paypal 's transaction loss rate declined due 60 to improvements in fraud loss detection , as well as the substitution of ebay 's buyer protection program for paypal 's program , partially offset by the recent launch of paypal 's purchase protection program for merchant services transactions . our bad debt rates declined from improved charge-off rates . bill me later loan loss rates declined due a lower charge-off rate and improved delinquency rates . amortization of acquired intangible assets from time to time we have purchased , and we expect to continue to purchase , assets and businesses . these purchase transactions generally result in the creation of acquired intangible assets with finite lives and lead to a corresponding increase in our amortization expense in periods subsequent to acquisition . we amortize intangible assets over the period of estimated benefit , using the straight-line method and estimated useful lives ranging from one to eight years . amortization of acquired intangible assets is also impacted by our sales of assets and businesses and timing of acquired intangible assets becoming fully amortized . see “ note 5 - goodwill and intangible assets ” to the consolidated financial statements included in this report . amortization of acquired intangible assets increased by $ 77.6 million , or 41 % , in 2011 compared to 2010 . the increase in amortization of acquired intangible assets was due to the thirteen acquisitions we completed in 2011 , with the acquisition of gsi having the most significant impact of approximately $ 60.5 million . amortization of acquired intangible assets decreased by $ 73.0 million , or 28 % , in 2010 compared to 2009 . the decrease in amortization of acquired intangible assets was due primarily to our sale of skype and the timing of acquired intangible assets becoming fully amortized , partially offset by amortization of intangibles that resulted from our acquisition of gmarket . restructuring in 2009 , we began the consolidation of certain customer service facilities in north america and europe to streamline our operations and deliver better and more efficient customer support to our users . we completed these activities during the first quarter of 2011. the consolidation impacted approximately 1,000 employees . in connection with the consolidation , we incurred aggregate restructuring costs of approximately $ 47.2 million , primarily related to employee severance and benefits . during 2011 , we recorded a reduction in restructuring costs of $ 0.5 million as a result of changes to our assumptions associated with sub-leasing our facility . during 2010 and 2009 , we incurred restructuring charges of $ 26.0 and $ 21.4 million , respectively , in connection with this consolidation . see “ note 11- restructuring ” to the consolidated financial statements included in this report . interest and other , net interest and other , net , consists of interest earned on cash , cash equivalents and investments , as well as foreign exchange transaction gains and losses , our portion of operating results from investments accounted for under the equity method of accounting , investment gain/loss on acquisitions , and interest expense , consisting of interest charges on amounts borrowed and commitment fees on unborrowed amounts under our credit agreement and interest expense on our outstanding commercial paper and debt securities . interest and other , net excludes interest expense on borrowings incurred to finance bill me later 's portfolio of loan receivables , which is included in cost of net revenues ( see `` note 20 - interest and other , net `` to the consolidated financial statements included in this report for more information ) . interest and other , net , increased $ 1.5 billion in 2011 compared to 2010 . the increase in interest and other , net was due primarily to an investment gain of approximately $ 1.7 billion associated with the sale of our remaining 30 % equity interest in skype , partially offset
| cash paid for income taxes in 2011 , 2010 and 2009 was $ 372.5 million , $ 645.8 million and $ 342.2 million , respectively . investing activities the net cash used in investing activities of $ 3.3 billion in 2011 was due primarily to net cash paid for acquisition of businesses of $ 3.2 billion , purchases of investments of $ 2.3 billion , purchases of property and equipment , net , of $ 963.5 million and the purchase of consumer loan receivables ( net of collections ) originated through our bill me later merchant network of $ 586.5 million , partially offset by proceeds of $ 2.3 billion related to the sale of our remaining 30 percent interest in skype and $ 1.6 billion from maturities and sales of investments . the net cash used in investing activities of $ 2.3 billion in 2010 was due primarily to cash paid for purchases of investments of $ 2.6 billion , purchases of property and equipment , net , of $ 723.9 million and the purchase of consumer loan receivables ( net of collections ) originated through our bill me later merchant network of $ 379.7 million , partially offset by proceeds of $ 1.4 billion from maturities and sales of investments . financing activities the net cash used in financing activities of $ 838.5 million in 2011 was due primarily to $ 1.1 billion in cash paid to repurchase our common stock and $ 147.1 million in cash paid for tax withholdings related to net share settlements of restricted stock units and nonvested share awards , partially offset by proceeds from net borrowings under the commercial paper program of $ 250.0 million , $ 242.2 million from the issuance of common stock in connection with the exercise of stock options and our employee stock purchase plan and $ 79.7 million in excess tax benefits from stock-based compensation .
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also , historically we have experienced fewer billable hours in our fiscal quarter that includes the holiday season , which was the fourth quarter in each of fiscal 2013 , fiscal 2012 and fiscal 2011. international operations revenues outside of the u.s. accounted for approximately 22 % , 23 % , and 26 % of our total revenues in fiscal 2013 , fiscal 2012 , and fiscal 2011 , respectively . revenue by country is detailed in note 13 to our notes to consolidated financial statements . 29 noncontrolling interest our ownership interest in neuco is 55.89 % and constitutes control under gaap ; therefore , neuco 's financial results have been consolidated with ours and the portion of neuco 's results allocable to its other owners is shown as `` noncontrolling interest . `` neuco 's revenues included in our consolidated statements of operations for fiscal 2013 , fiscal 2012 , and fiscal 2011 totaled approximately $ 5.1 million , $ 5.5 million , and $ 6.2 million , respectively . neuco 's net loss included in our consolidated statements of operations for fiscal 2013 was approximately $ 0.3 million . neuco 's net income included in our consolidated statements of operations for fiscal 2012 and fiscal 2011 was approximately $ 0.3 million and $ 0.2 million , respectively . neuco 's net loss , net of amounts allocable to its other owners , included in our consolidated statements of operations for fiscal 2013 was approximately $ 0.2 million . neuco 's net income , net of amounts allocable to its other owners , included in our consolidated statements of operations for fiscal 2012 and fiscal 2011 was approximately $ 0.2 million and $ 0.1 million , respectively . critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses , as well as related disclosure of contingent assets and liabilities . estimates in these consolidated financial statements include , but are not limited to , accounts and unbilled receivable allowances , revenue recognition on fixed price contracts , depreciation of property and equipment , share-based compensation , valuation of acquired intangible assets , impairment of long-lived assets and goodwill , accrued and deferred income taxes , valuation allowances on deferred tax assets , accrued compensation , accrued exit costs , and other accrued expenses . these items are monitored and analyzed by management for changes in facts and circumstances , and material changes in these estimates could occur in the future . changes in estimates are recorded in the period in which they become known . we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from our estimates if our assumptions based on past experience or our other assumptions do not turn out to be substantially accurate . a summary of the accounting policies that we believe are most critical to understanding and evaluating our financial results is set forth below . this summary should be read in conjunction with our consolidated financial statements and the related notes included in item 8 of this annual report on form 10-k. revenue recognition and accounts receivable allowances . we derive substantially all of our revenues from the performance of professional services . the contracts that we enter into and operate under specify whether the engagement will be billed on a time-and-materials or fixed-price basis . these engagements generally last three to six months , although some of our engagements can be much longer in duration . each contract must be approved by one of our vice presidents . we recognize substantially all of our revenues under written service contracts with our clients where the fee is fixed or determinable , as the services are provided , and only in those situations where collection from the client is reasonably assured . in certain cases we provide services to our clients without sufficient contractual documentation , or fees are tied to performance-based criteria , which require us to defer revenue in accordance with u.s. gaap . in these cases , these amounts are fully reserved until all criteria for recognizing revenue are met . our revenues include projects secured by our non-employee experts as well as projects secured by our employees . we recognize all project revenue on a gross basis based on the consideration of the criteria set forth in accounting standards codification ( `` asc `` ) topic 605-45 , principal agent considerations . 30 most of our revenue is derived from time-and-materials service contracts . revenues from time-and-materials service contracts are recognized as the services are provided based upon hours worked and contractually agreed-upon hourly rates , as well as indirect fees based upon hours worked . revenues from a majority of our fixed-price engagements are recognized on a proportional performance method based on the ratio of costs incurred , substantially all of which are labor-related , to the total estimated project costs . we derived approximately 13 % , 15 % , and 22 % of revenues from fixed-price engagements in fiscal 2013 , fiscal 2012 , and fiscal 2011 , respectively . in general , project costs are classified in costs of services and are based on the direct salary of the consultants on the engagement plus all direct expenses incurred to complete the engagement , including any amounts billed to us by our non-employee experts . story_separator_special_tag 2013-02 , comprehensive income ( topic 220 ) : reporting of amounts reclassified out of accumulated other comprehensive income ( `` asu 2013-02 `` ) . asu 2013-02 requires an entity disclose in a single location ( either on the face of the financial statement that reports net income or in the notes ) the effects of reclassifications out of accumulated other comprehensive income . for items reclassified out of accumulated other comprehensive income and into net income in their entirety , entities must disclose the effect of the reclassification on each affected net income item . for accumulated other comprehensive income reclassification items that are not reclassified in their entirety into net income , entities must provide a cross reference to other required u.s. gaap disclosures . there is no change in the requirement to present the components of net income and other comprehensive income in either a single continuous statement or two separate consecutive statements . asu 2013- 02 is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2012 and should be applied prospectively . our adoption of asu 2013-02 in the first quarter of fiscal 2013 had no impact on our financial position , results of operations , cash flows , or disclosures . cumulative translation adjustment in march 2013 , the fasb issued asu no . 2013-05 , parent 's accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity ( `` asu 2013-05 `` ) . asu 2013-05 addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity . asu 2013-05 is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2013 and should be applied prospectively . early adoption is permitted . we believe the adoption of asu 2013-05 will have no impact on our financial position , results of operations , cash flows , or disclosures . intangibles in july 2012 , the fasb issued asu no . 2012-02 , intangiblesgoodwill and other ( topic 350 ) : testing indefinite-lived intangible assets for impairment ( `` asu 2012-02 `` ) to simplify the guidance for testing the decline in the realizable value ( impairment ) of indefinite-lived intangible assets other than goodwill . under former guidance , an organization was required to test an indefinite-lived intangible asset for impairment on at least an annual basis by comparing the fair value of the asset with its carrying amount . if the carrying amount of an indefinite-lived intangible asset exceeded its fair value , an impairment loss was recognized in an amount equal to the difference . asu 2012-02 allows an organization the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test . an organization electing to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines , based on a qualitative assessment , that it is `` more likely than not `` that the asset is impaired . asu 2012-02 was effective for annual and interim impairment tests performed for fiscal years beginning after september 15 , 2012. our adoption of asu 2012-02 in fiscal 2013 had no impact on our financial position , results of operations , cash flows , or disclosures . 35 results of operations the following table provides operating information as a percentage of revenues for the periods indicated : replace_table_token_6_th fiscal 2013 compared to fiscal 2012 revenues . revenues increased by $ 8.0 million , or 3.0 % , to $ 278.4 million for fiscal 2013 from $ 270.4 million for fiscal 2012 primarily due to increased revenue in our litigation , regulatory , and financial consulting business in the second half of fiscal 2013 , reflecting organic growth and increasing contributions from the new senior-level hires we welcomed to cra during the latter part of fiscal 2012 and the first quarter of fiscal 2013. the increase in revenue was partially offset by a decrease of revenue in our management consulting business in fiscal 2013 as compared to fiscal 2012. although our management consulting business started fiscal 2013 slowly , it experienced improvements in project backlog toward the end of the second quarter of fiscal 2013 that continued into the second half of fiscal 2013. our utilization increased to 73 % for fiscal 2013 from 68 % for the fiscal 2012. in addition , revenues were impacted by an increase in client reimbursable expenses , which are pass-through expenses that carry little to no margin , partially offset by a decrease in revenues of $ 0.4 million for neuco in fiscal 2013 as compared to fiscal 2012. overall , revenues outside of the u.s. represented approximately 22 % of total revenues for fiscal 2013 , compared with approximately 23 % of total revenues for fiscal 2012. revenues derived from fixed- price engagements decreased to 13 % of total revenues for fiscal 2013 compared with 15 % for fiscal 2012. this decrease was due primarily to the previously mentioned decrease in our management consulting business , as the management consulting business typically has a higher concentration of fixed-price service contracts . costs of services . costs of services increased by $ 6.9 million , or 3.8 % , to $ 189.3 million for fiscal 2013 from $ 182.4 million for fiscal 2012. the increase in costs of services was due primarily to an increase in compensation expense , principally as a result of an increase in forgivable loan amortization 36 of $ 7.1 million . as is common in our industry , we have
| cash paid for income taxes in 2011 , 2010 and 2009 was $ 372.5 million , $ 645.8 million and $ 342.2 million , respectively . investing activities the net cash used in investing activities of $ 3.3 billion in 2011 was due primarily to net cash paid for acquisition of businesses of $ 3.2 billion , purchases of investments of $ 2.3 billion , purchases of property and equipment , net , of $ 963.5 million and the purchase of consumer loan receivables ( net of collections ) originated through our bill me later merchant network of $ 586.5 million , partially offset by proceeds of $ 2.3 billion related to the sale of our remaining 30 percent interest in skype and $ 1.6 billion from maturities and sales of investments . the net cash used in investing activities of $ 2.3 billion in 2010 was due primarily to cash paid for purchases of investments of $ 2.6 billion , purchases of property and equipment , net , of $ 723.9 million and the purchase of consumer loan receivables ( net of collections ) originated through our bill me later merchant network of $ 379.7 million , partially offset by proceeds of $ 1.4 billion from maturities and sales of investments . financing activities the net cash used in financing activities of $ 838.5 million in 2011 was due primarily to $ 1.1 billion in cash paid to repurchase our common stock and $ 147.1 million in cash paid for tax withholdings related to net share settlements of restricted stock units and nonvested share awards , partially offset by proceeds from net borrowings under the commercial paper program of $ 250.0 million , $ 242.2 million from the issuance of common stock in connection with the exercise of stock options and our employee stock purchase plan and $ 79.7 million in excess tax benefits from stock-based compensation .
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also , historically we have experienced fewer billable hours in our fiscal quarter that includes the holiday season , which was the fourth quarter in each of fiscal 2013 , fiscal 2012 and fiscal 2011. international operations revenues outside of the u.s. accounted for approximately 22 % , 23 % , and 26 % of our total revenues in fiscal 2013 , fiscal 2012 , and fiscal 2011 , respectively . revenue by country is detailed in note 13 to our notes to consolidated financial statements . 29 noncontrolling interest our ownership interest in neuco is 55.89 % and constitutes control under gaap ; therefore , neuco 's financial results have been consolidated with ours and the portion of neuco 's results allocable to its other owners is shown as `` noncontrolling interest . `` neuco 's revenues included in our consolidated statements of operations for fiscal 2013 , fiscal 2012 , and fiscal 2011 totaled approximately $ 5.1 million , $ 5.5 million , and $ 6.2 million , respectively . neuco 's net loss included in our consolidated statements of operations for fiscal 2013 was approximately $ 0.3 million . neuco 's net income included in our consolidated statements of operations for fiscal 2012 and fiscal 2011 was approximately $ 0.3 million and $ 0.2 million , respectively . neuco 's net loss , net of amounts allocable to its other owners , included in our consolidated statements of operations for fiscal 2013 was approximately $ 0.2 million . neuco 's net income , net of amounts allocable to its other owners , included in our consolidated statements of operations for fiscal 2012 and fiscal 2011 was approximately $ 0.2 million and $ 0.1 million , respectively . critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses , as well as related disclosure of contingent assets and liabilities . estimates in these consolidated financial statements include , but are not limited to , accounts and unbilled receivable allowances , revenue recognition on fixed price contracts , depreciation of property and equipment , share-based compensation , valuation of acquired intangible assets , impairment of long-lived assets and goodwill , accrued and deferred income taxes , valuation allowances on deferred tax assets , accrued compensation , accrued exit costs , and other accrued expenses . these items are monitored and analyzed by management for changes in facts and circumstances , and material changes in these estimates could occur in the future . changes in estimates are recorded in the period in which they become known . we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from our estimates if our assumptions based on past experience or our other assumptions do not turn out to be substantially accurate . a summary of the accounting policies that we believe are most critical to understanding and evaluating our financial results is set forth below . this summary should be read in conjunction with our consolidated financial statements and the related notes included in item 8 of this annual report on form 10-k. revenue recognition and accounts receivable allowances . we derive substantially all of our revenues from the performance of professional services . the contracts that we enter into and operate under specify whether the engagement will be billed on a time-and-materials or fixed-price basis . these engagements generally last three to six months , although some of our engagements can be much longer in duration . each contract must be approved by one of our vice presidents . we recognize substantially all of our revenues under written service contracts with our clients where the fee is fixed or determinable , as the services are provided , and only in those situations where collection from the client is reasonably assured . in certain cases we provide services to our clients without sufficient contractual documentation , or fees are tied to performance-based criteria , which require us to defer revenue in accordance with u.s. gaap . in these cases , these amounts are fully reserved until all criteria for recognizing revenue are met . our revenues include projects secured by our non-employee experts as well as projects secured by our employees . we recognize all project revenue on a gross basis based on the consideration of the criteria set forth in accounting standards codification ( `` asc `` ) topic 605-45 , principal agent considerations . 30 most of our revenue is derived from time-and-materials service contracts . revenues from time-and-materials service contracts are recognized as the services are provided based upon hours worked and contractually agreed-upon hourly rates , as well as indirect fees based upon hours worked . revenues from a majority of our fixed-price engagements are recognized on a proportional performance method based on the ratio of costs incurred , substantially all of which are labor-related , to the total estimated project costs . we derived approximately 13 % , 15 % , and 22 % of revenues from fixed-price engagements in fiscal 2013 , fiscal 2012 , and fiscal 2011 , respectively . in general , project costs are classified in costs of services and are based on the direct salary of the consultants on the engagement plus all direct expenses incurred to complete the engagement , including any amounts billed to us by our non-employee experts . story_separator_special_tag 2013-02 , comprehensive income ( topic 220 ) : reporting of amounts reclassified out of accumulated other comprehensive income ( `` asu 2013-02 `` ) . asu 2013-02 requires an entity disclose in a single location ( either on the face of the financial statement that reports net income or in the notes ) the effects of reclassifications out of accumulated other comprehensive income . for items reclassified out of accumulated other comprehensive income and into net income in their entirety , entities must disclose the effect of the reclassification on each affected net income item . for accumulated other comprehensive income reclassification items that are not reclassified in their entirety into net income , entities must provide a cross reference to other required u.s. gaap disclosures . there is no change in the requirement to present the components of net income and other comprehensive income in either a single continuous statement or two separate consecutive statements . asu 2013- 02 is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2012 and should be applied prospectively . our adoption of asu 2013-02 in the first quarter of fiscal 2013 had no impact on our financial position , results of operations , cash flows , or disclosures . cumulative translation adjustment in march 2013 , the fasb issued asu no . 2013-05 , parent 's accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity ( `` asu 2013-05 `` ) . asu 2013-05 addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity . asu 2013-05 is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2013 and should be applied prospectively . early adoption is permitted . we believe the adoption of asu 2013-05 will have no impact on our financial position , results of operations , cash flows , or disclosures . intangibles in july 2012 , the fasb issued asu no . 2012-02 , intangiblesgoodwill and other ( topic 350 ) : testing indefinite-lived intangible assets for impairment ( `` asu 2012-02 `` ) to simplify the guidance for testing the decline in the realizable value ( impairment ) of indefinite-lived intangible assets other than goodwill . under former guidance , an organization was required to test an indefinite-lived intangible asset for impairment on at least an annual basis by comparing the fair value of the asset with its carrying amount . if the carrying amount of an indefinite-lived intangible asset exceeded its fair value , an impairment loss was recognized in an amount equal to the difference . asu 2012-02 allows an organization the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test . an organization electing to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines , based on a qualitative assessment , that it is `` more likely than not `` that the asset is impaired . asu 2012-02 was effective for annual and interim impairment tests performed for fiscal years beginning after september 15 , 2012. our adoption of asu 2012-02 in fiscal 2013 had no impact on our financial position , results of operations , cash flows , or disclosures . 35 results of operations the following table provides operating information as a percentage of revenues for the periods indicated : replace_table_token_6_th fiscal 2013 compared to fiscal 2012 revenues . revenues increased by $ 8.0 million , or 3.0 % , to $ 278.4 million for fiscal 2013 from $ 270.4 million for fiscal 2012 primarily due to increased revenue in our litigation , regulatory , and financial consulting business in the second half of fiscal 2013 , reflecting organic growth and increasing contributions from the new senior-level hires we welcomed to cra during the latter part of fiscal 2012 and the first quarter of fiscal 2013. the increase in revenue was partially offset by a decrease of revenue in our management consulting business in fiscal 2013 as compared to fiscal 2012. although our management consulting business started fiscal 2013 slowly , it experienced improvements in project backlog toward the end of the second quarter of fiscal 2013 that continued into the second half of fiscal 2013. our utilization increased to 73 % for fiscal 2013 from 68 % for the fiscal 2012. in addition , revenues were impacted by an increase in client reimbursable expenses , which are pass-through expenses that carry little to no margin , partially offset by a decrease in revenues of $ 0.4 million for neuco in fiscal 2013 as compared to fiscal 2012. overall , revenues outside of the u.s. represented approximately 22 % of total revenues for fiscal 2013 , compared with approximately 23 % of total revenues for fiscal 2012. revenues derived from fixed- price engagements decreased to 13 % of total revenues for fiscal 2013 compared with 15 % for fiscal 2012. this decrease was due primarily to the previously mentioned decrease in our management consulting business , as the management consulting business typically has a higher concentration of fixed-price service contracts . costs of services . costs of services increased by $ 6.9 million , or 3.8 % , to $ 189.3 million for fiscal 2013 from $ 182.4 million for fiscal 2012. the increase in costs of services was due primarily to an increase in compensation expense , principally as a result of an increase in forgivable loan amortization 36 of $ 7.1 million . as is common in our industry , we have
| liquidity and capital resources we believe that current cash , cash equivalents , cash generated from operations , and amounts available under our bank line of credit will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months . 40 general . in fiscal 2013 , cash and cash equivalents decreased by $ 4.2 million . we completed the period with cash and cash equivalents of $ 51.3 million and working capital ( defined as current assets less current liabilities ) of $ 75.0 million . of the total cash and cash equivalents of $ 51.3 million at december 28 , 2013 , $ 41.8 million was in the u.s. we have sufficient sources of cash in the u.s. to fund u.s. cash requirements without the need to repatriate any funds . as of december 28 , 2013 , a substantial portion of our cash accounts was concentrated at a single financial institution , which potentially exposes us to credit risks . the financial institution has a short-term credit rating of a-2 by standard & poor 's ratings services . we have not experienced any losses related to such accounts and we do not believe that there is significant risk of non-performance by the financial institution . our cash on deposit at this financial institution is fully liquid , and we continually monitor the credit ratings of this institution . a change in the credit worthiness of this financial institution could materially affect our liquidity and working capital . sources and uses of cash . during fiscal 2013 , net cash provided by operations was $ 18.4 million .
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natural gas reserves in offshore areas ; the exploration and production of onshore shale oil and natural gas ; 31 the cost of offshore exploration for and production and transportation of oil and natural gas ; the level of excess production capacity ; the ability of oil and gas companies to generate funds or otherwise obtain external capital for exploration , development and production operations ; the sale and expiration dates of offshore leases in the united states and overseas ; technological advances affecting energy exploration , production , transportation and consumption ; potential acceleration of the development of alternative fuels ; shifts in end-customer preferences toward fuel efficiency and the use of natural gas ; weather conditions and natural disasters ; environmental and other governmental regulations ; and domestic and international tax laws , regulations and policies . oil prices have fallen almost 75 % since mid-year 2014. the decline in oil prices reflects expectations of a sustained increase in production by competing oil exporters such as opec amid continued global supply of oil in excess of demand . lower oil prices have had a significant adverse impact on investments in oil and gas exploration and production . in addition , the pickup in oil consumption by oil importers has been weaker than expected , in part reflecting the slowdown in overall growth in china , the world 's largest oil importer . in light of the sharp decline in oil prices , many oil and gas companies have terminated or not renewed contracts for more than half of their contracted rigs and have drastically cut investments in exploration and production . we expect these challenging industry conditions to continue into 2016 and beyond if oil and gas prices fail to increase to a level conducive to increased activity levels . increased competition for limited offshore oil and gas projects has driven down rates that drilling rig contractors are charging for their services , which affects all offshore oil and gas services contractors , including us . increased competition is also expected to affect utilization of our assets , and increasingly for 2016 , our robotics assets . in addition , the current volatile and uncertain macroeconomic conditions in some countries around the world , such as brazil , may have a direct and or indirect impact on existing contracts and contracting opportunities . many oil and gas companies are increasingly focusing on optimizing production of their existing subsea wells . we believe that we have a competitive advantage in terms of performing well intervention services efficiently . furthermore , we believe that when oil and gas companies begin to increase overall spending levels , it will likely be for production activities rather than for exploration projects . our well intervention and robotics operations are intended to service the life span of an oil and gas field as well as to provide abandonment services at the end of the life of a field as required by governmental regulations . thus over the longer term , we believe that fundamentals for our business remain favorable as the need for prolongation of well life in oil and gas production is the primary driver of demand for our services . our strategy is to be positioned for future recovery while coping with a sustained period of weak activity . this strategy is based on the following factors : ( 1 ) the need to extend the life of subsea wells is significant to the commerciality of the wells as plug and abandonment costs are considered ; ( 2 ) our services offer commercially viable alternatives for reducing the finding and development costs of reserves as compared to new drilling ; and ( 3 ) in past cycles , well intervention and workover have been one of the first activities to recover , and in a prolonged market downturn are important to the commercial viability of deepwater wells . at december 31 , 2015 , we had cash on hand of $ 494.2 million and $ 249.4 million available for borrowing under our revolving credit facility . our capital expenditures for 2016 are currently anticipated to total approximately $ 240 million . we believe that we have sufficient liquidity without incurring additional indebtedness beyond the availability under the revolving credit facility ( note 7 ) in 2016 . 32 business activity summary we have enhanced our financial position and strengthened our balance sheet with proceeds from the sale of certain non-core business assets , which , together with liquidity under our revolving credit facility , have allowed us to strategically focus on our core well intervention and robotics businesses . since 2009 , we have generated approximately $ 1.5 billion in pre-tax proceeds from asset sale transactions . these dispositions primarily include approximately $ 55 million from the sale of individual oil and gas properties , over $ 500 million from the sale of our stockholdings in cal dive international inc. , $ 25 million from the sale of our former reservoir consulting business , approximately $ 238 million from the sale of our two remaining pipelay vessels , the caesar and the express , and $ 624 million from the sale of ert . in april 2015 , we took delivery of the q5000 , a newbuild semi-submersible well intervention vessel . the vessel then transited from the construction shipyard in singapore to the gulf of mexico where it completed its sea trials after the topside equipment was installed . the q5000 commenced operations in the gulf of mexico during the fourth quarter of 2015. the vessel is expected to commence services in april 2016 under our five-year contract with bp . also in april 2015 , we took delivery of the grand canyon ii , a chartered newbuild vessel with more capabilities than some of our older chartered rov support vessels . story_separator_special_tag gross profit . our gross profit increased by 32 % in 2014 as compared to 2013. the gross profit related to our well intervention segment increased by 54 % in 2014 as compared to 2013 reflecting the addition of two vessels to our fleet since march 31 , 2013. the gross profit associated with our robotics segment increased by 52 % in 2014 as compared to 2013 reflecting increased utilization for our rovs and trenching assets and related support vessels . utilization for our trenching assets increased significantly reflecting the resumption of trenching projects in the north sea region following an unusually weak year for that work in 2013. the gross profit related to our production facilities segment decreased by 17 % in 2014 as compared to 2013. the decrease primarily reflects the amortization of the hp i 's initial regulatory dry dock costs that were incurred during the fourth quarter of 2013. loss on commodity derivative contracts . in december 2012 , following the announcement of the sale of ert , we de-designated our oil and gas commodity derivative contracts and interest rate swap contracts as hedging instruments ( note 18 ) . the $ 14.1 million loss on commodity derivative contracts reflects the net loss on our oil and gas commodity derivative contracts during the first quarter of 2013. in february 2013 , we paid approximately $ 22.5 million to settle our remaining open commodity derivative contracts . 38 gain on disposition of assets , net . the $ 10.2 million net gain on disposition of assets in 2014 primarily reflects a $ 10.5 million gain associated with the sale of our ingleside spoolbase in january 2014 ( note 4 ) . the $ 14.7 million gain on disposition of assets in 2013 primarily reflects a $ 1.1 million loss on the sale of the caesar in june 2013 and a $ 15.6 million gain on the sale of the express in july 2013. selling , general and administrative expenses . our selling , general and administrative expenses increased by $ 10.3 million in 2014 as compared to 2013. the increase primarily reflects $ 5.3 million of charges associated with the provision for uncertain collection of a portion of our then existing trade receivables ( note 16 ) , certain costs associated with start-up activities in brazil , and costs to support the growth of both our well intervention and robotics businesses . however , our selling , general and administrative expenses as a percentage of net revenues decreased from 9.4 % in 2013 to 8.4 % in 2014. equity in earnings of investments . equity in earnings of investments decreased by $ 2.1 million in 2014 as compared to 2013. the decrease primarily reflects lower revenues for both deepwater gateway and independence hub due to lower production at the fields being processed at each facility . additionally , deepwater gateway 's operations were affected by a fire at the facility in early may 2014 that shut in production at the platform for most of the second quarter . production was restored to the facility in july 2014. net interest expense . our net interest expense totaled $ 17.9 million in 2014 as compared to $ 32.9 million in 2013. the decrease consists of both a reduction in interest expense and an increase in interest income . the decrease in interest expense reflects the substantial reduction in our indebtedness , including the $ 318.4 million repayment of debt in february 2013 following the sale of ert and our redemption in july 2013 of the remaining $ 275 million of our senior unsecured notes then outstanding . interest income totaled $ 4.8 million for 2014 as compared to $ 1.2 million for 2013. the amount of interest income for 2014 includes $ 2.1 million related to an income tax refund ( note 8 ) and $ 1.8 million on the promissory note held in connection with the sale of our ingleside spoolbase ( note 4 ) . capitalized interest remained consistent year over year . loss on early extinguishment of long-term debt . the $ 12.1 million loss in 2013 included the $ 8.6 million loss in connection with our redemption in july 2013 of the remaining $ 275 million senior unsecured notes then outstanding and the acceleration of the remaining $ 3.5 million of deferred financing fees related to the term loan component of our former credit agreement following the repayment of that indebtedness . other income , net . we reported other income , net , of $ 0.8 million for 2014 primarily reflecting foreign exchange fluctuations in our non-u.s. dollar functional currencies . included in this amount was $ 1.7 million of losses related to ineffectiveness associated with our foreign currency hedge with respect to the grand canyon ii charter payments ( note 18 ) . other income – oil and gas . the $ 16.9 million income for 2014 included a $ 7.2 million insurance reimbursement related to asset retirement work previously performed . the majority of the remaining oil and gas income is associated with our overriding royalty interests in ert 's wang well , which commenced production in april 2013. the $ 6.6 million income for 2013 primarily represents cash payments related to services we provided to ert following its sale to a third party and the initial proceeds associated with our overriding royalty interests in ert 's wang well . income tax provision . income taxes reflected expenses of $ 67.0 million in 2014 as compared to $ 31.6 million in 2013. the variance primarily reflects increased profitability in 2014. the effective tax rate of 25.5 % for 2014 was higher than the 22.0 % effective tax rate for 2013 as a result of increased profitability in certain jurisdictions with higher tax rates . 39 story_separator_special_tag style= `` font-family : arial ; font-size:10pt ; `` > a prolonged period of weak industry activity may make it difficult to comply with our covenants
| liquidity and capital resources we believe that current cash , cash equivalents , cash generated from operations , and amounts available under our bank line of credit will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months . 40 general . in fiscal 2013 , cash and cash equivalents decreased by $ 4.2 million . we completed the period with cash and cash equivalents of $ 51.3 million and working capital ( defined as current assets less current liabilities ) of $ 75.0 million . of the total cash and cash equivalents of $ 51.3 million at december 28 , 2013 , $ 41.8 million was in the u.s. we have sufficient sources of cash in the u.s. to fund u.s. cash requirements without the need to repatriate any funds . as of december 28 , 2013 , a substantial portion of our cash accounts was concentrated at a single financial institution , which potentially exposes us to credit risks . the financial institution has a short-term credit rating of a-2 by standard & poor 's ratings services . we have not experienced any losses related to such accounts and we do not believe that there is significant risk of non-performance by the financial institution . our cash on deposit at this financial institution is fully liquid , and we continually monitor the credit ratings of this institution . a change in the credit worthiness of this financial institution could materially affect our liquidity and working capital . sources and uses of cash . during fiscal 2013 , net cash provided by operations was $ 18.4 million .
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natural gas reserves in offshore areas ; the exploration and production of onshore shale oil and natural gas ; 31 the cost of offshore exploration for and production and transportation of oil and natural gas ; the level of excess production capacity ; the ability of oil and gas companies to generate funds or otherwise obtain external capital for exploration , development and production operations ; the sale and expiration dates of offshore leases in the united states and overseas ; technological advances affecting energy exploration , production , transportation and consumption ; potential acceleration of the development of alternative fuels ; shifts in end-customer preferences toward fuel efficiency and the use of natural gas ; weather conditions and natural disasters ; environmental and other governmental regulations ; and domestic and international tax laws , regulations and policies . oil prices have fallen almost 75 % since mid-year 2014. the decline in oil prices reflects expectations of a sustained increase in production by competing oil exporters such as opec amid continued global supply of oil in excess of demand . lower oil prices have had a significant adverse impact on investments in oil and gas exploration and production . in addition , the pickup in oil consumption by oil importers has been weaker than expected , in part reflecting the slowdown in overall growth in china , the world 's largest oil importer . in light of the sharp decline in oil prices , many oil and gas companies have terminated or not renewed contracts for more than half of their contracted rigs and have drastically cut investments in exploration and production . we expect these challenging industry conditions to continue into 2016 and beyond if oil and gas prices fail to increase to a level conducive to increased activity levels . increased competition for limited offshore oil and gas projects has driven down rates that drilling rig contractors are charging for their services , which affects all offshore oil and gas services contractors , including us . increased competition is also expected to affect utilization of our assets , and increasingly for 2016 , our robotics assets . in addition , the current volatile and uncertain macroeconomic conditions in some countries around the world , such as brazil , may have a direct and or indirect impact on existing contracts and contracting opportunities . many oil and gas companies are increasingly focusing on optimizing production of their existing subsea wells . we believe that we have a competitive advantage in terms of performing well intervention services efficiently . furthermore , we believe that when oil and gas companies begin to increase overall spending levels , it will likely be for production activities rather than for exploration projects . our well intervention and robotics operations are intended to service the life span of an oil and gas field as well as to provide abandonment services at the end of the life of a field as required by governmental regulations . thus over the longer term , we believe that fundamentals for our business remain favorable as the need for prolongation of well life in oil and gas production is the primary driver of demand for our services . our strategy is to be positioned for future recovery while coping with a sustained period of weak activity . this strategy is based on the following factors : ( 1 ) the need to extend the life of subsea wells is significant to the commerciality of the wells as plug and abandonment costs are considered ; ( 2 ) our services offer commercially viable alternatives for reducing the finding and development costs of reserves as compared to new drilling ; and ( 3 ) in past cycles , well intervention and workover have been one of the first activities to recover , and in a prolonged market downturn are important to the commercial viability of deepwater wells . at december 31 , 2015 , we had cash on hand of $ 494.2 million and $ 249.4 million available for borrowing under our revolving credit facility . our capital expenditures for 2016 are currently anticipated to total approximately $ 240 million . we believe that we have sufficient liquidity without incurring additional indebtedness beyond the availability under the revolving credit facility ( note 7 ) in 2016 . 32 business activity summary we have enhanced our financial position and strengthened our balance sheet with proceeds from the sale of certain non-core business assets , which , together with liquidity under our revolving credit facility , have allowed us to strategically focus on our core well intervention and robotics businesses . since 2009 , we have generated approximately $ 1.5 billion in pre-tax proceeds from asset sale transactions . these dispositions primarily include approximately $ 55 million from the sale of individual oil and gas properties , over $ 500 million from the sale of our stockholdings in cal dive international inc. , $ 25 million from the sale of our former reservoir consulting business , approximately $ 238 million from the sale of our two remaining pipelay vessels , the caesar and the express , and $ 624 million from the sale of ert . in april 2015 , we took delivery of the q5000 , a newbuild semi-submersible well intervention vessel . the vessel then transited from the construction shipyard in singapore to the gulf of mexico where it completed its sea trials after the topside equipment was installed . the q5000 commenced operations in the gulf of mexico during the fourth quarter of 2015. the vessel is expected to commence services in april 2016 under our five-year contract with bp . also in april 2015 , we took delivery of the grand canyon ii , a chartered newbuild vessel with more capabilities than some of our older chartered rov support vessels . story_separator_special_tag gross profit . our gross profit increased by 32 % in 2014 as compared to 2013. the gross profit related to our well intervention segment increased by 54 % in 2014 as compared to 2013 reflecting the addition of two vessels to our fleet since march 31 , 2013. the gross profit associated with our robotics segment increased by 52 % in 2014 as compared to 2013 reflecting increased utilization for our rovs and trenching assets and related support vessels . utilization for our trenching assets increased significantly reflecting the resumption of trenching projects in the north sea region following an unusually weak year for that work in 2013. the gross profit related to our production facilities segment decreased by 17 % in 2014 as compared to 2013. the decrease primarily reflects the amortization of the hp i 's initial regulatory dry dock costs that were incurred during the fourth quarter of 2013. loss on commodity derivative contracts . in december 2012 , following the announcement of the sale of ert , we de-designated our oil and gas commodity derivative contracts and interest rate swap contracts as hedging instruments ( note 18 ) . the $ 14.1 million loss on commodity derivative contracts reflects the net loss on our oil and gas commodity derivative contracts during the first quarter of 2013. in february 2013 , we paid approximately $ 22.5 million to settle our remaining open commodity derivative contracts . 38 gain on disposition of assets , net . the $ 10.2 million net gain on disposition of assets in 2014 primarily reflects a $ 10.5 million gain associated with the sale of our ingleside spoolbase in january 2014 ( note 4 ) . the $ 14.7 million gain on disposition of assets in 2013 primarily reflects a $ 1.1 million loss on the sale of the caesar in june 2013 and a $ 15.6 million gain on the sale of the express in july 2013. selling , general and administrative expenses . our selling , general and administrative expenses increased by $ 10.3 million in 2014 as compared to 2013. the increase primarily reflects $ 5.3 million of charges associated with the provision for uncertain collection of a portion of our then existing trade receivables ( note 16 ) , certain costs associated with start-up activities in brazil , and costs to support the growth of both our well intervention and robotics businesses . however , our selling , general and administrative expenses as a percentage of net revenues decreased from 9.4 % in 2013 to 8.4 % in 2014. equity in earnings of investments . equity in earnings of investments decreased by $ 2.1 million in 2014 as compared to 2013. the decrease primarily reflects lower revenues for both deepwater gateway and independence hub due to lower production at the fields being processed at each facility . additionally , deepwater gateway 's operations were affected by a fire at the facility in early may 2014 that shut in production at the platform for most of the second quarter . production was restored to the facility in july 2014. net interest expense . our net interest expense totaled $ 17.9 million in 2014 as compared to $ 32.9 million in 2013. the decrease consists of both a reduction in interest expense and an increase in interest income . the decrease in interest expense reflects the substantial reduction in our indebtedness , including the $ 318.4 million repayment of debt in february 2013 following the sale of ert and our redemption in july 2013 of the remaining $ 275 million of our senior unsecured notes then outstanding . interest income totaled $ 4.8 million for 2014 as compared to $ 1.2 million for 2013. the amount of interest income for 2014 includes $ 2.1 million related to an income tax refund ( note 8 ) and $ 1.8 million on the promissory note held in connection with the sale of our ingleside spoolbase ( note 4 ) . capitalized interest remained consistent year over year . loss on early extinguishment of long-term debt . the $ 12.1 million loss in 2013 included the $ 8.6 million loss in connection with our redemption in july 2013 of the remaining $ 275 million senior unsecured notes then outstanding and the acceleration of the remaining $ 3.5 million of deferred financing fees related to the term loan component of our former credit agreement following the repayment of that indebtedness . other income , net . we reported other income , net , of $ 0.8 million for 2014 primarily reflecting foreign exchange fluctuations in our non-u.s. dollar functional currencies . included in this amount was $ 1.7 million of losses related to ineffectiveness associated with our foreign currency hedge with respect to the grand canyon ii charter payments ( note 18 ) . other income – oil and gas . the $ 16.9 million income for 2014 included a $ 7.2 million insurance reimbursement related to asset retirement work previously performed . the majority of the remaining oil and gas income is associated with our overriding royalty interests in ert 's wang well , which commenced production in april 2013. the $ 6.6 million income for 2013 primarily represents cash payments related to services we provided to ert following its sale to a third party and the initial proceeds associated with our overriding royalty interests in ert 's wang well . income tax provision . income taxes reflected expenses of $ 67.0 million in 2014 as compared to $ 31.6 million in 2013. the variance primarily reflects increased profitability in 2014. the effective tax rate of 25.5 % for 2014 was higher than the 22.0 % effective tax rate for 2013 as a result of increased profitability in certain jurisdictions with higher tax rates . 39 story_separator_special_tag style= `` font-family : arial ; font-size:10pt ; `` > a prolonged period of weak industry activity may make it difficult to comply with our covenants
| liquidity and capital resources overview the following table presents certain information useful in the analysis of our financial condition and liquidity ( in thousands ) : replace_table_token_12_th ( 1 ) long-term debt does not include the current maturities portion of our long-term debt as that amount is included in net working capital . it is also net of the unamortized debt discount on the 2032 notes . see note 7 for information relating to our existing debt . ( 2 ) liquidity , as defined by us , is equal to cash and cash equivalents plus available capacity under our revolving credit facility , which capacity is reduced by letters of credit drawn against the facility . our liquidity at december 31 , 2015 included cash and cash equivalents of $ 494.2 million and $ 249.4 million of available borrowing capacity under our revolving credit facility ( note 7 ) . our liquidity at december 31 , 2014 included cash and cash equivalents of $ 476.5 million and $ 583.6 million of available borrowing capacity under our revolving credit facility . the carrying amount of our long-term debt , including current maturities , is as follows ( in thousands ) : replace_table_token_13_th ( 1 ) these amounts are net of the unamortized debt discount of $ 15.0 million and $ 20.9 million , respectively .
| 1 |
in 2014 mexico saw slower volume point growth , and the north america and asia pacific regions saw declines in volume points , each continuing a multiple-year trend of decreasing volume point growth rates in those regions . we believe this trend is the result of members adjusting to certain revisions to our operations and marketing plan designed to improve the training and retention of sales leaders . the south & central america region also saw a decline in volume points following several years of growth , for reasons similar to the regions noted above as well as the impact of order size and product import limitations instituted for the venezuela market . average active sales leaders by geographic region with the continued expansion of daily consumption dmos in our different markets and our objective to improve member retention , we believe the average active sales leader is a useful metric . it represents the monthly average number of sales leaders that place an order , including orders of non-sales leader members in their downline sales organization , during a given period . we rely on this metric as an indication of the engage- 43 ment level of sales leaders , who are integral to our success , and therefore as an indication of the success of our strategies and execution . changes in the average active sales leader metric may be indicative of potential for changes in annual retention levels and future sales growth . replace_table_token_11_th ( 1 ) worldwide average active sales leaders may not equal the sum of the average active sales leaders in each region due to the calculation being an average of sales leaders active in a period , not a summation , and the fact that some sales leaders are active in more than one region but are counted only once in the worldwide amount . we believe the trend of increasing worldwide average active sales leaders over the periods reflected in the table is attributable to the company 's success in making the herbalife business opportunity more appealing and in facilitating sales leader success through providing quality products ; improved dmos , including daily consumption approaches such as nutrition clubs ; easier access to product ; systemized training of members on our products and methods ; and continued promotion and branding of herbalife products . although average active sales leaders increased in each region in 2014 and 2013 as compared to the prior year period , several regions have seen the growth rate decrease over this period . in 2014 , the north america , mexico and asia pacific regions saw a continued multiple-year decline in average active sales leader growth rates for the same reasons the rate of volume point growth decreased in those regions . the south & central america region also saw a lower growth rate for 2014 compared to 2013 , for the same reasons the rate of volume point growth decreased , partially offset by our determination not to require sales leaders in venezuela to re-qualify for the twelve-month period ended january 31 , 2014. given the long term and qualitative nature of our strategies , the magnitude of the impact of each such strategy on sales leaders ' engagement can not be quantified and may vary over time and by market . 44 number of sales leaders and retention rates by geographic region as of re-qualification period our compensation system requires each sales leader to re-qualify for such status each year , prior to february , in order to maintain their 50 % discount on products and be eligible to receive royalty payments . in february of each year , we demote from the rank of sales leader those members who did not satisfy the re-qualification requirements during the preceding twelve months . the re-qualification requirement does not apply to new sales leaders ( i.e . those who became sales leaders subsequent to the january re-qualification of the prior year ) . for the latest twelve month re-qualification period ending january 2015 , approximately 54.2 % of our sales leaders , excluding china , venezuela and argentina , re-qualified . we did not require our venezuelan sales leaders to re-qualify temporarily for the period ended january 2014 due to product supply limitation resulting from currency restrictions ; the venezuela re-qualification requirement resumed for the period ended january 2015 after providing the market time to adjust to supply levels . we did not require our argentinean sales leaders to re-qualify temporarily for the period ended january 2015 due to product supply challenges resulting from importation restrictions . if venezuela and argentina were included on a normalized basis , the percentage would have been 53.4 % . replace_table_token_12_th the member statistics below further highlight the calculation for retention . replace_table_token_13_th the table below reflects the number of sales leaders as of the end of february of the year indicated ( subsequent to the annual re-qualification date ) and sales leader retention rate by year and by region . replace_table_token_14_th sales leaders generally purchase our products for resale to other members and retail consumers . the number of sales leaders by geographic region as of the quarterly reporting dates will normally be higher than the number of sales leaders by geographic region as of the re-qualification period because sales leaders who do not re-qualify during the relevant twelve-month period will be removed from the rank of sales leader the following february . comparisons of sales leader totals on a year-to-year basis are indicators of our recruitment and retention efforts in different geographic regions . 45 we provide members with products , support materials , training , special events and a competitive compensation program . story_separator_special_tag post-tax ) related to a legal reserve for the bostick case ( see note 7 , contingencies , to the consolidated financial statements for further discussion ) ; a $ 2.6 million pre-tax unfavorable impact ( $ 1.6 million post-tax ) related to impairment of newly acquired defective manufacturing equipment ; a $ 36.7 million unfavorable impact of non-cash interest expense related to the convertible notes and the forward transactions ( see liquidity and capital resources convertible senior notes below for further discussion ) , and a $ 0.6 million pre-tax unfavorable impact ( $ 0.4 million post-tax ) related to expenses incurred for the recovery of costs associated with the re-audit of our 2010 to 2012 financial statements after the resignation of kpmg as our independent registered public accounting firm . net income for the year ended december 31 , 2013 included approximately $ 29.1 million pre-tax unfavorable impact ( $ 24.5 million post-tax ) related to legal and advisory services and other expenses for the company 's response to allegations and other negative information put forward in the marketplace by a hedge fund manager which started in late 2012 and approximately $ 20.4 million pre-tax unfavorable impact ( $ 15.6 million post-tax ) related to expenses for the re-audit of the company 's 2010 to 2012 financial statements . net income for year ended december 31 , 2013 also included a $ 15.1 million pre-tax unfavorable impact ( $ 9.8 million post-tax ) related to the venezuela bolivar devaluation . reporting segment results we aggregate our operating segments , excluding china , into one reporting segment , or the primary reporting segment . the primary reporting segment includes the north america , mexico , south & central america , emea , and asia pacific regions . china has been identified as a separate reporting segment primarily due to the regulatory environment in china . see note 10 , segment information , to the consolidated financial statements for further discussion of our reporting segments . see below for discussions of net sales and contribution margin by our reporting segments . net sales by reporting segment the primary reporting segment reported net sales of $ 4,294.3 million for the year ended december 31 , 2014. net sales for the primary reporting segment decreased $ 59.4 million , or 1.4 % , for the year ended december 31 , 2014 , as compared to the same period in 2013. china reported net sales of $ 664.3 million for the year ended december 31 , 2014. net sales for china increased $ 192.7 million , or 40.9 % , for the year ended december 31 , 2014 , as compared to the same period in 2013. see the discussion of net sales by geographic region below of the applicable region ( s ) comprising each segment for the underlying explanations of the changes in net sales for each reporting segment for the year ended december 31 , 2014 , as compared to the same period in 2013. contribution margin by reporting segment as discussed above under presentation , contribution margin consists of net sales less cost of sales and royalty overrides . the primary reporting segment reported contribution margin of $ 1,908.0 million for the year ended december 31 , 2014. contribution margin for the primary reporting segment decreased $ 33.7 million , or 1.7 % , for the year ended december 31 , 2014 , as compared to the same period in 2013. china reported contribution margin of $ 596.6 million for the year ended december 31 , 2014. contribution margin for china increased $ 173.9 million , or 41.1 % , for the year ended december 31 , 2014 , as compared to the same period in 2013. the changes in contribution margin for the primary reporting segment and china for the year ended december 31 , 2014 , as compared to the same period in 2013 was primarily due to the changes in net sales as described in the net sales by reporting segment section above . 50 sales by geographic region the following chart reconciles retail sales to net sales : sales by geographic region replace_table_token_16_th ( 1 ) during 2013 we simplified our pricing structure for most markets by increasing suggested retail prices and reducing total shipping and handling revenues by a similar amount , eliminating a packaging and handling line item from our invoices to members . these changes did not materially impact our consolidated net sales and profitability . ( 2 ) retail sales is a non-gaap measure which may not be comparable to similarly-titled measures used by other companies . north america the north america region reported net sales of $ 926.8 million for the year ended december 31 , 2014. net sales increased $ 18.8 million , or 2.1 % , for the year ended december 31 , 2014 , as compared to the same period in 2013. in local currency , net sales increased $ 19.9 million , or 2.2 % for the year ended december 31 , 2014 , as compared to the same period in 2013. the increase in net sales for the year ended december 31 , 2014 , as compared to the same period in 2013 , was a result of a net sales increase in the u.s. of $ 18.2 million or 2.1 % . product prices in the us were increased 3 % in march 2014. in the u.s. while net sales for the year increased , the trend weakened during the year with a decline in sales during the fourth quarter as compared to prior year fourth quarter . for the full year , the north america region saw a decline in the rate of net sales growth in 2014 as compared to 2013 , following a similar decline in 2013 as compared to 2012. we believe the change in trend is a result of members adapting to certain revisions to our operations
| liquidity and capital resources overview the following table presents certain information useful in the analysis of our financial condition and liquidity ( in thousands ) : replace_table_token_12_th ( 1 ) long-term debt does not include the current maturities portion of our long-term debt as that amount is included in net working capital . it is also net of the unamortized debt discount on the 2032 notes . see note 7 for information relating to our existing debt . ( 2 ) liquidity , as defined by us , is equal to cash and cash equivalents plus available capacity under our revolving credit facility , which capacity is reduced by letters of credit drawn against the facility . our liquidity at december 31 , 2015 included cash and cash equivalents of $ 494.2 million and $ 249.4 million of available borrowing capacity under our revolving credit facility ( note 7 ) . our liquidity at december 31 , 2014 included cash and cash equivalents of $ 476.5 million and $ 583.6 million of available borrowing capacity under our revolving credit facility . the carrying amount of our long-term debt , including current maturities , is as follows ( in thousands ) : replace_table_token_13_th ( 1 ) these amounts are net of the unamortized debt discount of $ 15.0 million and $ 20.9 million , respectively .
| 0 |
in 2014 mexico saw slower volume point growth , and the north america and asia pacific regions saw declines in volume points , each continuing a multiple-year trend of decreasing volume point growth rates in those regions . we believe this trend is the result of members adjusting to certain revisions to our operations and marketing plan designed to improve the training and retention of sales leaders . the south & central america region also saw a decline in volume points following several years of growth , for reasons similar to the regions noted above as well as the impact of order size and product import limitations instituted for the venezuela market . average active sales leaders by geographic region with the continued expansion of daily consumption dmos in our different markets and our objective to improve member retention , we believe the average active sales leader is a useful metric . it represents the monthly average number of sales leaders that place an order , including orders of non-sales leader members in their downline sales organization , during a given period . we rely on this metric as an indication of the engage- 43 ment level of sales leaders , who are integral to our success , and therefore as an indication of the success of our strategies and execution . changes in the average active sales leader metric may be indicative of potential for changes in annual retention levels and future sales growth . replace_table_token_11_th ( 1 ) worldwide average active sales leaders may not equal the sum of the average active sales leaders in each region due to the calculation being an average of sales leaders active in a period , not a summation , and the fact that some sales leaders are active in more than one region but are counted only once in the worldwide amount . we believe the trend of increasing worldwide average active sales leaders over the periods reflected in the table is attributable to the company 's success in making the herbalife business opportunity more appealing and in facilitating sales leader success through providing quality products ; improved dmos , including daily consumption approaches such as nutrition clubs ; easier access to product ; systemized training of members on our products and methods ; and continued promotion and branding of herbalife products . although average active sales leaders increased in each region in 2014 and 2013 as compared to the prior year period , several regions have seen the growth rate decrease over this period . in 2014 , the north america , mexico and asia pacific regions saw a continued multiple-year decline in average active sales leader growth rates for the same reasons the rate of volume point growth decreased in those regions . the south & central america region also saw a lower growth rate for 2014 compared to 2013 , for the same reasons the rate of volume point growth decreased , partially offset by our determination not to require sales leaders in venezuela to re-qualify for the twelve-month period ended january 31 , 2014. given the long term and qualitative nature of our strategies , the magnitude of the impact of each such strategy on sales leaders ' engagement can not be quantified and may vary over time and by market . 44 number of sales leaders and retention rates by geographic region as of re-qualification period our compensation system requires each sales leader to re-qualify for such status each year , prior to february , in order to maintain their 50 % discount on products and be eligible to receive royalty payments . in february of each year , we demote from the rank of sales leader those members who did not satisfy the re-qualification requirements during the preceding twelve months . the re-qualification requirement does not apply to new sales leaders ( i.e . those who became sales leaders subsequent to the january re-qualification of the prior year ) . for the latest twelve month re-qualification period ending january 2015 , approximately 54.2 % of our sales leaders , excluding china , venezuela and argentina , re-qualified . we did not require our venezuelan sales leaders to re-qualify temporarily for the period ended january 2014 due to product supply limitation resulting from currency restrictions ; the venezuela re-qualification requirement resumed for the period ended january 2015 after providing the market time to adjust to supply levels . we did not require our argentinean sales leaders to re-qualify temporarily for the period ended january 2015 due to product supply challenges resulting from importation restrictions . if venezuela and argentina were included on a normalized basis , the percentage would have been 53.4 % . replace_table_token_12_th the member statistics below further highlight the calculation for retention . replace_table_token_13_th the table below reflects the number of sales leaders as of the end of february of the year indicated ( subsequent to the annual re-qualification date ) and sales leader retention rate by year and by region . replace_table_token_14_th sales leaders generally purchase our products for resale to other members and retail consumers . the number of sales leaders by geographic region as of the quarterly reporting dates will normally be higher than the number of sales leaders by geographic region as of the re-qualification period because sales leaders who do not re-qualify during the relevant twelve-month period will be removed from the rank of sales leader the following february . comparisons of sales leader totals on a year-to-year basis are indicators of our recruitment and retention efforts in different geographic regions . 45 we provide members with products , support materials , training , special events and a competitive compensation program . story_separator_special_tag post-tax ) related to a legal reserve for the bostick case ( see note 7 , contingencies , to the consolidated financial statements for further discussion ) ; a $ 2.6 million pre-tax unfavorable impact ( $ 1.6 million post-tax ) related to impairment of newly acquired defective manufacturing equipment ; a $ 36.7 million unfavorable impact of non-cash interest expense related to the convertible notes and the forward transactions ( see liquidity and capital resources convertible senior notes below for further discussion ) , and a $ 0.6 million pre-tax unfavorable impact ( $ 0.4 million post-tax ) related to expenses incurred for the recovery of costs associated with the re-audit of our 2010 to 2012 financial statements after the resignation of kpmg as our independent registered public accounting firm . net income for the year ended december 31 , 2013 included approximately $ 29.1 million pre-tax unfavorable impact ( $ 24.5 million post-tax ) related to legal and advisory services and other expenses for the company 's response to allegations and other negative information put forward in the marketplace by a hedge fund manager which started in late 2012 and approximately $ 20.4 million pre-tax unfavorable impact ( $ 15.6 million post-tax ) related to expenses for the re-audit of the company 's 2010 to 2012 financial statements . net income for year ended december 31 , 2013 also included a $ 15.1 million pre-tax unfavorable impact ( $ 9.8 million post-tax ) related to the venezuela bolivar devaluation . reporting segment results we aggregate our operating segments , excluding china , into one reporting segment , or the primary reporting segment . the primary reporting segment includes the north america , mexico , south & central america , emea , and asia pacific regions . china has been identified as a separate reporting segment primarily due to the regulatory environment in china . see note 10 , segment information , to the consolidated financial statements for further discussion of our reporting segments . see below for discussions of net sales and contribution margin by our reporting segments . net sales by reporting segment the primary reporting segment reported net sales of $ 4,294.3 million for the year ended december 31 , 2014. net sales for the primary reporting segment decreased $ 59.4 million , or 1.4 % , for the year ended december 31 , 2014 , as compared to the same period in 2013. china reported net sales of $ 664.3 million for the year ended december 31 , 2014. net sales for china increased $ 192.7 million , or 40.9 % , for the year ended december 31 , 2014 , as compared to the same period in 2013. see the discussion of net sales by geographic region below of the applicable region ( s ) comprising each segment for the underlying explanations of the changes in net sales for each reporting segment for the year ended december 31 , 2014 , as compared to the same period in 2013. contribution margin by reporting segment as discussed above under presentation , contribution margin consists of net sales less cost of sales and royalty overrides . the primary reporting segment reported contribution margin of $ 1,908.0 million for the year ended december 31 , 2014. contribution margin for the primary reporting segment decreased $ 33.7 million , or 1.7 % , for the year ended december 31 , 2014 , as compared to the same period in 2013. china reported contribution margin of $ 596.6 million for the year ended december 31 , 2014. contribution margin for china increased $ 173.9 million , or 41.1 % , for the year ended december 31 , 2014 , as compared to the same period in 2013. the changes in contribution margin for the primary reporting segment and china for the year ended december 31 , 2014 , as compared to the same period in 2013 was primarily due to the changes in net sales as described in the net sales by reporting segment section above . 50 sales by geographic region the following chart reconciles retail sales to net sales : sales by geographic region replace_table_token_16_th ( 1 ) during 2013 we simplified our pricing structure for most markets by increasing suggested retail prices and reducing total shipping and handling revenues by a similar amount , eliminating a packaging and handling line item from our invoices to members . these changes did not materially impact our consolidated net sales and profitability . ( 2 ) retail sales is a non-gaap measure which may not be comparable to similarly-titled measures used by other companies . north america the north america region reported net sales of $ 926.8 million for the year ended december 31 , 2014. net sales increased $ 18.8 million , or 2.1 % , for the year ended december 31 , 2014 , as compared to the same period in 2013. in local currency , net sales increased $ 19.9 million , or 2.2 % for the year ended december 31 , 2014 , as compared to the same period in 2013. the increase in net sales for the year ended december 31 , 2014 , as compared to the same period in 2013 , was a result of a net sales increase in the u.s. of $ 18.2 million or 2.1 % . product prices in the us were increased 3 % in march 2014. in the u.s. while net sales for the year increased , the trend weakened during the year with a decline in sales during the fourth quarter as compared to prior year fourth quarter . for the full year , the north america region saw a decline in the rate of net sales growth in 2014 as compared to 2013 , following a similar decline in 2013 as compared to 2012. we believe the change in trend is a result of members adapting to certain revisions to our operations
| liquidity and capital resources working capital and operating activities below for further discussion of currency exchange rate issues in venezuela . emea the emea region reported net sales of $ 735.2 million for the year ended december 31 , 2013. net sales increased $ 107.4 million , or 17.1 % , for the year ended december 31 , 2013 , as compared to the same period in 2012. in local currency , net sales increased 16.3 % for the year ended december 31 , 2013 , as compared to the same period in 2012. the fluctuation of foreign currency rates had a favorable impact on net sales of $ 5.0 million for the year ended december 31 , 2013. the increase in net sales for the year ended december 31 , 2013 was primarily driven by increases in russia , the united kingdom , spain , and italy . net sales in russia , our largest market in the region , increased $ 25.0 million , or 24.7 % , for the year ended december 31 , 2013 , as compared to the same period in 2012. in local currency , net sales increased 28.2 % for the year ended december 31 , 2013 , as compared to the same period in 2012. the fluctuation of foreign currency rates had a $ 3.6 million unfavorable impact on net sales in russia for the year ended december 31 , 2013. the increase in russia was driven by the ongoing adoption of the commercial nutrition club , additional sales centers which have increased access to our products and branding including the sponsorship of fc spartak moscow football club .
| 1 |
this data was published in the lancet in september 2015. we are planning to take this product , vgx-3100 , into a phase 3 study for cervical dysplasia in 2017. our novel syncon ® immunotherapy design has shown the ability to help break the immune system 's tolerance of cancerous cells . our syncon ® product design approach is also intended to facilitate cross-strain protection against known and new unmatched strains of pathogens such as influenza . given the recognized role of cd8+ killer t cells in eliminating cancerous or infected cells from the body and our published phase 2 results , our scientists believe our active immunotherapies may play an important role in helping fight multiple cancers and infectious diseases . human data to date have shown a favorable safety profile of our dna immunotherapies delivered using electroporation . we or our collaborators are currently conducting or planning clinical studies of our proprietary syncon ® immunotherapies for hpv-caused pre-cancers ( including cervical , anal and vulvar neoplasia ) , hpv-caused cancers ( head and neck and cervical ) , prostate cancer , breast/lung/pancreatic cancer , hepatitis c virus ( hcv ) , hepatitis b virus ( hbv ) , hiv , ebola , mers ( middle east respiratory syndrome ) and zika virus . our corporate strategy is to advance and protect our differentiated immunotherapy platform and use its unique capabilities to design and develop an array of cancer and infectious disease immunotherapy and vaccine products . we aim to advance products through to commercialization . we continue to leverage third party resources through collaborations and partnerships including product license agreements . our partners and collaborators include medimmune , llc , the wistar institute , university of pennsylvania , geneone life science inc. , apollobio corporation , plumbline life sciences , inc. , drexel university , national microbiology laboratory of the public health agency of canada , national institute of allergy and infectious diseases ( “ niaid ” ) , united states military hiv research program ( “ usmhrp ” ) , u.s. army medical research 57 institute of infectious diseases ( “ usamriid ” ) , hiv vaccines trial network ( “ hvtn ” ) , and defense advanced research projects agency ( “ darpa ” ) . all of our potential human products are in research and development phases . we have not generated any revenues from the sale of any such products , and we do not expect to generate any such revenues for at least the next several years . we earn revenue from license fees and milestone revenue , collaborative research and development agreements , grants and government contracts . our product candidates will require significant additional research and development efforts , including extensive preclinical and clinical testing . all product candidates that we advance to clinical testing will require regulatory approval prior to commercial use , and will require significant costs for commercialization . we may not be successful in our research and development efforts , and we may never generate sufficient product revenue to be profitable . recent developments on july 28 , 2016 roche provided notice that they would be discontinuing our collaboration and the development of ino-1800 , our dna immunotherapy against the hepatitis b virus . the termination was effective in october 2016 , 90 days after the notice date . all of roche 's rights to ino-1800 , including the right to license the product to other parties , have been returned to us . we plan to continue to develop our hepatitis b dna vaccine ( ino-1800 ) and independently advance our phase 1 study of ino-1800 . in august 2016 , we incorporated a 100 % -owned subsidiary , geneos therapeutics , inc. , to develop and commercialize neo-antigen based personalized cancer therapies . while we pursue our syncon ® immunotherapy design to break tolerance and create cancer products targeting shared tumor specific antigens , geneos will exclusively focus on leveraging the company 's dna immunotherapy technology platform to advance the field of patient-specific neo-antigen therapies . our clinically validated dna based platform is well suited for advancing individualized therapies due to its rapid product design and manufacturing benefits , ability to combine multiple neo-antigens into formulations , and generation of potent killer t cell responses that are needed to drive clinical efficacy . on october 24 , 2016 , we announced that the u.s. food and drug administration ( fda ) has placed a clinical hold on our proposed phase 3 clinical program for vgx-3100 . a clinical hold is a notification issued by the fda to a trial sponsor to delay a proposed clinical trial or suspend an ongoing clinical trial . this study has not yet been initiated and has not enrolled or dosed subjects . additionally , the hold does not pertain to any of our other ongoing clinical studies . the fda has requested additional information relating to the new cellectra ® 5psp device , including stability data for the device 's single-use disposable electrode array . we are currently generating the necessary device-related data to prepare our response and aim to start the phase 3 study in the first half of 2017. in february 2017 , we announced that we have entered into a collaboration and license agreement providing apollobio corporation with the exclusive right to develop and commercialize vgx-3100 , our dna immunotherapy product designed to treat pre-cancers caused by human papillomavirus ( hpv ) , within greater china ( china , hong kong , macao , taiwan ) . the agreement provides for potential inclusion of the republic of korea three years following the effective date . under the collaboration and license agreement , we will receive $ 15.0 million in upfront and near term payments comprising an initial $ 3.0 million signing fee and a $ 12.0 million milestone upon lifting of the vgx-3100 phase 3 pre-initiation clinical hold by the fda . story_separator_special_tag income taxes since inception , we have incurred operating losses and accordingly have not recorded a provision for income taxes for any of the periods presented . as of december 31 , 2016 , we had net operating loss carry forwards for federal , california and pennsylvania income tax purposes of approximately $ 255.6 million , $ 73.6 million and $ 75.6 million , respectively , net of the net operating losses that will expire due to irc section 382 limitations . we also had federal and state research and development tax credits of approximately $ 7.6 million and $ 2.1 million , respectively , net of the federal research and development credits that will expire due to irc section 383 limitations . if not utilized , the net operating losses and credits will begin to expire in 2018 . utilization of net operating losses and credits are subject to a substantial annual limitation due to ownership change limitations provided by the internal revenue code of 1986 , as amended . comparison of years ended december 31 , 2015 and 2014 62 the consolidated financial data for the years ended december 31 , 2015 and december 31 , 2014 is presented in the following table and the results of these two periods are used in the discussion thereafter . replace_table_token_4_th revenue revenue primarily consists of revenue under collaborative research and development arrangements and grants and government contracts . our total revenue increased $ 30.1 million or 288 % for the year ended december 31 , 2015 , as compared to the year ended december 31 , 2014. the $ 19.8 million increase in revenue under collaborative research and development arrangements for the year ended december 31 , 2015 as compared to 2014 was primarily due to an increase of $ 16.0 million in revenue recognized from our agreement with medimmune entered into in august 2015 and an increase of $ 3.4 million in revenue recognized from the roche agreement which included revenues previously deferred related to the partial termination of the agreement as well as the $ 3.0 million milestone earned during the year . the $ 10.4 million increase in grants and miscellaneous revenue for the year ended december 31 , 2015 as compared to 2014 , was primarily due to revenue recognized from our darpa ebola grant of $ 10.8 million as well as an increase of $ 681,000 in revenue from our darpa subcontract for the treatment of infectious diseases , offset by less revenue recognized from various grants due to the timing of work performed . research and development expenses the $ 23.7 million increase in research and development expenses for the year ended december 31 , 2015 as compared to 2014 was primarily due to an increase in clinical study costs , expenses related to our darpa ebola grant , increased employee headcount , sub-license fee expense based on the up-front payment received from medimmune and higher engineering and lab supplies to support clinical trials and partnerships of $ 8.2 million , $ 5.9 million , $ 5.5 million , $ 2.3 million and $ 1.0 million , respectively . these increases were offset by lower costs of $ 3.1 million incurred for biologics manufacturing and other expenses related to the roche agreement , among other variances . general and administrative expenses 63 the $ 2.2 million increase in general and administrative expenses for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 was primarily due to an increase in employee headcount , employee stock-based compensation and corporate and patent legal fees of $ 1.4 million , $ 609,000 and $ 277,000 , respectively , among other variances . stock-based compensation employee stock-based compensation cost is measured at the grant date , based on the fair value of the award reduced by estimated forfeitures , and is recognized as expense over the employee 's requisite service period . total employee compensation cost for our stock plans for the years ended december 31 , 2015 and 2014 was $ 5.8 million and $ 4.8 million , of which $ 3.2 million and $ 2.8 million was included in research and development expenses and $ 2.6 million and $ 2.0 million was included in general and administrative expenses , respectively . the increase for the annual period year over year was primarily due to an increase in the number of employee and director stock options and restricted stock units granted . at december 31 , 2015 , there was $ 5.4 million of total unrecognized compensation cost related to unvested stock options , which we expect to recognize over a weighted-average period of 1.9 years , as compared to $ 5.3 million for the year ended december 31 , 2014 expected to be recognized over a weighted-average period of 2.0 years . at december 31 , 2015 , there was $ 1.2 million of total unrecognized compensation cost related to unvested restricted stock units , which is expected to be recognized over a weighted-average period of 2.1 years . total stock-based compensation for options granted to non-employees for the years ended december 31 , 2015 and 2014 was $ 385,000 and $ 585,000 , respectively . interest and other income , net interest and other income , net , decreased by $ ( 26,000 ) for the year ended december 31 , 2015 as compared to 2014 primarily due to impairments considered to be other-than-temporary recorded on our short-term investments of $ 274,000 offset by higher average cash and short-term investment balances . change in fair value of common stock warrants the net change in fair value of common stock warrants for the years ended december 31 , 2015 and 2014 was $ 178,000 and $ 348,000 , respectively . the variance is due to the revaluation of the oncosec common stock warrants and revaluation of the registered common stock warrants issued by us in march 2013. we revalue
| liquidity and capital resources working capital and operating activities below for further discussion of currency exchange rate issues in venezuela . emea the emea region reported net sales of $ 735.2 million for the year ended december 31 , 2013. net sales increased $ 107.4 million , or 17.1 % , for the year ended december 31 , 2013 , as compared to the same period in 2012. in local currency , net sales increased 16.3 % for the year ended december 31 , 2013 , as compared to the same period in 2012. the fluctuation of foreign currency rates had a favorable impact on net sales of $ 5.0 million for the year ended december 31 , 2013. the increase in net sales for the year ended december 31 , 2013 was primarily driven by increases in russia , the united kingdom , spain , and italy . net sales in russia , our largest market in the region , increased $ 25.0 million , or 24.7 % , for the year ended december 31 , 2013 , as compared to the same period in 2012. in local currency , net sales increased 28.2 % for the year ended december 31 , 2013 , as compared to the same period in 2012. the fluctuation of foreign currency rates had a $ 3.6 million unfavorable impact on net sales in russia for the year ended december 31 , 2013. the increase in russia was driven by the ongoing adoption of the commercial nutrition club , additional sales centers which have increased access to our products and branding including the sponsorship of fc spartak moscow football club .
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this data was published in the lancet in september 2015. we are planning to take this product , vgx-3100 , into a phase 3 study for cervical dysplasia in 2017. our novel syncon ® immunotherapy design has shown the ability to help break the immune system 's tolerance of cancerous cells . our syncon ® product design approach is also intended to facilitate cross-strain protection against known and new unmatched strains of pathogens such as influenza . given the recognized role of cd8+ killer t cells in eliminating cancerous or infected cells from the body and our published phase 2 results , our scientists believe our active immunotherapies may play an important role in helping fight multiple cancers and infectious diseases . human data to date have shown a favorable safety profile of our dna immunotherapies delivered using electroporation . we or our collaborators are currently conducting or planning clinical studies of our proprietary syncon ® immunotherapies for hpv-caused pre-cancers ( including cervical , anal and vulvar neoplasia ) , hpv-caused cancers ( head and neck and cervical ) , prostate cancer , breast/lung/pancreatic cancer , hepatitis c virus ( hcv ) , hepatitis b virus ( hbv ) , hiv , ebola , mers ( middle east respiratory syndrome ) and zika virus . our corporate strategy is to advance and protect our differentiated immunotherapy platform and use its unique capabilities to design and develop an array of cancer and infectious disease immunotherapy and vaccine products . we aim to advance products through to commercialization . we continue to leverage third party resources through collaborations and partnerships including product license agreements . our partners and collaborators include medimmune , llc , the wistar institute , university of pennsylvania , geneone life science inc. , apollobio corporation , plumbline life sciences , inc. , drexel university , national microbiology laboratory of the public health agency of canada , national institute of allergy and infectious diseases ( “ niaid ” ) , united states military hiv research program ( “ usmhrp ” ) , u.s. army medical research 57 institute of infectious diseases ( “ usamriid ” ) , hiv vaccines trial network ( “ hvtn ” ) , and defense advanced research projects agency ( “ darpa ” ) . all of our potential human products are in research and development phases . we have not generated any revenues from the sale of any such products , and we do not expect to generate any such revenues for at least the next several years . we earn revenue from license fees and milestone revenue , collaborative research and development agreements , grants and government contracts . our product candidates will require significant additional research and development efforts , including extensive preclinical and clinical testing . all product candidates that we advance to clinical testing will require regulatory approval prior to commercial use , and will require significant costs for commercialization . we may not be successful in our research and development efforts , and we may never generate sufficient product revenue to be profitable . recent developments on july 28 , 2016 roche provided notice that they would be discontinuing our collaboration and the development of ino-1800 , our dna immunotherapy against the hepatitis b virus . the termination was effective in october 2016 , 90 days after the notice date . all of roche 's rights to ino-1800 , including the right to license the product to other parties , have been returned to us . we plan to continue to develop our hepatitis b dna vaccine ( ino-1800 ) and independently advance our phase 1 study of ino-1800 . in august 2016 , we incorporated a 100 % -owned subsidiary , geneos therapeutics , inc. , to develop and commercialize neo-antigen based personalized cancer therapies . while we pursue our syncon ® immunotherapy design to break tolerance and create cancer products targeting shared tumor specific antigens , geneos will exclusively focus on leveraging the company 's dna immunotherapy technology platform to advance the field of patient-specific neo-antigen therapies . our clinically validated dna based platform is well suited for advancing individualized therapies due to its rapid product design and manufacturing benefits , ability to combine multiple neo-antigens into formulations , and generation of potent killer t cell responses that are needed to drive clinical efficacy . on october 24 , 2016 , we announced that the u.s. food and drug administration ( fda ) has placed a clinical hold on our proposed phase 3 clinical program for vgx-3100 . a clinical hold is a notification issued by the fda to a trial sponsor to delay a proposed clinical trial or suspend an ongoing clinical trial . this study has not yet been initiated and has not enrolled or dosed subjects . additionally , the hold does not pertain to any of our other ongoing clinical studies . the fda has requested additional information relating to the new cellectra ® 5psp device , including stability data for the device 's single-use disposable electrode array . we are currently generating the necessary device-related data to prepare our response and aim to start the phase 3 study in the first half of 2017. in february 2017 , we announced that we have entered into a collaboration and license agreement providing apollobio corporation with the exclusive right to develop and commercialize vgx-3100 , our dna immunotherapy product designed to treat pre-cancers caused by human papillomavirus ( hpv ) , within greater china ( china , hong kong , macao , taiwan ) . the agreement provides for potential inclusion of the republic of korea three years following the effective date . under the collaboration and license agreement , we will receive $ 15.0 million in upfront and near term payments comprising an initial $ 3.0 million signing fee and a $ 12.0 million milestone upon lifting of the vgx-3100 phase 3 pre-initiation clinical hold by the fda . story_separator_special_tag income taxes since inception , we have incurred operating losses and accordingly have not recorded a provision for income taxes for any of the periods presented . as of december 31 , 2016 , we had net operating loss carry forwards for federal , california and pennsylvania income tax purposes of approximately $ 255.6 million , $ 73.6 million and $ 75.6 million , respectively , net of the net operating losses that will expire due to irc section 382 limitations . we also had federal and state research and development tax credits of approximately $ 7.6 million and $ 2.1 million , respectively , net of the federal research and development credits that will expire due to irc section 383 limitations . if not utilized , the net operating losses and credits will begin to expire in 2018 . utilization of net operating losses and credits are subject to a substantial annual limitation due to ownership change limitations provided by the internal revenue code of 1986 , as amended . comparison of years ended december 31 , 2015 and 2014 62 the consolidated financial data for the years ended december 31 , 2015 and december 31 , 2014 is presented in the following table and the results of these two periods are used in the discussion thereafter . replace_table_token_4_th revenue revenue primarily consists of revenue under collaborative research and development arrangements and grants and government contracts . our total revenue increased $ 30.1 million or 288 % for the year ended december 31 , 2015 , as compared to the year ended december 31 , 2014. the $ 19.8 million increase in revenue under collaborative research and development arrangements for the year ended december 31 , 2015 as compared to 2014 was primarily due to an increase of $ 16.0 million in revenue recognized from our agreement with medimmune entered into in august 2015 and an increase of $ 3.4 million in revenue recognized from the roche agreement which included revenues previously deferred related to the partial termination of the agreement as well as the $ 3.0 million milestone earned during the year . the $ 10.4 million increase in grants and miscellaneous revenue for the year ended december 31 , 2015 as compared to 2014 , was primarily due to revenue recognized from our darpa ebola grant of $ 10.8 million as well as an increase of $ 681,000 in revenue from our darpa subcontract for the treatment of infectious diseases , offset by less revenue recognized from various grants due to the timing of work performed . research and development expenses the $ 23.7 million increase in research and development expenses for the year ended december 31 , 2015 as compared to 2014 was primarily due to an increase in clinical study costs , expenses related to our darpa ebola grant , increased employee headcount , sub-license fee expense based on the up-front payment received from medimmune and higher engineering and lab supplies to support clinical trials and partnerships of $ 8.2 million , $ 5.9 million , $ 5.5 million , $ 2.3 million and $ 1.0 million , respectively . these increases were offset by lower costs of $ 3.1 million incurred for biologics manufacturing and other expenses related to the roche agreement , among other variances . general and administrative expenses 63 the $ 2.2 million increase in general and administrative expenses for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 was primarily due to an increase in employee headcount , employee stock-based compensation and corporate and patent legal fees of $ 1.4 million , $ 609,000 and $ 277,000 , respectively , among other variances . stock-based compensation employee stock-based compensation cost is measured at the grant date , based on the fair value of the award reduced by estimated forfeitures , and is recognized as expense over the employee 's requisite service period . total employee compensation cost for our stock plans for the years ended december 31 , 2015 and 2014 was $ 5.8 million and $ 4.8 million , of which $ 3.2 million and $ 2.8 million was included in research and development expenses and $ 2.6 million and $ 2.0 million was included in general and administrative expenses , respectively . the increase for the annual period year over year was primarily due to an increase in the number of employee and director stock options and restricted stock units granted . at december 31 , 2015 , there was $ 5.4 million of total unrecognized compensation cost related to unvested stock options , which we expect to recognize over a weighted-average period of 1.9 years , as compared to $ 5.3 million for the year ended december 31 , 2014 expected to be recognized over a weighted-average period of 2.0 years . at december 31 , 2015 , there was $ 1.2 million of total unrecognized compensation cost related to unvested restricted stock units , which is expected to be recognized over a weighted-average period of 2.1 years . total stock-based compensation for options granted to non-employees for the years ended december 31 , 2015 and 2014 was $ 385,000 and $ 585,000 , respectively . interest and other income , net interest and other income , net , decreased by $ ( 26,000 ) for the year ended december 31 , 2015 as compared to 2014 primarily due to impairments considered to be other-than-temporary recorded on our short-term investments of $ 274,000 offset by higher average cash and short-term investment balances . change in fair value of common stock warrants the net change in fair value of common stock warrants for the years ended december 31 , 2015 and 2014 was $ 178,000 and $ 348,000 , respectively . the variance is due to the revaluation of the oncosec common stock warrants and revaluation of the registered common stock warrants issued by us in march 2013. we revalue
| working capital and liquidity as of december 31 , 2016 we had cash and short-term investments of $ 104.8 million and working capital of $ 80.8 million , as compared to $ 163.0 million and $ 140.4 million , respectively , as of december 31 , 2015. the decrease in cash and short-term investments during the year ended december 31 , 2016 was primarily due to expenditures related to our research and development activities and various general and administrative expenses related to legal , consultants , accounting and audit , and corporate development . net cash used in operating activities was $ 62.6 million and $ 12.4 million for the years ended december 31 , 2016 and 2015 , respectively . the variance was primarily due to the increase in net loss for the period due to a decrease in revenue of $ 5.2 million and an increase in research and development and general and administrative operating expenses of $ 30.9 million and $ 5.8 million , respectively . in addition , an up-front payment of $ 27.5 million was received from medimmune in september 2015 , of which $ 12.5 million was recorded as deferred revenue at december 31 , 2015. these variances were offset by an increase of $ 8.3 million in non-cash expenses during the period , including a $ 4.3 million increase in employee stock-based compensation expense . net cash provided by ( used in ) investing activities was $ 16.3 million and $ ( 54.8 ) million for the years ended december 31 , 2016 and 2015 , respectively . the variance was primarily the result of timing differences in short-term investment purchases , sales and maturities .
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. for 2016 , the return on average equity was 9.72 % , compared to 4.97 % for 2015. the return on average assets was 1.07 % for 2016 and 0.54 % for 2015. the annualized return on average assets and return on average equity excluding merger related expenses were 1.09 % and 9.92 % in 2016 , compared to 0.87 % and 7.95 % in 2015 , respectively . the results for 2016 included $ 73 thousand in gains on sales of securities , compared to $ 94 thousand in 2015. in addition , 2016 results include $ 238 thousand in gains from the sale of land and buildings . on june 1 , 2016 , the bank completed the acquisition of bowers , and merged bowers with insurance , the bank 's wholly-owned insurance agency subsidiary . bowers will continue to operate out of its cortland , ohio location and will enhance the company 's current product lineup , and offer broader options of commercial , farm , home , and auto property/casualty insurance carriers to meet all the needs of all the company 's customers . the transaction involved both cash and 123,280 shares of stock totaling $ 3.2 million , including up to $ 1.2 million of future payments , contingent upon bowers meeting performance targets . goodwill of $ 1.8 million , which is recorded on the balance sheet , arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the companies . the goodwill was determined not to be deductible for income tax purposes . the fair value of other intangible assets of $ 1.6 million is related to client relationships , company name and noncompetition agreements . 30 on june 19 , 2015 , the company completed the acquisition of all outstanding stock of national bancshares corpora tion ( “ nboh ” ) , the parent company of first national bank of orrville ( “ first national bank ” ) . the transaction involved both cash and 7,262,955 shares of stock totaling $ 74.8 million . first national bank branches became branches of farmers bank . pursuant to the agreement , each shareholder of nboh received either $ 32.15 per share in cash or 4.034 shares of farmers ' common stock , subject to an overall limitation of 80 % of the shares of nboh being exchanged for stock and 20 % for cash . on october 1 , 2015 , the company completed the acquisition of tri-state 1st banc , inc. ( “ tri-state ” ) , the parent company of 1 st national community bank ( “ fncb ” ) . pursuant to the terms of the merger agreement , common shareholders of tri-state were entitled to receive 1.747 shares of farmers ' common stock , or $ 14.20 in cash , for each common share , without par value , of tri-state ( the “ tri-state common shares ” ) , subject to proration provisions specified in the merger agreement that provide for a targeted aggregate split of total consideration consisting of 75 % company common shares and 25 % cash . preferred shareholders of tri-state received $ 13.60 in cash for each share of series a preferred stock , without par value , of tri-state . total consideration actually paid was in the form of $ 3.6 million in cash and $ 10.7 million worth of the company 's stock on october 1 , 2015. net interest income net interest income , the principal source of the company 's earnings , represents the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities . for 2016 , taxable equivalent net interest income increased $ 18.8 million , or 36.3 % , from 2015. interest-earning assets averaged $ 1.761 billion during 2016 , increasing $ 398.6 million compared to 2015. the company 's interest-bearing liabilities increased 27.8 % from $ 1.057 billion in 2015 to $ 1.351 billion in 2016. the two previously mentioned acquisitions increased interest-earning assets by $ 647.5 million and interest-bearing liabilities by $ 605.5 million at their respective completion dates . the company finances its earning assets with a combination of interest-bearing and interest-free funds . the interest-bearing funds are composed of deposits , short-term borrowings and long-term debt . interest paid for the use of these funds is the second factor in the net interest income equation . interest-free funds , such as demand deposits and stockholders ' equity , require no interest expense and , therefore , contribute significantly to net interest income . the profit margin , or spread , on invested funds is a key performance measure . the company monitors two key performance indicators - net interest spread and net interest margin . the net interest spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities . the net interest spread in 2016 was 3.94 % , increasing from 3.72 % in 2015. the net interest margin represents the overall profit margin – net interest income as a percentage of total interest-earning assets . this performance indicator gives effect to interest earned for all investable funds including the substantial volume of interest-free funds . for 2016 , the net interest margin , measured on a fully taxable equivalent basis , increased to 4.01 % , compared to 3.81 % in 2015. the net interest margin , excluding the impact of amortization and accretion from the current year acquisitions , improved 19 basis points to 3.95 % for the year ended december 31 , 2016. the accretion added $ 98 thousand per month during 2016 and will continue over the next several years . the increase in net interest margin is largely a result of interest bearing liabilities repricing at lower rates and the shifting of assets from investment securities to higher interest income rates of loans . story_separator_special_tag farmers typically obtains an external appraisal to validate its internal collateral valuation as soon as is practical and adjusts the associated specific loss reserve , if necessary . 37 the rat io of the allowance for loan losses to non-performing loans at december 31 , 2016 improved to 132.83 % , compared to 85.96 % at december 31 , 2015. nonaccrual agricultural loans were the only category that increased during the year , from $ 73 thousand at decemb er 31 , 2015 to $ 686 thousand , or 0.53 % of total agricultural loans at december 31 , 2016. the balance in the allowance for loan losses increased in 2016 , with the increased loan portfolio size , to $ 10.9 million compared to $ 9.0 million in 2015. replace_table_token_14_th the company has forgone interest income of approximately $ 553 thousand from nonaccrual loans as of december 31 , 2016 that would have been earned , over the life of the loans , if all loans had performed in accordance with their original terms . net charge-offs as a percentage of average loans outstanding decreased from 0.23 % for 2015 to 0.15 % for 2016 as a result of the larger loan portfolio and improved loan quality . net charge-offs decreased from $ 2.2 million in 2015 to $ 2.0 million in 2016. each of the loan types experienced a decrease in gross charge-offs in comparing the two periods . the following table summarizes the company 's allocation of the allowance for loan losses for the past five years : replace_table_token_15_th the allowance allocated to each of the four loan categories should not be interpreted as an indication that charge-offs in 2017 will occur in the same proportions or that the allocation indicates future charge-off trends . the allowance allocated to the one-to-four family real estate loan category and the consumer loan category is based upon 38 the company 's allowance methodology for homogeneous loans , and increases and decreases in the balances of those portfolios . in previous years , the indirect installment loan category has represented the largest percentage of loan losses . the consumer loan category represents approximately 15.3 % of total loans and in 2016 , the net loan losses accounted for 69.4 % of the losses of the entire loan portfolio . for the commer cial loan category , which represents 17.2 % of the total loan portfolio , management relies on the bank 's internal loan review procedures and allocates accordingly based on loan classifications . the net charge-offs in the commercial real estate portfolio , w hich represents 37.4 % of the total portfolio , was $ 334 thousand for 2016. there were no loans other than those identified above , that management has known information about possible credit problems of borrowers and their ability to comply with the loan repayment terms . management is actively monitoring certain borrowers ' financial condition and loans which management wants to more closely monitor due to special circumstances . these loans and their potential loss exposure have been considered in management 's analysis of the adequacy of the allowance for loan losses . loan commitments and lines of credit in the normal course of business , the bank has extended various commitments for credit . commitments for mortgages , revolving lines of credit and letters of credit generally are extended for a period of one month up to one year . normally , no fees are charged on any unused portion , but an annual fee of two percent is charged for the issuance of a letter of credit . as of december 31 , 2016 , there were no concentrations of loans exceeding 10 % of total loans that are not disclosed as a category of loans . as of that date , there were also no other interest-earning assets that are either nonaccrual , past due , restructured or non-performing . investment securities the investment securities portfolio decreased $ 24.3 million in 2016. this decrease resulted from some maturing securities not being reinvested and used instead to fund loan portfolio growth . the company 's investment strategy is to maintain a diverse investment security portfolio with a higher concentration in mortgage-backed securities that are issued by u.s. government sponsored enterprises and tax-free municipal securities . farmers sold $ 11.5 million in securities in 2016 , resulting in net security gains of $ 73 thousand . farmers recognized market appreciation on faster paying mortgage-backed securities and lower rated municipal securities , and reinvested in new mortgage-backed securities and higher rated municipal securities to further diversify the securities portfolio . during 2014 , the company created the investments subsidiary to hold municipal securities and take advantage of more favorable tax treatment . at december 31 , 2016 , the investments entity had a balance of $ 76.9 million in municipal securities . farmers ' objective in managing the investment portfolio is to preserve and enhance corporate liquidity through investment in primarily short and intermediate term securities which are readily marketable and of the highest credit quality . in general , investment in securities is limited to those funds the bank feels it has in excess of funds used to satisfy loan demand and operating considerations . the volcker rule places limits on the trading activity of insured depository institutions and entities affiliated with a depository institution , subject to certain exceptions . the bank does not engage in any of the trading activities or own any of the types of funds regulated by the volcker rule . mortgage-backed securities are created by the pooling of mortgages and issuance of a security . mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages . prepayment estimates for mortgage-backed securities are performed at purchase to ensure that prepayment assumptions are reasonable considering the underlying collateral for the mortgage-backed securities at issue and current mortgage interest rates and to determine the yield and
| working capital and liquidity as of december 31 , 2016 we had cash and short-term investments of $ 104.8 million and working capital of $ 80.8 million , as compared to $ 163.0 million and $ 140.4 million , respectively , as of december 31 , 2015. the decrease in cash and short-term investments during the year ended december 31 , 2016 was primarily due to expenditures related to our research and development activities and various general and administrative expenses related to legal , consultants , accounting and audit , and corporate development . net cash used in operating activities was $ 62.6 million and $ 12.4 million for the years ended december 31 , 2016 and 2015 , respectively . the variance was primarily due to the increase in net loss for the period due to a decrease in revenue of $ 5.2 million and an increase in research and development and general and administrative operating expenses of $ 30.9 million and $ 5.8 million , respectively . in addition , an up-front payment of $ 27.5 million was received from medimmune in september 2015 , of which $ 12.5 million was recorded as deferred revenue at december 31 , 2015. these variances were offset by an increase of $ 8.3 million in non-cash expenses during the period , including a $ 4.3 million increase in employee stock-based compensation expense . net cash provided by ( used in ) investing activities was $ 16.3 million and $ ( 54.8 ) million for the years ended december 31 , 2016 and 2015 , respectively . the variance was primarily the result of timing differences in short-term investment purchases , sales and maturities .
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. for 2016 , the return on average equity was 9.72 % , compared to 4.97 % for 2015. the return on average assets was 1.07 % for 2016 and 0.54 % for 2015. the annualized return on average assets and return on average equity excluding merger related expenses were 1.09 % and 9.92 % in 2016 , compared to 0.87 % and 7.95 % in 2015 , respectively . the results for 2016 included $ 73 thousand in gains on sales of securities , compared to $ 94 thousand in 2015. in addition , 2016 results include $ 238 thousand in gains from the sale of land and buildings . on june 1 , 2016 , the bank completed the acquisition of bowers , and merged bowers with insurance , the bank 's wholly-owned insurance agency subsidiary . bowers will continue to operate out of its cortland , ohio location and will enhance the company 's current product lineup , and offer broader options of commercial , farm , home , and auto property/casualty insurance carriers to meet all the needs of all the company 's customers . the transaction involved both cash and 123,280 shares of stock totaling $ 3.2 million , including up to $ 1.2 million of future payments , contingent upon bowers meeting performance targets . goodwill of $ 1.8 million , which is recorded on the balance sheet , arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the companies . the goodwill was determined not to be deductible for income tax purposes . the fair value of other intangible assets of $ 1.6 million is related to client relationships , company name and noncompetition agreements . 30 on june 19 , 2015 , the company completed the acquisition of all outstanding stock of national bancshares corpora tion ( “ nboh ” ) , the parent company of first national bank of orrville ( “ first national bank ” ) . the transaction involved both cash and 7,262,955 shares of stock totaling $ 74.8 million . first national bank branches became branches of farmers bank . pursuant to the agreement , each shareholder of nboh received either $ 32.15 per share in cash or 4.034 shares of farmers ' common stock , subject to an overall limitation of 80 % of the shares of nboh being exchanged for stock and 20 % for cash . on october 1 , 2015 , the company completed the acquisition of tri-state 1st banc , inc. ( “ tri-state ” ) , the parent company of 1 st national community bank ( “ fncb ” ) . pursuant to the terms of the merger agreement , common shareholders of tri-state were entitled to receive 1.747 shares of farmers ' common stock , or $ 14.20 in cash , for each common share , without par value , of tri-state ( the “ tri-state common shares ” ) , subject to proration provisions specified in the merger agreement that provide for a targeted aggregate split of total consideration consisting of 75 % company common shares and 25 % cash . preferred shareholders of tri-state received $ 13.60 in cash for each share of series a preferred stock , without par value , of tri-state . total consideration actually paid was in the form of $ 3.6 million in cash and $ 10.7 million worth of the company 's stock on october 1 , 2015. net interest income net interest income , the principal source of the company 's earnings , represents the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities . for 2016 , taxable equivalent net interest income increased $ 18.8 million , or 36.3 % , from 2015. interest-earning assets averaged $ 1.761 billion during 2016 , increasing $ 398.6 million compared to 2015. the company 's interest-bearing liabilities increased 27.8 % from $ 1.057 billion in 2015 to $ 1.351 billion in 2016. the two previously mentioned acquisitions increased interest-earning assets by $ 647.5 million and interest-bearing liabilities by $ 605.5 million at their respective completion dates . the company finances its earning assets with a combination of interest-bearing and interest-free funds . the interest-bearing funds are composed of deposits , short-term borrowings and long-term debt . interest paid for the use of these funds is the second factor in the net interest income equation . interest-free funds , such as demand deposits and stockholders ' equity , require no interest expense and , therefore , contribute significantly to net interest income . the profit margin , or spread , on invested funds is a key performance measure . the company monitors two key performance indicators - net interest spread and net interest margin . the net interest spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities . the net interest spread in 2016 was 3.94 % , increasing from 3.72 % in 2015. the net interest margin represents the overall profit margin – net interest income as a percentage of total interest-earning assets . this performance indicator gives effect to interest earned for all investable funds including the substantial volume of interest-free funds . for 2016 , the net interest margin , measured on a fully taxable equivalent basis , increased to 4.01 % , compared to 3.81 % in 2015. the net interest margin , excluding the impact of amortization and accretion from the current year acquisitions , improved 19 basis points to 3.95 % for the year ended december 31 , 2016. the accretion added $ 98 thousand per month during 2016 and will continue over the next several years . the increase in net interest margin is largely a result of interest bearing liabilities repricing at lower rates and the shifting of assets from investment securities to higher interest income rates of loans . story_separator_special_tag farmers typically obtains an external appraisal to validate its internal collateral valuation as soon as is practical and adjusts the associated specific loss reserve , if necessary . 37 the rat io of the allowance for loan losses to non-performing loans at december 31 , 2016 improved to 132.83 % , compared to 85.96 % at december 31 , 2015. nonaccrual agricultural loans were the only category that increased during the year , from $ 73 thousand at decemb er 31 , 2015 to $ 686 thousand , or 0.53 % of total agricultural loans at december 31 , 2016. the balance in the allowance for loan losses increased in 2016 , with the increased loan portfolio size , to $ 10.9 million compared to $ 9.0 million in 2015. replace_table_token_14_th the company has forgone interest income of approximately $ 553 thousand from nonaccrual loans as of december 31 , 2016 that would have been earned , over the life of the loans , if all loans had performed in accordance with their original terms . net charge-offs as a percentage of average loans outstanding decreased from 0.23 % for 2015 to 0.15 % for 2016 as a result of the larger loan portfolio and improved loan quality . net charge-offs decreased from $ 2.2 million in 2015 to $ 2.0 million in 2016. each of the loan types experienced a decrease in gross charge-offs in comparing the two periods . the following table summarizes the company 's allocation of the allowance for loan losses for the past five years : replace_table_token_15_th the allowance allocated to each of the four loan categories should not be interpreted as an indication that charge-offs in 2017 will occur in the same proportions or that the allocation indicates future charge-off trends . the allowance allocated to the one-to-four family real estate loan category and the consumer loan category is based upon 38 the company 's allowance methodology for homogeneous loans , and increases and decreases in the balances of those portfolios . in previous years , the indirect installment loan category has represented the largest percentage of loan losses . the consumer loan category represents approximately 15.3 % of total loans and in 2016 , the net loan losses accounted for 69.4 % of the losses of the entire loan portfolio . for the commer cial loan category , which represents 17.2 % of the total loan portfolio , management relies on the bank 's internal loan review procedures and allocates accordingly based on loan classifications . the net charge-offs in the commercial real estate portfolio , w hich represents 37.4 % of the total portfolio , was $ 334 thousand for 2016. there were no loans other than those identified above , that management has known information about possible credit problems of borrowers and their ability to comply with the loan repayment terms . management is actively monitoring certain borrowers ' financial condition and loans which management wants to more closely monitor due to special circumstances . these loans and their potential loss exposure have been considered in management 's analysis of the adequacy of the allowance for loan losses . loan commitments and lines of credit in the normal course of business , the bank has extended various commitments for credit . commitments for mortgages , revolving lines of credit and letters of credit generally are extended for a period of one month up to one year . normally , no fees are charged on any unused portion , but an annual fee of two percent is charged for the issuance of a letter of credit . as of december 31 , 2016 , there were no concentrations of loans exceeding 10 % of total loans that are not disclosed as a category of loans . as of that date , there were also no other interest-earning assets that are either nonaccrual , past due , restructured or non-performing . investment securities the investment securities portfolio decreased $ 24.3 million in 2016. this decrease resulted from some maturing securities not being reinvested and used instead to fund loan portfolio growth . the company 's investment strategy is to maintain a diverse investment security portfolio with a higher concentration in mortgage-backed securities that are issued by u.s. government sponsored enterprises and tax-free municipal securities . farmers sold $ 11.5 million in securities in 2016 , resulting in net security gains of $ 73 thousand . farmers recognized market appreciation on faster paying mortgage-backed securities and lower rated municipal securities , and reinvested in new mortgage-backed securities and higher rated municipal securities to further diversify the securities portfolio . during 2014 , the company created the investments subsidiary to hold municipal securities and take advantage of more favorable tax treatment . at december 31 , 2016 , the investments entity had a balance of $ 76.9 million in municipal securities . farmers ' objective in managing the investment portfolio is to preserve and enhance corporate liquidity through investment in primarily short and intermediate term securities which are readily marketable and of the highest credit quality . in general , investment in securities is limited to those funds the bank feels it has in excess of funds used to satisfy loan demand and operating considerations . the volcker rule places limits on the trading activity of insured depository institutions and entities affiliated with a depository institution , subject to certain exceptions . the bank does not engage in any of the trading activities or own any of the types of funds regulated by the volcker rule . mortgage-backed securities are created by the pooling of mortgages and issuance of a security . mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages . prepayment estimates for mortgage-backed securities are performed at purchase to ensure that prepayment assumptions are reasonable considering the underlying collateral for the mortgage-backed securities at issue and current mortgage interest rates and to determine the yield and
| liquidity farmers maintains , in the opinion of management , liquidity sufficient to satisfy depositors ' requirements and meet the credit needs of customers . the company depends on its ability to maintain its market share of deposits as well as acquiring new funds . the company 's ability to attract deposits and borrow funds depends in large measure on its profitability , capitalization and overall financial condition . principal sources of liquidity include assets considered relatively liquid , such as short-term investment securities , federal funds sold and cash and due from banks . along with its liquid assets , farmers has additional sources of liquidity available which help to insure that adequate funds are available as needed . these other sources include , but are not limited to , loan repayments , the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds and borrowings on approved lines of credit at two major domestic banks . at december 31 , 2016 , farmers had not borrowed against these lines of credit . management feels that its liquidity position is more than adequate and will continue to monitor the position on a monthly basis . the company also has additional borrowing capacity with the fhlb , as well as access to the federal reserve discount window , which provides an additional source of funds . the company views its membership in the fhlb as a solid source of liquidity . as of december 31 , 2016 , the bank is eligible to borrow an additional $ 144 million from the fhlb under various fixed rate and variable rate credit facilities . advances outstanding from the fhlb at december 31 , 2016 amounted to $ 132.9 million . farmers ' primary investing activities are originating loans and purchasing securities .
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we currently manufacture and sell topical , injectable and ophthalmic generic pharmaceutical products under our own label in both the us and canada . in the united states , the three large wholesale drug distributors are amerisource bergen corporation ( `` abc `` ) ; cardinal health , inc. ( `` cardinal `` ) ; and mckesson drug company , ( `` mckesson `` ) . abc , cardinal and mckesson are key distributors of our products , as well as a broad range of health care products for many other companies . none of these distributors is an end user of our products . generally , if sales to any one of these distributors were to diminish or cease , we believe that the end users of our products would likely find little difficulty obtaining our products either directly from us or from another distributor . however , the loss of one or more of these distributors , together with a delay or inability to secure an alternative distribution source for end users , could have a material negative impact on our revenue , business , financial condition and results of operations . there are generally three major negotiating entities in the us market . walgreens boots alliance development ( wbad ) consists of walgreens and amerisource bergen 's prxo generics program . red oak sourcing consists of cvs and cardinal 's source programs . finally , clarusone consists of walmart , riteaid and mckesson 's onestop program . a loss of any of these major entities could result in a significant reduction in revenue . we consider our business relationships with abc , cardinal and mckesson to be in good standing , and we have fee for services contracts with each of them . however , a change in purchasing patterns , a decrease in inventory levels , an increase in returns of our products , delays in purchasing products and delays in payment for products by one or more of these distributors could have a material negative impact on our revenue , business , financial condition and results of operations . we continue to explore business development opportunities to add additional products and or capabilities to our existing portfolio and to expand our private label and contract manufacturing service opportunities . we have two platforms for growth : developing , manufacturing and marketing a portfolio of generic pharmaceutical products under our own or a private label in topical , injectable and other high-barrier forms ; and managing and expanding our current private label and contract development and manufacturing business . since 2010 , the primary focus of our strategy has been on the growth of our own generic prescription pharmaceutical business particularly within the generic topical pharmaceutical product market , while moderating our contract development and manufacturing to the prescription and otc pharmaceutical and cosmetic markets . in 2014 , we broadened our primary target product focus from topical pharmaceuticals to include a wider approach focused on high-barrier generic prescription pharmaceutical products and generic and branded generic injectable pharmaceutical products . we believed that expanding our development and commercial base beyond topical generics , historically the cornerstone of our expertise , to include injectable generics and other high-barrier dosage forms would leverage our existing expertise and capabilities , and broaden our platform for diversified strategic growth . while we experienced some success in that regard , during the last year , as we have experienced the unfavorable impacts of the covid-19 pandemic on our business , we have begun to reexamine all of our expertise and assets in order to reinvigorate and bolster our business . this has resulted in our placing additional emphasis on the development of our private label business as well as our contract development and manufacturing business . following five approvals from our internally developed pipeline of topical generic products in 2019 , there were no approvals from our internally developed pipeline of topical generic products in 2020. we continue to be opportunistic in efforts to license or acquire further products , intellectual property , or pending applications to expand our portfolio . we expect to accelerate our growth through the creation of unique opportunities based on the acquisition of additional intellectual property and or the expansion of the use of our existing intellectual property . we are also exploring the options to monetize certain of our non-core assets . based on iqvia ( nyse : iqv ) data , the addressable market for the seven anda topical filings and three ndas that we have pending with the fda is estimated to total over $ 140 million per annum . we expect to continue to expand our presence in the generic topical and generic injectable pharmaceutical markets through the submission of additional andas to the fda and the subsequent launch of products if and when these applications are approved by the fda . product and pipeline approvals there were no significant approvals announced in 2020 . the following is a summary of significant approvals announced in 2019 : on january 2 , 2019 , we announced approval of an anda for gentamicin sulfate ointment usp , 0.1 % . this was our thirty-second approval from our internally developed pipeline of topical generic pharmaceutical medicines . we launched this product in the first quarter of 2019. on january 24 , 2019 , we announced approval of an anda for clobetasol propionate ointment usp , 0.05 % . this was our first approval for 2019 , and our thirty-third approval from our internally developed pipeline of topical generic pharmaceutical medicines . we launched this product in the first quarter of 2019. on march 14 , 2019 , we announced approval of an anda for desonide ointment , 0.05 % . this was our second approval of 2019 , and our thirty-fourth approval from our internally developed pipeline of topical generic pharmaceutical medicines . story_separator_special_tag if only one of those items occurs by december 13 , 2020 , then the company may still elect to pay interest in kind during 2021 , but only from the time the second condition has been satisfied until december 13 , 2021. thereafter , a portion of interest on the loans accruing at a rate of 4.25 % per annum may continue to be paid in kind . both april 2020 amendments provide that in the event of receipt of net proceeds from a disposition triggering a mandatory prepayment , net proceeds of such disposition will be applied as follows : ( i ) first , to be retained by the company or applied to amounts outstanding under the first lien credit agreement until such time as liquidity of the company and its subsidiaries equals $ 10.0 million , ( ii ) next to amounts outstanding under the revolver ( without a permanent reduction in the revolving loan commitments of the lenders ) until such amounts are paid in full ( with the first lien administrative agent having the right to waive such prepayment , in which event , such net proceeds are applied to amounts outstanding under the second lien credit agreement ) , and ( iii ) finally , to amounts outstanding under the term loans . in addition , pursuant to the revolver , the company has agreed at all times to maintain book cash of the company and its subsidiaries not in excess of $ 10.0 million with any excess being required to prepay the outstanding obligations under the revolver . after giving effect to the april amendments , the effective interest rates , inclusive of the debt discounts and issuance costs for the initial term loan and delayed draw term loan a were between 16.6 % and 17.7 % and for the various borrowing tranches of the revolver , were between 9.6 % and 10.9 % . in connection with the term loan amendments dated april 6 , 2020 , the company issued to the term loan lenders certain warrants to purchase up to , in the aggregate , 538,995 of post reverse stock split shares of the company 's common stock at an exercise price of $ 0.01 per share . the warrants initially were recorded at fair value upon issuance and classified as a liability as the company did not have sufficient authorized unissued shares for the warrants ' exercise . the warrants were remeasured to fair value up to the reverse stock split date , with any fair value adjustments recognized in the condensed consolidated statements of operations . the warrants were reclassified as equity at their fair value upon the reverse stock split date and will not be remeasured subsequently . the estimated fair value of the warrants on the date of issuance of $ 1.4 million was recorded as a debt discount . the warrants had a fair value of $ 2.2 million as of the reverse stock split date which was reclassified to equity . the warrants are exercisable at any time after the reverse stock split which occurred on may 28 , 2020 and will remain exercisable , in whole or in part , for a period of 5 years from the issuance date . as of december 31 , 2020 , all 538,995 warrants remain outstanding ( note 9 ) . the number of shares issuable upon the exercise of the warrants is subject to customary adjustments upon the occurrence of certain events , including ( i ) payment of a dividend or distribution to holders of shares of the company 's common stock payable in shares of the company 's common stock , ( ii ) a subdivision , capital reorganization or reclassification of the company 's common stock or ( iii ) a merger , sale or other change of control transaction . on july 20 , 2020 , the company entered into ( i ) a consent and amendment no . 3 to first lien revolving credit agreement ( the “ first lien amendment ” ) , and ( ii ) a consent and amendment no . 5 to second lien credit agreement ( the “ second lien amendment ” ) . the first lien amendment amended the first lien credit agreement to , among other things , ( i ) permit the issuance of the series c notes and the other transactions contemplated by the indenture related thereto , ( ii ) modify the terms of certain mandatory prepayments , ( iii ) modify certain negative covenants and ( iv ) modify certain financial covenants . the july 2020 second lien amendment amended the second lien credit agreement to , among other things , ( i ) permit the issuance of the series c notes and the other transactions contemplated by the indenture related thereto , ( ii ) modify the terms of certain mandatory prepayments , ( iii ) modify certain negative covenants , ( iv ) modify certain financial covenants and ( v ) extend the time period in which the company may elect to pay interest in kind . in connection with the transactions contemplated by the july 2020 second lien amendment , the company issued to the lenders party to the second lien credit agreement certain warrants to purchase shares of the company 's common stock . the warrants are exercisable for up to , in the aggregate , 134,667 shares of the company 's common stock at an exercise price of $ 0.01 per share of common stock . the warrants are immediately exercisable upon issuance and will remain exercisable , in whole or in part , for a period of five years from the original issuance date . the number of shares issuable upon the exercise of the warrants is subject to customary adjustments upon the occurrence of certain events , including ( i ) payment of a dividend or distribution to holders of shares of
| liquidity farmers maintains , in the opinion of management , liquidity sufficient to satisfy depositors ' requirements and meet the credit needs of customers . the company depends on its ability to maintain its market share of deposits as well as acquiring new funds . the company 's ability to attract deposits and borrow funds depends in large measure on its profitability , capitalization and overall financial condition . principal sources of liquidity include assets considered relatively liquid , such as short-term investment securities , federal funds sold and cash and due from banks . along with its liquid assets , farmers has additional sources of liquidity available which help to insure that adequate funds are available as needed . these other sources include , but are not limited to , loan repayments , the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds and borrowings on approved lines of credit at two major domestic banks . at december 31 , 2016 , farmers had not borrowed against these lines of credit . management feels that its liquidity position is more than adequate and will continue to monitor the position on a monthly basis . the company also has additional borrowing capacity with the fhlb , as well as access to the federal reserve discount window , which provides an additional source of funds . the company views its membership in the fhlb as a solid source of liquidity . as of december 31 , 2016 , the bank is eligible to borrow an additional $ 144 million from the fhlb under various fixed rate and variable rate credit facilities . advances outstanding from the fhlb at december 31 , 2016 amounted to $ 132.9 million . farmers ' primary investing activities are originating loans and purchasing securities .
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we currently manufacture and sell topical , injectable and ophthalmic generic pharmaceutical products under our own label in both the us and canada . in the united states , the three large wholesale drug distributors are amerisource bergen corporation ( `` abc `` ) ; cardinal health , inc. ( `` cardinal `` ) ; and mckesson drug company , ( `` mckesson `` ) . abc , cardinal and mckesson are key distributors of our products , as well as a broad range of health care products for many other companies . none of these distributors is an end user of our products . generally , if sales to any one of these distributors were to diminish or cease , we believe that the end users of our products would likely find little difficulty obtaining our products either directly from us or from another distributor . however , the loss of one or more of these distributors , together with a delay or inability to secure an alternative distribution source for end users , could have a material negative impact on our revenue , business , financial condition and results of operations . there are generally three major negotiating entities in the us market . walgreens boots alliance development ( wbad ) consists of walgreens and amerisource bergen 's prxo generics program . red oak sourcing consists of cvs and cardinal 's source programs . finally , clarusone consists of walmart , riteaid and mckesson 's onestop program . a loss of any of these major entities could result in a significant reduction in revenue . we consider our business relationships with abc , cardinal and mckesson to be in good standing , and we have fee for services contracts with each of them . however , a change in purchasing patterns , a decrease in inventory levels , an increase in returns of our products , delays in purchasing products and delays in payment for products by one or more of these distributors could have a material negative impact on our revenue , business , financial condition and results of operations . we continue to explore business development opportunities to add additional products and or capabilities to our existing portfolio and to expand our private label and contract manufacturing service opportunities . we have two platforms for growth : developing , manufacturing and marketing a portfolio of generic pharmaceutical products under our own or a private label in topical , injectable and other high-barrier forms ; and managing and expanding our current private label and contract development and manufacturing business . since 2010 , the primary focus of our strategy has been on the growth of our own generic prescription pharmaceutical business particularly within the generic topical pharmaceutical product market , while moderating our contract development and manufacturing to the prescription and otc pharmaceutical and cosmetic markets . in 2014 , we broadened our primary target product focus from topical pharmaceuticals to include a wider approach focused on high-barrier generic prescription pharmaceutical products and generic and branded generic injectable pharmaceutical products . we believed that expanding our development and commercial base beyond topical generics , historically the cornerstone of our expertise , to include injectable generics and other high-barrier dosage forms would leverage our existing expertise and capabilities , and broaden our platform for diversified strategic growth . while we experienced some success in that regard , during the last year , as we have experienced the unfavorable impacts of the covid-19 pandemic on our business , we have begun to reexamine all of our expertise and assets in order to reinvigorate and bolster our business . this has resulted in our placing additional emphasis on the development of our private label business as well as our contract development and manufacturing business . following five approvals from our internally developed pipeline of topical generic products in 2019 , there were no approvals from our internally developed pipeline of topical generic products in 2020. we continue to be opportunistic in efforts to license or acquire further products , intellectual property , or pending applications to expand our portfolio . we expect to accelerate our growth through the creation of unique opportunities based on the acquisition of additional intellectual property and or the expansion of the use of our existing intellectual property . we are also exploring the options to monetize certain of our non-core assets . based on iqvia ( nyse : iqv ) data , the addressable market for the seven anda topical filings and three ndas that we have pending with the fda is estimated to total over $ 140 million per annum . we expect to continue to expand our presence in the generic topical and generic injectable pharmaceutical markets through the submission of additional andas to the fda and the subsequent launch of products if and when these applications are approved by the fda . product and pipeline approvals there were no significant approvals announced in 2020 . the following is a summary of significant approvals announced in 2019 : on january 2 , 2019 , we announced approval of an anda for gentamicin sulfate ointment usp , 0.1 % . this was our thirty-second approval from our internally developed pipeline of topical generic pharmaceutical medicines . we launched this product in the first quarter of 2019. on january 24 , 2019 , we announced approval of an anda for clobetasol propionate ointment usp , 0.05 % . this was our first approval for 2019 , and our thirty-third approval from our internally developed pipeline of topical generic pharmaceutical medicines . we launched this product in the first quarter of 2019. on march 14 , 2019 , we announced approval of an anda for desonide ointment , 0.05 % . this was our second approval of 2019 , and our thirty-fourth approval from our internally developed pipeline of topical generic pharmaceutical medicines . story_separator_special_tag if only one of those items occurs by december 13 , 2020 , then the company may still elect to pay interest in kind during 2021 , but only from the time the second condition has been satisfied until december 13 , 2021. thereafter , a portion of interest on the loans accruing at a rate of 4.25 % per annum may continue to be paid in kind . both april 2020 amendments provide that in the event of receipt of net proceeds from a disposition triggering a mandatory prepayment , net proceeds of such disposition will be applied as follows : ( i ) first , to be retained by the company or applied to amounts outstanding under the first lien credit agreement until such time as liquidity of the company and its subsidiaries equals $ 10.0 million , ( ii ) next to amounts outstanding under the revolver ( without a permanent reduction in the revolving loan commitments of the lenders ) until such amounts are paid in full ( with the first lien administrative agent having the right to waive such prepayment , in which event , such net proceeds are applied to amounts outstanding under the second lien credit agreement ) , and ( iii ) finally , to amounts outstanding under the term loans . in addition , pursuant to the revolver , the company has agreed at all times to maintain book cash of the company and its subsidiaries not in excess of $ 10.0 million with any excess being required to prepay the outstanding obligations under the revolver . after giving effect to the april amendments , the effective interest rates , inclusive of the debt discounts and issuance costs for the initial term loan and delayed draw term loan a were between 16.6 % and 17.7 % and for the various borrowing tranches of the revolver , were between 9.6 % and 10.9 % . in connection with the term loan amendments dated april 6 , 2020 , the company issued to the term loan lenders certain warrants to purchase up to , in the aggregate , 538,995 of post reverse stock split shares of the company 's common stock at an exercise price of $ 0.01 per share . the warrants initially were recorded at fair value upon issuance and classified as a liability as the company did not have sufficient authorized unissued shares for the warrants ' exercise . the warrants were remeasured to fair value up to the reverse stock split date , with any fair value adjustments recognized in the condensed consolidated statements of operations . the warrants were reclassified as equity at their fair value upon the reverse stock split date and will not be remeasured subsequently . the estimated fair value of the warrants on the date of issuance of $ 1.4 million was recorded as a debt discount . the warrants had a fair value of $ 2.2 million as of the reverse stock split date which was reclassified to equity . the warrants are exercisable at any time after the reverse stock split which occurred on may 28 , 2020 and will remain exercisable , in whole or in part , for a period of 5 years from the issuance date . as of december 31 , 2020 , all 538,995 warrants remain outstanding ( note 9 ) . the number of shares issuable upon the exercise of the warrants is subject to customary adjustments upon the occurrence of certain events , including ( i ) payment of a dividend or distribution to holders of shares of the company 's common stock payable in shares of the company 's common stock , ( ii ) a subdivision , capital reorganization or reclassification of the company 's common stock or ( iii ) a merger , sale or other change of control transaction . on july 20 , 2020 , the company entered into ( i ) a consent and amendment no . 3 to first lien revolving credit agreement ( the “ first lien amendment ” ) , and ( ii ) a consent and amendment no . 5 to second lien credit agreement ( the “ second lien amendment ” ) . the first lien amendment amended the first lien credit agreement to , among other things , ( i ) permit the issuance of the series c notes and the other transactions contemplated by the indenture related thereto , ( ii ) modify the terms of certain mandatory prepayments , ( iii ) modify certain negative covenants and ( iv ) modify certain financial covenants . the july 2020 second lien amendment amended the second lien credit agreement to , among other things , ( i ) permit the issuance of the series c notes and the other transactions contemplated by the indenture related thereto , ( ii ) modify the terms of certain mandatory prepayments , ( iii ) modify certain negative covenants , ( iv ) modify certain financial covenants and ( v ) extend the time period in which the company may elect to pay interest in kind . in connection with the transactions contemplated by the july 2020 second lien amendment , the company issued to the lenders party to the second lien credit agreement certain warrants to purchase shares of the company 's common stock . the warrants are exercisable for up to , in the aggregate , 134,667 shares of the company 's common stock at an exercise price of $ 0.01 per share of common stock . the warrants are immediately exercisable upon issuance and will remain exercisable , in whole or in part , for a period of five years from the original issuance date . the number of shares issuable upon the exercise of the warrants is subject to customary adjustments upon the occurrence of certain events , including ( i ) payment of a dividend or distribution to holders of shares of
| liquidity and capital resources the company has incurred significant losses and generated negative cash flows from operations in recent years and expects to continue to incur losses and generate negative cash flow for the foreseeable future . as a result , we had an accumulated deficit of $ 243.5 million , total principal amount of outstanding borrowings of $ 181.6 million , and limited capital resources to fund ongoing operations at december 31 , 2020. these capital resources were comprised of cash and equivalents of $ 6.7 million at december 31 , 2020 and the generation of cash inflows from working capital . the company is not currently generating revenues from operations that are sufficient to cover its operating expenses , and its available capital resources are not sufficient for it to continue to meet its obligations as they become due . as a result , the company has engaged financial and legal advisors to assist it in , among other things , analyzing all available strategic alternatives to address its liquidity and capital structure . however , the company can not provide assurances that additional capital will be available when needed or that any strategic alternatives or restructuring pursued will be on acceptable terms . the company 's liquidity needs have typically arisen from the funding of its new manufacturing facility , product manufacturing costs , research and development programs , and the launch of new products . in the past , the company has met these cash requirements through cash inflows from operations , working capital management , and proceeds from borrowings . although the construction of the company 's new manufacturing facility was substantially completed in october 2018 , additional investment was made in order to prepare the facility and the company 's employees for a prior approval inspection from the fda for the new injectable line .
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in exchange for the contribution of the mandalay bay real estate assets , the operating partnership received consideration of $ 2.1 billion , which was comprised of $ 1.3 billion of the operating partnership 's secured indebtedness assumed by mgm breit venture , the operating partnership 's 50.1 % equity interest in the mgp breit venture , and the remainder in cash . in addition , mgm received $ 2.4 billion of cash distributed from the mgp breit venture as consideration for its contribution of the mgm grand las vegas real estate assets , and , additionally , the operating partnership issued 2.6 million operating partnership units to mgm representing 5 % of the equity value of mgp breit venture . in connection with the transactions , mgm provided a shortfall guaranty of the principal amount of indebtedness of the mgp breit venture ( and any interest accrued and unpaid thereto ) . on the closing date , breit also purchased 4.9 million class a common shares of mgp for $ 150 million . in connection with the transactions , mgp breit venture entered into a lease with a subsidiary of mgm for the real estate assets of mandalay bay and mgm grand las vegas . the lease provides for a term of thirty years with two ten-year renewal options and has an initial annual base rent of $ 292 million , escalating annually at a rate of 2 % per annum for the first fifteen years and thereafter equal to the greater of 2 % and the cpi increase during the prior year subject to a cap of 3 % . in addition , the lease will require the tenant to spend 3.5 % of net revenues over a rolling five-year period at the properties on capital expenditures and for the tenant and mgm to comply with certain financial covenants , which , if not met , will require the tenant to maintain cash security or provide one or more letters of credit in favor of the landlord in an amount equal to the rent for the succeeding one-year period . mgm provided a guarantee of tenant 's obligations under the lease . in connection with the mgp breit venture transaction , the mgm-mgp master lease was modified to remove the mandalay bay property and the rent under the mgm-mgp master lease was reduced by $ 133 million . also , on january 14 , 2020 , the operating partnership , mgp , and mgm entered into an agreement for the operating partnership to waive its right to issue mgp class a shares , in lieu of cash , to mgm in connection with mgm exercising its right to require the operating partnership to redeem the operating partnership units it holds . the waiver provides that the units will be purchased at a price per unit equal to a 3 % discount to the applicable cash amount as calculated in accordance with the operating agreement . the waiver terminates on the earlier of 24 months following the closing of the mgp breit venture transaction and mgm receiving cash proceeds of $ 1.4 billion as consideration for the redemption of its operating partnership units . combined results of operations for mgp and the operating partnership the following is a comparative discussion of results of operations for the years ended december 31 , 2019 and 2018 . refer to the audited consolidated financial statements and notes for the fiscal year ended december 31 , 2018 , which were included in our annual report on form 10-k , filed with the sec on february 27 , 2019 , and the audited and consolidated financial statements and notes for the fiscal year ended december 31 , 2018 , as retrospectively recasted for discontinued operations , which were filed on current report on form 8-k filed with the sec on august 16 , 2019 , for the comparative discussion of the results of operations for the years ended december 31 , 2018 and 2017 . 34 overview the following table summarizes our financial results for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_10_th revenues rental revenue . rental revenues , including tenant reimbursements and other , for the years ended december 31 , 2019 and 2018 were $ 881.1 million and $ 869.5 million , respectively . the $ 11.6 million , or 1 % , increase for 2019 compared to 2018 was primarily due to an increase in rental revenues , excluding the lease incentive amortization , of $ 126.5 million as a result of the empire city transaction in january 2019 , the park mgm transaction in march 2019 , and the addition of mgm northfield park to the mgm-mgp master lease in april 2019. the increase was offset by a $ 93.7 million decrease in reimbursed revenues as we no longer recognize reimbursed revenue for property taxes in accordance with the adoption of asc 842 on january 1 , 2019 and a $ 16.4 million decrease in revenues for the amortization of the lease incentive asset recorded as part of the park mgm transaction . expenses depreciation . depreciation expense was $ 294.7 million and $ 266.6 million for the years ended december 31 , 2019 and 2018 , respectively . the $ 28.1 million , or 11 % , increase for 2019 as compared to 2018 was primarily due to the full year of depreciation recorded in 2019 for the acquisitions of mgm northfield park in july 2018 and empire city in january 2019. property transactions , net . property transactions , net were $ 10.8 million in 2019 compared to $ 20.3 million in 2018 . story_separator_special_tag significant estimates , judgments , and assumptions are required in a number of areas , including , but not limited to , reit qualification , lease accounting , determining the useful lives of real estate investments and property and equipment used in operations and evaluating the impairment of such assets , and purchase price allocations . the judgment on such estimates and underlying assumptions is based on our experience and various other factors that we believe are reasonable under the circumstances . these form the basis of our judgment on matters that may not be apparent from other available sources of information . in many instances changes in the accounting estimates are likely to occur from period to period . actual results may differ from the estimates . the future financial statement presentation , financial condition , results of operations and cash flows may be affected to the extent that the actual results differ materially from our estimates . income taxes - reit qualification we have elected to be taxed as a reit for u.s. federal income tax purposes commencing with our taxable year ended december 31 , 2016 , and intend to continue to be organized and to operate in a manner that will permit us to continue to qualify as a reit . to qualify as a reit , we must meet certain organizational and operational requirements , including a requirement to distribute at least 90 % of our annual reit taxable income to shareholders , determined without regard to the dividends paid deduction and excluding any net capital gains . as a reit , we generally will not be subject to federal income tax on income that we pay as distributions to our shareholders . if we fail to qualify as a reit in any taxable year , we will for that year and subsequent years be subject to u.s. federal and state income tax , including any applicable alternative minimum tax , on our taxable income at regular corporate income tax rates , and distributions paid to our shareholders would not be deductible by us in computing taxable income . any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for distribution to shareholders . unless we were entitled to relief under certain code provisions , we also would be disqualified from re-electing to be taxed as a reit for the four taxable years following the year in which we failed to qualify to be taxed as a reit . leases the lease accounting guidance under asc 842 is complex and requires the use of judgments and assumptions by management to determine the proper accounting treatment of a lease . upon entry into a lease agreement or amendment , we assess whether such agreements are accounted for as a separate or combined contract and or a lease modification or a new lease . this further determines whether the extent to which we need to perform lease classification testing to determine if the agreement is a finance or operating lease . the lease classification test may require judgments which may include , among other things , the fair value of the assets , the residual value of the assets at the end of the lease term , the estimated remaining economic life of the assets , and the likelihood of the tenant exercising renewal options . 40 real estate investments , property and equipment used in operations , and depreciation real estate costs related to the acquisition and improvement of our properties are capitalized and include expenditures that materially extend the useful lives of existing assets . property and equipment used in operations represents the assets acquired in the northfield acquisition and was therefore recognized at fair value at the acquisition date . depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets . we consider the period of future benefit of an asset to determine its appropriate useful life . depreciation on our buildings , improvements and integral equipment is computed using the straight-line method over an estimated useful life of 3 to 40 years . if we use a shorter or longer estimated useful life , it could have a material impact on our results of operations . we believe that 3 to 40 years is an appropriate estimate of useful life . property and equipment used in operations that related to the operations of northfield are classified as assets held for sale . refer to note 3 for further information . impairment of real estate investments we continually monitor events and changes in circumstances that could indicate that the carrying amount of our real estate investments may not be recoverable or realized . in accordance with accounting standards governing the impairment or disposal of long-lived assets , the carrying value of long-lived assets , including land , buildings and improvements , land improvements , and equipment is evaluated whenever events or changes in circumstances indicate that a potential impairment has occurred relative to a given asset or assets . factors that could result in an impairment review include , but are not limited to , a current period cash flow loss combined with a history of cash flow losses , current cash flows that may be insufficient to recover the investment in a property over its remaining useful life , a projection that demonstrates continuing losses associated with the use of a long-lived asset , significant changes in the manner of use of the assets , or significant changes in business strategies . if such circumstances arise , we use an estimate of the undiscounted value of expected future operating cash flows to determine whether the long-lived assets are impaired . if the aggregate undiscounted cash flows plus net proceeds expected from disposition of the asset ( if any ) are less than the carrying amount of the assets , the resulting impairment charge to be recorded
| liquidity and capital resources the company has incurred significant losses and generated negative cash flows from operations in recent years and expects to continue to incur losses and generate negative cash flow for the foreseeable future . as a result , we had an accumulated deficit of $ 243.5 million , total principal amount of outstanding borrowings of $ 181.6 million , and limited capital resources to fund ongoing operations at december 31 , 2020. these capital resources were comprised of cash and equivalents of $ 6.7 million at december 31 , 2020 and the generation of cash inflows from working capital . the company is not currently generating revenues from operations that are sufficient to cover its operating expenses , and its available capital resources are not sufficient for it to continue to meet its obligations as they become due . as a result , the company has engaged financial and legal advisors to assist it in , among other things , analyzing all available strategic alternatives to address its liquidity and capital structure . however , the company can not provide assurances that additional capital will be available when needed or that any strategic alternatives or restructuring pursued will be on acceptable terms . the company 's liquidity needs have typically arisen from the funding of its new manufacturing facility , product manufacturing costs , research and development programs , and the launch of new products . in the past , the company has met these cash requirements through cash inflows from operations , working capital management , and proceeds from borrowings . although the construction of the company 's new manufacturing facility was substantially completed in october 2018 , additional investment was made in order to prepare the facility and the company 's employees for a prior approval inspection from the fda for the new injectable line .
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in exchange for the contribution of the mandalay bay real estate assets , the operating partnership received consideration of $ 2.1 billion , which was comprised of $ 1.3 billion of the operating partnership 's secured indebtedness assumed by mgm breit venture , the operating partnership 's 50.1 % equity interest in the mgp breit venture , and the remainder in cash . in addition , mgm received $ 2.4 billion of cash distributed from the mgp breit venture as consideration for its contribution of the mgm grand las vegas real estate assets , and , additionally , the operating partnership issued 2.6 million operating partnership units to mgm representing 5 % of the equity value of mgp breit venture . in connection with the transactions , mgm provided a shortfall guaranty of the principal amount of indebtedness of the mgp breit venture ( and any interest accrued and unpaid thereto ) . on the closing date , breit also purchased 4.9 million class a common shares of mgp for $ 150 million . in connection with the transactions , mgp breit venture entered into a lease with a subsidiary of mgm for the real estate assets of mandalay bay and mgm grand las vegas . the lease provides for a term of thirty years with two ten-year renewal options and has an initial annual base rent of $ 292 million , escalating annually at a rate of 2 % per annum for the first fifteen years and thereafter equal to the greater of 2 % and the cpi increase during the prior year subject to a cap of 3 % . in addition , the lease will require the tenant to spend 3.5 % of net revenues over a rolling five-year period at the properties on capital expenditures and for the tenant and mgm to comply with certain financial covenants , which , if not met , will require the tenant to maintain cash security or provide one or more letters of credit in favor of the landlord in an amount equal to the rent for the succeeding one-year period . mgm provided a guarantee of tenant 's obligations under the lease . in connection with the mgp breit venture transaction , the mgm-mgp master lease was modified to remove the mandalay bay property and the rent under the mgm-mgp master lease was reduced by $ 133 million . also , on january 14 , 2020 , the operating partnership , mgp , and mgm entered into an agreement for the operating partnership to waive its right to issue mgp class a shares , in lieu of cash , to mgm in connection with mgm exercising its right to require the operating partnership to redeem the operating partnership units it holds . the waiver provides that the units will be purchased at a price per unit equal to a 3 % discount to the applicable cash amount as calculated in accordance with the operating agreement . the waiver terminates on the earlier of 24 months following the closing of the mgp breit venture transaction and mgm receiving cash proceeds of $ 1.4 billion as consideration for the redemption of its operating partnership units . combined results of operations for mgp and the operating partnership the following is a comparative discussion of results of operations for the years ended december 31 , 2019 and 2018 . refer to the audited consolidated financial statements and notes for the fiscal year ended december 31 , 2018 , which were included in our annual report on form 10-k , filed with the sec on february 27 , 2019 , and the audited and consolidated financial statements and notes for the fiscal year ended december 31 , 2018 , as retrospectively recasted for discontinued operations , which were filed on current report on form 8-k filed with the sec on august 16 , 2019 , for the comparative discussion of the results of operations for the years ended december 31 , 2018 and 2017 . 34 overview the following table summarizes our financial results for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_10_th revenues rental revenue . rental revenues , including tenant reimbursements and other , for the years ended december 31 , 2019 and 2018 were $ 881.1 million and $ 869.5 million , respectively . the $ 11.6 million , or 1 % , increase for 2019 compared to 2018 was primarily due to an increase in rental revenues , excluding the lease incentive amortization , of $ 126.5 million as a result of the empire city transaction in january 2019 , the park mgm transaction in march 2019 , and the addition of mgm northfield park to the mgm-mgp master lease in april 2019. the increase was offset by a $ 93.7 million decrease in reimbursed revenues as we no longer recognize reimbursed revenue for property taxes in accordance with the adoption of asc 842 on january 1 , 2019 and a $ 16.4 million decrease in revenues for the amortization of the lease incentive asset recorded as part of the park mgm transaction . expenses depreciation . depreciation expense was $ 294.7 million and $ 266.6 million for the years ended december 31 , 2019 and 2018 , respectively . the $ 28.1 million , or 11 % , increase for 2019 as compared to 2018 was primarily due to the full year of depreciation recorded in 2019 for the acquisitions of mgm northfield park in july 2018 and empire city in january 2019. property transactions , net . property transactions , net were $ 10.8 million in 2019 compared to $ 20.3 million in 2018 . story_separator_special_tag significant estimates , judgments , and assumptions are required in a number of areas , including , but not limited to , reit qualification , lease accounting , determining the useful lives of real estate investments and property and equipment used in operations and evaluating the impairment of such assets , and purchase price allocations . the judgment on such estimates and underlying assumptions is based on our experience and various other factors that we believe are reasonable under the circumstances . these form the basis of our judgment on matters that may not be apparent from other available sources of information . in many instances changes in the accounting estimates are likely to occur from period to period . actual results may differ from the estimates . the future financial statement presentation , financial condition , results of operations and cash flows may be affected to the extent that the actual results differ materially from our estimates . income taxes - reit qualification we have elected to be taxed as a reit for u.s. federal income tax purposes commencing with our taxable year ended december 31 , 2016 , and intend to continue to be organized and to operate in a manner that will permit us to continue to qualify as a reit . to qualify as a reit , we must meet certain organizational and operational requirements , including a requirement to distribute at least 90 % of our annual reit taxable income to shareholders , determined without regard to the dividends paid deduction and excluding any net capital gains . as a reit , we generally will not be subject to federal income tax on income that we pay as distributions to our shareholders . if we fail to qualify as a reit in any taxable year , we will for that year and subsequent years be subject to u.s. federal and state income tax , including any applicable alternative minimum tax , on our taxable income at regular corporate income tax rates , and distributions paid to our shareholders would not be deductible by us in computing taxable income . any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for distribution to shareholders . unless we were entitled to relief under certain code provisions , we also would be disqualified from re-electing to be taxed as a reit for the four taxable years following the year in which we failed to qualify to be taxed as a reit . leases the lease accounting guidance under asc 842 is complex and requires the use of judgments and assumptions by management to determine the proper accounting treatment of a lease . upon entry into a lease agreement or amendment , we assess whether such agreements are accounted for as a separate or combined contract and or a lease modification or a new lease . this further determines whether the extent to which we need to perform lease classification testing to determine if the agreement is a finance or operating lease . the lease classification test may require judgments which may include , among other things , the fair value of the assets , the residual value of the assets at the end of the lease term , the estimated remaining economic life of the assets , and the likelihood of the tenant exercising renewal options . 40 real estate investments , property and equipment used in operations , and depreciation real estate costs related to the acquisition and improvement of our properties are capitalized and include expenditures that materially extend the useful lives of existing assets . property and equipment used in operations represents the assets acquired in the northfield acquisition and was therefore recognized at fair value at the acquisition date . depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets . we consider the period of future benefit of an asset to determine its appropriate useful life . depreciation on our buildings , improvements and integral equipment is computed using the straight-line method over an estimated useful life of 3 to 40 years . if we use a shorter or longer estimated useful life , it could have a material impact on our results of operations . we believe that 3 to 40 years is an appropriate estimate of useful life . property and equipment used in operations that related to the operations of northfield are classified as assets held for sale . refer to note 3 for further information . impairment of real estate investments we continually monitor events and changes in circumstances that could indicate that the carrying amount of our real estate investments may not be recoverable or realized . in accordance with accounting standards governing the impairment or disposal of long-lived assets , the carrying value of long-lived assets , including land , buildings and improvements , land improvements , and equipment is evaluated whenever events or changes in circumstances indicate that a potential impairment has occurred relative to a given asset or assets . factors that could result in an impairment review include , but are not limited to , a current period cash flow loss combined with a history of cash flow losses , current cash flows that may be insufficient to recover the investment in a property over its remaining useful life , a projection that demonstrates continuing losses associated with the use of a long-lived asset , significant changes in the manner of use of the assets , or significant changes in business strategies . if such circumstances arise , we use an estimate of the undiscounted value of expected future operating cash flows to determine whether the long-lived assets are impaired . if the aggregate undiscounted cash flows plus net proceeds expected from disposition of the asset ( if any ) are less than the carrying amount of the assets , the resulting impairment charge to be recorded
| liquidity and capital resources rental revenues and , subsequent to the close of the mgp breit venture transaction in february 2020 , distributions from the mgp breit venture are our primary sources of cash from operations and are dependent on the tenant 's ability to pay rent and the mgp breit venture 's ability to pay distributions . all of our indebtedness is held by the operating partnership and mgp does not guarantee any of the operating partnership 's indebtedness . mgp 's principal funding requirement is the payment of dividends and distributions on its class a shares , and its principal source of funding for these dividends and distributions is the distributions it receives from the operating partnership . mgp 's liquidity is therefore dependent upon the operating partnership 's ability to make sufficient distributions to it . the operating partnership 's primary uses of cash include payment of operating expenses , debt service and distributions to mgp and mgm . we believe that the operating partnership currently has sufficient liquidity to satisfy all of its commitments , including its distributions to mgp , and in turn , that we currently have sufficient liquidity to satisfy all our commitments in the form of $ 202.1 million in cash and cash equivalents held by the operating partnership as of december 31 , 2019 , expected cash flows from operations , and $ 1.4 billion of borrowing capacity under the operating partnership 's revolving credit facility as of december 31 , 2019 .
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2018 financial highlights among other financial highlights , for the year ended december 31 , 2018 : revenue increased $ 722.7 million , or 73.6 % , to $ 1,704.6 million , as compared to $ 981.9 million for the year ended december 31 , 2017 , primarily as a result of the increase in our fleet size ; cost of services ( exclusive of depreciation and amortization ) increased $ 456.8 million or 56.1 % to $ 1,270.6 million , as compared to $ 813.8 million for the year ended december 31 , 2017 , primarily as a result of the increase in fleet size , resulting in higher activity levels . cost of services as a percentage of revenue decreased to 74.5 % in 2018 compared to 82.9 % for the year ended december 31 , 2017 ; general and administrative expenses , inclusive of stock-based compensation ( “ g & a ” ) , increased $ 4.7 million , or 9.6 % to $ 54.0 million , as compared to $ 49.2 million for the december 31 , 2017 . g & a as a percentage of revenue decreased to 3.2 % in 2018 from 5.0 % for the year ended december 31 , 2017 ; diluted net income per common share was $ 2.00 , compared to $ 0.16 for the year ended december 31 , 2017 . 2019 outlook in 2019 , we continue to focus on providing best-in-class service to our customers , helping our customer improve their well economics while continuing to enhance the company 's profitability . we expect to achieve these objectives through : continuing to enhance our dedicated customer model to drive production efficiencies ; maintaining full utilization of our hydraulic fracturing fleets ; pursuing operational efficiencies and cost reduction strategies ; pursuing expansion opportunities for our non-hydraulic fracturing operations ; maintaining our existing relationships with our vendors and developing strategic relationships with new suppliers to ensure continuity ; exploring potential opportunities for mergers or acquisitions , focused on our growth , market opportunities and creating value to our shareholders . 32 our assets and operations through our pressure pumping segment , which includes cementing operations , we primarily provide hydraulic fracturing services ( inclusive of acidizing services ) to e & p companies in the permian basin . our modern hydraulic fracturing fleet has been designed to handle permian basin specific operating conditions and the region 's increasingly high‑intensity well completions , which are characterized by longer horizontal wellbores , more frac stages per lateral and increasing amounts of proppant per well . we have fully maintained our equipment throughout the recent industry downturn to ensure optimal performance and reliability . in addition to our core pressure pumping segment operations , we also offer a suite of complementary well completion and production services , including coiled tubing and flowback services . we believe these complementary services create operational efficiencies for our customers and allow us to capture a greater portion of their capital spending across the lifecycle of a well . additionally , we believe that these complementary services should benefit from a continued industry recovery and that we are well positioned to continue expanding these offerings in response to our customers ' increasing service needs and spending levels . how we generate revenue we generate revenue primarily through our pressure pumping segment , and more specifically , by providing hydraulic fracturing services to our customers . we own and operate a fleet of mobile hydraulic fracturing units and other auxiliary equipment to perform fracturing services . we also provide personnel and services that are tailored to meet each of our customers ' needs . we charge our customers on a per‑job basis , in which we set pricing terms after receiving full specifications for the requested job , including the lateral length of the customer 's wellbore , the number of frac stages per well , the amount of proppant to be employed and other parameters of the job . in addition to hydraulic fracturing services , we generate revenue through the complementary services that we provide to our customers , including cementing , coiled tubing and flowback services . these complementary services are provided through various contractual arrangements , including on a turnkey contract basis , in which we set a price to perform a particular job , or a daywork contract basis , in which we are paid a set price per day for our services . we are also sometimes paid by the hour for these complementary services . our revenue , profitability and cash flows are highly dependent upon prevailing crude oil prices and expectations about future prices . for many years , oil prices and markets have been extremely volatile . prices are affected by many factors beyond our control . west texas intermediate ( “ wti ” ) oil prices which declined significantly in 2015 and 2016 , but recovered somewhat during 2017 and 2018. the average wti oil prices per barrel was $ 65.1 , $ 50.8 and $ 43.3 for the years ended december 31 , 2018 , 2017 and 2016 , respectively . as a result of the recent recovery in oil prices , our industry has experienced a significant increase in both drilling and pressure pumping activity levels . looking forward , if oil prices increase , we believe u.s. rig counts will also increase , which may result in an increase in demand for drilling and pressure pumping services . higher oil and natural gas prices do not necessarily result in increased activity because demand for our services is generally driven by our customers ' expectations of future oil and natural gas prices , as well as rig count . story_separator_special_tag we calculate depreciation of property and equipment using the straight-line method . property and equipment impairment expense . there was no property and equipment impairment expense during the year ended december 31 , 2017 , compared to $ 6.3 million during the year ended december 31 , 2016. the non‑cash impairment expense in 2016 was associated with our drilling rigs , and was recognized as a result of depressed commodity prices and a negative future near‑term outlook for these assets . goodwill impairment expense . there was no goodwill impairment expense during the year ended december 31 , 2017 , compared to $ 1.2 million during the year ended december 31 , 2016. the non‑cash goodwill impairment expense in 2016 was as a result of the write‑down of goodwill related to our surface drilling reporting unit . loss on disposal of assets . loss on the disposal of assets increased 73.5 % , or $ 16.6 million , to $ 39.1 million for the year ended december 31 , 2017 , as compared to $ 22.5 million for the year ended december 31 , 2016. the increase was primarily attributable to greater service intensity of jobs completed , coupled with higher fleet size , activity levels and utilization of our equipment . interest expense . interest expense decreased 64.0 % , or $ 13.0 million , to $ 7.3 million for the year ended december 31 , 2017 , as compared to $ 20.4 million for the year ended december 31 , 2016. the decrease in interest expense was primarily attributable to a reduction in our average debt balance during 2017 due to the early retirement of our term loan and revolving credit facility in the first quarter of 2017. gain on extinguishment of debt . there was no debt extinguishment gain or loss during the year ended december 31 , 2017 , compared to the gain on extinguishment of debt , net of cost , of $ 7.0 million during the year ended december 31 , 2016. the gain on extinguishment of debt during 2016 was as a result of the auction process with our lenders to repurchase $ 37.5 million of our term loan at a 20 % discount to par value . 40 other expense . other expense was $ 1.0 million for the year ended december 31 , 2017 , as compared to $ 0.3 million for the year ended december 31 , 2016. the increase was primarily attributable to an increase in lenders related expenses , non-recurring listing related expenses , and partially offset by an increase in the unrealized gain resulting from the change in the fair value of our interest rate swap liability at december 31 , 2017 compared to december 31 , 2016. income tax expense/ ( benefit ) . income tax expense was $ 3.1 million for the year ended december 31 , 2017 , compared to income tax benefit of $ 28.0 million , for the year ended december 31 , 2016. the change from an income tax benefit to income tax expense is primarily due to the company 's reporting income before taxes during the year ended december 31 , 2017 , compared to a loss before taxes recorded during the year ended december 31 , 2016. the income before taxes generated is attributable to the increase in our revenue during the year ended december 31 , 2017 , compared to december 31 , 2016. additionally , the income tax expense during the year ended december 31 , 2017 , included a one-time deferred tax benefit offset of $ 3.4 million , resulting from the u.s. government enacted tax legislation commonly referred to as the tax cuts and jobs act ( “ tax act ” ) . liquidity and capital resources our liquidity is currently provided by ( i ) existing cash balances , ( ii ) operating cash flows and ( iii ) borrowings under our abl credit facility . our primary uses of cash will be to continue to fund our operations , support growth opportunities and satisfy debt payments . as of december 31 , 2018 , our total liquidity consists of cash and cash equivalents of $ 132.7 million , and $ 125.0 million of availability under our abl credit facility . there can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures . future cash flows are subject to a number of variables , and are highly dependent on the drilling , completion , and production activity by our customers , which in turn is highly dependent on oil and gas prices . depending upon market conditions and other factors , we may issue equity and debt securities or take other actions necessary to fund our business or meet our future long-term liquidity requirements . story_separator_special_tag the abl credit facility balance outstanding is exclusive of future commitment fees , interest or other fees since our potential future obligations thereunder are based on future events and can not be reasonably estimated . ( 2 ) operating leases include agreements for various office and maintenance locations . 43 recent accounting pronouncements disclosure concerning recently issued accounting standards is incorporated by reference to note 2 of our consolidated financial statements contained in this form 10-k. critical accounting policies and estimates the 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 acceptable in the united states of america . 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 dates of the financial statements and the reported revenues and expenses during the years . we evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience
| liquidity and capital resources rental revenues and , subsequent to the close of the mgp breit venture transaction in february 2020 , distributions from the mgp breit venture are our primary sources of cash from operations and are dependent on the tenant 's ability to pay rent and the mgp breit venture 's ability to pay distributions . all of our indebtedness is held by the operating partnership and mgp does not guarantee any of the operating partnership 's indebtedness . mgp 's principal funding requirement is the payment of dividends and distributions on its class a shares , and its principal source of funding for these dividends and distributions is the distributions it receives from the operating partnership . mgp 's liquidity is therefore dependent upon the operating partnership 's ability to make sufficient distributions to it . the operating partnership 's primary uses of cash include payment of operating expenses , debt service and distributions to mgp and mgm . we believe that the operating partnership currently has sufficient liquidity to satisfy all of its commitments , including its distributions to mgp , and in turn , that we currently have sufficient liquidity to satisfy all our commitments in the form of $ 202.1 million in cash and cash equivalents held by the operating partnership as of december 31 , 2019 , expected cash flows from operations , and $ 1.4 billion of borrowing capacity under the operating partnership 's revolving credit facility as of december 31 , 2019 .
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2018 financial highlights among other financial highlights , for the year ended december 31 , 2018 : revenue increased $ 722.7 million , or 73.6 % , to $ 1,704.6 million , as compared to $ 981.9 million for the year ended december 31 , 2017 , primarily as a result of the increase in our fleet size ; cost of services ( exclusive of depreciation and amortization ) increased $ 456.8 million or 56.1 % to $ 1,270.6 million , as compared to $ 813.8 million for the year ended december 31 , 2017 , primarily as a result of the increase in fleet size , resulting in higher activity levels . cost of services as a percentage of revenue decreased to 74.5 % in 2018 compared to 82.9 % for the year ended december 31 , 2017 ; general and administrative expenses , inclusive of stock-based compensation ( “ g & a ” ) , increased $ 4.7 million , or 9.6 % to $ 54.0 million , as compared to $ 49.2 million for the december 31 , 2017 . g & a as a percentage of revenue decreased to 3.2 % in 2018 from 5.0 % for the year ended december 31 , 2017 ; diluted net income per common share was $ 2.00 , compared to $ 0.16 for the year ended december 31 , 2017 . 2019 outlook in 2019 , we continue to focus on providing best-in-class service to our customers , helping our customer improve their well economics while continuing to enhance the company 's profitability . we expect to achieve these objectives through : continuing to enhance our dedicated customer model to drive production efficiencies ; maintaining full utilization of our hydraulic fracturing fleets ; pursuing operational efficiencies and cost reduction strategies ; pursuing expansion opportunities for our non-hydraulic fracturing operations ; maintaining our existing relationships with our vendors and developing strategic relationships with new suppliers to ensure continuity ; exploring potential opportunities for mergers or acquisitions , focused on our growth , market opportunities and creating value to our shareholders . 32 our assets and operations through our pressure pumping segment , which includes cementing operations , we primarily provide hydraulic fracturing services ( inclusive of acidizing services ) to e & p companies in the permian basin . our modern hydraulic fracturing fleet has been designed to handle permian basin specific operating conditions and the region 's increasingly high‑intensity well completions , which are characterized by longer horizontal wellbores , more frac stages per lateral and increasing amounts of proppant per well . we have fully maintained our equipment throughout the recent industry downturn to ensure optimal performance and reliability . in addition to our core pressure pumping segment operations , we also offer a suite of complementary well completion and production services , including coiled tubing and flowback services . we believe these complementary services create operational efficiencies for our customers and allow us to capture a greater portion of their capital spending across the lifecycle of a well . additionally , we believe that these complementary services should benefit from a continued industry recovery and that we are well positioned to continue expanding these offerings in response to our customers ' increasing service needs and spending levels . how we generate revenue we generate revenue primarily through our pressure pumping segment , and more specifically , by providing hydraulic fracturing services to our customers . we own and operate a fleet of mobile hydraulic fracturing units and other auxiliary equipment to perform fracturing services . we also provide personnel and services that are tailored to meet each of our customers ' needs . we charge our customers on a per‑job basis , in which we set pricing terms after receiving full specifications for the requested job , including the lateral length of the customer 's wellbore , the number of frac stages per well , the amount of proppant to be employed and other parameters of the job . in addition to hydraulic fracturing services , we generate revenue through the complementary services that we provide to our customers , including cementing , coiled tubing and flowback services . these complementary services are provided through various contractual arrangements , including on a turnkey contract basis , in which we set a price to perform a particular job , or a daywork contract basis , in which we are paid a set price per day for our services . we are also sometimes paid by the hour for these complementary services . our revenue , profitability and cash flows are highly dependent upon prevailing crude oil prices and expectations about future prices . for many years , oil prices and markets have been extremely volatile . prices are affected by many factors beyond our control . west texas intermediate ( “ wti ” ) oil prices which declined significantly in 2015 and 2016 , but recovered somewhat during 2017 and 2018. the average wti oil prices per barrel was $ 65.1 , $ 50.8 and $ 43.3 for the years ended december 31 , 2018 , 2017 and 2016 , respectively . as a result of the recent recovery in oil prices , our industry has experienced a significant increase in both drilling and pressure pumping activity levels . looking forward , if oil prices increase , we believe u.s. rig counts will also increase , which may result in an increase in demand for drilling and pressure pumping services . higher oil and natural gas prices do not necessarily result in increased activity because demand for our services is generally driven by our customers ' expectations of future oil and natural gas prices , as well as rig count . story_separator_special_tag we calculate depreciation of property and equipment using the straight-line method . property and equipment impairment expense . there was no property and equipment impairment expense during the year ended december 31 , 2017 , compared to $ 6.3 million during the year ended december 31 , 2016. the non‑cash impairment expense in 2016 was associated with our drilling rigs , and was recognized as a result of depressed commodity prices and a negative future near‑term outlook for these assets . goodwill impairment expense . there was no goodwill impairment expense during the year ended december 31 , 2017 , compared to $ 1.2 million during the year ended december 31 , 2016. the non‑cash goodwill impairment expense in 2016 was as a result of the write‑down of goodwill related to our surface drilling reporting unit . loss on disposal of assets . loss on the disposal of assets increased 73.5 % , or $ 16.6 million , to $ 39.1 million for the year ended december 31 , 2017 , as compared to $ 22.5 million for the year ended december 31 , 2016. the increase was primarily attributable to greater service intensity of jobs completed , coupled with higher fleet size , activity levels and utilization of our equipment . interest expense . interest expense decreased 64.0 % , or $ 13.0 million , to $ 7.3 million for the year ended december 31 , 2017 , as compared to $ 20.4 million for the year ended december 31 , 2016. the decrease in interest expense was primarily attributable to a reduction in our average debt balance during 2017 due to the early retirement of our term loan and revolving credit facility in the first quarter of 2017. gain on extinguishment of debt . there was no debt extinguishment gain or loss during the year ended december 31 , 2017 , compared to the gain on extinguishment of debt , net of cost , of $ 7.0 million during the year ended december 31 , 2016. the gain on extinguishment of debt during 2016 was as a result of the auction process with our lenders to repurchase $ 37.5 million of our term loan at a 20 % discount to par value . 40 other expense . other expense was $ 1.0 million for the year ended december 31 , 2017 , as compared to $ 0.3 million for the year ended december 31 , 2016. the increase was primarily attributable to an increase in lenders related expenses , non-recurring listing related expenses , and partially offset by an increase in the unrealized gain resulting from the change in the fair value of our interest rate swap liability at december 31 , 2017 compared to december 31 , 2016. income tax expense/ ( benefit ) . income tax expense was $ 3.1 million for the year ended december 31 , 2017 , compared to income tax benefit of $ 28.0 million , for the year ended december 31 , 2016. the change from an income tax benefit to income tax expense is primarily due to the company 's reporting income before taxes during the year ended december 31 , 2017 , compared to a loss before taxes recorded during the year ended december 31 , 2016. the income before taxes generated is attributable to the increase in our revenue during the year ended december 31 , 2017 , compared to december 31 , 2016. additionally , the income tax expense during the year ended december 31 , 2017 , included a one-time deferred tax benefit offset of $ 3.4 million , resulting from the u.s. government enacted tax legislation commonly referred to as the tax cuts and jobs act ( “ tax act ” ) . liquidity and capital resources our liquidity is currently provided by ( i ) existing cash balances , ( ii ) operating cash flows and ( iii ) borrowings under our abl credit facility . our primary uses of cash will be to continue to fund our operations , support growth opportunities and satisfy debt payments . as of december 31 , 2018 , our total liquidity consists of cash and cash equivalents of $ 132.7 million , and $ 125.0 million of availability under our abl credit facility . there can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures . future cash flows are subject to a number of variables , and are highly dependent on the drilling , completion , and production activity by our customers , which in turn is highly dependent on oil and gas prices . depending upon market conditions and other factors , we may issue equity and debt securities or take other actions necessary to fund our business or meet our future long-term liquidity requirements . story_separator_special_tag the abl credit facility balance outstanding is exclusive of future commitment fees , interest or other fees since our potential future obligations thereunder are based on future events and can not be reasonably estimated . ( 2 ) operating leases include agreements for various office and maintenance locations . 43 recent accounting pronouncements disclosure concerning recently issued accounting standards is incorporated by reference to note 2 of our consolidated financial statements contained in this form 10-k. critical accounting policies and estimates the 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 acceptable in the united states of america . 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 dates of the financial statements and the reported revenues and expenses during the years . we evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience
| cash and cash flows the following table sets forth our net cash provided by ( used in ) operating , investing and financing activities during the year at december 31 , 2018 , 2017 and 2016 , respectively . replace_table_token_9_th operating activities net cash provided by operating activities was $ 393.1 million for the year ended december 31 , 2018 , as compared to $ 109.3 million for the year ended december 31 , 2017 . the net increase of $ 283.8 million was primarily due to the increase in our revenue generating assets ( fleet size ) , which has resulted in increases in revenue and net income in the year , offset by our working capital needs resulting from higher fleet size and expanding activity levels . net cash provided by operating activities was $ 109.3 million for the year ended december 31 , 2017 , as compared to $ 10.7 million for the year ended december 31 , 2016. the net increase of $ 98.6 million was primarily due to an increase in revenue and net income in the year , resulting from an increase in customer activity , fleet size and demand for our services , and partially offset by the increase in our working capital needs resulting from higher fleet size and expanding activity levels . 41 investing activities net cash used in investing activities decreased to $ 280.6 million for the year ended december 31 , 2018 , from $ 281.5 million for the year ended december 31 , 2017 . the slight decrease was primarily attributable to the decrease in cash payment for capital expenditures during the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 . net cash used in investing activities increased to $ 281.5 million for the year ended december 31 , 2017 , from $ 41.7 million for the year ended december 31 , 2016. the increase was primarily attributable to the additional hydraulic fracturing units and other ancillary equipment purchased and a marginal increase in maintenance capital expenditures , during the year ended december 31 , 2017 , compared to the year ended december 31 , 2016.
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during the second half of our fiscal year ended march 31 , 2013 , we added a high capacity , chassis-based packet flow switch line that we acquired from onpath in october 2012. the combination of these two products has provided us with a wide range of price/performance and scale , well suited for both large enterprise and service provider applications . in the wireless service provider sector we continued to gain market share primarily driven by our leading 3g and lte data service assurance solutions globally . our strategy here has been to complement our solution portfolio with an integrated legacy and 3g/4g voice service assurance capability . a component of this strategy was the acquisition of accanto earlier in the fiscal year ended march 31 , 2013 , providing us important voice service monitoring for legacy voice environments and next generation network voice services . overall , in the service provider market we continue to capitalize on major growth drivers . we have gained market share in the tier 1 mobile packet switched core where we are servicing 2g/3g and now 4g infrastructures that are being driven further with capacity upgrades from existing customers . we have also been gaining new tier 2 customers as we expand our presence both in the u.s. and around the world . we have been building our product to capture the carriers ' rapid expansion of ip services where we have become a leader . a large business opportunity for us is the servicing of diameter routing agents that is used in all ip networks such as long-term evolution ( lte ) technologies and ip multimedia subsystem ( ims ) . we are playing a central role in managing the complexity of the surge of different devices from handhelds to tablets , and how those users attach to the network , in areas such as authentication , authorization , policy and charging . another area of growth is ran aggregation , where there is a major transformation of the access and backhaul areas of the network . carriers are consolidating 2g , 3g , and 4g into one box , combined with new lte rollouts . we are helping to manage the handset and cell tower issues . during our fiscal year ended march 31 , 2014 , we intend to work to expand our capabilities to provide end-to-end monitoring by adding significant enhancements and features to our product set . results overview we saw continued growth during the fiscal year ended march 31 , 2013 , with product revenue growth of 18 % and overall revenue growth of 14 % compared to the prior fiscal year . our earnings per share for the fiscal year ended march 31 , 2013 were $ 0.96 per share , representing a $ 0.20 , or 26 % , increase over the same period in the prior year . our business maintained strong gross profit margins . our gross margin for the fiscal year ended march 31 , 2013 remained flat at 79 % compared to the same period in the prior year . we ended fiscal year 2013 with an immaterial amount of product backlog , compared to $ 13.0 million as of the end of fiscal year 2012 . 31 at march 31 , 2013 , we had cash , cash equivalents and marketable securities of $ 154.1 million . this represents a decrease of $ 59.4 million over the previous fiscal year ended march 31 , 2012. during the fiscal year ended march 31 , 2013 , we maintained our liquidity despite acquisitions of product technology as well as cash outflows as a result of our share repurchase program and the repayment of $ 62.0 million of long-term debt . use of non-gaap financial measures we supplement the generally accepted accounting principles ( gaap ) financial measures we report in quarterly earnings announcements , investor presentations and other investor communications by reporting the following non-gaap measures : non-gaap revenue , non-gaap net income and non-gaap net income per diluted share . non-gaap revenue eliminates the gaap effects of acquisitions by adding back revenue related to deferred revenue revaluation . non-gaap net income includes the foregoing adjustment and also removes inventory fair value adjustments , expenses related to the amortization of acquired intangible assets , stock-based compensation , restructuring , certain expenses relating to acquisitions including compensation for post-combination services and business development charges , as well as early extinguishment of debt , net of related income tax effects . non-gaap diluted net income per share also excludes these expenses as well as the related impact of all these adjustments on the provision for income taxes . these non-gaap measures are not in accordance with gaap , should not be considered an alternative for measures prepared in accordance with gaap ( revenue , net income and diluted net income per share ) , and may have limitations in that they do not reflect all our results of operations as determined in accordance with gaap . these non-gaap measures should only be used to evaluate our results of operations in conjunction with the corresponding gaap measures . the presentation of non-gaap information is not meant to be considered superior to , in isolation from or as a substitute for results prepared in accordance with gaap . management believes these non-gaap financial measures enhance the reader 's overall understanding of our current financial performance and its prospects for the future by providing a higher degree of transparency for certain financial measures and providing a level of disclosure that helps investors understand how we plan and measure our business . we believe that providing these non-gaap measures affords investors a view of our operating results that may be more easily compared to our peer companies and also enables investors to consider our operating results on both a gaap and non-gaap basis during and following the integration period of our acquisitions . story_separator_special_tag the 13 % , or $ 10.2 million , increase in international revenue is primarily due to an increase in our service provider sector in europe as well as our general enterprise sector throughout the world . we expect revenue from sales to customers outside the united states to continue to account for a significant portion of our total revenue in the future . in accordance with united states export control regulations we do not sell to , or do business with , countries subject to economic sanctions and export controls . cost of revenue and gross profit cost of product revenue consists primarily of material components , manufacturing personnel expenses , manuals , packaging materials , overhead and amortization of capitalized software , acquired software and core technology . cost of service revenue consists primarily of personnel , material , overhead and support costs . replace_table_token_10_th product . the 17 % , or $ 6.5 million , increase in cost of product revenue was primarily due to the 18 % , or $ 30.6 million increase in product revenue for the fiscal year ended march 31 , 2013 when compared to the fiscal year ended march 31 , 2012. in addition , there was a $ 453 thousand increase due to the amortization of a fair value adjustment related to inventory recorded from the acquisition of onpath . the product gross profit percentage remained flat at 77 % during the fiscal year ended march 31 , 2013 as compared to the same period in the prior year . average headcount in cost of product revenue was 29 and 26 for the years ended march 31 , 2013 and 2012 , respectively . service . the 7 % , or $ 1.9 million , increase in cost of service revenue was primarily due to a $ 1.7 million increase in employee related expenses resulting from increased headcount to support our growing installed base as well as increased incentive compensation . the 8 % , or $ 9.4 million , increase in service gross profit corresponds with the 8 % , or $ 11.3 million , increase in service revenue , offset by the 7 % , or $ 1.9 million , increase in cost of services . the service gross profit percentage remained flat at 81 % for the fiscal year ended march 31 , 2013 when compared to the same period in the prior year . average headcount in cost of service revenue was 139 and 125 for the years ended march 31 , 2013 and 2012 , respectively . gross profit . our gross profit increased 14 % , or $ 33.5 million . this increase is attributable to our increase in revenue of 14 % , or $ 41.9 million , offset by a 13 % , or $ 8.3 million , increase in cost of revenue . the gross margin percentage remained flat at 79 % during the fiscal year ended march 31 , 2013 when compared to the same period in the prior year . overall we expect our gross margin percentage to remain relatively flat in future periods with increased sales volumes offset by corresponding increases in product and service costs . 38 operating expenses replace_table_token_11_th research and development . research and development expenses consist primarily of personnel expenses , fees for outside consultants , overhead and related expenses associated with the development of new products and the enhancement of existing products . the 24 % , or $ 12.1 million , increase in research and development expenses is due to a $ 9.0 million increase in employee related expenses due to increased headcount and incentive compensation , a $ 1.2 million increase in compensation for post combination services related to the acquisitions of simena , replay and onpath , a $ 536 thousand increase in consulting costs , a $ 495 thousand increase in travel expenses , a $ 443 thousand increase in allocated overhead , a $ 417 thousand increase in rent expense , a $ 333 thousand increase in depreciation and a $ 259 thousand increase in meeting expenses . these were offset by a $ 1.5 million decrease in business development expenses . average headcount in research and development was 338 and 291 for the fiscal years ended march 31 , 2013 and 2012 , respectively . we expect research and development expenses to decline as a percentage of sales in future periods as revenue growth offsets additional research and development headcount associated with our recent acquisitions . sales and marketing . sales and marketing expenses consist primarily of personnel expenses , including commissions , overhead and other expenses associated with selling activities and marketing programs such as trade shows , seminars , advertising , and new product launch activities . the 7 % , or $ 7.2 million , increase in total sales and marketing expenses was due to a $ 2.3 million increase in employee related expenses due to increased headcount , a $ 1.6 million increase in marketing related expenses , a $ 1.1 million increase in sales meeting costs , a $ 1.0 million increase in depreciation expense , a $ 891 thousand increase in expenses related to the netscout user conference as this was not held during the fiscal year ended march 31 , 2012 , a $ 581 thousand increase in recruitment and a $ 534 thousand increase in employee training . average headcount in sales and marketing was 333 and 317 for the fiscal years ended march 31 , 2013 and 2012 , respectively . general and administrative . general and administrative expenses consist primarily of personnel expenses for executive , financial , legal and human resource employees , overhead and other corporate expenditures . the 8 % , or $ 2.2 million , increase in general and administrative expenses was due to a $ 1.4 million increase in employee related expenses related to an increase in incentive compensation , a $ 973
| cash and cash flows the following table sets forth our net cash provided by ( used in ) operating , investing and financing activities during the year at december 31 , 2018 , 2017 and 2016 , respectively . replace_table_token_9_th operating activities net cash provided by operating activities was $ 393.1 million for the year ended december 31 , 2018 , as compared to $ 109.3 million for the year ended december 31 , 2017 . the net increase of $ 283.8 million was primarily due to the increase in our revenue generating assets ( fleet size ) , which has resulted in increases in revenue and net income in the year , offset by our working capital needs resulting from higher fleet size and expanding activity levels . net cash provided by operating activities was $ 109.3 million for the year ended december 31 , 2017 , as compared to $ 10.7 million for the year ended december 31 , 2016. the net increase of $ 98.6 million was primarily due to an increase in revenue and net income in the year , resulting from an increase in customer activity , fleet size and demand for our services , and partially offset by the increase in our working capital needs resulting from higher fleet size and expanding activity levels . 41 investing activities net cash used in investing activities decreased to $ 280.6 million for the year ended december 31 , 2018 , from $ 281.5 million for the year ended december 31 , 2017 . the slight decrease was primarily attributable to the decrease in cash payment for capital expenditures during the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 . net cash used in investing activities increased to $ 281.5 million for the year ended december 31 , 2017 , from $ 41.7 million for the year ended december 31 , 2016. the increase was primarily attributable to the additional hydraulic fracturing units and other ancillary equipment purchased and a marginal increase in maintenance capital expenditures , during the year ended december 31 , 2017 , compared to the year ended december 31 , 2016.
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during the second half of our fiscal year ended march 31 , 2013 , we added a high capacity , chassis-based packet flow switch line that we acquired from onpath in october 2012. the combination of these two products has provided us with a wide range of price/performance and scale , well suited for both large enterprise and service provider applications . in the wireless service provider sector we continued to gain market share primarily driven by our leading 3g and lte data service assurance solutions globally . our strategy here has been to complement our solution portfolio with an integrated legacy and 3g/4g voice service assurance capability . a component of this strategy was the acquisition of accanto earlier in the fiscal year ended march 31 , 2013 , providing us important voice service monitoring for legacy voice environments and next generation network voice services . overall , in the service provider market we continue to capitalize on major growth drivers . we have gained market share in the tier 1 mobile packet switched core where we are servicing 2g/3g and now 4g infrastructures that are being driven further with capacity upgrades from existing customers . we have also been gaining new tier 2 customers as we expand our presence both in the u.s. and around the world . we have been building our product to capture the carriers ' rapid expansion of ip services where we have become a leader . a large business opportunity for us is the servicing of diameter routing agents that is used in all ip networks such as long-term evolution ( lte ) technologies and ip multimedia subsystem ( ims ) . we are playing a central role in managing the complexity of the surge of different devices from handhelds to tablets , and how those users attach to the network , in areas such as authentication , authorization , policy and charging . another area of growth is ran aggregation , where there is a major transformation of the access and backhaul areas of the network . carriers are consolidating 2g , 3g , and 4g into one box , combined with new lte rollouts . we are helping to manage the handset and cell tower issues . during our fiscal year ended march 31 , 2014 , we intend to work to expand our capabilities to provide end-to-end monitoring by adding significant enhancements and features to our product set . results overview we saw continued growth during the fiscal year ended march 31 , 2013 , with product revenue growth of 18 % and overall revenue growth of 14 % compared to the prior fiscal year . our earnings per share for the fiscal year ended march 31 , 2013 were $ 0.96 per share , representing a $ 0.20 , or 26 % , increase over the same period in the prior year . our business maintained strong gross profit margins . our gross margin for the fiscal year ended march 31 , 2013 remained flat at 79 % compared to the same period in the prior year . we ended fiscal year 2013 with an immaterial amount of product backlog , compared to $ 13.0 million as of the end of fiscal year 2012 . 31 at march 31 , 2013 , we had cash , cash equivalents and marketable securities of $ 154.1 million . this represents a decrease of $ 59.4 million over the previous fiscal year ended march 31 , 2012. during the fiscal year ended march 31 , 2013 , we maintained our liquidity despite acquisitions of product technology as well as cash outflows as a result of our share repurchase program and the repayment of $ 62.0 million of long-term debt . use of non-gaap financial measures we supplement the generally accepted accounting principles ( gaap ) financial measures we report in quarterly earnings announcements , investor presentations and other investor communications by reporting the following non-gaap measures : non-gaap revenue , non-gaap net income and non-gaap net income per diluted share . non-gaap revenue eliminates the gaap effects of acquisitions by adding back revenue related to deferred revenue revaluation . non-gaap net income includes the foregoing adjustment and also removes inventory fair value adjustments , expenses related to the amortization of acquired intangible assets , stock-based compensation , restructuring , certain expenses relating to acquisitions including compensation for post-combination services and business development charges , as well as early extinguishment of debt , net of related income tax effects . non-gaap diluted net income per share also excludes these expenses as well as the related impact of all these adjustments on the provision for income taxes . these non-gaap measures are not in accordance with gaap , should not be considered an alternative for measures prepared in accordance with gaap ( revenue , net income and diluted net income per share ) , and may have limitations in that they do not reflect all our results of operations as determined in accordance with gaap . these non-gaap measures should only be used to evaluate our results of operations in conjunction with the corresponding gaap measures . the presentation of non-gaap information is not meant to be considered superior to , in isolation from or as a substitute for results prepared in accordance with gaap . management believes these non-gaap financial measures enhance the reader 's overall understanding of our current financial performance and its prospects for the future by providing a higher degree of transparency for certain financial measures and providing a level of disclosure that helps investors understand how we plan and measure our business . we believe that providing these non-gaap measures affords investors a view of our operating results that may be more easily compared to our peer companies and also enables investors to consider our operating results on both a gaap and non-gaap basis during and following the integration period of our acquisitions . story_separator_special_tag the 13 % , or $ 10.2 million , increase in international revenue is primarily due to an increase in our service provider sector in europe as well as our general enterprise sector throughout the world . we expect revenue from sales to customers outside the united states to continue to account for a significant portion of our total revenue in the future . in accordance with united states export control regulations we do not sell to , or do business with , countries subject to economic sanctions and export controls . cost of revenue and gross profit cost of product revenue consists primarily of material components , manufacturing personnel expenses , manuals , packaging materials , overhead and amortization of capitalized software , acquired software and core technology . cost of service revenue consists primarily of personnel , material , overhead and support costs . replace_table_token_10_th product . the 17 % , or $ 6.5 million , increase in cost of product revenue was primarily due to the 18 % , or $ 30.6 million increase in product revenue for the fiscal year ended march 31 , 2013 when compared to the fiscal year ended march 31 , 2012. in addition , there was a $ 453 thousand increase due to the amortization of a fair value adjustment related to inventory recorded from the acquisition of onpath . the product gross profit percentage remained flat at 77 % during the fiscal year ended march 31 , 2013 as compared to the same period in the prior year . average headcount in cost of product revenue was 29 and 26 for the years ended march 31 , 2013 and 2012 , respectively . service . the 7 % , or $ 1.9 million , increase in cost of service revenue was primarily due to a $ 1.7 million increase in employee related expenses resulting from increased headcount to support our growing installed base as well as increased incentive compensation . the 8 % , or $ 9.4 million , increase in service gross profit corresponds with the 8 % , or $ 11.3 million , increase in service revenue , offset by the 7 % , or $ 1.9 million , increase in cost of services . the service gross profit percentage remained flat at 81 % for the fiscal year ended march 31 , 2013 when compared to the same period in the prior year . average headcount in cost of service revenue was 139 and 125 for the years ended march 31 , 2013 and 2012 , respectively . gross profit . our gross profit increased 14 % , or $ 33.5 million . this increase is attributable to our increase in revenue of 14 % , or $ 41.9 million , offset by a 13 % , or $ 8.3 million , increase in cost of revenue . the gross margin percentage remained flat at 79 % during the fiscal year ended march 31 , 2013 when compared to the same period in the prior year . overall we expect our gross margin percentage to remain relatively flat in future periods with increased sales volumes offset by corresponding increases in product and service costs . 38 operating expenses replace_table_token_11_th research and development . research and development expenses consist primarily of personnel expenses , fees for outside consultants , overhead and related expenses associated with the development of new products and the enhancement of existing products . the 24 % , or $ 12.1 million , increase in research and development expenses is due to a $ 9.0 million increase in employee related expenses due to increased headcount and incentive compensation , a $ 1.2 million increase in compensation for post combination services related to the acquisitions of simena , replay and onpath , a $ 536 thousand increase in consulting costs , a $ 495 thousand increase in travel expenses , a $ 443 thousand increase in allocated overhead , a $ 417 thousand increase in rent expense , a $ 333 thousand increase in depreciation and a $ 259 thousand increase in meeting expenses . these were offset by a $ 1.5 million decrease in business development expenses . average headcount in research and development was 338 and 291 for the fiscal years ended march 31 , 2013 and 2012 , respectively . we expect research and development expenses to decline as a percentage of sales in future periods as revenue growth offsets additional research and development headcount associated with our recent acquisitions . sales and marketing . sales and marketing expenses consist primarily of personnel expenses , including commissions , overhead and other expenses associated with selling activities and marketing programs such as trade shows , seminars , advertising , and new product launch activities . the 7 % , or $ 7.2 million , increase in total sales and marketing expenses was due to a $ 2.3 million increase in employee related expenses due to increased headcount , a $ 1.6 million increase in marketing related expenses , a $ 1.1 million increase in sales meeting costs , a $ 1.0 million increase in depreciation expense , a $ 891 thousand increase in expenses related to the netscout user conference as this was not held during the fiscal year ended march 31 , 2012 , a $ 581 thousand increase in recruitment and a $ 534 thousand increase in employee training . average headcount in sales and marketing was 333 and 317 for the fiscal years ended march 31 , 2013 and 2012 , respectively . general and administrative . general and administrative expenses consist primarily of personnel expenses for executive , financial , legal and human resource employees , overhead and other corporate expenditures . the 8 % , or $ 2.2 million , increase in general and administrative expenses was due to a $ 1.4 million increase in employee related expenses related to an increase in incentive compensation , a $ 973
| net cash provided by operating activities . fiscal year 2013 compared to fiscal year 2012 cash provided by operating activities was $ 95.4 million during the fiscal year ended march 31 , 2013 , compared to $ 68.3 million of cash provided by operating activities in the fiscal year ended march 31 , 2012. this $ 27.1 million increase was due to a $ 9.1 million increase from accrued compensation and other expenses during the fiscal year ended march 31 , 2013 when compared to the fiscal year ended march 31 , 2012 largely due to the timing of accruals for incentive compensation as a result of achieving performance-based targets during fiscal year 2013 while such targets were not achieved during fiscal year 2012 , accruals for the employee stock purchase plan which began in march 2012 , as well as accrued commissions . in addition , there was an $ 8.2 million increase in profitability , a $ 6.3 million favorable impact from prepaid expenses and other assets largely due $ 6.0 million favorable impact from a decrease in prepaid income taxes , a $ 4.1 million favorable impact from accounts receivable in the fiscal year ended march 31 , 2013 as compared to the fiscal year ended march 31 , 2012 and a $ 2.3 million increase as a result of a decrease in inventories . these were offset by a $ 2.7 million unfavorable impact from deferred revenue .
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we have also utilized debt financing ( not in excess of 30 % of the aggregate cost of the equipment owned or subject to conditional sales contracts at the time the debt is incurred ) to purchase additional equipment . we acquire and lease equipment principally to u.s. corporations and other institutions pursuant to operating and finance leases . we retain the flexibility to enter into full payout net leases and conditional sales contracts , but have not done so . competitive outlook as discussed in “ competition ” in item 1 above , the commercial leasing and financing industry is highly competitive and is characterized by competitive factors that vary based upon product and geographic region . we compete primarily on the basis of pricing , terms and structure , particularly on structuring flexible , responsive , and customized financing solutions for our customers . our investments are often made directly rather than through competition in the open market . this approach limits the competition for our typical investment , which is intended to enhance returns . we believe our investment model will represent the best way for individual investors to participate in investing in business-essential equipment . nevertheless , to the extent that our competitors compete aggressively on any combination of the foregoing factors , our results could be adversely impacted . principal investment objectives our principal investment objectives are to : a ) acquire , lease and sell equipment to generate revenues from operations sufficient to provide annual cash distributions to our limited partners ; b ) preserve and protect limited partners ' capital ; c ) use a portion of cash flow and net disposition proceeds derived from the sale , refinancing or other disposition of equipment to purchase additional equipment ; and d ) refinance , sell or otherwise dispose of equipment in a manner that will maximize proceeds . 15 industry overview we invest in various types of domestic information technology equipment leases located solely within the united states . our investment objective is to acquire primarily high technology equipment . we believe that dealing in high technology equipment is particularly advantageous due to a robust aftermarket . information technology has developed rapidly in recent years and is expected to continue to do so . technological advances have permitted reductions in the cost of computer processing capacity , speed , and utility . in the future , the rate and nature of equipment development may cause equipment to become obsolete more rapidly . in an effort to mitigate this risk our portfolio manager attempts to diversify our fund through the acquisition of different types of equipment , staggered lease maturities , various lessees , businesses located throughout the u.s. , and industries served . we also acquire high technology medical , telecommunications equipment and inventory management equipment . our general partner seeks to maintain an appropriate balance and diversity in the types of equipment acquired . the market for high technology medical equipment is growing each year . generally , this type of equipment has a longer useful life . this allows for increased re-marketability , if it is returned before its economic or announcement cycle is depleted . the equipment leasing and finance association 's ( elfa ) monthly leasing and finance index ( mlfi-25 ) , which reports economic activity from 25 companies representing a cross section of the $ 900 billion equipment finance sector , showed their overall new business volume for december 2020 was $ 12.1 billion , down 6 % year-over-year from new business volume in december 2019. volume was up 66 % month-to-month from $ 7.3 billion in november 2020 , in a typical end-of-year spike . cumulative new business volume for 2020 was down almost 6 % compared to 2019. receivables over 30 days were 2.20 % , down from 2.30 % the previous month and unchanged from the same period in 2019. charge-offs were 0.59 % , down from 0.61 % the previous month and up from 0.51 % in the year-earlier period . credit approvals totaled 75.2 % , up from 70.4 % in november . total headcount for equipment finance companies was down 4.6 % year-over-year . separately , the equipment leasing & finance foundation 's monthly confidence index ( mci-efi ) in january is 59.6 , unchanged from the december index . elfa president and ceo ralph petta said , “ while 2020 certainly presented serious challenges to our nation 's economic well-being as well as to the physical well-being of many of our citizens , the equipment finance business , overall , showed remarkable resilience and durability . in early 2020 , our industry seemed poised to continue 2019 's strong performance , as measured by a variety of key metrics . then , the pandemic hit . our nation suffered a shock of unimaginable and historic proportions . the economy faltered , millions of americans lost their jobs , and a raging health pandemic threatened the very lives of so many . now , looking in the rearview mirror , at the start of a new year that brings such hope and promise—with new stimulus initiatives coming out of washington and distribution of a vaccine designed to protect our people—most equipment finance sector observers would consider a single-digit decline in year-over-year new business volume tolerable , if not acceptable . in fact , anecdotal reports from some elfa member organizations indicate that 2020 was a record year ! this speaks to the strength and resilience of our industry as it equips american businesses to succeed and prosper . story_separator_special_tag partnership 's accounting policy for sales and property taxes collected from the lessees are presented in the current period as gross revenues and expenses . long lived assets depreciation on technology and inventory management equipment for financial statement purposes is based on the straight-line method estimated generally over useful lives of two to four years . once an asset comes off lease or is released , the partnership reassesses the useful life of an asset . the partnership evaluates its long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable . the partnership determines whether impairment exists by estimating the undiscounted cash flows to be generated by each asset . if the estimated undiscounted cash flows are less than the carrying value of the asset then impairment exists . the amount of the impairment is determined based on the difference between the carrying value and the fair value . fair value is determined based on estimated discounted cash flows to be generated by the asset , third party appraisals or comparable sales of similar assets , as applicable , based on asset type . residual values are determined by management and are calculated using information from both internal and external sources , as well as other economic indicators . reimbursable expenses reimbursable expenses are comprised of both ongoing operational expenses and fees associated with the allocation of salaries and benefits , referred to as other lp expenses . reimbursable expenses , which are charged to the partnership by ccc in connection with the administration and operation of the partnership , are allocated to the partnership based upon several factors including , but not limited to , the number of investors , leasing volume and stage of the program . for example , if a partnership has more investors than another program sponsored by ccc , then higher amounts of expenses related to investor services , including mailing and printing costs will be allocated to that partnership . also , while a partnership is in its offering stage , higher compliance costs are allocated to it than to a program not in its offering stage , as compliance resources are utilized to review incoming investor suitability and proper documentation . finally , lease related expenses , such as due diligence , correspondence , collection efforts and analysis and staff costs , increase as programs purchase more leases , and decrease as leases terminate and equipment is sold . all of these factors contribute to ccc 's determination as to the amount of expenses to allocate to the partnership or to other sponsored programs . ccc is not reimbursed for salary and benefit costs of control persons . for the partnership , all reimbursable items are expensed as they are incurred . 17 lease income receivable lease income receivable includes current lease income receivable net of allowances for uncollectible amounts , if any . the partnership monitors lease income receivable to ensure timely and accurate payment by lessees . the partnership 's lease relations department is responsible for monitoring lease income receivable and , as necessary , resolving outstanding invoices . the partnership reviews a customer 's credit history before extending credit . when the analysis indicates that the probability of full collection is unlikely , the partnership may establish an allowance for uncollectible lease income receivable based upon the credit risk of specific customers , historical trends and other information . the partnership writes off its lease income receivable when it determines that it is uncollectible and all economically sensible means of recovery have been exhausted . recent accounting pronouncements information regarding recent accounting pronouncements is included in note 2 to the financial statements , summary of significant accounting policies , as set forth in part ii , note 8 , financial statements and supplementary data . story_separator_special_tag style= `` text-align : center ; margin-left : 0px ; margin-right : 0px ; margin-bottom : 6px ; page-break-after : always ; width : 100 % ; height : 1px ; background-color : # 000000 `` > the partnership 's equipment portfolio consists primarily of approximately 25 % digital storage , 17 % datacom , 15 % high end servers , 13 % multifunction centers , 12 % server/other , 10 % desk/laptop computers produced by various manufacturers , 6 % inventory control centers , 1 % high volume & spec printers and 1 % fitness equipment . the general partner continuously monitors and seeks to decrease the concentration of equipment by type to diversify the equipment portfolio and potentially reduce the overall risk to the investor . for the year ended december 31 , 2020 , the partnership had a total of four lessees that accounted for lease revenue of 10 % or greater which are ranked as follows : 36 % ; 30 % ; 18 % and 12 % . for the year ended december 31 , 2019 , the partnership had a total of five lessees that accounted for lease revenue of 10 % or greater which are ranked as follows : 28 % ; 24 % ; 23 % ; 12 % ; and 12 % . for the years ended december 31 , 2020 and 2019 , operating expenses , excluding depreciation , consisted of accounting , legal , outside service fees , reimbursement of expenses to ccc and other lp charges from ccc for administration and operations as discussed in note 5 of the financial statements . operating expenses were approximately $ 340,000 and $ 231,000 in 2020 and 2019 , respectively . this increase is primarily due to increases in legal and accounting fees of approximately $ 68,000 , “ other lp ” expenses charged by ccc for the administration of the partnership of approximately $ 27,000 , an adjustment to remarketing fees resulting from a write off of a past liability of approximately $ 25,000. we pay an equipment management fee to our general partner for managing
| net cash provided by operating activities . fiscal year 2013 compared to fiscal year 2012 cash provided by operating activities was $ 95.4 million during the fiscal year ended march 31 , 2013 , compared to $ 68.3 million of cash provided by operating activities in the fiscal year ended march 31 , 2012. this $ 27.1 million increase was due to a $ 9.1 million increase from accrued compensation and other expenses during the fiscal year ended march 31 , 2013 when compared to the fiscal year ended march 31 , 2012 largely due to the timing of accruals for incentive compensation as a result of achieving performance-based targets during fiscal year 2013 while such targets were not achieved during fiscal year 2012 , accruals for the employee stock purchase plan which began in march 2012 , as well as accrued commissions . in addition , there was an $ 8.2 million increase in profitability , a $ 6.3 million favorable impact from prepaid expenses and other assets largely due $ 6.0 million favorable impact from a decrease in prepaid income taxes , a $ 4.1 million favorable impact from accounts receivable in the fiscal year ended march 31 , 2013 as compared to the fiscal year ended march 31 , 2012 and a $ 2.3 million increase as a result of a decrease in inventories . these were offset by a $ 2.7 million unfavorable impact from deferred revenue .
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we have also utilized debt financing ( not in excess of 30 % of the aggregate cost of the equipment owned or subject to conditional sales contracts at the time the debt is incurred ) to purchase additional equipment . we acquire and lease equipment principally to u.s. corporations and other institutions pursuant to operating and finance leases . we retain the flexibility to enter into full payout net leases and conditional sales contracts , but have not done so . competitive outlook as discussed in “ competition ” in item 1 above , the commercial leasing and financing industry is highly competitive and is characterized by competitive factors that vary based upon product and geographic region . we compete primarily on the basis of pricing , terms and structure , particularly on structuring flexible , responsive , and customized financing solutions for our customers . our investments are often made directly rather than through competition in the open market . this approach limits the competition for our typical investment , which is intended to enhance returns . we believe our investment model will represent the best way for individual investors to participate in investing in business-essential equipment . nevertheless , to the extent that our competitors compete aggressively on any combination of the foregoing factors , our results could be adversely impacted . principal investment objectives our principal investment objectives are to : a ) acquire , lease and sell equipment to generate revenues from operations sufficient to provide annual cash distributions to our limited partners ; b ) preserve and protect limited partners ' capital ; c ) use a portion of cash flow and net disposition proceeds derived from the sale , refinancing or other disposition of equipment to purchase additional equipment ; and d ) refinance , sell or otherwise dispose of equipment in a manner that will maximize proceeds . 15 industry overview we invest in various types of domestic information technology equipment leases located solely within the united states . our investment objective is to acquire primarily high technology equipment . we believe that dealing in high technology equipment is particularly advantageous due to a robust aftermarket . information technology has developed rapidly in recent years and is expected to continue to do so . technological advances have permitted reductions in the cost of computer processing capacity , speed , and utility . in the future , the rate and nature of equipment development may cause equipment to become obsolete more rapidly . in an effort to mitigate this risk our portfolio manager attempts to diversify our fund through the acquisition of different types of equipment , staggered lease maturities , various lessees , businesses located throughout the u.s. , and industries served . we also acquire high technology medical , telecommunications equipment and inventory management equipment . our general partner seeks to maintain an appropriate balance and diversity in the types of equipment acquired . the market for high technology medical equipment is growing each year . generally , this type of equipment has a longer useful life . this allows for increased re-marketability , if it is returned before its economic or announcement cycle is depleted . the equipment leasing and finance association 's ( elfa ) monthly leasing and finance index ( mlfi-25 ) , which reports economic activity from 25 companies representing a cross section of the $ 900 billion equipment finance sector , showed their overall new business volume for december 2020 was $ 12.1 billion , down 6 % year-over-year from new business volume in december 2019. volume was up 66 % month-to-month from $ 7.3 billion in november 2020 , in a typical end-of-year spike . cumulative new business volume for 2020 was down almost 6 % compared to 2019. receivables over 30 days were 2.20 % , down from 2.30 % the previous month and unchanged from the same period in 2019. charge-offs were 0.59 % , down from 0.61 % the previous month and up from 0.51 % in the year-earlier period . credit approvals totaled 75.2 % , up from 70.4 % in november . total headcount for equipment finance companies was down 4.6 % year-over-year . separately , the equipment leasing & finance foundation 's monthly confidence index ( mci-efi ) in january is 59.6 , unchanged from the december index . elfa president and ceo ralph petta said , “ while 2020 certainly presented serious challenges to our nation 's economic well-being as well as to the physical well-being of many of our citizens , the equipment finance business , overall , showed remarkable resilience and durability . in early 2020 , our industry seemed poised to continue 2019 's strong performance , as measured by a variety of key metrics . then , the pandemic hit . our nation suffered a shock of unimaginable and historic proportions . the economy faltered , millions of americans lost their jobs , and a raging health pandemic threatened the very lives of so many . now , looking in the rearview mirror , at the start of a new year that brings such hope and promise—with new stimulus initiatives coming out of washington and distribution of a vaccine designed to protect our people—most equipment finance sector observers would consider a single-digit decline in year-over-year new business volume tolerable , if not acceptable . in fact , anecdotal reports from some elfa member organizations indicate that 2020 was a record year ! this speaks to the strength and resilience of our industry as it equips american businesses to succeed and prosper . story_separator_special_tag partnership 's accounting policy for sales and property taxes collected from the lessees are presented in the current period as gross revenues and expenses . long lived assets depreciation on technology and inventory management equipment for financial statement purposes is based on the straight-line method estimated generally over useful lives of two to four years . once an asset comes off lease or is released , the partnership reassesses the useful life of an asset . the partnership evaluates its long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable . the partnership determines whether impairment exists by estimating the undiscounted cash flows to be generated by each asset . if the estimated undiscounted cash flows are less than the carrying value of the asset then impairment exists . the amount of the impairment is determined based on the difference between the carrying value and the fair value . fair value is determined based on estimated discounted cash flows to be generated by the asset , third party appraisals or comparable sales of similar assets , as applicable , based on asset type . residual values are determined by management and are calculated using information from both internal and external sources , as well as other economic indicators . reimbursable expenses reimbursable expenses are comprised of both ongoing operational expenses and fees associated with the allocation of salaries and benefits , referred to as other lp expenses . reimbursable expenses , which are charged to the partnership by ccc in connection with the administration and operation of the partnership , are allocated to the partnership based upon several factors including , but not limited to , the number of investors , leasing volume and stage of the program . for example , if a partnership has more investors than another program sponsored by ccc , then higher amounts of expenses related to investor services , including mailing and printing costs will be allocated to that partnership . also , while a partnership is in its offering stage , higher compliance costs are allocated to it than to a program not in its offering stage , as compliance resources are utilized to review incoming investor suitability and proper documentation . finally , lease related expenses , such as due diligence , correspondence , collection efforts and analysis and staff costs , increase as programs purchase more leases , and decrease as leases terminate and equipment is sold . all of these factors contribute to ccc 's determination as to the amount of expenses to allocate to the partnership or to other sponsored programs . ccc is not reimbursed for salary and benefit costs of control persons . for the partnership , all reimbursable items are expensed as they are incurred . 17 lease income receivable lease income receivable includes current lease income receivable net of allowances for uncollectible amounts , if any . the partnership monitors lease income receivable to ensure timely and accurate payment by lessees . the partnership 's lease relations department is responsible for monitoring lease income receivable and , as necessary , resolving outstanding invoices . the partnership reviews a customer 's credit history before extending credit . when the analysis indicates that the probability of full collection is unlikely , the partnership may establish an allowance for uncollectible lease income receivable based upon the credit risk of specific customers , historical trends and other information . the partnership writes off its lease income receivable when it determines that it is uncollectible and all economically sensible means of recovery have been exhausted . recent accounting pronouncements information regarding recent accounting pronouncements is included in note 2 to the financial statements , summary of significant accounting policies , as set forth in part ii , note 8 , financial statements and supplementary data . story_separator_special_tag style= `` text-align : center ; margin-left : 0px ; margin-right : 0px ; margin-bottom : 6px ; page-break-after : always ; width : 100 % ; height : 1px ; background-color : # 000000 `` > the partnership 's equipment portfolio consists primarily of approximately 25 % digital storage , 17 % datacom , 15 % high end servers , 13 % multifunction centers , 12 % server/other , 10 % desk/laptop computers produced by various manufacturers , 6 % inventory control centers , 1 % high volume & spec printers and 1 % fitness equipment . the general partner continuously monitors and seeks to decrease the concentration of equipment by type to diversify the equipment portfolio and potentially reduce the overall risk to the investor . for the year ended december 31 , 2020 , the partnership had a total of four lessees that accounted for lease revenue of 10 % or greater which are ranked as follows : 36 % ; 30 % ; 18 % and 12 % . for the year ended december 31 , 2019 , the partnership had a total of five lessees that accounted for lease revenue of 10 % or greater which are ranked as follows : 28 % ; 24 % ; 23 % ; 12 % ; and 12 % . for the years ended december 31 , 2020 and 2019 , operating expenses , excluding depreciation , consisted of accounting , legal , outside service fees , reimbursement of expenses to ccc and other lp charges from ccc for administration and operations as discussed in note 5 of the financial statements . operating expenses were approximately $ 340,000 and $ 231,000 in 2020 and 2019 , respectively . this increase is primarily due to increases in legal and accounting fees of approximately $ 68,000 , “ other lp ” expenses charged by ccc for the administration of the partnership of approximately $ 27,000 , an adjustment to remarketing fees resulting from a write off of a past liability of approximately $ 25,000. we pay an equipment management fee to our general partner for managing
| liquidity and capital resources our primary sources of cash for the year ended december 31 , 2020 were cash provided by net proceeds from the sale of equipment of approximately $ 128,000 and operating activities of approximately $ 22,000. our primary sources of cash for the year ended december 31 , 2019 were cash provided by operating activities of approximately $ 2,000 and net proceeds from the sale of equipment of approximately $ 2,000. our primary uses of cash for the year ended december 31 , 2020 were capital expenditures of approximately $ 104,000 , limited partner redemptions of approximately $ 8,000 and equipment acquisition fees paid to the general partner of approximately $ 5,000. our primary use of cash for the year ended december 31 , 2019 was capital expenditures of approximately $ 4,000. for the years ended december 31 , 2020 and 2019 , depreciation and amortization expenses were approximately $ 296,000 and $ 499,000 , respectively . other noncash activities included in the determination of net income for the years ended december 31 , 2020 and 2019 were direct payments of lease income by lessees to banks of approximately $ 113,000 and $ 432,000 , respectively . at december 31 , 2020 , cash was held in an account maintained at one financial institution with an aggregate balance of approximately $ 39,000. bank accounts are federally insured up to $ 250,000 by the fdic . at december 31 , 2020 and 2019 , the aggregate cash balances were approximately as follows : balance at december 31 2020 2019 total bank balance $ 39,000 $ 6,000 fdic insured ( 39,000 ) ( 6,000 ) uninsured amount $ - $ - 18 the partnership believes it mitigates the risk of holding uninsured deposits by only depositing funds with major financial institutions . the partnership has not experienced any losses in our accounts , and believes it is not exposed to any significant credit risk . the amounts in such accounts will fluctuate throughout 2021 due to many factors , including the pace of cash receipts , equipment acquisitions , interest rates and distributions to limited partners .
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the federal funds rate has been at a range of zero to 0.25 % since december 2008. our combined funds held for clients and corporate investment portfolios earned an average rate of return of 1.0 % for fiscal 2013 , compared to 1.1 % for fiscal 2012 and 1.3 % for fiscal 2011 . highlights of our financial results for fiscal 2013 , compared to fiscal 2012 , are as follows : payroll service revenue increased 2 % to $ 1.5 billion . hrs revenue increased 10 % to $ 746.0 million . interest on funds held for clients decreased 6 % to $ 41.0 million . total revenue increased 4 % to $ 2.3 billion . operating income increased 6 % to $ 904.8 million , and operating income , net of certain items , increased 7 % to $ 863.8 million . refer to the “ non-gaap financial measure ” discussion below for further information on operating income , net of certain items . net income increased 4 % to $ 569.0 million and diluted earnings per share increased 3 % to $ 1.56 per share . net income and diluted earnings per share were impacted by the settlement of a state income tax matter , which reduced diluted earnings per share by approximately $ 0.04 per share . dividends of $ 476.7 million were paid to stockholders , representing 84 % of net income . non-gaap financial measure in addition to reporting operating income , a united states ( “ u.s. ” ) generally accepted accounting principle ( “ gaap ” ) measure , we present operating income , net of certain items , which is a non-gaap measure . we believe operating income , net of certain items , is an appropriate additional measure , as it is an indicator of our core business operations performance period over period . it is also the basis of the measure used internally for establishing the following year 's targets and measuring management 's performance in connection with certain performance-based compensation payments and awards . operating income , net of certain items , excludes interest on funds held for clients . interest on funds held for clients is an adjustment to operating income due to the volatility of interest rates , which are not within the control of management . operating income , net of certain items , is not calculated through the application of gaap and is not the required form of disclosure by the securities and exchange commission . as such , it should not be considered as a substitute for the gaap measure of operating income and , therefore , should not be used in isolation , but in conjunction with the gaap measure . the use of any non-gaap measure may produce results that vary from the gaap measure and may not be comparable to a similarly defined non-gaap measure used by other companies . business outlook our client base totaled approximately 570,000 clients as of may 31 , 2013 , compared to approximately 567,000 clients as of may 31 , 2012 , and approximately 564,000 clients as of may 31 , 2011 . our client base increased approximately 1 % for fiscal 2013 , compared to approximately 1 % for fiscal 2012 and approximately 5 % ( 1 % decline on an organic basis ) for fiscal 2011. for fiscal 2013 , payroll services client retention was at record levels , exceeding 81 % of our beginning client base . we received the highest client satisfaction results in our history , which we believe is a result of our focus on providing high-quality service to our customers utilizing leading-edge technology to maximize client retention . our ancillary services provide services to employers and employees beyond payroll , but effectively leverage payroll processing data and , therefore , are beneficial to our operating margin . eservices ancillary services are often included as part of the saas solutions for mid-market clients . the following statistics demonstrate the growth in certain of our hrs ancillary service offerings : replace_table_token_5_th ( 1 ) includes workers ' compensation insurance services clients and health and benefits services clients . 14 ( 2 ) retirement services plans include eplan services , inc. ( `` eplan `` ) plans . eplan was acquired in may 2011. the organic growth rate for retirement services plans for fiscal 2011 would have been approximately 5 % . ongoing investment in our business is critical to our success . during fiscal 2013 , we continued to expand our product portfolio through internal development and acquisitions to add value for our clients . we have positioned ourselves to capture the opportunity created by a greater interest in online saas solutions through both product development and recent acquisitions with saas-oriented business models , including our surepayroll product , which continues to perform well . the combination of our market-leading saas solutions combined with our service model allow us to offer a unique value proposition in the market . we enhanced our online and mobile offerings , adding greater value and convenience for our clients . these mobile applications allow our clients instant access and increased productivity . our single-sign-on feature provides a new and improved interface and mobility enhancer . during fiscal 2013 , we launched our mobile application for the smartphone . we also added access to flexible spending account ( `` fsa `` ) and health and benefits employer and employee information to our mobile offerings . early in fiscal 2013 , we launched an industry-leading report center and robust report writer . this provides a one-stop shop for standard or on-demand reporting needs , ad-hoc and customized reporting , data-extract templates and more . we continued to enhance our paychex next generation platform and its suite of innovative products , as we believe this is a key building block to our future success . story_separator_special_tag in addition , we have entered into indemnification agreements with our officers and directors , which require us to defend and , if necessary , indemnify these individuals for certain pending or future legal claims as they relate to their services provided to us . we currently self-insure the deductible portion of various insured exposures under certain employee benefit plans . our estimated loss exposure under these insurance arrangements is recorded in other current liabilities on our consolidated balance sheets . historically , the amounts accrued have not been material . we also maintain insurance coverage in addition to our purchased primary insurance policies for gap coverage for employment practices liability , errors and omissions , warranty liability , theft and embezzlement , cyber threat , and acts of terrorism ; and capacity for deductibles and self-insured retentions through our captive insurance company . off-balance sheet arrangements as part of our ongoing business , we do not participate in transactions with unconsolidated entities which would have been established for the purpose of facilitating off-balance sheet arrangements or other limited purposes . we do maintain investments as a limited partner in low-income housing projects that are not considered part of our ongoing operations . these investments are accounted for under the equity method of accounting and are less than 1 % of our total assets as of may 31 , 2013 . 21 operating cash flow activities replace_table_token_15_th the decreases in our operating cash flows for fiscal 2013 and fiscal 2012 resulted mainly from fluctuations in operating assets and liabilities , partially offset by higher net income adjusted for non-cash items . the fluctuations in our operating assets and liabilities between periods were primarily related to the timing of collections from clients and payments for compensation , peo payroll , income tax , and other liabilities . investing cash flow activities replace_table_token_16_th funds held for clients and corporate investments : funds held for clients consist of short-term funds and available-for-sale securities . corporate investments are primarily comprised of available-for-sale securities . the portfolio of funds held for clients and corporate investments is detailed in note e of the notes to consolidated financial statements , contained in item 8 of this form 10-k. the fluctuation in the net change in funds held for clients and corporate investment activities is largely due to timing within the client funds portfolio . there was a large cash outflow on friday , may 31 , 2013 that required the liquidation of funds held in funds held for clients short-term cash equivalents portion of the portfolio , resulting in positive cash flow from investing activities for fiscal 2013 . there was a large inflow of collections on thursday , may 31 , 2012 that was invested primarily in short-term investments on that date reflecting a large cash outflow from investing activities for fiscal 2012 . see further discussion of this timing in the financing cash flows discussion of net change in client fund obligations . our net cash inflow from funds held for clients and corporate investment activities for fiscal 2013 was partially offset by higher purchases than sales of vrdn securities during the year . for fiscal 2012 , the net cash outflow was increased from investment in longer-term available-for-sale securities within our corporate portfolio . in general , fluctuations in net funds held for clients and corporate investment activities primarily relate to timing of purchases , sales , or maturities of investments . the amount of funds held for clients will vary based upon the timing of collection of client funds , and the related remittance of funds to applicable tax or regulatory agencies for payroll tax administration services and to employees of clients utilizing employee payment services . additional discussion of interest rates and related risks is included in the “ market risk factors ” section , contained in item 7a of this form 10-k. purchases of long-lived assets : to support our continued client and ancillary product growth , purchases of property and equipment were made for data processing equipment and software , and for the expansion and upgrade of various operating facilities . during fiscal years 2013 , 2012 , and 2011 , we purchased approximately $ 6.5 million , $ 2.6 million , and $ 5.7 million , respectively , of data processing equipment and software from emc corporation . the chairman , president , and chief executive officer of emc corporation is a member of our board of directors ( the “ board ” ) . during fiscal 2013 and fiscal 2012 , we paid , net of cash acquired , $ 21.3 million and $ 6.0 million , respectively , for immaterial business acquisitions . during fiscal 2011 , we paid $ 126.4 million for the combined acquisitions of surepayroll and eplan . 22 financing cash flow activities replace_table_token_17_th net change in client fund obligations : the client fund obligations liability will vary based on the timing of collecting client funds , and the related required remittance of funds to applicable tax or regulatory agencies for payroll tax administration services and to employees of clients utilizing employee payment services . collections from clients are typically remitted from one to 30 days after receipt , with some items extending to 90 days . the fluctuations in net change in client fund obligations for the years presented is primarily the result of timing of collections and remittances . may 31 , 2013 fell on a friday , which is a large cash outflow day for direct deposit funds , partially offset by tax payment funds collected on that day . may 31 , 2012 fell on a thursday , which is a large collection day for direct pay funds . these funds were then paid out on friday , june 1 , 2012. may 31 , 2011 fell on a tuesday , which is not typically a significant collection or payment day . in addition , the fluctuations were impacted by
| liquidity and capital resources our primary sources of cash for the year ended december 31 , 2020 were cash provided by net proceeds from the sale of equipment of approximately $ 128,000 and operating activities of approximately $ 22,000. our primary sources of cash for the year ended december 31 , 2019 were cash provided by operating activities of approximately $ 2,000 and net proceeds from the sale of equipment of approximately $ 2,000. our primary uses of cash for the year ended december 31 , 2020 were capital expenditures of approximately $ 104,000 , limited partner redemptions of approximately $ 8,000 and equipment acquisition fees paid to the general partner of approximately $ 5,000. our primary use of cash for the year ended december 31 , 2019 was capital expenditures of approximately $ 4,000. for the years ended december 31 , 2020 and 2019 , depreciation and amortization expenses were approximately $ 296,000 and $ 499,000 , respectively . other noncash activities included in the determination of net income for the years ended december 31 , 2020 and 2019 were direct payments of lease income by lessees to banks of approximately $ 113,000 and $ 432,000 , respectively . at december 31 , 2020 , cash was held in an account maintained at one financial institution with an aggregate balance of approximately $ 39,000. bank accounts are federally insured up to $ 250,000 by the fdic . at december 31 , 2020 and 2019 , the aggregate cash balances were approximately as follows : balance at december 31 2020 2019 total bank balance $ 39,000 $ 6,000 fdic insured ( 39,000 ) ( 6,000 ) uninsured amount $ - $ - 18 the partnership believes it mitigates the risk of holding uninsured deposits by only depositing funds with major financial institutions . the partnership has not experienced any losses in our accounts , and believes it is not exposed to any significant credit risk . the amounts in such accounts will fluctuate throughout 2021 due to many factors , including the pace of cash receipts , equipment acquisitions , interest rates and distributions to limited partners .
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the federal funds rate has been at a range of zero to 0.25 % since december 2008. our combined funds held for clients and corporate investment portfolios earned an average rate of return of 1.0 % for fiscal 2013 , compared to 1.1 % for fiscal 2012 and 1.3 % for fiscal 2011 . highlights of our financial results for fiscal 2013 , compared to fiscal 2012 , are as follows : payroll service revenue increased 2 % to $ 1.5 billion . hrs revenue increased 10 % to $ 746.0 million . interest on funds held for clients decreased 6 % to $ 41.0 million . total revenue increased 4 % to $ 2.3 billion . operating income increased 6 % to $ 904.8 million , and operating income , net of certain items , increased 7 % to $ 863.8 million . refer to the “ non-gaap financial measure ” discussion below for further information on operating income , net of certain items . net income increased 4 % to $ 569.0 million and diluted earnings per share increased 3 % to $ 1.56 per share . net income and diluted earnings per share were impacted by the settlement of a state income tax matter , which reduced diluted earnings per share by approximately $ 0.04 per share . dividends of $ 476.7 million were paid to stockholders , representing 84 % of net income . non-gaap financial measure in addition to reporting operating income , a united states ( “ u.s. ” ) generally accepted accounting principle ( “ gaap ” ) measure , we present operating income , net of certain items , which is a non-gaap measure . we believe operating income , net of certain items , is an appropriate additional measure , as it is an indicator of our core business operations performance period over period . it is also the basis of the measure used internally for establishing the following year 's targets and measuring management 's performance in connection with certain performance-based compensation payments and awards . operating income , net of certain items , excludes interest on funds held for clients . interest on funds held for clients is an adjustment to operating income due to the volatility of interest rates , which are not within the control of management . operating income , net of certain items , is not calculated through the application of gaap and is not the required form of disclosure by the securities and exchange commission . as such , it should not be considered as a substitute for the gaap measure of operating income and , therefore , should not be used in isolation , but in conjunction with the gaap measure . the use of any non-gaap measure may produce results that vary from the gaap measure and may not be comparable to a similarly defined non-gaap measure used by other companies . business outlook our client base totaled approximately 570,000 clients as of may 31 , 2013 , compared to approximately 567,000 clients as of may 31 , 2012 , and approximately 564,000 clients as of may 31 , 2011 . our client base increased approximately 1 % for fiscal 2013 , compared to approximately 1 % for fiscal 2012 and approximately 5 % ( 1 % decline on an organic basis ) for fiscal 2011. for fiscal 2013 , payroll services client retention was at record levels , exceeding 81 % of our beginning client base . we received the highest client satisfaction results in our history , which we believe is a result of our focus on providing high-quality service to our customers utilizing leading-edge technology to maximize client retention . our ancillary services provide services to employers and employees beyond payroll , but effectively leverage payroll processing data and , therefore , are beneficial to our operating margin . eservices ancillary services are often included as part of the saas solutions for mid-market clients . the following statistics demonstrate the growth in certain of our hrs ancillary service offerings : replace_table_token_5_th ( 1 ) includes workers ' compensation insurance services clients and health and benefits services clients . 14 ( 2 ) retirement services plans include eplan services , inc. ( `` eplan `` ) plans . eplan was acquired in may 2011. the organic growth rate for retirement services plans for fiscal 2011 would have been approximately 5 % . ongoing investment in our business is critical to our success . during fiscal 2013 , we continued to expand our product portfolio through internal development and acquisitions to add value for our clients . we have positioned ourselves to capture the opportunity created by a greater interest in online saas solutions through both product development and recent acquisitions with saas-oriented business models , including our surepayroll product , which continues to perform well . the combination of our market-leading saas solutions combined with our service model allow us to offer a unique value proposition in the market . we enhanced our online and mobile offerings , adding greater value and convenience for our clients . these mobile applications allow our clients instant access and increased productivity . our single-sign-on feature provides a new and improved interface and mobility enhancer . during fiscal 2013 , we launched our mobile application for the smartphone . we also added access to flexible spending account ( `` fsa `` ) and health and benefits employer and employee information to our mobile offerings . early in fiscal 2013 , we launched an industry-leading report center and robust report writer . this provides a one-stop shop for standard or on-demand reporting needs , ad-hoc and customized reporting , data-extract templates and more . we continued to enhance our paychex next generation platform and its suite of innovative products , as we believe this is a key building block to our future success . story_separator_special_tag in addition , we have entered into indemnification agreements with our officers and directors , which require us to defend and , if necessary , indemnify these individuals for certain pending or future legal claims as they relate to their services provided to us . we currently self-insure the deductible portion of various insured exposures under certain employee benefit plans . our estimated loss exposure under these insurance arrangements is recorded in other current liabilities on our consolidated balance sheets . historically , the amounts accrued have not been material . we also maintain insurance coverage in addition to our purchased primary insurance policies for gap coverage for employment practices liability , errors and omissions , warranty liability , theft and embezzlement , cyber threat , and acts of terrorism ; and capacity for deductibles and self-insured retentions through our captive insurance company . off-balance sheet arrangements as part of our ongoing business , we do not participate in transactions with unconsolidated entities which would have been established for the purpose of facilitating off-balance sheet arrangements or other limited purposes . we do maintain investments as a limited partner in low-income housing projects that are not considered part of our ongoing operations . these investments are accounted for under the equity method of accounting and are less than 1 % of our total assets as of may 31 , 2013 . 21 operating cash flow activities replace_table_token_15_th the decreases in our operating cash flows for fiscal 2013 and fiscal 2012 resulted mainly from fluctuations in operating assets and liabilities , partially offset by higher net income adjusted for non-cash items . the fluctuations in our operating assets and liabilities between periods were primarily related to the timing of collections from clients and payments for compensation , peo payroll , income tax , and other liabilities . investing cash flow activities replace_table_token_16_th funds held for clients and corporate investments : funds held for clients consist of short-term funds and available-for-sale securities . corporate investments are primarily comprised of available-for-sale securities . the portfolio of funds held for clients and corporate investments is detailed in note e of the notes to consolidated financial statements , contained in item 8 of this form 10-k. the fluctuation in the net change in funds held for clients and corporate investment activities is largely due to timing within the client funds portfolio . there was a large cash outflow on friday , may 31 , 2013 that required the liquidation of funds held in funds held for clients short-term cash equivalents portion of the portfolio , resulting in positive cash flow from investing activities for fiscal 2013 . there was a large inflow of collections on thursday , may 31 , 2012 that was invested primarily in short-term investments on that date reflecting a large cash outflow from investing activities for fiscal 2012 . see further discussion of this timing in the financing cash flows discussion of net change in client fund obligations . our net cash inflow from funds held for clients and corporate investment activities for fiscal 2013 was partially offset by higher purchases than sales of vrdn securities during the year . for fiscal 2012 , the net cash outflow was increased from investment in longer-term available-for-sale securities within our corporate portfolio . in general , fluctuations in net funds held for clients and corporate investment activities primarily relate to timing of purchases , sales , or maturities of investments . the amount of funds held for clients will vary based upon the timing of collection of client funds , and the related remittance of funds to applicable tax or regulatory agencies for payroll tax administration services and to employees of clients utilizing employee payment services . additional discussion of interest rates and related risks is included in the “ market risk factors ” section , contained in item 7a of this form 10-k. purchases of long-lived assets : to support our continued client and ancillary product growth , purchases of property and equipment were made for data processing equipment and software , and for the expansion and upgrade of various operating facilities . during fiscal years 2013 , 2012 , and 2011 , we purchased approximately $ 6.5 million , $ 2.6 million , and $ 5.7 million , respectively , of data processing equipment and software from emc corporation . the chairman , president , and chief executive officer of emc corporation is a member of our board of directors ( the “ board ” ) . during fiscal 2013 and fiscal 2012 , we paid , net of cash acquired , $ 21.3 million and $ 6.0 million , respectively , for immaterial business acquisitions . during fiscal 2011 , we paid $ 126.4 million for the combined acquisitions of surepayroll and eplan . 22 financing cash flow activities replace_table_token_17_th net change in client fund obligations : the client fund obligations liability will vary based on the timing of collecting client funds , and the related required remittance of funds to applicable tax or regulatory agencies for payroll tax administration services and to employees of clients utilizing employee payment services . collections from clients are typically remitted from one to 30 days after receipt , with some items extending to 90 days . the fluctuations in net change in client fund obligations for the years presented is primarily the result of timing of collections and remittances . may 31 , 2013 fell on a friday , which is a large cash outflow day for direct deposit funds , partially offset by tax payment funds collected on that day . may 31 , 2012 fell on a thursday , which is a large collection day for direct pay funds . these funds were then paid out on friday , june 1 , 2012. may 31 , 2011 fell on a tuesday , which is not typically a significant collection or payment day . in addition , the fluctuations were impacted by
| financial position and liquidity the supply of high credit quality securities has been limited with the continued volatility in the global financial markets , thereby limiting our investment choices . despite this macroeconomic environment , our financial position as of may 31 , 2013 remained strong with cash and total corporate investments of $ 874.6 million and no debt . our investment strategy focuses on protecting principal and optimizing liquidity . yields on high quality financial instruments remain low , negatively impacting our income earned on funds held for clients and corporate investments . we invest predominately in municipal bonds including general obligation bonds , pre-refunded bonds that are secured by a u.s. government escrow , and essential services revenue bonds . during fiscal 2013 , our primary short-term investment vehicles were high quality variable rate demand notes ( “ vrdns ” ) and bank demand deposit accounts . a substantial portion of our portfolio is invested in high credit quality securities with aaa and aa ratings and a-1/p-1 ratings on short-term securities . we limit the amounts that can be invested in any single issuer and invest in short- to intermediate-term instruments whose fair value is less sensitive to interest rate changes . we believe that our investments as of may 31 , 2013 were not other-than-temporarily impaired , nor has any event occurred subsequent to that date that would indicate any other-than-temporary impairment . our primary source of cash is our ongoing operations . cash flow from operations was $ 675.3 million for fiscal 2013 . historically , we have funded our operations , capital purchases , business acquisitions , and dividend payments from our operating activities . our positive cash flows in fiscal 2013 allowed us to support our business growth and to pay substantial dividends to our stockholders . during fiscal 2013 , dividends paid to stockholders were 84 % of net income .
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during the year ended december 31 , 2011 , 2010 and 2009 , the company recognized $ 4.5 million , $ 6.7 million and $ 8.3 million ( pre-tax ) of restructuring charges , primarily related to the closure of facilities , capacity reductions and costs associated with involuntary termination of employees in connection with reductions in workforce of certain facilities worldwide . 30 we believe that our global manufacturing presence increases our ability to be responsive to our customers ' needs by providing accelerated time-to-market and time-to-volume production of high quality products . these capabilities enable us to build stronger strategic relationships with our customers and to become a more integral part of their operations . our customers face challenges in planning , procuring and managing their inventories efficiently due to customer demand fluctuations , product design changes , short product life cycles and component price fluctuations . we employ production management systems to manage their procurement and manufacturing processes in an efficient and cost-effective manner so that , where possible , components arrive on a just-in-time , as-and-when-needed basis . we are a significant purchaser of electronic components and other raw materials , and can capitalize on the economies of scale associated with our relationships with suppliers to negotiate price discounts , obtain components and other raw materials that are in short supply , and return excess components . our expertise in supply chain management and our relationships with suppliers across the supply chain enables us to reduce our customers ' cost of goods sold and inventory exposure . we recognize revenue from the sale of manufactured products built to customer specifications and excess inventory when title and risk of ownership have passed , the price to the buyer is fixed and determinable and collectibility is reasonably assured , which generally is when the goods are shipped . revenue from design , development and engineering services is recognized when the services are performed and collectibility is reasonably certain . such services provided under fixed price contracts are accounted for using the percentage of completion method . we generally assume no significant obligations after product shipment as we typically warrant workmanship only . therefore , our warranty provisions are generally not significant . our cost of sales includes the cost of materials , electronic components and other materials that comprise the products we manufacture , the cost of labor and manufacturing overhead , and adjustments for excess and obsolete inventory . our procurement of materials for production requires us to commit significant working capital to our operations and to manage the purchasing , receiving , inspection and stocking of materials . although we bear the risk of fluctuations in the cost of materials and excess scrap , we periodically negotiate cost of materials adjustments with our customers . our gross margin for any product depends on the sales price , the proportionate mix of the cost of materials in the product and the cost of labor and manufacturing overhead allocated to the product . we typically have the potential to realize higher gross margins on products where the proportionate level of labor and manufacturing overhead is greater than that of materials . as we gain experience in manufacturing a product , we usually achieve increased efficiencies , which result in lower labor and manufacturing overhead costs for that product and higher gross margins . our operating results are impacted by the level of capacity utilization of manufacturing facilities . operating income margins have generally improved during periods of high production volume and high capacity utilization . during periods of low production volume , we generally have idle capacity and reduced operating income margins . severe flooding in thailand and suspension of thailand operations our facilities in ayudhaya , thailand were flooded and remained closed from october 13 , 2011 to december 20 , 2011. as a result of the flooding and temporary closing of our facilities , we recognized estimated property losses of $ 46.2 million and incurred $ 13.4 million of flood related costs in 2011. we carry property and business interruption insurance that we believe is appropriate and adequate for this situation . our combined limit for real and personal property as well as business interruption insurance is approximately $ 300 million . as such , we have recorded estimated recoveries from insurance for these property losses and flood related costs totaling $ 56.2 million . as of december 31 , 2011 , thailand flood related charges , net of insurance recoveries , were as follows ( in thousands ) : inventory losses $ 39,919 property , plant and equipment losses 6,233 other flood related costs 13,362 59,514 estimated insurance recoveries recorded in prepaid expenses and other assets ( 56,152 ) $ 3,362 31 the ayudhaya , thailand facilities are among our largest , generating approximately 24 % of our revenue in the first nine months of 2011. as a result , the impact on revenue and operations was significant in the fourth quarter of 2011 and will be significant for the next several fiscal quarters . we are managing the situation on an on-going basis and are working to mitigate the impact to us and our customers . we and our customers implemented contingency and recovery plans as a result of the flood to help enable us to meet customer needs . as part of those plans , we restarted production at our korat , thailand facility in november 2011 , and we shifted production from our ayudhaya facilities to our various other sites around the globe . story_separator_special_tag developments adverse to our major customers or their products , or the failure of a major customer to pay for components or services , could have an adverse effect on us . adverse worldwide economic conditions have impacted our customers . see note 10 to the consolidated financial statements in item 8 of this report . a substantial percentage of our sales have been made to a small number of customers , and the loss of a major customer , if not replaced , would adversely affect us . sales to our ten largest customers represented 53 % and 47 % of our sales in 2011 and 2010 , respectively . in 2011 , sales to international business machines corporation represented 14 % of our sales . no one customer represented 10 % or more of our sales in 2010. our international operations are subject to the risks of doing business abroad . see item 1a for factors pertaining to our international sales and fluctuations in the exchange rates of foreign currency and for further discussion of potential adverse effects in operating results associated with the risks of doing business abroad . during 2011 and 2010 , 51 % and 48 % , respectively , of our sales were from our international operations . we had a backlog of approximately $ 1.6 billion at december 31 , 2011 , as compared to the 2010 year-end backlog of $ 1.5 billion . backlog consists of purchase orders received , including , in some instances , forecast requirements released for production under customer contracts . although we expect to fill substantially all of our backlog at december 31 , 2011 during 2012 , we do not have long-term agreements with all of our customers and customer orders can be canceled , changed or delayed by customers . the timely replacement of canceled , changed or delayed orders with orders from new customers can not be assured , nor can there be any assurance that any of our current customers will continue to utilize our services . because of these factors , backlog is not a meaningful indicator of future financial results . 36 gross profit gross profit decreased 26 % to $ 138.8 million for 2011 from $ 187.4 million in 2010. the impact on revenue and operations from the flooding in thailand was significant in the fourth quarter of 2011. in addition to the lower sales volume and the resulting under-absorbed manufacturing overhead costs , the decrease in gross profit was also a result of $ 4.4 million of settlement costs associated with the transfer of a major program , new program ramp costs and capacity expansion costs , primarily in asia , incurred in 2011. our gross profit as a percentage of sales decreased to 6.2 % for the year ended december 31 , 2011 from 7.8 % in the same period of 2010 primarily due to lower sales volumes , product mix , new program ramp costs and capacity expansion costs , primarily in asia , which resulted in under-absorbed manufacturing overhead costs , as well as the settlement costs noted above . we experience fluctuations in gross profit from period to period . different programs contribute different gross profits depending on factors such as the types of services involved , location of production , size of the program , complexity of the product , and level of material costs associated with the various products . moreover , new programs can contribute relatively less to our gross profit in their early stages when manufacturing volumes are usually lower , resulting in inefficiencies and under-absorbed manufacturing overhead costs . in addition , a number of our new and higher volume programs remain subject to competitive constraints that could exert downward pressure on our margins . during periods of low production volume , we generally have idle capacity and reduced gross profit . selling , general and administrative expenses selling , general and administrative expenses decreased 3 % to $ 89.7 million in 2011 from $ 92.2 million in 2010 primarily due to reduced stock-based compensation expenses , decreased overhead resulting from cost controls and lower variable compensation expenses , which were partially offset by higher other employee related costs . selling , general and administrative expenses , as a percentage of sales , were 4.0 % and 3.8 % , respectively , for 2011 and 2010. the increase in selling , general and administrative expenses as a percentage of sales is due to the impact of lower sales volumes during 2011. restructuring charges we recognized $ 4.5 million in restructuring charges during 2011 primarily related to the decision to close our dublin , ireland facility . the recognition of the restructuring charges requires that we make certain judgments and estimates regarding the nature , timing and amount of costs associated with planned exit activities . to the extent our actual results in exiting these facilities differ from our estimates and assumptions , we may be required to revise the estimates of future liabilities , requiring the recognition of additional restructuring charges or the reduction of liabilities already recognized . at the end of each reporting period , we evaluate the remaining accrued balances to ensure that no excess accruals are retained and the utilization of the provisions are for their intended purpose in accordance with developed exit plans . see note 16 to the consolidated financial statements in item 8 of this report . thailand flood related charges , net of insurance we recognized $ 3.4 million in thailand flood related charges , net of estimated insurance recoveries during the fourth quarter of 2011. see note 16 to the consolidated financial statements in item 8 of this report . income tax expense ( benefit ) income tax benefit of $ 10.8 million represented a negative effective tax rate of 26.3 % for 2011 , compared with income tax expense of $ 7.3 million at an effective tax rate of 8.3
| financial position and liquidity the supply of high credit quality securities has been limited with the continued volatility in the global financial markets , thereby limiting our investment choices . despite this macroeconomic environment , our financial position as of may 31 , 2013 remained strong with cash and total corporate investments of $ 874.6 million and no debt . our investment strategy focuses on protecting principal and optimizing liquidity . yields on high quality financial instruments remain low , negatively impacting our income earned on funds held for clients and corporate investments . we invest predominately in municipal bonds including general obligation bonds , pre-refunded bonds that are secured by a u.s. government escrow , and essential services revenue bonds . during fiscal 2013 , our primary short-term investment vehicles were high quality variable rate demand notes ( “ vrdns ” ) and bank demand deposit accounts . a substantial portion of our portfolio is invested in high credit quality securities with aaa and aa ratings and a-1/p-1 ratings on short-term securities . we limit the amounts that can be invested in any single issuer and invest in short- to intermediate-term instruments whose fair value is less sensitive to interest rate changes . we believe that our investments as of may 31 , 2013 were not other-than-temporarily impaired , nor has any event occurred subsequent to that date that would indicate any other-than-temporary impairment . our primary source of cash is our ongoing operations . cash flow from operations was $ 675.3 million for fiscal 2013 . historically , we have funded our operations , capital purchases , business acquisitions , and dividend payments from our operating activities . our positive cash flows in fiscal 2013 allowed us to support our business growth and to pay substantial dividends to our stockholders . during fiscal 2013 , dividends paid to stockholders were 84 % of net income .
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during the year ended december 31 , 2011 , 2010 and 2009 , the company recognized $ 4.5 million , $ 6.7 million and $ 8.3 million ( pre-tax ) of restructuring charges , primarily related to the closure of facilities , capacity reductions and costs associated with involuntary termination of employees in connection with reductions in workforce of certain facilities worldwide . 30 we believe that our global manufacturing presence increases our ability to be responsive to our customers ' needs by providing accelerated time-to-market and time-to-volume production of high quality products . these capabilities enable us to build stronger strategic relationships with our customers and to become a more integral part of their operations . our customers face challenges in planning , procuring and managing their inventories efficiently due to customer demand fluctuations , product design changes , short product life cycles and component price fluctuations . we employ production management systems to manage their procurement and manufacturing processes in an efficient and cost-effective manner so that , where possible , components arrive on a just-in-time , as-and-when-needed basis . we are a significant purchaser of electronic components and other raw materials , and can capitalize on the economies of scale associated with our relationships with suppliers to negotiate price discounts , obtain components and other raw materials that are in short supply , and return excess components . our expertise in supply chain management and our relationships with suppliers across the supply chain enables us to reduce our customers ' cost of goods sold and inventory exposure . we recognize revenue from the sale of manufactured products built to customer specifications and excess inventory when title and risk of ownership have passed , the price to the buyer is fixed and determinable and collectibility is reasonably assured , which generally is when the goods are shipped . revenue from design , development and engineering services is recognized when the services are performed and collectibility is reasonably certain . such services provided under fixed price contracts are accounted for using the percentage of completion method . we generally assume no significant obligations after product shipment as we typically warrant workmanship only . therefore , our warranty provisions are generally not significant . our cost of sales includes the cost of materials , electronic components and other materials that comprise the products we manufacture , the cost of labor and manufacturing overhead , and adjustments for excess and obsolete inventory . our procurement of materials for production requires us to commit significant working capital to our operations and to manage the purchasing , receiving , inspection and stocking of materials . although we bear the risk of fluctuations in the cost of materials and excess scrap , we periodically negotiate cost of materials adjustments with our customers . our gross margin for any product depends on the sales price , the proportionate mix of the cost of materials in the product and the cost of labor and manufacturing overhead allocated to the product . we typically have the potential to realize higher gross margins on products where the proportionate level of labor and manufacturing overhead is greater than that of materials . as we gain experience in manufacturing a product , we usually achieve increased efficiencies , which result in lower labor and manufacturing overhead costs for that product and higher gross margins . our operating results are impacted by the level of capacity utilization of manufacturing facilities . operating income margins have generally improved during periods of high production volume and high capacity utilization . during periods of low production volume , we generally have idle capacity and reduced operating income margins . severe flooding in thailand and suspension of thailand operations our facilities in ayudhaya , thailand were flooded and remained closed from october 13 , 2011 to december 20 , 2011. as a result of the flooding and temporary closing of our facilities , we recognized estimated property losses of $ 46.2 million and incurred $ 13.4 million of flood related costs in 2011. we carry property and business interruption insurance that we believe is appropriate and adequate for this situation . our combined limit for real and personal property as well as business interruption insurance is approximately $ 300 million . as such , we have recorded estimated recoveries from insurance for these property losses and flood related costs totaling $ 56.2 million . as of december 31 , 2011 , thailand flood related charges , net of insurance recoveries , were as follows ( in thousands ) : inventory losses $ 39,919 property , plant and equipment losses 6,233 other flood related costs 13,362 59,514 estimated insurance recoveries recorded in prepaid expenses and other assets ( 56,152 ) $ 3,362 31 the ayudhaya , thailand facilities are among our largest , generating approximately 24 % of our revenue in the first nine months of 2011. as a result , the impact on revenue and operations was significant in the fourth quarter of 2011 and will be significant for the next several fiscal quarters . we are managing the situation on an on-going basis and are working to mitigate the impact to us and our customers . we and our customers implemented contingency and recovery plans as a result of the flood to help enable us to meet customer needs . as part of those plans , we restarted production at our korat , thailand facility in november 2011 , and we shifted production from our ayudhaya facilities to our various other sites around the globe . story_separator_special_tag developments adverse to our major customers or their products , or the failure of a major customer to pay for components or services , could have an adverse effect on us . adverse worldwide economic conditions have impacted our customers . see note 10 to the consolidated financial statements in item 8 of this report . a substantial percentage of our sales have been made to a small number of customers , and the loss of a major customer , if not replaced , would adversely affect us . sales to our ten largest customers represented 53 % and 47 % of our sales in 2011 and 2010 , respectively . in 2011 , sales to international business machines corporation represented 14 % of our sales . no one customer represented 10 % or more of our sales in 2010. our international operations are subject to the risks of doing business abroad . see item 1a for factors pertaining to our international sales and fluctuations in the exchange rates of foreign currency and for further discussion of potential adverse effects in operating results associated with the risks of doing business abroad . during 2011 and 2010 , 51 % and 48 % , respectively , of our sales were from our international operations . we had a backlog of approximately $ 1.6 billion at december 31 , 2011 , as compared to the 2010 year-end backlog of $ 1.5 billion . backlog consists of purchase orders received , including , in some instances , forecast requirements released for production under customer contracts . although we expect to fill substantially all of our backlog at december 31 , 2011 during 2012 , we do not have long-term agreements with all of our customers and customer orders can be canceled , changed or delayed by customers . the timely replacement of canceled , changed or delayed orders with orders from new customers can not be assured , nor can there be any assurance that any of our current customers will continue to utilize our services . because of these factors , backlog is not a meaningful indicator of future financial results . 36 gross profit gross profit decreased 26 % to $ 138.8 million for 2011 from $ 187.4 million in 2010. the impact on revenue and operations from the flooding in thailand was significant in the fourth quarter of 2011. in addition to the lower sales volume and the resulting under-absorbed manufacturing overhead costs , the decrease in gross profit was also a result of $ 4.4 million of settlement costs associated with the transfer of a major program , new program ramp costs and capacity expansion costs , primarily in asia , incurred in 2011. our gross profit as a percentage of sales decreased to 6.2 % for the year ended december 31 , 2011 from 7.8 % in the same period of 2010 primarily due to lower sales volumes , product mix , new program ramp costs and capacity expansion costs , primarily in asia , which resulted in under-absorbed manufacturing overhead costs , as well as the settlement costs noted above . we experience fluctuations in gross profit from period to period . different programs contribute different gross profits depending on factors such as the types of services involved , location of production , size of the program , complexity of the product , and level of material costs associated with the various products . moreover , new programs can contribute relatively less to our gross profit in their early stages when manufacturing volumes are usually lower , resulting in inefficiencies and under-absorbed manufacturing overhead costs . in addition , a number of our new and higher volume programs remain subject to competitive constraints that could exert downward pressure on our margins . during periods of low production volume , we generally have idle capacity and reduced gross profit . selling , general and administrative expenses selling , general and administrative expenses decreased 3 % to $ 89.7 million in 2011 from $ 92.2 million in 2010 primarily due to reduced stock-based compensation expenses , decreased overhead resulting from cost controls and lower variable compensation expenses , which were partially offset by higher other employee related costs . selling , general and administrative expenses , as a percentage of sales , were 4.0 % and 3.8 % , respectively , for 2011 and 2010. the increase in selling , general and administrative expenses as a percentage of sales is due to the impact of lower sales volumes during 2011. restructuring charges we recognized $ 4.5 million in restructuring charges during 2011 primarily related to the decision to close our dublin , ireland facility . the recognition of the restructuring charges requires that we make certain judgments and estimates regarding the nature , timing and amount of costs associated with planned exit activities . to the extent our actual results in exiting these facilities differ from our estimates and assumptions , we may be required to revise the estimates of future liabilities , requiring the recognition of additional restructuring charges or the reduction of liabilities already recognized . at the end of each reporting period , we evaluate the remaining accrued balances to ensure that no excess accruals are retained and the utilization of the provisions are for their intended purpose in accordance with developed exit plans . see note 16 to the consolidated financial statements in item 8 of this report . thailand flood related charges , net of insurance we recognized $ 3.4 million in thailand flood related charges , net of estimated insurance recoveries during the fourth quarter of 2011. see note 16 to the consolidated financial statements in item 8 of this report . income tax expense ( benefit ) income tax benefit of $ 10.8 million represented a negative effective tax rate of 26.3 % for 2011 , compared with income tax expense of $ 7.3 million at an effective tax rate of 8.3
| liquidity and capital resources we have historically financed our growth and operations through funds generated from operations and proceeds from the sale and maturity of our investments . cash and cash equivalents totaled $ 283.9 million at december 31 , 2011 and $ 346.3 million at december 31 , 2010 , of which $ 195.9 million at december 31 , 2011 and $ 241.6 million at december 31 , 2010 was held outside the u.s. in various foreign subsidiaries . substantially all of the amounts held outside of the u.s. are intended to be indefinitely reinvested in foreign operations . under current tax laws and regulations , if cash and cash equivalents held outside the u.s. were to be distributed to the u.s. in the form of dividends or otherwise , we would be subject to additional u.s. income taxes and foreign withholding taxes . cash provided by operating activities was $ 54.8 million in 2011. the cash provided by operations during 2011 consisted primarily of net income of $ 52.0 million adjusted for $ 35.5 million of depreciation and amortization , $ 46.5 million of asset impairments , a $ 27.7 million decrease in accounts receivable , a $ 12.1 decrease in prepaid expense and other assets and a $ 28.4 million increase in accounts payable offset by a $ 56.2 million insurance receivable , a $ 72.7 million increase in inventories and $ 18.0 million of deferred income taxes . working capital was $ 849.0 million at december 31 , 2011 and $ 891.6 million at december 31 , 2010. we are continuing the practice of purchasing components only after customer orders or forecasts are received , which mitigates , but does not eliminate , the risk of loss on inventories . supplies of electronic components and other materials used in operations are subject to industry-wide shortages . in certain instances , suppliers may allocate available quantities to us . if shortages of these components and other material supplies used in operations occur , vendors may not ship the quantities we need for production and we may be forced to delay shipments , which would increase backorders and therefore impact cash flows .
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we derive substantially all of our gross profit from the following sources : commissions earned from facilitating reservations of accommodations , rental cars , cruises and other travel services ; transaction gross profit and customer processing fees from our accommodation , rental car , airline ticket and vacation package reservation services ; advertising revenues primarily earned by kayak from sending referrals to otas and travel service providers , as well as from advertising placements on kayak 's websites and mobile apps ; beginning on july 24 , 2014 , revenues recognized by opentable , which consist of reservation revenues ( a fee for restaurant guests seated through opentable 's online reservation service ) , subscription fees for restaurant reservation management services and other revenues ; and global distribution system ( `` gds `` ) reservation booking fees related to our name your own price ® hotel , rental car and airline ticket reservation services , and price-disclosed airline ticket and rental car reservation services . our priceline.com brand offers merchant name your own price ® opaque travel services , which are recorded in revenue on a `` gross `` basis and have associated cost of revenue . all of our other services are recorded in revenue on a `` net `` basis and have no associated cost of revenue . therefore , revenue increases and decreases are impacted by changes in the mix of our revenues between name your own price ® travel services and other services . gross profit reflects the commission or net margin earned for our retail , name your own price ® and semi-opaque travel services and our advertising and other services . consequently , gross profit is an important measure to evaluate growth in our business because , in contrast to our revenues , it is not affected by 40 the different methods of recording revenue and cost of revenue between our name your own price ® travel services and our other services . trends over the last several years we have experienced strong growth in our accommodation reservation services . we believe this growth is the result of , among other things , the broader shift of travel purchases from offline to online , the widespread adoption of mobile devices , the high growth of travel overall in emerging markets such as asia-pacific and south america , and the continued innovation and execution by our teams around the world to build accommodation supply , content and distribution and to improve the customer experience on our websites and mobile apps . these year-over-year growth rates have generally decelerated in recent years . for example , for the year ended december 31 , 2014 , our accommodation room night reservation growth was 28 % , a deceleration from 37 % in 2013 , 40 % in 2012 and 53 % in 2011. given the size of our hotel reservation business , we expect that our year-over-year growth rates will continue to decelerate , though the rate of deceleration may fluctuate . the size of the travel market outside of the united states is substantially greater than that within the united states . historically , internet use and e-commerce activity of international consumers have trailed that of consumers in the united states . however , international consumers are rapidly moving to online means for purchasing travel . accordingly , recent international online travel growth rates have substantially exceeded , and are expected to continue to exceed , the growth rates within the united states . we expect that over the long-term , international online travel growth rates will follow a similar trend to that experienced in the united states . in addition , the base of hotel properties in europe and asia is particularly fragmented compared to that in the united states , where the hotel market is dominated by large hotel chains . we believe online reservation systems like ours may be more appealing to small chains and independent hotels more commonly found outside of the united states . our growth has primarily been generated by our international accommodation reservation service brands , booking.com and agoda.com . booking.com , our most significant brand , included over 600,000 properties on its website as of february 13 , 2015 , which included over 245,000 vacation rental properties ( updated property counts are available on the booking.com website ) . booking.com has added properties over the past year in its core european market as well as higher-growth markets such as north america ( which is a newer market for booking.com ) , asia-pacific and south america . an increasing amount of our business from both a destination and point-of-sale perspective is conducted in our newer markets which are growing faster than our overall growth rate . we believe that the opportunity to continue to grow our business exists for the markets in which we operate . we believe these trends and factors have enabled us to become the leading online accommodation reservation service provider in the world as measured by room nights booked . as our international business represents the substantial majority of our financial results , we expect to continue to see our operating results and other financial metrics largely driven by international performance . for example , certain markets in which we operate that are in earlier stages of development have lower operating margins compared to more mature markets , which could have a negative impact on our overall margins as these markets increase in size over time . also , we intend to continue to invest in adding accommodations available for reservation on our websites , including hotels , bed and breakfasts , hostels and vacation rentals . vacation rentals generally consist of , among others , properties categorized as single-unit and multi-unit villas , apartments , `` aparthotels `` ( which are apartments with a front desk and cleaning service ) and chalets and are generally self-catered ( i.e . story_separator_special_tag in the u.k. investigation , booking.com and the other subjects of the investigation had reached a settlement with the competition authorities ; however , that settlement has been vacated on appeal . on december 15 , 2014 , the french , italian and swedish national competition authorities , working in close cooperation with the european commission , announced their intention to seek public feedback on commitments offered by booking.com in connection with investigations of booking.com 's rate parity provisions in its contractual arrangements with accommodation providers . see footnote 16 to our consolidated financial statements and part i item 1a risk factors - `` as the size of our business grows , we may become increasingly subject to the scrutiny of anti-trust and competition regulators . `` we note that the german competition authority has required hotel reservation service , a leading ota in germany , to remove its rate parity clause from its contracts with hotels , and hotel reservation service 's initial appeal was denied . to the extent that regulatory authorities require changes to our business practices or to those currently common to the industry , our business , competitive position and results of operations could be materially and adversely affected . negative publicity regarding any such investigations could adversely affect our brand and therefore our market share and results of operations . hotels typically make available only a limited number of hotel rooms for opaque services like ours , especially during periods of high occupancy . as a result , recent high hotel occupancy levels in the united states have had an adverse impact on our access to hotel rooms for our opaque hotel reservation services , which has negatively affected our opaque hotel reservation gross profits . seasonality a meaningful amount of gross bookings are generated early in the year , as customers plan and reserve their spring and summer vacations in europe and north america . from a cost perspective , we expense the substantial majority of our advertising activities as the expense is incurred , which is typically in the quarter in which reservations are booked . however , we generally do not recognize associated revenue until future quarters when the travel occurs . as a result , we typically experience our highest levels of profitability in the second and third quarters of the year , which is when we experience the highest levels of accommodation checkouts for the year for our european and north american businesses . 44 in addition , the date on which certain holidays fall can have an impact on our quarterly results . for example , in 2013 our second quarter year-over-year growth rates in revenue , gross profit , operating income and operating margins were adversely affected by easter falling in the first quarter instead of the second quarter , as it did in 2012. conversely , our second quarter 2014 year-over-year growth rates in revenue , gross profit , operating income and operating margins were favorably impacted by easter falling in the second quarter instead of the first quarter , as it did in 2013. the impact of seasonality can be exaggerated in the short-term by the gross bookings growth rate of the business . for example , in periods where our growth rate substantially decelerates , our operating margins typically benefit from relatively less variable advertising expense . in addition , gross profit growth is typically less impacted in the near term due to the benefit of revenue related to reservations booked in previous quarters . we experience the highest levels of booking and travel consumption for our asia-pacific and south american businesses in the first and fourth quarters . therefore , if these businesses grow faster than our north american and european businesses , our operating results for the first and fourth quarters of the year may become more significant over time as a percentage of full year operating results . other factors we believe that our future success depends in large part on our ability to continue to profitably grow our brands worldwide , and , over time , to offer other travel and travel related services and further expand into other international markets . factors beyond our control , such as worldwide recession , oil prices , terrorist attacks , unusual weather patterns , natural disasters such as earthquakes , hurricanes , tsunamis , floods and volcanic eruptions , travel related health concerns including pandemics and epidemics such as ebola , influenza h1n1 , avian bird flu and sars , political instability , regional hostilities , imposition of taxes or surcharges by regulatory authorities or travel related accidents , could adversely affect our business and results of operations and impair our ability to effectively implement all or some of the initiatives described above . for example , in late 2012 hurricane sandy disrupted travel in the northeastern united states . in early 2011 , japan was struck by a major earthquake , tsunami and nuclear emergency . in october 2011 , severe flooding in thailand , a key market for our agoda.com business and the asian business of booking.com , negatively impacted booking volumes and cancellation rates in this market . in addition , thailand has recently experienced disruptive civil unrest , which has negatively impacted booking volumes and cancellation rates in this market . in early 2010 , thailand also experienced civil unrest , which caused the temporary relocation of agoda.com 's thailand-based operations . future natural disasters , health concerns or civil or political unrest could further disrupt our business and operations . we intend to continue to invest in marketing and promotion , technology and personnel within parameters consistent with attempts to improve long-term operating results , even if those expenditures create pressure on operating margins . we have experienced pressure on operating margins as we prioritize initiatives that drive growth . we also intend to broaden the scope of our business , and to that end , we
| liquidity and capital resources we have historically financed our growth and operations through funds generated from operations and proceeds from the sale and maturity of our investments . cash and cash equivalents totaled $ 283.9 million at december 31 , 2011 and $ 346.3 million at december 31 , 2010 , of which $ 195.9 million at december 31 , 2011 and $ 241.6 million at december 31 , 2010 was held outside the u.s. in various foreign subsidiaries . substantially all of the amounts held outside of the u.s. are intended to be indefinitely reinvested in foreign operations . under current tax laws and regulations , if cash and cash equivalents held outside the u.s. were to be distributed to the u.s. in the form of dividends or otherwise , we would be subject to additional u.s. income taxes and foreign withholding taxes . cash provided by operating activities was $ 54.8 million in 2011. the cash provided by operations during 2011 consisted primarily of net income of $ 52.0 million adjusted for $ 35.5 million of depreciation and amortization , $ 46.5 million of asset impairments , a $ 27.7 million decrease in accounts receivable , a $ 12.1 decrease in prepaid expense and other assets and a $ 28.4 million increase in accounts payable offset by a $ 56.2 million insurance receivable , a $ 72.7 million increase in inventories and $ 18.0 million of deferred income taxes . working capital was $ 849.0 million at december 31 , 2011 and $ 891.6 million at december 31 , 2010. we are continuing the practice of purchasing components only after customer orders or forecasts are received , which mitigates , but does not eliminate , the risk of loss on inventories . supplies of electronic components and other materials used in operations are subject to industry-wide shortages . in certain instances , suppliers may allocate available quantities to us . if shortages of these components and other material supplies used in operations occur , vendors may not ship the quantities we need for production and we may be forced to delay shipments , which would increase backorders and therefore impact cash flows .
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we derive substantially all of our gross profit from the following sources : commissions earned from facilitating reservations of accommodations , rental cars , cruises and other travel services ; transaction gross profit and customer processing fees from our accommodation , rental car , airline ticket and vacation package reservation services ; advertising revenues primarily earned by kayak from sending referrals to otas and travel service providers , as well as from advertising placements on kayak 's websites and mobile apps ; beginning on july 24 , 2014 , revenues recognized by opentable , which consist of reservation revenues ( a fee for restaurant guests seated through opentable 's online reservation service ) , subscription fees for restaurant reservation management services and other revenues ; and global distribution system ( `` gds `` ) reservation booking fees related to our name your own price ® hotel , rental car and airline ticket reservation services , and price-disclosed airline ticket and rental car reservation services . our priceline.com brand offers merchant name your own price ® opaque travel services , which are recorded in revenue on a `` gross `` basis and have associated cost of revenue . all of our other services are recorded in revenue on a `` net `` basis and have no associated cost of revenue . therefore , revenue increases and decreases are impacted by changes in the mix of our revenues between name your own price ® travel services and other services . gross profit reflects the commission or net margin earned for our retail , name your own price ® and semi-opaque travel services and our advertising and other services . consequently , gross profit is an important measure to evaluate growth in our business because , in contrast to our revenues , it is not affected by 40 the different methods of recording revenue and cost of revenue between our name your own price ® travel services and our other services . trends over the last several years we have experienced strong growth in our accommodation reservation services . we believe this growth is the result of , among other things , the broader shift of travel purchases from offline to online , the widespread adoption of mobile devices , the high growth of travel overall in emerging markets such as asia-pacific and south america , and the continued innovation and execution by our teams around the world to build accommodation supply , content and distribution and to improve the customer experience on our websites and mobile apps . these year-over-year growth rates have generally decelerated in recent years . for example , for the year ended december 31 , 2014 , our accommodation room night reservation growth was 28 % , a deceleration from 37 % in 2013 , 40 % in 2012 and 53 % in 2011. given the size of our hotel reservation business , we expect that our year-over-year growth rates will continue to decelerate , though the rate of deceleration may fluctuate . the size of the travel market outside of the united states is substantially greater than that within the united states . historically , internet use and e-commerce activity of international consumers have trailed that of consumers in the united states . however , international consumers are rapidly moving to online means for purchasing travel . accordingly , recent international online travel growth rates have substantially exceeded , and are expected to continue to exceed , the growth rates within the united states . we expect that over the long-term , international online travel growth rates will follow a similar trend to that experienced in the united states . in addition , the base of hotel properties in europe and asia is particularly fragmented compared to that in the united states , where the hotel market is dominated by large hotel chains . we believe online reservation systems like ours may be more appealing to small chains and independent hotels more commonly found outside of the united states . our growth has primarily been generated by our international accommodation reservation service brands , booking.com and agoda.com . booking.com , our most significant brand , included over 600,000 properties on its website as of february 13 , 2015 , which included over 245,000 vacation rental properties ( updated property counts are available on the booking.com website ) . booking.com has added properties over the past year in its core european market as well as higher-growth markets such as north america ( which is a newer market for booking.com ) , asia-pacific and south america . an increasing amount of our business from both a destination and point-of-sale perspective is conducted in our newer markets which are growing faster than our overall growth rate . we believe that the opportunity to continue to grow our business exists for the markets in which we operate . we believe these trends and factors have enabled us to become the leading online accommodation reservation service provider in the world as measured by room nights booked . as our international business represents the substantial majority of our financial results , we expect to continue to see our operating results and other financial metrics largely driven by international performance . for example , certain markets in which we operate that are in earlier stages of development have lower operating margins compared to more mature markets , which could have a negative impact on our overall margins as these markets increase in size over time . also , we intend to continue to invest in adding accommodations available for reservation on our websites , including hotels , bed and breakfasts , hostels and vacation rentals . vacation rentals generally consist of , among others , properties categorized as single-unit and multi-unit villas , apartments , `` aparthotels `` ( which are apartments with a front desk and cleaning service ) and chalets and are generally self-catered ( i.e . story_separator_special_tag in the u.k. investigation , booking.com and the other subjects of the investigation had reached a settlement with the competition authorities ; however , that settlement has been vacated on appeal . on december 15 , 2014 , the french , italian and swedish national competition authorities , working in close cooperation with the european commission , announced their intention to seek public feedback on commitments offered by booking.com in connection with investigations of booking.com 's rate parity provisions in its contractual arrangements with accommodation providers . see footnote 16 to our consolidated financial statements and part i item 1a risk factors - `` as the size of our business grows , we may become increasingly subject to the scrutiny of anti-trust and competition regulators . `` we note that the german competition authority has required hotel reservation service , a leading ota in germany , to remove its rate parity clause from its contracts with hotels , and hotel reservation service 's initial appeal was denied . to the extent that regulatory authorities require changes to our business practices or to those currently common to the industry , our business , competitive position and results of operations could be materially and adversely affected . negative publicity regarding any such investigations could adversely affect our brand and therefore our market share and results of operations . hotels typically make available only a limited number of hotel rooms for opaque services like ours , especially during periods of high occupancy . as a result , recent high hotel occupancy levels in the united states have had an adverse impact on our access to hotel rooms for our opaque hotel reservation services , which has negatively affected our opaque hotel reservation gross profits . seasonality a meaningful amount of gross bookings are generated early in the year , as customers plan and reserve their spring and summer vacations in europe and north america . from a cost perspective , we expense the substantial majority of our advertising activities as the expense is incurred , which is typically in the quarter in which reservations are booked . however , we generally do not recognize associated revenue until future quarters when the travel occurs . as a result , we typically experience our highest levels of profitability in the second and third quarters of the year , which is when we experience the highest levels of accommodation checkouts for the year for our european and north american businesses . 44 in addition , the date on which certain holidays fall can have an impact on our quarterly results . for example , in 2013 our second quarter year-over-year growth rates in revenue , gross profit , operating income and operating margins were adversely affected by easter falling in the first quarter instead of the second quarter , as it did in 2012. conversely , our second quarter 2014 year-over-year growth rates in revenue , gross profit , operating income and operating margins were favorably impacted by easter falling in the second quarter instead of the first quarter , as it did in 2013. the impact of seasonality can be exaggerated in the short-term by the gross bookings growth rate of the business . for example , in periods where our growth rate substantially decelerates , our operating margins typically benefit from relatively less variable advertising expense . in addition , gross profit growth is typically less impacted in the near term due to the benefit of revenue related to reservations booked in previous quarters . we experience the highest levels of booking and travel consumption for our asia-pacific and south american businesses in the first and fourth quarters . therefore , if these businesses grow faster than our north american and european businesses , our operating results for the first and fourth quarters of the year may become more significant over time as a percentage of full year operating results . other factors we believe that our future success depends in large part on our ability to continue to profitably grow our brands worldwide , and , over time , to offer other travel and travel related services and further expand into other international markets . factors beyond our control , such as worldwide recession , oil prices , terrorist attacks , unusual weather patterns , natural disasters such as earthquakes , hurricanes , tsunamis , floods and volcanic eruptions , travel related health concerns including pandemics and epidemics such as ebola , influenza h1n1 , avian bird flu and sars , political instability , regional hostilities , imposition of taxes or surcharges by regulatory authorities or travel related accidents , could adversely affect our business and results of operations and impair our ability to effectively implement all or some of the initiatives described above . for example , in late 2012 hurricane sandy disrupted travel in the northeastern united states . in early 2011 , japan was struck by a major earthquake , tsunami and nuclear emergency . in october 2011 , severe flooding in thailand , a key market for our agoda.com business and the asian business of booking.com , negatively impacted booking volumes and cancellation rates in this market . in addition , thailand has recently experienced disruptive civil unrest , which has negatively impacted booking volumes and cancellation rates in this market . in early 2010 , thailand also experienced civil unrest , which caused the temporary relocation of agoda.com 's thailand-based operations . future natural disasters , health concerns or civil or political unrest could further disrupt our business and operations . we intend to continue to invest in marketing and promotion , technology and personnel within parameters consistent with attempts to improve long-term operating results , even if those expenditures create pressure on operating margins . we have experienced pressure on operating margins as we prioritize initiatives that drive growth . we also intend to broaden the scope of our business , and to that end , we
| liquidity and capital resources as of december 31 , 2014 , we had $ 8.0 billion in cash , cash equivalents , short-term investments and long-term investments . approximately $ 6.9 billion is held by our international subsidiaries and is denominated primarily in u.s. dollars , euros and , to a lesser extent , british pounds sterling and other currencies . we currently intend to indefinitely reinvest these funds outside of the united states . if we repatriate cash to the united states , we would utilize our net operating loss carryforwards and beyond that amount incur additional tax payments in the united states . cash equivalents , short-term investments , and long-term investments are comprised of u.s. and foreign corporate bonds , u.s. and foreign government securities , high grade commercial paper , foreign equity securities , u.s. government agency securities , u.s. municipal securities and bank deposits . in october 2011 , we entered into a $ 1.0 billion five-year unsecured revolving credit facility with a group of lenders . borrowings under the revolving credit facility will bear interest , at our option , at a rate per annum equal to either ( i ) the adjusted libor for the interest period in effect for such borrowing plus an applicable margin ranging from 1.00 % to 1.50 % ; or ( ii ) the greatest of ( a ) jpmorgan chase bank , national association 's prime lending rate , ( b ) the federal funds rate plus 0.50 % , and ( c ) an adjusted libor for an interest period of one month plus 1.00 % , plus an applicable margin ranging from 0.00 % to 0.50 % . undrawn balances available under the revolving credit facility are subject to commitment fees at the applicable rate ranging from 0.10 % to 0.25 % .
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these factors include : the rate at which we grow our salesforce and the speed at which newly hired salespeople become fully effective can impact our revenue growth or our costs incurred in anticipation of such growth . our industry is intensely competitive and , in particular , we compete with a number of large , well-capitalized companies . we must continue to successfully compete in light of our competitors ' existing and future products and their resources to successfully market to the specialist physicians who use our products . 50 we must continue to successfully introduce new products that gain acceptance with specialist physicians and successfully transition from existing products to new products , ensuring adequate supply . in addition , as we introduce new products and expand our production capacity , we anticipate additional personnel will be hired and trained to build our inventory of components and finished goods in advance of sales , which may cause quarterly fluctuations in our operating results and financial condition . publications of clinical results by us , our competitors and other third parties can have a significant influence on whether , and the degree to which , our products are used by specialist physicians and the procedures and treatments those physicians choose to administer for a given condition . the specialist physicians who use our products may not perform procedures during certain times of the year , such as those periods when they are at major medical conferences or are away from their practices for other reasons , the timing of which occurs irregularly during the year and from year to year . most of our sales outside of the united states are denominated in the local currency of the country in which we sell our products . as a result , our revenue from international sales can be significantly impacted by fluctuations in foreign currency exchange rates . in addition , we have experienced and expect to continue to experience meaningful variability in our quarterly revenue , gross profit and gross margin percentage as a result of a number of factors , including , but not limited to : the number of available selling days , which can be impacted by holidays ; the mix of products sold ; the geographic mix of where products are sold ; the demand for our products and the products of our competitors ; the timing of or failure to obtain regulatory approvals or clearances for products ; increased competition ; the timing of customer orders ; inventory write-offs due to obsolescence ; costs , benefits and timing of new product introductions ; costs , benefits and timing of the acquisition and integration of businesses and product lines we may acquire ; the availability and cost of components and raw materials ; and fluctuations in foreign currency exchange rates . we may experience quarters in which we have significant revenue growth sequentially followed by quarters of moderate or no revenue growth . additionally , we may experience quarters in which operating expenses , in particular research and development expenses , fluctuate depending on the stage and timing of product development . critical accounting policies and use of estimates our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states . the preparation of our consolidated financial statements requires management to make estimates , assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the applicable periods . management bases its estimates , assumptions and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances . different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements , which , in turn , could materially change our results from those reported . management evaluates its estimates , assumptions and judgments on an ongoing basis . historically , our critical accounting estimates have not differed materially from actual results . however , if our assumptions change , we may need to revise our estimates , or take other corrective actions , either of which may also have a material adverse effect on our consolidated statements of operations , liquidity and financial condition . we believe the following critical accounting policies involve significant areas where management applies judgments and estimates in the preparation of our consolidated financial statements . revenue recognition revenue is comprised of product revenue net of returns , discounts , administration fees and sales rebates . we adopted the guidance under topic 606 of the accounting standards codification ( “ asc ” ) on january 1 , 2018 , using the modified retrospective method for all contracts not completed as of the date of adoption . therefore , the comparative prior year information has not been adjusted and continues to be reported under asc 605 with the impact of the adoption reflected in opening retained earnings . as a result of adoption , the cumulative impact to our retained earnings at january 1 , 2018 was $ 0.3 million . under asc 606 , we recognize revenue when control of the promised goods or services is transferred to our customers , in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services . revenue from product sales is recognized either on the date of shipment or the date of receipt by the customer , but is deferred for certain transactions when control has not yet transferred . with respect to products that we consign to hospitals , which primarily consist of coils , we recognize revenue at the time hospitals utilize products in a procedure . story_separator_special_tag adverse changes in future market conditions or weaker operating results compared to our expectations may impact our projected cash flows , which could result in a potential impairment charge to the carrying value of our indefinite-lived intangible asset . in the fourth quarter of 2018 , we performed a quantitative impairment analysis on our indefinite-lived intangible asset and determined that the asset was not impaired . refer to note “ 6. intangible assets ” to our consolidated financial statements in part ii , item 8 of this form 10-k for more information . finite-lived intangible assets are amortized over the estimated economic useful lives of the assets , which is the period during which expected cash flows support the fair value of such intangible assets . we review finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . if such an event occurs , management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset group 's carrying value . if an asset is considered impaired , the asset will be written down to the determined fair value based on discounted cash flows . we also periodically review the useful lives assigned to our 54 intangible assets to ensure that our initial estimates do not exceed any revised estimated periods from which we expect to realize cash flows from the underlying intangible asset . if a change were to occur in any of the above-mentioned factors or estimates , the likelihood of a material change in our reported results would increase . valuation of contingent consideration liabilities certain agreements the company enters into , including business combinations , involve the potential payment of future consideration that is contingent upon certain performance and revenue milestones being achieved . contingent consideration is recorded at the acquisition date at fair value and is remeasured each reporting period using level 3 inputs with the change in fair value recognized within sales , general and administrative expense in the consolidated statements of operations . the fair value of our contingent consideration is determined using a monte-carlo valuation model that simulates outcomes based on management estimates . significant increases or decreases in the fair value of our contingent consideration liabilities can result from a number of factors , including changes in the timing and amount of projected revenue , our estimates of the likelihood of achieving certain milestones , as well as changes in discount periods and rates . components of results of operations revenue . we sell our products directly to hospitals and through distributors for use in procedures performed by specialist physicians to treat patients in two key markets : neuro and vascular disease . we sell our products through purchase orders , and we do not have long term purchase commitments from our customers . revenue from product sales is recognized either on the date of shipment or the date of receipt by the customer , but is deferred for certain transactions when control has not yet transferred . with respect to products that we consign to hospitals , which primarily consist of coils , we recognize revenue at the time hospitals utilize products in a procedure . revenue also includes shipping and handling costs that we charge to customers . cost of revenue . cost of revenue consists primarily of the cost of raw materials and components , personnel costs , including stock-based compensation , inbound freight charges , receiving costs , inspection and testing costs , warehousing costs , royalty expense , shipping and handling costs and other labor and overhead costs incurred in the manufacturing of products . we manufacture substantially all of our products in our manufacturing facility at our campus in alameda , california . operating expenses research and development ( “ r & d ” ) . r & d expenses primarily consist of product development , clinical and regulatory expenses , materials , depreciation and other costs associated with the development of our products . r & d expenses also include salaries , benefits and other related costs , including stock-based compensation , for personnel and consultants . we expense r & d costs as they are incurred . sales , general and administrative ( “ sg & a ” ) . sg & a expenses primarily consist of salaries , benefits and other related costs , including stock-based compensation , for personnel and consultants engaged in sales , marketing , finance , legal , compliance , administrative , facilities and information technology and human resource activities . our sg & a expenses also include marketing trials , medical education , training , commissions , generally based on a percentage of sales , to direct sales representatives , amortization of acquired intangible assets and acquisition-related costs . income tax expense . we are taxed at the rates applicable within each jurisdiction in which we operate . the composite income tax rate , tax provisions , deferred tax assets and deferred tax liabilities will vary according to the jurisdiction in which profits arise . tax laws are complex and subject to different interpretations by management and the respective governmental taxing authorities , and require us to exercise judgment in determining our income tax provision , our deferred tax assets and deferred tax liabilities and the potential valuation allowance recorded against our net dtas . deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized . a valuation allowance is established when it is more likely than not that the future realization of all or some of the dtas will not be achieved . 55 results of operations the following table sets forth the components of our consolidated statements of operations in dollars and as a percentage of revenue for the periods presented : replace_table_token_3_th year ended december
| liquidity and capital resources as of december 31 , 2014 , we had $ 8.0 billion in cash , cash equivalents , short-term investments and long-term investments . approximately $ 6.9 billion is held by our international subsidiaries and is denominated primarily in u.s. dollars , euros and , to a lesser extent , british pounds sterling and other currencies . we currently intend to indefinitely reinvest these funds outside of the united states . if we repatriate cash to the united states , we would utilize our net operating loss carryforwards and beyond that amount incur additional tax payments in the united states . cash equivalents , short-term investments , and long-term investments are comprised of u.s. and foreign corporate bonds , u.s. and foreign government securities , high grade commercial paper , foreign equity securities , u.s. government agency securities , u.s. municipal securities and bank deposits . in october 2011 , we entered into a $ 1.0 billion five-year unsecured revolving credit facility with a group of lenders . borrowings under the revolving credit facility will bear interest , at our option , at a rate per annum equal to either ( i ) the adjusted libor for the interest period in effect for such borrowing plus an applicable margin ranging from 1.00 % to 1.50 % ; or ( ii ) the greatest of ( a ) jpmorgan chase bank , national association 's prime lending rate , ( b ) the federal funds rate plus 0.50 % , and ( c ) an adjusted libor for an interest period of one month plus 1.00 % , plus an applicable margin ranging from 0.00 % to 0.50 % . undrawn balances available under the revolving credit facility are subject to commitment fees at the applicable rate ranging from 0.10 % to 0.25 % .
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these factors include : the rate at which we grow our salesforce and the speed at which newly hired salespeople become fully effective can impact our revenue growth or our costs incurred in anticipation of such growth . our industry is intensely competitive and , in particular , we compete with a number of large , well-capitalized companies . we must continue to successfully compete in light of our competitors ' existing and future products and their resources to successfully market to the specialist physicians who use our products . 50 we must continue to successfully introduce new products that gain acceptance with specialist physicians and successfully transition from existing products to new products , ensuring adequate supply . in addition , as we introduce new products and expand our production capacity , we anticipate additional personnel will be hired and trained to build our inventory of components and finished goods in advance of sales , which may cause quarterly fluctuations in our operating results and financial condition . publications of clinical results by us , our competitors and other third parties can have a significant influence on whether , and the degree to which , our products are used by specialist physicians and the procedures and treatments those physicians choose to administer for a given condition . the specialist physicians who use our products may not perform procedures during certain times of the year , such as those periods when they are at major medical conferences or are away from their practices for other reasons , the timing of which occurs irregularly during the year and from year to year . most of our sales outside of the united states are denominated in the local currency of the country in which we sell our products . as a result , our revenue from international sales can be significantly impacted by fluctuations in foreign currency exchange rates . in addition , we have experienced and expect to continue to experience meaningful variability in our quarterly revenue , gross profit and gross margin percentage as a result of a number of factors , including , but not limited to : the number of available selling days , which can be impacted by holidays ; the mix of products sold ; the geographic mix of where products are sold ; the demand for our products and the products of our competitors ; the timing of or failure to obtain regulatory approvals or clearances for products ; increased competition ; the timing of customer orders ; inventory write-offs due to obsolescence ; costs , benefits and timing of new product introductions ; costs , benefits and timing of the acquisition and integration of businesses and product lines we may acquire ; the availability and cost of components and raw materials ; and fluctuations in foreign currency exchange rates . we may experience quarters in which we have significant revenue growth sequentially followed by quarters of moderate or no revenue growth . additionally , we may experience quarters in which operating expenses , in particular research and development expenses , fluctuate depending on the stage and timing of product development . critical accounting policies and use of estimates our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states . the preparation of our consolidated financial statements requires management to make estimates , assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the applicable periods . management bases its estimates , assumptions and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances . different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements , which , in turn , could materially change our results from those reported . management evaluates its estimates , assumptions and judgments on an ongoing basis . historically , our critical accounting estimates have not differed materially from actual results . however , if our assumptions change , we may need to revise our estimates , or take other corrective actions , either of which may also have a material adverse effect on our consolidated statements of operations , liquidity and financial condition . we believe the following critical accounting policies involve significant areas where management applies judgments and estimates in the preparation of our consolidated financial statements . revenue recognition revenue is comprised of product revenue net of returns , discounts , administration fees and sales rebates . we adopted the guidance under topic 606 of the accounting standards codification ( “ asc ” ) on january 1 , 2018 , using the modified retrospective method for all contracts not completed as of the date of adoption . therefore , the comparative prior year information has not been adjusted and continues to be reported under asc 605 with the impact of the adoption reflected in opening retained earnings . as a result of adoption , the cumulative impact to our retained earnings at january 1 , 2018 was $ 0.3 million . under asc 606 , we recognize revenue when control of the promised goods or services is transferred to our customers , in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services . revenue from product sales is recognized either on the date of shipment or the date of receipt by the customer , but is deferred for certain transactions when control has not yet transferred . with respect to products that we consign to hospitals , which primarily consist of coils , we recognize revenue at the time hospitals utilize products in a procedure . story_separator_special_tag adverse changes in future market conditions or weaker operating results compared to our expectations may impact our projected cash flows , which could result in a potential impairment charge to the carrying value of our indefinite-lived intangible asset . in the fourth quarter of 2018 , we performed a quantitative impairment analysis on our indefinite-lived intangible asset and determined that the asset was not impaired . refer to note “ 6. intangible assets ” to our consolidated financial statements in part ii , item 8 of this form 10-k for more information . finite-lived intangible assets are amortized over the estimated economic useful lives of the assets , which is the period during which expected cash flows support the fair value of such intangible assets . we review finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . if such an event occurs , management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset group 's carrying value . if an asset is considered impaired , the asset will be written down to the determined fair value based on discounted cash flows . we also periodically review the useful lives assigned to our 54 intangible assets to ensure that our initial estimates do not exceed any revised estimated periods from which we expect to realize cash flows from the underlying intangible asset . if a change were to occur in any of the above-mentioned factors or estimates , the likelihood of a material change in our reported results would increase . valuation of contingent consideration liabilities certain agreements the company enters into , including business combinations , involve the potential payment of future consideration that is contingent upon certain performance and revenue milestones being achieved . contingent consideration is recorded at the acquisition date at fair value and is remeasured each reporting period using level 3 inputs with the change in fair value recognized within sales , general and administrative expense in the consolidated statements of operations . the fair value of our contingent consideration is determined using a monte-carlo valuation model that simulates outcomes based on management estimates . significant increases or decreases in the fair value of our contingent consideration liabilities can result from a number of factors , including changes in the timing and amount of projected revenue , our estimates of the likelihood of achieving certain milestones , as well as changes in discount periods and rates . components of results of operations revenue . we sell our products directly to hospitals and through distributors for use in procedures performed by specialist physicians to treat patients in two key markets : neuro and vascular disease . we sell our products through purchase orders , and we do not have long term purchase commitments from our customers . revenue from product sales is recognized either on the date of shipment or the date of receipt by the customer , but is deferred for certain transactions when control has not yet transferred . with respect to products that we consign to hospitals , which primarily consist of coils , we recognize revenue at the time hospitals utilize products in a procedure . revenue also includes shipping and handling costs that we charge to customers . cost of revenue . cost of revenue consists primarily of the cost of raw materials and components , personnel costs , including stock-based compensation , inbound freight charges , receiving costs , inspection and testing costs , warehousing costs , royalty expense , shipping and handling costs and other labor and overhead costs incurred in the manufacturing of products . we manufacture substantially all of our products in our manufacturing facility at our campus in alameda , california . operating expenses research and development ( “ r & d ” ) . r & d expenses primarily consist of product development , clinical and regulatory expenses , materials , depreciation and other costs associated with the development of our products . r & d expenses also include salaries , benefits and other related costs , including stock-based compensation , for personnel and consultants . we expense r & d costs as they are incurred . sales , general and administrative ( “ sg & a ” ) . sg & a expenses primarily consist of salaries , benefits and other related costs , including stock-based compensation , for personnel and consultants engaged in sales , marketing , finance , legal , compliance , administrative , facilities and information technology and human resource activities . our sg & a expenses also include marketing trials , medical education , training , commissions , generally based on a percentage of sales , to direct sales representatives , amortization of acquired intangible assets and acquisition-related costs . income tax expense . we are taxed at the rates applicable within each jurisdiction in which we operate . the composite income tax rate , tax provisions , deferred tax assets and deferred tax liabilities will vary according to the jurisdiction in which profits arise . tax laws are complex and subject to different interpretations by management and the respective governmental taxing authorities , and require us to exercise judgment in determining our income tax provision , our deferred tax assets and deferred tax liabilities and the potential valuation allowance recorded against our net dtas . deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized . a valuation allowance is established when it is more likely than not that the future realization of all or some of the dtas will not be achieved . 55 results of operations the following table sets forth the components of our consolidated statements of operations in dollars and as a percentage of revenue for the periods presented : replace_table_token_3_th year ended december
| net cash provided by operating activities was $ 28.8 million in 2018 and consisted of net income of $ 2.9 million and non-cash items of $ 56.2 million offset by net changes in operating assets and liabilities of $ 30.3 million . the change in operating assets and liabilities includes an increase in accounts receivable of $ 25.8 million , the increase in inventories of $ 22.3 million to support our revenue growth , partially offset by an increase in accrued expenses and other non-current liabilities of $ 14.2 million , a decrease in prepaid expenses and other current and non-current assets of $ 2.2 million , and an increase in accounts payable of $ 1.3 million as a result of the growth in our business activities . net cash provided by operating activities was $ 12.7 million in 2017 and consisted of net income of $ 4.7 million and non-cash items of $ 21.5 million offset by net changes in operating assets and liabilities of $ 13.5 million . the change in operating assets and liabilities includes the increase in inventories of $ 18.8 million to support our revenue growth , an increase in accounts 61 receivable of $ 9.1 million , partially offset by an increase in accrued expenses and other non-current liabilities of $ 10.2 million , a decrease in prepaid expenses and other current and non-current assets of $ 2.4 million , and an increase in accounts payable of $ 1.9 million as a result of the growth in our business activities .
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actual results could differ from those estimates . significant estimates with regard to these financial statements include estimates of remaining proved natural gas and oil reserves , the timing and costs of our future drilling , development and abandonment activities , and income taxes . see “ item 1a . risk factors ” for a more detailed discussion of a number of other factors that affect our business , financial condition and results of operations . 52 going concern assessment as discussed below under “ capital resources and liquidity , ” our credit facility ( as defined below ) currently matures on october 1 , 2019. over the past few months , we have been in discussions with our current lenders and other sources of capital regarding a possible refinancing and or replacement of our existing credit facility . there is no assurance , however , that such discussions will result in a refinancing of the credit facility on acceptable terms , if at all , or provide any specific amount of additional liquidity for future capital expenditures . these conditions raise substantial doubt about our ability to continue as a going concern . however , the accompanying financial statements have been prepared assuming we will continue to operate as a going concern , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . the accompanying financial statements do not include adjustments that might result from the outcome of the uncertainty , including any adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should we be unable to continue as a going concern . as discussed below under “ capital resources and liquidity , ” management is evaluating plans to refinance and or replace the credit facility . results of operations the table below sets forth our average net daily production data in mmcfe/d from our fields for each of the periods indicated : replace_table_token_22_th ( 1 ) includes a decreased production rate of 4.2 mmcfe/d due to downtime related to compressor installation and maintenance during the three months ended june 30 , 2018. our gom production was not materially affected by hurricane michael which passed through the northeastern gom in october 2018 . ( 2 ) includes a decreased production rate of 0.8 mmcfe/d due to temporary pipeline limitations during the three months ended june 30 , 2017 and 0.5 mmcfe/d for the three months ended december 31 , 2018 . ( 3 ) south timbalier 17 ceased production in august 2017 . ( 4 ) includes woodbine production from madison and grimes counties and conventional production in others . decrease in production during three months ended december 31 , 2018 is primarily due to the liberty and hardin county property sale in november 2018 . ( 5 ) includes eagle ford and buda production from karnes , zavala and dimmit counties , and conventional production in others , prior to june 30 , 2018. does not include karnes county in the three months ended june 30 , 2018 and forward due to its sale in march 2018 . ( 6 ) includes onshore wells primarily in east texas and wyoming . 53 year ended december 31 , 2018 compared to year ended december 31 , 2017 the table below sets forth revenue , production data , average sales prices and average production costs associated with our sales of natural gas , oil and natural gas liquids ( `` ngls `` ) from continuing operations for the years ended december 31 , 2018 and 2017. oil , condensate and ngls are compared with natural gas in terms of cubic feet of natural gas equivalents . one barrel of oil , condensate or ngl is the energy equivalent of six mcf of natural gas . reported operating expenses include production taxes , such as ad valorem and severance . replace_table_token_23_th 54 replace_table_token_24_th 55 natural gas , oil and ngl sales and production all of our revenues are from the sale of our natural gas , crude oil and natural gas liquids production . our revenues may vary significantly from year to year depending on changes in commodity prices , which fluctuate widely , and production volumes . our production volumes are subject to wide swings as a result of new discoveries , weather and mechanical related problems . in addition , the production rate associated with our oil and gas properties declines over time as we produce our reserves . we reported revenues of approximately $ 77.1 million for the year ended december 31 , 2018 , compared to revenues of approximately $ 78.5 million for the year ended december 31 , 2017. this slight decrease in revenues was primarily due to a reduction in natural gas production attributable to 2018 non-core property sales , the expected year over year decline in our offshore properties and the reduction in our fourth quarter 2018 drilling program in response to declining oil prices ; declines which were substantially offset by the benefit of higher commodity prices in 2018. total production for the year ended december 31 , 2018 was approximately 16.0 bcfe , or 43.9 mmcfe/d , compared to approximately 20.1 bcfe , or 55.1 mmcfe/d , in the prior year . the decrease was attributable to an approximate 13 mmcfe/d decline in production resulting from normal field decline , an approximate 2 mmcfe/d decline due to non-core property sales , and an approximate 1 mmcfe/d decline due to shut-in periods at eugene island for compressor installation in june . partially offsetting these decreases in production was an increase of approximately 4 mmcfe/d of new production ( 88 % oil and ngls ) from drilling on our southern delaware basin acreage . story_separator_special_tag holding all other factors constant , a reduction in the company 's proved reserve estimate at december 31 , 2018 of 5 % , 10 % and 15 % would affect depreciation , depletion and amortization expense by approximately $ 0.4 million , $ 0.9 million and $ 1.4 million , respectively . impairment of natural gas and oil properties the company reviews its proved natural gas and oil properties for impairment whenever events and circumstances indicate a potential decline in the recoverability of their carrying value . an impairment loss associated with an asset group is the amount by which the carrying amount of a long-lived asset is not recoverable and exceeds its fair value . an asset 's fair value is preferably indicated by a quoted market price in the asset 's principal market . unlike many businesses where independent appraisals can be obtained for items such as equipment , oil and gas proved reserves are unique assets . most oil and gas valuations are based on a combination of the income approach and market approach methodologies . we utilize the income approach also known as the discounted cash flow ( “ dcf ” ) approach . under the dcf method in determining fair value , there are specific guidelines and ranges within the evaluation that we can consider and estimate . the company compares expected undiscounted future net cash flows from each field to the unamortized capitalized cost of the asset . if the future undiscounted net cash flows , based on the company 's estimate of future natural gas and oil prices and operating costs and anticipated production from proved reserves , are lower than the unamortized capitalized cost , then the capitalized cost is reduced to fair market value . the factors used to determine fair value include , but are not limited to , estimates of reserves , future commodity pricing , future production estimates and anticipated capital expenditures . unproved properties are reviewed quarterly to determine if there has been impairment of the carrying value , with any such impairment charged to expense in the period . drilling activities in an area by other companies may also effectively impair leasehold positions . given the complexities associated with natural gas and oil reserve estimates and the history of price volatility in the natural gas and oil markets , events may arise that will require the company to record an impairment of its natural gas and oil properties and there can be no assurance that such impairments will not be required in the future nor that they will not be material . assuming strip pricing as of march 1 , 2019 through 2023 and keeping pricing flat thereafter , instead of 2018 sec pricing , while leaving all other parameters unchanged , the company 's proved reserves would have been 84.8 bcfe and the pv-10 value of proved reserves would have been $ 145.4 million . 61 derivative instruments the company elected to not designate any of its derivative positions for hedge accounting at the end of each reporting period we record on our balance sheet the mark-to-market valuation of our derivative instruments . the estimated change in fair value of the derivatives , along with the realized gain or loss for settled derivatives , is reported in “ other income ( expense ) ” as “ gain on derivatives , net ” . income taxes income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently payable plus deferred income taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes . deferred income taxes are measured by applying currently enacted tax rates to the differences between financial statements and income tax reporting . numerous judgments and assumptions are inherent in the determination of deferred income tax assets and liabilities as well as income taxes payable in the current period . we are subject to taxation in several jurisdictions , and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions . accounting for uncertainty in income taxes prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return . for those benefits to be recognized , an income tax position must be more-likely-than-not to be sustained upon examination by taxing authorities . in assessing the realizability of deferred tax assets , we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . as of december 31 , 2018 , we had federal net operating loss ( “ nol ” ) carryforwards of $ 380.8 million . generally , these nols are available to reduce future taxable income and the related income tax liability subject to the limitations set forth in section 382. however , these nols are subject to an annual section 382 limitation as a result of the ownership change that occurred in connection with our stock offering in november 2018. given our annual section 382 limitation and the uncertainty of our ability to generate taxable income , a valuation allowance of $ 71.0 million has been recorded for the year ended december 31 , 2018 against the deferred tax assets , reduced by the amount of the deferred tax liability . our federal and state income tax returns are generally not filed before the consolidated financial statements are prepared . therefore , we estimate the tax basis of our assets and liabilities at the end of each period as well as the effects of tax rate changes , tax credits and net operating and capital loss carryforwards and carrybacks . adjustments related to differences between the estimates we used and actual amounts we reported are recorded in the period in
| net cash provided by operating activities was $ 28.8 million in 2018 and consisted of net income of $ 2.9 million and non-cash items of $ 56.2 million offset by net changes in operating assets and liabilities of $ 30.3 million . the change in operating assets and liabilities includes an increase in accounts receivable of $ 25.8 million , the increase in inventories of $ 22.3 million to support our revenue growth , partially offset by an increase in accrued expenses and other non-current liabilities of $ 14.2 million , a decrease in prepaid expenses and other current and non-current assets of $ 2.2 million , and an increase in accounts payable of $ 1.3 million as a result of the growth in our business activities . net cash provided by operating activities was $ 12.7 million in 2017 and consisted of net income of $ 4.7 million and non-cash items of $ 21.5 million offset by net changes in operating assets and liabilities of $ 13.5 million . the change in operating assets and liabilities includes the increase in inventories of $ 18.8 million to support our revenue growth , an increase in accounts 61 receivable of $ 9.1 million , partially offset by an increase in accrued expenses and other non-current liabilities of $ 10.2 million , a decrease in prepaid expenses and other current and non-current assets of $ 2.4 million , and an increase in accounts payable of $ 1.9 million as a result of the growth in our business activities .
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actual results could differ from those estimates . significant estimates with regard to these financial statements include estimates of remaining proved natural gas and oil reserves , the timing and costs of our future drilling , development and abandonment activities , and income taxes . see “ item 1a . risk factors ” for a more detailed discussion of a number of other factors that affect our business , financial condition and results of operations . 52 going concern assessment as discussed below under “ capital resources and liquidity , ” our credit facility ( as defined below ) currently matures on october 1 , 2019. over the past few months , we have been in discussions with our current lenders and other sources of capital regarding a possible refinancing and or replacement of our existing credit facility . there is no assurance , however , that such discussions will result in a refinancing of the credit facility on acceptable terms , if at all , or provide any specific amount of additional liquidity for future capital expenditures . these conditions raise substantial doubt about our ability to continue as a going concern . however , the accompanying financial statements have been prepared assuming we will continue to operate as a going concern , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . the accompanying financial statements do not include adjustments that might result from the outcome of the uncertainty , including any adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should we be unable to continue as a going concern . as discussed below under “ capital resources and liquidity , ” management is evaluating plans to refinance and or replace the credit facility . results of operations the table below sets forth our average net daily production data in mmcfe/d from our fields for each of the periods indicated : replace_table_token_22_th ( 1 ) includes a decreased production rate of 4.2 mmcfe/d due to downtime related to compressor installation and maintenance during the three months ended june 30 , 2018. our gom production was not materially affected by hurricane michael which passed through the northeastern gom in october 2018 . ( 2 ) includes a decreased production rate of 0.8 mmcfe/d due to temporary pipeline limitations during the three months ended june 30 , 2017 and 0.5 mmcfe/d for the three months ended december 31 , 2018 . ( 3 ) south timbalier 17 ceased production in august 2017 . ( 4 ) includes woodbine production from madison and grimes counties and conventional production in others . decrease in production during three months ended december 31 , 2018 is primarily due to the liberty and hardin county property sale in november 2018 . ( 5 ) includes eagle ford and buda production from karnes , zavala and dimmit counties , and conventional production in others , prior to june 30 , 2018. does not include karnes county in the three months ended june 30 , 2018 and forward due to its sale in march 2018 . ( 6 ) includes onshore wells primarily in east texas and wyoming . 53 year ended december 31 , 2018 compared to year ended december 31 , 2017 the table below sets forth revenue , production data , average sales prices and average production costs associated with our sales of natural gas , oil and natural gas liquids ( `` ngls `` ) from continuing operations for the years ended december 31 , 2018 and 2017. oil , condensate and ngls are compared with natural gas in terms of cubic feet of natural gas equivalents . one barrel of oil , condensate or ngl is the energy equivalent of six mcf of natural gas . reported operating expenses include production taxes , such as ad valorem and severance . replace_table_token_23_th 54 replace_table_token_24_th 55 natural gas , oil and ngl sales and production all of our revenues are from the sale of our natural gas , crude oil and natural gas liquids production . our revenues may vary significantly from year to year depending on changes in commodity prices , which fluctuate widely , and production volumes . our production volumes are subject to wide swings as a result of new discoveries , weather and mechanical related problems . in addition , the production rate associated with our oil and gas properties declines over time as we produce our reserves . we reported revenues of approximately $ 77.1 million for the year ended december 31 , 2018 , compared to revenues of approximately $ 78.5 million for the year ended december 31 , 2017. this slight decrease in revenues was primarily due to a reduction in natural gas production attributable to 2018 non-core property sales , the expected year over year decline in our offshore properties and the reduction in our fourth quarter 2018 drilling program in response to declining oil prices ; declines which were substantially offset by the benefit of higher commodity prices in 2018. total production for the year ended december 31 , 2018 was approximately 16.0 bcfe , or 43.9 mmcfe/d , compared to approximately 20.1 bcfe , or 55.1 mmcfe/d , in the prior year . the decrease was attributable to an approximate 13 mmcfe/d decline in production resulting from normal field decline , an approximate 2 mmcfe/d decline due to non-core property sales , and an approximate 1 mmcfe/d decline due to shut-in periods at eugene island for compressor installation in june . partially offsetting these decreases in production was an increase of approximately 4 mmcfe/d of new production ( 88 % oil and ngls ) from drilling on our southern delaware basin acreage . story_separator_special_tag holding all other factors constant , a reduction in the company 's proved reserve estimate at december 31 , 2018 of 5 % , 10 % and 15 % would affect depreciation , depletion and amortization expense by approximately $ 0.4 million , $ 0.9 million and $ 1.4 million , respectively . impairment of natural gas and oil properties the company reviews its proved natural gas and oil properties for impairment whenever events and circumstances indicate a potential decline in the recoverability of their carrying value . an impairment loss associated with an asset group is the amount by which the carrying amount of a long-lived asset is not recoverable and exceeds its fair value . an asset 's fair value is preferably indicated by a quoted market price in the asset 's principal market . unlike many businesses where independent appraisals can be obtained for items such as equipment , oil and gas proved reserves are unique assets . most oil and gas valuations are based on a combination of the income approach and market approach methodologies . we utilize the income approach also known as the discounted cash flow ( “ dcf ” ) approach . under the dcf method in determining fair value , there are specific guidelines and ranges within the evaluation that we can consider and estimate . the company compares expected undiscounted future net cash flows from each field to the unamortized capitalized cost of the asset . if the future undiscounted net cash flows , based on the company 's estimate of future natural gas and oil prices and operating costs and anticipated production from proved reserves , are lower than the unamortized capitalized cost , then the capitalized cost is reduced to fair market value . the factors used to determine fair value include , but are not limited to , estimates of reserves , future commodity pricing , future production estimates and anticipated capital expenditures . unproved properties are reviewed quarterly to determine if there has been impairment of the carrying value , with any such impairment charged to expense in the period . drilling activities in an area by other companies may also effectively impair leasehold positions . given the complexities associated with natural gas and oil reserve estimates and the history of price volatility in the natural gas and oil markets , events may arise that will require the company to record an impairment of its natural gas and oil properties and there can be no assurance that such impairments will not be required in the future nor that they will not be material . assuming strip pricing as of march 1 , 2019 through 2023 and keeping pricing flat thereafter , instead of 2018 sec pricing , while leaving all other parameters unchanged , the company 's proved reserves would have been 84.8 bcfe and the pv-10 value of proved reserves would have been $ 145.4 million . 61 derivative instruments the company elected to not designate any of its derivative positions for hedge accounting at the end of each reporting period we record on our balance sheet the mark-to-market valuation of our derivative instruments . the estimated change in fair value of the derivatives , along with the realized gain or loss for settled derivatives , is reported in “ other income ( expense ) ” as “ gain on derivatives , net ” . income taxes income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently payable plus deferred income taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes . deferred income taxes are measured by applying currently enacted tax rates to the differences between financial statements and income tax reporting . numerous judgments and assumptions are inherent in the determination of deferred income tax assets and liabilities as well as income taxes payable in the current period . we are subject to taxation in several jurisdictions , and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions . accounting for uncertainty in income taxes prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return . for those benefits to be recognized , an income tax position must be more-likely-than-not to be sustained upon examination by taxing authorities . in assessing the realizability of deferred tax assets , we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . as of december 31 , 2018 , we had federal net operating loss ( “ nol ” ) carryforwards of $ 380.8 million . generally , these nols are available to reduce future taxable income and the related income tax liability subject to the limitations set forth in section 382. however , these nols are subject to an annual section 382 limitation as a result of the ownership change that occurred in connection with our stock offering in november 2018. given our annual section 382 limitation and the uncertainty of our ability to generate taxable income , a valuation allowance of $ 71.0 million has been recorded for the year ended december 31 , 2018 against the deferred tax assets , reduced by the amount of the deferred tax liability . our federal and state income tax returns are generally not filed before the consolidated financial statements are prepared . therefore , we estimate the tax basis of our assets and liabilities at the end of each period as well as the effects of tax rate changes , tax credits and net operating and capital loss carryforwards and carrybacks . adjustments related to differences between the estimates we used and actual amounts we reported are recorded in the period in
| capital resources and liquidity our primary cash requirements are for capital expenditures , working capital , operating expenses , acquisitions and principal and interest payments on indebtedness . our primary sources of liquidity are cash generated by operations , net of the realized effect of our hedging agreements , and amounts available to be drawn under our credit facility . the table below summarizes certain measures of liquidity and capital expenditures , as well as our sources of capital from internal and external sources , for the periods indicated , in thousands . replace_table_token_26_th cash flow from operating activities , including changes in working capital , provided approximately $ 23.5 million in cash for the year ended december 31 , 2018 compared to $ 34.7 million for the year ended december 31 , 2017. cash flow from operating activities , excluding changes in working capital , provided approximately $ 22.1 million in cash for the year ended december 31 , 2018 compared to $ 29.6 million for the year ended december 31 , 2017. cash provided due to changes in working capital were approximately $ 1.4 million during 2018 , compared to $ 5.1 million during 2017 and represent normal receivable and payable activity during the period . net cash flows used in investing activities were $ 30.7 million for the year ended december 31 , 2018. we expended $ 59.0 million in cash capital costs , primarily related to drilling and or completing wells in the southern delaware basin and acquiring or extending unproved leases , partially offset by $ 27.8 million in cash proceeds from the sale of our non-core properties . net cash flows used in investing activities were $ 65.5 million for the year ended december 31 , 2017. we expended $ 66.6 million in cash capital costs , primarily related to drilling and or completing wells in the southern delaware basin and acquiring or extending unproved leases , partially offset by $ 1.1 million in cash proceeds from the sale of non-core properties .
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in january 2019 , we reported positive top-line results from our phase 3 camp-1 and camp-2 pivotal trials with vp-102 for the treatment of molluscum . both clinical trials evaluated the safety and efficacy of vp-102 compared to placebo . in each trial , we observed that a clinically and statistically significant proportion of subjects treated with vp-102 achieved complete clearance of all treatable molluscum lesions compared to subjects treated with placebo . vp-102 was well-tolerated in both trials , with no serious adverse events reported in vp-102 treated subjects . we plan to submit a new drug application , or nda , to the fda for vp-102 for the treatment of molluscum in the second half of 2019. camp-1 was conducted under a special protocol assessment , or spa , agreement with the fda . we also have an ongoing phase 2 clinical trial of vp-102 for the treatment of common warts ( cove-1 ) . we expect to report top-line results from this trial in the second quarter of 2019. in addition , we plan to initiate a phase 2 trial with vp-102 in external genital warts in the first half of 2019. we also expect to submit an investigational new drug application , or ind , for vp-103 in plantar warts in the second half of 2019. we retain exclusive , royalt y -free rights to our product candidates across all indications . our strategy is to advance vp-102 through regulatory approval and self-commercialize in the united states for the treatment of several skin diseases . we intend to build a specialized sales organization in the united states focused on pediatric dermatologists , dermatologists , and select pediatricians . in the future , we also intend to develop vp-102 for commercialization in additional geographic regions , either alone or together with a strategic partner . we have a limited operating history . since our inception in 2013 , our operations have focused on developing vp-102 , organizing and staffing our company , business planning , raising capital , establishing our intellectual property portfolio and conducting clinical trials . we do not have any product candidates approved for sale and have not generated any revenue from product sales . we have funded our operations primarily through the sale of equity and equity-linked securities . on june 19 , 2018 , we completed an ipo of common stock , which resulted in the issuance and sale of 5,750,000 shares of common stock at a public offering price of $ 15.00 per share , generating net proceeds of $ 78.4 million after deducting underwriting discounts and other offering costs . we believe that the net proceeds from the ipo , together with our existing cash , cash equivalents and marketable securities , will enable us to fund our operations in the normal course of business at least through the end of 2020 . 69 since inception , we have incurred significant operating losses . for the year s ended december 31 , 2018 and 2017 , our net loss was $ 20 .6 million and $ 4.5 million , respectively . as of december 31 , 2018 , we had an accumulated deficit of $ 33.1 million . we expect to continue to incur significant expenses and operating losses for the foreseeable future . we anticipate that our expenses will increase significantly in connection with our ongoing activities , as we : continue our ongoing clinical programs evaluating vp-102 for the treatment of molluscum and common warts as well as initiate and complete additional clinical trials , as needed ; initiate clinical trials evaluating vp-102 for the treatment of external genital warts ; pursue an ind and initiate clinical trials evaluating vp-103 for the treatment of plantar warts ; pursue regulatory approvals for vp-102 for the treatment of molluscum , and eventually for the treatment of common warts , external genital warts or any other indications we may pursue for vp-102 , as well as for vp-103 ; seek to discover and develop additional product candidates ; ultimately establish a commercialization infrastructure and scale up external manufacturing and distribution capabilities to commercialize any product candidates for which we may obtain regulatory approval , including vp-102 and vp-103 ; seek to in-license or acquire additional product candidates for other dermatological conditions ; adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products ; maintain , expand and protect our intellectual property portfolio ; hire additional clinical , manufacturing and scientific personnel ; add operational , financial and management information systems and personnel , including personnel to support our product development and planned future commercialization efforts ; and incur additional legal , accounting and other expenses in operating as a newly public company . services agreement with pbm capital group , llc in december 2015 , we entered into a services agreement , or sa , with pbm capital group , llc , or pbm , an affiliate of pbm capital investments , llc , to engage pbm for certain business development , operations , technical , contract , accounting and back office support services . we agreed to pay pbm a fee of $ 2,500 per month for these services . the sa had an initial term of 12 months and automatically renewed monthly thereafter . in march 2018 , we entered into an amendment to the sa with pbm effective as of april 1 , 2018 , which extended the term of the sa until march 31 , 2019 and increased the management fee we are obligated to pay to pbm to $ 50,000 per month . story_separator_special_tag other general and administrative expenses include market research costs , professional fees for legal , accounting and tax-related services , insurance costs , as well as payments made under our services agreement with pbm capital group , llc . we anticipate that our general and administrative expenses will increase as a result of increased payroll , expanded infrastructure and higher consulting , legal and tax-related services associated with maintaining compliance with stock exchange listing and sec requirements , accounting and investor relations costs , and director and officer insurance premiums associated with being a public company . in addition , we expect to incur , at an increased rate compared to prior periods , significantly higher expenses associated with building a sales and marketing team in connection with the potential regulatory filing and approval of vp-102 for the treatment of molluscum . as a result , we expect to report significantly higher general and administrative expenses in 2019. income taxes since our inception in 2013 , we have not recorded any u.s. federal or state income tax benefits for the net losses we have incurred in each year due to our uncertainty of realizing a benefit from those items . as of december 31 , 2018 , we had federal and state net operating loss carryforwards of approximately $ 24.1 million and $ 24.1 million , respectively . the federal and state net operating loss carryforwards included in the foregoing totals that were generated prior to 2018 will begin to expire , if not utilized , by 2033. these net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities . under the 2017 federal income tax law changes , federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely , but the deductibility of such federal net operating losses is limited . utilization of the net operating loss carryforwards may be subject to an annual limitation according to section 382 of the internal revenue code of 1986 , as amended , and similar provisions . 73 results of operations for the years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_0_th research and development expenses research and development expenses were $ 12.8 million for the year ended december 31 , 2018 , compared to $ 3.7 million for the year ended december 31 , 2017. the increase of $ 9.1 million was primarily attributable to costs associated with phase 2 and phase 3 clinical activities for vp-102 , an increase in c osts associated with increased headcount and associated salary , bonus and stock-based compensation expense , and a charge related to a consulting agreement with our former chief scientific officer . general and administrative expenses general and administrative expenses were $ 9.1 million for the year ended december 31 , 2018 , compared to $ 0.7 million for the year ended december 31 , 2017. the increase of $ 8.3 million was primarily a result of increased headcount and associated salary , bonus and stock-based compensation expenses , and increased insurance , professional fees and other operating costs as a result of becoming a public company . other income ( expense ) other income for the year ended december 31 , 2018 consisted of interest earned on our cash , cash equivalents and marketable securities . other expense for the year ended december 31 , 2017 was insignificant . story_separator_special_tag normal ; font-family : times new roman ; font-size:10pt ; `` > the scope , progress , results and costs of our clinical trials ; the scope , prioritization and number of our research and development programs ; the costs , timing and outcome of regulatory review of our product candidates ; the costs of preparing , filing and prosecuting patent applications , maintaining and enforcing our intellectual property rights and defending intellectual property-related claims ; the extent to which we acquire or in-license other product candidates and technologies ; the costs to scale up and secure manufacturing arrangements for commercial production ; and the costs of establishing or contracting for sales and marketing capabilities if we obtain regulatory approvals to market our product candidates . identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming , expensive and uncertain process that takes many years to complete , and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales . in addition , our product candidates , if approved , may not achieve commercial success . our commercial revenues , if any , will be derived from sales of a product candidate that we do not expect to be commercially available in the near term , if at all . we may not achieve significant revenue from product sales prior to the use of the net proceeds from our ipo . accordingly , we may need to continue to rely on additional financing to achieve our business objectives . adequate additional financing may not be available to us on acceptable terms , or at all . until such time , if ever , as we can generate substantial product revenues , we expect to finance our cash needs through a combination of equity offerings , debt financings , collaborations , strategic alliances and licensing arrangements . to the extent that we raise additional capital through the sale of equity or convertible debt securities , ownership interests of existing stockholders may be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders ' rights . debt financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . if we raise funds
| capital resources and liquidity our primary cash requirements are for capital expenditures , working capital , operating expenses , acquisitions and principal and interest payments on indebtedness . our primary sources of liquidity are cash generated by operations , net of the realized effect of our hedging agreements , and amounts available to be drawn under our credit facility . the table below summarizes certain measures of liquidity and capital expenditures , as well as our sources of capital from internal and external sources , for the periods indicated , in thousands . replace_table_token_26_th cash flow from operating activities , including changes in working capital , provided approximately $ 23.5 million in cash for the year ended december 31 , 2018 compared to $ 34.7 million for the year ended december 31 , 2017. cash flow from operating activities , excluding changes in working capital , provided approximately $ 22.1 million in cash for the year ended december 31 , 2018 compared to $ 29.6 million for the year ended december 31 , 2017. cash provided due to changes in working capital were approximately $ 1.4 million during 2018 , compared to $ 5.1 million during 2017 and represent normal receivable and payable activity during the period . net cash flows used in investing activities were $ 30.7 million for the year ended december 31 , 2018. we expended $ 59.0 million in cash capital costs , primarily related to drilling and or completing wells in the southern delaware basin and acquiring or extending unproved leases , partially offset by $ 27.8 million in cash proceeds from the sale of our non-core properties . net cash flows used in investing activities were $ 65.5 million for the year ended december 31 , 2017. we expended $ 66.6 million in cash capital costs , primarily related to drilling and or completing wells in the southern delaware basin and acquiring or extending unproved leases , partially offset by $ 1.1 million in cash proceeds from the sale of non-core properties .
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in january 2019 , we reported positive top-line results from our phase 3 camp-1 and camp-2 pivotal trials with vp-102 for the treatment of molluscum . both clinical trials evaluated the safety and efficacy of vp-102 compared to placebo . in each trial , we observed that a clinically and statistically significant proportion of subjects treated with vp-102 achieved complete clearance of all treatable molluscum lesions compared to subjects treated with placebo . vp-102 was well-tolerated in both trials , with no serious adverse events reported in vp-102 treated subjects . we plan to submit a new drug application , or nda , to the fda for vp-102 for the treatment of molluscum in the second half of 2019. camp-1 was conducted under a special protocol assessment , or spa , agreement with the fda . we also have an ongoing phase 2 clinical trial of vp-102 for the treatment of common warts ( cove-1 ) . we expect to report top-line results from this trial in the second quarter of 2019. in addition , we plan to initiate a phase 2 trial with vp-102 in external genital warts in the first half of 2019. we also expect to submit an investigational new drug application , or ind , for vp-103 in plantar warts in the second half of 2019. we retain exclusive , royalt y -free rights to our product candidates across all indications . our strategy is to advance vp-102 through regulatory approval and self-commercialize in the united states for the treatment of several skin diseases . we intend to build a specialized sales organization in the united states focused on pediatric dermatologists , dermatologists , and select pediatricians . in the future , we also intend to develop vp-102 for commercialization in additional geographic regions , either alone or together with a strategic partner . we have a limited operating history . since our inception in 2013 , our operations have focused on developing vp-102 , organizing and staffing our company , business planning , raising capital , establishing our intellectual property portfolio and conducting clinical trials . we do not have any product candidates approved for sale and have not generated any revenue from product sales . we have funded our operations primarily through the sale of equity and equity-linked securities . on june 19 , 2018 , we completed an ipo of common stock , which resulted in the issuance and sale of 5,750,000 shares of common stock at a public offering price of $ 15.00 per share , generating net proceeds of $ 78.4 million after deducting underwriting discounts and other offering costs . we believe that the net proceeds from the ipo , together with our existing cash , cash equivalents and marketable securities , will enable us to fund our operations in the normal course of business at least through the end of 2020 . 69 since inception , we have incurred significant operating losses . for the year s ended december 31 , 2018 and 2017 , our net loss was $ 20 .6 million and $ 4.5 million , respectively . as of december 31 , 2018 , we had an accumulated deficit of $ 33.1 million . we expect to continue to incur significant expenses and operating losses for the foreseeable future . we anticipate that our expenses will increase significantly in connection with our ongoing activities , as we : continue our ongoing clinical programs evaluating vp-102 for the treatment of molluscum and common warts as well as initiate and complete additional clinical trials , as needed ; initiate clinical trials evaluating vp-102 for the treatment of external genital warts ; pursue an ind and initiate clinical trials evaluating vp-103 for the treatment of plantar warts ; pursue regulatory approvals for vp-102 for the treatment of molluscum , and eventually for the treatment of common warts , external genital warts or any other indications we may pursue for vp-102 , as well as for vp-103 ; seek to discover and develop additional product candidates ; ultimately establish a commercialization infrastructure and scale up external manufacturing and distribution capabilities to commercialize any product candidates for which we may obtain regulatory approval , including vp-102 and vp-103 ; seek to in-license or acquire additional product candidates for other dermatological conditions ; adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products ; maintain , expand and protect our intellectual property portfolio ; hire additional clinical , manufacturing and scientific personnel ; add operational , financial and management information systems and personnel , including personnel to support our product development and planned future commercialization efforts ; and incur additional legal , accounting and other expenses in operating as a newly public company . services agreement with pbm capital group , llc in december 2015 , we entered into a services agreement , or sa , with pbm capital group , llc , or pbm , an affiliate of pbm capital investments , llc , to engage pbm for certain business development , operations , technical , contract , accounting and back office support services . we agreed to pay pbm a fee of $ 2,500 per month for these services . the sa had an initial term of 12 months and automatically renewed monthly thereafter . in march 2018 , we entered into an amendment to the sa with pbm effective as of april 1 , 2018 , which extended the term of the sa until march 31 , 2019 and increased the management fee we are obligated to pay to pbm to $ 50,000 per month . story_separator_special_tag other general and administrative expenses include market research costs , professional fees for legal , accounting and tax-related services , insurance costs , as well as payments made under our services agreement with pbm capital group , llc . we anticipate that our general and administrative expenses will increase as a result of increased payroll , expanded infrastructure and higher consulting , legal and tax-related services associated with maintaining compliance with stock exchange listing and sec requirements , accounting and investor relations costs , and director and officer insurance premiums associated with being a public company . in addition , we expect to incur , at an increased rate compared to prior periods , significantly higher expenses associated with building a sales and marketing team in connection with the potential regulatory filing and approval of vp-102 for the treatment of molluscum . as a result , we expect to report significantly higher general and administrative expenses in 2019. income taxes since our inception in 2013 , we have not recorded any u.s. federal or state income tax benefits for the net losses we have incurred in each year due to our uncertainty of realizing a benefit from those items . as of december 31 , 2018 , we had federal and state net operating loss carryforwards of approximately $ 24.1 million and $ 24.1 million , respectively . the federal and state net operating loss carryforwards included in the foregoing totals that were generated prior to 2018 will begin to expire , if not utilized , by 2033. these net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities . under the 2017 federal income tax law changes , federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely , but the deductibility of such federal net operating losses is limited . utilization of the net operating loss carryforwards may be subject to an annual limitation according to section 382 of the internal revenue code of 1986 , as amended , and similar provisions . 73 results of operations for the years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_0_th research and development expenses research and development expenses were $ 12.8 million for the year ended december 31 , 2018 , compared to $ 3.7 million for the year ended december 31 , 2017. the increase of $ 9.1 million was primarily attributable to costs associated with phase 2 and phase 3 clinical activities for vp-102 , an increase in c osts associated with increased headcount and associated salary , bonus and stock-based compensation expense , and a charge related to a consulting agreement with our former chief scientific officer . general and administrative expenses general and administrative expenses were $ 9.1 million for the year ended december 31 , 2018 , compared to $ 0.7 million for the year ended december 31 , 2017. the increase of $ 8.3 million was primarily a result of increased headcount and associated salary , bonus and stock-based compensation expenses , and increased insurance , professional fees and other operating costs as a result of becoming a public company . other income ( expense ) other income for the year ended december 31 , 2018 consisted of interest earned on our cash , cash equivalents and marketable securities . other expense for the year ended december 31 , 2017 was insignificant . story_separator_special_tag normal ; font-family : times new roman ; font-size:10pt ; `` > the scope , progress , results and costs of our clinical trials ; the scope , prioritization and number of our research and development programs ; the costs , timing and outcome of regulatory review of our product candidates ; the costs of preparing , filing and prosecuting patent applications , maintaining and enforcing our intellectual property rights and defending intellectual property-related claims ; the extent to which we acquire or in-license other product candidates and technologies ; the costs to scale up and secure manufacturing arrangements for commercial production ; and the costs of establishing or contracting for sales and marketing capabilities if we obtain regulatory approvals to market our product candidates . identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming , expensive and uncertain process that takes many years to complete , and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales . in addition , our product candidates , if approved , may not achieve commercial success . our commercial revenues , if any , will be derived from sales of a product candidate that we do not expect to be commercially available in the near term , if at all . we may not achieve significant revenue from product sales prior to the use of the net proceeds from our ipo . accordingly , we may need to continue to rely on additional financing to achieve our business objectives . adequate additional financing may not be available to us on acceptable terms , or at all . until such time , if ever , as we can generate substantial product revenues , we expect to finance our cash needs through a combination of equity offerings , debt financings , collaborations , strategic alliances and licensing arrangements . to the extent that we raise additional capital through the sale of equity or convertible debt securities , ownership interests of existing stockholders may be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders ' rights . debt financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . if we raise funds
| liquidity and capital resources since our inception , we have not generated any revenue and have incurred net losses and negative cash flows from our operations . we have financed our operations since inception through sales of our convertible preferred stock and the sale of our common stock in our ipo , receiving aggregate gross proceeds of $ 123.2 million . as of december 31 , 2018 , we had cash , cash equivalents and marketable securities of $ 89.8 million . cash in excess of immediate requirements is invested in accordance with our investment policy , primarily with a view to liquidity and capital preservation . we currently have no ongoing material financing commitments , such as lines of credit or guarantees , that are expected to affect our liquidity over the next five years . 74 cash flows the following table summarizes our cash flows for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_1_th operating activities during the year ended december 31 , 2018 , operating activities used $ 17.9 million of cash , primarily resulting from a net loss of $ 20.6 million and non-cash stock-based compensation of $ 2.3 million . net cash provided by changes in operating assets and liabilities of $ 0.4 million consisted primarily of increases in accounts payable and accrued expenses of $ 1.8 million , partially offset by increases in prepaid expenses and other assets of $ 0.9 million .
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net interest and dividend income is the difference between the interest income earned on interest-earning assets and the interest paid on interest-bearing liabilities . interest-earning assets consist primarily of securities , commercial real estate loans , commercial and industrial loans and residential real estate loans . interest-bearing liabilities consist primarily of certificates of deposit and money market account , demand deposit accounts and savings account deposits , borrowings from the fhlbb and securities sold under repurchase agreements . the consolidated results of operations also depend on the provision for loan losses , noninterest income , and noninterest expense . noninterest expense includes salaries and employee benefits , occupancy expenses and other general and administrative expenses . noninterest income includes service fees and charges , income on bank-owned life insurance , and gains ( losses ) on securities . critical accounting policies . our accounting policies are disclosed in note 1 to our consolidated financial statements . given our current business strategy and asset/liability structure , the more critical policies are accounting for nonperforming loans , the allowance for loan losses and provision for loan losses , other than temporary impairment of securities , and the valuation of deferred taxes . in addition to the informational disclosure in the notes to the consolidated financial statements , our policy on each of these accounting policies is described in detail in the applicable sections of “ management 's discussion and analysis of financial condition and results of operations . ” senior management has discussed the development and selection of these accounting policies and the related disclosures with the audit committee of our board of directors . our general policy regarding recognition of interest on loans is to discontinue the accrual of interest when principal or interest payments are delinquent 90 days or more , or earlier if the loan is considered impaired . any unpaid amounts previously accrued on these loans are reversed from income . subsequent cash receipts are applied to the outstanding principal balance or to interest income if , in the judgment of management , collection of the principal balance is not in question . loans are returned to accrual status when they become current as to both principal and interest and when subsequent performance reduces the concern as to the collectability of principal and interest . loan fees and certain direct loan origination costs are deferred , and the net fee or cost is recognized as an adjustment to interest income over the estimated average lives of the related loans . the process of evaluating the loan portfolio , classifying loans and determining the allowance and provision is described in detail in part i under “ business – lending activities - allowance for loan losses . ” our methodology for assessing the allocation of the allowance consists of two key components , which are a specific allowance for impaired loans and an allowance for the remainder of the portfolio . measurement of impairment can be based on present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's observable market price or the fair value of the collateral , if the loan is collateral dependent . this evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change . the allocation of the allowance is also reviewed by management based upon our evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions , such as new loan products , credit quality trends ( including trends in nonperforming loans expected to result from existing conditions ) , collateral values , loan volumes and concentrations , specific industry conditions within portfolio segments that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectability of the loan portfolio . although management believes it has established and maintained the allowance for loan losses at adequate levels , if management 's assumptions and judgments prove to be incorrect due to continued deterioration in economic , real estate and other conditions , and the allowance for loan losses is not adequate to absorb inherent losses , our earnings and capital could be significantly and adversely affected . on a quarterly basis , we review securities with a decline in fair value below the amortized cost of the investment to determine whether the decline in fair value is temporary or other than temporary . declines in the fair value of marketable equity securities below their cost that are deemed to be other than temporary based on the severity and duration of the impairment are reflected in earnings as realized losses . in estimating other than temporary impairment losses for securities , impairment is required to be recognized if ( 1 ) we intend to sell the security ; ( 2 ) it is “ more likely than not ” that we will be required to sell the security before recovery of its amortized cost basis ; or ( 3 ) for debt securities , the present value of expected cash flows is not sufficient to recover the entire amortized cost basis . for all impaired available for sale securities that we intend to sell , or more likely than not will be required to sell , the full amount of the other than temporary impairment is recognized through earnings . for other impaired debt securities , credit-related other than temporary impairment is recognized through earnings , while non-credit related other than temporary impairment is recognized in other comprehensive income , net of applicable taxes . 38 we must make certain estimates in determining income tax expense for financial statement purposes . these estimates occur in the calculation of the deferred tax assets and liabilities , which arise from the temporary differences between the tax basis and financial statement basis of our assets and liabilities . story_separator_special_tag the repurchase agreements had a weighted average cost of 3.06 % . the prepayments decreased the cost of funds and improved the net interest margin for the year ended december 31 , 2013. net interest and dividend income . net interest and dividend income increased $ 300,000 to $ 30.7 million for the year ended december 31 , 2013 as compared to $ 30.4 million for same period in 2012. the net interest margin , on a tax-equivalent basis , was 2.58 % and 2.53 % for the years ended december 31 , 2013 and 2012 , respectively . the increase in the net interest margin was due to the cost of interest-bearing liabilities decreasing 26 basis points , while the yield on average interest-bearing assets decreased 12 basis points , both occurring because of the low interest rate environment . provision ( credit ) for loan losses . the provision ( credit ) for loan losses is reviewed by management based upon our evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions , such as new loan products , credit quality trends ( including trends in nonperforming loans expected to result from existing conditions ) , collateral values , loan volumes and concentrations , specific industry conditions within portfolio segments that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectability of the loan portfolio . 44 the amount of the credit provision for loan losses during the year ended december 31 , 2013 was based upon the changes that occurred in the loan portfolio during that same period . the changes in the loan portfolio , described in detail below , include increases in the balances of commercial real estate loans , commercial and industrial loans and residential real estate loans as well as the continuous improvement of the overall risk profile of the commercial loan portfolio . after evaluating these factors , we recorded a credit provision for loan losses of $ 256,000 for the year ended december 31 , 2013 , compared to $ 698,000 in provision expense for the same period in 2012. the allowance was $ 7.5 million at december 31 , 2013 and $ 7.8 million at december 31 , 2012 , respectively . the allowance for loan losses as a percentage of total loans was 1.17 % and 1.31 % at december 31 , 2013 and 2012 , respectively . commercial real estate loans increased $ 18.7 million to $ 264.5 million at december 31 , 2013 from $ 245.8 million at december 31 , 2012. commercial and industrial loans increased $ 9.5 million to $ 135.6 million at december 31 , 2013 from $ 126.1 million at december 31 , 2012. residential real estate loans increased $ 14.4 million to $ 234.1 million at december 31 , 2013. we consider residential real estate loans to contain less credit risk and market risk than commercial real estate and commercial and industrial loans . while the loan portfolio increased by $ 42.9 million to $ 630.0 million at december 31 , 2013 from $ 587.1 million at december 31 , 2012 , the portfolio also experienced an overall positive change in its risk profile throughout the year ended december 31 , 2013. impaired loans that previously carried higher allowances showed considerable improvement resulting in allowances on impaired loans decreasing $ 441,000 to $ 97,000 at december 31 , 2013 from $ 538,000 at december 31 , 2012. for the year ended december 31 , 2013 , we recorded net charge-offs of $ 79,000 compared to net charge-offs of $ 668,000 for the year ended december 31 , 2012. the year ended december 31 , 2013 net charge off was composed of charge-offs of $ 340,000 partially offset by recoveries of $ 261,000. the 2012 period was composed of charge-offs of $ 768,000 partially offset by recoveries of $ 100,000. although management believes it has established and maintained the allowance for loan losses at appropriate levels , future adjustments may be necessary if economic , real estate and other conditions differ substantially from the current operating environment . noninterest income . noninterest income decreased $ 1.7 million to $ 4.3 million for the year ended december 31 , 2013 compared to $ 6.0 million for the same period in 2012. the primary reason for the decrease in noninterest income was due to the net gains on the sales of securities being completely offset by prepayment expenses during the year ended december 31 , 2013 , whereas the 2012 period showed a net overall gain of $ 1.9 million in sales of securities after prepayment expenses . the net gains for the years ended december 31 , 2013 and 2012 were primarily the result of management selling mortgage-backed securities that were expected to prepay rapidly and decrease the expected yield . during 2013 , we also prepaid repurchase agreements in the amount of $ 43.3 million and incurred a prepayment expense of $ 3.4 million . the repurchase agreements had a weighted average cost of 2.99 % . during the last week of 2012 , we prepaid repurchase agreements in the amount of $ 28.0 million and incurred a prepayment expense of $ 1.0 million . the repurchase agreements had a weighted average cost of 3.06 % . the prepayments decreased the cost of funds and improved the net interest margin for the year ended december 31 , 2013. in addition , during the year ended december 31 , 2013 , we recorded gains on the proceeds of boli death benefits of $ 563,000 , as compared to $ 80,000 in the comparable 2012 period . service charges and fees decreased $ 177,000 to $ 2.4 million for the year ended december 31 , 2013 from $ 2.6 million for the year ended december 31 , 2012. the year ended included $ 156,000 related to a written risk
| liquidity and capital resources since our inception , we have not generated any revenue and have incurred net losses and negative cash flows from our operations . we have financed our operations since inception through sales of our convertible preferred stock and the sale of our common stock in our ipo , receiving aggregate gross proceeds of $ 123.2 million . as of december 31 , 2018 , we had cash , cash equivalents and marketable securities of $ 89.8 million . cash in excess of immediate requirements is invested in accordance with our investment policy , primarily with a view to liquidity and capital preservation . we currently have no ongoing material financing commitments , such as lines of credit or guarantees , that are expected to affect our liquidity over the next five years . 74 cash flows the following table summarizes our cash flows for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_1_th operating activities during the year ended december 31 , 2018 , operating activities used $ 17.9 million of cash , primarily resulting from a net loss of $ 20.6 million and non-cash stock-based compensation of $ 2.3 million . net cash provided by changes in operating assets and liabilities of $ 0.4 million consisted primarily of increases in accounts payable and accrued expenses of $ 1.8 million , partially offset by increases in prepaid expenses and other assets of $ 0.9 million .
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net interest and dividend income is the difference between the interest income earned on interest-earning assets and the interest paid on interest-bearing liabilities . interest-earning assets consist primarily of securities , commercial real estate loans , commercial and industrial loans and residential real estate loans . interest-bearing liabilities consist primarily of certificates of deposit and money market account , demand deposit accounts and savings account deposits , borrowings from the fhlbb and securities sold under repurchase agreements . the consolidated results of operations also depend on the provision for loan losses , noninterest income , and noninterest expense . noninterest expense includes salaries and employee benefits , occupancy expenses and other general and administrative expenses . noninterest income includes service fees and charges , income on bank-owned life insurance , and gains ( losses ) on securities . critical accounting policies . our accounting policies are disclosed in note 1 to our consolidated financial statements . given our current business strategy and asset/liability structure , the more critical policies are accounting for nonperforming loans , the allowance for loan losses and provision for loan losses , other than temporary impairment of securities , and the valuation of deferred taxes . in addition to the informational disclosure in the notes to the consolidated financial statements , our policy on each of these accounting policies is described in detail in the applicable sections of “ management 's discussion and analysis of financial condition and results of operations . ” senior management has discussed the development and selection of these accounting policies and the related disclosures with the audit committee of our board of directors . our general policy regarding recognition of interest on loans is to discontinue the accrual of interest when principal or interest payments are delinquent 90 days or more , or earlier if the loan is considered impaired . any unpaid amounts previously accrued on these loans are reversed from income . subsequent cash receipts are applied to the outstanding principal balance or to interest income if , in the judgment of management , collection of the principal balance is not in question . loans are returned to accrual status when they become current as to both principal and interest and when subsequent performance reduces the concern as to the collectability of principal and interest . loan fees and certain direct loan origination costs are deferred , and the net fee or cost is recognized as an adjustment to interest income over the estimated average lives of the related loans . the process of evaluating the loan portfolio , classifying loans and determining the allowance and provision is described in detail in part i under “ business – lending activities - allowance for loan losses . ” our methodology for assessing the allocation of the allowance consists of two key components , which are a specific allowance for impaired loans and an allowance for the remainder of the portfolio . measurement of impairment can be based on present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's observable market price or the fair value of the collateral , if the loan is collateral dependent . this evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change . the allocation of the allowance is also reviewed by management based upon our evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions , such as new loan products , credit quality trends ( including trends in nonperforming loans expected to result from existing conditions ) , collateral values , loan volumes and concentrations , specific industry conditions within portfolio segments that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectability of the loan portfolio . although management believes it has established and maintained the allowance for loan losses at adequate levels , if management 's assumptions and judgments prove to be incorrect due to continued deterioration in economic , real estate and other conditions , and the allowance for loan losses is not adequate to absorb inherent losses , our earnings and capital could be significantly and adversely affected . on a quarterly basis , we review securities with a decline in fair value below the amortized cost of the investment to determine whether the decline in fair value is temporary or other than temporary . declines in the fair value of marketable equity securities below their cost that are deemed to be other than temporary based on the severity and duration of the impairment are reflected in earnings as realized losses . in estimating other than temporary impairment losses for securities , impairment is required to be recognized if ( 1 ) we intend to sell the security ; ( 2 ) it is “ more likely than not ” that we will be required to sell the security before recovery of its amortized cost basis ; or ( 3 ) for debt securities , the present value of expected cash flows is not sufficient to recover the entire amortized cost basis . for all impaired available for sale securities that we intend to sell , or more likely than not will be required to sell , the full amount of the other than temporary impairment is recognized through earnings . for other impaired debt securities , credit-related other than temporary impairment is recognized through earnings , while non-credit related other than temporary impairment is recognized in other comprehensive income , net of applicable taxes . 38 we must make certain estimates in determining income tax expense for financial statement purposes . these estimates occur in the calculation of the deferred tax assets and liabilities , which arise from the temporary differences between the tax basis and financial statement basis of our assets and liabilities . story_separator_special_tag the repurchase agreements had a weighted average cost of 3.06 % . the prepayments decreased the cost of funds and improved the net interest margin for the year ended december 31 , 2013. net interest and dividend income . net interest and dividend income increased $ 300,000 to $ 30.7 million for the year ended december 31 , 2013 as compared to $ 30.4 million for same period in 2012. the net interest margin , on a tax-equivalent basis , was 2.58 % and 2.53 % for the years ended december 31 , 2013 and 2012 , respectively . the increase in the net interest margin was due to the cost of interest-bearing liabilities decreasing 26 basis points , while the yield on average interest-bearing assets decreased 12 basis points , both occurring because of the low interest rate environment . provision ( credit ) for loan losses . the provision ( credit ) for loan losses is reviewed by management based upon our evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions , such as new loan products , credit quality trends ( including trends in nonperforming loans expected to result from existing conditions ) , collateral values , loan volumes and concentrations , specific industry conditions within portfolio segments that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectability of the loan portfolio . 44 the amount of the credit provision for loan losses during the year ended december 31 , 2013 was based upon the changes that occurred in the loan portfolio during that same period . the changes in the loan portfolio , described in detail below , include increases in the balances of commercial real estate loans , commercial and industrial loans and residential real estate loans as well as the continuous improvement of the overall risk profile of the commercial loan portfolio . after evaluating these factors , we recorded a credit provision for loan losses of $ 256,000 for the year ended december 31 , 2013 , compared to $ 698,000 in provision expense for the same period in 2012. the allowance was $ 7.5 million at december 31 , 2013 and $ 7.8 million at december 31 , 2012 , respectively . the allowance for loan losses as a percentage of total loans was 1.17 % and 1.31 % at december 31 , 2013 and 2012 , respectively . commercial real estate loans increased $ 18.7 million to $ 264.5 million at december 31 , 2013 from $ 245.8 million at december 31 , 2012. commercial and industrial loans increased $ 9.5 million to $ 135.6 million at december 31 , 2013 from $ 126.1 million at december 31 , 2012. residential real estate loans increased $ 14.4 million to $ 234.1 million at december 31 , 2013. we consider residential real estate loans to contain less credit risk and market risk than commercial real estate and commercial and industrial loans . while the loan portfolio increased by $ 42.9 million to $ 630.0 million at december 31 , 2013 from $ 587.1 million at december 31 , 2012 , the portfolio also experienced an overall positive change in its risk profile throughout the year ended december 31 , 2013. impaired loans that previously carried higher allowances showed considerable improvement resulting in allowances on impaired loans decreasing $ 441,000 to $ 97,000 at december 31 , 2013 from $ 538,000 at december 31 , 2012. for the year ended december 31 , 2013 , we recorded net charge-offs of $ 79,000 compared to net charge-offs of $ 668,000 for the year ended december 31 , 2012. the year ended december 31 , 2013 net charge off was composed of charge-offs of $ 340,000 partially offset by recoveries of $ 261,000. the 2012 period was composed of charge-offs of $ 768,000 partially offset by recoveries of $ 100,000. although management believes it has established and maintained the allowance for loan losses at appropriate levels , future adjustments may be necessary if economic , real estate and other conditions differ substantially from the current operating environment . noninterest income . noninterest income decreased $ 1.7 million to $ 4.3 million for the year ended december 31 , 2013 compared to $ 6.0 million for the same period in 2012. the primary reason for the decrease in noninterest income was due to the net gains on the sales of securities being completely offset by prepayment expenses during the year ended december 31 , 2013 , whereas the 2012 period showed a net overall gain of $ 1.9 million in sales of securities after prepayment expenses . the net gains for the years ended december 31 , 2013 and 2012 were primarily the result of management selling mortgage-backed securities that were expected to prepay rapidly and decrease the expected yield . during 2013 , we also prepaid repurchase agreements in the amount of $ 43.3 million and incurred a prepayment expense of $ 3.4 million . the repurchase agreements had a weighted average cost of 2.99 % . during the last week of 2012 , we prepaid repurchase agreements in the amount of $ 28.0 million and incurred a prepayment expense of $ 1.0 million . the repurchase agreements had a weighted average cost of 3.06 % . the prepayments decreased the cost of funds and improved the net interest margin for the year ended december 31 , 2013. in addition , during the year ended december 31 , 2013 , we recorded gains on the proceeds of boli death benefits of $ 563,000 , as compared to $ 80,000 in the comparable 2012 period . service charges and fees decreased $ 177,000 to $ 2.4 million for the year ended december 31 , 2013 from $ 2.6 million for the year ended december 31 , 2012. the year ended included $ 156,000 related to a written risk
| liquidity and capital resources the term “ liquidity ” refers to our ability to generate adequate amounts of cash to fund loan originations , loan purchases , deposit withdrawals and operating expenses . our primary sources of liquidity are deposits , scheduled amortization and prepayments of loan principal and mortgage-backed securities , maturities and calls of investment securities and funds provided by our operations . we also can borrow funds from the fhlbb based on eligible collateral of loans and securities . outstanding borrowings from the fhlbb were $ 252.7 million at december 31 , 2013 , and $ 261.8 million at december 31 , 2012. at december 31 , 2013 , we had $ 83.0 million in available borrowing capacity with the fhlbb . we have the ability to increase our borrowing capacity with the fhlbb by pledging investment securities or loans . in addition , we have a $ 4.0 million line of credit with bbn at an interest rate determined and reset by bbn on a daily basis . at december 31 , 2013 , we did not have an outstanding balance under this line . there was $ 4.0 million outstanding under this line at december 31 , 2012. as part of our contract with bbn , we are required to maintain a reserve balance of $ 300,000 with bbn for our use of this line . in addition , we may enter into reverse repurchase agreements with approved broker-dealers . reverse repurchase agreements are agreements that allow us to borrow money using our securities as collateral . we also have outstanding at any time , a significant number of commitments to extend credit and provide financial guarantees to third parties .
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the timing of recognition of revenue out of backlog is not always certain , as it is subject to a variety of factors that may cause delays , many of which are beyond our control ( such as customers ' delivery schedules and levels of capital and maintenance expenditures ) . when delays occur , the recognition of revenue associated with the delayed project is likewise deferred . cost of sales . our cost of revenues includes primarily the cost of raw material items used in the manufacture of our products , cost of ancillary products that are sourced from external suppliers and construction labor cost . additional costs of revenue include contract engineering cost directly associated to projects , direct labor cost , shipping and handling costs , and other costs associated with our manufacturing/fabrication shops . the other costs associated with our manufacturing/fabrication shops are mainly indirect production costs , including depreciation , indirect labor costs , and the costs of manufacturing support functions such as logistics and quality assurance . key raw material costs include polymers , copper , stainless steel , insulating material , and other miscellaneous parts related to products manufactured or assembled as part of our heat tracing solutions . historically , the costs of our primary raw materials have been stable and readily available from multiple suppliers , and we have been generally successful with passing along raw material cost increases to our customers . therefore , increases in the cost of key raw materials of our products have not generally affected our gross margins . we can not provide any assurance that we may be able to pass along such cost increases to our customers in the future , and if we are unable to do so , our results of operations may be adversely affected . operating expenses . our marketing , general and administrative and engineering expenses are primarily comprised of compensation and related costs for sales , marketing , pre-sales engineering and administrative personnel , as well as other sales related expenses and other costs related to research and development , insurance , professional fees , the global integrated business information system , provisions for bad debts and warranty expense . key drivers affecting our results of operations . our results of operations and financial condition are affected by numerous factors , including those described above under item 1a , “ risk factors ” and elsewhere in this annual report and those described below : timing of greenfield projects . our results of operations in recent years have been impacted by the various construction phases of large greenfield projects . on very large projects , we are typically designated as the heat tracing provider of choice by the project owner . we then engage with multiple contractors to address incorporating various heat tracing solutions throughout the overall project . our largest greenfield projects may generate revenue for several quarters . in the early stages of a greenfield project , our revenues are typically realized from the provision of engineering services . in the middle stages , or the material requirements phase , we typically experience the greatest demand for our heat tracing cable , at which point our revenues tend to accelerate . revenues tend to decrease gradually in the final stages of a project and are generally derived from installation services and demand for electrical panels and other miscellaneous electronic components used in the final installation of heat tracing cable , which we frequently outsource from third-party manufacturers . therefore , we typically provide a mix of products and services during each phase of a greenfield project , and our margins fluctuate accordingly . cyclicality of end-users ' markets . demand for our products and services depends in large part upon the level of capital and maintenance expenditures of our customers and end users , in particular those in the energy , chemical processing and power generation industries , and firms that design and construct facilities for these industries . these customers ' expenditures historically have been cyclical in nature and vulnerable to economic downturns . greenfield projects , and in particular large greenfield projects ( i.e . , new facility construction projects generating in excess of $ 5 million in annual sales ) , have been a substantial source of revenue growth in recent years , and greenfield revenues tend to be more cyclical than mro/ue revenues . in recent years we have noted particular cyclicality in capital spending for new facilities in asia , eastern europe and the middle east . revenues derived from europe , including the middle east , accounted for 19 % and 21 % of our total revenues during each of fiscal 2015 and fiscal 2014 and revenues derived from the asia region accounted for 12 % of our total revenues during fiscal 2015 and fiscal 2014 . a sustained decrease in capital and maintenance spending or in new facility construction by our customers could have a material adverse effect on the demand for our products and services and our business , financial condition and results of operations . acquisition strategy . recently , we have begun executing on a strategy to grow the company through the acquisition of businesses that are either in the heat tracing solutions industry or provide complementary products and solutions for the markets and customers we serve . 28 on march 2 , 2015 , we acquired substantially all of the operating assets and assumed certain operating liabilities of unitemp located in cape town , south africa . unitemp had previously been a valued distributor of thermon 's thermal solutions for the south african market . in addition , unitemp offers heating , sensing , portable instruments , monitoring and control solutions to industrial customers throughout sub-saharan africa . story_separator_special_tag in fiscal 2014 , we switched vendors for our data communications and as a result incurred a $ 0.7 million increase in communication costs related to fees and duplicate services incurred during the transition . as of march 31 , 2014 , we had nearly completed the transition and do not expect to continue to incur such communication costs in fiscal 2015. building expenses increased approximately $ 0.6 million as compared to fiscal 2013 , as we relocated our houston office to a larger and more updated facility . stock compensation expense increased $ 0.9 million due to the full year effect of awards granted in august 2012 ( fiscal 2013 ) and additional awards granted in fiscal 2014. the increases in data communications costs , building expenses and stock compensation expense were partially offset by a $ 1.5 million reduction in our personnel costs , which was driven by a decrease in our annual incentive expense of $ 3.0 million , as we did not meet the internal goals for the short term incentive plan established by our board of directors , offset in part by an increase in salaries , wages and benefit expense due to additional sales and engineering personnel . 32 amortization of intangible assets . amortization of intangible assets was $ 11.1 million in fiscal 2014 , compared to $ 11.2 million in fiscal 2013. the decrease is attributed to foreign currency translation adjustments . interest expense , net . interest expense and loss on redemptions of debt totaled $ 25.3 million in fiscal 2014 , compared to $ 15.1 million in fiscal 2013 , an increase of $ 10.2 million . in fiscal 2014 we redeemed all $ 118.1 million of the outstanding aggregate principal amount of our 9.5 % senior secured notes . in connection with the redemption , we incurred acceleration of deferred debt issuance costs of $ 4.0 million and a loss on retirement of debt of $ 15.5 million , related to redemption premiums paid to the noteholders . in fiscal 2013 , we made partial redemptions of our 9.5 % senior secured notes with $ 21.0 million of aggregate principal being redeemed , and negotiated a new revolving credit facility . in connection with the fiscal 2013 bond redemptions and the termination of the previous revolving credit facility , we incurred acceleration of deferred debt issuance costs of $ 2.3 million . interest expense on outstanding principal was $ 5.4 million and $ 11.9 million in fiscal 2014 and fiscal 2013 , respectively . the decrease in interest on outstanding principal is due to the difference in the interest rate on our redeemed 9.5 % senior secured notes and that of our term loan , which is fixed at approximately 3.62 % as a result of our interest rate swap . we expect annual interest expense in fiscal 2015 to be approximately $ 4.2 million after accounting for scheduled principal reduction payments . other expense . other expense was $ 0.6 million in fiscal 2014 , compared to $ 0.3 million in fiscal 2013 , an increase of $ 0.3 million due mostly to increased losses on foreign currency exchange transactions in fiscal 2014. see note 2 , `` fair value measurements `` to our consolidated financial statements included elsewhere in this annual report , for further discussion of our foreign currency exchange transactions . income taxes . we reported an income tax expense of $ 7.0 million in fiscal 2014 , compared to $ 14.6 million in fiscal 2013 , a decrease of $ 7.6 million . our effective tax rates were 21.3 % in fiscal 2014 and 35.1 % in fiscal 2013 , respectively.during fiscal 2014 , we concluded an income tax audit in the united states and , as a result , released certain liabilities for uncertain tax positions in the amount of $ 1.0 million . in addition , we received an income tax benefit of $ 0.6 million in fiscal 2014 related to estimated tax benefits that were determined not to be payable to the predecessor owners . excluding these discrete tax benefits , our effective tax rate in fiscal 2014 would have been 25.5 % . during fiscal 2014 , we adopted a permanent reinvestment position on our foreign earned earnings . accordingly , we no longer accrue incremental taxation for expected repatriation of earnings into the united states . as a result , our estimated tax rate was reduced from 35.0 % to 25.5 % , excluding discrete events . the decrease in income tax expense from fiscal 2013 is attributable to our reduced pre-tax net income , the adoption of a permanent reinvestment position as well as the two aforementioned discrete events . see note 15 , `` income taxes , `` to our consolidated financial statements , included elsewhere in this annual report , for further detail on income taxes . net income . net income was $ 25.8 million in fiscal 2014 as compared to $ 27.0 million in fiscal 2013 , a decrease of $ 1.2 million . in fiscal 2014 , interest expense increased $ 10.2 million , which was attributable to increases in the acceleration of the amortization of our deferred debt issuance costs , as well as the loss on retirement of debt related to the redemption of our 9.5 % senior secured notes . marketing , general and administrative and engineering costs increased $ 0.9 million in fiscal 2014. these increases in expenses were offset by an increase in fiscal 2014 gross profit of $ 2.4 million and a decrease of income tax expense of $ 7.6 million in the same period . the increase in fiscal 2014 gross profit was due to higher gross profit as a percent of total revenues in fiscal 2014 , primarily attributable to the increase in mro/ue sales as a percentage of total revenues . the decrease of income tax expense is due to lower pre-tax net income
| liquidity and capital resources the term “ liquidity ” refers to our ability to generate adequate amounts of cash to fund loan originations , loan purchases , deposit withdrawals and operating expenses . our primary sources of liquidity are deposits , scheduled amortization and prepayments of loan principal and mortgage-backed securities , maturities and calls of investment securities and funds provided by our operations . we also can borrow funds from the fhlbb based on eligible collateral of loans and securities . outstanding borrowings from the fhlbb were $ 252.7 million at december 31 , 2013 , and $ 261.8 million at december 31 , 2012. at december 31 , 2013 , we had $ 83.0 million in available borrowing capacity with the fhlbb . we have the ability to increase our borrowing capacity with the fhlbb by pledging investment securities or loans . in addition , we have a $ 4.0 million line of credit with bbn at an interest rate determined and reset by bbn on a daily basis . at december 31 , 2013 , we did not have an outstanding balance under this line . there was $ 4.0 million outstanding under this line at december 31 , 2012. as part of our contract with bbn , we are required to maintain a reserve balance of $ 300,000 with bbn for our use of this line . in addition , we may enter into reverse repurchase agreements with approved broker-dealers . reverse repurchase agreements are agreements that allow us to borrow money using our securities as collateral . we also have outstanding at any time , a significant number of commitments to extend credit and provide financial guarantees to third parties .
| 0 |
the timing of recognition of revenue out of backlog is not always certain , as it is subject to a variety of factors that may cause delays , many of which are beyond our control ( such as customers ' delivery schedules and levels of capital and maintenance expenditures ) . when delays occur , the recognition of revenue associated with the delayed project is likewise deferred . cost of sales . our cost of revenues includes primarily the cost of raw material items used in the manufacture of our products , cost of ancillary products that are sourced from external suppliers and construction labor cost . additional costs of revenue include contract engineering cost directly associated to projects , direct labor cost , shipping and handling costs , and other costs associated with our manufacturing/fabrication shops . the other costs associated with our manufacturing/fabrication shops are mainly indirect production costs , including depreciation , indirect labor costs , and the costs of manufacturing support functions such as logistics and quality assurance . key raw material costs include polymers , copper , stainless steel , insulating material , and other miscellaneous parts related to products manufactured or assembled as part of our heat tracing solutions . historically , the costs of our primary raw materials have been stable and readily available from multiple suppliers , and we have been generally successful with passing along raw material cost increases to our customers . therefore , increases in the cost of key raw materials of our products have not generally affected our gross margins . we can not provide any assurance that we may be able to pass along such cost increases to our customers in the future , and if we are unable to do so , our results of operations may be adversely affected . operating expenses . our marketing , general and administrative and engineering expenses are primarily comprised of compensation and related costs for sales , marketing , pre-sales engineering and administrative personnel , as well as other sales related expenses and other costs related to research and development , insurance , professional fees , the global integrated business information system , provisions for bad debts and warranty expense . key drivers affecting our results of operations . our results of operations and financial condition are affected by numerous factors , including those described above under item 1a , “ risk factors ” and elsewhere in this annual report and those described below : timing of greenfield projects . our results of operations in recent years have been impacted by the various construction phases of large greenfield projects . on very large projects , we are typically designated as the heat tracing provider of choice by the project owner . we then engage with multiple contractors to address incorporating various heat tracing solutions throughout the overall project . our largest greenfield projects may generate revenue for several quarters . in the early stages of a greenfield project , our revenues are typically realized from the provision of engineering services . in the middle stages , or the material requirements phase , we typically experience the greatest demand for our heat tracing cable , at which point our revenues tend to accelerate . revenues tend to decrease gradually in the final stages of a project and are generally derived from installation services and demand for electrical panels and other miscellaneous electronic components used in the final installation of heat tracing cable , which we frequently outsource from third-party manufacturers . therefore , we typically provide a mix of products and services during each phase of a greenfield project , and our margins fluctuate accordingly . cyclicality of end-users ' markets . demand for our products and services depends in large part upon the level of capital and maintenance expenditures of our customers and end users , in particular those in the energy , chemical processing and power generation industries , and firms that design and construct facilities for these industries . these customers ' expenditures historically have been cyclical in nature and vulnerable to economic downturns . greenfield projects , and in particular large greenfield projects ( i.e . , new facility construction projects generating in excess of $ 5 million in annual sales ) , have been a substantial source of revenue growth in recent years , and greenfield revenues tend to be more cyclical than mro/ue revenues . in recent years we have noted particular cyclicality in capital spending for new facilities in asia , eastern europe and the middle east . revenues derived from europe , including the middle east , accounted for 19 % and 21 % of our total revenues during each of fiscal 2015 and fiscal 2014 and revenues derived from the asia region accounted for 12 % of our total revenues during fiscal 2015 and fiscal 2014 . a sustained decrease in capital and maintenance spending or in new facility construction by our customers could have a material adverse effect on the demand for our products and services and our business , financial condition and results of operations . acquisition strategy . recently , we have begun executing on a strategy to grow the company through the acquisition of businesses that are either in the heat tracing solutions industry or provide complementary products and solutions for the markets and customers we serve . 28 on march 2 , 2015 , we acquired substantially all of the operating assets and assumed certain operating liabilities of unitemp located in cape town , south africa . unitemp had previously been a valued distributor of thermon 's thermal solutions for the south african market . in addition , unitemp offers heating , sensing , portable instruments , monitoring and control solutions to industrial customers throughout sub-saharan africa . story_separator_special_tag in fiscal 2014 , we switched vendors for our data communications and as a result incurred a $ 0.7 million increase in communication costs related to fees and duplicate services incurred during the transition . as of march 31 , 2014 , we had nearly completed the transition and do not expect to continue to incur such communication costs in fiscal 2015. building expenses increased approximately $ 0.6 million as compared to fiscal 2013 , as we relocated our houston office to a larger and more updated facility . stock compensation expense increased $ 0.9 million due to the full year effect of awards granted in august 2012 ( fiscal 2013 ) and additional awards granted in fiscal 2014. the increases in data communications costs , building expenses and stock compensation expense were partially offset by a $ 1.5 million reduction in our personnel costs , which was driven by a decrease in our annual incentive expense of $ 3.0 million , as we did not meet the internal goals for the short term incentive plan established by our board of directors , offset in part by an increase in salaries , wages and benefit expense due to additional sales and engineering personnel . 32 amortization of intangible assets . amortization of intangible assets was $ 11.1 million in fiscal 2014 , compared to $ 11.2 million in fiscal 2013. the decrease is attributed to foreign currency translation adjustments . interest expense , net . interest expense and loss on redemptions of debt totaled $ 25.3 million in fiscal 2014 , compared to $ 15.1 million in fiscal 2013 , an increase of $ 10.2 million . in fiscal 2014 we redeemed all $ 118.1 million of the outstanding aggregate principal amount of our 9.5 % senior secured notes . in connection with the redemption , we incurred acceleration of deferred debt issuance costs of $ 4.0 million and a loss on retirement of debt of $ 15.5 million , related to redemption premiums paid to the noteholders . in fiscal 2013 , we made partial redemptions of our 9.5 % senior secured notes with $ 21.0 million of aggregate principal being redeemed , and negotiated a new revolving credit facility . in connection with the fiscal 2013 bond redemptions and the termination of the previous revolving credit facility , we incurred acceleration of deferred debt issuance costs of $ 2.3 million . interest expense on outstanding principal was $ 5.4 million and $ 11.9 million in fiscal 2014 and fiscal 2013 , respectively . the decrease in interest on outstanding principal is due to the difference in the interest rate on our redeemed 9.5 % senior secured notes and that of our term loan , which is fixed at approximately 3.62 % as a result of our interest rate swap . we expect annual interest expense in fiscal 2015 to be approximately $ 4.2 million after accounting for scheduled principal reduction payments . other expense . other expense was $ 0.6 million in fiscal 2014 , compared to $ 0.3 million in fiscal 2013 , an increase of $ 0.3 million due mostly to increased losses on foreign currency exchange transactions in fiscal 2014. see note 2 , `` fair value measurements `` to our consolidated financial statements included elsewhere in this annual report , for further discussion of our foreign currency exchange transactions . income taxes . we reported an income tax expense of $ 7.0 million in fiscal 2014 , compared to $ 14.6 million in fiscal 2013 , a decrease of $ 7.6 million . our effective tax rates were 21.3 % in fiscal 2014 and 35.1 % in fiscal 2013 , respectively.during fiscal 2014 , we concluded an income tax audit in the united states and , as a result , released certain liabilities for uncertain tax positions in the amount of $ 1.0 million . in addition , we received an income tax benefit of $ 0.6 million in fiscal 2014 related to estimated tax benefits that were determined not to be payable to the predecessor owners . excluding these discrete tax benefits , our effective tax rate in fiscal 2014 would have been 25.5 % . during fiscal 2014 , we adopted a permanent reinvestment position on our foreign earned earnings . accordingly , we no longer accrue incremental taxation for expected repatriation of earnings into the united states . as a result , our estimated tax rate was reduced from 35.0 % to 25.5 % , excluding discrete events . the decrease in income tax expense from fiscal 2013 is attributable to our reduced pre-tax net income , the adoption of a permanent reinvestment position as well as the two aforementioned discrete events . see note 15 , `` income taxes , `` to our consolidated financial statements , included elsewhere in this annual report , for further detail on income taxes . net income . net income was $ 25.8 million in fiscal 2014 as compared to $ 27.0 million in fiscal 2013 , a decrease of $ 1.2 million . in fiscal 2014 , interest expense increased $ 10.2 million , which was attributable to increases in the acceleration of the amortization of our deferred debt issuance costs , as well as the loss on retirement of debt related to the redemption of our 9.5 % senior secured notes . marketing , general and administrative and engineering costs increased $ 0.9 million in fiscal 2014. these increases in expenses were offset by an increase in fiscal 2014 gross profit of $ 2.4 million and a decrease of income tax expense of $ 7.6 million in the same period . the increase in fiscal 2014 gross profit was due to higher gross profit as a percent of total revenues in fiscal 2014 , primarily attributable to the increase in mro/ue sales as a percentage of total revenues . the decrease of income tax expense is due to lower pre-tax net income
| net cash used in investing activities totaled $ 10.0 million for fiscal 2015 compared to $ 5.4 million for fiscal 2014 , an increase of $ 4.6 million . in fiscal 2015 and fiscal 2014 , we spent $ 6.1 million and $ 3.4 million , respectively , to purchase property , plant and equipment . the increase of $ 2.7 million is primarily attributable to expenditures in fiscal 2015 of $ 3.9 million paid for the expansions of our tube bundle and warehouse facilities . in fiscal 2015 we paid $ 3.9 million to acquire unitemp . in fiscal 2014 we paid $ 2.1 million to our predecessor owners related to a tax refund that we received relating to prior tax years when the predecessor owners were in control of the company . net cash used in financing activities totaled $ 11.8 million in fiscal 2015 , compared to $ 10.6 million for fiscal 2014 an increase of $ 1.2 million . in fiscal 2014 , we redeemed all of the outstanding aggregate principal amount of our 9.5 % senior secured notes representing a use of cash of $ 118.1 million . in connection with the redemption we paid $ 15.5 million in prepayment redemption premiums . in fiscal 2014 , we entered into a term loan agreement whereby we received $ 135.0 million in proceeds and incurred $ 1.7 million of debt issuance costs . in fiscal 2015 , we paid $ 0.3 million in deferred debt issuance costs related to the amendment of our our senior secured term loan . in both fiscal 2015 and fiscal 2014 we made principal payments on our term loan totaling $ 13.5 million . our proceeds from the exercise of employee stock options decreased $ 2.8 million in fiscal 2015 and in fiscal 2015 we realized a tax benefit from our outstanding equity awards of $ 1.6 million whereas in fiscal 2014 we incurred a loss of $ 0.1 million .
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revenue recognition effective january 1 , 2018 the company adopted accounting standards update ( “ asu ” ) 2014-09 , “ revenue from contracts with customers ( topic 606 ) ” , ( “ topic 606 ” ) using the “ modified retrospective ” method , meaning the standard is applied only to the most current period presented in the financial statements . topic 606 requires the company to identify the performance obligations in our revenue arrangements – that is , those promised goods and services ( or bundles of promised goods or services ) that are distinct – and allocate the transaction price of the revenue arrangement to those performance obligations on the basis of estimated standalone selling prices ( “ ssp 's ” ) . 19 sales of hardware which include sales of radio frequency solutions in the network solutions segment , digital signal processing hardware in the embedded solutions segment and power meters and analyzers and noise generators and components in the test and measurement segment generally consist of one performance obligation which is satisfied upon shipment to the customer . when contract terms require transfer of control upon delivery at a customer 's location , revenue is recognized on the date of delivery . sales of hardware to distributors that include a limited right of return are recorded net of expected returns . sale of software licenses in the embedded solutions segment may involve multiple performance obligations including multiple software releases and consultancy services . in these cases transaction price is allocated to each distinct performance obligation on the basis of ssp and revenue is recognized when the distinct performance obligation is satisfied . the company determines performance obligations and ssp 's in arrangements with multiple performance obligations in accordance with topic 606 which requires significant judgement . services arrangements involving repairs and calibrations in the company 's test and measurement segment are generally considered a single performance obligation and revenue is recognized as the services are rendered . certain software arrangements in the embedded solutions segment may involve the transfer of software along with significant customization services . in these cases the customization services and software licenses are combined as one distinct performance obligation and revenue is recognized over time as the project is completed . the duration of these performance obligations are typically one year or less . business combinations business combinations are accounted under the acquisition method of accounting in accordance with accounting standards codification ( “ asc ” ) 805 , “ business combinations ” which requires assets acquired and liabilities assumed be recorded at their fair values on the acquisition date . goodwill represents the excess of the purchase price over the fair value of the net assets acquired . the fair values of the assets acquired and liabilities assumed are determined based upon management 's valuation and involves making significant estimates and assumptions based on facts and circumstances that existed as of the acquisition date . we use a measurement period following the acquisition date to gather information that existed as of the acquisition date that is needed to determine the fair value of the assets acquired and liabilities assumed . the measurement period ends once all information is obtained , but no later than one year from the acquisition date . valuation of goodwill goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination . goodwill is evaluated for impairment annually by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary . after assessing the totality of events or circumstances , if we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount , then we perform additional quantitative tests to determine the magnitude of any impairment . as of december 31 , 2018 the company 's consolidated goodwill balance of $ 9.8 million is comprised of $ 1.4 million related to the microlab reporting unit and $ 8.4 million related to the commagility reporting unit . as of december 31 , 2017 the company 's consolidated goodwill balance of $ 10.3 million was comprised of $ 1.4 million related to the microlab reporting unit and $ 8.9 million related to the commagility reporting unit . management 's qualitative assessment performed in the fourth quarters of 2018 and 2017 did not indicate any impairment of goodwill . intangible and long-lived assets intangible assets include patents , non-competition agreements , customer relationships and trademarks . intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets , which range from five to seven years . long-lived assets , including intangible assets with finite lives , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition . measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the estimated fair value of the asset . long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less costs to sell . the estimated useful lives of intangible and long-lived assets are based on many factors including assumptions regarding the effects of obsolescence , demand , competition and other economic factors , expectations regarding the future use of the asset , and our historical experience with similar assets . the assumptions used to determine the estimated useful lives could change due to numerous factors including product demand , 20 market conditions , technological developments , economic conditions and competition . story_separator_special_tag inventories and inventory valuation inventories are stated at the lower of cost ( average cost ) or net realizable value . the company reviews inventory for excess and obsolescence based on best estimates of future demand , product lifecycle status and product development plans . allowances for doubtful accounts the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . a key consideration in estimating the allowance for doubtful accounts has been , and will continue to be , our customer 's payment history and aging of its accounts receivable balance . impairment of long-lived assets long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . determination of recoverability is based on an estimate of undiscounted cash flows resulting from the use of the assets and their eventual disposition . measurement of an impairment loss for long-lived assets that management expects to hold for sale is based on the fair value of the assets . long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell . warranties the company generally offers standard warranties against product defects . we estimate future warranty costs to be incurred based on historical warranty claims experience including estimates of material and service costs over the warranty period . comparison of the results of operations for the year ended december 31 , 2018 with the year ended december 31 , 2017 net revenues ( in thousands ) replace_table_token_1_th net consolidated revenues for the year ended december 31 , 2018 were $ 52.8 million as compared to $ 46.1 million for the year ended december 31 , 2017 , an increase of $ 6.7 million or 14.6 % . embedded solutions segment revenue increased $ 6.7 million primarily due to increased sales of digital processing hardware that is used in wireless network test equipment . test and measurement segment revenue increased $ 0.8 million or 6.2 % due primarily to increased sales of noise generation components and modules to customers in the satellite industry and for use in optical applications offset by lower military and government orders . network solutions segment revenue decreased $ 0.8 million or 3.4 % due primarily to the use of highly competitive pricing and decreases in certain passive rf component demand , which were only slightly offset by increased sales of active components and customized integrated solutions . 22 gross profit ( in thousands ) replace_table_token_2_th gross profit increased by $ 4.9 million from 41.8 % of revenue to 45.8 % of revenue due primarily to increased volumes at the embedded solutions segment . the increase over 2017 also reflected inventory impairment charges recorded in 2017 related to the network solutions segment of $ 1.2 million and the test and measurement segment of $ 0.7 million . network solutions gross profit as a percentage of revenue in 2018 was adversely affected by lower volumes resulting from a highly competitive pricing environment and decreases in certain passive rf component demand . operating expenses ( in thousands ) replace_table_token_3_th research and development expenses increased $ 0.5 million due to the embedded solutions segment . embedded solutions segment research and development expenses increased $ 0.9 million due to investments in 5g research and development , the impact of a full 12 months of expense in 2018 versus 10.5 months expense in 2017 and the unfavorable impact of foreign exchange . the increase in the embedded solutions segment research and development expenses was offset by a $ 0.4 million decrease in research and development expenses in the network solutions and test and measurement segments due to lower third party spend . sales and marketing expenses increased $ 0.6 million primarily due to increased headcount in the network solutions segment offset by lower commission expense in the network solutions segment due to lower volumes . general and administrative expenses decreased $ 0.7 million due to lower mergers and acquisitions expenses , and lower severance charges on executive team restructuring , offset by increased stock compensation and bonus expense . the increase also reflected the impact of a full year of commagility general and administrative expenses in 2018 versus 10.5 months in 2017 as well as the unfavorable impact of foreign exchange . in 2018 the company recorded a loss on change in fair value of contingent consideration of $ 0.6 million as our estimate of the earn-out payment related to the commagility acquisition was increased from our original estimate recorded at the time of acquisition due to the improved financial results of the business . in 2017 the company recorded a gain on change in fair value of contingent consideration of $ 0.3 million . other income/expense other expenses increased $ 39 thousand due to higher foreign exchange unrealized and realized losses on transactions denominated in currencies other than our functional currencies . 23 interest expense interest expense increased $ 0.3 million due to a full year of borrowing under our credit facility versus 10.5 months in 2017 and an increase in our average borrowing rate due to an increase in libor . additionally , the company recorded higher interest expense related to the commagility contingent consideration liability in 2018 due to increases in the liability as a result of higher financial results of the business than previously estimated . tax the company recorded tax expense of $ 48,000 in 2018 due primarily to deferred federal taxes in the u.s. offset by current and deferred tax benefits related to our foreign jurisdictions due to a research and development tax deduction and the reduction of the deferred tax liability . tax expense for the year ended december 31 , 2017 was $ 1.2 million primarily as a result of reduction of our net deferred tax asset largely driven by u.s. tax rate reductions due to the tcja enacted in december 2017.
| net cash used in investing activities totaled $ 10.0 million for fiscal 2015 compared to $ 5.4 million for fiscal 2014 , an increase of $ 4.6 million . in fiscal 2015 and fiscal 2014 , we spent $ 6.1 million and $ 3.4 million , respectively , to purchase property , plant and equipment . the increase of $ 2.7 million is primarily attributable to expenditures in fiscal 2015 of $ 3.9 million paid for the expansions of our tube bundle and warehouse facilities . in fiscal 2015 we paid $ 3.9 million to acquire unitemp . in fiscal 2014 we paid $ 2.1 million to our predecessor owners related to a tax refund that we received relating to prior tax years when the predecessor owners were in control of the company . net cash used in financing activities totaled $ 11.8 million in fiscal 2015 , compared to $ 10.6 million for fiscal 2014 an increase of $ 1.2 million . in fiscal 2014 , we redeemed all of the outstanding aggregate principal amount of our 9.5 % senior secured notes representing a use of cash of $ 118.1 million . in connection with the redemption we paid $ 15.5 million in prepayment redemption premiums . in fiscal 2014 , we entered into a term loan agreement whereby we received $ 135.0 million in proceeds and incurred $ 1.7 million of debt issuance costs . in fiscal 2015 , we paid $ 0.3 million in deferred debt issuance costs related to the amendment of our our senior secured term loan . in both fiscal 2015 and fiscal 2014 we made principal payments on our term loan totaling $ 13.5 million . our proceeds from the exercise of employee stock options decreased $ 2.8 million in fiscal 2015 and in fiscal 2015 we realized a tax benefit from our outstanding equity awards of $ 1.6 million whereas in fiscal 2014 we incurred a loss of $ 0.1 million .
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