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the predecessor also had non-operated working interests in certain oil and natural gas properties . prior to the partnership 's ipo , the predecessor assigned its non-operated working interests and associated asset retirement obligations ( โ aro โ ) to an affiliated entity that was not contributed to the partnership . recent developments 2017 acquisitions in the second quarter of 2017 , we acquired mineral and royalty interests underlying 1.1 million gross acres , 6,881 net royalty acres , for an aggregate purchase price of approximately $ 16.8 million . the partnership funded these acquisitions with borrowings under its secured revolving credit facility . on october 9 , 2017 , we acquired mineral and royalty interests underlying 8,460 gross acres , 983 net royalty acres , for an aggregate purchase price of approximately $ 3.9 million in uintah county , utah . the partnership funded this acquisition with borrowings under its secured revolving credit facility . on november 8 , 2017 , we acquired mineral and royalty interests underlying 71,410 gross acres , 2,757 net royalty acres , for an aggregate purchase price of approximately $ 7.3 million in various counties in arkansas . the partnership funded this acquisition with borrowings under its secured revolving credit facility . on december 13 , 2017 , we acquired a diverse package of mineral and overriding royalty interests for an aggregate purchase price of approximately $ 1.3 million . the core positions are located in california and wyoming and the package also includes small interests located in kansas , arkansas , texas and utah . the partnership funded this acquisition with borrowings under its secured revolving credit facility . 69 commodity derivative instruments on november 14 , 2017 , we entered into an international swaps and derivatives association , inc ( โ isda โ ) master agreement ( โ master agreement โ ) with frost bank for oil and natural gas commodity derivatives for the years ended december 31 , 2018 and 2019 , effective january 1 , 2018 and 2019 , respectively , with a trade date of december 12 , 2017. business environment commodity prices and demand oil and natural gas prices have been historically volatile and may continue to be volatile in the future . in late 2014 , prices for oil and natural gas declined precipitously , and prices remained low throughout 2015 and for the majority of 2016 until rebounding in the fourth quarter of 2016. for the year ended december 31 , 2017 , wti ranged from a low of $ 42.48 per bbl on june 21 , 2017 to a high of $ 60.46 per bbl on december 29 , 2017 , and for the year ended december 31 , 2016 , wti ranged from a low of $ 26.19 per bbl on february 11 , 2016 to a high of $ 54.01 per bbl on december 28 , 2016. for the year ended december 31 , 2017 the henry hub spot market price of natural gas ranged from a low of $ 2.44 per mmbtu on february 27 , 2017 to a high of $ 3.71 per mmbtu on january 2 , 2017 , and for the year ended december 31 , 2016 , the henry hub spot market price of natural gas has ranged from a low of $ 1.49 per mmbtu on march 4 , 2016 to a high of $ 3.80 per mmbtu on december 7 , 2016. on february 26 , 2018 , the wti posted price for crude oil was $ 63.81 per bbl and the henry hub spot market price of natural gas was $ 2.60 per mmbtu . the following table , as reported by the eia , sets forth the average prices for oil and natural gas . replace_table_token_12_th source : eia . rig count drilling on our acreage is dependent upon the exploration and production companies that lease our acreage . as such , we monitor rig counts in an effort to identify existing and future leasing and drilling activity on our acreage . the baker hughes u.s. rotary rig count was 929 active rigs at december 31 , 2017 , a greater than 41 % increase from 658 active rigs at december 31 , 2016. the 658 active rig count at december 31 , 2016 declined 6 % from 698 active rigs at december 31 , 2015. in addition , according to the baker hughes u.s. rotary rig count , rig activity in the 20 states in which we own mineral and royalty interests increased 44 % from 590 active rigs at december 31 , 2016 to 847 active rigs at december 31 , 2017. the 590 active rig count at december 31 , 2016 declined 6 % from 630 active rigs at december 31 , 2015. the active rig count across our acreage at december 31 , 2017 totaled 19 rigs , a 27 % increase compared to the 15 rigs at year-end 2016. sources of our revenue our revenues and our predecessor 's revenues are derived from royalty payments we receive from our operators based on the sale of oil , natural gas and ngl production , as well as the sale of ngls that are extracted from natural gas during processing . for the period from february 8 , 2017 to december 31 , 2017 , our revenues were generated 59 % from oil sales , 28 % from natural gas sales , 11 % from ngl sales and 2 % from other sales . for the period from january 1 , 2017 to february 7 , 2017 ( the โ predecessor 2017 period โ ) , our predecessor 's revenues were generated 55 % from oil sales , 36 % from natural gas sales and 9 % from ngl sales . story_separator_special_tag the production volumes were 1,067,169 boe or 3,264 boe/d and 10,410 boe or 274 boe/d , for the period from february 8 , 2017 to december 31 , 2017 and the predecessor 2017 period , respectively . the combined production for the year ended december 31 , 2017 was 1,077,579 boe or 2,952 boe/d , an increase of 916,836 boe or 2,512 boe/d , from 160,743 boe or 440 boe/d , for year ended december 31 , 2016. our predecessor 's volumes for the year ended december 31 , 2016 decreased by 12,326 or 34 boe/d from 173,070 or 474 boe/d for the year ended december 31 , 2015. this decrease in production for the year ended december 31 , 2016 when compared to production for the year ended december 31 , 2015 was primarily due to decreased drilling on our predecessor 's interests during the year ended december 31 , 2016 due to the industry wide steep declines in the price of oil , natural gas and ngls experienced through most of 2016. our operators received an average of $ 47.08 per bbl of oil , $ 2.74 per mcf of natural gas and $ 21.50 per bbl of ngl for the volumes sold during the period from february 8 , 2017 to december 31 , 2017. our predecessor 's operators received an average of $ 47.04 per bbl of oil , $ 3.47 per mcf of natural gas and $ 24.61 per bbl of ngl for the volumes sold during the predecessor 2017 period . for the combined year ended december 31 , 2017 , the operators received an average of $ 47.08 per bbl of oil , $ 2.74 per mcf of natural gas and $ 21.52 per bbl of ngl for the volumes sold . average prices received by the operators during the combined year ended december 31 , 2017 increased 21.7 % or $ 8.39 per bbl of oil and 24.0 % or $ 0.53 per mcf of natural gas as compared to our predecessor 's operators which received an average of $ 38.69 per bbl of oil , $ 2.21 per mcf of natural gas and $ 15.99 per bbl of ngl for the volumes sold during the year ended december 31 , 2016 these increases are consistent with prices experienced in the market , specifically when compared to the eia average price increases of 17.8 % or $ 7.66 per bbl of oil and 18.7 % or $ 0.47 per mcf of natural gas for the comparable periods . our predecessor 's operators received an average of $ 49.79 per bbl of oil , $ 2.44 per mcf of natural gas and $ 17.56 per bbl of ngl for the volumes sold during the year ended december 31 , 2015. average prices received by the predecessor 's operators during the year ended december 31 , 2016 decreased 22.2 % or $ 11.10 per bbl of oil and 9.4 % or $ 0.23 per mcf of natural gas as compared to the year ended december 31 , 2015. production and ad valorem taxes our production and ad valorem taxes for the period from february 8 , 2017 to december 31 , 2017 and the predecessor 2017 period were $ 2.5 million and $ 0.02 million , respectively . the combined production and ad valorem taxes for the year ended december 31 , 2017 were $ 2.5 million , an increase of $ 2.2 million from $ 0.3 million for year ended december 31 , 2016. the increase in production and ad valorem taxes was attributable to the $ 247.8 million acquisition of various mineral and royalty interests from the contributing parties at the closing of our ipo , the $ 29.3 million acquisition of various mineral and royalty interests throughout the 2017 period and the relevant production and revenues from those acquired interests . for the year ended december 31 , 2016 , our predecessor 's production and ad valorem taxes decreased by $ 0.1 million , from $ 0.4 million for the year ended december 31 , 2015. the decrease in production and ad valorem taxes was attributable to a decline in oil , natural gas and natural gas liquids prices . depreciation , depletion and accretion expense our and our predecessor 's depreciation , depletion and accretion expense for the period from february 8 , 2017 to december 31 , 2017 and the predecessor 2017 period was $ 15.5 million and $ 0.1 million , respectively , for a combined expense of $ 15.6 million for the year ended december 31 , 2017. this was an increase of $ 14.0 million from our predecessor 's depreciation , depletion and accretion expense of $ 1.6 million for the year ended december 31 , 2016. the increase in the depreciation , depletion and accretion expense was primarily attributable to the $ 247.8 million acquisition of various mineral and royalty interests from the contributing parties at the closing of our ipo , the $ 29.3 million acquisition of various mineral and royalty interests throughout the 2017 period and the relevant production from those acquired properties . 76 our predecessor 's depreciation , depletion and accretion expense decreased by $ 2.4 million for the year ended december 31 , 2016 from $ 4.0 million for the year ended december 31 , 2015. depletion is the amount of cost basis of oil and natural gas properties at the beginning of a period attributable to the volume of hydrocarbons extracted during such period , calculated on a unitsโofโproduction basis . estimates of proved developed producing reserves are a major component in the calculation of depletion . our and our predecessor 's average depletion rate per barrel was $ 14.43 and $ 10.31 for the period from february 8 , 2017 to december 31 , 2017 and the predecessor 2017 period , respectively . the combined average depletion rate per barrel for the year ended december 31 , 2017
| cash flows the following table presents our and our predecessor 's cash flows for the periods indicated . replace_table_token_16_th operating activities our and our predecessor 's operating cash flow is impacted by many variables , the most significant of which is the change in prices for oil , natural gas and ngls . prices for these commodities are determined primarily by prevailing market conditions . regional and worldwide economic activity , weather and other substantially variable factors influence market conditions for these products . these factors are beyond our and our predecessor 's control and are difficult to predict . cash flows provided by operating activities for the period from february 8 , 2017 to december 31 , 2017 and the predecessor 2017 period were $ 18.6 million and $ 0.2 million , respectively . cash flows provided by operating activities for the combined year ended december 31 , 2017 were $ 18.8 million , an increase of $ 17.7 million compared to our predecessor 's cash flows provided by operating activities of $ 1.1 million for the year ended december 31 , 2016. the 79 increase was largely attributable to the $ 247.8 million acquisition of various mineral and royalty interests from the contributing parties at the closing of our ipo , the $ 29.3 million acquisition of various mineral and royalty interests throughout the 2017 period and the relevant production and revenues from those acquired interests . the decreases in cash flows provided by operating activities for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 of $ 1.6 million were largely attributable to lower oil , natural gas and ngl sales prices . investing activities cash flows used in investing activities for the period from february 8 , 2017 to december 31 , 2017 were $ 125.9 million , an increase of $ 125.8
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the table below summarizes our estimated sales by market over the past three fiscal years . replace_table_token_6_th the table below shows our net sales by major product class for the past three fiscal years : 19 replace_table_token_7_th impact of raw material prices and product mix we value most of our inventory utilizing the last-in , first-out ( ยlifoย ) inventory costing methodology . under the lifo inventory costing method , changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials may have been acquired at potentially significantly different values due to the length of time from the acquisition of the raw materials to the sale of the processed finished goods to the customers . in a period of rising raw material costs , the lifo inventory valuation normally results in higher costs of sales . conversely , in a period of decreasing raw material costs , the lifo inventory valuation normally results in lower costs of sales . the volatility of the costs of raw materials has impacted our operations over the past several years . we , and others in our industry , generally have been able to pass cost increases on major raw materials through to our customers using surcharges that are structured to recover increases in raw material costs . generally , the formula used to calculate a surcharge is based on published prices of the respective raw materials for the previous month which correlates to the prices we pay for our raw material purchases . however , a portion of our surcharges to customers may be calculated using a different surcharge formula or may be based on the raw material prices at the time of order , which creates a lag between surcharge revenue and corresponding raw material costs recognized in costs of sales . the surcharge mechanism protects our net income on such sales except for the lag effect discussed above . however , surcharges have had a dilutive effect on our gross margin and operating margin percentages as described later in this report . a portion of our business consists of sales to customers under firm price sales arrangements . firm price sales arrangements involve a risk of profit margin fluctuations , particularly when raw material prices are volatile . in order to reduce the risk of fluctuating profit margins on these sales , we enter into commodity forward contracts to purchase certain critical raw materials necessary to produce the related products sold . firm price sales arrangements generally include certain annual purchasing commitments and consumption schedules agreed to by the customers at selling prices based on raw material prices at the time the arrangements are established . if a customer fails to meet the volume commitments ( or the consumption schedule deviates from the agreed-upon terms of the firm price sales arrangements ) , the company may need to absorb the gains or losses associated with the commodity forward contracts on a temporary basis . gains or losses associated with commodity forward contracts are reclassified to earnings/loss when earnings are impacted by the hedged transaction . because we value most of our inventory under the lifo costing methodology , the gains and or losses associated with commodity forward contracts may not impact the same period that the firm price sales arrangements revenue is recognized , and comparisons of gross profit from period to period may be impacted . these firm price sales arrangements are expected to continue as we look to strengthen our long-term customer relationships by expanding , renewing and in certain cases extending to a longer term , our customer long-term arrangements . we produce hundreds of grades of materials , with a wide range of pricing and profit levels depending on the grade . in addition , our product mix within a period is subject to the fluctuating order patterns of our customers as well as decisions we may make on participation in certain products based on available capacity including the impacts of capacity commitments we may have under existing customer agreements . while we expect to see positive contribution from a more favorable product mix in our margin performance over time , the impact by period may fluctuate , and period-to-period comparisons may vary . 20 net pension expense net pension expense , as we define it below , includes the net periodic benefit costs related to both our pension and other postretirement plans . net pension expense is recorded in accounts that are included in both the cost of sales and selling , general and administrative expenses lines of our statements of income . the following is a summary of the classification of net pension expense included in our statements of income during fiscal years 2011 , 2010 and 2009 : replace_table_token_8_th net pension expense is determined annually based on beginning of year balances , and is recorded ratably throughout the fiscal year , unless a significant re-measurement event occurs . the following is a summary of the components of net pension expense during fiscal year 2011 , 2010 and 2009 : replace_table_token_9_th the service cost component of net pension expense represents the estimated cost of future pension liabilities earned associated with active employees . the pension earnings , interest and deferrals expense is comprised of the expected return on plan assets , interest costs on the projected benefit obligations of the plans , and amortization of actuarial gains and losses and prior service costs . pension earnings , interest and deferrals expenses is impacted by the financial markets and increased significantly during fiscal year 2010 principally due to the decline in market value of the securities held by the plans as of june 30 , 2009. operating performance overview fiscal year 2011 results reflect the benefits of strong , sustained demand across all our end use markets . story_separator_special_tag the results reflect higher volumes associated with a steady upswing in demand from the same period last year coupled with an unfavorable shift in product mix . our objective is to increase our participation with long-standing customers to provide higher value components for engine applications . sales to the energy market of $ 79.8 million reflected a 48 percent decrease from fiscal year 2009. excluding surcharge revenue , such sales decreased 49 percent on 48 percent lower shipment volume . the sales results reflect the impacts of excess inventories in the supply chain , as a result of significantly lower oil and gas drilling along with sluggish demand for high-capacity industrial gas turbines . we are continuing to focus on diversifying our customer base , market segments served and product offerings in the broader energy market . we think that the energy market has the potential to be our fastest growing market . sales by product class the following table includes comparative information for our net sales by major product class : replace_table_token_20_th the following table includes comparative information for our net sales by the same major product class , but excluding surcharge revenues : replace_table_token_21_th 29 sales of special alloys products decreased 8 percent in fiscal year 2010 as compared with a year ago to $ 637.8 million . excluding surcharge revenue , sales decreased 10 percent on a 5 percent increase in shipment volume . the sales results principally reflect the decline in demand from the higher value aerospace and energy market products . sales of stainless steels decreased 13 percent as compared with fiscal year 2009. excluding surcharge revenues , such sales decreased by 11 percent on a 1 percent higher shipment volume . the results reflect a moderate increase in demand that was more than offset by an unfavorable shift in product mix in materials used in the automotive , industrial and consumer markets . sales of titanium products decreased 21 percent as compared with fiscal year 2009 on 8 percent lower shipment volume . the results reflect the impact of significantly lower titanium prices and decreased demand for titanium products used in the aerospace end-use market . gross profit gross profit in fiscal year 2010 decreased to $ 144.8 million , or 12.1 percent of net sales ( 15.7 percent of net sales excluding surcharges ) , from $ 207.2 million , or 15.2 percent of net sales ( 19.6 percent of net sales excluding surcharges ) , for fiscal year 2009. the results primarily reflect the favorable impacts of higher volumes and cost savings initiatives in fiscal year 2010 offset by an unfavorable shift in product mix and the higher net pension expense included in costs of sales during fiscal year 2010. our surcharge mechanism is structured to recover increases in raw material costs , although generally with a lag effect . while the surcharge generally protects the absolute gross profit dollars , it does have a dilutive effect on gross margin as a percent of sales . the following represents a summary of the dilutive impact of the surcharges on gross margin for fiscal years 2010 and 2009. see the section ยnon-gaap financial measuresย below for further discussion of these financial metrics . replace_table_token_22_th selling , general and administrative expenses selling , general and administrative expenses in fiscal year 2010 were $ 133.1 million , or 11.1 percent of net sales ( 14.4 percent of net sales excluding surcharges ) , compared to $ 133.8 million , or 9.8 percent of net sales ( 12.7 percent of net sales excluding surcharges ) , in fiscal year 2009. excluding the impact of changes in net pension expense discussed above , expenses decreased by 7 percent over fiscal year 2009 . 30 restructuring charges during fiscal year 2009 , we recorded $ 9.4 million of restructuring charges associated with the closure of our metal strip manufacturing facility in the united kingdom ( ยu.k.ย ) . the charges recorded consisted principally of pension settlement charges from the elimination of a u.k. defined benefit pension plan , certain asset write-downs , payments of employee severance costs and other exit costs . operating income our operating income in fiscal year 2010 decreased to $ 11.7 million as compared with $ 64.0 million in fiscal year 2009. the lower operating income principally reflects lower gross profit levels . the results for fiscal year 2009 included approximately $ 9.4 million of restructuring charges associated with the closure of a uk facility . operating income has been significantly impacted by our pension earnings , interest and deferrals ( ยpension eidย ) portion of our net pension expense , which may be volatile based on conditions in the financial markets . the following presents our operating income and operating margin , in each case excluding the impact of surcharges on net sales and excluding the impacts of pension eid expense and restructuring costs from operating income . we present and discuss these financial measures because management believes removing the impact of volatile and restructuring charges provides a more consistent and meaningful basis for comparing results of operations from period to period . see the section ยnon-gaap financial measuresย below for further discussion of these financial measures . replace_table_token_23_th in addition to the impact of the surcharge mechanism and pension eid expense , fluctuations in raw material prices ( combined with fluctuations in inventory levels ) and the lag effect of the surcharge mechanism have impacted our operating income from year to year . we estimate that the effect of such combined fluctuations negatively impacted our operating margin by approximately 150 basis points during fiscal year 2010 and positively impacted our operating margin by approximately points and 110 basis points during fiscal year 2009. interest expense fiscal year 2010 interest expense of $ 17.8 million increased 11 percent from $ 16.1 million in fiscal year 2009. interest on substantially all of our debt was at a fixed rate . the increase in interest
| cash flows the following table presents our and our predecessor 's cash flows for the periods indicated . replace_table_token_16_th operating activities our and our predecessor 's operating cash flow is impacted by many variables , the most significant of which is the change in prices for oil , natural gas and ngls . prices for these commodities are determined primarily by prevailing market conditions . regional and worldwide economic activity , weather and other substantially variable factors influence market conditions for these products . these factors are beyond our and our predecessor 's control and are difficult to predict . cash flows provided by operating activities for the period from february 8 , 2017 to december 31 , 2017 and the predecessor 2017 period were $ 18.6 million and $ 0.2 million , respectively . cash flows provided by operating activities for the combined year ended december 31 , 2017 were $ 18.8 million , an increase of $ 17.7 million compared to our predecessor 's cash flows provided by operating activities of $ 1.1 million for the year ended december 31 , 2016. the 79 increase was largely attributable to the $ 247.8 million acquisition of various mineral and royalty interests from the contributing parties at the closing of our ipo , the $ 29.3 million acquisition of various mineral and royalty interests throughout the 2017 period and the relevant production and revenues from those acquired interests . the decreases in cash flows provided by operating activities for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 of $ 1.6 million were largely attributable to lower oil , natural gas and ngl sales prices . investing activities cash flows used in investing activities for the period from february 8 , 2017 to december 31 , 2017 were $ 125.9 million , an increase of $ 125.8
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the table below summarizes our estimated sales by market over the past three fiscal years . replace_table_token_6_th the table below shows our net sales by major product class for the past three fiscal years : 19 replace_table_token_7_th impact of raw material prices and product mix we value most of our inventory utilizing the last-in , first-out ( ยlifoย ) inventory costing methodology . under the lifo inventory costing method , changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials may have been acquired at potentially significantly different values due to the length of time from the acquisition of the raw materials to the sale of the processed finished goods to the customers . in a period of rising raw material costs , the lifo inventory valuation normally results in higher costs of sales . conversely , in a period of decreasing raw material costs , the lifo inventory valuation normally results in lower costs of sales . the volatility of the costs of raw materials has impacted our operations over the past several years . we , and others in our industry , generally have been able to pass cost increases on major raw materials through to our customers using surcharges that are structured to recover increases in raw material costs . generally , the formula used to calculate a surcharge is based on published prices of the respective raw materials for the previous month which correlates to the prices we pay for our raw material purchases . however , a portion of our surcharges to customers may be calculated using a different surcharge formula or may be based on the raw material prices at the time of order , which creates a lag between surcharge revenue and corresponding raw material costs recognized in costs of sales . the surcharge mechanism protects our net income on such sales except for the lag effect discussed above . however , surcharges have had a dilutive effect on our gross margin and operating margin percentages as described later in this report . a portion of our business consists of sales to customers under firm price sales arrangements . firm price sales arrangements involve a risk of profit margin fluctuations , particularly when raw material prices are volatile . in order to reduce the risk of fluctuating profit margins on these sales , we enter into commodity forward contracts to purchase certain critical raw materials necessary to produce the related products sold . firm price sales arrangements generally include certain annual purchasing commitments and consumption schedules agreed to by the customers at selling prices based on raw material prices at the time the arrangements are established . if a customer fails to meet the volume commitments ( or the consumption schedule deviates from the agreed-upon terms of the firm price sales arrangements ) , the company may need to absorb the gains or losses associated with the commodity forward contracts on a temporary basis . gains or losses associated with commodity forward contracts are reclassified to earnings/loss when earnings are impacted by the hedged transaction . because we value most of our inventory under the lifo costing methodology , the gains and or losses associated with commodity forward contracts may not impact the same period that the firm price sales arrangements revenue is recognized , and comparisons of gross profit from period to period may be impacted . these firm price sales arrangements are expected to continue as we look to strengthen our long-term customer relationships by expanding , renewing and in certain cases extending to a longer term , our customer long-term arrangements . we produce hundreds of grades of materials , with a wide range of pricing and profit levels depending on the grade . in addition , our product mix within a period is subject to the fluctuating order patterns of our customers as well as decisions we may make on participation in certain products based on available capacity including the impacts of capacity commitments we may have under existing customer agreements . while we expect to see positive contribution from a more favorable product mix in our margin performance over time , the impact by period may fluctuate , and period-to-period comparisons may vary . 20 net pension expense net pension expense , as we define it below , includes the net periodic benefit costs related to both our pension and other postretirement plans . net pension expense is recorded in accounts that are included in both the cost of sales and selling , general and administrative expenses lines of our statements of income . the following is a summary of the classification of net pension expense included in our statements of income during fiscal years 2011 , 2010 and 2009 : replace_table_token_8_th net pension expense is determined annually based on beginning of year balances , and is recorded ratably throughout the fiscal year , unless a significant re-measurement event occurs . the following is a summary of the components of net pension expense during fiscal year 2011 , 2010 and 2009 : replace_table_token_9_th the service cost component of net pension expense represents the estimated cost of future pension liabilities earned associated with active employees . the pension earnings , interest and deferrals expense is comprised of the expected return on plan assets , interest costs on the projected benefit obligations of the plans , and amortization of actuarial gains and losses and prior service costs . pension earnings , interest and deferrals expenses is impacted by the financial markets and increased significantly during fiscal year 2010 principally due to the decline in market value of the securities held by the plans as of june 30 , 2009. operating performance overview fiscal year 2011 results reflect the benefits of strong , sustained demand across all our end use markets . story_separator_special_tag the results reflect higher volumes associated with a steady upswing in demand from the same period last year coupled with an unfavorable shift in product mix . our objective is to increase our participation with long-standing customers to provide higher value components for engine applications . sales to the energy market of $ 79.8 million reflected a 48 percent decrease from fiscal year 2009. excluding surcharge revenue , such sales decreased 49 percent on 48 percent lower shipment volume . the sales results reflect the impacts of excess inventories in the supply chain , as a result of significantly lower oil and gas drilling along with sluggish demand for high-capacity industrial gas turbines . we are continuing to focus on diversifying our customer base , market segments served and product offerings in the broader energy market . we think that the energy market has the potential to be our fastest growing market . sales by product class the following table includes comparative information for our net sales by major product class : replace_table_token_20_th the following table includes comparative information for our net sales by the same major product class , but excluding surcharge revenues : replace_table_token_21_th 29 sales of special alloys products decreased 8 percent in fiscal year 2010 as compared with a year ago to $ 637.8 million . excluding surcharge revenue , sales decreased 10 percent on a 5 percent increase in shipment volume . the sales results principally reflect the decline in demand from the higher value aerospace and energy market products . sales of stainless steels decreased 13 percent as compared with fiscal year 2009. excluding surcharge revenues , such sales decreased by 11 percent on a 1 percent higher shipment volume . the results reflect a moderate increase in demand that was more than offset by an unfavorable shift in product mix in materials used in the automotive , industrial and consumer markets . sales of titanium products decreased 21 percent as compared with fiscal year 2009 on 8 percent lower shipment volume . the results reflect the impact of significantly lower titanium prices and decreased demand for titanium products used in the aerospace end-use market . gross profit gross profit in fiscal year 2010 decreased to $ 144.8 million , or 12.1 percent of net sales ( 15.7 percent of net sales excluding surcharges ) , from $ 207.2 million , or 15.2 percent of net sales ( 19.6 percent of net sales excluding surcharges ) , for fiscal year 2009. the results primarily reflect the favorable impacts of higher volumes and cost savings initiatives in fiscal year 2010 offset by an unfavorable shift in product mix and the higher net pension expense included in costs of sales during fiscal year 2010. our surcharge mechanism is structured to recover increases in raw material costs , although generally with a lag effect . while the surcharge generally protects the absolute gross profit dollars , it does have a dilutive effect on gross margin as a percent of sales . the following represents a summary of the dilutive impact of the surcharges on gross margin for fiscal years 2010 and 2009. see the section ยnon-gaap financial measuresย below for further discussion of these financial metrics . replace_table_token_22_th selling , general and administrative expenses selling , general and administrative expenses in fiscal year 2010 were $ 133.1 million , or 11.1 percent of net sales ( 14.4 percent of net sales excluding surcharges ) , compared to $ 133.8 million , or 9.8 percent of net sales ( 12.7 percent of net sales excluding surcharges ) , in fiscal year 2009. excluding the impact of changes in net pension expense discussed above , expenses decreased by 7 percent over fiscal year 2009 . 30 restructuring charges during fiscal year 2009 , we recorded $ 9.4 million of restructuring charges associated with the closure of our metal strip manufacturing facility in the united kingdom ( ยu.k.ย ) . the charges recorded consisted principally of pension settlement charges from the elimination of a u.k. defined benefit pension plan , certain asset write-downs , payments of employee severance costs and other exit costs . operating income our operating income in fiscal year 2010 decreased to $ 11.7 million as compared with $ 64.0 million in fiscal year 2009. the lower operating income principally reflects lower gross profit levels . the results for fiscal year 2009 included approximately $ 9.4 million of restructuring charges associated with the closure of a uk facility . operating income has been significantly impacted by our pension earnings , interest and deferrals ( ยpension eidย ) portion of our net pension expense , which may be volatile based on conditions in the financial markets . the following presents our operating income and operating margin , in each case excluding the impact of surcharges on net sales and excluding the impacts of pension eid expense and restructuring costs from operating income . we present and discuss these financial measures because management believes removing the impact of volatile and restructuring charges provides a more consistent and meaningful basis for comparing results of operations from period to period . see the section ยnon-gaap financial measuresย below for further discussion of these financial measures . replace_table_token_23_th in addition to the impact of the surcharge mechanism and pension eid expense , fluctuations in raw material prices ( combined with fluctuations in inventory levels ) and the lag effect of the surcharge mechanism have impacted our operating income from year to year . we estimate that the effect of such combined fluctuations negatively impacted our operating margin by approximately 150 basis points during fiscal year 2010 and positively impacted our operating margin by approximately points and 110 basis points during fiscal year 2009. interest expense fiscal year 2010 interest expense of $ 17.8 million increased 11 percent from $ 16.1 million in fiscal year 2009. interest on substantially all of our debt was at a fixed rate . the increase in interest
| liquidity and capital resources we have the ability to generate cash to meet our needs through cash flow from operations , management of working capital and the availability of outside sources of financing to supplement internally generated funds . we believe that our cash and cash equivalents and short-term marketable securities of approximately $ 523 million as of june 30 , 2011 , together with cash generated from operations and available borrowing capacity of approximately $ 347 million under our credit facilities , will be sufficient to fund our operating activities , planned capital expenditures , the latrobe acquisition and other obligations for the foreseeable future . as of june 30 , 2011 , we had cash and cash equivalents of approximately $ 92 million held at various foreign subsidiaries . our global cash deployment considers , among other things , the geographic location of our subsidiaries ' cash balances , the locations of our anticipated liquidity needs , and the cost to access international cash balances , as necessary . the repatriation of cash from certain foreign subsidiaries could have adverse tax consequences as we may be required to pay and record u.s. income taxes and foreign withholding taxes in various tax jurisdictions on these funds to the extent they were previously considered permanently reinvested . on june 28 , 2011 , we issued $ 250 million of 5.20 % senior notes due 2021. we expect to use the net proceeds to repay $ 100 million in principal amount of the medium term notes , series c , at 7.625 % due august 2011. we intend to use the remaining net proceeds for general corporate purposes , which may include additions to working capital , capital expenditures , repayment of debt , the financing of acquisitions , joint ventures and other business combination opportunities or stock repurchases .
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on august 14 , 2019 , venus concept ltd. sold an additional $ 7.2 million of venus concept ltd. 's convertible notes to certain investors . on august 21 , 2019 , venus concept ltd. sold an additional $ 14.05 million to certain of the equity commitment letter investors . immediately after the merger ( as defined below ) we issued and sold securities in a private placement for approximately $ 28 . 1 million . s ee โ โc oncurrent financing โ . on march 18 , 2020 we issued and sold securities in a private placement for approximately $ 22.3 million . s ee โ โ2020 private placement โ below . we believe that the net proceeds from the issuance of the securities issued in the 2020 private placement , together with our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months . we based this estimate on our current assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . see โ โ โliquidity and capital resources `` . merger with venus concept ltd. in accordance with the terms of the agreement and plan of merger and reorganization , or the merger agreement , dated march 15 , 2019 , as amended , by and among venus concept ltd. , restoration robotics and radiant merger sub ltd. , a company organized under the laws of israel and a direct , wholly-owned subsidiary of restoration robotics , or merger sub , merger sub merged with and into venus concept ltd. , with venus concept ltd. surviving as a wholly-owned subsidiary of restoration robotics , or the merger . following the completion of the merger , restoration robotics changed its corporate name to โ venus concept inc. โ and the business conducted by venus concept ltd. became the primary business conducted by the company . at the effective time of the merger , each outstanding ordinary and preferred share of venus concept ltd. , other than shares held by venus concept ltd. as treasury stock or held by the company or merger sub , were converted into the right to receive 8.6506 ( the โ exchange ratio โ ) validly issued , fully paid and non-assessable shares of common stock of the company , par value $ 0.0001 per share ( โ common stock โ ) , and each outstanding stock option and warrant issued and outstanding by venus concept ltd. was assumed by restoration robotics and converted into and became an option or warrant ( as applicable ) exercisable for shares of common stock with the number and exercise price adjusted by the exchange ratio . the merger was accounted for as a reverse acquisition with venus concept ltd. as the acquiring company for accounting purposes , and venus concept as the legal acquirer . as a result , upon consummation of the merger , the historical financial statements of venus concept ltd. became the historical financial statements of venus concept inc. concurrent financing immediately following the closing of the merger , we issued and sold in a private placement to certain investors an aggregate of approximately 7.5 million shares of our common stock and warrants to purchase up to an aggregate of approximately 3.7 million shares of our common stock at an exercise price of $ 6.00 per share , which we refer to as the concurrent financing . the aggregate purchase price for the securities sold in the concurrent financing was approximately $ 28.1 million . we filed the registration statement on form s-3 ( 333-236207 ) registering the resale of the shares sold in the concurrent financing and shares issuable upon exercise of the warrants which became effective on february 12 , 2020. the warrants issued in the concurrent financing are exercisable beginning on may 7 , 2020. reverse stock split immediately following completion of the merger , we effected a 15-for-1 reverse stock split , or reverse stock split , of all outstanding shares of our common stock . all share and per share amounts shown in this annual report on form 10-k have been adjusted to reflect the reverse stock split , unless otherwise noted . 103 2020 private placement on march 18 , 2020 , we entered into a securities purchase agreement with certain investors pursuant to which we agreed to sell and they agreed to purchase an aggregate of approximately 2.3 million shares of our common stock , 0.7 million shares of series a convertible preferred stock , par value $ 0.0001 per share , which is convertible into 6.6 million shares of our common stock and warrants to purchase up to an aggregate of approximately 6.7 million shares of our common stock at an exercise price of $ 3.50 per share , which we refer to as the 2020 private placement . the warrants have a five-year term and are exercisable beginning 181 days after their issue date . the series a preferred stock will automatically convert into shares of common stock upon receipt of stockholder approval . the series a preferred stock has no voting rights other than as required by law . the aggregate purchase price for the securities sold in the 2020 private placement was approximately $ 22.3 million . the transaction was completed on march 19 , 2020. products and services we derive revenue from the sale of products and services . product revenue includes revenue from the following : the sale of systems , which includes the main console and is inclusive of control software and applicators ( referred to as system revenue ) ; marketing supplies and kits ; consumables and disposables ; replacement applicators/handpieces ; and venus concept skincare and hair products . story_separator_special_tag harvesting procedures can also be purchased in bulk orders . the site making procedure is use of the artasยฎ system to create a recipient site ( i.e . site making ) in the patient 's scalp affected by androgenic alopecia or aga ( or male pattern baldness ) . the site making procedures generally include one disposable site making kit . the site making procedures are sold to customers in the same manner as the harvesting procedures . other product revenue we also generate revenue from our customer base by selling glide ( a cooling/conductive gel which is required for use with many of our systems ) , marketing supplies and kits , consumables and disposables , replacement applicators and handpieces , our skincare products ( venus skin ) and hair products , and artasยฎ system training . service revenue we generate ancillary revenue from our existing customers by selling additional services including verografters technician services for hair restoration using our neograftยฎ system , extended warranty service contracts , and services provided by our 2two5 internal advertising agency . cost of goods sold and gross profit cost of goods sold consists primarily of costs associated with manufacturing our different systems , including direct product costs from third-party manufacturers , warehousing and storage costs and fulfillment and supply chain costs inclusive of personnel-related costs ( primarily salaries , benefits , incentive compensation and stock-based compensation ) . cost of goods sold also includes the cost of upgrades , technology amortization , royalty fees , parts , supplies , and cost of product warranties . 108 operating expenses selling and marketing . we currently sell our products and services using direct sales representatives in north america and in select international markets . our sales costs primarily consist of salaries , commissions , benefits , incentive compensation and stock-based compensation . costs also include expenses for travel and other promotional and sales-related activities . we continue to invest in new sales and marketing programs , and we expect that selling costs will continue to increase as we expand our direct operations across all geographic segments . however , we expect that selling expenses as a percentage of revenue will decline over time . our marketing costs primarily consist of salaries , benefits , incentive compensation and stock-based compensation . they also include expenses for travel , trade shows , and other promotional and marketing activities , including direct and online marketing . our marketing expenses have increased as we continue to scale up our direct operations across all geographic segments . however , given the fixed cost nature of many of these expenses , we expect that marketing expenses as a percentage of revenue will decline over time . general and administrative . our general and administrative costs primarily consist of expenses associated with our executive , accounting and finance , legal , intellectual property and human resource departments . these expenses consist of personnel-related expenses ( primarily salaries , benefits , incentive compensation and stock-based compensation ) and allocated facilities costs , audit fees , legal fees , consultants , travel , insurance and bad debt expense . during the normal course of operations , we may incur bad debt expense on accounts receivable balances that are deemed to be uncollectible . we expect our general and administrative expenses to increase due to the anticipated growth of our business and infrastructure . research and development . our research and development costs primarily consist of personnel-related costs ( primarily salaries , benefits , incentive compensation , and stock-based compensation ) , material costs , amortization of intangible assets , regulatory affairs , and clinical costs , and facilities costs in our yokneam , israel research center . our ongoing research and development activities are primarily focused on improving and enhancing our current technologies , products , and services , and on expanding our current product offering with the introduction of new products and expanded indications . our expenses all research and development costs in the periods in which they are incurred . we expect our research and development expenses to increase in absolute dollars as we continue to invest in research , clinical studies , regulatory affairs , and development activities , but to decline as a percentage of revenue as our revenue increases over time . finance expenses finance expenses consists of interest income , interest expense and other banking charges . interest income consists of interest earned on our cash , cash equivalents and short-term bank deposits . we expect interest income to vary depending on our average investment balances and market interest rates during each reporting period . interest expense consists of interest on long-term debt and other borrowings . the interest rate on our long-term debt is fixed at 9 % as of december 31 , 2019 and 9 % as of december 31 , 2018. foreign exchange loss ( income ) foreign currency exchange loss ( income ) changes reflect foreign exchange gains or losses related to the change in value of assets and liabilities denominated in currencies other than the u.s. dollar . 109 income taxes expense we estimate our current and deferred tax liabilities based on current tax laws in the statutory jurisdictions in which we operate . these estimates include judgments about liabilities resulting from temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes . our most significant temporary difference results from our subscription business . in certain jurisdictions , only the payments invoiced in the current period are subject to tax , but for accounting purposes , the discounted value of the total subscription contract is reported and tax affected . this results in a deferred tax credit which is settled in the future period when the monthly installment payment is issued and settled with the customer . since our inception , we have not recorded any tax benefits for the net operating losses we
| liquidity and capital resources we have the ability to generate cash to meet our needs through cash flow from operations , management of working capital and the availability of outside sources of financing to supplement internally generated funds . we believe that our cash and cash equivalents and short-term marketable securities of approximately $ 523 million as of june 30 , 2011 , together with cash generated from operations and available borrowing capacity of approximately $ 347 million under our credit facilities , will be sufficient to fund our operating activities , planned capital expenditures , the latrobe acquisition and other obligations for the foreseeable future . as of june 30 , 2011 , we had cash and cash equivalents of approximately $ 92 million held at various foreign subsidiaries . our global cash deployment considers , among other things , the geographic location of our subsidiaries ' cash balances , the locations of our anticipated liquidity needs , and the cost to access international cash balances , as necessary . the repatriation of cash from certain foreign subsidiaries could have adverse tax consequences as we may be required to pay and record u.s. income taxes and foreign withholding taxes in various tax jurisdictions on these funds to the extent they were previously considered permanently reinvested . on june 28 , 2011 , we issued $ 250 million of 5.20 % senior notes due 2021. we expect to use the net proceeds to repay $ 100 million in principal amount of the medium term notes , series c , at 7.625 % due august 2011. we intend to use the remaining net proceeds for general corporate purposes , which may include additions to working capital , capital expenditures , repayment of debt , the financing of acquisitions , joint ventures and other business combination opportunities or stock repurchases .
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on august 14 , 2019 , venus concept ltd. sold an additional $ 7.2 million of venus concept ltd. 's convertible notes to certain investors . on august 21 , 2019 , venus concept ltd. sold an additional $ 14.05 million to certain of the equity commitment letter investors . immediately after the merger ( as defined below ) we issued and sold securities in a private placement for approximately $ 28 . 1 million . s ee โ โc oncurrent financing โ . on march 18 , 2020 we issued and sold securities in a private placement for approximately $ 22.3 million . s ee โ โ2020 private placement โ below . we believe that the net proceeds from the issuance of the securities issued in the 2020 private placement , together with our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months . we based this estimate on our current assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . see โ โ โliquidity and capital resources `` . merger with venus concept ltd. in accordance with the terms of the agreement and plan of merger and reorganization , or the merger agreement , dated march 15 , 2019 , as amended , by and among venus concept ltd. , restoration robotics and radiant merger sub ltd. , a company organized under the laws of israel and a direct , wholly-owned subsidiary of restoration robotics , or merger sub , merger sub merged with and into venus concept ltd. , with venus concept ltd. surviving as a wholly-owned subsidiary of restoration robotics , or the merger . following the completion of the merger , restoration robotics changed its corporate name to โ venus concept inc. โ and the business conducted by venus concept ltd. became the primary business conducted by the company . at the effective time of the merger , each outstanding ordinary and preferred share of venus concept ltd. , other than shares held by venus concept ltd. as treasury stock or held by the company or merger sub , were converted into the right to receive 8.6506 ( the โ exchange ratio โ ) validly issued , fully paid and non-assessable shares of common stock of the company , par value $ 0.0001 per share ( โ common stock โ ) , and each outstanding stock option and warrant issued and outstanding by venus concept ltd. was assumed by restoration robotics and converted into and became an option or warrant ( as applicable ) exercisable for shares of common stock with the number and exercise price adjusted by the exchange ratio . the merger was accounted for as a reverse acquisition with venus concept ltd. as the acquiring company for accounting purposes , and venus concept as the legal acquirer . as a result , upon consummation of the merger , the historical financial statements of venus concept ltd. became the historical financial statements of venus concept inc. concurrent financing immediately following the closing of the merger , we issued and sold in a private placement to certain investors an aggregate of approximately 7.5 million shares of our common stock and warrants to purchase up to an aggregate of approximately 3.7 million shares of our common stock at an exercise price of $ 6.00 per share , which we refer to as the concurrent financing . the aggregate purchase price for the securities sold in the concurrent financing was approximately $ 28.1 million . we filed the registration statement on form s-3 ( 333-236207 ) registering the resale of the shares sold in the concurrent financing and shares issuable upon exercise of the warrants which became effective on february 12 , 2020. the warrants issued in the concurrent financing are exercisable beginning on may 7 , 2020. reverse stock split immediately following completion of the merger , we effected a 15-for-1 reverse stock split , or reverse stock split , of all outstanding shares of our common stock . all share and per share amounts shown in this annual report on form 10-k have been adjusted to reflect the reverse stock split , unless otherwise noted . 103 2020 private placement on march 18 , 2020 , we entered into a securities purchase agreement with certain investors pursuant to which we agreed to sell and they agreed to purchase an aggregate of approximately 2.3 million shares of our common stock , 0.7 million shares of series a convertible preferred stock , par value $ 0.0001 per share , which is convertible into 6.6 million shares of our common stock and warrants to purchase up to an aggregate of approximately 6.7 million shares of our common stock at an exercise price of $ 3.50 per share , which we refer to as the 2020 private placement . the warrants have a five-year term and are exercisable beginning 181 days after their issue date . the series a preferred stock will automatically convert into shares of common stock upon receipt of stockholder approval . the series a preferred stock has no voting rights other than as required by law . the aggregate purchase price for the securities sold in the 2020 private placement was approximately $ 22.3 million . the transaction was completed on march 19 , 2020. products and services we derive revenue from the sale of products and services . product revenue includes revenue from the following : the sale of systems , which includes the main console and is inclusive of control software and applicators ( referred to as system revenue ) ; marketing supplies and kits ; consumables and disposables ; replacement applicators/handpieces ; and venus concept skincare and hair products . story_separator_special_tag harvesting procedures can also be purchased in bulk orders . the site making procedure is use of the artasยฎ system to create a recipient site ( i.e . site making ) in the patient 's scalp affected by androgenic alopecia or aga ( or male pattern baldness ) . the site making procedures generally include one disposable site making kit . the site making procedures are sold to customers in the same manner as the harvesting procedures . other product revenue we also generate revenue from our customer base by selling glide ( a cooling/conductive gel which is required for use with many of our systems ) , marketing supplies and kits , consumables and disposables , replacement applicators and handpieces , our skincare products ( venus skin ) and hair products , and artasยฎ system training . service revenue we generate ancillary revenue from our existing customers by selling additional services including verografters technician services for hair restoration using our neograftยฎ system , extended warranty service contracts , and services provided by our 2two5 internal advertising agency . cost of goods sold and gross profit cost of goods sold consists primarily of costs associated with manufacturing our different systems , including direct product costs from third-party manufacturers , warehousing and storage costs and fulfillment and supply chain costs inclusive of personnel-related costs ( primarily salaries , benefits , incentive compensation and stock-based compensation ) . cost of goods sold also includes the cost of upgrades , technology amortization , royalty fees , parts , supplies , and cost of product warranties . 108 operating expenses selling and marketing . we currently sell our products and services using direct sales representatives in north america and in select international markets . our sales costs primarily consist of salaries , commissions , benefits , incentive compensation and stock-based compensation . costs also include expenses for travel and other promotional and sales-related activities . we continue to invest in new sales and marketing programs , and we expect that selling costs will continue to increase as we expand our direct operations across all geographic segments . however , we expect that selling expenses as a percentage of revenue will decline over time . our marketing costs primarily consist of salaries , benefits , incentive compensation and stock-based compensation . they also include expenses for travel , trade shows , and other promotional and marketing activities , including direct and online marketing . our marketing expenses have increased as we continue to scale up our direct operations across all geographic segments . however , given the fixed cost nature of many of these expenses , we expect that marketing expenses as a percentage of revenue will decline over time . general and administrative . our general and administrative costs primarily consist of expenses associated with our executive , accounting and finance , legal , intellectual property and human resource departments . these expenses consist of personnel-related expenses ( primarily salaries , benefits , incentive compensation and stock-based compensation ) and allocated facilities costs , audit fees , legal fees , consultants , travel , insurance and bad debt expense . during the normal course of operations , we may incur bad debt expense on accounts receivable balances that are deemed to be uncollectible . we expect our general and administrative expenses to increase due to the anticipated growth of our business and infrastructure . research and development . our research and development costs primarily consist of personnel-related costs ( primarily salaries , benefits , incentive compensation , and stock-based compensation ) , material costs , amortization of intangible assets , regulatory affairs , and clinical costs , and facilities costs in our yokneam , israel research center . our ongoing research and development activities are primarily focused on improving and enhancing our current technologies , products , and services , and on expanding our current product offering with the introduction of new products and expanded indications . our expenses all research and development costs in the periods in which they are incurred . we expect our research and development expenses to increase in absolute dollars as we continue to invest in research , clinical studies , regulatory affairs , and development activities , but to decline as a percentage of revenue as our revenue increases over time . finance expenses finance expenses consists of interest income , interest expense and other banking charges . interest income consists of interest earned on our cash , cash equivalents and short-term bank deposits . we expect interest income to vary depending on our average investment balances and market interest rates during each reporting period . interest expense consists of interest on long-term debt and other borrowings . the interest rate on our long-term debt is fixed at 9 % as of december 31 , 2019 and 9 % as of december 31 , 2018. foreign exchange loss ( income ) foreign currency exchange loss ( income ) changes reflect foreign exchange gains or losses related to the change in value of assets and liabilities denominated in currencies other than the u.s. dollar . 109 income taxes expense we estimate our current and deferred tax liabilities based on current tax laws in the statutory jurisdictions in which we operate . these estimates include judgments about liabilities resulting from temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes . our most significant temporary difference results from our subscription business . in certain jurisdictions , only the payments invoiced in the current period are subject to tax , but for accounting purposes , the discounted value of the total subscription contract is reported and tax affected . this results in a deferred tax credit which is settled in the future period when the monthly installment payment is issued and settled with the customer . since our inception , we have not recorded any tax benefits for the net operating losses we
| cash flows from operating activities in the year ended december 31 , 2019 , cash used in operating activities consisted of a net loss of $ 42.3 million and an investment in net operating assets of $ 12.8 million , partially offset by non-cash operating expenses of $ 15.5 million . the investment in net operating assets was primary attributable to an increase in accounts receivable of $ 21.1 million , primarily due to the increase in subscription sales , an increase in prepaid expenses of $ 0.9 million , a decrease in accounts payable of $ 6.0 million and a decrease in other long-term liabilities of $ 1.4 million . this was partially offset by an increase in inventories of $ 6.4 million , an increase in other current assets of $ 0.5 million , an increase in severance payments of $ 0.1 million and an increase in accrued expenses and other current liabilities of $ 9.6 million . the non-cash operating expenses consisted mainly of a provision for bad debts of $ 10.0 million , depreciation and amortization of $ 2.0 million , stock-based compensation expense of $ 2.2 million , deferred tax benefit of $ 1.1 million , interest on convertible promissory notes of $ 0.6 million , a change in the fair value of the earn-out liability for the purchase of neograft of $ 0.5 million , unrealized foreign exchange loss of $ 0.2 million , financing fees of $ 0.3 , issuance of warrants of $ 0.1 million , interest on convertible promissory notes of $ 0.6 and a provision for inventory obsolescence of $ 1.0 million .
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the allowance for loan losses is the estimated amount considered necessary to cover probable and reasonably estimable incurred losses inherent in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses that is charged against income . in determining the allowance for loan losses , we make significant estimates and judgments . the determination of the allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved , the subjectivity of the assumptions used , and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses . the allowance for loan losses has been determined in accordance with u.s. gaap . we are responsible for the timely and periodic determination of the amount of the allowance required . we believe that our allowance for loan losses is adequate to cover identifiable losses , as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable . management performs a formal quarterly evaluation of the adequacy of the allowance for loan losses . this quarterly process is performed by the accounting department , in conjunction with the credit administration department , and approved by the director of financial reporting . the chief financial officer performs a final review of the calculation . all supporting documentation with regard to the evaluation process is maintained by the accounting department . each quarter a summary of the allowance for loan losses is presented by the chief financial officer to the audit committee of the board of directors . 47 the analysis of the allowance for loan losses has a component for impaired loans held-for-investment and pci loans , and a component for loans collectively evaluated for impairment . prior to december 31 , 2016 , we maintained an amount identified as the unallocated component within the allowance for loan losses related to indicators of loan losses not fully captured in other components of the allowance for loan losses methodology , as well as the inherent imprecision of the loss estimation process . during the fourth quarter of 2016 , the company enhanced the allowance for loan losses qualitative framework to more fully capture the risks related to certain loan loss factors . these enhancements are meant to increase the level of precision in the allowance for loan losses . as a result , subsequent to 2015 , the company no longer has an unallocated reserve in its allowance for loan losses , as the risks and uncertainties meant to be captured by the unallocated allowance have been included in the qualitative framework for the respective loan portfolios . management has defined an impaired loan ( excluding pci loans ) to be a loan for which it is probable , based on current information , that we will not collect all amounts due in accordance with the contractual terms of the loan agreement . we have defined the population of impaired loans to be all non-accrual loans with an outstanding balance of $ 500,000 or greater , and all loans identified as a tdr . impaired loans are individually evaluated for impairment to determine that the loan 's carrying value is not in excess of the estimated fair value of the collateral ( less cost to sell ) , if the loan is collateral dependent , or the present value of the expected future cash flows , if the loan is not collateral dependent . management performs a detailed evaluation of each impaired loan and generally obtains updated appraisals as part of the evaluation . in addition , management adjusts estimated fair values down to appropriately consider recent market conditions , our willingness to accept , when appropriate , a lower sales price to effect a quick sale , and costs to dispose of any supporting collateral . determining the estimated fair value of underlying collateral ( and related costs to sell ) can be difficult in illiquid real estate markets and is subject to significant assumptions and estimates . management employs an independent third-party expert in appraisal preparation and review to ascertain the reasonableness of all appraisals . projecting the expected cash flows under tdrs is inherently subjective and requires , among other things , an evaluation of the borrower 's current and projected financial condition . actual results may be significantly different than our projections , and our established allowance for loan losses on these loans , and could have a material effect on our financial results . the second component of the allowance for loan losses is the allowance for loans collectively evaluated for impairment . this evaluation excludes impaired , trouble-debt restructured , and pci loans , with the remaining loans being placed into groups with similar risk characteristics , primarily loan type , loan-to-value ( if collateral dependent ) and internal credit risk rating . we apply an estimated loss rate to each loan group . the loss rates applied are based on our net loss experience ( using appropriate look-back and loss emergence periods ) as adjusted , if appropriate , for our qualitative assessment of factors which may not be fully captured in our historical quantitative net loss rates applied to : changes in lending policies and procedures ; changes in local , regional , national , and international economic and business conditions and developments that affect the collectability of our portfolio , including the condition of various market segments ; changes in the nature and volume of our portfolio and in the terms of our loans ; changes in the experience , ability and depth of lending management and other relevant staff ; changes in the volume and severity of past due loans , the volume of non-accrual loans , and the volume and severity of adversely classified or graded loans ; changes in the quality of our loan story_separator_special_tag the effective tax rate for the year ended december 31 , 2018 , reflects the reduction of the federal corporate tax rate to 21 % from 35 % effective january 1 , 2018 , and excess tax benefits of $ 2.7 million related to the exercise or vesting of equity awards . the effective tax rate for the year ended december 31 , 2017 reflects : ( i ) a tax charge of $ 10.5 million related to the enactment of the tax reform act in the fourth quarter of 2017 , as discussed above ; ( ii ) excess tax benefits of $ 2.3 million related to the exercise or vesting of equity awards ; and ( iii ) $ 1.5 million of tax-exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies . excess tax benefits will fluctuate throughout the year based on the company 's stock price and timing of employee stock option exercises and vesting of other share-based awards . on july 1 , 2018 , the state of new jersey enacted new legislation that created a temporary surtax effective for tax years 2018 through 2021 and will require companies to file combined tax returns beginning in 2019. the new legislation did not result in a material change to our net deferred tax asset or state tax expense . management continues to evaluate the effect of this new legislation , including the issuance of regulations by the new jersey division of taxation , on our net deferred tax asset and future tax expense . 53 comparison of operating results for the years ended december 31 , 2017 and 2016 net income . net income was $ 24.8 million and $ 26.1 million for the years ended december 31 , 2017 and 2016 , respectively . significant variances from the prior year are as follows : a $ 5.6 million increase in net interest income , a $ 776,000 increase in the provision for loan losses , a $ 1.6 million increase in non-interest income , a $ 5.6 million decrease in non-interest expense , and a $ 13.3 million increase in income tax expense . net income for the year ended december 31 , 2017 includes a tax charge of $ 10.5 million related to the tax act , a $ 2.3 million reduction in income tax expense as a result of the adoption of accounting standards update no . 2016-09 , compensation - stock compensation ( topic 718 ) ( โ asu 2016-09 โ ) related to the accounting of stock compensation , and $ 1.5 million of tax-exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies . net income for the year ended december 31 , 2016 included merger-related expenses of $ 4.0 million ( $ 2.4 million , after tax ) associated with the acquisition of hopewell valley . interest income . interest income increased by $ 7.9 million , or 6.3 % , to $ 132.9 million for the year ended december 31 , 2017 , as compared to $ 125.0 million for the year ended december 31 , 2016 , due to an increase in the average balance of interest-earning assets of $ 182.5 million , or 5.3 % , and a three basis point increase in the yields earned to 3.64 % from 3.61 % for the prior year . the increase in the average balance of interest-earning assets was primarily attributable to increases in average loans of $ 271.1 million and other securities of $ 11.9 million , partially offset by decreases in average mortgage-backed securities of $ 91.2 million and interest-earning deposits in financial institutions of $ 10.0 million . the company accreted interest income related to its pci loans of $ 5.5 million for the year ended december 31 , 2017 , as compared to $ 5.2 million for the year ended december 31 , 2016. interest income for the year ended december 31 , 2017 , included loan prepayment income of $ 1.4 million , compared to $ 1.9 million for the year ended december 31 , 2016. interest expense . interest expense increased $ 2.3 million , or 10.7 % , to $ 24.0 million for the year ended december 31 , 2017 , from $ 21.7 million for the year ended december 31 , 2016. the increase was due primarily to an increase of $ 2.1 million in interest expense on deposits . the increase in interest expense on deposits was attributable to an increase in the average balance of interest-bearing deposits of $ 138.7 million , or 6.3 % , to $ 2.34 billion for the year ended december 31 , 2017 , from $ 2.20 billion for the year ended december 31 , 2016 , and a five basis point increase in the cost of interest-bearing deposits to 0.70 % from 0.65 % . net interest income . net interest income for the year ended december 31 , 2017 , increased $ 5.6 million , or 5.4 % , to $ 108.9 million , from $ 103.3 million for the prior year , primarily due to a $ 182.5 million , or 5.3 % , increase in our average interest-earning assets and a one basis point increase in our net interest margin to 2.99 % . yields earned on interest-earning assets increased three basis points to 3.64 % for the year ended december 31 , 2017 , from 3.61 % for the year ended december 31 , 2016. the cost of interest-bearing liabilities increased five basis points to 0.85 % for the year ended december 31 , 2017 , as compared to 0.80 % for the prior year . provision for loan losses . the provision for loan losses increased $ 776,000 to $ 1.4 million for the year ended december 31 , 2017 , from $ 635,000 for the year ended december 31 ,
| cash flows from operating activities in the year ended december 31 , 2019 , cash used in operating activities consisted of a net loss of $ 42.3 million and an investment in net operating assets of $ 12.8 million , partially offset by non-cash operating expenses of $ 15.5 million . the investment in net operating assets was primary attributable to an increase in accounts receivable of $ 21.1 million , primarily due to the increase in subscription sales , an increase in prepaid expenses of $ 0.9 million , a decrease in accounts payable of $ 6.0 million and a decrease in other long-term liabilities of $ 1.4 million . this was partially offset by an increase in inventories of $ 6.4 million , an increase in other current assets of $ 0.5 million , an increase in severance payments of $ 0.1 million and an increase in accrued expenses and other current liabilities of $ 9.6 million . the non-cash operating expenses consisted mainly of a provision for bad debts of $ 10.0 million , depreciation and amortization of $ 2.0 million , stock-based compensation expense of $ 2.2 million , deferred tax benefit of $ 1.1 million , interest on convertible promissory notes of $ 0.6 million , a change in the fair value of the earn-out liability for the purchase of neograft of $ 0.5 million , unrealized foreign exchange loss of $ 0.2 million , financing fees of $ 0.3 , issuance of warrants of $ 0.1 million , interest on convertible promissory notes of $ 0.6 and a provision for inventory obsolescence of $ 1.0 million .
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the allowance for loan losses is the estimated amount considered necessary to cover probable and reasonably estimable incurred losses inherent in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses that is charged against income . in determining the allowance for loan losses , we make significant estimates and judgments . the determination of the allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved , the subjectivity of the assumptions used , and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses . the allowance for loan losses has been determined in accordance with u.s. gaap . we are responsible for the timely and periodic determination of the amount of the allowance required . we believe that our allowance for loan losses is adequate to cover identifiable losses , as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable . management performs a formal quarterly evaluation of the adequacy of the allowance for loan losses . this quarterly process is performed by the accounting department , in conjunction with the credit administration department , and approved by the director of financial reporting . the chief financial officer performs a final review of the calculation . all supporting documentation with regard to the evaluation process is maintained by the accounting department . each quarter a summary of the allowance for loan losses is presented by the chief financial officer to the audit committee of the board of directors . 47 the analysis of the allowance for loan losses has a component for impaired loans held-for-investment and pci loans , and a component for loans collectively evaluated for impairment . prior to december 31 , 2016 , we maintained an amount identified as the unallocated component within the allowance for loan losses related to indicators of loan losses not fully captured in other components of the allowance for loan losses methodology , as well as the inherent imprecision of the loss estimation process . during the fourth quarter of 2016 , the company enhanced the allowance for loan losses qualitative framework to more fully capture the risks related to certain loan loss factors . these enhancements are meant to increase the level of precision in the allowance for loan losses . as a result , subsequent to 2015 , the company no longer has an unallocated reserve in its allowance for loan losses , as the risks and uncertainties meant to be captured by the unallocated allowance have been included in the qualitative framework for the respective loan portfolios . management has defined an impaired loan ( excluding pci loans ) to be a loan for which it is probable , based on current information , that we will not collect all amounts due in accordance with the contractual terms of the loan agreement . we have defined the population of impaired loans to be all non-accrual loans with an outstanding balance of $ 500,000 or greater , and all loans identified as a tdr . impaired loans are individually evaluated for impairment to determine that the loan 's carrying value is not in excess of the estimated fair value of the collateral ( less cost to sell ) , if the loan is collateral dependent , or the present value of the expected future cash flows , if the loan is not collateral dependent . management performs a detailed evaluation of each impaired loan and generally obtains updated appraisals as part of the evaluation . in addition , management adjusts estimated fair values down to appropriately consider recent market conditions , our willingness to accept , when appropriate , a lower sales price to effect a quick sale , and costs to dispose of any supporting collateral . determining the estimated fair value of underlying collateral ( and related costs to sell ) can be difficult in illiquid real estate markets and is subject to significant assumptions and estimates . management employs an independent third-party expert in appraisal preparation and review to ascertain the reasonableness of all appraisals . projecting the expected cash flows under tdrs is inherently subjective and requires , among other things , an evaluation of the borrower 's current and projected financial condition . actual results may be significantly different than our projections , and our established allowance for loan losses on these loans , and could have a material effect on our financial results . the second component of the allowance for loan losses is the allowance for loans collectively evaluated for impairment . this evaluation excludes impaired , trouble-debt restructured , and pci loans , with the remaining loans being placed into groups with similar risk characteristics , primarily loan type , loan-to-value ( if collateral dependent ) and internal credit risk rating . we apply an estimated loss rate to each loan group . the loss rates applied are based on our net loss experience ( using appropriate look-back and loss emergence periods ) as adjusted , if appropriate , for our qualitative assessment of factors which may not be fully captured in our historical quantitative net loss rates applied to : changes in lending policies and procedures ; changes in local , regional , national , and international economic and business conditions and developments that affect the collectability of our portfolio , including the condition of various market segments ; changes in the nature and volume of our portfolio and in the terms of our loans ; changes in the experience , ability and depth of lending management and other relevant staff ; changes in the volume and severity of past due loans , the volume of non-accrual loans , and the volume and severity of adversely classified or graded loans ; changes in the quality of our loan story_separator_special_tag the effective tax rate for the year ended december 31 , 2018 , reflects the reduction of the federal corporate tax rate to 21 % from 35 % effective january 1 , 2018 , and excess tax benefits of $ 2.7 million related to the exercise or vesting of equity awards . the effective tax rate for the year ended december 31 , 2017 reflects : ( i ) a tax charge of $ 10.5 million related to the enactment of the tax reform act in the fourth quarter of 2017 , as discussed above ; ( ii ) excess tax benefits of $ 2.3 million related to the exercise or vesting of equity awards ; and ( iii ) $ 1.5 million of tax-exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies . excess tax benefits will fluctuate throughout the year based on the company 's stock price and timing of employee stock option exercises and vesting of other share-based awards . on july 1 , 2018 , the state of new jersey enacted new legislation that created a temporary surtax effective for tax years 2018 through 2021 and will require companies to file combined tax returns beginning in 2019. the new legislation did not result in a material change to our net deferred tax asset or state tax expense . management continues to evaluate the effect of this new legislation , including the issuance of regulations by the new jersey division of taxation , on our net deferred tax asset and future tax expense . 53 comparison of operating results for the years ended december 31 , 2017 and 2016 net income . net income was $ 24.8 million and $ 26.1 million for the years ended december 31 , 2017 and 2016 , respectively . significant variances from the prior year are as follows : a $ 5.6 million increase in net interest income , a $ 776,000 increase in the provision for loan losses , a $ 1.6 million increase in non-interest income , a $ 5.6 million decrease in non-interest expense , and a $ 13.3 million increase in income tax expense . net income for the year ended december 31 , 2017 includes a tax charge of $ 10.5 million related to the tax act , a $ 2.3 million reduction in income tax expense as a result of the adoption of accounting standards update no . 2016-09 , compensation - stock compensation ( topic 718 ) ( โ asu 2016-09 โ ) related to the accounting of stock compensation , and $ 1.5 million of tax-exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies . net income for the year ended december 31 , 2016 included merger-related expenses of $ 4.0 million ( $ 2.4 million , after tax ) associated with the acquisition of hopewell valley . interest income . interest income increased by $ 7.9 million , or 6.3 % , to $ 132.9 million for the year ended december 31 , 2017 , as compared to $ 125.0 million for the year ended december 31 , 2016 , due to an increase in the average balance of interest-earning assets of $ 182.5 million , or 5.3 % , and a three basis point increase in the yields earned to 3.64 % from 3.61 % for the prior year . the increase in the average balance of interest-earning assets was primarily attributable to increases in average loans of $ 271.1 million and other securities of $ 11.9 million , partially offset by decreases in average mortgage-backed securities of $ 91.2 million and interest-earning deposits in financial institutions of $ 10.0 million . the company accreted interest income related to its pci loans of $ 5.5 million for the year ended december 31 , 2017 , as compared to $ 5.2 million for the year ended december 31 , 2016. interest income for the year ended december 31 , 2017 , included loan prepayment income of $ 1.4 million , compared to $ 1.9 million for the year ended december 31 , 2016. interest expense . interest expense increased $ 2.3 million , or 10.7 % , to $ 24.0 million for the year ended december 31 , 2017 , from $ 21.7 million for the year ended december 31 , 2016. the increase was due primarily to an increase of $ 2.1 million in interest expense on deposits . the increase in interest expense on deposits was attributable to an increase in the average balance of interest-bearing deposits of $ 138.7 million , or 6.3 % , to $ 2.34 billion for the year ended december 31 , 2017 , from $ 2.20 billion for the year ended december 31 , 2016 , and a five basis point increase in the cost of interest-bearing deposits to 0.70 % from 0.65 % . net interest income . net interest income for the year ended december 31 , 2017 , increased $ 5.6 million , or 5.4 % , to $ 108.9 million , from $ 103.3 million for the prior year , primarily due to a $ 182.5 million , or 5.3 % , increase in our average interest-earning assets and a one basis point increase in our net interest margin to 2.99 % . yields earned on interest-earning assets increased three basis points to 3.64 % for the year ended december 31 , 2017 , from 3.61 % for the year ended december 31 , 2016. the cost of interest-bearing liabilities increased five basis points to 0.85 % for the year ended december 31 , 2017 , as compared to 0.80 % for the prior year . provision for loan losses . the provision for loan losses increased $ 776,000 to $ 1.4 million for the year ended december 31 , 2017 , from $ 635,000 for the year ended december 31 ,
| cash and cash equivalents increase d by $ 19.9 million , or 34.4 % , to $ 77.8 million at december 31 , 2018 , from $ 57.8 million at december 31 , 2017 . balances fluctuate based on the timing of receipt of security and loan repayments and the redeployment of cash into higher-yielding assets such as loans and securities , or the funding of deposit or borrowing obligations . bank owned life insurance increased $ 3.5 million , or 2.3 % , to $ 154.1 million at december 31 , 2018 , from $ 150.6 million at december 31 , 2017 . the increase resulted from income earned on bank owned life insurance for the year ended december 31 , 2018 . other real estate owned ( โ oreo โ ) decreased $ 850,000 to $ 0 at december 31 , 2018 , due to the sale of the company 's single oreo property . other assets decreased by $ 1.3 million , or 4.0 % , to $ 31.6 million at december 31 , 2018 , from $ 32.9 million at december 31 , 2017 . the decrease in other assets was primarily attributable to a decrease in net deferred tax assets . 51 total liabilities increase d $ 389.5 million , or 11.6 % , to $ 3.74 billion at december 31 , 2018 , from $ 3.35 billion at december 31 , 2017 . the increase was primarily attributable to increase s in deposits of $ 449.5 million and advance payments by borrowers for taxes and insurance of $ 3.2 million , partially offset by a decrease in other borrowings of $ 62.7 million .
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factors that could impact results of operations the factors outlined below could impact our future results of operations . for more extensive discussion of these and other risk factors , please refer to `` risk factors `` , under part i , item1a in this report . general business and economic conditions our business has been affected by general business and economic conditions , and these conditions could have an impact on future demand for our products . the global economic environment continues to be challenging , and we expect the uncertainty to continue . in light of the macroeconomic environment , we continue to take steps to further align our cost structure with our anticipated level of net sales . we continued to make strategic investments , including : introducing new products ; investing in increasing our global brand awareness ; extending our presence and improving our retail account productivity and distribution ; investing in our operating infrastructure to meet the requirements of our business ; and taking actions to further strengthen our business . competition participants in the bedding industry compete primarily on price , quality , brand name recognition , product availability , and product performance . we compete with a number of different types of mattress alternatives , including standard innerspring mattresses , viscoelastic mattresses , foam mattresses , hybrid innerspring/foam mattresses , futons , air beds and other air-supported mattresses . these alternative products are sold through a variety of channels , including furniture and bedding stores , department stores , mass merchants , wholesale clubs , internet , telemarketing programs , television infomercials , television advertising and catalogs . our tempur north america segment competes in the non-innerspring mattress category and contributes 36.9 % of our net sales . beginning in the second half of 2012 , a significant number of new non-innerspring mattress products were introduced in this category and changed the competitive environment of the u.s. bedding industry . many of these new non-innerspring mattress products have been supported by aggressive marketing campaigns and promotions . as a result of this change , our results have been negatively impacted and we modified our business strategy to compete and expand our market share . our results could continue to be challenged . 31 financial leverage as of december 31 , 2013 , we had $ 1,836.5 million of debt outstanding , and our stockholders ' equity was $ 114.0 million . higher financial leverage makes us more vulnerable to general adverse competitive , economic and industry conditions . there can be no assurance that our business will generate sufficient cash flow from operations or that future borrowing will be available . as of december 31 , 2013 , our ratio of funded debt less qualified cash to ebitda was 4.4 times , within the covenant in our debt agreements which limits this ratio to 5.25 times for the year ended december 31 , 2013. for more information on this non-gaap measure , please refer to the section set forth below โ non-gaap financial measures โ . sealy integration our sealy acquisition is significant , and we may not be able to successfully integrate and combine the operations , personnel and technology of sealy with our operations . because of the size and complexity of sealy 's business , if we do not successfully manage integration , we may experience interruptions in our business activities , a deterioration in our employee and customer relationships , increased costs of integration and harm to our reputation , all of which could have a material adverse effect on our business , financial condition and results of operations . we may also experience difficulties in combining corporate cultures , maintaining employee morale and retaining key employees . the integration may also impose substantial demands on our management . there is no assurance that improved operating results will be achieved as a result of the sealy acquisition or that the businesses of sealy and tempur-pedic will be successfully integrated in a timely manner . gross margins our gross margin is primarily impacted by the relative amount of net sales between our business segments . the sealy segment operates at a significantly lower gross margin than the tempur north america and tempur international segments . if sealy 's net sales increase as a percentage of net sales , our gross margin will be negatively impacted . additionally , our tempur north america gross margin has historically been lower than that of our tempur international segment . our gross margin is also impacted by fixed cost leverage ; the cost of raw materials ; operational efficiency ; product , channel and geographic mix ; volume incentives offered to certain retail accounts ; and costs associated with new product introductions . future increases in raw material prices could have a negative impact on our gross margin if we do not raise prices to cover increased cost . our gross margin can also be impacted by our operational efficiencies , including the particular levels of utilization in our manufacturing facilities . if we increase our net sales significantly the effect of this operating leverage could have a significant positive impact on our gross margin . conversely , if we experience significant decreases in our net sales , the effect of this operating deleverage could have a significant negative impact on our gross margin . our margins are also impacted by the growth in our retail channel as sales in our retail channel are at wholesale prices whereas sales in our direct channel are at retail prices . in 2014 , we expect gross margin to benefit from cost synergies and leverage , offset by investments in new products and foreign exchange . floor model shipments will be elevated in the first half of 2014 as we complete our new product roll-outs . story_separator_special_tag during the full year 2013 , we also recorded royalty income , net of royalty expense , of $ 13.7 million and equity income in earnings of unconsolidated affiliates of $ 4.4 million . our royalty income is based on sales of sealyยฎ and stearns & fosterยฎ branded products by various licensees and is offset by royalty expenses we pay to other entities for the use of their names on our sealy branded products . our equity income in earnings of unconsolidated affiliates represents our 50.0 % interest in the earnings of our asia-pacific joint ventures whose purpose is to develop markets for sealy branded products . during the full year 2013 , we incurred $ 18.7 million of transaction expenses and $ 25.9 million of integration expenses in connection with the sealy acquisition . during the full year 2012 , we incurred $ 8.9 million of transaction expenses and $ 3.7 million of integration expenses in connection with the sealy acquisition . year ended december 31 , 2012 compared to year ended december 31 , 2011 operating income decreased $ 92.2 million , or 27.1 % , and was primarily impacted by the factors discussed above . interest expense , net replace_table_token_10_th year ended december 31 , 2013 compared to the year ended december 31 , 2012 interest expense , net , increased $ 92.0 million , or 489.4 % . in 2013 , we incurred $ 19.9 million of incremental interest expense and fees on the senior notes and 2012 credit agreement for the period prior to march 18 , 2013 , commitment fees associated with financing for the closing of the sealy acquisition , and write off of deferred financing costs associated with the 2011 credit facility . in addition , we incurred $ 8.7 million in prepayment fees related to the refinancing of our term b facility in the second quarter of 2013. the remaining increase was due to higher debt levels as a result of the sealy acquisition . 39 year ended december 31 , 2012 compared to the year ended december 31 , 2011 interest expense , net , increased $ 6.9 million , or 58.0 % . the increase in interest expense was primarily attributable to an increase in our debt outstanding as of december 31 , 2012 compared to our debt outstanding as of december 31 , 2011 and an increase in our effective interest rate . our debt levels increased in anticipation of the sealy acquisition , which occurred on march 18 , 2013. income before income taxes replace_table_token_11_th year ended december 31 , 2013 compared to year ended december 31 , 2012 income before income taxes decreased $ 101.2 million , or 44.2 % . this decrease was a result of the factors discussed above . year ended december 31 , 2012 compared to year ended december 31 , 2011 income before income taxes decreased $ 99.2 million , or 30.2 % . this decrease was a result of the factors discussed above . income taxes replace_table_token_12_th income tax provision includes income taxes associated with taxes currently payable and deferred taxes , and includes the impact of net operating losses for certain of our foreign operations . year ended december 31 , 2013 compared to year ended december 31 , 2012 our income tax provision decreased $ 73.3 million and our effective tax rate decreased 15.0 % . during 2012 , we recorded $ 48.1 million of additional income tax expense related to our undistributed earnings from non-u.s. operations , which increased our effective tax rate by 21.0 % . this was recorded as deferred income tax expense in 2012 and a deferred tax liability at december 31 , 2012. during 2013 , we undertook a taxable transaction in which we recognized current taxable income based on the earnings of certain of our foreign subsidiaries . the resulting income tax payable was approximately $ 51.7 million . consequently , we reclassified the $ 48.1 million deferred tax liability recorded at december 31 , 2012 to current tax payable at december 31 , 2013 and recognized an incremental $ 3.6 million current income tax expense in 2013. year ended december 31 , 2012 compared to year ended december 31 , 2011 our income tax provision increased $ 13.6 million and our effective tax rate increased 20.3 % .we had made no historical provision for u.s. federal and or state income tax and foreign withholdings on our undistributed earnings from non-u.s. operations because we intended to reinvest such earnings indefinitely outside of the united states . during 2012 , we changed the classification of our undistributed earnings to reflect a change in management 's strategic objectives that could require the repatriation of foreign earnings . as a result of this change , we recognized $ 48.1 million of additional income tax expense in 2012 to record the applicable u.s. deferred income tax liability . we repatriated non-u.s. cash holdings upon the closing of the proposed sealy acquisition . 40 tempur north america segment summary replace_table_token_13_th year ended december 31 , 2013 compared to year ended december 31 , 2012 tempur north america net sales decreased $ 54.3 million , or 5.6 % . the decline was driven by a decrease in bedding net sales of $ 51.9 million , or 5.9 % . retail channel net sales decreased $ 30.9 million , or 3.5 % . direct channel net sales also decreased $ 27.0 million , or 35.4 % . during the first half of 2013 , tempur north america decreased advertising expenses to better align with lower net sales . we believe this reduction in advertising had a negative impact on the retail and direct channel net sales . retail net sales decreased in the first half of 2013 as compared to the prior year due to continued competition and decreased advertising spend , but retail net sales stabilized in the second half of 2013 as we implemented additional strategic initiatives
| cash and cash equivalents increase d by $ 19.9 million , or 34.4 % , to $ 77.8 million at december 31 , 2018 , from $ 57.8 million at december 31 , 2017 . balances fluctuate based on the timing of receipt of security and loan repayments and the redeployment of cash into higher-yielding assets such as loans and securities , or the funding of deposit or borrowing obligations . bank owned life insurance increased $ 3.5 million , or 2.3 % , to $ 154.1 million at december 31 , 2018 , from $ 150.6 million at december 31 , 2017 . the increase resulted from income earned on bank owned life insurance for the year ended december 31 , 2018 . other real estate owned ( โ oreo โ ) decreased $ 850,000 to $ 0 at december 31 , 2018 , due to the sale of the company 's single oreo property . other assets decreased by $ 1.3 million , or 4.0 % , to $ 31.6 million at december 31 , 2018 , from $ 32.9 million at december 31 , 2017 . the decrease in other assets was primarily attributable to a decrease in net deferred tax assets . 51 total liabilities increase d $ 389.5 million , or 11.6 % , to $ 3.74 billion at december 31 , 2018 , from $ 3.35 billion at december 31 , 2017 . the increase was primarily attributable to increase s in deposits of $ 449.5 million and advance payments by borrowers for taxes and insurance of $ 3.2 million , partially offset by a decrease in other borrowings of $ 62.7 million .
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factors that could impact results of operations the factors outlined below could impact our future results of operations . for more extensive discussion of these and other risk factors , please refer to `` risk factors `` , under part i , item1a in this report . general business and economic conditions our business has been affected by general business and economic conditions , and these conditions could have an impact on future demand for our products . the global economic environment continues to be challenging , and we expect the uncertainty to continue . in light of the macroeconomic environment , we continue to take steps to further align our cost structure with our anticipated level of net sales . we continued to make strategic investments , including : introducing new products ; investing in increasing our global brand awareness ; extending our presence and improving our retail account productivity and distribution ; investing in our operating infrastructure to meet the requirements of our business ; and taking actions to further strengthen our business . competition participants in the bedding industry compete primarily on price , quality , brand name recognition , product availability , and product performance . we compete with a number of different types of mattress alternatives , including standard innerspring mattresses , viscoelastic mattresses , foam mattresses , hybrid innerspring/foam mattresses , futons , air beds and other air-supported mattresses . these alternative products are sold through a variety of channels , including furniture and bedding stores , department stores , mass merchants , wholesale clubs , internet , telemarketing programs , television infomercials , television advertising and catalogs . our tempur north america segment competes in the non-innerspring mattress category and contributes 36.9 % of our net sales . beginning in the second half of 2012 , a significant number of new non-innerspring mattress products were introduced in this category and changed the competitive environment of the u.s. bedding industry . many of these new non-innerspring mattress products have been supported by aggressive marketing campaigns and promotions . as a result of this change , our results have been negatively impacted and we modified our business strategy to compete and expand our market share . our results could continue to be challenged . 31 financial leverage as of december 31 , 2013 , we had $ 1,836.5 million of debt outstanding , and our stockholders ' equity was $ 114.0 million . higher financial leverage makes us more vulnerable to general adverse competitive , economic and industry conditions . there can be no assurance that our business will generate sufficient cash flow from operations or that future borrowing will be available . as of december 31 , 2013 , our ratio of funded debt less qualified cash to ebitda was 4.4 times , within the covenant in our debt agreements which limits this ratio to 5.25 times for the year ended december 31 , 2013. for more information on this non-gaap measure , please refer to the section set forth below โ non-gaap financial measures โ . sealy integration our sealy acquisition is significant , and we may not be able to successfully integrate and combine the operations , personnel and technology of sealy with our operations . because of the size and complexity of sealy 's business , if we do not successfully manage integration , we may experience interruptions in our business activities , a deterioration in our employee and customer relationships , increased costs of integration and harm to our reputation , all of which could have a material adverse effect on our business , financial condition and results of operations . we may also experience difficulties in combining corporate cultures , maintaining employee morale and retaining key employees . the integration may also impose substantial demands on our management . there is no assurance that improved operating results will be achieved as a result of the sealy acquisition or that the businesses of sealy and tempur-pedic will be successfully integrated in a timely manner . gross margins our gross margin is primarily impacted by the relative amount of net sales between our business segments . the sealy segment operates at a significantly lower gross margin than the tempur north america and tempur international segments . if sealy 's net sales increase as a percentage of net sales , our gross margin will be negatively impacted . additionally , our tempur north america gross margin has historically been lower than that of our tempur international segment . our gross margin is also impacted by fixed cost leverage ; the cost of raw materials ; operational efficiency ; product , channel and geographic mix ; volume incentives offered to certain retail accounts ; and costs associated with new product introductions . future increases in raw material prices could have a negative impact on our gross margin if we do not raise prices to cover increased cost . our gross margin can also be impacted by our operational efficiencies , including the particular levels of utilization in our manufacturing facilities . if we increase our net sales significantly the effect of this operating leverage could have a significant positive impact on our gross margin . conversely , if we experience significant decreases in our net sales , the effect of this operating deleverage could have a significant negative impact on our gross margin . our margins are also impacted by the growth in our retail channel as sales in our retail channel are at wholesale prices whereas sales in our direct channel are at retail prices . in 2014 , we expect gross margin to benefit from cost synergies and leverage , offset by investments in new products and foreign exchange . floor model shipments will be elevated in the first half of 2014 as we complete our new product roll-outs . story_separator_special_tag during the full year 2013 , we also recorded royalty income , net of royalty expense , of $ 13.7 million and equity income in earnings of unconsolidated affiliates of $ 4.4 million . our royalty income is based on sales of sealyยฎ and stearns & fosterยฎ branded products by various licensees and is offset by royalty expenses we pay to other entities for the use of their names on our sealy branded products . our equity income in earnings of unconsolidated affiliates represents our 50.0 % interest in the earnings of our asia-pacific joint ventures whose purpose is to develop markets for sealy branded products . during the full year 2013 , we incurred $ 18.7 million of transaction expenses and $ 25.9 million of integration expenses in connection with the sealy acquisition . during the full year 2012 , we incurred $ 8.9 million of transaction expenses and $ 3.7 million of integration expenses in connection with the sealy acquisition . year ended december 31 , 2012 compared to year ended december 31 , 2011 operating income decreased $ 92.2 million , or 27.1 % , and was primarily impacted by the factors discussed above . interest expense , net replace_table_token_10_th year ended december 31 , 2013 compared to the year ended december 31 , 2012 interest expense , net , increased $ 92.0 million , or 489.4 % . in 2013 , we incurred $ 19.9 million of incremental interest expense and fees on the senior notes and 2012 credit agreement for the period prior to march 18 , 2013 , commitment fees associated with financing for the closing of the sealy acquisition , and write off of deferred financing costs associated with the 2011 credit facility . in addition , we incurred $ 8.7 million in prepayment fees related to the refinancing of our term b facility in the second quarter of 2013. the remaining increase was due to higher debt levels as a result of the sealy acquisition . 39 year ended december 31 , 2012 compared to the year ended december 31 , 2011 interest expense , net , increased $ 6.9 million , or 58.0 % . the increase in interest expense was primarily attributable to an increase in our debt outstanding as of december 31 , 2012 compared to our debt outstanding as of december 31 , 2011 and an increase in our effective interest rate . our debt levels increased in anticipation of the sealy acquisition , which occurred on march 18 , 2013. income before income taxes replace_table_token_11_th year ended december 31 , 2013 compared to year ended december 31 , 2012 income before income taxes decreased $ 101.2 million , or 44.2 % . this decrease was a result of the factors discussed above . year ended december 31 , 2012 compared to year ended december 31 , 2011 income before income taxes decreased $ 99.2 million , or 30.2 % . this decrease was a result of the factors discussed above . income taxes replace_table_token_12_th income tax provision includes income taxes associated with taxes currently payable and deferred taxes , and includes the impact of net operating losses for certain of our foreign operations . year ended december 31 , 2013 compared to year ended december 31 , 2012 our income tax provision decreased $ 73.3 million and our effective tax rate decreased 15.0 % . during 2012 , we recorded $ 48.1 million of additional income tax expense related to our undistributed earnings from non-u.s. operations , which increased our effective tax rate by 21.0 % . this was recorded as deferred income tax expense in 2012 and a deferred tax liability at december 31 , 2012. during 2013 , we undertook a taxable transaction in which we recognized current taxable income based on the earnings of certain of our foreign subsidiaries . the resulting income tax payable was approximately $ 51.7 million . consequently , we reclassified the $ 48.1 million deferred tax liability recorded at december 31 , 2012 to current tax payable at december 31 , 2013 and recognized an incremental $ 3.6 million current income tax expense in 2013. year ended december 31 , 2012 compared to year ended december 31 , 2011 our income tax provision increased $ 13.6 million and our effective tax rate increased 20.3 % .we had made no historical provision for u.s. federal and or state income tax and foreign withholdings on our undistributed earnings from non-u.s. operations because we intended to reinvest such earnings indefinitely outside of the united states . during 2012 , we changed the classification of our undistributed earnings to reflect a change in management 's strategic objectives that could require the repatriation of foreign earnings . as a result of this change , we recognized $ 48.1 million of additional income tax expense in 2012 to record the applicable u.s. deferred income tax liability . we repatriated non-u.s. cash holdings upon the closing of the proposed sealy acquisition . 40 tempur north america segment summary replace_table_token_13_th year ended december 31 , 2013 compared to year ended december 31 , 2012 tempur north america net sales decreased $ 54.3 million , or 5.6 % . the decline was driven by a decrease in bedding net sales of $ 51.9 million , or 5.9 % . retail channel net sales decreased $ 30.9 million , or 3.5 % . direct channel net sales also decreased $ 27.0 million , or 35.4 % . during the first half of 2013 , tempur north america decreased advertising expenses to better align with lower net sales . we believe this reduction in advertising had a negative impact on the retail and direct channel net sales . retail net sales decreased in the first half of 2013 as compared to the prior year due to continued competition and decreased advertising spend , but retail net sales stabilized in the second half of 2013 as we implemented additional strategic initiatives
| debt service our debt increased to $ 1,836.5 million as of december 31 , 2013 from $ 1,025.0 million as of december 31 , 2012. our debt as of december 31 , 2012 included $ 375.0 million of senior notes issued in december 2012 to finance a portion of the cost of the sealy acquisition . the increase in debt is due to funding of the 2012 credit agreement in conjunction with the closing of the sealy acquisition , partially offset by the payoff of the remaining balance under the 2011 credit facility . after giving effect to $ 74.5 million in borrowings under the revolver portion of the 2012 credit agreement and letters of credit outstanding of $ 22.9 million , total availability under the revolver was $ 252.6 million as of december 31 , 2013. refer to note 5 , โ debt โ , in our consolidated financial statements included in part ii , item 8 for further discussion of our debt . as of december 31 , 2013 , we were in compliance with all of the financial covenants in our debt agreements . the table below sets forth the calculation of our compliance with the covenant in the 2012 credit agreement that requires that we maintain a ratio of less than 5.25 times of consolidated funded debt less qualified cash to adjusted ebitda from october 1 , 2013 through december 31 , 2013. during 2014 , we are required to maintain this ratio at less than : 5.00 times through march 31 , 2014 ; 4.75 times through june 30 , 2014 ; and 4.50 times through december 31 , 2014. both consolidated funded debt and adjusted ebitda are terms that are not recognized under u.s. gaap and do not purport to be alternatives to net income as a measure of operating performance or total debt . under the terms of our consolidated interest coverage ratio covenant , we are required to maintain a ratio greater than 3.00 times adjusted ebitda to adjusted interest expense . as of december 31 , 2013 , our consolidated interest coverage ratio was 4.0 times . in the first quarter of 2014 , we will be required to pay $ 21.9
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given the uncertainty of current claim trends , the industry needs further rate increases to provide insurers an adequate buffer and a positive risk-reward proposition . in this kind of environment , risk selection and active capital allocation remain critical to generating superior returns . strengthening market conditions are evident to us from both the rise in our submission activity and our ability to achieve significant rate increases across numerous lines of business . reinsurance pricing tends to follow that of the primary insurance industry although catastrophe and large attritional losses , such as the japanese typhoons this year , can disproportionately affect results and create opportunities in the reinsurance market . we believe that property facultative and marine businesses are examples of improving markets . our underwriting teams continue to execute a disciplined strategy by emphasizing small and medium-sized accounts over large accounts , shrinking premiums in more commoditized arch capital 55 2019 form 10-k lines such as general liability and by utilizing reinsurance purchases to reduce volatility on large account , high capacity business . the spread between rate changes and loss trend continues to be a key variable in assessing expected returns and can be difficult to quantify precisely , particularly in specialty lines . our mortgage segment continues to experience generally favorable market conditions . although pricing remains competitive in the u.s. , borrower credit quality and the general economy remain strong . our results continue to reflect our success in making high quality credit underwriting risk decisions and building customer relationships . arch remains committed to providing solutions across many offerings as the marketplace evolves , including new mortgage credit risk transfer programs initiated by government sponsored enterprises , or โ gses , โ in 2018. such programs have begun generating business with banks developing new systems to handle the programs and momentum beginning to build . in addition , we completed multiple bellemeade risk transfers to the capital markets throughout 2019 , increasing our protection for mortgage tail risk . financial measures management uses the following three key financial indicators in evaluating our performance and measuring the overall growth in value generated for arch capital 's common shareholders : book value per share book value per share represents total common shareholders ' equity available to arch divided by the number of common shares and common share equivalents outstanding . management uses growth in book value per share as a key measure of the value generated for our common shareholders each period and believes that book value per share is the key driver of arch capital 's share price over time . book value per share is impacted by , among other factors , our underwriting results , investment returns and share repurchase activity , which has an accretive or dilutive impact on book value per share depending on the purchase price . book value per share was $ 26.42 at december 31 , 2019 , a 22.8 % increase from $ 21.52 at december 31 , 2018 . the growth in 2019 reflected strong mortgage insurance underwriting performance and investment returns . operating return on average common equity operating return on average common equity ( โ operating roae โ ) represents annualized after-tax operating income available to arch common shareholders divided by average common shareholders ' equity available to arch during the period . after-tax operating income available to arch common shareholders , a โ non-gaap measure โ as defined in the sec rules , represents net income available to arch common shareholders , excluding net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investments accounted for using the equity method , net foreign exchange gains or losses and transaction costs and other , net of income taxes . management uses operating roae as a key measure of the return generated to arch common shareholders . see โ comment on non-gaap financial measures . โ our operating roae was 12.0 % for 2019 , compared to 10.7 % for 2018 . the higher operating roae for 2019 reflected favorable mortgage insurance market conditions , strong investment returns and a lower level of catastrophic activity . total return on investments total return on investments includes investment income , equity in net income or loss of investments accounted for using the equity method , net realized gains and losses and the change in unrealized gains and losses generated by arch 's investment portfolio . total return is calculated on a pre-tax basis and before investment expenses excluding amounts reflected in the โ other ' segment , and reflects the effect of financial market conditions along with foreign currency fluctuations . management uses total return on investments as a key measure of the return generated to arch common shareholders on the capital held in the business , and compares the return generated by our investment portfolio against benchmark returns which we measured our portfolio against during the periods . the following table summarizes the pre-tax total return ( before investment expenses ) of investment held by arch compared to the benchmark return ( both based in u.s. dollars ) against which we measured our portfolio during the periods : replace_table_token_5_th ( 1 ) our investment expenses were approximately 0.33 % and 0.36 % , respectively , of average invested assets in 2019 and 2018 . total return for our investment portfolio was in line with the benchmark return index in 2019 and reflected strong total returns on our investment grade fixed income and equity portfolios . the benchmark return index is a customized combination of indices intended to approximate a target portfolio by asset mix and average credit quality while also matching the approximate estimated duration and currency mix of our insurance and reinsurance liabilities . story_separator_special_tag the balance of the change in the 2019 current year loss ratio resulted , in part , from the effects of market conditions and changes in the mix of business . arch capital 61 2019 form 10-k prior period reserve development . the reinsurance segment 's net favorable development was $ 46.4 million , or 3.2 points , for 2019 , compared to $ 138.5 million , or 11.0 points , for 2018 , see note 5 , โ reserve for losses and loss adjustment expenses , โ to our consolidated financial statements in item 8 for information about the reinsurance segment 's prior year reserve development . underwriting expenses . the underwriting expense ratio for the reinsurance segment was 25.9 % in 2019 , compared to 27.4 % in 2018 , reflecting growth in net premiums earned and changes in mix of business . mortgage segment our mortgage operations include u.s. and international mortgage insurance and reinsurance operations as well as participation in gse credit risk-sharing transactions . our mortgage group includes direct mortgage insurance in the u.s. primarily through arch mortgage insurance company and united guaranty residential insurance company ( together , โ arch mi u.s. โ ) ; mortgage reinsurance through arch re bermuda to mortgage insurers on both a proportional and non-proportional basis globally ; direct mortgage insurance in europe through arch insurance ( eu ) and in hong kong through arch mi asia ; and participation in various gse credit risk-sharing products primarily through arch re bermuda . the following tables set forth our mortgage segment 's underwriting results . replace_table_token_16_th premiums written . the following table sets forth our mortgage segment 's net premiums written by underwriting location ( i.e . , where the business is underwritten ) : replace_table_token_17_th gross premiums written by the mortgage segment in 2019 were 7.8 % higher than in 2018 . net premiums written for 2019 were 9.0 % higher than in the 2018 period and reflected an increase in monthly premium business due to growth in insurance in force . the persistency rate of the primary portfolio of mortgage loans of arch mi u.s. was 75.7 % at december 31 , 2019 compared to 81.5 % at december 31 , 2018 . the persistency rate represents the percentage of mortgage insurance in force at the beginning of a 12-month period that remains in force at the end of such period . net premiums earned . the following table sets forth our mortgage segment 's net premiums earned by underwriting location ( i.e . , where the business is underwritten ) : replace_table_token_18_th net premiums earned for 2019 were 15.2 % higher than in 2018 . the increase in net premiums earned reflected the growth in insurance in force in the u.s. over the last twelve months combined with higher single premium earned as a result of policy terminations due to mortgage refinance activity . other underwriting income . other underwriting income , which is primarily related to gse risk-sharing transactions receiving derivative accounting treatment , was $ 16.0 million for 2019 , compared to $ 13.0 million for 2018 . arch capital 62 2019 form 10-k losses and loss adjustment expenses . the table below shows the components of the mortgage segment 's loss ratio : replace_table_token_19_th unlike property and casualty business for which we estimate ultimate losses on premiums earned , losses on mortgage insurance business are only recorded at the time a borrower is delinquent on their mortgage , in accordance with primary mortgage insurance industry practice . because our primary mortgage insurance reserving process does not take into account the impact of future losses from loans that are not delinquent , mortgage insurance loss reserves are not an estimate of ultimate losses . in addition to establishing loss reserves for delinquent loans , under gaap , we are required to establish a premium deficiency reserve for our mortgage insurance products if the amount of expected future losses and maintenance costs exceeds expected future premiums , existing reserves and the anticipated investment income for such product . we assess the need for a premium deficiency reserve on a quarterly basis and perform a full analysis annually . no such reserve was established during 2019 and 2018 . current year loss ratio . the mortgage segment 's current year loss ratio was 2.9 points lower in 2019 compared to 2018 . the current year loss ratio for 2019 reflects the current favorable macroeconomic environment as the percentage of loans in default on first lien business decreased from 1.60 % at december 31 , 2018 to 1.54 % at december 31 , 2019. we insure mortgages for homes in areas that have been impacted by catastrophic events , including 2018 events such as hurricanes florence and michael and the california wildfires . generally , mortgage insurance losses occur only when a credit event occurs and , following a physical damage event , when the home is restored to pre-storm condition . our ultimate claims exposure will depend on the number of delinquency notices received and the ultimate claim rate related to such notices . in the event of natural disasters , cure rates are influenced by the adequacy of homeowners and flood insurance carried on a related property , and a borrower 's access to aid from government entities and private organizations , in addition to other factors which generally impact cure rates in unaffected areas . prior period reserve development . the mortgage segment 's net favorable development was $ 125.2 million , or 9.2 points , for 2019 , compared to $ 107.6 million , or 9.1 points , for 2018 . see note 5 , โ reserve for losses and loss adjustment expenses , โ to our consolidated financial statements in item 8 for information about the mortgage segment 's prior year reserve development . underwriting expenses . the underwriting expense ratio for the mortgage segment was 21.0 % for 2019 , compared to
| debt service our debt increased to $ 1,836.5 million as of december 31 , 2013 from $ 1,025.0 million as of december 31 , 2012. our debt as of december 31 , 2012 included $ 375.0 million of senior notes issued in december 2012 to finance a portion of the cost of the sealy acquisition . the increase in debt is due to funding of the 2012 credit agreement in conjunction with the closing of the sealy acquisition , partially offset by the payoff of the remaining balance under the 2011 credit facility . after giving effect to $ 74.5 million in borrowings under the revolver portion of the 2012 credit agreement and letters of credit outstanding of $ 22.9 million , total availability under the revolver was $ 252.6 million as of december 31 , 2013. refer to note 5 , โ debt โ , in our consolidated financial statements included in part ii , item 8 for further discussion of our debt . as of december 31 , 2013 , we were in compliance with all of the financial covenants in our debt agreements . the table below sets forth the calculation of our compliance with the covenant in the 2012 credit agreement that requires that we maintain a ratio of less than 5.25 times of consolidated funded debt less qualified cash to adjusted ebitda from october 1 , 2013 through december 31 , 2013. during 2014 , we are required to maintain this ratio at less than : 5.00 times through march 31 , 2014 ; 4.75 times through june 30 , 2014 ; and 4.50 times through december 31 , 2014. both consolidated funded debt and adjusted ebitda are terms that are not recognized under u.s. gaap and do not purport to be alternatives to net income as a measure of operating performance or total debt . under the terms of our consolidated interest coverage ratio covenant , we are required to maintain a ratio greater than 3.00 times adjusted ebitda to adjusted interest expense . as of december 31 , 2013 , our consolidated interest coverage ratio was 4.0 times . in the first quarter of 2014 , we will be required to pay $ 21.9
| 0 |
given the uncertainty of current claim trends , the industry needs further rate increases to provide insurers an adequate buffer and a positive risk-reward proposition . in this kind of environment , risk selection and active capital allocation remain critical to generating superior returns . strengthening market conditions are evident to us from both the rise in our submission activity and our ability to achieve significant rate increases across numerous lines of business . reinsurance pricing tends to follow that of the primary insurance industry although catastrophe and large attritional losses , such as the japanese typhoons this year , can disproportionately affect results and create opportunities in the reinsurance market . we believe that property facultative and marine businesses are examples of improving markets . our underwriting teams continue to execute a disciplined strategy by emphasizing small and medium-sized accounts over large accounts , shrinking premiums in more commoditized arch capital 55 2019 form 10-k lines such as general liability and by utilizing reinsurance purchases to reduce volatility on large account , high capacity business . the spread between rate changes and loss trend continues to be a key variable in assessing expected returns and can be difficult to quantify precisely , particularly in specialty lines . our mortgage segment continues to experience generally favorable market conditions . although pricing remains competitive in the u.s. , borrower credit quality and the general economy remain strong . our results continue to reflect our success in making high quality credit underwriting risk decisions and building customer relationships . arch remains committed to providing solutions across many offerings as the marketplace evolves , including new mortgage credit risk transfer programs initiated by government sponsored enterprises , or โ gses , โ in 2018. such programs have begun generating business with banks developing new systems to handle the programs and momentum beginning to build . in addition , we completed multiple bellemeade risk transfers to the capital markets throughout 2019 , increasing our protection for mortgage tail risk . financial measures management uses the following three key financial indicators in evaluating our performance and measuring the overall growth in value generated for arch capital 's common shareholders : book value per share book value per share represents total common shareholders ' equity available to arch divided by the number of common shares and common share equivalents outstanding . management uses growth in book value per share as a key measure of the value generated for our common shareholders each period and believes that book value per share is the key driver of arch capital 's share price over time . book value per share is impacted by , among other factors , our underwriting results , investment returns and share repurchase activity , which has an accretive or dilutive impact on book value per share depending on the purchase price . book value per share was $ 26.42 at december 31 , 2019 , a 22.8 % increase from $ 21.52 at december 31 , 2018 . the growth in 2019 reflected strong mortgage insurance underwriting performance and investment returns . operating return on average common equity operating return on average common equity ( โ operating roae โ ) represents annualized after-tax operating income available to arch common shareholders divided by average common shareholders ' equity available to arch during the period . after-tax operating income available to arch common shareholders , a โ non-gaap measure โ as defined in the sec rules , represents net income available to arch common shareholders , excluding net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investments accounted for using the equity method , net foreign exchange gains or losses and transaction costs and other , net of income taxes . management uses operating roae as a key measure of the return generated to arch common shareholders . see โ comment on non-gaap financial measures . โ our operating roae was 12.0 % for 2019 , compared to 10.7 % for 2018 . the higher operating roae for 2019 reflected favorable mortgage insurance market conditions , strong investment returns and a lower level of catastrophic activity . total return on investments total return on investments includes investment income , equity in net income or loss of investments accounted for using the equity method , net realized gains and losses and the change in unrealized gains and losses generated by arch 's investment portfolio . total return is calculated on a pre-tax basis and before investment expenses excluding amounts reflected in the โ other ' segment , and reflects the effect of financial market conditions along with foreign currency fluctuations . management uses total return on investments as a key measure of the return generated to arch common shareholders on the capital held in the business , and compares the return generated by our investment portfolio against benchmark returns which we measured our portfolio against during the periods . the following table summarizes the pre-tax total return ( before investment expenses ) of investment held by arch compared to the benchmark return ( both based in u.s. dollars ) against which we measured our portfolio during the periods : replace_table_token_5_th ( 1 ) our investment expenses were approximately 0.33 % and 0.36 % , respectively , of average invested assets in 2019 and 2018 . total return for our investment portfolio was in line with the benchmark return index in 2019 and reflected strong total returns on our investment grade fixed income and equity portfolios . the benchmark return index is a customized combination of indices intended to approximate a target portfolio by asset mix and average credit quality while also matching the approximate estimated duration and currency mix of our insurance and reinsurance liabilities . story_separator_special_tag the balance of the change in the 2019 current year loss ratio resulted , in part , from the effects of market conditions and changes in the mix of business . arch capital 61 2019 form 10-k prior period reserve development . the reinsurance segment 's net favorable development was $ 46.4 million , or 3.2 points , for 2019 , compared to $ 138.5 million , or 11.0 points , for 2018 , see note 5 , โ reserve for losses and loss adjustment expenses , โ to our consolidated financial statements in item 8 for information about the reinsurance segment 's prior year reserve development . underwriting expenses . the underwriting expense ratio for the reinsurance segment was 25.9 % in 2019 , compared to 27.4 % in 2018 , reflecting growth in net premiums earned and changes in mix of business . mortgage segment our mortgage operations include u.s. and international mortgage insurance and reinsurance operations as well as participation in gse credit risk-sharing transactions . our mortgage group includes direct mortgage insurance in the u.s. primarily through arch mortgage insurance company and united guaranty residential insurance company ( together , โ arch mi u.s. โ ) ; mortgage reinsurance through arch re bermuda to mortgage insurers on both a proportional and non-proportional basis globally ; direct mortgage insurance in europe through arch insurance ( eu ) and in hong kong through arch mi asia ; and participation in various gse credit risk-sharing products primarily through arch re bermuda . the following tables set forth our mortgage segment 's underwriting results . replace_table_token_16_th premiums written . the following table sets forth our mortgage segment 's net premiums written by underwriting location ( i.e . , where the business is underwritten ) : replace_table_token_17_th gross premiums written by the mortgage segment in 2019 were 7.8 % higher than in 2018 . net premiums written for 2019 were 9.0 % higher than in the 2018 period and reflected an increase in monthly premium business due to growth in insurance in force . the persistency rate of the primary portfolio of mortgage loans of arch mi u.s. was 75.7 % at december 31 , 2019 compared to 81.5 % at december 31 , 2018 . the persistency rate represents the percentage of mortgage insurance in force at the beginning of a 12-month period that remains in force at the end of such period . net premiums earned . the following table sets forth our mortgage segment 's net premiums earned by underwriting location ( i.e . , where the business is underwritten ) : replace_table_token_18_th net premiums earned for 2019 were 15.2 % higher than in 2018 . the increase in net premiums earned reflected the growth in insurance in force in the u.s. over the last twelve months combined with higher single premium earned as a result of policy terminations due to mortgage refinance activity . other underwriting income . other underwriting income , which is primarily related to gse risk-sharing transactions receiving derivative accounting treatment , was $ 16.0 million for 2019 , compared to $ 13.0 million for 2018 . arch capital 62 2019 form 10-k losses and loss adjustment expenses . the table below shows the components of the mortgage segment 's loss ratio : replace_table_token_19_th unlike property and casualty business for which we estimate ultimate losses on premiums earned , losses on mortgage insurance business are only recorded at the time a borrower is delinquent on their mortgage , in accordance with primary mortgage insurance industry practice . because our primary mortgage insurance reserving process does not take into account the impact of future losses from loans that are not delinquent , mortgage insurance loss reserves are not an estimate of ultimate losses . in addition to establishing loss reserves for delinquent loans , under gaap , we are required to establish a premium deficiency reserve for our mortgage insurance products if the amount of expected future losses and maintenance costs exceeds expected future premiums , existing reserves and the anticipated investment income for such product . we assess the need for a premium deficiency reserve on a quarterly basis and perform a full analysis annually . no such reserve was established during 2019 and 2018 . current year loss ratio . the mortgage segment 's current year loss ratio was 2.9 points lower in 2019 compared to 2018 . the current year loss ratio for 2019 reflects the current favorable macroeconomic environment as the percentage of loans in default on first lien business decreased from 1.60 % at december 31 , 2018 to 1.54 % at december 31 , 2019. we insure mortgages for homes in areas that have been impacted by catastrophic events , including 2018 events such as hurricanes florence and michael and the california wildfires . generally , mortgage insurance losses occur only when a credit event occurs and , following a physical damage event , when the home is restored to pre-storm condition . our ultimate claims exposure will depend on the number of delinquency notices received and the ultimate claim rate related to such notices . in the event of natural disasters , cure rates are influenced by the adequacy of homeowners and flood insurance carried on a related property , and a borrower 's access to aid from government entities and private organizations , in addition to other factors which generally impact cure rates in unaffected areas . prior period reserve development . the mortgage segment 's net favorable development was $ 125.2 million , or 9.2 points , for 2019 , compared to $ 107.6 million , or 9.1 points , for 2018 . see note 5 , โ reserve for losses and loss adjustment expenses , โ to our consolidated financial statements in item 8 for information about the mortgage segment 's prior year reserve development . underwriting expenses . the underwriting expense ratio for the mortgage segment was 21.0 % for 2019 , compared to
| cash provided by financing activities for 2019 was higher than the cash used in 2018. the 2018 period reflected $ 375.0 million of paydowns on our revolving credit agreement borrowings , $ 282.8 million of repurchases under our share repurchase program and $ 92.6 million related to redemption of our series c preferred shares . investments at december 31 , 2019 , our investable assets were $ 22.29 billion , excluding the $ 2.70 billion of investable assets related to the โ other ' segment . the primary goals of our asset liability management process are to satisfy the insurance liabilities , manage the interest rate risk embedded in those insurance liabilities and maintain sufficient liquidity to cover fluctuations in projected liability cash flows , including debt service obligations . generally , the expected principal and interest payments produced by our fixed income portfolio adequately fund the estimated runoff of our insurance reserves . although this is not an exact cash flow match in each period , the substantial degree by which the fair value of the fixed income portfolio exceeds the expected present value of the net insurance liabilities , as well as the positive cash flow from newly sold policies and the large amount of high quality liquid bonds , provide assurance of our ability to fund the payment of claims and to service our outstanding debt without having to sell securities at distressed prices or access credit facilities . please refer to item 1a โ risk factors โ for a discussion of other risks relating to our business and investment portfolio . capital resources this section does not include information specific to watford . we do not guarantee or provide credit support for watford , and our financial exposure to watford is limited to our investment in watford 's senior notes , common and preferred shares and counterparty credit risk ( mitigated by collateral ) arising from reinsurance transactions with watford . arch capital 77 2019 form 10-k the following table provides an analysis of our capital structure : replace_table_token_48_th ( 1 ) fully and unconditionally guaranteed by arch capital . ( 2 ) $ 500 million unsecured facility for revolving loans and letters of credit .
| 1 |
we are employing a variety of cost reduction and cash preservation measures , while accessing available capital under our existing debt facilities and through the issuance of preferred stock , while exploring additional sources of capital and liquidity . these measures include the following operating expense and capital expenditure reductions : โ significantly reduced ship and land-based expedition costs including crew payroll , land costs , fuel and food . all ships have been safely laid up . โ lowered expected annual maintenance capital expenditures by over $ 15 million , savings of more than 70 % from originally planned levels . โ meaningfully reduced general and administrative expenses through staff furloughs , payroll reductions and the elimination of all non-essential travel , office expenses and discretionary spending . โ suspended the majority of planned advertising and marketing spend . 35 โ suspended all repurchases of common stock under the stock repurchase plan . bookings trends we were off to a strong start to the year with lindblad segment bookings at the end of february up 25 % for the full year 2020 as compared to the same point a year ago for 2019 , and had sold 86 % of our originally projected guest ticket revenues for the year . since that point , we have experienced a substantial impact from the covid-19 virus including elevated cancellations and softness in near-term demand . despite the covid-19 impact , we still have substantial advanced bookings for future travel . bookings for the second half of 2021 are 1 % ahead of bookings for 2020 as of the same date a year ago , despite less available guest nights , and 33 % ahead of bookings for 2019 as of the same date two years ago . bookings for the full year 2022 are 32 % ahead of the bookings for 2021 as of the same date a year ago . we continue to see new bookings for future travel including over $ 110.0 million since march 1 , 2020 , and we are receiving deposits and final payments for future travel . for 2020 and 2021 voyages that have been cancelled or rescheduled , we are providing future travel credits with incremental value or full refunds , as applicable , to our paid guests . as of february 25 , 2021 , the majority of guests have opted for future travel credits . balance sheet and liquidity as of december 31 , 2020 , we had $ 187.5 million in unrestricted cash and $ 17.0 million in restricted cash primarily related to deposits on future travel originating from u.s. ports . during the first quarter of 2020 we drew down $ 45.0 million under our revolving credit facility to provide working capital and general corporate purposes given the uncertainty related to the covid-19 pandemic and borrowed $ 107.7 million under our first export credit agreement in conjunction with final payment on delivery of the national geographic endurance in march 2020. during april 2020 , we drew down $ 30.6 million under our second export credit agreement in conjunction with the third installment payment on the national geographic resolution , scheduled for delivery in the fourth quarter of 2021. during may 2020 , we amended our $ 2.5 million promissory note , changing the maturity date of the principal payments to be due in three equal installments , with the first payment made on december 22 , 2020 , the second due on december 22 , 2021 and the final payment due on december 22 , 2022. during june 2020 , we amended our export credit agreements to defer approximately $ 9.0 million in aggregate scheduled amortization payments originally due in june 2020 through march 2021 and to suspend the total net leverage ratio covenant from june 2020 through june 2021. on august 7 , 2020 , we amended our term loan and revolving credit facilities to waive the application of the total net leverage ratio covenant through june 2021. in connection with the amendment , the interest rate of the term loan has been increased 125 basis points , to be paid-in-kind at maturity , a libor minimum of 0.75 % has been added to the term loan and revolving credit facilities and certain covenants have been amended to be more restrictive . during august 2020 , we raised $ 85.0 million in gross proceeds through the private placement issuance of 85,000 shares of series a redeemable convertible preferred stock , that carries a 6.0 % annual dividend , which is payable in kind for two years and thereafter in cash or in-kind at the company 's option . the redeemable convertible preferred stock is convertible into shares of lindblad common stock at a conversion price of $ 9.50 per share , representing a premium of 23 % to lindblad 's 30-day trading volume weighted average price on the date of issuance . the holders may request redemption of the preferred stock at the six-year anniversary of the issuance . during december 2020 , we amended our term loan and revolving credit facilities , and borrowed an incremental $ 85.0 million under the amended term loan through the main street expanded loan facility program . the incremental borrowing carries an interest rate of libor plus 3.0 % and matures december 2025 with no early payment restrictions . as of december 31 , 2020 , we had a total debt position of $ 496.5 million and were in compliance with all of our debt covenants currently in effect . we have no material debt maturities until 2023. we estimate our monthly cash usage while our vessels are not in operations to be approximately $ 10-15 million including ship and office operating expenses , necessary capital expenditures and interest and principal payments . this excludes guest payments for future travel and cash refunds requested on previously made guest payments . story_separator_special_tag selling and marketing expenses selling and marketing expenses increased $ 7.8 million , or 17 % , to $ 54.8 million for the year ended december 31 , 2019 compared to $ 47.0 million for the year ended december 31 , 2018 , primarily due to a $ 6.6 million increase at the lindblad segment driven by higher advertising spend , costs related to implementation of our new reservation and customer relationship management systems and increased commission expense associated with the higher tour revenues . at the natural habitat segment , selling and marketing expenses increased $ 1.2 million primarily driven by an increase in advertising expenditures and commission expense . depreciation and amortization expenses depreciation and amortization expenses increased $ 5.0 million , or 24 % , to $ 25.8 million for the year ended december 31 , 2019 compared to $ 20.8 million for the year ended december 31 , 2018 , primarily related to a full year of depreciation on the national geographic venture . other ( expense ) income other expenses were $ 12.3 million for the year ended december 31 , 2019๏ปฟ , compared to $ 13.2 million for the year ended december 31 , 2018. the $ 0.9 million decrease was primarily due to the following factors : โ in 2019 , we recorded an $ 0.1 million gain in foreign currency translation compared to a loss of $ 2.2 million in 2018 due to the strengthening of the u.s. dollar primarily in relation to the canadian dollar , south african rand and the euro in the same period a year ago . โ interest expense , net , increased $ 1.5 million to $ 12.3 million in 2019 from $ 10.8 million in 2018 due to borrowings and the commitment fees under our senior secured credit agreements and related foreign exchange hedge expenses , partially offset by lower interest rates on our term loan facility and higher capitalized interest for the national geographic endurance and the national geographic resolution . 41 results of operations โ segments selected information for our segments is below . the presentation of non-gaap financial information should not be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . replace_table_token_6_th results of operations โ lindblad segment comparison of years ended december 31 , 2020 and 2019 tour revenues tour revenues for the year ended december 31 , 2020 decreased $ 202.8 million , or 74 % , to $ 69.6 million compared to $ 272.4 million for the year ended december 31 , 2019. the decrease was primarily driven by cancelled , disrupted and rescheduled expeditions due to covid-19 . operating income operating income decreased $ 104.8 million to a loss of $ 78.6 million for the year ended december 31 , 2020 compared to income of $ 26.2 million for the year ended december 31 , 2019. the decrease was primarily driven by lower revenue from cancelled , disrupted and rescheduled voyages due to covid-19 and costs associated with adding the national geographic endurance to the fleet in march 2020. comparison of years ended december 31 , 2019 and 2018 tour revenues tour revenues for the year ended december 31 , 2019 increased $ 26.1 million , or 11 % , to $ 272.4 million compared to $ 246.3 million for the year ended december 31 , 2018. the increase was driven by higher guest ticket revenue primarily from an increase in available guest nights due to the addition to our fleet of the national geographic venture in the fourth quarter of 2018 ๏ปฟ . additionally , net yield per available guest night for the year ended december 31 , 2019 increased to $ 1,051 compared to $ 1,044 for the year ended december 31 , 2018 , primarily driven by price increases and changes in itineraries . occupancy of 91 % was in line with the prior year as increased demand filled the additional capacity from the national geographic venture . operating income operating income increased $ 6.4 million to $ 26.2 million for the year ended december 31 , 2019 compared to $ 19.8 million for the year ended december 31 , 2018. the increase was primarily driven by a full year of operations of the national geographic venture , as well as lower vat expense and a decline in stock-based compensation expense , partially offset by higher selling and marketing expenditures , increased personnel costs , higher credit card fees associated with revenue growth and costs related to the warrant exchange . results of operations โ natural habitat segment comparison of years ended december 31 , 20 20 to december 31 , 201 9 tour revenues tour revenues decreased $ 57.9 million , or 82 % , to $ 12.7 million compared to $ 70.7 million in 2019 , due primarily to cancelled , disrupted and rescheduled expeditions due to covid-19 . 42 operating income operating income decreased $ 16.8 million to a loss of $ 9.8 million in 2020 compared to income of $ 7.0 million in 2019. the decrease was primarily a result of cancelled , disrupted and rescheduled expeditions due to covid-19 . comparison of years ended december 31 , 2019 to december 31 , 2018 tour revenues tour revenues increased $ 7.3 million , or 11 % , to $ 70.7 million compared to $ 63.4 million in 2018 primarily due to additional departures , increased travelers and itinerary changes that drove higher average pricing . operating income operating income increased $ 1.5 million , or 26 % , to $ 7.0 million in 2019 compared to $ 5.5 million in 2018 primarily due to the growth in tour revenues , partially offset by higher operating costs related to the additional departures , as well as increased personnel expenses and marketing costs to support future growth initiatives . adjusted ebitda โ consolidated the following table outlines the
| cash provided by financing activities for 2019 was higher than the cash used in 2018. the 2018 period reflected $ 375.0 million of paydowns on our revolving credit agreement borrowings , $ 282.8 million of repurchases under our share repurchase program and $ 92.6 million related to redemption of our series c preferred shares . investments at december 31 , 2019 , our investable assets were $ 22.29 billion , excluding the $ 2.70 billion of investable assets related to the โ other ' segment . the primary goals of our asset liability management process are to satisfy the insurance liabilities , manage the interest rate risk embedded in those insurance liabilities and maintain sufficient liquidity to cover fluctuations in projected liability cash flows , including debt service obligations . generally , the expected principal and interest payments produced by our fixed income portfolio adequately fund the estimated runoff of our insurance reserves . although this is not an exact cash flow match in each period , the substantial degree by which the fair value of the fixed income portfolio exceeds the expected present value of the net insurance liabilities , as well as the positive cash flow from newly sold policies and the large amount of high quality liquid bonds , provide assurance of our ability to fund the payment of claims and to service our outstanding debt without having to sell securities at distressed prices or access credit facilities . please refer to item 1a โ risk factors โ for a discussion of other risks relating to our business and investment portfolio . capital resources this section does not include information specific to watford . we do not guarantee or provide credit support for watford , and our financial exposure to watford is limited to our investment in watford 's senior notes , common and preferred shares and counterparty credit risk ( mitigated by collateral ) arising from reinsurance transactions with watford . arch capital 77 2019 form 10-k the following table provides an analysis of our capital structure : replace_table_token_48_th ( 1 ) fully and unconditionally guaranteed by arch capital . ( 2 ) $ 500 million unsecured facility for revolving loans and letters of credit .
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we are employing a variety of cost reduction and cash preservation measures , while accessing available capital under our existing debt facilities and through the issuance of preferred stock , while exploring additional sources of capital and liquidity . these measures include the following operating expense and capital expenditure reductions : โ significantly reduced ship and land-based expedition costs including crew payroll , land costs , fuel and food . all ships have been safely laid up . โ lowered expected annual maintenance capital expenditures by over $ 15 million , savings of more than 70 % from originally planned levels . โ meaningfully reduced general and administrative expenses through staff furloughs , payroll reductions and the elimination of all non-essential travel , office expenses and discretionary spending . โ suspended the majority of planned advertising and marketing spend . 35 โ suspended all repurchases of common stock under the stock repurchase plan . bookings trends we were off to a strong start to the year with lindblad segment bookings at the end of february up 25 % for the full year 2020 as compared to the same point a year ago for 2019 , and had sold 86 % of our originally projected guest ticket revenues for the year . since that point , we have experienced a substantial impact from the covid-19 virus including elevated cancellations and softness in near-term demand . despite the covid-19 impact , we still have substantial advanced bookings for future travel . bookings for the second half of 2021 are 1 % ahead of bookings for 2020 as of the same date a year ago , despite less available guest nights , and 33 % ahead of bookings for 2019 as of the same date two years ago . bookings for the full year 2022 are 32 % ahead of the bookings for 2021 as of the same date a year ago . we continue to see new bookings for future travel including over $ 110.0 million since march 1 , 2020 , and we are receiving deposits and final payments for future travel . for 2020 and 2021 voyages that have been cancelled or rescheduled , we are providing future travel credits with incremental value or full refunds , as applicable , to our paid guests . as of february 25 , 2021 , the majority of guests have opted for future travel credits . balance sheet and liquidity as of december 31 , 2020 , we had $ 187.5 million in unrestricted cash and $ 17.0 million in restricted cash primarily related to deposits on future travel originating from u.s. ports . during the first quarter of 2020 we drew down $ 45.0 million under our revolving credit facility to provide working capital and general corporate purposes given the uncertainty related to the covid-19 pandemic and borrowed $ 107.7 million under our first export credit agreement in conjunction with final payment on delivery of the national geographic endurance in march 2020. during april 2020 , we drew down $ 30.6 million under our second export credit agreement in conjunction with the third installment payment on the national geographic resolution , scheduled for delivery in the fourth quarter of 2021. during may 2020 , we amended our $ 2.5 million promissory note , changing the maturity date of the principal payments to be due in three equal installments , with the first payment made on december 22 , 2020 , the second due on december 22 , 2021 and the final payment due on december 22 , 2022. during june 2020 , we amended our export credit agreements to defer approximately $ 9.0 million in aggregate scheduled amortization payments originally due in june 2020 through march 2021 and to suspend the total net leverage ratio covenant from june 2020 through june 2021. on august 7 , 2020 , we amended our term loan and revolving credit facilities to waive the application of the total net leverage ratio covenant through june 2021. in connection with the amendment , the interest rate of the term loan has been increased 125 basis points , to be paid-in-kind at maturity , a libor minimum of 0.75 % has been added to the term loan and revolving credit facilities and certain covenants have been amended to be more restrictive . during august 2020 , we raised $ 85.0 million in gross proceeds through the private placement issuance of 85,000 shares of series a redeemable convertible preferred stock , that carries a 6.0 % annual dividend , which is payable in kind for two years and thereafter in cash or in-kind at the company 's option . the redeemable convertible preferred stock is convertible into shares of lindblad common stock at a conversion price of $ 9.50 per share , representing a premium of 23 % to lindblad 's 30-day trading volume weighted average price on the date of issuance . the holders may request redemption of the preferred stock at the six-year anniversary of the issuance . during december 2020 , we amended our term loan and revolving credit facilities , and borrowed an incremental $ 85.0 million under the amended term loan through the main street expanded loan facility program . the incremental borrowing carries an interest rate of libor plus 3.0 % and matures december 2025 with no early payment restrictions . as of december 31 , 2020 , we had a total debt position of $ 496.5 million and were in compliance with all of our debt covenants currently in effect . we have no material debt maturities until 2023. we estimate our monthly cash usage while our vessels are not in operations to be approximately $ 10-15 million including ship and office operating expenses , necessary capital expenditures and interest and principal payments . this excludes guest payments for future travel and cash refunds requested on previously made guest payments . story_separator_special_tag selling and marketing expenses selling and marketing expenses increased $ 7.8 million , or 17 % , to $ 54.8 million for the year ended december 31 , 2019 compared to $ 47.0 million for the year ended december 31 , 2018 , primarily due to a $ 6.6 million increase at the lindblad segment driven by higher advertising spend , costs related to implementation of our new reservation and customer relationship management systems and increased commission expense associated with the higher tour revenues . at the natural habitat segment , selling and marketing expenses increased $ 1.2 million primarily driven by an increase in advertising expenditures and commission expense . depreciation and amortization expenses depreciation and amortization expenses increased $ 5.0 million , or 24 % , to $ 25.8 million for the year ended december 31 , 2019 compared to $ 20.8 million for the year ended december 31 , 2018 , primarily related to a full year of depreciation on the national geographic venture . other ( expense ) income other expenses were $ 12.3 million for the year ended december 31 , 2019๏ปฟ , compared to $ 13.2 million for the year ended december 31 , 2018. the $ 0.9 million decrease was primarily due to the following factors : โ in 2019 , we recorded an $ 0.1 million gain in foreign currency translation compared to a loss of $ 2.2 million in 2018 due to the strengthening of the u.s. dollar primarily in relation to the canadian dollar , south african rand and the euro in the same period a year ago . โ interest expense , net , increased $ 1.5 million to $ 12.3 million in 2019 from $ 10.8 million in 2018 due to borrowings and the commitment fees under our senior secured credit agreements and related foreign exchange hedge expenses , partially offset by lower interest rates on our term loan facility and higher capitalized interest for the national geographic endurance and the national geographic resolution . 41 results of operations โ segments selected information for our segments is below . the presentation of non-gaap financial information should not be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . replace_table_token_6_th results of operations โ lindblad segment comparison of years ended december 31 , 2020 and 2019 tour revenues tour revenues for the year ended december 31 , 2020 decreased $ 202.8 million , or 74 % , to $ 69.6 million compared to $ 272.4 million for the year ended december 31 , 2019. the decrease was primarily driven by cancelled , disrupted and rescheduled expeditions due to covid-19 . operating income operating income decreased $ 104.8 million to a loss of $ 78.6 million for the year ended december 31 , 2020 compared to income of $ 26.2 million for the year ended december 31 , 2019. the decrease was primarily driven by lower revenue from cancelled , disrupted and rescheduled voyages due to covid-19 and costs associated with adding the national geographic endurance to the fleet in march 2020. comparison of years ended december 31 , 2019 and 2018 tour revenues tour revenues for the year ended december 31 , 2019 increased $ 26.1 million , or 11 % , to $ 272.4 million compared to $ 246.3 million for the year ended december 31 , 2018. the increase was driven by higher guest ticket revenue primarily from an increase in available guest nights due to the addition to our fleet of the national geographic venture in the fourth quarter of 2018 ๏ปฟ . additionally , net yield per available guest night for the year ended december 31 , 2019 increased to $ 1,051 compared to $ 1,044 for the year ended december 31 , 2018 , primarily driven by price increases and changes in itineraries . occupancy of 91 % was in line with the prior year as increased demand filled the additional capacity from the national geographic venture . operating income operating income increased $ 6.4 million to $ 26.2 million for the year ended december 31 , 2019 compared to $ 19.8 million for the year ended december 31 , 2018. the increase was primarily driven by a full year of operations of the national geographic venture , as well as lower vat expense and a decline in stock-based compensation expense , partially offset by higher selling and marketing expenditures , increased personnel costs , higher credit card fees associated with revenue growth and costs related to the warrant exchange . results of operations โ natural habitat segment comparison of years ended december 31 , 20 20 to december 31 , 201 9 tour revenues tour revenues decreased $ 57.9 million , or 82 % , to $ 12.7 million compared to $ 70.7 million in 2019 , due primarily to cancelled , disrupted and rescheduled expeditions due to covid-19 . 42 operating income operating income decreased $ 16.8 million to a loss of $ 9.8 million in 2020 compared to income of $ 7.0 million in 2019. the decrease was primarily a result of cancelled , disrupted and rescheduled expeditions due to covid-19 . comparison of years ended december 31 , 2019 to december 31 , 2018 tour revenues tour revenues increased $ 7.3 million , or 11 % , to $ 70.7 million compared to $ 63.4 million in 2018 primarily due to additional departures , increased travelers and itinerary changes that drove higher average pricing . operating income operating income increased $ 1.5 million , or 26 % , to $ 7.0 million in 2019 compared to $ 5.5 million in 2018 primarily due to the growth in tour revenues , partially offset by higher operating costs related to the additional departures , as well as increased personnel expenses and marketing costs to support future growth initiatives . adjusted ebitda โ consolidated the following table outlines the
| debt facilities credit facility on march 27 , 2018 , we entered into the third amended and restated credit agreement ( the โ amended credit agreement โ ) providing for a refinancing and amendment of the terms of our prior secured credit facility . the amended credit agreement provided for a $ 200.0 million senior secured term facility ( the โ term facility โ ) , maturing march 27 , 2025 , and a $ 45.0 million senior secured incremental revolving credit facility ( the โ revolving facility โ ) , which includes a $ 5.0 million letter of credit sub-facility . during march 2020 , we drew down the entire revolving facility which matures in march 2023. in connection with the amended credit agreement , we capitalized $ 4.2 million related to lender and third-party fees . in addition , the entry into the amended credit agreement was considered a debt modification with a partial extinguishment , as a result we expensed $ 1.0 million of related costs during the year ended december 31 , 2018 , which is included in general and administrative expenses on the accompanying consolidated statements of operations . our obligations under the amended credit agreement remain secured by substantially all of our assets . on august 7 , 2020 , we amended our term facility and revolving facility to waive the application of the total net leverage ratio covenant through june 2021. in connection with the amendment , the interest rate of the term loan has been increased 125 basis points , to be paid-in-kind at maturity , a libor minimum of 0.75 % has been added to the term loan and revolving credit facilities and certain covenants have been amended to be more restrictive . borrowings under the term facility , as amended , bear interest at an adjusted intercontinental exchange ( โ ice โ ) benchmark administration libor , with a minimum of 0.75 % , plus a spread of 4.75 % , for an aggregated rate of 5.50 % as of december 31 , 2020. the revolving facility bears interest at an adjusted ice benchmark administration libor , with a minimum of 0.75 % , plus a spread of 3.00 % , for an aggregated rate of 3.75 % as of december 31 , 2020 .
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subscription revenue , software revenue and total revenue were all up over fiscal 2017 , despite an 800 basis point increase in subscription mix year over year . recurring software revenue represented approximately 90 % of our software revenue in 2018 , up from 86 % a year ago . our revenue results also drove our operating margin improvements for the year . despite increases in sales and marketing and research and development expenses , operating margins and eps were up over the prior year . our cad and plm businesses performed well in the year , our iot business continued to grow as we added new customers and existing customers expanded their implementations , and interest in our augmented reality solutions increased . we made important strides in extending our market reach and further differentiating our technology with strategic relationships we entered into in 2018 , including those with rockwell automation , microsoft and ansys . 17 replace_table_token_1_th the increase in total revenue , subscription revenue and eps reflects our transformation into a subscription software company . as our mix of subscription sales relative to perpetual license sales has increased , perpetual license revenue and support revenue have declined . our 2018 revenue results include the impact of a settlement of a customer dispute concerning a professional services receivable . the settlement , reached in september 2018 , included partial payment of the receivable and new software purchases . the net revenue write-down recorded in the fourth quarter of 2018 was $ 9.3 million , comprised of a $ 14.5 million services revenue write-down , partially offset by subscription revenue of $ 5.2 million . additionally , professional services revenue has declined in accordance with our strategy to migrate more services engagements to our partners and to deliver products that require less consulting and training services . the increase in subscription revenue relative to perpetual license revenue has resulted in an increase in our recurring software revenue , with approximately 90 % of our software revenue and 79 % of our total revenue in 2018 from recurring software revenue streams , compared to 86 % and 73 % in 2017 and 82 % and 68 % in 2016 . 18 year ended september 30 , earnings measures 2018 2017 change operating margin 5.9 % 3.5 % 68 % earnings per share $ 0.44 $ 0.05 780 % non-gaap operating margin ( 1 ) 18.4 % 16.1 % 14 % non-gaap eps ( 1 ) $ 1.45 $ 1.17 24 % ( 1 ) non-gaap measures are reconciled to gaap results under results of operations - non-gaap measures below . gaap and non-gaap operating income in 2018 reflect maturity of our subscription program . an increase in gross margin is associated with higher subscription revenue and a lower mix of professional services revenue , which has lower margins than our software revenue . the increase in gross margins was partially offset by higher sales and marketing and research and development costs . our gaap and non-gaap earnings reflect a combination of revenue growth due to the strength of our subscription model and strong new bookings , as well as continued cost and expense discipline . we ended 2018 with cash , cash equivalents and marketable securities of $ 316 million , down from $ 330 million at the end of 2017. we generated $ 248 million of cash from operations in 2018 compared to $ 135 million in 2017. in the fourth quarter of 2018 , rockwell automation made a $ 1 billion equity investment in ptc as part of a strategic partnership . using the cash proceeds from this investment , ptc entered into a $ 1,000 million accelerated share repurchase . we also used cash from operations to repurchase another $ 100 million of common stock and to repay a net $ 70 million of borrowings under our credit facility in 2018. at september 30 , 2018 , the balance outstanding under our credit facility was $ 148 million and total debt outstanding was $ 648 million . operating measures we provide these measures to help investors understand the progress of our subscription transition . these measures are not necessarily indicative of revenue for the period or any future period . license and subscription bookings license and subscription bookings for 2018 were $ 466 million , up 11 % over 2017 ( up 9 % on a constant currency basis ) and up 16 % over 2016. over the past two years , cad , core plm and iot have delivered bookings cagrs at the high end of market growth rates , as cad and plm customers have converted existing license contracts to subscriptions and customers have adopted and expanded iot implementations . subscription acv s ubscription acv increased 24 % over 2017 to $ 177 million due to continued adoption of our subscription offerings around the globe . 19 annualized recurring revenue ( arr ) arr was approximat ely $ 1,012 m illion as of the fourth quarter of 2018 , an increase of 12 % compared to the fourth quarter of 2017 and the seventh consecutive quarter of double-digit year-over-year growth . deferred revenue and backlog ( unbilled deferred revenue ) deferred revenue primarily relates to software agreements invoiced to customers for which the revenue has not yet been recognized . unbilled deferred revenue ( backlog ) is the aggregate of booked orders for license , support and subscription ( including multi-year subscription contracts with start dates after october 1 , 2018 that are subject to a limited annual cancellation right , of which approximately $ 50 million was cancellable at september 30 , 2018 ) for which the associated revenue has not been recognized and the customer has not yet been invoiced . we do not record unbilled deferred revenue on our consolidated balance sheets ; such amounts are recorded as deferred revenue when we invoice the customer . story_separator_special_tag cost of license and subscription revenue replace_table_token_8_th our cost of license and subscription includes cost of license , which consists of fixed and variable costs associated with reproducing and distributing software and documentation , as well as royalties paid to third parties for technology embedded in or licensed with our software products , and amortization of intangible assets associated with acquired products , and cost of subscription , which includes our cost of cloud services and software as a service revenue , including hosting fees . costs associated with providing post-contract support such as providing software updates and technical support for both our subscription offerings and our perpetual licenses are included in cost of support revenue . cost of license and subscription revenue as a percent of license and subscription revenue can vary depending on the subscription mix percentage , the product mix sold , the effect of fixed and variable royalties , headcount and the level of amortization of acquired software intangible assets . costs in 2018 compared to 2017 increased primarily as a result of a $ 3.7 million increase in cloud services hosting costs and a $ 2.5 million increase in total compensation , benefit and travel expense due to increases in salaries . costs in 2017 compared to 2016 increased primarily as a result of a $ 15.0 million increase in total compensation , benefit and travel expense due to increased headcount , primarily associated with supporting our cloud products , and a $ 3.4 million increase in cloud services hosting costs . cost of support revenue replace_table_token_9_th cost of support revenue consists of costs such as salaries , benefits , and computer equipment and facilities associated with customer support and the release of support updates ( including related royalty costs ) associated with providing support for both our perpetual licenses and subscription licenses . costs and expense in 2018 compared to 2017 decreased primarily due to a decrease in headcount resulting in 3 % ( $ 1.9 million ) lower total compensation , benefit and travel costs . 29 costs and expense in 2017 compared to 2016 increased primarily due to a 5 % ( $ 3.1 million ) increase in total compensation , benefit and travel costs . cost of professional services revenue replace_table_token_10_th our cost of professional services revenue includes costs such as salaries , benefits , information technology costs and facilities expenses for our training and consulting personnel , and third-party subcontractor fees . in 2018 compared to 2017 , total compensation , benefit and travel expenses were decreased by $ 6.8 million primarily due to an 8 % decrease in headcount . in 2017 compared to 2016 , total compensation , benefit costs and travel expenses decreased by $ 18.8 million . the cost of third-party consulting services was $ 4.7 million lower in 2017 compared to 2016. as a result of decreases in professional services revenue in 2018 , 2017 and 2016 , we have reduced headcount , resulting in lower compensation-related costs . this is in line with our strategy to have our strategic services partners perform services for customers directly , which has decreased revenue and costs and improved services margins . sales and marketing replace_table_token_11_th our sales and marketing expenses primarily include salaries and benefits , sales commissions , advertising and marketing programs , travel , information technology costs and facility expenses . costs and expense in 2018 compared to 2017 increased primarily due to a $ 38.6 million increase in total compensation , benefit costs and travel expenses as a result of increases in headcount , salary increases , higher commissions costs and higher stock-based compensation . in 2017 compared to 2016 , event costs increased $ 3.1 million due to our liveworx event held in may 2017. our compensation , benefits and travel costs were $ 3.5 million lower in 2017 compared to 2016 primarily due to lower commissions , which were higher in 2016 as a result of significantly higher than planned subscription bookings . 30 research and development replace_table_token_12_th our research and development expenses consist principally of salaries and benefits , information technology costs and facility expenses . major research and development activities include developing new releases and updates of our software that enhance functionality and add features . in 2018 compared to 2017 , total compensation , benefit and travel expenses were higher by 6 % ( $ 12.0 million ) due to an increase in headcount and salary increases . in 2017 compared to 2016 , total compensation , benefit and travel expenses were higher by 3 % ( $ 5.0 million ) due to an increase in headcount and a $ 1.6 million increase in cloud services hosting costs as some product testing has moved to a cloud environment . general and administrative ( g & a ) replace_table_token_13_th our g & a expenses include the costs of our corporate , finance , information technology , human resources , legal and administrative functions , as well as acquisition-related and other transactional charges , bad debt expense and outside professional services , including accounting and legal fees . acquisition-related costs include direct costs of acquisitions and expenses related to acquisition integration activities , including transaction fees , due diligence costs , retention bonuses and severance , and professional fees , including legal and accounting costs , related to the acquisition . in addition , subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are included in acquisition-related charges . other transactional charges include third-party costs related to structuring unusual transactions . in 2018 compared to 2017 , the cost of professional fees decreased $ 3.3 million , offset by an increase of $ 2.1 million in compensation due to headcount and merit increases . in 2017 compared to 2016 , total compensation , benefit and travel costs increased by $ 7.0 million primarily because of merit increases and increased severance costs , as well as higher
| debt facilities credit facility on march 27 , 2018 , we entered into the third amended and restated credit agreement ( the โ amended credit agreement โ ) providing for a refinancing and amendment of the terms of our prior secured credit facility . the amended credit agreement provided for a $ 200.0 million senior secured term facility ( the โ term facility โ ) , maturing march 27 , 2025 , and a $ 45.0 million senior secured incremental revolving credit facility ( the โ revolving facility โ ) , which includes a $ 5.0 million letter of credit sub-facility . during march 2020 , we drew down the entire revolving facility which matures in march 2023. in connection with the amended credit agreement , we capitalized $ 4.2 million related to lender and third-party fees . in addition , the entry into the amended credit agreement was considered a debt modification with a partial extinguishment , as a result we expensed $ 1.0 million of related costs during the year ended december 31 , 2018 , which is included in general and administrative expenses on the accompanying consolidated statements of operations . our obligations under the amended credit agreement remain secured by substantially all of our assets . on august 7 , 2020 , we amended our term facility and revolving facility to waive the application of the total net leverage ratio covenant through june 2021. in connection with the amendment , the interest rate of the term loan has been increased 125 basis points , to be paid-in-kind at maturity , a libor minimum of 0.75 % has been added to the term loan and revolving credit facilities and certain covenants have been amended to be more restrictive . borrowings under the term facility , as amended , bear interest at an adjusted intercontinental exchange ( โ ice โ ) benchmark administration libor , with a minimum of 0.75 % , plus a spread of 4.75 % , for an aggregated rate of 5.50 % as of december 31 , 2020. the revolving facility bears interest at an adjusted ice benchmark administration libor , with a minimum of 0.75 % , plus a spread of 3.00 % , for an aggregated rate of 3.75 % as of december 31 , 2020 .
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subscription revenue , software revenue and total revenue were all up over fiscal 2017 , despite an 800 basis point increase in subscription mix year over year . recurring software revenue represented approximately 90 % of our software revenue in 2018 , up from 86 % a year ago . our revenue results also drove our operating margin improvements for the year . despite increases in sales and marketing and research and development expenses , operating margins and eps were up over the prior year . our cad and plm businesses performed well in the year , our iot business continued to grow as we added new customers and existing customers expanded their implementations , and interest in our augmented reality solutions increased . we made important strides in extending our market reach and further differentiating our technology with strategic relationships we entered into in 2018 , including those with rockwell automation , microsoft and ansys . 17 replace_table_token_1_th the increase in total revenue , subscription revenue and eps reflects our transformation into a subscription software company . as our mix of subscription sales relative to perpetual license sales has increased , perpetual license revenue and support revenue have declined . our 2018 revenue results include the impact of a settlement of a customer dispute concerning a professional services receivable . the settlement , reached in september 2018 , included partial payment of the receivable and new software purchases . the net revenue write-down recorded in the fourth quarter of 2018 was $ 9.3 million , comprised of a $ 14.5 million services revenue write-down , partially offset by subscription revenue of $ 5.2 million . additionally , professional services revenue has declined in accordance with our strategy to migrate more services engagements to our partners and to deliver products that require less consulting and training services . the increase in subscription revenue relative to perpetual license revenue has resulted in an increase in our recurring software revenue , with approximately 90 % of our software revenue and 79 % of our total revenue in 2018 from recurring software revenue streams , compared to 86 % and 73 % in 2017 and 82 % and 68 % in 2016 . 18 year ended september 30 , earnings measures 2018 2017 change operating margin 5.9 % 3.5 % 68 % earnings per share $ 0.44 $ 0.05 780 % non-gaap operating margin ( 1 ) 18.4 % 16.1 % 14 % non-gaap eps ( 1 ) $ 1.45 $ 1.17 24 % ( 1 ) non-gaap measures are reconciled to gaap results under results of operations - non-gaap measures below . gaap and non-gaap operating income in 2018 reflect maturity of our subscription program . an increase in gross margin is associated with higher subscription revenue and a lower mix of professional services revenue , which has lower margins than our software revenue . the increase in gross margins was partially offset by higher sales and marketing and research and development costs . our gaap and non-gaap earnings reflect a combination of revenue growth due to the strength of our subscription model and strong new bookings , as well as continued cost and expense discipline . we ended 2018 with cash , cash equivalents and marketable securities of $ 316 million , down from $ 330 million at the end of 2017. we generated $ 248 million of cash from operations in 2018 compared to $ 135 million in 2017. in the fourth quarter of 2018 , rockwell automation made a $ 1 billion equity investment in ptc as part of a strategic partnership . using the cash proceeds from this investment , ptc entered into a $ 1,000 million accelerated share repurchase . we also used cash from operations to repurchase another $ 100 million of common stock and to repay a net $ 70 million of borrowings under our credit facility in 2018. at september 30 , 2018 , the balance outstanding under our credit facility was $ 148 million and total debt outstanding was $ 648 million . operating measures we provide these measures to help investors understand the progress of our subscription transition . these measures are not necessarily indicative of revenue for the period or any future period . license and subscription bookings license and subscription bookings for 2018 were $ 466 million , up 11 % over 2017 ( up 9 % on a constant currency basis ) and up 16 % over 2016. over the past two years , cad , core plm and iot have delivered bookings cagrs at the high end of market growth rates , as cad and plm customers have converted existing license contracts to subscriptions and customers have adopted and expanded iot implementations . subscription acv s ubscription acv increased 24 % over 2017 to $ 177 million due to continued adoption of our subscription offerings around the globe . 19 annualized recurring revenue ( arr ) arr was approximat ely $ 1,012 m illion as of the fourth quarter of 2018 , an increase of 12 % compared to the fourth quarter of 2017 and the seventh consecutive quarter of double-digit year-over-year growth . deferred revenue and backlog ( unbilled deferred revenue ) deferred revenue primarily relates to software agreements invoiced to customers for which the revenue has not yet been recognized . unbilled deferred revenue ( backlog ) is the aggregate of booked orders for license , support and subscription ( including multi-year subscription contracts with start dates after october 1 , 2018 that are subject to a limited annual cancellation right , of which approximately $ 50 million was cancellable at september 30 , 2018 ) for which the associated revenue has not been recognized and the customer has not yet been invoiced . we do not record unbilled deferred revenue on our consolidated balance sheets ; such amounts are recorded as deferred revenue when we invoice the customer . story_separator_special_tag cost of license and subscription revenue replace_table_token_8_th our cost of license and subscription includes cost of license , which consists of fixed and variable costs associated with reproducing and distributing software and documentation , as well as royalties paid to third parties for technology embedded in or licensed with our software products , and amortization of intangible assets associated with acquired products , and cost of subscription , which includes our cost of cloud services and software as a service revenue , including hosting fees . costs associated with providing post-contract support such as providing software updates and technical support for both our subscription offerings and our perpetual licenses are included in cost of support revenue . cost of license and subscription revenue as a percent of license and subscription revenue can vary depending on the subscription mix percentage , the product mix sold , the effect of fixed and variable royalties , headcount and the level of amortization of acquired software intangible assets . costs in 2018 compared to 2017 increased primarily as a result of a $ 3.7 million increase in cloud services hosting costs and a $ 2.5 million increase in total compensation , benefit and travel expense due to increases in salaries . costs in 2017 compared to 2016 increased primarily as a result of a $ 15.0 million increase in total compensation , benefit and travel expense due to increased headcount , primarily associated with supporting our cloud products , and a $ 3.4 million increase in cloud services hosting costs . cost of support revenue replace_table_token_9_th cost of support revenue consists of costs such as salaries , benefits , and computer equipment and facilities associated with customer support and the release of support updates ( including related royalty costs ) associated with providing support for both our perpetual licenses and subscription licenses . costs and expense in 2018 compared to 2017 decreased primarily due to a decrease in headcount resulting in 3 % ( $ 1.9 million ) lower total compensation , benefit and travel costs . 29 costs and expense in 2017 compared to 2016 increased primarily due to a 5 % ( $ 3.1 million ) increase in total compensation , benefit and travel costs . cost of professional services revenue replace_table_token_10_th our cost of professional services revenue includes costs such as salaries , benefits , information technology costs and facilities expenses for our training and consulting personnel , and third-party subcontractor fees . in 2018 compared to 2017 , total compensation , benefit and travel expenses were decreased by $ 6.8 million primarily due to an 8 % decrease in headcount . in 2017 compared to 2016 , total compensation , benefit costs and travel expenses decreased by $ 18.8 million . the cost of third-party consulting services was $ 4.7 million lower in 2017 compared to 2016. as a result of decreases in professional services revenue in 2018 , 2017 and 2016 , we have reduced headcount , resulting in lower compensation-related costs . this is in line with our strategy to have our strategic services partners perform services for customers directly , which has decreased revenue and costs and improved services margins . sales and marketing replace_table_token_11_th our sales and marketing expenses primarily include salaries and benefits , sales commissions , advertising and marketing programs , travel , information technology costs and facility expenses . costs and expense in 2018 compared to 2017 increased primarily due to a $ 38.6 million increase in total compensation , benefit costs and travel expenses as a result of increases in headcount , salary increases , higher commissions costs and higher stock-based compensation . in 2017 compared to 2016 , event costs increased $ 3.1 million due to our liveworx event held in may 2017. our compensation , benefits and travel costs were $ 3.5 million lower in 2017 compared to 2016 primarily due to lower commissions , which were higher in 2016 as a result of significantly higher than planned subscription bookings . 30 research and development replace_table_token_12_th our research and development expenses consist principally of salaries and benefits , information technology costs and facility expenses . major research and development activities include developing new releases and updates of our software that enhance functionality and add features . in 2018 compared to 2017 , total compensation , benefit and travel expenses were higher by 6 % ( $ 12.0 million ) due to an increase in headcount and salary increases . in 2017 compared to 2016 , total compensation , benefit and travel expenses were higher by 3 % ( $ 5.0 million ) due to an increase in headcount and a $ 1.6 million increase in cloud services hosting costs as some product testing has moved to a cloud environment . general and administrative ( g & a ) replace_table_token_13_th our g & a expenses include the costs of our corporate , finance , information technology , human resources , legal and administrative functions , as well as acquisition-related and other transactional charges , bad debt expense and outside professional services , including accounting and legal fees . acquisition-related costs include direct costs of acquisitions and expenses related to acquisition integration activities , including transaction fees , due diligence costs , retention bonuses and severance , and professional fees , including legal and accounting costs , related to the acquisition . in addition , subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are included in acquisition-related charges . other transactional charges include third-party costs related to structuring unusual transactions . in 2018 compared to 2017 , the cost of professional fees decreased $ 3.3 million , offset by an increase of $ 2.1 million in compensation due to headcount and merit increases . in 2017 compared to 2016 , total compensation , benefit and travel costs increased by $ 7.0 million primarily because of merit increases and increased severance costs , as well as higher
| liquidity and capital resources replace_table_token_21_th cash and cash equivalents we invest our cash with highly rated financial institutions and in diversified domestic and international money market mutual funds . cash and cash equivalents include highly liquid investments with original 44 maturities of three months or less . in addition , we hold investments in marketable securities totaling approximately $ 56.0 million with an average maturity of 14 months . at september 30 , 2018 , cash and cash equivalents totaled $ 259.9 million , compared to $ 280.0 million at september 30 , 2017 , reflecting $ 247.8 million in operating cash flow , $ 1,015.7 million of proceeds from issuance of common stock , of which $ 1 billion was related to an investment in ptc by rockwell automation and the remainder of which relates to common stock issued under our employee stock purchase plan . the proceeds from the rockwell automation investment were used in part for repurchases of $ 1,100.0 million in common stock . in addition , we made $ 70.0 million of net repayments under our credit facility , $ 45.4 million was used to pay withholding taxes on stock-based awards that vested in the period , $ 36.0 million was used for capital expenditures , $ 8.9 million was used for the payment of contingent consideration , $ 6.0 million was used to purchase business and intangible assets , and $ 6.2 million was used to purchase marketable securities , net of proceeds from maturities . cash provided by operating activities cash provided by operating activities was $ 247.8 million in 2018 compared to $ 135.2 million in 2017 and $ 183.3 million in 2016 .
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specific allocations have been made for impaired loans where management has determined that the collateral supporting the loans is not adequate to cover the loan balance , and the qualitative factors affecting the allowance for loan losses ( the โ all โ ) have been adjusted based on the current economic environment and the characteristics of the loan portfolio . other operating income increased $ .8 million for the year ended december 31 , 2018 when compared to 2017. this increase was attributable to increases in trust department earnings of $ .4 million , brokerage commissions of $ .2 million and debit card income of $ .1 million . these increases were offset slightly by decreases in service charges on deposit accounts and bank owned life insurance ( โ boli โ ) income . operating expenses increased $ 4.6 million when comparing the year ended december 31 , 2018 to the year ended december 31 , 2017. salaries and benefits increased $ 1.9 million , primarily due to new hires in late 2017 , merit increases and an increase in life and health insurance related to increased claims . we also saw an increase of $ .9 million in data processing , equipment and occupancy expense due to increased depreciation expense related to the branch renovation projects and new digital services implemented during 2018 as compared to the same period of 2017. other real estate owned ( โ oreo โ ) expenses increased $ 1.3 million due primarily to valuation allowance write-downs on properties in 2018. comparing december 31 , 2018 to december 31 , 2017 , loans outstanding increased by $ 115.2 million ( 13.1 % ) . cre loans increased $ 23.8 million due primarily to several new large relationships in 2018. acquisition and development ( โ a & d โ ) loans increased $ 7.8 million . commercial and industrial ( โ c & i โ ) loans increased $ 34.7 million due to several new relationships as well as new balances for several existing relationships . residential mortgage loans increased $ 38.3 million due to the purchase of a $ 15.0 million 1-4 family mortgage pool in february 2018 , and in-house growth continuing in our professional program , offset slightly by amortization on existing balances . this growth was in fixed and adjustable rate products . the consumer loan portfolio increased by $ 10.6 million due primarily to the purchase of a $ 10.0 million student loan pool in the first quarter of 2018. new production of consumer loans was partially offset by regular amortization . approximately 27 % and 28 % of the commercial loan portfolio was collateralized by real estate at december 31 , 2018 and 2017 , respectively . interest income on loans increased by $ 5.4 million ( on an fte basis ) in 2018 when compared to 2017 due to the rate increases by the federal reserve in 2018 , loan growth and new loans booked at higher rates . interest income on our investment securities increased by $ .4 million ( on an fte basis ) in 2018 when compared to 2017 primarily due to increased rates on the cdo portfolio due to the variable rates . during 2018 , we continued to use the cash flow on the investment portfolio to fund loans . new purchases were limited to investments for cra purposes and additional disbursements for the west virginia tax increment fund ( โ tif โ ) bond . additional information on the composition of interest income is available in table 1 that appears on page 30 of this report . [ 24 ] comparing december 31 , 2018 to december 31 , 2017 , total deposits increased $ 28.1 million . during 2018 , non-interest bearing deposits increased $ 10.2 million due to new account openings as well as increased balances in existing accounts . traditional savings accounts decreased $ 1.5 million as we saw balances shift to other products at higher rates . total demand deposits decreased $ 8.4 million due to several large relationships re-allocating balances . total money market accounts increased $ 10.3 million due primarily to new account openings in our new , higher rate money market product in the fourth quarter of 2018. time deposits less than $ 100,000 declined $ 8.2 million and time deposits greater than $ 100,000 increased $ 25.7 million . in november 2018 , two short-term brokered certificates of deposit of $ 15.0 million and $ 10.0 million were purchased through third-party brokers to fix interest expense in the rising rate environment . interest expense increased $ .7 million for the year ended december 31 , 2018 when compared to the year ended december 31 , 2017. this increase in interest expense was due to a $ 1.0 million increase in interest on deposits relating to increased empowerment pricing on existing relationships , particularly on maturing certificates of deposit , and new relationships in the new , higher-rate money market product introduced late in 2018. short-term borrowings interest increased $ .5 million due to the increase in overnight borrowings during the latter half of 2018. the increase in overnight borrowings was due to minimal deposit growth to fund the continued loan growth as well as the shift of a $ 15.0 million fhlb long-term advance to short-term borrowings at its maturity in april 2018. these increases were partially offset by a decrease of $ .7 million in long-term borrowings due to the repayment of the high cost $ 10.8 million trust preferred debt in march 2017 and the repayment of two fhlb advances totaling $ 5.0 million that matured in january 2018. on december 22 , 2017 , the president of the united states signed the tax act into law , which , among other things , reduced the federal income tax rate for c corporations from 35 % to 21 % effective january 1 , 2018. the tax act required us to revalue , using story_separator_special_tag [ 29 ] interest variance analysis ( 1 ) table 2 replace_table_token_6_th note : ( 1 ) the change in interest income/expense due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each . provision for loan losses the provision for loan losses was $ 2.1 million for the year ended december 31 , 2018 , compared to $ 2.5 million for the year ended december 31 , 2017. the decrease was driven primarily by a reduction in net credit losses as we continued to see good asset quality and improving economies ( discussed below in the section entitled โ financial condition - allowance and provision for loan losses โ ) . management believes that the all reflects a level commensurate with the risk inherent in our loan portfolio . other operating income the following table shows the major components of other operating income for the past two years , exclusive of net gains , and the percentage changes during these years : replace_table_token_7_th other operating income , exclusive of net gains , increased by $ .7 million for the year ended december 31 , 2018 when compared to 2017. as compared to 2017 , the company experienced increases in trust department earnings of $ .4 million , brokerage commissions of $ .2 million and debit card income of $ .1 million . these increases were offset by slight declines in service charges on deposit accounts and boli income . trust assets under management were $ 810.0 million at december 31 , 2018 and $ 824.0 million at december 31 , 2017 . [ 30 ] net gains of $ 127 thousand were reported through other income for the year ended december 31 , 2018 , compared to net gains of $ 29 thousand for 2017. the increase in gains realized in 2018 was due to a gain on a called trust preferred investment in the second quarter of 2018. this investment was called at par and had previously been written down from impairment charges . other operating expense the following table compares the major components of other operating expense for 2018 and 2017 : replace_table_token_8_th operating expenses increased $ 4.6 million when comparing the year ended december 31 , 2018 to the year ended december 31 , 2017. salaries and benefits increased $ 1.9 million , attributable primarily to new hires in late 2017 , merit increases and an increase in life and health insurance related to increased claims . we also saw an increase of $ .9 million in data processing , equipment and occupancy expense due to increased depreciation expense related to the branch renovation projects and new digital services implemented during 2018 as compared to the same period of 2017. oreo expenses increased $ 1.3 million due primarily to valuation allowance write-downs on properties in 2018. applicable income taxes we recognized a tax expense of $ 2.8 million in 2018 , compared to a tax expense of $ 6.9 million in 2017. as noted above , $ 3.2 million of the tax expense recorded in 2017 resulted from the revaluation of our deferred tax assets and liabilities required by the tax act . see the discussion under โ income taxes โ in note 17 to the consolidated financial statements presented elsewhere in this annual report for a detailed analysis of our deferred tax assets and liabilities . a valuation allowance has been provided for the $ 2.4 million in deferred tax assets associated with state tax loss carry forwards , which will expire commencing in 2030. at december 31 , 2018 , the corporation had west virginia net operating losses ( โ nols โ ) of approximately $ 1.7 million for which deferred tax assets of $ .1 million , have been recorded . west virginia nols were created in 2010 , 2012 , 2014 and 2016 and will begin to expire in 2022. management has determined that a deferred tax valuation allowance for these nols is not required for 2018 because management believes it is more likely than not ( defined a level of likelihood that is more than 50 % ) that these deferred tax assets will be realized prior to the expiration of their carry-forward periods . the corporation fully utilized the federal nols in 2018. at december 31 , 2018 , the corporation had maryland nols of $ 40.1 million for which a deferred tax asset of $ 2.4 million has been recorded . there has been and continues to be a full valuation allowance on these nols based on the fact that management 's belief that it is more likely than not that these nols will not be realized prior to the expiration of their carry-forward periods because the corporation files a separate maryland income tax return , the corporation has recurring state tax losses , and management believes the corporation will not generate sufficient taxable income in the future to fully utilize the nols . the valuation allowance was $ 2.4 million at december 31 , 2018 and 2017. we have concluded that no valuation allowance is deemed necessary for our remaining federal and state deferred tax assets at december 31 , 2018 , as it is more likely than not that they will be realized based on the expected reversal of deferred tax liabilities , the generation of future income sufficient to realize the deferred tax assets as they reverse , and the ability to implement tax planning strategies to prevent the expiration of any carry-forward periods . [ 31 ] consolidated balance sheet review overview total assets at december 31 , 2018 increased slightly to $ 1.4 billion from the $ 1.3 billion recorded at december 31 , 2017. comparing 2018 to 2017 , cash and interest-bearing deposits in other banks decreased by $ 60.2 million , the investment portfolio decreased by $ 8.5 million , and gross loans increased
| liquidity and capital resources replace_table_token_21_th cash and cash equivalents we invest our cash with highly rated financial institutions and in diversified domestic and international money market mutual funds . cash and cash equivalents include highly liquid investments with original 44 maturities of three months or less . in addition , we hold investments in marketable securities totaling approximately $ 56.0 million with an average maturity of 14 months . at september 30 , 2018 , cash and cash equivalents totaled $ 259.9 million , compared to $ 280.0 million at september 30 , 2017 , reflecting $ 247.8 million in operating cash flow , $ 1,015.7 million of proceeds from issuance of common stock , of which $ 1 billion was related to an investment in ptc by rockwell automation and the remainder of which relates to common stock issued under our employee stock purchase plan . the proceeds from the rockwell automation investment were used in part for repurchases of $ 1,100.0 million in common stock . in addition , we made $ 70.0 million of net repayments under our credit facility , $ 45.4 million was used to pay withholding taxes on stock-based awards that vested in the period , $ 36.0 million was used for capital expenditures , $ 8.9 million was used for the payment of contingent consideration , $ 6.0 million was used to purchase business and intangible assets , and $ 6.2 million was used to purchase marketable securities , net of proceeds from maturities . cash provided by operating activities cash provided by operating activities was $ 247.8 million in 2018 compared to $ 135.2 million in 2017 and $ 183.3 million in 2016 .
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specific allocations have been made for impaired loans where management has determined that the collateral supporting the loans is not adequate to cover the loan balance , and the qualitative factors affecting the allowance for loan losses ( the โ all โ ) have been adjusted based on the current economic environment and the characteristics of the loan portfolio . other operating income increased $ .8 million for the year ended december 31 , 2018 when compared to 2017. this increase was attributable to increases in trust department earnings of $ .4 million , brokerage commissions of $ .2 million and debit card income of $ .1 million . these increases were offset slightly by decreases in service charges on deposit accounts and bank owned life insurance ( โ boli โ ) income . operating expenses increased $ 4.6 million when comparing the year ended december 31 , 2018 to the year ended december 31 , 2017. salaries and benefits increased $ 1.9 million , primarily due to new hires in late 2017 , merit increases and an increase in life and health insurance related to increased claims . we also saw an increase of $ .9 million in data processing , equipment and occupancy expense due to increased depreciation expense related to the branch renovation projects and new digital services implemented during 2018 as compared to the same period of 2017. other real estate owned ( โ oreo โ ) expenses increased $ 1.3 million due primarily to valuation allowance write-downs on properties in 2018. comparing december 31 , 2018 to december 31 , 2017 , loans outstanding increased by $ 115.2 million ( 13.1 % ) . cre loans increased $ 23.8 million due primarily to several new large relationships in 2018. acquisition and development ( โ a & d โ ) loans increased $ 7.8 million . commercial and industrial ( โ c & i โ ) loans increased $ 34.7 million due to several new relationships as well as new balances for several existing relationships . residential mortgage loans increased $ 38.3 million due to the purchase of a $ 15.0 million 1-4 family mortgage pool in february 2018 , and in-house growth continuing in our professional program , offset slightly by amortization on existing balances . this growth was in fixed and adjustable rate products . the consumer loan portfolio increased by $ 10.6 million due primarily to the purchase of a $ 10.0 million student loan pool in the first quarter of 2018. new production of consumer loans was partially offset by regular amortization . approximately 27 % and 28 % of the commercial loan portfolio was collateralized by real estate at december 31 , 2018 and 2017 , respectively . interest income on loans increased by $ 5.4 million ( on an fte basis ) in 2018 when compared to 2017 due to the rate increases by the federal reserve in 2018 , loan growth and new loans booked at higher rates . interest income on our investment securities increased by $ .4 million ( on an fte basis ) in 2018 when compared to 2017 primarily due to increased rates on the cdo portfolio due to the variable rates . during 2018 , we continued to use the cash flow on the investment portfolio to fund loans . new purchases were limited to investments for cra purposes and additional disbursements for the west virginia tax increment fund ( โ tif โ ) bond . additional information on the composition of interest income is available in table 1 that appears on page 30 of this report . [ 24 ] comparing december 31 , 2018 to december 31 , 2017 , total deposits increased $ 28.1 million . during 2018 , non-interest bearing deposits increased $ 10.2 million due to new account openings as well as increased balances in existing accounts . traditional savings accounts decreased $ 1.5 million as we saw balances shift to other products at higher rates . total demand deposits decreased $ 8.4 million due to several large relationships re-allocating balances . total money market accounts increased $ 10.3 million due primarily to new account openings in our new , higher rate money market product in the fourth quarter of 2018. time deposits less than $ 100,000 declined $ 8.2 million and time deposits greater than $ 100,000 increased $ 25.7 million . in november 2018 , two short-term brokered certificates of deposit of $ 15.0 million and $ 10.0 million were purchased through third-party brokers to fix interest expense in the rising rate environment . interest expense increased $ .7 million for the year ended december 31 , 2018 when compared to the year ended december 31 , 2017. this increase in interest expense was due to a $ 1.0 million increase in interest on deposits relating to increased empowerment pricing on existing relationships , particularly on maturing certificates of deposit , and new relationships in the new , higher-rate money market product introduced late in 2018. short-term borrowings interest increased $ .5 million due to the increase in overnight borrowings during the latter half of 2018. the increase in overnight borrowings was due to minimal deposit growth to fund the continued loan growth as well as the shift of a $ 15.0 million fhlb long-term advance to short-term borrowings at its maturity in april 2018. these increases were partially offset by a decrease of $ .7 million in long-term borrowings due to the repayment of the high cost $ 10.8 million trust preferred debt in march 2017 and the repayment of two fhlb advances totaling $ 5.0 million that matured in january 2018. on december 22 , 2017 , the president of the united states signed the tax act into law , which , among other things , reduced the federal income tax rate for c corporations from 35 % to 21 % effective january 1 , 2018. the tax act required us to revalue , using story_separator_special_tag [ 29 ] interest variance analysis ( 1 ) table 2 replace_table_token_6_th note : ( 1 ) the change in interest income/expense due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each . provision for loan losses the provision for loan losses was $ 2.1 million for the year ended december 31 , 2018 , compared to $ 2.5 million for the year ended december 31 , 2017. the decrease was driven primarily by a reduction in net credit losses as we continued to see good asset quality and improving economies ( discussed below in the section entitled โ financial condition - allowance and provision for loan losses โ ) . management believes that the all reflects a level commensurate with the risk inherent in our loan portfolio . other operating income the following table shows the major components of other operating income for the past two years , exclusive of net gains , and the percentage changes during these years : replace_table_token_7_th other operating income , exclusive of net gains , increased by $ .7 million for the year ended december 31 , 2018 when compared to 2017. as compared to 2017 , the company experienced increases in trust department earnings of $ .4 million , brokerage commissions of $ .2 million and debit card income of $ .1 million . these increases were offset by slight declines in service charges on deposit accounts and boli income . trust assets under management were $ 810.0 million at december 31 , 2018 and $ 824.0 million at december 31 , 2017 . [ 30 ] net gains of $ 127 thousand were reported through other income for the year ended december 31 , 2018 , compared to net gains of $ 29 thousand for 2017. the increase in gains realized in 2018 was due to a gain on a called trust preferred investment in the second quarter of 2018. this investment was called at par and had previously been written down from impairment charges . other operating expense the following table compares the major components of other operating expense for 2018 and 2017 : replace_table_token_8_th operating expenses increased $ 4.6 million when comparing the year ended december 31 , 2018 to the year ended december 31 , 2017. salaries and benefits increased $ 1.9 million , attributable primarily to new hires in late 2017 , merit increases and an increase in life and health insurance related to increased claims . we also saw an increase of $ .9 million in data processing , equipment and occupancy expense due to increased depreciation expense related to the branch renovation projects and new digital services implemented during 2018 as compared to the same period of 2017. oreo expenses increased $ 1.3 million due primarily to valuation allowance write-downs on properties in 2018. applicable income taxes we recognized a tax expense of $ 2.8 million in 2018 , compared to a tax expense of $ 6.9 million in 2017. as noted above , $ 3.2 million of the tax expense recorded in 2017 resulted from the revaluation of our deferred tax assets and liabilities required by the tax act . see the discussion under โ income taxes โ in note 17 to the consolidated financial statements presented elsewhere in this annual report for a detailed analysis of our deferred tax assets and liabilities . a valuation allowance has been provided for the $ 2.4 million in deferred tax assets associated with state tax loss carry forwards , which will expire commencing in 2030. at december 31 , 2018 , the corporation had west virginia net operating losses ( โ nols โ ) of approximately $ 1.7 million for which deferred tax assets of $ .1 million , have been recorded . west virginia nols were created in 2010 , 2012 , 2014 and 2016 and will begin to expire in 2022. management has determined that a deferred tax valuation allowance for these nols is not required for 2018 because management believes it is more likely than not ( defined a level of likelihood that is more than 50 % ) that these deferred tax assets will be realized prior to the expiration of their carry-forward periods . the corporation fully utilized the federal nols in 2018. at december 31 , 2018 , the corporation had maryland nols of $ 40.1 million for which a deferred tax asset of $ 2.4 million has been recorded . there has been and continues to be a full valuation allowance on these nols based on the fact that management 's belief that it is more likely than not that these nols will not be realized prior to the expiration of their carry-forward periods because the corporation files a separate maryland income tax return , the corporation has recurring state tax losses , and management believes the corporation will not generate sufficient taxable income in the future to fully utilize the nols . the valuation allowance was $ 2.4 million at december 31 , 2018 and 2017. we have concluded that no valuation allowance is deemed necessary for our remaining federal and state deferred tax assets at december 31 , 2018 , as it is more likely than not that they will be realized based on the expected reversal of deferred tax liabilities , the generation of future income sufficient to realize the deferred tax assets as they reverse , and the ability to implement tax planning strategies to prevent the expiration of any carry-forward periods . [ 31 ] consolidated balance sheet review overview total assets at december 31 , 2018 increased slightly to $ 1.4 billion from the $ 1.3 billion recorded at december 31 , 2017. comparing 2018 to 2017 , cash and interest-bearing deposits in other banks decreased by $ 60.2 million , the investment portfolio decreased by $ 8.5 million , and gross loans increased
| capital resources we require capital to fund loans , satisfy our obligations under the bank 's letters of credit , meet the deposit withdraw demands of the bank 's customers , and satisfy our other monetary obligations . to the extent that deposits are not adequate to fund our capital requirements , we can rely on the funding sources identified below under the heading โ liquidity management โ . at december 31 , 2018 , the bank had $ 85.0 million available through unsecured lines of credit with correspondent banks , $ 4.4 million available through a secured line of credit with the fed discount window and approximately $ 104.3 million available through the fhlb . management is not aware of any demands , commitments , events or uncertainties that are likely to materially affect our ability to meet our future capital requirements . in addition to operational requirements , the bank and the corporation are subject to risk-based capital regulations , which were adopted and are monitored by federal banking regulators . these regulations are used to evaluate capital adequacy and require an analysis of an institution 's asset risk profile and off-balance sheet exposures , such as unused loan commitments and stand-by letters of credit . on july 2 , 2013 , the federal reserve approved final rules that substantially amended the regulatory risk-based capital rules applicable to the corporation . the fdic subsequently approved the same rules which apply to the bank . the final rules implement the โ basel iii โ regulatory capital reforms and changes required by the dodd-frank act and were implemented as of march 31 , 2015. the basel iii capital rules include new risk-based capital and leverage ratios , which will be phased in from 2015 to 2019 , and which refine the definition of what constitutes โ capital โ for purposes of calculating those ratios .
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since that time , it began to recover and eventually exceed pre-ai levels by late 2016. in february 2017 , the usda issued revised data that showed the size of the laying hen flock for calendar years 2015 and 2016 was meaningfully higher in both years than previously reported . 23 egg prices increased significantly during the summer and fall of 2015. the average urner-barry thursday prices for the large market ( i.e . generic shell eggs ) in the southeastern region for the months of june through november 2015 was $ 2.32 per dozen , with a peak of $ 2.97 in august . subsequent to november 2015 , shell egg prices declined . the urner barry price index ( `` ub index `` ) hit a decade-low level in our fiscal 2016 fourth quarter . during our first quarter of fiscal 2017 it increased slightly , but remained at significantly lower levels than the corresponding period of last year . during our fiscal 2017 second quarter , the ub index returned to and dropped below the low levels seen during the fiscal 2016 fourth quarter . early in our fiscal 2017 third quarter we saw a significant increase , but prices dropped after christmas . during our fiscal 2017 fourth quarter , the ub index dropped again and approached the record low levels of the fiscal 2017 second quarter . according to nielsen data , retail customer demand for shell eggs has remained strong . the usda reports that egg export demand has improved since the beginning of fiscal 2017 ; however , it has still not fully recovered from levels prior to the ai outbreak . additionally , the industry experienced reduced demand for egg products , as many commercial customers reformulated their products to use fewer eggs when prices spiked and have been slow to resume previous egg usage . together with the increased supply of laying hens , these factors have created an oversupply of eggs , with continued pressure on market prices . accordingly , our net average selling price per dozen shell eggs for fiscal 2017 was $ 1.007 compared to $ 1.735 for fiscal 2016. recent usda reports show the chick hatch has been trending down , suggesting there may be a moderation in the size of the laying hen flock as the year progresses . we expect the egg markets to remain under pressure and we do not expect meaningful price improvement until there is a better balance of supply and demand . we are one of the largest producers and marketers of value-added specialty shell eggs in the u.s. for accounting purposes , we classify nutritionally enhanced , cage-free , organic and brown eggs as specialty shell eggs . they have been a significant and growing segment of the market in recent years . during our fiscal 2016 an increasing number of large restaurant chains , food service companies and grocery chains , including our largest customers , announced goals to transition to a cage-free egg supply chain by specified future dates . we are working with our customers to achieve smooth progress in meeting their goals . our focus for future expansion at our farms will be environments that are cage-free or with equipment that can easily be converted to cage-free , based on a timeline to meet our customer 's needs . for fiscal 2017 , we produced approximately 84 % of the total number of shell eggs sold by us , with approximately 8 % of such shell egg production provided by contract producers . contract producers utilize their facilities to produce shell eggs from layers owned by us . we own the shell eggs produced under these arrangements . for fiscal 2017 , approximately 16 % of the total number of shell eggs sold by us were purchased from outside producers for resale . our cost of production is materially affected by feed costs , which are highly volatile and subject to wide fluctuation . for fiscal 2017 , feed costs averaged about 58 % of our total farm egg production cost . changes in market prices for corn and soybean meal , the primary ingredients in the feed we use , result in changes in our cost of goods sold . for our last five fiscal years , average feed cost per dozen sold ranged from a low of $ 0.40 in fiscal 2017 to a high of $ 0.54 in fiscal 2013. the cost of our primary feed ingredients , which are commodities , are subject to factors over which we have little or no control such as volatile price changes caused by weather , size of harvest , transportation and storage costs , demand and the agricultural and energy policies of the u.s. and foreign governments . subsequent to our fiscal year end , grain prices have increased and we expect this volatility to continue in fiscal 2018. in spite of this volatility , we expect to have an adequate supply of our primary feed ingredients in fiscal 2018. during the second quarter of fiscal 2017 , the company acquired substantially all of the egg production assets and assumed certain liabilities of foodonics international , inc. and its related entities doing business as dixie egg company ( collectively , `` foodonics `` ) for $ 68.6 million of cash and $ 3.0 million of deferred purchase price . the acquired assets include commercial egg production and processing facilities with capacity for 1.6 million laying hens , contract grower arrangements for an additional 1.5 million laying hens , and related feed production , and distribution facilities in georgia , alabama , and florida . the company acquired foodonics ' interest in american egg products , llc ( `` aep `` ) and the eggland 's best franchise with licensing rights for certain markets in alabama , florida , and georgia as well as puerto rico , bahamas and cuba . story_separator_special_tag total other income for fiscal 2017 was $ 17.8 million compared to $ 15.4 million for fiscal 2016 . as a percent of net sales , total other income was 1.7 % for fiscal 2017 , compared to 0.8 % for fiscal 2016 . the company recorded interest income of $ 3.1 million in fiscal 2017 , compared to $ 4.3 million for the same period of last year . we recorded interest expense of $ 1.4 million and $ 2.3 million , of which $ 1.1 million was capitalized in both fiscal 2017 and 2016 . interest income from available for sale securities decreased due to lower average invested balances . the reduction of interest expense resulted from lower levels of outstanding debt . patronage dividends , which represent distributions from our membership in eggland 's best , inc. , increased $ 735,000 from $ 6.9 million in fiscal 2016 to $ 7.7 million in fiscal 2017 . equity in income of affiliates for fiscal 2017 was $ 1.4 million compared to $ 5.0 million for fiscal 2016 . the decrease of $ 3.6 million is primarily due to losses at our red river joint venture and decreased income from specialty egg sales in our other unconsolidated specialty egg joint ventures . other , net for fiscal 2017 was $ 6.0 million of income compared to $ 269,000 for fiscal 2016. the increase of $ 5.7 million is primarily due to our receipt in the fourth quarter of fiscal 2017 of payment of claims related to the deepwater horizon economic and property damages settlement program . our recovery , net of applicable fees , was $ 5.5 million . income taxes for the fiscal year ended june 3 , 2017 , our pre-tax loss was $ 114.3 million , compared to pre-tax income of $ 487.2 million for fiscal 2016 . income tax benefit of $ 39.9 million was recorded for fiscal 2017 with an effective income tax rate of 34.9 % , compared to income tax expense of $ 169.2 million for fiscal 2016 with an effective income tax rate of 34.8 % . for the fourteen weeks ended june 3 , 2017 , our pretax loss was $ 33.2 million and our income tax benefit was $ 8.5 million with an effective income tax rate of 25.9 % . the low effective rate is due to the company 's decision to carry back fiscal 2017 net operating losses to recover a portion of taxes paid in fiscal 2015. the net operating loss carryback resulted in a $ 4.1 million decrease in the income tax benefit , as the carryback reduced fiscal 2015 taxable income and as a result reduced the benefit of domestic manufacturers deductions , a portion of which were therefore reversed in the fourth quarter of fiscal 2017. items causing our effective rate to differ from the federal statutory income tax rate of 35 % are state income taxes and certain items included in income or loss for financial reporting purposes that are not included in taxable income or loss for income tax purposes , including tax exempt interest income , the domestic manufacturers deduction , and net income or loss attributable to noncontrolling interest . 31 net income ( loss ) attributable to noncontrolling interest net loss attributable to noncontrolling interest for fiscal 2017 was $ 149,000 compared to net income of $ 2.0 million for fiscal 2016 . net income ( loss ) attributable to cal-maine foods , inc. as a result of the above , net loss for fiscal 2017 was $ 74.3 million , or $ 1.54 per basic and diluted share , compared to net income of $ 316.0 million , or $ 6.56 per basic share and $ 6.53 per diluted share for fiscal 2016 . fiscal year ended may 28 , 2016 compared to fiscal year ended may 30 , 2015 net sales in fiscal 2016 , approximately 96 % of our net sales consisted of shell eggs and approximately 4 % was egg products . net sales for the fiscal year ended may 28 , 2016 were $ 1,908.7 million , an increase of $ 332.6 million , or 21.1 % , from net sales of $ 1,576.1 million for fiscal 2015. in fiscal 2016 total dozens of eggs sold decreased and egg selling prices increased as compared to fiscal 2015. in fiscal 2016 total dozens of shell eggs sold were 1,053.6 million , a decrease of 9.5 million dozen , or 0.9 % , compared to 1,063.1 million sold in fiscal 2015 resulting in a decrease in net sales of $ 13.6 million for fiscal 2016 compared with the prior year which we believe was primarily due to supply constraints and higher prices resulting from the ai outbreak . our average selling price of shell eggs increased from $ 1.429 per dozen for fiscal 2015 to $ 1.735 per dozen for fiscal 2016 , an increase of $ 0.306 per dozen , or 21.4 % , primarily reflecting higher egg prices resulting from the ai outbreak and a higher percentage of specialty egg sales . the increase in sales price in fiscal 2016 over 2015 resulted in a corresponding increase in net sales of $ 325.1 million . the remainder of our increase in sales over the prior fiscal year not related to shell egg volume or prices was the result of increased sales from egg products which is discussed later in this section . our operating results are significantly affected by wholesale shell egg market prices , which are outside of our control . small changes in production or demand levels can have a large effect on shell egg prices . 32 the table below represents an analysis of our non-specialty and specialty , as well as co-pack specialty , shell egg sales . following the table is a discussion of the information presented in the table . replace_table_token_9_th non-specialty shell eggs include all shell
| capital resources we require capital to fund loans , satisfy our obligations under the bank 's letters of credit , meet the deposit withdraw demands of the bank 's customers , and satisfy our other monetary obligations . to the extent that deposits are not adequate to fund our capital requirements , we can rely on the funding sources identified below under the heading โ liquidity management โ . at december 31 , 2018 , the bank had $ 85.0 million available through unsecured lines of credit with correspondent banks , $ 4.4 million available through a secured line of credit with the fed discount window and approximately $ 104.3 million available through the fhlb . management is not aware of any demands , commitments , events or uncertainties that are likely to materially affect our ability to meet our future capital requirements . in addition to operational requirements , the bank and the corporation are subject to risk-based capital regulations , which were adopted and are monitored by federal banking regulators . these regulations are used to evaluate capital adequacy and require an analysis of an institution 's asset risk profile and off-balance sheet exposures , such as unused loan commitments and stand-by letters of credit . on july 2 , 2013 , the federal reserve approved final rules that substantially amended the regulatory risk-based capital rules applicable to the corporation . the fdic subsequently approved the same rules which apply to the bank . the final rules implement the โ basel iii โ regulatory capital reforms and changes required by the dodd-frank act and were implemented as of march 31 , 2015. the basel iii capital rules include new risk-based capital and leverage ratios , which will be phased in from 2015 to 2019 , and which refine the definition of what constitutes โ capital โ for purposes of calculating those ratios .
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since that time , it began to recover and eventually exceed pre-ai levels by late 2016. in february 2017 , the usda issued revised data that showed the size of the laying hen flock for calendar years 2015 and 2016 was meaningfully higher in both years than previously reported . 23 egg prices increased significantly during the summer and fall of 2015. the average urner-barry thursday prices for the large market ( i.e . generic shell eggs ) in the southeastern region for the months of june through november 2015 was $ 2.32 per dozen , with a peak of $ 2.97 in august . subsequent to november 2015 , shell egg prices declined . the urner barry price index ( `` ub index `` ) hit a decade-low level in our fiscal 2016 fourth quarter . during our first quarter of fiscal 2017 it increased slightly , but remained at significantly lower levels than the corresponding period of last year . during our fiscal 2017 second quarter , the ub index returned to and dropped below the low levels seen during the fiscal 2016 fourth quarter . early in our fiscal 2017 third quarter we saw a significant increase , but prices dropped after christmas . during our fiscal 2017 fourth quarter , the ub index dropped again and approached the record low levels of the fiscal 2017 second quarter . according to nielsen data , retail customer demand for shell eggs has remained strong . the usda reports that egg export demand has improved since the beginning of fiscal 2017 ; however , it has still not fully recovered from levels prior to the ai outbreak . additionally , the industry experienced reduced demand for egg products , as many commercial customers reformulated their products to use fewer eggs when prices spiked and have been slow to resume previous egg usage . together with the increased supply of laying hens , these factors have created an oversupply of eggs , with continued pressure on market prices . accordingly , our net average selling price per dozen shell eggs for fiscal 2017 was $ 1.007 compared to $ 1.735 for fiscal 2016. recent usda reports show the chick hatch has been trending down , suggesting there may be a moderation in the size of the laying hen flock as the year progresses . we expect the egg markets to remain under pressure and we do not expect meaningful price improvement until there is a better balance of supply and demand . we are one of the largest producers and marketers of value-added specialty shell eggs in the u.s. for accounting purposes , we classify nutritionally enhanced , cage-free , organic and brown eggs as specialty shell eggs . they have been a significant and growing segment of the market in recent years . during our fiscal 2016 an increasing number of large restaurant chains , food service companies and grocery chains , including our largest customers , announced goals to transition to a cage-free egg supply chain by specified future dates . we are working with our customers to achieve smooth progress in meeting their goals . our focus for future expansion at our farms will be environments that are cage-free or with equipment that can easily be converted to cage-free , based on a timeline to meet our customer 's needs . for fiscal 2017 , we produced approximately 84 % of the total number of shell eggs sold by us , with approximately 8 % of such shell egg production provided by contract producers . contract producers utilize their facilities to produce shell eggs from layers owned by us . we own the shell eggs produced under these arrangements . for fiscal 2017 , approximately 16 % of the total number of shell eggs sold by us were purchased from outside producers for resale . our cost of production is materially affected by feed costs , which are highly volatile and subject to wide fluctuation . for fiscal 2017 , feed costs averaged about 58 % of our total farm egg production cost . changes in market prices for corn and soybean meal , the primary ingredients in the feed we use , result in changes in our cost of goods sold . for our last five fiscal years , average feed cost per dozen sold ranged from a low of $ 0.40 in fiscal 2017 to a high of $ 0.54 in fiscal 2013. the cost of our primary feed ingredients , which are commodities , are subject to factors over which we have little or no control such as volatile price changes caused by weather , size of harvest , transportation and storage costs , demand and the agricultural and energy policies of the u.s. and foreign governments . subsequent to our fiscal year end , grain prices have increased and we expect this volatility to continue in fiscal 2018. in spite of this volatility , we expect to have an adequate supply of our primary feed ingredients in fiscal 2018. during the second quarter of fiscal 2017 , the company acquired substantially all of the egg production assets and assumed certain liabilities of foodonics international , inc. and its related entities doing business as dixie egg company ( collectively , `` foodonics `` ) for $ 68.6 million of cash and $ 3.0 million of deferred purchase price . the acquired assets include commercial egg production and processing facilities with capacity for 1.6 million laying hens , contract grower arrangements for an additional 1.5 million laying hens , and related feed production , and distribution facilities in georgia , alabama , and florida . the company acquired foodonics ' interest in american egg products , llc ( `` aep `` ) and the eggland 's best franchise with licensing rights for certain markets in alabama , florida , and georgia as well as puerto rico , bahamas and cuba . story_separator_special_tag total other income for fiscal 2017 was $ 17.8 million compared to $ 15.4 million for fiscal 2016 . as a percent of net sales , total other income was 1.7 % for fiscal 2017 , compared to 0.8 % for fiscal 2016 . the company recorded interest income of $ 3.1 million in fiscal 2017 , compared to $ 4.3 million for the same period of last year . we recorded interest expense of $ 1.4 million and $ 2.3 million , of which $ 1.1 million was capitalized in both fiscal 2017 and 2016 . interest income from available for sale securities decreased due to lower average invested balances . the reduction of interest expense resulted from lower levels of outstanding debt . patronage dividends , which represent distributions from our membership in eggland 's best , inc. , increased $ 735,000 from $ 6.9 million in fiscal 2016 to $ 7.7 million in fiscal 2017 . equity in income of affiliates for fiscal 2017 was $ 1.4 million compared to $ 5.0 million for fiscal 2016 . the decrease of $ 3.6 million is primarily due to losses at our red river joint venture and decreased income from specialty egg sales in our other unconsolidated specialty egg joint ventures . other , net for fiscal 2017 was $ 6.0 million of income compared to $ 269,000 for fiscal 2016. the increase of $ 5.7 million is primarily due to our receipt in the fourth quarter of fiscal 2017 of payment of claims related to the deepwater horizon economic and property damages settlement program . our recovery , net of applicable fees , was $ 5.5 million . income taxes for the fiscal year ended june 3 , 2017 , our pre-tax loss was $ 114.3 million , compared to pre-tax income of $ 487.2 million for fiscal 2016 . income tax benefit of $ 39.9 million was recorded for fiscal 2017 with an effective income tax rate of 34.9 % , compared to income tax expense of $ 169.2 million for fiscal 2016 with an effective income tax rate of 34.8 % . for the fourteen weeks ended june 3 , 2017 , our pretax loss was $ 33.2 million and our income tax benefit was $ 8.5 million with an effective income tax rate of 25.9 % . the low effective rate is due to the company 's decision to carry back fiscal 2017 net operating losses to recover a portion of taxes paid in fiscal 2015. the net operating loss carryback resulted in a $ 4.1 million decrease in the income tax benefit , as the carryback reduced fiscal 2015 taxable income and as a result reduced the benefit of domestic manufacturers deductions , a portion of which were therefore reversed in the fourth quarter of fiscal 2017. items causing our effective rate to differ from the federal statutory income tax rate of 35 % are state income taxes and certain items included in income or loss for financial reporting purposes that are not included in taxable income or loss for income tax purposes , including tax exempt interest income , the domestic manufacturers deduction , and net income or loss attributable to noncontrolling interest . 31 net income ( loss ) attributable to noncontrolling interest net loss attributable to noncontrolling interest for fiscal 2017 was $ 149,000 compared to net income of $ 2.0 million for fiscal 2016 . net income ( loss ) attributable to cal-maine foods , inc. as a result of the above , net loss for fiscal 2017 was $ 74.3 million , or $ 1.54 per basic and diluted share , compared to net income of $ 316.0 million , or $ 6.56 per basic share and $ 6.53 per diluted share for fiscal 2016 . fiscal year ended may 28 , 2016 compared to fiscal year ended may 30 , 2015 net sales in fiscal 2016 , approximately 96 % of our net sales consisted of shell eggs and approximately 4 % was egg products . net sales for the fiscal year ended may 28 , 2016 were $ 1,908.7 million , an increase of $ 332.6 million , or 21.1 % , from net sales of $ 1,576.1 million for fiscal 2015. in fiscal 2016 total dozens of eggs sold decreased and egg selling prices increased as compared to fiscal 2015. in fiscal 2016 total dozens of shell eggs sold were 1,053.6 million , a decrease of 9.5 million dozen , or 0.9 % , compared to 1,063.1 million sold in fiscal 2015 resulting in a decrease in net sales of $ 13.6 million for fiscal 2016 compared with the prior year which we believe was primarily due to supply constraints and higher prices resulting from the ai outbreak . our average selling price of shell eggs increased from $ 1.429 per dozen for fiscal 2015 to $ 1.735 per dozen for fiscal 2016 , an increase of $ 0.306 per dozen , or 21.4 % , primarily reflecting higher egg prices resulting from the ai outbreak and a higher percentage of specialty egg sales . the increase in sales price in fiscal 2016 over 2015 resulted in a corresponding increase in net sales of $ 325.1 million . the remainder of our increase in sales over the prior fiscal year not related to shell egg volume or prices was the result of increased sales from egg products which is discussed later in this section . our operating results are significantly affected by wholesale shell egg market prices , which are outside of our control . small changes in production or demand levels can have a large effect on shell egg prices . 32 the table below represents an analysis of our non-specialty and specialty , as well as co-pack specialty , shell egg sales . following the table is a discussion of the information presented in the table . replace_table_token_9_th non-specialty shell eggs include all shell
| capital resources and liquidity our working capital at june 3 , 2017 was $ 371.5 million , compared to $ 542.8 million at may 28 , 2016 . the calculation of working capital is defined as current assets less current liabilities . our current ratio was 6.74 at june 3 , 2017 compared to 7.50 at may 28 , 2016 . the current ratio is calculated by dividing current assets by current liabilities . our need for working capital generally is highest in the last and first fiscal quarters ending in may and august , respectively , when egg prices are normally at seasonal lows . we have $ 3.7 million in outstanding standby letters of credit , which are collateralized with cash . our long-term debt and capital leases at june 3 , 2017 , including current maturities , amounted to $ 10.9 million , compared to $ 25.6 million at may 28 , 2016 . see note 9 in the notes to consolidated financial statements for information regarding our long-term debt instruments . net cash used in operating activities was $ 49.3 million for fiscal year 2017 compared with net cash provided by operating activities of $ 381.8 million for fiscal year 2016 . decreased gross profit margins resulting from lower egg prices contributed greatly to our decrease in cash flow from operations . for fiscal 2017 , approximately $ 251.7 million was provided from the sale of short-term investments , $ 29.8 million was used to purchase short-term investments and net payments of $ 6.6 million were received from notes receivable and investments in affiliates . we used $ 85.8 million to acquire assets from foodonics and happy hen . we invested $ 19.9 million in the red river valley egg farm llc joint venture . for additional information see note 3 to notes to consolidated financial statements . approximately $ 66.7 million was used to purchase property , plant and equipment . refer to the table of material construction projects presented below for additional information on purchases of property , plant and equipment . approximately $ 16.5 million was used for principal payments on long-term debt .
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many utilities are scrubbing to meet emission requirements beyond just sulfur compliance , even utilities that burn exclusively prb . once scrubbed , those utilities are usually capable of burning ilb coal . it is this trend of new scrubber installations coupled with rising capp cost structure that is leading to increased switching from capp coal to ilb coal . some fuel switching will also occur from prb to ilb in newly scrubbed utilities located near ilb coal supply . the majority of our coal is sold to investment grade customers who have scrubbed , โ base load โ power plants . base load power plants are among the lowest cost producers of electricity and the first to dispatch in the power grid . due to the large investments made to these plants none of these plants are scheduled for retirement ; thus we expect to be supplying these plants for many years . it is not economical for the smaller , older , less efficient power plants to install scrubbers and other pollution control devices ; accordingly , those type plants most likely will be retired in the coming years . our coal contracts we sell coal to the following customers : duke energy corporation ( nyse : duk ) , hoosier energy , an electric cooperative , indianapolis power & light company ( ipl ) , a wholly-owned subsidiary of the aes corporation ( nyse : aes ) , northern indiana public service co. ( nipsco ) , a wholly-owned subsidiary of nisource inc. ( nyse : ni ) and vectren corporation ( nyse : vvc ) . we also deliver coal to three florida utilities . we believe these florida sales are an indication of the trend of ilb coal replacing capp coal that has traditionally supplied the southeast markets . the table below illustrates the status of our current coal contracts : replace_table_token_1_th 13 as set forth in the table above we have 17.88 million tons committed but unpriced through 2024. roughly 1/3 of these tons reprice every year for a three-year period . committed tons are a firm commitment , meaning we are required to ship and our customer is required to receive said tons through the duration of the contract . the contracts provide mechanisms for establishing a market-based price . we expect to continue selling a significant portion of our coal under supply agreements with terms of one year or longer . typically , customers enter into coal supply agreements to secure reliable sources of coal at predictable prices while we seek stable sources of revenue to support the investments required to open , expand and maintain , or improve productivity at the mines needed to supply these contracts . the terms of coal supply agreements result from competitive bidding and extensive negotiations with customers . current projects all of our underground coal reserves are high sulfur ( 4.5 - 6 # ) with a btu content in the 11,200 -11,500 range . as discussed below , the ace surface mine is low sulfur ( 1.5 # ) with a btu content of 11,400. we have no met coal reserves , only steam ( thermal ) coal reserves . below is a discussion of our current projects preceded by a table of our coal reserves . reserve table - controlled tons ( in millions ) : replace_table_token_2_th * oaktown 1 and 2 were acquired on august 29 , 2014 . * * war eagle reserves will be mined from the oaktown 2 portal and have been added to the oaktown 2 reserve base . carlisle mine ( underground ) โ assigned our coal reserves at december 31 , 2014 assigned to the carlisle mine were 53 million tons . the mine is located near the town of carlisle , indiana in sullivan county and became operational in january 2007. the coal is accessed with a slope to a depth of 340 ' . the coal is mined in the indiana coal v seam which is highly volatile bituminous coal and is the most economic in indiana . the indiana v seam has been extensively mined by underground and surface methods in the general area . the coal thickness in the project area is 4 ' to 7 ' . the mine has several advantages as listed below : ยท so 2 - historically , carlisle has guaranteed a 6 # so 2 product ; however , with the addition of the ace in the hole mine we can blend lower sulfur coal with carlisle coal and guarantee a mid-sulfur product which should command a higher price and increase our customer base . few mines in the ilb have the ability to offer their customers various ranges of so 2 . carlisle has supplied coal to 11 different power plants . ยท chlorine - our reserves have lower chlorine ( < 0.10 % ) than average ilb reserves of 0.22 % . much of the ilb 's new production is located in illinois and possesses chlorine content in excess of .30 % . the relatively low chlorine content of our reserves is attractive to buyers given their desire to limit the corrosive effects of chlorine in their power plants . 14 ยท transportation - carlisle has a double 100 rail car loop facility and a four-hour certified batch load-out facility connected to the csx railroad . the indiana rail road ( inrd ) also has limited running rights on the csx to our mine . dual rail access gives us a freight advantage to more customers . long term , the csx anticipates our coal being shipped to southeast markets via their railroad . we sell our coal fob the mine and substantially all of our coal is transported by rail . however , on occasion we have shipped to three power plants via truck . story_separator_special_tag ace in the hole mine ( ace ) ( surface ) โ assigned in november 2012 we purchased for $ 6 million permitted fee coal reserves , coal leases and surface properties near clay city , indiana in clay county . the ace mine is 42 road miles northeast of the carlisle mine . we control 2.7 million tons of proven coal reserves of which we own .9 million tons in fee . we mine two primary seams of low sulfur coal which make up 2.6 million of the 2.7 million tons controlled . both of the primary seams are low sulfur ( < 2 # so 2 ) . mine development began in late december 2012 , and we began shipping coal in late august 2013. we truck low sulfur coal from ace to carlisle and or oaktown to blend with high sulfur coal . many utilities in the southeastern u.s. have scrubbers with lower sulfur limits ( 4 # so 2 ) which can not accept the higher sulfur contents of the ilb ( 4.5 # - 6 # so 2 ) . blending high sulfur coal to a lower sulfur specification enables us to market our high sulfur coals to more customers . we also expect to ship low sulfur coal from ace direct to unscrubbed customers that require low sulfur ( 1.5 # so 2 ) . we expect the maximum capacity of ace to be 500,000 tons annually . the ace mine is a multi-seam open pit strip mine . the majority of the seams are sold raw , but some of the seams will be washed prior to sales depending on quality . to convert the tons sold raw the in-place tonnage is taken times a pit recovery of 94 % based on seam thickness . to convert the tons sold washed the in-place tonnage is taken times a pit recovery based on seam thickness then reduced by the projected plant recovery of 72 % . oaktown 1 mine ( underground ) โ assigned we have 44 million tons controlled and rated proved and probable of the indiana coal v seam . all reserves are located in knox county , in . oaktown 2 mine / war eagle reserve ( underground ) โ assigned we have combined 20 million tons of our oaktown 2 mine with 43 million tons from our war eagle reserve to create a combined 63 million tons of reserve based in both knox county , indiana and lawrence county , illinois . both the oaktown 2 reserve and war eagle reserve will be mined through the oaktown 2 portal . in future reporting we will only refer to the combined reserve as oaktown 2. access to the oaktown 1 mine is via a 90 foot deep box cut and a 2,200 foot slope on a 14 percent grade , reaching coal in excess of 375 feet below the surface . access to the oaktown 2 mine is via an 80 foot deep box cut and a 2,600 foot slope on a 14 percent grade , reaching coal in excess of 400 feet below the surface . our underground mines are room and pillar mines meaning that main airways and transportation entries are developed and maintained while remote-controlled continuous miners extract coal from so-called rooms by removing coal from the seam , leaving pillars to support the roof . shuttle cars or similar transportation are used to transport coal to a conveyor belt for transport to the surface . the two oaktown mines are separated by a sandstone channel . the coal seam thickness ranges from 4 feet to over 9 feet . the mine 's wash plant was originally sized to process 800 tons per hour and has been expanded to 1,600 tons per hour to accommodate the second mine . the two mines are connected to a railway equipped to handle 110 to 120 car unit trains . coal is also transported via truck to customers . bulldog mine ( underground ) โ unassigned we have leased roughly 19,300 acres in vermillion county , illinois near the village of allerton . based on our reserve estimates we currently control 35.8 million tons of coal reserves . a considerable amount of our leased acres has yet to receive any exploratory drilling , thus we anticipate our controlled reserves to grow as we continue drilling . the permitting process was started in the summer of 2011 , and we filed the formal permit with the state of illinois and the appropriate federal regulators during june 2012. in july 2014 , we were notified by the illinois department of natural resources ( ildnr ) that our permit had been deemed complete which starts the timeline for the ildnr public review process . it is our estimation that our permit will be approved or denied in 2015 . 15 full-scale mine development will not commence until we have a sales commitment . we estimate the costs to develop this mine to be $ 150 million at full capacity of three million tons annually . unassigned reserves represent coal reserves that would require new mineshafts , mining equipment , and plant facilities before operations could begin on the property . the primary reason for this distinction is to inform investors which coal reserves will require substantial capital expenditures before production can begin . mine and wash plant recovery replace_table_token_3_th ohio river terminal on may 31 , 2013 , we purchased for $ 2.8 million a multi-commodity truck/barge terminal . over 17 acres of secured area is available . the terminal is at mile point 743.8 on the indiana bank of the ohio river near the william natcher bridge between rockport and grandview , indiana . currently the dock will handle third party commodities . in the long term , we plan to ship coal through the dock . the terminal is in close proximity to the ns railroad , the csx railroad , and
| capital resources and liquidity our working capital at june 3 , 2017 was $ 371.5 million , compared to $ 542.8 million at may 28 , 2016 . the calculation of working capital is defined as current assets less current liabilities . our current ratio was 6.74 at june 3 , 2017 compared to 7.50 at may 28 , 2016 . the current ratio is calculated by dividing current assets by current liabilities . our need for working capital generally is highest in the last and first fiscal quarters ending in may and august , respectively , when egg prices are normally at seasonal lows . we have $ 3.7 million in outstanding standby letters of credit , which are collateralized with cash . our long-term debt and capital leases at june 3 , 2017 , including current maturities , amounted to $ 10.9 million , compared to $ 25.6 million at may 28 , 2016 . see note 9 in the notes to consolidated financial statements for information regarding our long-term debt instruments . net cash used in operating activities was $ 49.3 million for fiscal year 2017 compared with net cash provided by operating activities of $ 381.8 million for fiscal year 2016 . decreased gross profit margins resulting from lower egg prices contributed greatly to our decrease in cash flow from operations . for fiscal 2017 , approximately $ 251.7 million was provided from the sale of short-term investments , $ 29.8 million was used to purchase short-term investments and net payments of $ 6.6 million were received from notes receivable and investments in affiliates . we used $ 85.8 million to acquire assets from foodonics and happy hen . we invested $ 19.9 million in the red river valley egg farm llc joint venture . for additional information see note 3 to notes to consolidated financial statements . approximately $ 66.7 million was used to purchase property , plant and equipment . refer to the table of material construction projects presented below for additional information on purchases of property , plant and equipment . approximately $ 16.5 million was used for principal payments on long-term debt .
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many utilities are scrubbing to meet emission requirements beyond just sulfur compliance , even utilities that burn exclusively prb . once scrubbed , those utilities are usually capable of burning ilb coal . it is this trend of new scrubber installations coupled with rising capp cost structure that is leading to increased switching from capp coal to ilb coal . some fuel switching will also occur from prb to ilb in newly scrubbed utilities located near ilb coal supply . the majority of our coal is sold to investment grade customers who have scrubbed , โ base load โ power plants . base load power plants are among the lowest cost producers of electricity and the first to dispatch in the power grid . due to the large investments made to these plants none of these plants are scheduled for retirement ; thus we expect to be supplying these plants for many years . it is not economical for the smaller , older , less efficient power plants to install scrubbers and other pollution control devices ; accordingly , those type plants most likely will be retired in the coming years . our coal contracts we sell coal to the following customers : duke energy corporation ( nyse : duk ) , hoosier energy , an electric cooperative , indianapolis power & light company ( ipl ) , a wholly-owned subsidiary of the aes corporation ( nyse : aes ) , northern indiana public service co. ( nipsco ) , a wholly-owned subsidiary of nisource inc. ( nyse : ni ) and vectren corporation ( nyse : vvc ) . we also deliver coal to three florida utilities . we believe these florida sales are an indication of the trend of ilb coal replacing capp coal that has traditionally supplied the southeast markets . the table below illustrates the status of our current coal contracts : replace_table_token_1_th 13 as set forth in the table above we have 17.88 million tons committed but unpriced through 2024. roughly 1/3 of these tons reprice every year for a three-year period . committed tons are a firm commitment , meaning we are required to ship and our customer is required to receive said tons through the duration of the contract . the contracts provide mechanisms for establishing a market-based price . we expect to continue selling a significant portion of our coal under supply agreements with terms of one year or longer . typically , customers enter into coal supply agreements to secure reliable sources of coal at predictable prices while we seek stable sources of revenue to support the investments required to open , expand and maintain , or improve productivity at the mines needed to supply these contracts . the terms of coal supply agreements result from competitive bidding and extensive negotiations with customers . current projects all of our underground coal reserves are high sulfur ( 4.5 - 6 # ) with a btu content in the 11,200 -11,500 range . as discussed below , the ace surface mine is low sulfur ( 1.5 # ) with a btu content of 11,400. we have no met coal reserves , only steam ( thermal ) coal reserves . below is a discussion of our current projects preceded by a table of our coal reserves . reserve table - controlled tons ( in millions ) : replace_table_token_2_th * oaktown 1 and 2 were acquired on august 29 , 2014 . * * war eagle reserves will be mined from the oaktown 2 portal and have been added to the oaktown 2 reserve base . carlisle mine ( underground ) โ assigned our coal reserves at december 31 , 2014 assigned to the carlisle mine were 53 million tons . the mine is located near the town of carlisle , indiana in sullivan county and became operational in january 2007. the coal is accessed with a slope to a depth of 340 ' . the coal is mined in the indiana coal v seam which is highly volatile bituminous coal and is the most economic in indiana . the indiana v seam has been extensively mined by underground and surface methods in the general area . the coal thickness in the project area is 4 ' to 7 ' . the mine has several advantages as listed below : ยท so 2 - historically , carlisle has guaranteed a 6 # so 2 product ; however , with the addition of the ace in the hole mine we can blend lower sulfur coal with carlisle coal and guarantee a mid-sulfur product which should command a higher price and increase our customer base . few mines in the ilb have the ability to offer their customers various ranges of so 2 . carlisle has supplied coal to 11 different power plants . ยท chlorine - our reserves have lower chlorine ( < 0.10 % ) than average ilb reserves of 0.22 % . much of the ilb 's new production is located in illinois and possesses chlorine content in excess of .30 % . the relatively low chlorine content of our reserves is attractive to buyers given their desire to limit the corrosive effects of chlorine in their power plants . 14 ยท transportation - carlisle has a double 100 rail car loop facility and a four-hour certified batch load-out facility connected to the csx railroad . the indiana rail road ( inrd ) also has limited running rights on the csx to our mine . dual rail access gives us a freight advantage to more customers . long term , the csx anticipates our coal being shipped to southeast markets via their railroad . we sell our coal fob the mine and substantially all of our coal is transported by rail . however , on occasion we have shipped to three power plants via truck . story_separator_special_tag ace in the hole mine ( ace ) ( surface ) โ assigned in november 2012 we purchased for $ 6 million permitted fee coal reserves , coal leases and surface properties near clay city , indiana in clay county . the ace mine is 42 road miles northeast of the carlisle mine . we control 2.7 million tons of proven coal reserves of which we own .9 million tons in fee . we mine two primary seams of low sulfur coal which make up 2.6 million of the 2.7 million tons controlled . both of the primary seams are low sulfur ( < 2 # so 2 ) . mine development began in late december 2012 , and we began shipping coal in late august 2013. we truck low sulfur coal from ace to carlisle and or oaktown to blend with high sulfur coal . many utilities in the southeastern u.s. have scrubbers with lower sulfur limits ( 4 # so 2 ) which can not accept the higher sulfur contents of the ilb ( 4.5 # - 6 # so 2 ) . blending high sulfur coal to a lower sulfur specification enables us to market our high sulfur coals to more customers . we also expect to ship low sulfur coal from ace direct to unscrubbed customers that require low sulfur ( 1.5 # so 2 ) . we expect the maximum capacity of ace to be 500,000 tons annually . the ace mine is a multi-seam open pit strip mine . the majority of the seams are sold raw , but some of the seams will be washed prior to sales depending on quality . to convert the tons sold raw the in-place tonnage is taken times a pit recovery of 94 % based on seam thickness . to convert the tons sold washed the in-place tonnage is taken times a pit recovery based on seam thickness then reduced by the projected plant recovery of 72 % . oaktown 1 mine ( underground ) โ assigned we have 44 million tons controlled and rated proved and probable of the indiana coal v seam . all reserves are located in knox county , in . oaktown 2 mine / war eagle reserve ( underground ) โ assigned we have combined 20 million tons of our oaktown 2 mine with 43 million tons from our war eagle reserve to create a combined 63 million tons of reserve based in both knox county , indiana and lawrence county , illinois . both the oaktown 2 reserve and war eagle reserve will be mined through the oaktown 2 portal . in future reporting we will only refer to the combined reserve as oaktown 2. access to the oaktown 1 mine is via a 90 foot deep box cut and a 2,200 foot slope on a 14 percent grade , reaching coal in excess of 375 feet below the surface . access to the oaktown 2 mine is via an 80 foot deep box cut and a 2,600 foot slope on a 14 percent grade , reaching coal in excess of 400 feet below the surface . our underground mines are room and pillar mines meaning that main airways and transportation entries are developed and maintained while remote-controlled continuous miners extract coal from so-called rooms by removing coal from the seam , leaving pillars to support the roof . shuttle cars or similar transportation are used to transport coal to a conveyor belt for transport to the surface . the two oaktown mines are separated by a sandstone channel . the coal seam thickness ranges from 4 feet to over 9 feet . the mine 's wash plant was originally sized to process 800 tons per hour and has been expanded to 1,600 tons per hour to accommodate the second mine . the two mines are connected to a railway equipped to handle 110 to 120 car unit trains . coal is also transported via truck to customers . bulldog mine ( underground ) โ unassigned we have leased roughly 19,300 acres in vermillion county , illinois near the village of allerton . based on our reserve estimates we currently control 35.8 million tons of coal reserves . a considerable amount of our leased acres has yet to receive any exploratory drilling , thus we anticipate our controlled reserves to grow as we continue drilling . the permitting process was started in the summer of 2011 , and we filed the formal permit with the state of illinois and the appropriate federal regulators during june 2012. in july 2014 , we were notified by the illinois department of natural resources ( ildnr ) that our permit had been deemed complete which starts the timeline for the ildnr public review process . it is our estimation that our permit will be approved or denied in 2015 . 15 full-scale mine development will not commence until we have a sales commitment . we estimate the costs to develop this mine to be $ 150 million at full capacity of three million tons annually . unassigned reserves represent coal reserves that would require new mineshafts , mining equipment , and plant facilities before operations could begin on the property . the primary reason for this distinction is to inform investors which coal reserves will require substantial capital expenditures before production can begin . mine and wash plant recovery replace_table_token_3_th ohio river terminal on may 31 , 2013 , we purchased for $ 2.8 million a multi-commodity truck/barge terminal . over 17 acres of secured area is available . the terminal is at mile point 743.8 on the indiana bank of the ohio river near the william natcher bridge between rockport and grandview , indiana . currently the dock will handle third party commodities . in the long term , we plan to ship coal through the dock . the terminal is in close proximity to the ns railroad , the csx railroad , and
| liquidity and capital resources our capex budget for 2015 is $ 37.6 million , of which $ 26.6 million is for maintenance capex . cash from operations should fund these expenditures . our bank debt at february 27 , 2015 was $ 296 million compared to $ 345 million at september 30 , 2014 and $ 306 million at december 31 , 2014. we have no material off-balance sheet arrangements . capital expenditures ( capex ) for 2014 our capex was about $ 25.8 million allocated as follows ( in 000 's ) : replace_table_token_4_th 16 results of operations the column for the 3 rd and 4 th quarter of 2014 in the table below includes the mines acquired from vectren on august 29 , 2014. quarterly coal sales and cost data ( in 000 's , except for per ton data ) : replace_table_token_5_th replace_table_token_6_th during 2014 , much of management 's time , effort and attention was focused on the vectren fuels acquisition , a transaction that essentially tripled our size . two thirds of our employees were new to us in september 2014 and we continue to spend time integrating them into our methodologies . we are extremely grateful for the time , effort and dedication of our employees that made the transaction possible . additionally , rail service was poor throughout the industry in 2014. unfortunately , we were not immune from this issue . of our eight contracted customers , three struggled to provide us with the adequate freight . we made several changes to improve transportation in 2015 and so far the results are encouraging . we realize the combination of poor transportation and the challenge of acquiring vectren fuels did not help contain our costs structure throughout much of 2014. in the 4 th quarter , we were able to reduce our costs to $ 29.61/ton , a significant improvement over the 3 rd quarter per ton costs of $ 35.30. we believe we will be able to maintain our cost structure below $ 30/ton in 2015 . 17 2014 v. 2013 for 2014 , we sold 5,398,000 tons at an average price of $ 43.33/ton .
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please refer to part i , item 2 , properties , of this report for further discussion on any updates at our principal producing and development properties . 36 operators ' production estimate by royalty for calendar year 2013 and reported production principal producing properties for the period january 1 , 2013 through june 30 , 2013 replace_table_token_15_th ( 1 ) there can be no assurance that production estimates received from our operators will be achieved . please refer to our cautionary language regarding forward-looking statements following this md & a , as well as the risk factors identified in part i , item 1a , of this report for information regarding factors that could affect actual results . ( 2 ) reported production relates to the amount of metal sales , subject to our royalty interests , for the period january 1 , 2013 through june 30 , 2013 , as reported to us by the operators of the mines . ( 3 ) the company did not receive calendar 2013 production guidance from the operator . 37 historical production the following table discloses historical production for the past three fiscal years for the principal producing properties that are subject to our royalty interests , as reported to us by the operators of the mines : historical production ( 1 ) by royalty principal producing properties for the fiscal years ended june 30 , 2013 , 2012 and 2011 replace_table_token_16_th ( 1 ) historical production relates to the amount of metal sales , subject to our royalty interests for each fiscal year presented , as reported to us by the operators of the mines . critical accounting policies listed below are the accounting policies that the company believes are critical to its financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset , liability , revenue or expense being reported . please refer to note 2 of the notes to consolidated financial statements for a discussion on recently adopted accounting pronouncements . use of estimates the preparation of our financial statements , in conformity with accounting principles generally accepted in the united states of america , requires management to make estimates and assumptions . these estimates and assumptions affect the reported amounts of assets and liabilities , at the date of the financial statements , as well as the reported amounts of revenues and expenses during the reporting period . 38 our most critical accounting estimates relate to our assumptions regarding future gold , silver , nickel , copper and other metal prices and the estimates of reserves and recoveries of third-party mine operators . we rely on reserve estimates reported by the operators on the properties in which we have royalty interests . these estimates and the underlying assumptions affect the potential impairments of long-lived assets and the ability to realize income tax benefits associated with deferred tax assets . these estimates and assumptions also affect the rate at which we charge depreciation , depletion and amortization to earnings . on an ongoing basis , management evaluates these estimates and assumptions ; however , actual amounts could differ from these estimates and assumptions . royalty interests in mineral properties royalty interests in mineral properties include acquired royalty interests in production , development and exploration stage properties . the costs of acquired royalty interests in mineral properties are capitalized as tangible assets as such interests do not meet the definition of a financial asset under the accounting standards codification ( `` asc `` ) guidance . acquisition costs of production stage royalty interests are depleted using the units of production method over the life of the mineral property , which is estimated using proven and probable reserves as provided by the operator . acquisition costs of royalty interests on development stage mineral properties , which are not yet in production , are not amortized until the property begins production . acquisition costs of royalty interests on exploration stage mineral properties , where there are no proven and probable reserves , are not amortized . at such time as the associated exploration stage mineral interests are converted to proven and probable reserves , the cost basis is amortized over the remaining life of the mineral property , using proven and probable reserves . the carrying values of exploration stage mineral interests are evaluated for impairment at such time as information becomes available indicating that the production will not occur in the future . exploration costs are expensed when incurred . asset impairment we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts of an asset or group of assets may not be recoverable . the recoverability of the carrying value of royalty interests in production and development stage mineral properties is evaluated based upon estimated future undiscounted net cash flows from each royalty interest property using estimates of proven and probable reserves and other relevant information received from the operators . we evaluate the recoverability of the carrying value of royalty interests in exploration stage mineral properties in the event of significant decreases in the price of gold , silver , copper , nickel and other metals , and whenever new information regarding the mineral properties is obtained from the operator indicating that production will not likely occur or may be reduced in the future , thus affecting the future recoverability of our royalty interests . impairments in the carrying value of each property are measured and recorded to the extent that the carrying value in each property exceeds its estimated fair value , which is generally calculated using estimated future discounted cash flows . story_separator_special_tag fiscal year ended june 30 , 2012 , compared with fiscal year ended june 30 , 2011 for the fiscal year ended june 30 , 2012 , we recorded net income available to royal gold common stockholders of $ 92.5 million , or $ 1.61 per basic share and diluted share , compared to net income available to royal gold common stockholders of $ 71.4 million , or $ 1.29 per basic and diluted share , for the fiscal year ended june 30 , 2011. the increase in our earnings per share was primarily attributable to an increase in royalty revenue , as discussed further below . this increase was partially offset by an increase in production taxes , depletion expense , income tax expense and the royalty restructuring charge during the period , each of which are discussed further below . for fiscal year ended june 30 , 2012 , we recognized total royalty revenue of $ 263.1 million , at an average gold price of $ 1,673 per ounce , an average silver price of $ 33.26 per ounce , an average nickel 46 price of $ 8.77 per pound and an average copper price of $ 3.71 per pound , compared to total royalty revenue of $ 216.5 million , at an average gold price of $ 1,369 per ounce , an average silver price of $ 28.61 per ounce , an average nickel price of $ 10.86 per pound and an average copper price of $ 3.92 per pound , for fiscal year ended june 30 , 2011. royalty revenue and the corresponding production , attributable to our royalty interests , for the fiscal year ended june 30 , 2012 compared to the fiscal year ended june 30 , 2011 is as follows : royalty revenue and production subject to our royalty interests fiscal years ended june 30 , 2012 and 2011 ( in thousands , except reported production in ozs . and lbs . ) replace_table_token_19_th ( 1 ) reported production relates to the amount of metal sales , subject to our royalty interests , for the twelve months ended june 30 , 2012 and june 30 , 2011 , as reported to us by the operators of the mines . ( 2 ) individually , no royalty included within the `` other `` category contributed greater than 5 % of our total royalty revenue for either period . the increase in royalty revenue for the fiscal year ended june 30 , 2012 , compared with the fiscal year ended june 30 , 2011 , resulted primarily from an increase in the average gold and silver prices , increased reported production at andacollo , voisey 's bay , mulatos and dolores , the continued ramp-up 47 at peรฑasquito , holt , las cruces , canadian malartic and wolverine . these increases were partially offset during the period due to decreases in reported production at cortez , leeville and robinson . refer to part i , item 2 , properties , for discussion and any updates on our principal producing properties . depreciation , depletion and amortization expense increased to $ 75.0 million for the fiscal year ended june 30 , 2012 , from $ 67.4 million for the fiscal year ended june 30 , 2011. the increase was primarily attributable to an increase in production at andacollo , voisey 's bay and las cruces , which resulted in additional depletion expense of approximately $ 8.3 million during the period . the increase was also attributable to the continued ramp-up at holt and canadian malartic , which resulted in additional depletion expense of approximately $ 4.3 million during the period . these increases were partially offset by a decrease in depletion at taparko of approximately $ 4.3 million , which was due to the dollar cap being met during fiscal year 2011. during the fiscal year ended june 30 , 2012 , we recognized income tax expense totaling $ 54.7 million compared with $ 39.0 million during the fiscal year ended june 30 , 2011. this resulted in an effective tax rate of 35.8 % during the current period , compared with 33.5 % in the prior period . the increase in the effective tax rate for the twelve months ended june 30 , 2012 is primarily related to an increase in tax expense and valuation allowances related to earnings from non-u.s. subsidiaries offset by a decrease in tax expense associated with the decrease in foreign currency exchange gains and the effect of excess depletion . forward-looking statements cautionary `` safe harbor `` statement under the private securities litigation reform act of 1995 : with the exception of historical matters , the matters discussed in this annual report on form 10-k are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein . such forward-looking statements include , without limitation , statements regarding projected production estimates and estimates pertaining to timing and commencement of production from the operators of properties where we hold royalty interests ; the adequacy of financial resources and funds to cover anticipated expenditures for general and administrative expenses as well as costs associated with exploration and business development and capital expenditures , and our expectation that substantially all our revenues will be derived from royalty interests . words such as `` may , `` `` could , `` `` should , `` `` would , `` `` believe , `` `` estimate , `` `` expect , `` `` anticipate , `` `` plan , `` `` forecast , `` `` potential , `` `` intend , `` `` continue , `` `` project `` and variations of these words , comparable words and similar expressions generally indicate forward-looking statements , which speak only as of the date the statement is made . do not unduly rely on forward-looking statements . actual results may differ materially from those expressed or implied
| liquidity and capital resources our capex budget for 2015 is $ 37.6 million , of which $ 26.6 million is for maintenance capex . cash from operations should fund these expenditures . our bank debt at february 27 , 2015 was $ 296 million compared to $ 345 million at september 30 , 2014 and $ 306 million at december 31 , 2014. we have no material off-balance sheet arrangements . capital expenditures ( capex ) for 2014 our capex was about $ 25.8 million allocated as follows ( in 000 's ) : replace_table_token_4_th 16 results of operations the column for the 3 rd and 4 th quarter of 2014 in the table below includes the mines acquired from vectren on august 29 , 2014. quarterly coal sales and cost data ( in 000 's , except for per ton data ) : replace_table_token_5_th replace_table_token_6_th during 2014 , much of management 's time , effort and attention was focused on the vectren fuels acquisition , a transaction that essentially tripled our size . two thirds of our employees were new to us in september 2014 and we continue to spend time integrating them into our methodologies . we are extremely grateful for the time , effort and dedication of our employees that made the transaction possible . additionally , rail service was poor throughout the industry in 2014. unfortunately , we were not immune from this issue . of our eight contracted customers , three struggled to provide us with the adequate freight . we made several changes to improve transportation in 2015 and so far the results are encouraging . we realize the combination of poor transportation and the challenge of acquiring vectren fuels did not help contain our costs structure throughout much of 2014. in the 4 th quarter , we were able to reduce our costs to $ 29.61/ton , a significant improvement over the 3 rd quarter per ton costs of $ 35.30. we believe we will be able to maintain our cost structure below $ 30/ton in 2015 . 17 2014 v. 2013 for 2014 , we sold 5,398,000 tons at an average price of $ 43.33/ton .
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please refer to part i , item 2 , properties , of this report for further discussion on any updates at our principal producing and development properties . 36 operators ' production estimate by royalty for calendar year 2013 and reported production principal producing properties for the period january 1 , 2013 through june 30 , 2013 replace_table_token_15_th ( 1 ) there can be no assurance that production estimates received from our operators will be achieved . please refer to our cautionary language regarding forward-looking statements following this md & a , as well as the risk factors identified in part i , item 1a , of this report for information regarding factors that could affect actual results . ( 2 ) reported production relates to the amount of metal sales , subject to our royalty interests , for the period january 1 , 2013 through june 30 , 2013 , as reported to us by the operators of the mines . ( 3 ) the company did not receive calendar 2013 production guidance from the operator . 37 historical production the following table discloses historical production for the past three fiscal years for the principal producing properties that are subject to our royalty interests , as reported to us by the operators of the mines : historical production ( 1 ) by royalty principal producing properties for the fiscal years ended june 30 , 2013 , 2012 and 2011 replace_table_token_16_th ( 1 ) historical production relates to the amount of metal sales , subject to our royalty interests for each fiscal year presented , as reported to us by the operators of the mines . critical accounting policies listed below are the accounting policies that the company believes are critical to its financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset , liability , revenue or expense being reported . please refer to note 2 of the notes to consolidated financial statements for a discussion on recently adopted accounting pronouncements . use of estimates the preparation of our financial statements , in conformity with accounting principles generally accepted in the united states of america , requires management to make estimates and assumptions . these estimates and assumptions affect the reported amounts of assets and liabilities , at the date of the financial statements , as well as the reported amounts of revenues and expenses during the reporting period . 38 our most critical accounting estimates relate to our assumptions regarding future gold , silver , nickel , copper and other metal prices and the estimates of reserves and recoveries of third-party mine operators . we rely on reserve estimates reported by the operators on the properties in which we have royalty interests . these estimates and the underlying assumptions affect the potential impairments of long-lived assets and the ability to realize income tax benefits associated with deferred tax assets . these estimates and assumptions also affect the rate at which we charge depreciation , depletion and amortization to earnings . on an ongoing basis , management evaluates these estimates and assumptions ; however , actual amounts could differ from these estimates and assumptions . royalty interests in mineral properties royalty interests in mineral properties include acquired royalty interests in production , development and exploration stage properties . the costs of acquired royalty interests in mineral properties are capitalized as tangible assets as such interests do not meet the definition of a financial asset under the accounting standards codification ( `` asc `` ) guidance . acquisition costs of production stage royalty interests are depleted using the units of production method over the life of the mineral property , which is estimated using proven and probable reserves as provided by the operator . acquisition costs of royalty interests on development stage mineral properties , which are not yet in production , are not amortized until the property begins production . acquisition costs of royalty interests on exploration stage mineral properties , where there are no proven and probable reserves , are not amortized . at such time as the associated exploration stage mineral interests are converted to proven and probable reserves , the cost basis is amortized over the remaining life of the mineral property , using proven and probable reserves . the carrying values of exploration stage mineral interests are evaluated for impairment at such time as information becomes available indicating that the production will not occur in the future . exploration costs are expensed when incurred . asset impairment we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts of an asset or group of assets may not be recoverable . the recoverability of the carrying value of royalty interests in production and development stage mineral properties is evaluated based upon estimated future undiscounted net cash flows from each royalty interest property using estimates of proven and probable reserves and other relevant information received from the operators . we evaluate the recoverability of the carrying value of royalty interests in exploration stage mineral properties in the event of significant decreases in the price of gold , silver , copper , nickel and other metals , and whenever new information regarding the mineral properties is obtained from the operator indicating that production will not likely occur or may be reduced in the future , thus affecting the future recoverability of our royalty interests . impairments in the carrying value of each property are measured and recorded to the extent that the carrying value in each property exceeds its estimated fair value , which is generally calculated using estimated future discounted cash flows . story_separator_special_tag fiscal year ended june 30 , 2012 , compared with fiscal year ended june 30 , 2011 for the fiscal year ended june 30 , 2012 , we recorded net income available to royal gold common stockholders of $ 92.5 million , or $ 1.61 per basic share and diluted share , compared to net income available to royal gold common stockholders of $ 71.4 million , or $ 1.29 per basic and diluted share , for the fiscal year ended june 30 , 2011. the increase in our earnings per share was primarily attributable to an increase in royalty revenue , as discussed further below . this increase was partially offset by an increase in production taxes , depletion expense , income tax expense and the royalty restructuring charge during the period , each of which are discussed further below . for fiscal year ended june 30 , 2012 , we recognized total royalty revenue of $ 263.1 million , at an average gold price of $ 1,673 per ounce , an average silver price of $ 33.26 per ounce , an average nickel 46 price of $ 8.77 per pound and an average copper price of $ 3.71 per pound , compared to total royalty revenue of $ 216.5 million , at an average gold price of $ 1,369 per ounce , an average silver price of $ 28.61 per ounce , an average nickel price of $ 10.86 per pound and an average copper price of $ 3.92 per pound , for fiscal year ended june 30 , 2011. royalty revenue and the corresponding production , attributable to our royalty interests , for the fiscal year ended june 30 , 2012 compared to the fiscal year ended june 30 , 2011 is as follows : royalty revenue and production subject to our royalty interests fiscal years ended june 30 , 2012 and 2011 ( in thousands , except reported production in ozs . and lbs . ) replace_table_token_19_th ( 1 ) reported production relates to the amount of metal sales , subject to our royalty interests , for the twelve months ended june 30 , 2012 and june 30 , 2011 , as reported to us by the operators of the mines . ( 2 ) individually , no royalty included within the `` other `` category contributed greater than 5 % of our total royalty revenue for either period . the increase in royalty revenue for the fiscal year ended june 30 , 2012 , compared with the fiscal year ended june 30 , 2011 , resulted primarily from an increase in the average gold and silver prices , increased reported production at andacollo , voisey 's bay , mulatos and dolores , the continued ramp-up 47 at peรฑasquito , holt , las cruces , canadian malartic and wolverine . these increases were partially offset during the period due to decreases in reported production at cortez , leeville and robinson . refer to part i , item 2 , properties , for discussion and any updates on our principal producing properties . depreciation , depletion and amortization expense increased to $ 75.0 million for the fiscal year ended june 30 , 2012 , from $ 67.4 million for the fiscal year ended june 30 , 2011. the increase was primarily attributable to an increase in production at andacollo , voisey 's bay and las cruces , which resulted in additional depletion expense of approximately $ 8.3 million during the period . the increase was also attributable to the continued ramp-up at holt and canadian malartic , which resulted in additional depletion expense of approximately $ 4.3 million during the period . these increases were partially offset by a decrease in depletion at taparko of approximately $ 4.3 million , which was due to the dollar cap being met during fiscal year 2011. during the fiscal year ended june 30 , 2012 , we recognized income tax expense totaling $ 54.7 million compared with $ 39.0 million during the fiscal year ended june 30 , 2011. this resulted in an effective tax rate of 35.8 % during the current period , compared with 33.5 % in the prior period . the increase in the effective tax rate for the twelve months ended june 30 , 2012 is primarily related to an increase in tax expense and valuation allowances related to earnings from non-u.s. subsidiaries offset by a decrease in tax expense associated with the decrease in foreign currency exchange gains and the effect of excess depletion . forward-looking statements cautionary `` safe harbor `` statement under the private securities litigation reform act of 1995 : with the exception of historical matters , the matters discussed in this annual report on form 10-k are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein . such forward-looking statements include , without limitation , statements regarding projected production estimates and estimates pertaining to timing and commencement of production from the operators of properties where we hold royalty interests ; the adequacy of financial resources and funds to cover anticipated expenditures for general and administrative expenses as well as costs associated with exploration and business development and capital expenditures , and our expectation that substantially all our revenues will be derived from royalty interests . words such as `` may , `` `` could , `` `` should , `` `` would , `` `` believe , `` `` estimate , `` `` expect , `` `` anticipate , `` `` plan , `` `` forecast , `` `` potential , `` `` intend , `` `` continue , `` `` project `` and variations of these words , comparable words and similar expressions generally indicate forward-looking statements , which speak only as of the date the statement is made . do not unduly rely on forward-looking statements . actual results may differ materially from those expressed or implied
| liquidity and capital resources overview at june 30 , 2013 , we had current assets of $ 744.5 million compared to current liabilities of $ 35.1 million for a current ratio of 21 to 1. this compares to current assets of $ 445.2 million and current liabilities of $ 15.2 million at june 30 , 2012 , resulting in a current ratio of approximately 29 to 1. the decrease in our current ratio was primarily attributable to an increase in the amount of foreign withholding taxes payable on certain of our foreign royalty interests . the increase in our foreign withholding taxes payable was partially offset by an increase in our cash and equivalents during the period due to our october 2012 common stock offering as discussed below . during the fiscal year ended june 30 , 2013 , liquidity needs were met from $ 289.2 million in royalty revenues and our available cash resources . as of june 30 , 2013 , the company had $ 350 million available and no amounts outstanding under its revolving credit facility . the company was in 41 compliance with each financial covenant under its revolving credit facility as of june 30 , 2013. refer to note 6 of our notes to consolidated financial statements for further discussion on our debt . we believe that our current financial resources and funds generated from operations will be adequate to cover anticipated expenditures for debt service , general and administrative expense costs , exploration costs and capital expenditures for the foreseeable future . our current financial resources are also available to fund dividends and for acquisitions of royalty interests , including the remaining commitments incurred in connection with the mt . milligan and tulsequah chief acquisitions . our long-term capital requirements are primarily affected by our ongoing acquisition activities . the company currently , and generally at any time , has acquisition opportunities in various stages of active review . in the event of one or more substantial royalty interest or other acquisitions , we may seek additional debt or equity financing as necessary .
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hcv infection over the past several years , we have obtained most of our product revenues from incivek sales and focused a large portion of our resources on commercializing incivek and seeking to develop other drug candidates for the treatment of hcv infection . our incivek net product revenues have been declining on a quarterly basis since reaching a peak in the fourth quarter of 2011 , and declined rapidly over the course of 2013 , including a 77 % decline in incivek net product 52 revenues in the fourth quarter of 2013 as compared to the third quarter of 2013. we expect this trend to continue as a result of the introduction in the fourth quarter of 2013 of new competitive therapies for the treatment of hcv infection . in 2013 , in response to declining sales of incivek and increased competition , we reduced our focus on incivek , and based on additional information regarding our hcv drug development candidates and advances made by our competitors , we incurred significant impairment charges related to our hcv drug development candidates , as follows : impairment of vx-222 . in the first quarter of 2013 , we recorded a $ 412.9 million intangible asset impairment charge based on a determination that the fair value of our indefinite-lived in-process research and development asset related to vx-222 , a drug we were developing for the treatment of hcv infection , had decreased to zero . in connection with this impairment charge , we recorded a credit of $ 127.6 million in our provision for income taxes , and the net effect of this impairment charge was an increase in the net loss attributable to vertex of $ 285.3 million in 2013. workforce reduction . in the fourth quarter of 2013 , we reduced our workforce by eliminating approximately 370 full-time positions globally , representing an approximately 15 % reduction in our workforce . the eliminated positions included the portion of our u.s. field-based sales force focused on promoting incivek . in the second half of 2013 , we incurred approximately $ 39.0 million in restructuring charges related to this workforce reduction . we expect the restructuring to result in a significant reduction in our sales , general and administrative expenses in 2014 as compared to 2013. vx-135 . in the fourth quarter of 2013 , we recorded a $ 250.6 million intangible asset impairment charge , based on a determination that the fair value of our indefinite-lived in-process research and development asset related to our hcv nucleotide analogue ( vx-135 ) program was impaired . in connection with this impairment charge , a benefit for income taxes was recorded related to the reversal of a deferred tax liability , and we deconsolidated our variable interest entity , alios biopharma , inc. , or alios , as of december 31 , 2013. the consolidation of alios into our financial statements from june 2011 through december 2013 , the impairment charge related to our hcv nucleotide analogue program in the fourth quarter of 2013 and the related deconsolidation of alios have had a material effect on our consolidated statements of operations . the impairment charge resulted in the deconsolidation of alios and a gain of $ 68.2 million attributable to vertex in 2013. the gain of $ 68.2 million is approximately equal to the difference between ( i ) losses we recorded in 2011 and 2012 based on increases in the fair value of contingent milestone payments and royalties payable by us to alios and ( ii ) an aggregate of $ 120.0 million in up-front and milestone payments that we made to alios . we are in discussions with alios and bristol-myers squibb , or bms , regarding potential next steps for further clinical evaluation of vx-135 in combination with bms 's daclatasvir . in 2014 , we expect that only a small portion of our net product revenues will be due to incivek and that a relatively small portion of our research and development expenses will be related to our drugs and drug candidates for the treatment of hcv infection . research and early-stage development we are engaged in a number of other research and early-stage development programs , including programs in the areas of oncology , multiple sclerosis and other serious and rare diseases . over the last year , we have evaluated in phase 2 clinical trials : vx-509 , our jak3 inhibitor , in patients with rheumatoid arthritis and vx-787 , a drug candidate for the treatment of influenza a. we are seeking collaborators to advance the clinical development of vx-509 and vx-787 . we plan to continue investing in our research programs as well as our early-stage development programs , and fostering scientific innovation in order to identify and develop transformative medicines . we believe that pursuing research in diverse areas allows us to balance the risks inherent in drug development and may provide drug candidates that will form our pipeline in future years . balance sheet as of december 31 , 2013 , we had cash , cash equivalents and marketable securities of approximately $ 1.47 billion , which represented an increase of $ 143.9 million from $ 1.32 billion as of december 31 , 2012. this increase was the result of cash received from product sales , royalties , issuances of common stock pursuant to employee benefit plans and other financing activities , offset by cash expenditures to operate our business . we amended our collaboration agreement with janssen to provide janssen a fully-paid license to market incivo in return for a $ 152.0 million payment . beginning in 2014 , we will no longer receive royalties based on sales of incivo . story_separator_special_tag in addition , cost of product revenues in 2013 and 2012 included an aggregate of $ 10.4 million and $ 133.2 million , respectively , in write-offs for excess and obsolete inventories . our cost of product revenues decreased in 2013 compared to 2012 as a result of decreased product revenues and the $ 133.2 million in charges for excess and obsolete incivek inventories that we incurred in 2012. our cost of product revenues increased in 2012 compared to 2011 due to our increased product revenues and the charges for excess and obsolete incivek inventories that we incurred in 2012. as of december 31 , 2013 , we had $ 0.9 million in remaining incivek inventories . royalty expenses royalty expenses include third-party royalties payable upon net sales of telaprevir by our collaborators and royalty expenses related to a subroyalty payable to a third party on net sales of an hiv protease inhibitor sold by glaxosmithkline . royalty expenses in 2013 decreased slightly as compared to 2012. royalty expenses in 2012 increased compared to 2011 primarily due to increased third-party royalties payable on net sales of incivo by janssen . our royalty expenses in future periods will be dependent on our collaborators ' net sales of telaprevir in their territories . royalty expenses also include a subroyalty payable to a third party on net sales of an hiv protease inhibitor sold by glaxosmithkline . the subroyalty expense is offset by a corresponding amount of royalty revenues on sales by glaxosmithkline of an hiv protease inhibitor , the rights to which we sold to a third party in 2008. research and development expenses replace_table_token_14_th our research and development expenses include internal and external costs incurred for research and development of our drugs and drug candidates . we do not assign our internal costs , such as salary and benefits , stock-based compensation expense , laboratory supplies and infrastructure costs , to individual drugs or drug candidates , because the employees within our research and development groups typically are deployed across multiple research and development programs . these internal costs are significantly greater than our external costs , such as the costs of services provided to us by clinical research 59 organizations and other outsourced research , which we do allocate by individual program . all research and development costs for our drugs and drug candidates are expensed as incurred . to date , we have incurred in excess of $ 6.4 billion in research and development expenses associated with drug discovery and development . the successful development of our drug candidates is highly uncertain and subject to a number of risks . in addition , the duration of clinical trials may vary substantially according to the type , complexity and novelty of the drug candidate and the disease indication being targeted . the fda and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products , typically requiring lengthy and detailed laboratory and clinical testing procedures , sampling activities and other costly and time-consuming procedures . data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities . data obtained from these activities also are susceptible to varying interpretations , which could delay , limit or prevent regulatory approval . the duration and cost of discovery , nonclinical studies and clinical trials may vary significantly over the life of a project and are difficult to predict . therefore , accurate and meaningful estimates of the ultimate costs to bring our drug candidates to market are not available . over the three year period ended december 31 , 2013 , costs related to our cf and hcv programs have represented the largest portion of our development costs . any estimates regarding development and regulatory timelines for our drug candidates are highly subjective and subject to change . we expect data from a phase 3 clinical development program to evaluate lumacaftor in combination with ivacaftor in mid-2014 . if this clinical development program is successful , we plan to submit an nda to the fda and an maa in the european union in the second half of 2014. we can not make a meaningful estimate when , if ever , our other clinical development programs will generate revenues and cash flows . research expenses replace_table_token_15_th over the past three years we have maintained a substantial investment in research activities resulting in a 7 % increase in research expenses in 2013 as compared to 2012 and a 9 % increase in research expenses in 2012 as compared to 2011 . we expect to continue to invest in our research programs with a focus on identifying drug candidates for specialty markets . 60 development expenses replace_table_token_16_th our development expenses increased by $ 95.2 million , or 17 % , in 2013 as compared to 2012 and by $ 79.8 million , or 16 % , in 2012 as compared to 2011 . the increases in 2013 compared to 2012 were principally due to the expansion of clinical development programs in cystic fibrosis , including the initiation of the phase 3 program for the combination of lumacaftor and ivacaftor , and increased drug supply costs primarily related to lumacaftor . the increases in 2012 in comparison to 2011 were principally due to increases in headcount and the expansion of our development efforts as we completed the registration programs for ivacaftor , prepared the regulatory filings needed to obtain approval for ivacaftor and continued the development of our other drug candidates . sales , general and administrative expenses replace_table_token_17_th sales , general and administrative expenses decreased by 17 % in 2013 compared to 2012 , primarily due to decreased incivek commercial expenses and our october 2013 restructuring activities , partially offset by increased kalydeco commercial expenses . sales , general and administrative expenses increased by 9 % in 2012 compared to 2011 , primarily due to the
| liquidity and capital resources overview at june 30 , 2013 , we had current assets of $ 744.5 million compared to current liabilities of $ 35.1 million for a current ratio of 21 to 1. this compares to current assets of $ 445.2 million and current liabilities of $ 15.2 million at june 30 , 2012 , resulting in a current ratio of approximately 29 to 1. the decrease in our current ratio was primarily attributable to an increase in the amount of foreign withholding taxes payable on certain of our foreign royalty interests . the increase in our foreign withholding taxes payable was partially offset by an increase in our cash and equivalents during the period due to our october 2012 common stock offering as discussed below . during the fiscal year ended june 30 , 2013 , liquidity needs were met from $ 289.2 million in royalty revenues and our available cash resources . as of june 30 , 2013 , the company had $ 350 million available and no amounts outstanding under its revolving credit facility . the company was in 41 compliance with each financial covenant under its revolving credit facility as of june 30 , 2013. refer to note 6 of our notes to consolidated financial statements for further discussion on our debt . we believe that our current financial resources and funds generated from operations will be adequate to cover anticipated expenditures for debt service , general and administrative expense costs , exploration costs and capital expenditures for the foreseeable future . our current financial resources are also available to fund dividends and for acquisitions of royalty interests , including the remaining commitments incurred in connection with the mt . milligan and tulsequah chief acquisitions . our long-term capital requirements are primarily affected by our ongoing acquisition activities . the company currently , and generally at any time , has acquisition opportunities in various stages of active review . in the event of one or more substantial royalty interest or other acquisitions , we may seek additional debt or equity financing as necessary .
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hcv infection over the past several years , we have obtained most of our product revenues from incivek sales and focused a large portion of our resources on commercializing incivek and seeking to develop other drug candidates for the treatment of hcv infection . our incivek net product revenues have been declining on a quarterly basis since reaching a peak in the fourth quarter of 2011 , and declined rapidly over the course of 2013 , including a 77 % decline in incivek net product 52 revenues in the fourth quarter of 2013 as compared to the third quarter of 2013. we expect this trend to continue as a result of the introduction in the fourth quarter of 2013 of new competitive therapies for the treatment of hcv infection . in 2013 , in response to declining sales of incivek and increased competition , we reduced our focus on incivek , and based on additional information regarding our hcv drug development candidates and advances made by our competitors , we incurred significant impairment charges related to our hcv drug development candidates , as follows : impairment of vx-222 . in the first quarter of 2013 , we recorded a $ 412.9 million intangible asset impairment charge based on a determination that the fair value of our indefinite-lived in-process research and development asset related to vx-222 , a drug we were developing for the treatment of hcv infection , had decreased to zero . in connection with this impairment charge , we recorded a credit of $ 127.6 million in our provision for income taxes , and the net effect of this impairment charge was an increase in the net loss attributable to vertex of $ 285.3 million in 2013. workforce reduction . in the fourth quarter of 2013 , we reduced our workforce by eliminating approximately 370 full-time positions globally , representing an approximately 15 % reduction in our workforce . the eliminated positions included the portion of our u.s. field-based sales force focused on promoting incivek . in the second half of 2013 , we incurred approximately $ 39.0 million in restructuring charges related to this workforce reduction . we expect the restructuring to result in a significant reduction in our sales , general and administrative expenses in 2014 as compared to 2013. vx-135 . in the fourth quarter of 2013 , we recorded a $ 250.6 million intangible asset impairment charge , based on a determination that the fair value of our indefinite-lived in-process research and development asset related to our hcv nucleotide analogue ( vx-135 ) program was impaired . in connection with this impairment charge , a benefit for income taxes was recorded related to the reversal of a deferred tax liability , and we deconsolidated our variable interest entity , alios biopharma , inc. , or alios , as of december 31 , 2013. the consolidation of alios into our financial statements from june 2011 through december 2013 , the impairment charge related to our hcv nucleotide analogue program in the fourth quarter of 2013 and the related deconsolidation of alios have had a material effect on our consolidated statements of operations . the impairment charge resulted in the deconsolidation of alios and a gain of $ 68.2 million attributable to vertex in 2013. the gain of $ 68.2 million is approximately equal to the difference between ( i ) losses we recorded in 2011 and 2012 based on increases in the fair value of contingent milestone payments and royalties payable by us to alios and ( ii ) an aggregate of $ 120.0 million in up-front and milestone payments that we made to alios . we are in discussions with alios and bristol-myers squibb , or bms , regarding potential next steps for further clinical evaluation of vx-135 in combination with bms 's daclatasvir . in 2014 , we expect that only a small portion of our net product revenues will be due to incivek and that a relatively small portion of our research and development expenses will be related to our drugs and drug candidates for the treatment of hcv infection . research and early-stage development we are engaged in a number of other research and early-stage development programs , including programs in the areas of oncology , multiple sclerosis and other serious and rare diseases . over the last year , we have evaluated in phase 2 clinical trials : vx-509 , our jak3 inhibitor , in patients with rheumatoid arthritis and vx-787 , a drug candidate for the treatment of influenza a. we are seeking collaborators to advance the clinical development of vx-509 and vx-787 . we plan to continue investing in our research programs as well as our early-stage development programs , and fostering scientific innovation in order to identify and develop transformative medicines . we believe that pursuing research in diverse areas allows us to balance the risks inherent in drug development and may provide drug candidates that will form our pipeline in future years . balance sheet as of december 31 , 2013 , we had cash , cash equivalents and marketable securities of approximately $ 1.47 billion , which represented an increase of $ 143.9 million from $ 1.32 billion as of december 31 , 2012. this increase was the result of cash received from product sales , royalties , issuances of common stock pursuant to employee benefit plans and other financing activities , offset by cash expenditures to operate our business . we amended our collaboration agreement with janssen to provide janssen a fully-paid license to market incivo in return for a $ 152.0 million payment . beginning in 2014 , we will no longer receive royalties based on sales of incivo . story_separator_special_tag in addition , cost of product revenues in 2013 and 2012 included an aggregate of $ 10.4 million and $ 133.2 million , respectively , in write-offs for excess and obsolete inventories . our cost of product revenues decreased in 2013 compared to 2012 as a result of decreased product revenues and the $ 133.2 million in charges for excess and obsolete incivek inventories that we incurred in 2012. our cost of product revenues increased in 2012 compared to 2011 due to our increased product revenues and the charges for excess and obsolete incivek inventories that we incurred in 2012. as of december 31 , 2013 , we had $ 0.9 million in remaining incivek inventories . royalty expenses royalty expenses include third-party royalties payable upon net sales of telaprevir by our collaborators and royalty expenses related to a subroyalty payable to a third party on net sales of an hiv protease inhibitor sold by glaxosmithkline . royalty expenses in 2013 decreased slightly as compared to 2012. royalty expenses in 2012 increased compared to 2011 primarily due to increased third-party royalties payable on net sales of incivo by janssen . our royalty expenses in future periods will be dependent on our collaborators ' net sales of telaprevir in their territories . royalty expenses also include a subroyalty payable to a third party on net sales of an hiv protease inhibitor sold by glaxosmithkline . the subroyalty expense is offset by a corresponding amount of royalty revenues on sales by glaxosmithkline of an hiv protease inhibitor , the rights to which we sold to a third party in 2008. research and development expenses replace_table_token_14_th our research and development expenses include internal and external costs incurred for research and development of our drugs and drug candidates . we do not assign our internal costs , such as salary and benefits , stock-based compensation expense , laboratory supplies and infrastructure costs , to individual drugs or drug candidates , because the employees within our research and development groups typically are deployed across multiple research and development programs . these internal costs are significantly greater than our external costs , such as the costs of services provided to us by clinical research 59 organizations and other outsourced research , which we do allocate by individual program . all research and development costs for our drugs and drug candidates are expensed as incurred . to date , we have incurred in excess of $ 6.4 billion in research and development expenses associated with drug discovery and development . the successful development of our drug candidates is highly uncertain and subject to a number of risks . in addition , the duration of clinical trials may vary substantially according to the type , complexity and novelty of the drug candidate and the disease indication being targeted . the fda and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products , typically requiring lengthy and detailed laboratory and clinical testing procedures , sampling activities and other costly and time-consuming procedures . data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities . data obtained from these activities also are susceptible to varying interpretations , which could delay , limit or prevent regulatory approval . the duration and cost of discovery , nonclinical studies and clinical trials may vary significantly over the life of a project and are difficult to predict . therefore , accurate and meaningful estimates of the ultimate costs to bring our drug candidates to market are not available . over the three year period ended december 31 , 2013 , costs related to our cf and hcv programs have represented the largest portion of our development costs . any estimates regarding development and regulatory timelines for our drug candidates are highly subjective and subject to change . we expect data from a phase 3 clinical development program to evaluate lumacaftor in combination with ivacaftor in mid-2014 . if this clinical development program is successful , we plan to submit an nda to the fda and an maa in the european union in the second half of 2014. we can not make a meaningful estimate when , if ever , our other clinical development programs will generate revenues and cash flows . research expenses replace_table_token_15_th over the past three years we have maintained a substantial investment in research activities resulting in a 7 % increase in research expenses in 2013 as compared to 2012 and a 9 % increase in research expenses in 2012 as compared to 2011 . we expect to continue to invest in our research programs with a focus on identifying drug candidates for specialty markets . 60 development expenses replace_table_token_16_th our development expenses increased by $ 95.2 million , or 17 % , in 2013 as compared to 2012 and by $ 79.8 million , or 16 % , in 2012 as compared to 2011 . the increases in 2013 compared to 2012 were principally due to the expansion of clinical development programs in cystic fibrosis , including the initiation of the phase 3 program for the combination of lumacaftor and ivacaftor , and increased drug supply costs primarily related to lumacaftor . the increases in 2012 in comparison to 2011 were principally due to increases in headcount and the expansion of our development efforts as we completed the registration programs for ivacaftor , prepared the regulatory filings needed to obtain approval for ivacaftor and continued the development of our other drug candidates . sales , general and administrative expenses replace_table_token_17_th sales , general and administrative expenses decreased by 17 % in 2013 compared to 2012 , primarily due to decreased incivek commercial expenses and our october 2013 restructuring activities , partially offset by increased kalydeco commercial expenses . sales , general and administrative expenses increased by 9 % in 2012 compared to 2011 , primarily due to the
| liquidity and capital resources as of december 31 , 2013 we had cash , cash equivalents and marketable securities of approximately $ 1.47 billion , which represented an increase of $ 143.9 million from approximately $ 1.32 billion as of december 31 , 2012. this increase was due to cash receipts from product sales and royalties , the $ 152.0 million payment we received from janssen in the fourth quarter of 2013 and $ 265.9 million in cash we received from issuances of common stock pursuant to employee benefit plans , partially offset by cash expenditures we made during 2013 related to , among other things , research and development expenses and sales , general and administrative expenses , approximately $ 64.8 million in build-out costs for our new corporate headquarters , and $ 135.0 million for capital expenditures for property and equipment . in addition , in 2013 , we began supporting $ 31.9 million in irrevocable stand-by letters of credit issued in support of property leases and other similar agreements with an unsecured credit facility with a one-year term . we previously had cash-collateralized these stand-by letters of credit . as a result of this credit facility , our restricted cash decreased by $ 31.8 million net of other activity recorded during 2013 and our cash and cash equivalents increased by a corresponding amount . as of december 31 , 2012 , we had $ 400.0 million in aggregate principal amount of 2015 notes . in addition to the $ 400.0 million in aggregate principal amount , which was scheduled to mature on october 1 , 2015 , we were scheduled to make interest payments in an aggregate amount of $ 33.5 million during the period from june 30 , 2013 through october 1 , 2015. in the second quarter of 2013 , we called the 2015 notes for redemption . in response , the holders of the 2015 notes converted their notes into 8.2
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in response to these unprecedented events , the u.s. government has taken a number of actions to stabilize the financial markets and encourage lending . significant measures include the enactment of the emergency economic stabilization act of 2008 to , among other things , establish the troubled asset relief program ( ยtarpย ) , the enactment of the housing and economic recovery act of 2008 ( ยheraย ) , which established a new regulator for fannie mae and freddie mac and the establishment of the term asset-backed securities loan facility ( ยtalfย ) and the ppip . some of these programs have expired and the impact of the wind-down of these programs on the financial sector and on the economic recovery is unknown . continuing volatility in the rmbs markets may have an adverse effect on the market value and performance of the rmbs in which we invest . moreover , we rely on financing to acquire , on a leveraged basis , the target assets in which we invest . if market conditions deteriorate , our lenders may exit the repurchase market , further tighten lending standards , or increase the amount of equity capital required to obtain financing making it more difficult and costly for us to obtain financing . the dodd-frank act enacted in july 2010 , contains numerous provisions affecting the financial and mortgage industries , many of which may have an impact on our operating environment and the target assets in which we invest . consequently , the dodd-frank act may affect our cost of doing business , may limit our investment opportunities and may affect the competitive balance within our industry and market areas . ยoperation twist , ย was a program conducted by the u.s. federal reserve in 2011 and 2012. pursuant to the first operation twist , instituted between september 2011 and june 2012 , the federal reserve purchased $ 400 billion of u.s. treasury securities with remaining maturities between 6 and 30 years and sold an equal amount of u.s. treasury securities with remaining maturities of 3 years or less . from july 2012 through december 2012 , the federal reserve deployed $ 267 billion to purchase treasury securities with remaining maturities of 6 years to 30 years and sold or redeemed an equal amount of treasury securities with remaining maturities of approximately 3 years or less . while it is difficult to identify the specific impact operation twist had on our business , the program generally reduced asset values and lowered the interest income we received . in december 2012 , the federal reserve announced that it would replace ยoperation twistย with another round of long-term asset purchases , or quantitative easing , pursuant to which the federal reserve will continue to purchase $ 40 billion of agency mbs as well as $ 45 billion of longer-term treasury securities per month . we expect that during these large scale purchases of agency mbs , yields on agency mbs values will be lower and refinancing volumes will be higher . as a result , returns on our agency mbs may be adversely affected . 43 the federal housing finance agency ( ยfhfaย ) and the department of the treasury introduced the home affordable refinance program ( ยharpย ) in early 2009. harp provides borrowers , who may not otherwise qualify for refinancing because of declining home values or reduced access to mortgage insurance , the ability to refinance their mortgages into a lower interest rate and or more stable mortgage product . on october 24 , 2011 , the fhfa announced a series of changes to the rules regarding the harp with the intent of increasing the number of borrowers eligible to refinance their mortgage under this program . the fhfa announced changes to the guidelines related to loan-to-value , appraisals , and certain fees , among other things , subject to a variety of qualifications and the extension of the end date for the harp until december 31 , 2013. it does not change the time period which these loans were originated , maintaining the requirement that the loans must have been guaranteed by fannie mae or freddie mac on or before may 31 , 2009. we do not expect the current harp or future modifications to have a material impact on our results of operations in future periods . on january 30 , 2013 , the u.s. federal reserve announced that it would keep the target range for the federal funds rate at zero to 1 / 4 percent as long as the unemployment rate remains above 6.5 % or until inflation reaches 2.5 % . low levels of federal funds rates may reduce our borrowing costs . however , there can be no assurance that federal funds rates will remain near zero percent , or that such low levels will reduce our cost of funds . investment activities as of december 31 , 2012 , 48.6 % ( 2011 : 55.1 % ) of our equity was invested in agency rmbs , 28.9 % ( 2011 : 24.5 % ) in non-agency rmbs , 21.1 % ( 2011 : 16.8 % ) in cmbs , and 1.4 % ( 2011 : 3.6 % ) in other investments . we use leverage on our target assets to achieve our return objectives . for our total investment portfolio , we focus on securities we believe provide attractive returns when levered approximately 3 to 7 times . the leverage on classes of assets may periodically exceed the stated ranges as we adjust our borrowings to obtain the best available source and minimize total interest expense , while maintaining our overall portfolio leverage guidelines . the change in equity allocations between our classes of assets reflects our views on the current risk/return opportunities in the market for our target assets . story_separator_special_tag the decrease in equity in earnings and decrease in unrealized income on the change in fair value was primarily the result of realizing less gains on investments sold during 2012 and a decrease in the fair value of investments remaining in the invesco imrf fund at december 31 , 2012. on september 30 , 2011 , we invested in a portfolio of commercial mortgage loans by contributing $ 16.9 million , net of distributions , of equity to imrf loan portfolio member llc ( ยimrf llcย ) . for the year ended december 31 , 2012 , we recognized equity in earnings and unrealized loss on the change in fair value of our investment in the imrf llc of approximately $ 3.8 million ( 2011 : $ 759,000 ) and $ 315,000 ( 2011 : unrealized appreciation of $ 325,000 ) , respectively . other income we finance our activities primarily through repurchase agreements , which are generally settled on a short-term basis , usually from one to twelve months . at each settlement date , we refinance each repurchase agreement at the market interest rate at that time . since the interest rate on repurchase agreements change on a one to twelve month basis , we are continuously exposed to changing interest rates . our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements . to accomplish these objectives , we primarily use interest rate swaps and swaptions as part of our interest rate risk management strategy . interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount . the interest rate swaption provides us the option to enter into an interest rate swap agreement for a predetermined notional amount , stated term and pay and receive interest rates in the future . the premium paid for interest rate swaptions is reported as an asset in our consolidated balance sheets . the premium is valued at an amount equal to the fair value of the swaption that would have the effect of closing the position adjusted for nonperformance risk , if any . for the year ended december 31 , 2012 , our unrealized loss on interest rate swaps and swaptions consists of approximately $ 369,000 ( 2011 : $ 764,000 ; 2010 : $ 90,000 ) which represents the ineffective portion of the change in fair value of our interest rate swaps and $ 3.9 million of unrealized losses which represents the change in fair value of our interest rate swaptions that are recognized directly in earnings . on december 30 , 2010 , we entered into a credit default swap ( ยcdsย ) contract . for the year ended december 31 , 2012 we recognized income of $ 3.1 million ( 2011 : $ 5.3 million ; 2010 : $ 13,000 ) on our investment in the cds of which $ 180,000 ( 2011 : $ 1.3 million ; 2010 : $ 0 ) is an unrealized gain based on change in the fair market value of the cds and $ 2.9 million ( 2011 : $ 4.0 million ; 2010 : $ 13,000 ) represents premium payments we receive for providing protection . 51 expenses for the year ended december 31 , 2012 , we incurred management fees of $ 35.7 million ( 2011 : $ 26.3 million ; 2010 : $ 8.1 million ) , which are payable to our manager under our management agreement . the increase in management fees is attributable to an increase in shareholders ' equity resulting from our follow-on common stock and preferred stock offerings in 2011 and 2012. see ยcertain relationships , related transactions , and director independenceย for a discussion of the management fee and our relationship with our manager . for the year ended december 31 , 2012 , our general and administrative expense of $ 4.0 million ( 2011 : $ 3.9 million ; 2010 : $ 4.0 million ) includes operating expenses not covered under our management agreement . these expenses primarily consist of directors and officers insurance , accounting services , auditing and tax services , filing fees , and miscellaneous general and administrative costs . net income after preferred dividends and return on average equity for the year ended december 31 , 2012 , our net income after preferred dividends was $ 338.6 million ( 2011 : $ 286.8 million ; 2010 : $ 103.7 million ) and our annualized return on average equity was 14.96 % ( 2011 : 17.64 % ; 2010 : 17.58 % ) . the change in net income after preferred dividends and average return on equity was primarily the result of increasing our investment portfolio from the proceeds of our common and preferred stock offerings and the changes in our portfolio composition during 2012 and 2011. the decline in average return on equity was the result of lower asset yields on the portfolio as a result of the interest rate environment . story_separator_special_tag and other assets , and , therefore , decrease the value of the agency rmbs , non-agency rbms and cmbs in our portfolio , which could cause our repurchase counterparties to make margin calls on our borrowings and swaps , if our collateral is insufficient to cover the debt secured by our assets . 53 effective as of may 27 , 2011 , we implemented the drspp , pursuant to which we registered and reserved for issuance 10,000,000 shares of our common stock . under the terms of the drspp , shareholders who participate in the drspp may purchase shares of our common stock directly from us , in cash investments up to $ 10,000 , or greater than $ 10,000 if we grant a request for waiver . at our sole discretion ,
| liquidity and capital resources as of december 31 , 2013 we had cash , cash equivalents and marketable securities of approximately $ 1.47 billion , which represented an increase of $ 143.9 million from approximately $ 1.32 billion as of december 31 , 2012. this increase was due to cash receipts from product sales and royalties , the $ 152.0 million payment we received from janssen in the fourth quarter of 2013 and $ 265.9 million in cash we received from issuances of common stock pursuant to employee benefit plans , partially offset by cash expenditures we made during 2013 related to , among other things , research and development expenses and sales , general and administrative expenses , approximately $ 64.8 million in build-out costs for our new corporate headquarters , and $ 135.0 million for capital expenditures for property and equipment . in addition , in 2013 , we began supporting $ 31.9 million in irrevocable stand-by letters of credit issued in support of property leases and other similar agreements with an unsecured credit facility with a one-year term . we previously had cash-collateralized these stand-by letters of credit . as a result of this credit facility , our restricted cash decreased by $ 31.8 million net of other activity recorded during 2013 and our cash and cash equivalents increased by a corresponding amount . as of december 31 , 2012 , we had $ 400.0 million in aggregate principal amount of 2015 notes . in addition to the $ 400.0 million in aggregate principal amount , which was scheduled to mature on october 1 , 2015 , we were scheduled to make interest payments in an aggregate amount of $ 33.5 million during the period from june 30 , 2013 through october 1 , 2015. in the second quarter of 2013 , we called the 2015 notes for redemption . in response , the holders of the 2015 notes converted their notes into 8.2
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in response to these unprecedented events , the u.s. government has taken a number of actions to stabilize the financial markets and encourage lending . significant measures include the enactment of the emergency economic stabilization act of 2008 to , among other things , establish the troubled asset relief program ( ยtarpย ) , the enactment of the housing and economic recovery act of 2008 ( ยheraย ) , which established a new regulator for fannie mae and freddie mac and the establishment of the term asset-backed securities loan facility ( ยtalfย ) and the ppip . some of these programs have expired and the impact of the wind-down of these programs on the financial sector and on the economic recovery is unknown . continuing volatility in the rmbs markets may have an adverse effect on the market value and performance of the rmbs in which we invest . moreover , we rely on financing to acquire , on a leveraged basis , the target assets in which we invest . if market conditions deteriorate , our lenders may exit the repurchase market , further tighten lending standards , or increase the amount of equity capital required to obtain financing making it more difficult and costly for us to obtain financing . the dodd-frank act enacted in july 2010 , contains numerous provisions affecting the financial and mortgage industries , many of which may have an impact on our operating environment and the target assets in which we invest . consequently , the dodd-frank act may affect our cost of doing business , may limit our investment opportunities and may affect the competitive balance within our industry and market areas . ยoperation twist , ย was a program conducted by the u.s. federal reserve in 2011 and 2012. pursuant to the first operation twist , instituted between september 2011 and june 2012 , the federal reserve purchased $ 400 billion of u.s. treasury securities with remaining maturities between 6 and 30 years and sold an equal amount of u.s. treasury securities with remaining maturities of 3 years or less . from july 2012 through december 2012 , the federal reserve deployed $ 267 billion to purchase treasury securities with remaining maturities of 6 years to 30 years and sold or redeemed an equal amount of treasury securities with remaining maturities of approximately 3 years or less . while it is difficult to identify the specific impact operation twist had on our business , the program generally reduced asset values and lowered the interest income we received . in december 2012 , the federal reserve announced that it would replace ยoperation twistย with another round of long-term asset purchases , or quantitative easing , pursuant to which the federal reserve will continue to purchase $ 40 billion of agency mbs as well as $ 45 billion of longer-term treasury securities per month . we expect that during these large scale purchases of agency mbs , yields on agency mbs values will be lower and refinancing volumes will be higher . as a result , returns on our agency mbs may be adversely affected . 43 the federal housing finance agency ( ยfhfaย ) and the department of the treasury introduced the home affordable refinance program ( ยharpย ) in early 2009. harp provides borrowers , who may not otherwise qualify for refinancing because of declining home values or reduced access to mortgage insurance , the ability to refinance their mortgages into a lower interest rate and or more stable mortgage product . on october 24 , 2011 , the fhfa announced a series of changes to the rules regarding the harp with the intent of increasing the number of borrowers eligible to refinance their mortgage under this program . the fhfa announced changes to the guidelines related to loan-to-value , appraisals , and certain fees , among other things , subject to a variety of qualifications and the extension of the end date for the harp until december 31 , 2013. it does not change the time period which these loans were originated , maintaining the requirement that the loans must have been guaranteed by fannie mae or freddie mac on or before may 31 , 2009. we do not expect the current harp or future modifications to have a material impact on our results of operations in future periods . on january 30 , 2013 , the u.s. federal reserve announced that it would keep the target range for the federal funds rate at zero to 1 / 4 percent as long as the unemployment rate remains above 6.5 % or until inflation reaches 2.5 % . low levels of federal funds rates may reduce our borrowing costs . however , there can be no assurance that federal funds rates will remain near zero percent , or that such low levels will reduce our cost of funds . investment activities as of december 31 , 2012 , 48.6 % ( 2011 : 55.1 % ) of our equity was invested in agency rmbs , 28.9 % ( 2011 : 24.5 % ) in non-agency rmbs , 21.1 % ( 2011 : 16.8 % ) in cmbs , and 1.4 % ( 2011 : 3.6 % ) in other investments . we use leverage on our target assets to achieve our return objectives . for our total investment portfolio , we focus on securities we believe provide attractive returns when levered approximately 3 to 7 times . the leverage on classes of assets may periodically exceed the stated ranges as we adjust our borrowings to obtain the best available source and minimize total interest expense , while maintaining our overall portfolio leverage guidelines . the change in equity allocations between our classes of assets reflects our views on the current risk/return opportunities in the market for our target assets . story_separator_special_tag the decrease in equity in earnings and decrease in unrealized income on the change in fair value was primarily the result of realizing less gains on investments sold during 2012 and a decrease in the fair value of investments remaining in the invesco imrf fund at december 31 , 2012. on september 30 , 2011 , we invested in a portfolio of commercial mortgage loans by contributing $ 16.9 million , net of distributions , of equity to imrf loan portfolio member llc ( ยimrf llcย ) . for the year ended december 31 , 2012 , we recognized equity in earnings and unrealized loss on the change in fair value of our investment in the imrf llc of approximately $ 3.8 million ( 2011 : $ 759,000 ) and $ 315,000 ( 2011 : unrealized appreciation of $ 325,000 ) , respectively . other income we finance our activities primarily through repurchase agreements , which are generally settled on a short-term basis , usually from one to twelve months . at each settlement date , we refinance each repurchase agreement at the market interest rate at that time . since the interest rate on repurchase agreements change on a one to twelve month basis , we are continuously exposed to changing interest rates . our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements . to accomplish these objectives , we primarily use interest rate swaps and swaptions as part of our interest rate risk management strategy . interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount . the interest rate swaption provides us the option to enter into an interest rate swap agreement for a predetermined notional amount , stated term and pay and receive interest rates in the future . the premium paid for interest rate swaptions is reported as an asset in our consolidated balance sheets . the premium is valued at an amount equal to the fair value of the swaption that would have the effect of closing the position adjusted for nonperformance risk , if any . for the year ended december 31 , 2012 , our unrealized loss on interest rate swaps and swaptions consists of approximately $ 369,000 ( 2011 : $ 764,000 ; 2010 : $ 90,000 ) which represents the ineffective portion of the change in fair value of our interest rate swaps and $ 3.9 million of unrealized losses which represents the change in fair value of our interest rate swaptions that are recognized directly in earnings . on december 30 , 2010 , we entered into a credit default swap ( ยcdsย ) contract . for the year ended december 31 , 2012 we recognized income of $ 3.1 million ( 2011 : $ 5.3 million ; 2010 : $ 13,000 ) on our investment in the cds of which $ 180,000 ( 2011 : $ 1.3 million ; 2010 : $ 0 ) is an unrealized gain based on change in the fair market value of the cds and $ 2.9 million ( 2011 : $ 4.0 million ; 2010 : $ 13,000 ) represents premium payments we receive for providing protection . 51 expenses for the year ended december 31 , 2012 , we incurred management fees of $ 35.7 million ( 2011 : $ 26.3 million ; 2010 : $ 8.1 million ) , which are payable to our manager under our management agreement . the increase in management fees is attributable to an increase in shareholders ' equity resulting from our follow-on common stock and preferred stock offerings in 2011 and 2012. see ยcertain relationships , related transactions , and director independenceย for a discussion of the management fee and our relationship with our manager . for the year ended december 31 , 2012 , our general and administrative expense of $ 4.0 million ( 2011 : $ 3.9 million ; 2010 : $ 4.0 million ) includes operating expenses not covered under our management agreement . these expenses primarily consist of directors and officers insurance , accounting services , auditing and tax services , filing fees , and miscellaneous general and administrative costs . net income after preferred dividends and return on average equity for the year ended december 31 , 2012 , our net income after preferred dividends was $ 338.6 million ( 2011 : $ 286.8 million ; 2010 : $ 103.7 million ) and our annualized return on average equity was 14.96 % ( 2011 : 17.64 % ; 2010 : 17.58 % ) . the change in net income after preferred dividends and average return on equity was primarily the result of increasing our investment portfolio from the proceeds of our common and preferred stock offerings and the changes in our portfolio composition during 2012 and 2011. the decline in average return on equity was the result of lower asset yields on the portfolio as a result of the interest rate environment . story_separator_special_tag and other assets , and , therefore , decrease the value of the agency rmbs , non-agency rbms and cmbs in our portfolio , which could cause our repurchase counterparties to make margin calls on our borrowings and swaps , if our collateral is insufficient to cover the debt secured by our assets . 53 effective as of may 27 , 2011 , we implemented the drspp , pursuant to which we registered and reserved for issuance 10,000,000 shares of our common stock . under the terms of the drspp , shareholders who participate in the drspp may purchase shares of our common stock directly from us , in cash investments up to $ 10,000 , or greater than $ 10,000 if we grant a request for waiver . at our sole discretion ,
| liquidity and capital resources liquidity is a measurement of our ability to meet potential cash requirements , including ongoing commitments to pay dividends , fund investments , repayment of borrowings and other general business needs . our primary sources of funds for liquidity consists of the net proceeds from our common and preferred equity offerings , net cash provided by operating activities , cash from repurchase agreements and other financing arrangements and future issuances of equity and or debt securities . we are unable to offer securities in a public offering pursuant to our registration statement on form s-3asr during the month of march 2013 due to our failure to timely file our 2012 proxy statement . we intend to file a new shelf registration on form s-3asr on or about april 1 , 2013. we also have sought , and may continue to finance our assets under , and may otherwise participate in , programs established by the u.s. government . we currently believe that we have sufficient liquidity and capital resources available for the acquisition of additional investments , repayments on borrowings , margin requirements and the payment of cash dividends as required for continued qualification as a reit . we generally maintain liquidity to pay down borrowings under repurchase arrangements to reduce borrowing costs and otherwise efficiently manage our long-term investment capital . because the level of these borrowings can be adjusted on a daily basis , the level of cash and cash equivalents carried on our balance sheet is significantly less important than our potential liquidity available under borrowing arrangements . we held cash and cash equivalents of $ 286.5 million at december 31 , 2012 ( 2011 : $ 197.2 million ) . our cash and cash equivalents increased due to normal fluctuations in cash balances related to the timing of principal and interest payments , repayments of debt , and asset purchases and sales . our operating activities provided net cash of approximately $ 427.5 million for the year ended december 31 , 2012 ( 2011 : $ 305.4 million ; 2010 : $ 71.5 million ) .
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factors that have caused volatility in our raw material prices in the past , and which may do so in the future include : the availability of feedstock from shale gas and oil drilling ; supply and demand for crude oil ; shortages of raw materials due to increasing demand ; ethane and liquefied natural gas exports ; capacity constraints due to higher construction costs for investments , construction delays , strike action or involuntary shutdowns ; the general level of business and economic activity ; and the direct or indirect effect of governmental regulation . 30 significant volatility in raw material costs tends to put pressure on product margins as sales price increases could lag behind raw material cost increases . conversely , when raw material costs decrease , customers may seek immediate relief in the form of lower sales prices . we currently use derivative instruments to reduce price volatility risk on feedstock commodities and lower overall costs . normally , there is a pricing relationship between a commodity that we process and the feedstock from which it is derived . when this pricing relationship deviates from historical norms , we have from time to time entered into derivative instruments and physical positions in an attempt to take advantage of this relationship . our historical results have been significantly affected by our plant production capacity , our efficient use of that capacity and our ability to increase capacity . since our inception , we have followed a disciplined growth strategy that focuses on plant acquisitions , new plant construction and internal expansion . we evaluate each expansion project on the basis of its ability to produce sustained returns in excess of our cost of capital and its ability to improve efficiency or reduce operating costs . we also regularly look at acquisition opportunities that would be consistent with , or complimentary to , our overall business strategies . depending on the size of the acquisition , any such acquisitions could require external financing . as noted above in item 1a , `` risk factors , `` we are subject to extensive environmental regulations , which may impose significant additional costs on our operations in the future . further , concerns about ghg emissions and their possible effects on climate change has led to the enactment of regulations , and to proposed legislation and additional regulations , that could affect us in the form of increased cost of feedstocks and fuel , other increased costs of production and decreased demand for our products . while we do not expect any of these enactments or proposals to have a material adverse effect on us in the near term , we can not predict the longer-term effect of any of these regulations or proposals on our future financial condition , results of operations or cash flows . non-gaap financial measures the body of accounting principles generally accepted in the united states is commonly referred to as `` gaap . `` for this purpose , a non-gaap financial measure is generally defined by the sec as one that purports to measure historical or future financial performance , financial position or cash flows , but excludes or includes amounts that would not be so adjusted in the most comparable gaap measures . in this report , we disclose non-gaap financial measures , primarily earnings before interest , taxes , depreciation and amortization ( `` ebitda `` ) . ebitda is calculated as net income before interest expense , income taxes , depreciation and amortization . the non-gaap financial measures described in this form 10-k are not substitutes for the gaap measures of earnings and cash flows . ebitda is included in this form 10-k because our management considers it an important supplemental measure of our performance and believes that it is frequently used by securities analysts , investors and other interested parties in the evaluation of companies in our industry , some of which present ebitda when reporting their results . we regularly evaluate our performance as compared to other companies in our industry that have different financing and capital structures and or tax rates by using ebitda . in addition , we utilize ebitda in evaluating acquisition targets . management also believes that ebitda is a useful tool for measuring our ability to meet our future debt service , capital expenditures and working capital requirements , and ebitda is commonly used by us and our investors to measure our ability to service indebtedness . ebitda is not a substitute for the gaap measures of earnings or of cash flows and is not necessarily a measure of our ability to fund our cash needs . in addition , it should be noted that companies calculate ebitda differently and , therefore , ebitda as presented for us may not be comparable to ebitda reported by other companies . ebitda has material limitations as a performance measure because it excludes interest expense , depreciation and amortization , and income taxes . recent developments on december 22 , 2017 , the u. s. tax cuts and jobs act ( the `` tax act `` ) was signed into law . the tax act , among other changes , reduces the u.s. corporate income tax rate from 35 % to 21 % effective january 1 , 2018 and also requires a one-time deemed repatriation of foreign earnings at specified rates . we are subject to the provisions of the financial accounting standards board accounting standard codification 740 , income taxes , which requires the revaluation of deferred tax assets and liabilities in the period the tax rate change is enacted . the sec staff guidance allows registrants to record provisional amounts during a measurement period when the registrant does not have the necessary information available , prepared or analyzed ( including computations ) in reasonable detail to complete its accounting for the change in tax law . story_separator_special_tag gross profit margin percentage decreased to 19 % in 2016 from 27 % in 2015 . the decrease in gross profit margin percentage was mainly the result of lower sales prices for our major products , as compared to the prior year , and the lost sales , lower production rates , unabsorbed fixed manufacturing costs and other costs associated with the turnaround and expansion of opco 's lake charles petro 1 ethylene unit , the unplanned outage at our calvert city facility and other planned turnarounds and unplanned outages . sales prices decreased an average of 6 % for the year ended december 31 , 2016 as compared to 2015 . in addition , gross profit for the year ended december 31 , 2016 included the negative impact of selling higher cost axiall inventory recorded at fair value . the decrease in gross profit for the year ended december 31 , 2016 was partially offset by lower average feedstock and energy costs and higher product margins at our european operations , as compared to the prior year . selling , general and administrative expenses . selling , general and administrative expenses increased $ 40 million , or 18 % , in 2016 as compared to 2015 . the increase was mainly attributable to general and administrative costs incurred by axiall for the period from august 31 , 2016 to december 31 , 2016 , partially offset by lower consulting and professional fees , as compared to 2015 . amortization of intangibles . the increase in amortization expense of $ 31 million in 2016 as compared to 2015 was mainly because of customer relationships , trade name and other intangibles assets acquired in the merger . transaction and integration-related costs . transaction and integration-related costs were $ 104 million in 2016 and primarily consisted of severance benefits provided to former axiall executives in conjunction with the merger , including the conversion of axiall restricted stock units into our restricted stock units , transitional service expenses for certain former axiall employees , retention agreement costs and consulting and professional fees related to the merger . interest expense . interest expense increased by $ 44 million to $ 79 million in 2016 from $ 35 million in 2015 , largely as a result of higher average debt outstanding , partially offset by increased capitalized interest on major capital projects in 2016 as compared to 2015 . see `` liquidity and capital resources-debt `` below for a further discussion of our indebtedness . other income ( expense ) , net . other income , net increased $ 18 million to $ 56 million in 2016 from $ 38 million in 2015 . this increase was primarily attributable to the realized gain of approximately $ 49 million from the previously held outstanding shares of common stock of axiall and higher interest income for 2016 as compared to the prior year , partially offset by the expenses related to the bridge loan facility and other financing costs in connection with the merger . other income ( expense ) , net for 2015 included a gain of approximately $ 16 million related to the bargain purchase gain from the acquisition of a controlling interest in suzhou huasu plastics co. , ltd. ( `` huasu `` ) , net of related expenses , partially offset by the impairment and loss from the disposition of an equity method investment . income taxes . the effective income tax rate was 25 % in 2016 as compared to 31 % in 2015 . the effective income tax rate for 2016 was below the u.s. federal statutory rate of 35 % primarily due to the benefit of state tax credits , the domestic manufacturing deduction , depletion deductions , income attributable to noncontrolling interests , the non-recognition of tax related to the gain recognized on previously held outstanding shares of common stock of axiall , the benefit in prior years ' and current-year tax credits for increased research and development expenditures and adjustments related to prior years ' tax returns as filed , change in state apportionment and the foreign earnings rate differential , partially offset by state income taxes and nondeductible transaction costs related to the merger . the effective income tax rate for 2015 was below the u.s. federal statutory rate of 35 % primarily due to the benefit of state tax credits , the domestic manufacturing deduction , income attributable to noncontrolling interests , the non-recognition of tax related to the bargain purchase of a controlling interest in huasu , the foreign earnings rate differential and the increased benefit in certain prior years ' deductions due to a change in the calculation methodology of the domestic manufacturing deduction and adjustments related to prior years ' tax returns as filed , partially offset by state income taxes . 36 olefins segment net sales . net sales decreased by $ 366 million , or 16 % , to $ 1,894 million in 2016 from $ 2,260 million in 2015 , mainly due to lower sales prices for our major products and lower sales volumes for most of our major products as compared to the prior year . average sales prices for the olefins segment decreased by 9 % in 2016 as compared to 2015 , while average sales volumes decreased by 7 % in 2016 as compared to 2015 . income from operations . income from operations was $ 558 million in 2016 as compared to $ 747 million in 2015 . this decrease was predominantly attributable to lower olefins integrated product margins , primarily as a result of lower sales prices as compared to 2015 , and the lost sales , lower production rates , unabsorbed fixed manufacturing costs and other costs related to the turnaround and expansion of opco 's lake charles petro 1 ethylene unit and other planned turnarounds and unplanned outages in 2016. trading activity for 2016 resulted in a gain of $ 20 million as
| liquidity and capital resources liquidity is a measurement of our ability to meet potential cash requirements , including ongoing commitments to pay dividends , fund investments , repayment of borrowings and other general business needs . our primary sources of funds for liquidity consists of the net proceeds from our common and preferred equity offerings , net cash provided by operating activities , cash from repurchase agreements and other financing arrangements and future issuances of equity and or debt securities . we are unable to offer securities in a public offering pursuant to our registration statement on form s-3asr during the month of march 2013 due to our failure to timely file our 2012 proxy statement . we intend to file a new shelf registration on form s-3asr on or about april 1 , 2013. we also have sought , and may continue to finance our assets under , and may otherwise participate in , programs established by the u.s. government . we currently believe that we have sufficient liquidity and capital resources available for the acquisition of additional investments , repayments on borrowings , margin requirements and the payment of cash dividends as required for continued qualification as a reit . we generally maintain liquidity to pay down borrowings under repurchase arrangements to reduce borrowing costs and otherwise efficiently manage our long-term investment capital . because the level of these borrowings can be adjusted on a daily basis , the level of cash and cash equivalents carried on our balance sheet is significantly less important than our potential liquidity available under borrowing arrangements . we held cash and cash equivalents of $ 286.5 million at december 31 , 2012 ( 2011 : $ 197.2 million ) . our cash and cash equivalents increased due to normal fluctuations in cash balances related to the timing of principal and interest payments , repayments of debt , and asset purchases and sales . our operating activities provided net cash of approximately $ 427.5 million for the year ended december 31 , 2012 ( 2011 : $ 305.4 million ; 2010 : $ 71.5 million ) .
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factors that have caused volatility in our raw material prices in the past , and which may do so in the future include : the availability of feedstock from shale gas and oil drilling ; supply and demand for crude oil ; shortages of raw materials due to increasing demand ; ethane and liquefied natural gas exports ; capacity constraints due to higher construction costs for investments , construction delays , strike action or involuntary shutdowns ; the general level of business and economic activity ; and the direct or indirect effect of governmental regulation . 30 significant volatility in raw material costs tends to put pressure on product margins as sales price increases could lag behind raw material cost increases . conversely , when raw material costs decrease , customers may seek immediate relief in the form of lower sales prices . we currently use derivative instruments to reduce price volatility risk on feedstock commodities and lower overall costs . normally , there is a pricing relationship between a commodity that we process and the feedstock from which it is derived . when this pricing relationship deviates from historical norms , we have from time to time entered into derivative instruments and physical positions in an attempt to take advantage of this relationship . our historical results have been significantly affected by our plant production capacity , our efficient use of that capacity and our ability to increase capacity . since our inception , we have followed a disciplined growth strategy that focuses on plant acquisitions , new plant construction and internal expansion . we evaluate each expansion project on the basis of its ability to produce sustained returns in excess of our cost of capital and its ability to improve efficiency or reduce operating costs . we also regularly look at acquisition opportunities that would be consistent with , or complimentary to , our overall business strategies . depending on the size of the acquisition , any such acquisitions could require external financing . as noted above in item 1a , `` risk factors , `` we are subject to extensive environmental regulations , which may impose significant additional costs on our operations in the future . further , concerns about ghg emissions and their possible effects on climate change has led to the enactment of regulations , and to proposed legislation and additional regulations , that could affect us in the form of increased cost of feedstocks and fuel , other increased costs of production and decreased demand for our products . while we do not expect any of these enactments or proposals to have a material adverse effect on us in the near term , we can not predict the longer-term effect of any of these regulations or proposals on our future financial condition , results of operations or cash flows . non-gaap financial measures the body of accounting principles generally accepted in the united states is commonly referred to as `` gaap . `` for this purpose , a non-gaap financial measure is generally defined by the sec as one that purports to measure historical or future financial performance , financial position or cash flows , but excludes or includes amounts that would not be so adjusted in the most comparable gaap measures . in this report , we disclose non-gaap financial measures , primarily earnings before interest , taxes , depreciation and amortization ( `` ebitda `` ) . ebitda is calculated as net income before interest expense , income taxes , depreciation and amortization . the non-gaap financial measures described in this form 10-k are not substitutes for the gaap measures of earnings and cash flows . ebitda is included in this form 10-k because our management considers it an important supplemental measure of our performance and believes that it is frequently used by securities analysts , investors and other interested parties in the evaluation of companies in our industry , some of which present ebitda when reporting their results . we regularly evaluate our performance as compared to other companies in our industry that have different financing and capital structures and or tax rates by using ebitda . in addition , we utilize ebitda in evaluating acquisition targets . management also believes that ebitda is a useful tool for measuring our ability to meet our future debt service , capital expenditures and working capital requirements , and ebitda is commonly used by us and our investors to measure our ability to service indebtedness . ebitda is not a substitute for the gaap measures of earnings or of cash flows and is not necessarily a measure of our ability to fund our cash needs . in addition , it should be noted that companies calculate ebitda differently and , therefore , ebitda as presented for us may not be comparable to ebitda reported by other companies . ebitda has material limitations as a performance measure because it excludes interest expense , depreciation and amortization , and income taxes . recent developments on december 22 , 2017 , the u. s. tax cuts and jobs act ( the `` tax act `` ) was signed into law . the tax act , among other changes , reduces the u.s. corporate income tax rate from 35 % to 21 % effective january 1 , 2018 and also requires a one-time deemed repatriation of foreign earnings at specified rates . we are subject to the provisions of the financial accounting standards board accounting standard codification 740 , income taxes , which requires the revaluation of deferred tax assets and liabilities in the period the tax rate change is enacted . the sec staff guidance allows registrants to record provisional amounts during a measurement period when the registrant does not have the necessary information available , prepared or analyzed ( including computations ) in reasonable detail to complete its accounting for the change in tax law . story_separator_special_tag gross profit margin percentage decreased to 19 % in 2016 from 27 % in 2015 . the decrease in gross profit margin percentage was mainly the result of lower sales prices for our major products , as compared to the prior year , and the lost sales , lower production rates , unabsorbed fixed manufacturing costs and other costs associated with the turnaround and expansion of opco 's lake charles petro 1 ethylene unit , the unplanned outage at our calvert city facility and other planned turnarounds and unplanned outages . sales prices decreased an average of 6 % for the year ended december 31 , 2016 as compared to 2015 . in addition , gross profit for the year ended december 31 , 2016 included the negative impact of selling higher cost axiall inventory recorded at fair value . the decrease in gross profit for the year ended december 31 , 2016 was partially offset by lower average feedstock and energy costs and higher product margins at our european operations , as compared to the prior year . selling , general and administrative expenses . selling , general and administrative expenses increased $ 40 million , or 18 % , in 2016 as compared to 2015 . the increase was mainly attributable to general and administrative costs incurred by axiall for the period from august 31 , 2016 to december 31 , 2016 , partially offset by lower consulting and professional fees , as compared to 2015 . amortization of intangibles . the increase in amortization expense of $ 31 million in 2016 as compared to 2015 was mainly because of customer relationships , trade name and other intangibles assets acquired in the merger . transaction and integration-related costs . transaction and integration-related costs were $ 104 million in 2016 and primarily consisted of severance benefits provided to former axiall executives in conjunction with the merger , including the conversion of axiall restricted stock units into our restricted stock units , transitional service expenses for certain former axiall employees , retention agreement costs and consulting and professional fees related to the merger . interest expense . interest expense increased by $ 44 million to $ 79 million in 2016 from $ 35 million in 2015 , largely as a result of higher average debt outstanding , partially offset by increased capitalized interest on major capital projects in 2016 as compared to 2015 . see `` liquidity and capital resources-debt `` below for a further discussion of our indebtedness . other income ( expense ) , net . other income , net increased $ 18 million to $ 56 million in 2016 from $ 38 million in 2015 . this increase was primarily attributable to the realized gain of approximately $ 49 million from the previously held outstanding shares of common stock of axiall and higher interest income for 2016 as compared to the prior year , partially offset by the expenses related to the bridge loan facility and other financing costs in connection with the merger . other income ( expense ) , net for 2015 included a gain of approximately $ 16 million related to the bargain purchase gain from the acquisition of a controlling interest in suzhou huasu plastics co. , ltd. ( `` huasu `` ) , net of related expenses , partially offset by the impairment and loss from the disposition of an equity method investment . income taxes . the effective income tax rate was 25 % in 2016 as compared to 31 % in 2015 . the effective income tax rate for 2016 was below the u.s. federal statutory rate of 35 % primarily due to the benefit of state tax credits , the domestic manufacturing deduction , depletion deductions , income attributable to noncontrolling interests , the non-recognition of tax related to the gain recognized on previously held outstanding shares of common stock of axiall , the benefit in prior years ' and current-year tax credits for increased research and development expenditures and adjustments related to prior years ' tax returns as filed , change in state apportionment and the foreign earnings rate differential , partially offset by state income taxes and nondeductible transaction costs related to the merger . the effective income tax rate for 2015 was below the u.s. federal statutory rate of 35 % primarily due to the benefit of state tax credits , the domestic manufacturing deduction , income attributable to noncontrolling interests , the non-recognition of tax related to the bargain purchase of a controlling interest in huasu , the foreign earnings rate differential and the increased benefit in certain prior years ' deductions due to a change in the calculation methodology of the domestic manufacturing deduction and adjustments related to prior years ' tax returns as filed , partially offset by state income taxes . 36 olefins segment net sales . net sales decreased by $ 366 million , or 16 % , to $ 1,894 million in 2016 from $ 2,260 million in 2015 , mainly due to lower sales prices for our major products and lower sales volumes for most of our major products as compared to the prior year . average sales prices for the olefins segment decreased by 9 % in 2016 as compared to 2015 , while average sales volumes decreased by 7 % in 2016 as compared to 2015 . income from operations . income from operations was $ 558 million in 2016 as compared to $ 747 million in 2015 . this decrease was predominantly attributable to lower olefins integrated product margins , primarily as a result of lower sales prices as compared to 2015 , and the lost sales , lower production rates , unabsorbed fixed manufacturing costs and other costs related to the turnaround and expansion of opco 's lake charles petro 1 ethylene unit and other planned turnarounds and unplanned outages in 2016. trading activity for 2016 resulted in a gain of $ 20 million as
| of cash provided in 2015 , an unfavorable change of $ 69 million . the change was mainly due to an increase of $ 161 million in inventory , partially offset by a decrease in current liabilities ( accounts payable and accrued liabilities ) of $ 90 million . 37 investing activities net cash use d for investing activities during 2017 was $ 652 million as compared to net cash used of $ 2,563 million in 2016 . we used $ 2,438 million of cash , net of cash acquired , for the acquisition of axiall in 2016. capital expenditures were $ 577 million in 2017 compared to $ 629 million in 2016 . capital expenditures in 2017 were incurred on several projects , including the upgrade and expansion of opco 's calvert city ethylene plant at our calvert city site . capital expenditures in 2016 were primarily incurred on the upgrade and expansion of opco 's petro 1 ethylene unit at our lake charles site . the remaining capital expenditures in 2017 and 2016 primarily related to projects to improve production capacity or reduce costs , maintenance and safety projects and environmental projects at our various facilities . in addition , we spent $ 66 million in 2017 related to our contribution to lacc to fund the construction costs of the ethylene plant , as compared to $ 17 million in 2016. please see `` liquidity and capital resourcesโliquidity and financing arrangements '' below for further discussion . we did not purchase any securities in 2017 compared to a total of $ 138 million of securities purchased in 2016. other 2016 investing activity was related to the receipt of proceeds of $ 663 million from the sales and maturities of our investments . net cash used for investing activities during 2016 was $ 2,563 million as compared to net cash used of $ 1,006 million in 2015 . we used $ 2,438 million , net of cash acquired , for the acquisition of axiall . capital expenditures were $ 629 million in 2016 compared to $ 491 million in 2015 .
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even with the adverse economic environment and its impact on our industry causing customers to constrain their capital budgets , we launched our bluebird2 gaming machines in the december 2008 quarter with premium features at a significantly higher price , and demand outpaced our expectations . for fiscal 2009 , bluebird2 units accounted for 35 % of our total new units shipped and , with the continuing transition in the market to this new product , accounted for approximately 83 % of new unit shipments in fiscal 2010. we sold slightly more new units in the march and june 2010 quarters than in the march and june 2009 quarters due to the popularity of our products enabling us to increase our share of units shipped in the united states and canada . we believe that as the economy continues to improve , customers will increase their annual capital budgets for replacement units , which will improve the replacement demand in future years , although we can not predict the rate of increase in their capital budgets . in addition , we also expect to experience an increase in demand from casino expansions and new casino openings in new and expanding gaming jurisdictions beginning in calendar 2012. we believe several recent developments fueled by the challenging economic situation will expand our revenue opportunities over the long term . in the united states , legislators have passed or are considering enabling new or expanded gaming legislation in ohio , illinois , kansas , iowa , maryland , california , new hampshire , maine and massachusetts . internationally , singapore opened as a new market in fiscal 2010 and a new vlt market in italy is expected to open in fiscal 2011. in addition , legislation has been discussed in greece , brazil , japan and taiwan that would open new market opportunities . the breadth and timing of these opportunities remains uncertain due to the political process in each of these jurisdictions , as well as the difficult credit environment facing our customers and the risk of continued economic uncertainty . product sales product sales revenue includes the sale to casinos and other gaming machine operators of new and used gaming machines and vlts , parts , conversion kits ( including game theme , hardware or operating system conversions ) , amusement-with-prize ( ยawpย ) gaming machines and gaming-related systems for smaller international casino operators . we derive product sales revenue from the sale of the following : รธ multi-line , multi-coin video gaming machines , in our bluebird , bluebird2 and bluebird xd and orion financement company ( ยorion gamingย ) twinstar , twinstar2 and helios -branded gaming machines ; รธ mechanical reel-spinning gaming machines in our bluebird , bluebird2 and bluebird xd -branded gaming machines ; รธ video poker machines in our bluebird and bluebird2- branded gaming machines , which are primarily offered as a casino-owned daily fee game , where the casino purchases the base gaming machine and then leases the top box and game for a lower lease price point ; รธ replacement parts and conversion kits for our bluebird , bluebird2 , bluebird xd , twinstar , twinstar2 , helios and awp gaming machines , and cpu-nxt and cpu-nxt2 upgrade kits ; รธ used gaming machines manufactured by us or our competitors that are acquired on a trade-in basis or that were previously placed on a participation basis ; 30 รธ awp gaming machines in certain international markets ; and รธ gaming-related systems , including linked progressive systems and slot accounting systems applicable to smaller international casinos . gaming operations we earn gaming operations revenues from leasing participation games , gaming machines and vlts , and earn royalties that we receive from third parties under license agreements to use our game content and intellectual property . our gaming operations include the following product lines : รธ participation games , which are gaming machines owned by us that we lease based upon any of the following payment methods : ( 1 ) a percentage of the net win , which is the casino 's earnings generated by casino patrons playing the gaming machine ; ( 2 ) fixed daily fees ; or ( 3 ) a percentage of the amount wagered or a combination of a fixed daily fee plus a percentage of the amount wagered . we have the ability to lease these gaming machines on a participation basis because of the superior performance of the game and or the popularity of the brand , which generates higher wagering and net win to the casinos or gaming machine operators than the gaming machines we sell outright . participation games include : รธ wide-area progressive ( ยwapย ) participation games ; รธ local-area progressive ( ยlapย ) participation games ; and รธ stand-alone participation games . รธ casino-owned daily fee games , where the casino or gaming machine operator purchases the base gaming machine and pays a lower daily lease fee for the top box and game ; รธ gaming machines placed at casinos under operating lease arrangements ; รธ vlts ; and รธ revenues from licensing our game content and intellectual properties to third parties . our focus we continue to operate in a challenging economic environment and the combination of economic uncertainty , lower demand for replacement products and reduced opportunities from new or expanded casinos has negatively impacted our industry . we expect to benefit from certain new and expansion projects currently in process , but the breadth and timing of such opportunities remains uncertain due to the difficult credit environment facing our customers and the risk of continued economic uncertainty . story_separator_special_tag in may 2008 , we received approval from gaming laboratories international , inc. ( ยgliย ) on the first-point release of our wage-net networked gaming system , incorporating gsa communication standards and basic networked gaming functionality , which as part of a technical beta test was placed at a popular tribal casino . an updated version of wage-net was further enhanced and is gsa compliant , demonstrating our total commitment to support open architecture and standards-based protocols that our casino customers want and should expect . this version is currently on a field trial at two casinos in las vegas and at a popular casino in canada . we further refined wage-net with additional features and functionality in the commercial launch point release of the software and this version has been submitted to the nevada gaming regulators and gli . we have continued to enhance our wage-net capabilities and in may 2010 received approval from gli of our first value-added application to run over wage-net : ultra hit progressive ยฎ ยjackpot explosion ยฎ . this is the first in a series of networked gaming applications that leverage wms ' unique portal technology . jackpot explosion is the first theme within the ultra hit progressive networked gaming application family . before the commercial launch of this version of wage-net and jackpot explosion , we are conducting self imposed beta tests in nine casinos beginning summer 2010 and expect the commercial product launch to occur in the december 2010 quarter . other key fiscal 2010 activities common stock repurchase program see note 10 . ยstockholders ' equityยcommon stock repurchase programย and note 18 . ยsubsequent eventsย to our consolidated financial statements . critical accounting estimates our consolidated financial statements were prepared in conformity with accounting principles generally accepted in the united states . accordingly , we are required to make estimates incorporating judgments and assumptions we believe are reasonable based on our experience , contract terms , trends in our company and the industry as a whole , as well as information available from other outside sources . our estimates affect amounts recorded in our consolidated financial statements and actual results may differ from initial estimates . our accounting policies , including those involving critical accounting estimates , are more fully described in note 2 . ยprincipal accounting policiesย in our consolidated financial statements . we consider the following accounting estimates to be the most critical to fully understand and evaluate our reported financial results . they require us to make subjective or complex judgments about matters that are inherently uncertain or variable . senior management discussed the development , selection and disclosure of the following accounting estimates , considered most sensitive to changes from external factors , with the audit and ethics committee of our board of directors . 35 revenue recognition we evaluate the recognition of revenue based on the criteria set forth in the following accounting guidance : financial accounting standards board ( ยfasbย ) topic 605 , ย revenue recognition ย ( ยtopic 605ย ) , or fasb topic 985 , ย software ย ( ยtopic 985ย ) . recent updates to topics 605 and 985 in october 2009 , the fasb issued accounting standards update ( ยasuย ) no . 2009-13 , ยmultiple-deliverable revenue arrangementsย ( ยasu no . 2009-13ย ) and asu no . 2009-14 ยcertain revenue arrangements that include software elementsย ( ยasu no . 2009-14ย ) . as permitted under these asu 's , we early adopted both of these asu 's on a prospective basis effective july 1 , 2009 , the beginning of our 2010 fiscal year . accordingly , this guidance is being applied to all new or materially modified revenue arrangements entered into since july 1 , 2009. while the adoption of these two asu 's changed our revenue recognition policies beginning in fiscal 2010 , the impact on our consolidated financial statements was not significant to either the year ended june 30 , 2010 or , had these asu 's been applied retroactively , to the fiscal years ended june 30 , 2009 or 2008 , as we had vendor specific objective evidence ( ยvsoeย ) for all elements of our multiple deliverable arrangements and we had not deferred any hardware revenues because an entire customer arrangement had been accounted for as software . these new revenue recognition standards will have more impact on our revenue recognition when we launch our networked gaming system and related software applications in fiscal 2011. asu no . 2009-13 replaces and significantly changes the existing separation criteria for multiple-deliverable revenue arrangements , by eliminating the criteria for objective and reliable evidence of fair value for each deliverable . asu no 2009-13 also eliminates the use of the residual method of allocation of consideration among deliverables and requires , instead , that arrangement consideration be allocated , at the inception of the arrangement , to all deliverables based on their relative selling price ( the ยrelative selling price methodย ) . when applying the relative selling price method , a hierarchy is used for estimating the selling price based first on vsoe , then third-party evidence ( ยtpeย ) and finally management 's estimate of the selling price ( ยespย ) . in fiscal 2010 , we used vsoe to value all elements in our multiple deliverable arrangements and did not use either tpe or esp . prior to july 1 , 2009 , when multiple product deliverables were included under a sales arrangement , we allocated revenue to each unit of accounting based upon its respective fair value against the total contract value and deferred revenue recognition on those deliverables where we did not meet all of the requirements of revenue recognition . we allocated revenue to each unit of accounting , which typically consisted of gaming machines and additional game themes the customer can receive in the future , based on fair value as determined by vsoe . vsoe of fair value
| of cash provided in 2015 , an unfavorable change of $ 69 million . the change was mainly due to an increase of $ 161 million in inventory , partially offset by a decrease in current liabilities ( accounts payable and accrued liabilities ) of $ 90 million . 37 investing activities net cash use d for investing activities during 2017 was $ 652 million as compared to net cash used of $ 2,563 million in 2016 . we used $ 2,438 million of cash , net of cash acquired , for the acquisition of axiall in 2016. capital expenditures were $ 577 million in 2017 compared to $ 629 million in 2016 . capital expenditures in 2017 were incurred on several projects , including the upgrade and expansion of opco 's calvert city ethylene plant at our calvert city site . capital expenditures in 2016 were primarily incurred on the upgrade and expansion of opco 's petro 1 ethylene unit at our lake charles site . the remaining capital expenditures in 2017 and 2016 primarily related to projects to improve production capacity or reduce costs , maintenance and safety projects and environmental projects at our various facilities . in addition , we spent $ 66 million in 2017 related to our contribution to lacc to fund the construction costs of the ethylene plant , as compared to $ 17 million in 2016. please see `` liquidity and capital resourcesโliquidity and financing arrangements '' below for further discussion . we did not purchase any securities in 2017 compared to a total of $ 138 million of securities purchased in 2016. other 2016 investing activity was related to the receipt of proceeds of $ 663 million from the sales and maturities of our investments . net cash used for investing activities during 2016 was $ 2,563 million as compared to net cash used of $ 1,006 million in 2015 . we used $ 2,438 million , net of cash acquired , for the acquisition of axiall . capital expenditures were $ 629 million in 2016 compared to $ 491 million in 2015 .
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even with the adverse economic environment and its impact on our industry causing customers to constrain their capital budgets , we launched our bluebird2 gaming machines in the december 2008 quarter with premium features at a significantly higher price , and demand outpaced our expectations . for fiscal 2009 , bluebird2 units accounted for 35 % of our total new units shipped and , with the continuing transition in the market to this new product , accounted for approximately 83 % of new unit shipments in fiscal 2010. we sold slightly more new units in the march and june 2010 quarters than in the march and june 2009 quarters due to the popularity of our products enabling us to increase our share of units shipped in the united states and canada . we believe that as the economy continues to improve , customers will increase their annual capital budgets for replacement units , which will improve the replacement demand in future years , although we can not predict the rate of increase in their capital budgets . in addition , we also expect to experience an increase in demand from casino expansions and new casino openings in new and expanding gaming jurisdictions beginning in calendar 2012. we believe several recent developments fueled by the challenging economic situation will expand our revenue opportunities over the long term . in the united states , legislators have passed or are considering enabling new or expanded gaming legislation in ohio , illinois , kansas , iowa , maryland , california , new hampshire , maine and massachusetts . internationally , singapore opened as a new market in fiscal 2010 and a new vlt market in italy is expected to open in fiscal 2011. in addition , legislation has been discussed in greece , brazil , japan and taiwan that would open new market opportunities . the breadth and timing of these opportunities remains uncertain due to the political process in each of these jurisdictions , as well as the difficult credit environment facing our customers and the risk of continued economic uncertainty . product sales product sales revenue includes the sale to casinos and other gaming machine operators of new and used gaming machines and vlts , parts , conversion kits ( including game theme , hardware or operating system conversions ) , amusement-with-prize ( ยawpย ) gaming machines and gaming-related systems for smaller international casino operators . we derive product sales revenue from the sale of the following : รธ multi-line , multi-coin video gaming machines , in our bluebird , bluebird2 and bluebird xd and orion financement company ( ยorion gamingย ) twinstar , twinstar2 and helios -branded gaming machines ; รธ mechanical reel-spinning gaming machines in our bluebird , bluebird2 and bluebird xd -branded gaming machines ; รธ video poker machines in our bluebird and bluebird2- branded gaming machines , which are primarily offered as a casino-owned daily fee game , where the casino purchases the base gaming machine and then leases the top box and game for a lower lease price point ; รธ replacement parts and conversion kits for our bluebird , bluebird2 , bluebird xd , twinstar , twinstar2 , helios and awp gaming machines , and cpu-nxt and cpu-nxt2 upgrade kits ; รธ used gaming machines manufactured by us or our competitors that are acquired on a trade-in basis or that were previously placed on a participation basis ; 30 รธ awp gaming machines in certain international markets ; and รธ gaming-related systems , including linked progressive systems and slot accounting systems applicable to smaller international casinos . gaming operations we earn gaming operations revenues from leasing participation games , gaming machines and vlts , and earn royalties that we receive from third parties under license agreements to use our game content and intellectual property . our gaming operations include the following product lines : รธ participation games , which are gaming machines owned by us that we lease based upon any of the following payment methods : ( 1 ) a percentage of the net win , which is the casino 's earnings generated by casino patrons playing the gaming machine ; ( 2 ) fixed daily fees ; or ( 3 ) a percentage of the amount wagered or a combination of a fixed daily fee plus a percentage of the amount wagered . we have the ability to lease these gaming machines on a participation basis because of the superior performance of the game and or the popularity of the brand , which generates higher wagering and net win to the casinos or gaming machine operators than the gaming machines we sell outright . participation games include : รธ wide-area progressive ( ยwapย ) participation games ; รธ local-area progressive ( ยlapย ) participation games ; and รธ stand-alone participation games . รธ casino-owned daily fee games , where the casino or gaming machine operator purchases the base gaming machine and pays a lower daily lease fee for the top box and game ; รธ gaming machines placed at casinos under operating lease arrangements ; รธ vlts ; and รธ revenues from licensing our game content and intellectual properties to third parties . our focus we continue to operate in a challenging economic environment and the combination of economic uncertainty , lower demand for replacement products and reduced opportunities from new or expanded casinos has negatively impacted our industry . we expect to benefit from certain new and expansion projects currently in process , but the breadth and timing of such opportunities remains uncertain due to the difficult credit environment facing our customers and the risk of continued economic uncertainty . story_separator_special_tag in may 2008 , we received approval from gaming laboratories international , inc. ( ยgliย ) on the first-point release of our wage-net networked gaming system , incorporating gsa communication standards and basic networked gaming functionality , which as part of a technical beta test was placed at a popular tribal casino . an updated version of wage-net was further enhanced and is gsa compliant , demonstrating our total commitment to support open architecture and standards-based protocols that our casino customers want and should expect . this version is currently on a field trial at two casinos in las vegas and at a popular casino in canada . we further refined wage-net with additional features and functionality in the commercial launch point release of the software and this version has been submitted to the nevada gaming regulators and gli . we have continued to enhance our wage-net capabilities and in may 2010 received approval from gli of our first value-added application to run over wage-net : ultra hit progressive ยฎ ยjackpot explosion ยฎ . this is the first in a series of networked gaming applications that leverage wms ' unique portal technology . jackpot explosion is the first theme within the ultra hit progressive networked gaming application family . before the commercial launch of this version of wage-net and jackpot explosion , we are conducting self imposed beta tests in nine casinos beginning summer 2010 and expect the commercial product launch to occur in the december 2010 quarter . other key fiscal 2010 activities common stock repurchase program see note 10 . ยstockholders ' equityยcommon stock repurchase programย and note 18 . ยsubsequent eventsย to our consolidated financial statements . critical accounting estimates our consolidated financial statements were prepared in conformity with accounting principles generally accepted in the united states . accordingly , we are required to make estimates incorporating judgments and assumptions we believe are reasonable based on our experience , contract terms , trends in our company and the industry as a whole , as well as information available from other outside sources . our estimates affect amounts recorded in our consolidated financial statements and actual results may differ from initial estimates . our accounting policies , including those involving critical accounting estimates , are more fully described in note 2 . ยprincipal accounting policiesย in our consolidated financial statements . we consider the following accounting estimates to be the most critical to fully understand and evaluate our reported financial results . they require us to make subjective or complex judgments about matters that are inherently uncertain or variable . senior management discussed the development , selection and disclosure of the following accounting estimates , considered most sensitive to changes from external factors , with the audit and ethics committee of our board of directors . 35 revenue recognition we evaluate the recognition of revenue based on the criteria set forth in the following accounting guidance : financial accounting standards board ( ยfasbย ) topic 605 , ย revenue recognition ย ( ยtopic 605ย ) , or fasb topic 985 , ย software ย ( ยtopic 985ย ) . recent updates to topics 605 and 985 in october 2009 , the fasb issued accounting standards update ( ยasuย ) no . 2009-13 , ยmultiple-deliverable revenue arrangementsย ( ยasu no . 2009-13ย ) and asu no . 2009-14 ยcertain revenue arrangements that include software elementsย ( ยasu no . 2009-14ย ) . as permitted under these asu 's , we early adopted both of these asu 's on a prospective basis effective july 1 , 2009 , the beginning of our 2010 fiscal year . accordingly , this guidance is being applied to all new or materially modified revenue arrangements entered into since july 1 , 2009. while the adoption of these two asu 's changed our revenue recognition policies beginning in fiscal 2010 , the impact on our consolidated financial statements was not significant to either the year ended june 30 , 2010 or , had these asu 's been applied retroactively , to the fiscal years ended june 30 , 2009 or 2008 , as we had vendor specific objective evidence ( ยvsoeย ) for all elements of our multiple deliverable arrangements and we had not deferred any hardware revenues because an entire customer arrangement had been accounted for as software . these new revenue recognition standards will have more impact on our revenue recognition when we launch our networked gaming system and related software applications in fiscal 2011. asu no . 2009-13 replaces and significantly changes the existing separation criteria for multiple-deliverable revenue arrangements , by eliminating the criteria for objective and reliable evidence of fair value for each deliverable . asu no 2009-13 also eliminates the use of the residual method of allocation of consideration among deliverables and requires , instead , that arrangement consideration be allocated , at the inception of the arrangement , to all deliverables based on their relative selling price ( the ยrelative selling price methodย ) . when applying the relative selling price method , a hierarchy is used for estimating the selling price based first on vsoe , then third-party evidence ( ยtpeย ) and finally management 's estimate of the selling price ( ยespย ) . in fiscal 2010 , we used vsoe to value all elements in our multiple deliverable arrangements and did not use either tpe or esp . prior to july 1 , 2009 , when multiple product deliverables were included under a sales arrangement , we allocated revenue to each unit of accounting based upon its respective fair value against the total contract value and deferred revenue recognition on those deliverables where we did not meet all of the requirements of revenue recognition . we allocated revenue to each unit of accounting , which typically consisted of gaming machines and additional game themes the customer can receive in the future , based on fair value as determined by vsoe . vsoe of fair value
| cash flows summary cash flows from operating , investing and financing activities , as reflected in our consolidated statements of cash flows , are summarized in the following table ( in millions ) : replace_table_token_11_th operating activities : the $ 48.9 million decrease in cash provided by operating activities in fiscal 2010 compared to the prior year resulted from the factors listed below : รธ a positive impact from the $ 20.7 million increase in net income , combined with a $ 3.5 million increase in amortization of intangible and other assets and a $ 2.3 million increase in share-based compensation , partially offset by a $ 1.2 million decrease in depreciation and a $ 13.2 million decrease in deferred income taxes ; more than offset by รธ an $ 18.0 million negative impact from lower other non-cash items . our bad debt expense was lower by $ 4.0 million in fiscal 2010 as we had more favorable collection experience , fewer customers filing for protection from bankruptcy and the economy was generally better than in fiscal 2009. we incurred $ 9.5 million lower excess and obsolete inventory charges in fiscal 2010 than in fiscal 2009 as in fiscal 2009 we prepared for customers transitioning to our new bluebird2 gaming cabinet partially offset by higher other non-cash items of $ 0.1 million .
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โ on april 4 , 2016 , the company acquired 100 % of menber 's for $ 19.2 million , net of cash acquired and after settlement of a working capital adjustment . located in legnago , italy , menber 's specializes in the design , manufacturing , and selling of manual and electrical battery switches and trailer connectors for commercial vehicles . the acquisition expands the company 's commercial vehicle platform globally . โ on march 25 , 2016 , the company acquired polyswitch , the circuit protection business of te connectivity ltd. , for $ 348.3 million , net of cash acquired and after settlement of certain post-closing adjustments . polyswitch has operations in fremont , california and manufacturing facilities in shanghai and kunshan , china , and tsukuba , japan . the acquisition allows the company to strengthen its global circuit protection product portfolio , as well as strengthen its presence in the automotive electronics and battery end markets . the acquisition also significantly increases the company 's presence in japan . โ on october 1 , 2015 , the company acquired 100 % of sigmar . the total purchase price for sigmar was $ 6.5 million , net of cash acquired and including estimated additional net payments of up to $ 0.9 million , a portion of which is subject to the achievement of certain milestones . located in ozegna , italy , sigmar is a leading global manufacturer of water-in-fuel and scr quality sensors , as well as diesel fuel heaters , solenoid valves , and rotating oil filters for automotive and commercial vehicle applications . the acquisition further expands the company 's automotive sensor product line offerings . โ financing โ the company increased its already strong liquidity position during 2016. cash flow from operations was $ 180.1 million for 2016 , which was a 9 % increase compared to the prior year . in march 2016 , the company completed the refinancing of its credit facility , increasing capacity to $ 700 million with the potential for future increases of up to an additional $ 150 million and extending the maturity to march 2021. in december 2016 , the company completed a private placement of approximately $ 350 million of senior notes denominated in both u.s. dollars and euros , a portion of which was funded in december with the remaining funding occurring in february 2017. the senior notes range from five to twelve year maturities and have an average interest rate of approximately 2.25 % . โ asset impairment โ during 2016 , the potash mining industry experienced a continued decline in market pricing . due to this continuing decline in potash pricing , the custom products reporting unit recognized charges of $ 14.8 million to write down the reporting unit 's carrying value . the charges included a goodwill impairment loss of $ 8.8 million and intangible assets impairments aggregating $ 6.0 million , including a $ 3.8 million reduction of the custom products trade names to a $ 0.7 million remaining value and a $ 2.2 million reduction of the reporting unit 's customer relationships to zero value . โ outlook โ sales for the first quarter of 2017 are expected to be in the range of $ 277 to $ 287 million which represents 29 % revenue growth over the first quarter of 2016 , at the midpoint of the range . results of operations โ 2016 compared with 2015 the following table summarizes the company 's consolidated results of operations for periods presented . the fiscal year 2016 includes approximately $ 50 . 0 million of non-segment charges . these included $ 14.8 million of charges related to the impairment of the custom products reporting unit , $ 21.4 million of acquisition and integration costs associated with the company 's 2016 acquisitions , primarily polyswitch , $ 7.8 million of non-cash fair value step-up inventory charges relating to the company 's 2016 acquisitions , primarily polyswitch , as described in note 3 , acquisitions , of the notes to consolidated financial statements included in this annual report , $ 1.9 million in charges related to the closure of the company 's manufacturing facility in denmark , $ 1.6 million related to the company 's transfer of its reed sensor manufacturing operations from the u.s. and china to the philippines , and $ 2.5 million related to restructuring costs . 19 fiscal year 2015 includes approximately $ 45.2 million of other non-segment charges . these included $ 5.2 million related to the company 's transfer of its reed sensor manufacturing operations from the u.s. and china to the philippines , $ 3.6 million related to restructuring , $ 4.6 million related to acquisition costs and $ 31.9 million of expense related to the planned termination of the u.s. pension as described in note 10 , benefit plans , of the notes to consolidated financial statements included in this annual report . fiscal year 2016 also included approximately $ 0.5 million in foreign currency expenses primarily attributable to changes in the value of the euro , philippine peso and chinese renminbi against the u.s. dollar , while fiscal year 2015 also included $ 1.5 million in foreign currency gains primarily attributable to changes in the value of both the euro and philippine peso against the u.s. dollar . replace_table_token_5_th sales net sales for 2016 of $ 1,056.2 million increased $ 188.3 million , or 22 % , compared to the prior year , reflecting $ 170.2 million of incremental revenues from businesses acquired over the previous two years as well as organic growth in the electronics and automotive segments , partially offset by lower sales from the industrial segment due to weaker end markets . the company also experienced $ 7.3 million in unfavorable foreign currency effects in 2016 compared to 2015 primarily resulting from sales denominated in chinese renminbi . story_separator_special_tag million , or 7 % , in 2015 compared to 2014 primarily due to net unfavorable currency effects of $ 32.8 million primarily from sales denominated in the euro . excluding currency effects , european sales increased $ 21.5 million , or 13 % , reflecting strong demand across all segments . automotive sales decreased $ 6.9 million , or 7 % , in 2015 reflecting net unfavorable currency effects . excluding currency effects , automotive sales increased $ 14.2 million , or 13 % , reflecting strong demand for automotive sensor products . electronics sales decreased $ 3.7 million , or 7 % , reflecting the impact of net unfavorable currency effects . excluding currency effects , electronics sales increased $ 6.6 million , or 13 % , reflecting strong demand for semiconductor products . industrial sales decreased $ 0.7 million , or 10 % , in 2015 primarily from the impact of net unfavorable currency effects . excluding currency effects , industrial sales increased $ 0.7 million , or 10 % . 24 asia-pacific asia-pacific sales increased $ 3.6 million , or 1 % , in 2015 compared to 2014 primarily due to increased demand for automotive and industrial products offset by lower electronics sales . net unfavorable currency effects amounted to $ 2.5 million . excluding currency effects , asia-pacific sales increased $ 6.1 million , or 2 % . electronics sales decreased $ 4.1 million , or 2 % , reflecting weakness in the taiwan , japan , and korea markets . automotive sales increased $ 6.4 million , or 11 % , reflecting continued increased demand for passenger vehicles in china as well as gains in market share . industrial sales increased $ 1.4 million , or 19 % . liquidity and capital resources as of december 31 , 2016 , $ 266.7 million of the $ 275.1 million of the company 's cash and cash equivalents was held by foreign subsidiaries . of the $ 266.7 million held by foreign subsidiaries , at least $ 50 million can be repatriated with minimal tax consequences , considering both u.s. and foreign taxes . other than amounts which can be repatriated with minimal tax consequences , the company expects to maintain its foreign cash balances for local operating requirements , to provide funds for future capital expenditures and for potential acquisitions and does not expect to repatriate these funds to the u.s. the company has historically supported its liquidity needs through cash flows from operations . management expects that the company 's ( i ) current level of cash , cash equivalents , and marketable securities , ( ii ) current and forecasted cash flows from operations , ( iii ) availability under existing funding arrangements , and ( iv ) access to capital in the capital markets will provide sufficient funds to support the company 's operations , capital expenditures , investments , and debt obligations on both a short-term and long-term basis . revolving credit facility/term loan on march 4 , 2016 , the company entered into a new five-year credit agreement with a group of lenders for up to $ 700.0 million and terminated the company 's previous credit agreement . the new credit agreement consists of an unsecured revolving credit facility of $ 575.0 million and an unsecured term loan credit facility of up to $ 125.0 million . in addition , the company has the ability , from time to time , to increase the size of the revolving credit facility and the term loan facility by up to an additional $ 150.0 million , in the aggregate , in each case in minimum increments of $ 25.0 million , subject to certain conditions and the agreement of participating lenders . for the term loan credit facility , the company is required to make quarterly principal payments of $ 1.6 million through march 31 , 2018 and $ 3.1 million from june 30 , 2018 through december 31 , 2020 with the remaining balance due on march 4 , 2021. outstanding borrowings under the credit agreement bear interest , at the company 's option , at either libor , fixed for interest periods of one , two , three or six month periods , plus 1.00 % to 2.00 % , or at the bank 's base rate , as defined , plus 0.00 % to 1.00 % , based upon the company 's consolidated leverage ratio , as defined . the company is also required to pay commitment fees on unused portions of the credit agreement ranging from 0.15 % to 0.30 % , based on the consolidated leverage ratio , as defined . the effective interest rate on outstanding borrowings under the credit facility was 2.27 % at december 31 , 2016. as of december 31 , 2016 , the company had $ 0.1 million outstanding in letters of credit and had available $ 462.4 million of borrowing capacity under the revolving credit facility . further information regarding the company 's credit agreement is provided in note 8 , debt , of the notes to consolidated financial statements included in this annual report . senior notes on december 8 , 2016 , the company entered into a note purchase agreement , pursuant to which the company issued and sold 212 million aggregate principal amount of senior notes in two series . the funding date for the euro denominated senior notes occurred on december 8 , 2016 for 117 million in aggregate amount of 1.14 % senior notes , series a , due december 8 , 2023 , and 95 million in aggregate amount of 1.83 % senior notes , series b due december 8 , 2028 ( together , the โ euro senior notes โ ) . interest on the euro senior notes is payable semiannually on june 8 and december 8 , commencing june 8 , 2017. on december 8 , 2016 , the company entered into a
| cash flows summary cash flows from operating , investing and financing activities , as reflected in our consolidated statements of cash flows , are summarized in the following table ( in millions ) : replace_table_token_11_th operating activities : the $ 48.9 million decrease in cash provided by operating activities in fiscal 2010 compared to the prior year resulted from the factors listed below : รธ a positive impact from the $ 20.7 million increase in net income , combined with a $ 3.5 million increase in amortization of intangible and other assets and a $ 2.3 million increase in share-based compensation , partially offset by a $ 1.2 million decrease in depreciation and a $ 13.2 million decrease in deferred income taxes ; more than offset by รธ an $ 18.0 million negative impact from lower other non-cash items . our bad debt expense was lower by $ 4.0 million in fiscal 2010 as we had more favorable collection experience , fewer customers filing for protection from bankruptcy and the economy was generally better than in fiscal 2009. we incurred $ 9.5 million lower excess and obsolete inventory charges in fiscal 2010 than in fiscal 2009 as in fiscal 2009 we prepared for customers transitioning to our new bluebird2 gaming cabinet partially offset by higher other non-cash items of $ 0.1 million .
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โ on april 4 , 2016 , the company acquired 100 % of menber 's for $ 19.2 million , net of cash acquired and after settlement of a working capital adjustment . located in legnago , italy , menber 's specializes in the design , manufacturing , and selling of manual and electrical battery switches and trailer connectors for commercial vehicles . the acquisition expands the company 's commercial vehicle platform globally . โ on march 25 , 2016 , the company acquired polyswitch , the circuit protection business of te connectivity ltd. , for $ 348.3 million , net of cash acquired and after settlement of certain post-closing adjustments . polyswitch has operations in fremont , california and manufacturing facilities in shanghai and kunshan , china , and tsukuba , japan . the acquisition allows the company to strengthen its global circuit protection product portfolio , as well as strengthen its presence in the automotive electronics and battery end markets . the acquisition also significantly increases the company 's presence in japan . โ on october 1 , 2015 , the company acquired 100 % of sigmar . the total purchase price for sigmar was $ 6.5 million , net of cash acquired and including estimated additional net payments of up to $ 0.9 million , a portion of which is subject to the achievement of certain milestones . located in ozegna , italy , sigmar is a leading global manufacturer of water-in-fuel and scr quality sensors , as well as diesel fuel heaters , solenoid valves , and rotating oil filters for automotive and commercial vehicle applications . the acquisition further expands the company 's automotive sensor product line offerings . โ financing โ the company increased its already strong liquidity position during 2016. cash flow from operations was $ 180.1 million for 2016 , which was a 9 % increase compared to the prior year . in march 2016 , the company completed the refinancing of its credit facility , increasing capacity to $ 700 million with the potential for future increases of up to an additional $ 150 million and extending the maturity to march 2021. in december 2016 , the company completed a private placement of approximately $ 350 million of senior notes denominated in both u.s. dollars and euros , a portion of which was funded in december with the remaining funding occurring in february 2017. the senior notes range from five to twelve year maturities and have an average interest rate of approximately 2.25 % . โ asset impairment โ during 2016 , the potash mining industry experienced a continued decline in market pricing . due to this continuing decline in potash pricing , the custom products reporting unit recognized charges of $ 14.8 million to write down the reporting unit 's carrying value . the charges included a goodwill impairment loss of $ 8.8 million and intangible assets impairments aggregating $ 6.0 million , including a $ 3.8 million reduction of the custom products trade names to a $ 0.7 million remaining value and a $ 2.2 million reduction of the reporting unit 's customer relationships to zero value . โ outlook โ sales for the first quarter of 2017 are expected to be in the range of $ 277 to $ 287 million which represents 29 % revenue growth over the first quarter of 2016 , at the midpoint of the range . results of operations โ 2016 compared with 2015 the following table summarizes the company 's consolidated results of operations for periods presented . the fiscal year 2016 includes approximately $ 50 . 0 million of non-segment charges . these included $ 14.8 million of charges related to the impairment of the custom products reporting unit , $ 21.4 million of acquisition and integration costs associated with the company 's 2016 acquisitions , primarily polyswitch , $ 7.8 million of non-cash fair value step-up inventory charges relating to the company 's 2016 acquisitions , primarily polyswitch , as described in note 3 , acquisitions , of the notes to consolidated financial statements included in this annual report , $ 1.9 million in charges related to the closure of the company 's manufacturing facility in denmark , $ 1.6 million related to the company 's transfer of its reed sensor manufacturing operations from the u.s. and china to the philippines , and $ 2.5 million related to restructuring costs . 19 fiscal year 2015 includes approximately $ 45.2 million of other non-segment charges . these included $ 5.2 million related to the company 's transfer of its reed sensor manufacturing operations from the u.s. and china to the philippines , $ 3.6 million related to restructuring , $ 4.6 million related to acquisition costs and $ 31.9 million of expense related to the planned termination of the u.s. pension as described in note 10 , benefit plans , of the notes to consolidated financial statements included in this annual report . fiscal year 2016 also included approximately $ 0.5 million in foreign currency expenses primarily attributable to changes in the value of the euro , philippine peso and chinese renminbi against the u.s. dollar , while fiscal year 2015 also included $ 1.5 million in foreign currency gains primarily attributable to changes in the value of both the euro and philippine peso against the u.s. dollar . replace_table_token_5_th sales net sales for 2016 of $ 1,056.2 million increased $ 188.3 million , or 22 % , compared to the prior year , reflecting $ 170.2 million of incremental revenues from businesses acquired over the previous two years as well as organic growth in the electronics and automotive segments , partially offset by lower sales from the industrial segment due to weaker end markets . the company also experienced $ 7.3 million in unfavorable foreign currency effects in 2016 compared to 2015 primarily resulting from sales denominated in chinese renminbi . story_separator_special_tag million , or 7 % , in 2015 compared to 2014 primarily due to net unfavorable currency effects of $ 32.8 million primarily from sales denominated in the euro . excluding currency effects , european sales increased $ 21.5 million , or 13 % , reflecting strong demand across all segments . automotive sales decreased $ 6.9 million , or 7 % , in 2015 reflecting net unfavorable currency effects . excluding currency effects , automotive sales increased $ 14.2 million , or 13 % , reflecting strong demand for automotive sensor products . electronics sales decreased $ 3.7 million , or 7 % , reflecting the impact of net unfavorable currency effects . excluding currency effects , electronics sales increased $ 6.6 million , or 13 % , reflecting strong demand for semiconductor products . industrial sales decreased $ 0.7 million , or 10 % , in 2015 primarily from the impact of net unfavorable currency effects . excluding currency effects , industrial sales increased $ 0.7 million , or 10 % . 24 asia-pacific asia-pacific sales increased $ 3.6 million , or 1 % , in 2015 compared to 2014 primarily due to increased demand for automotive and industrial products offset by lower electronics sales . net unfavorable currency effects amounted to $ 2.5 million . excluding currency effects , asia-pacific sales increased $ 6.1 million , or 2 % . electronics sales decreased $ 4.1 million , or 2 % , reflecting weakness in the taiwan , japan , and korea markets . automotive sales increased $ 6.4 million , or 11 % , reflecting continued increased demand for passenger vehicles in china as well as gains in market share . industrial sales increased $ 1.4 million , or 19 % . liquidity and capital resources as of december 31 , 2016 , $ 266.7 million of the $ 275.1 million of the company 's cash and cash equivalents was held by foreign subsidiaries . of the $ 266.7 million held by foreign subsidiaries , at least $ 50 million can be repatriated with minimal tax consequences , considering both u.s. and foreign taxes . other than amounts which can be repatriated with minimal tax consequences , the company expects to maintain its foreign cash balances for local operating requirements , to provide funds for future capital expenditures and for potential acquisitions and does not expect to repatriate these funds to the u.s. the company has historically supported its liquidity needs through cash flows from operations . management expects that the company 's ( i ) current level of cash , cash equivalents , and marketable securities , ( ii ) current and forecasted cash flows from operations , ( iii ) availability under existing funding arrangements , and ( iv ) access to capital in the capital markets will provide sufficient funds to support the company 's operations , capital expenditures , investments , and debt obligations on both a short-term and long-term basis . revolving credit facility/term loan on march 4 , 2016 , the company entered into a new five-year credit agreement with a group of lenders for up to $ 700.0 million and terminated the company 's previous credit agreement . the new credit agreement consists of an unsecured revolving credit facility of $ 575.0 million and an unsecured term loan credit facility of up to $ 125.0 million . in addition , the company has the ability , from time to time , to increase the size of the revolving credit facility and the term loan facility by up to an additional $ 150.0 million , in the aggregate , in each case in minimum increments of $ 25.0 million , subject to certain conditions and the agreement of participating lenders . for the term loan credit facility , the company is required to make quarterly principal payments of $ 1.6 million through march 31 , 2018 and $ 3.1 million from june 30 , 2018 through december 31 , 2020 with the remaining balance due on march 4 , 2021. outstanding borrowings under the credit agreement bear interest , at the company 's option , at either libor , fixed for interest periods of one , two , three or six month periods , plus 1.00 % to 2.00 % , or at the bank 's base rate , as defined , plus 0.00 % to 1.00 % , based upon the company 's consolidated leverage ratio , as defined . the company is also required to pay commitment fees on unused portions of the credit agreement ranging from 0.15 % to 0.30 % , based on the consolidated leverage ratio , as defined . the effective interest rate on outstanding borrowings under the credit facility was 2.27 % at december 31 , 2016. as of december 31 , 2016 , the company had $ 0.1 million outstanding in letters of credit and had available $ 462.4 million of borrowing capacity under the revolving credit facility . further information regarding the company 's credit agreement is provided in note 8 , debt , of the notes to consolidated financial statements included in this annual report . senior notes on december 8 , 2016 , the company entered into a note purchase agreement , pursuant to which the company issued and sold 212 million aggregate principal amount of senior notes in two series . the funding date for the euro denominated senior notes occurred on december 8 , 2016 for 117 million in aggregate amount of 1.14 % senior notes , series a , due december 8 , 2023 , and 95 million in aggregate amount of 1.83 % senior notes , series b due december 8 , 2028 ( together , the โ euro senior notes โ ) . interest on the euro senior notes is payable semiannually on june 8 and december 8 , commencing june 8 , 2017. on december 8 , 2016 , the company entered into a
| debt , of the notes to consolidated financial statements included in this annual report . 25 cash flow overview replace_table_token_11_th cash flow from operating activities net cash provided by operating activities increased $ 14.3 million in 2016 compared to 2015. cash provided by operating activities in 2016 included $ 104.5 million in net income , $ 83.0 million in non-cash adjustments ( primarily $ 53.1 million in depreciation and amortization ) and $ 7.4 million of unfavorable changes in operating assets and liabilities . changes in operating assets and liabilities ( including short-term and long-term items ) that negatively impacted cash flows in 2016 consisted of changes in accounts receivable ( $ 25.2 million ) , accrued taxes ( $ 18.1 million ) and prepaid expenses and other ( $ 0.3 million ) . the increase in accounts receivable reflects increased sales in 2016 compared to the prior year . positively impacting cash flows were changes in inventory ( $ 8.5 million ) , accrued expenses including post-retirement ( $ 2.3 million ) , accounts payable ( $ 19.2 million ) and accrued payroll and severance ( $ 6.1 million ) . cash flow from investing activities net cash used in investing activities increased $ 467.1 million in 2016 compared to 2015 primarily due to the acquisitions of polyswitch ( $ 344.5 million , net of cash acquired ) , the on portfolio business ( $ 104.0 million ) , and menber 's ( $ 19.2 million ) . cash flow from financing activities net cash provided by financing activities increased $ 351.9 million in 2016 compared to 2015. the increase was primarily due to an increase in net proceeds from debt of $ 314.8 million in 2016 compared to 2015. in march the company replaced its credit agreement with a new agreement and in december the company received proceeds from the issuance of senior notes . also contributing to the increase in comparative periods was the use of cash for the share repurchase in 2015 of $ 31.3 million . information regarding the company 's debt is provided in note 8 , debt , of the notes to consolidated financial statements included in this annual report .
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on an ongoing basis , our management evaluates its estimates , including those related to revenue recognition , long-lived assets , insurance and legal matters , share-based payments and income taxes . we base our estimates on historical experience and on various other assumptions that we believe are 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 those estimates . changes in our accounting policies and estimates could materially impact our results of operations and financial condition for any particular period . we believe that our most critical accounting policies and estimates are : revenue recognition . we earn revenues through our network of u.s. company-owned and franchised stores , dough manufacturing and supply chain centers and international operations . retail sales from franchised stores are reported to us by our franchisees and are not included in our revenues . retail sales from company-owned stores and royalty revenues resulting from the retail sales from franchised stores are recognized as revenues when the items are delivered to or carried out by customers . retail sales are generally reported , and the related royalties paid to us based on a percentage of retail sales , as specified in the related standard franchise agreement ( generally 5.5 % of u.s. franchise retail sales and were on average , 2.9 % of international franchise retail sales in 2020 ) . u.s. and international franchise fee revenue primarily relates to per-transaction technology fees that are recognized as the related sales occur . we also generate revenues from u.s. franchise advertising contributions to dnaf , our consolidated not-for-profit advertising fund ( generally 6.0 % of u.s. franchise retail sales ) . although these revenues are restricted to be used only for advertising and promotional activities to benefit franchised stores , we have determined there are not performance obligations associated with the franchise advertising contributions received by dnaf that are separate from our u.s. royalty payment stream and as a result , these franchise contributions and the related expenses are presented gross in the consolidated statements of income . revenues from company-owned stores and revenues from franchised stores ( including u.s. franchise royalties and fees and u.s. franchise advertising revenues ) can fluctuate from time-to-time as a result of store count and sales level changes . sales of food from our supply chain centers are recognized as revenues upon delivery of the food to franchisees , while sales of equipment and supplies are generally recognized as revenues upon shipment of the related products to franchisees . long-lived assets . we record long-lived assets , including property , plant and equipment and capitalized software , at cost . for acquisitions of franchise operations , we estimate the fair values of the assets and liabilities acquired based on physical inspection of assets , historical experience and other information available to us regarding the acquisition . we depreciate and amortize long-lived assets using useful lives determined by us based on historical experience and other information available to us . we evaluate the potential impairment of long-lived assets at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable . our evaluation is based on various analyses , including the projection of undiscounted cash flows . for company-owned stores , we perform related impairment tests on an operating market basis , which we have determined to be the lowest level for which identifiable cash flows are largely independent of other cash flows . if the carrying amount of a long-lived asset exceeds the amount of the expected future undiscounted cash flows of that asset , we estimate the fair value of the asset . if the carrying amount of the asset exceeds the estimated fair value of the asset , an impairment loss is recognized , and the asset is written down to its estimated fair value . we have not made any significant changes in the methodology used to project the future market cash flows of company-owned stores during the years presented . same store sales fluctuations and the rates at which operating costs will fluctuate in the future are key factors in evaluating recoverability of the related assets . if our same store sales significantly decline or if operating costs increase and we are unable to recover these costs , the carrying value of our company-owned stores , by market , may be unrecoverable and we may be required to recognize an impairment charge . insurance and legal matters . we are a party to lawsuits and legal proceedings arising in the ordinary course of business . management closely monitors these legal matters and estimates the probable costs for the resolution of such matters . these estimates are primarily determined by consulting with both internal and external parties handling the matters and are based upon an analysis of potential results , assuming a combination of litigation and settlement strategies . legal judgments can be volatile and difficult to predict . accordingly , if our estimates relating to legal matters proved inaccurate for any reason , we may be required to increase or decrease the related expense in future periods . we had accruals for legal matters of approximately $ 1.3 million and $ 1.8 million at january 3 , 2021 december 29 , 2019 , respectively . 28 for certain periods prior to december 1998 and for periods after december 2001 , we maintain insurance coverage for workers ' compensation , general liability and owned and non-owned auto liabilities . we are generally responsible for up to $ 2.0 million per occurrence under these retention programs for workers ' compensation and general liability , depending on policy year and line of coverage . story_separator_special_tag labor costs increased 1.9 percentage points to 30.9 % in 2020 , due primarily to additional compensation expense for frontline team members during the covid-19 pandemic . these increases were partially offset by reduced labor costs as a percentage of store revenues resulting from the 2019 store sale due to the higher labor rates in the market in which the sold stores operated . 33 supply chain operating margin replace_table_token_11_th supply chain operating margin increased $ 38.5 million , or 16.4 % , in 2020 , primarily driven by higher volumes from increased orders , as well as an estimated $ 6.4 million impact of the 53 rd week . as a percentage of supply chain revenues , the supply chain operating margin increased 0.1 percentage points in 2020 , due primarily to lower delivery costs as a percentage of revenues as a result of leveraging of higher same store sales and lower fuel prices , partially offset by higher food costs . general and administrative expenses general and administrative expenses increased $ 24.3 million , or 6.4 % , in 2020 , driven primarily by higher variable performance-based compensation expense and professional fees , as well as an estimated $ 5.6 million impact of the 53 rd week . these increases were partially offset by lower travel expenses resulting from travel restrictions associated with the covid-19 pandemic . u.s. franchise advertising expenses u.s. franchise advertising expenses increased $ 71.4 million , or 18.3 % , in 2020 , due to higher u.s. franchise advertising revenue , including an estimated $ 10.4 million impact of the 53 rd week . u.s. franchise advertising costs are accrued and expensed when the related u.s. franchise advertising revenues are recognized , as our consolidated not-for-profit advertising fund is obligated to expend such revenues on advertising and these revenues can not be used for general corporate purposes . interest expense , net interest expense , net , increased $ 23.7 million , or 16.1 % , in 2020 driven primarily by higher average debt balances resulting from the 2019 recapitalization and borrowings under the company 's variable funding notes in 2020 , as well as an estimated $ 2.6 million impact of the 53 rd week . our weighted average borrowing rate decreased to 3.9 % in 2020 , from 4.1 % in 2019 , resulting from the lower interest rates on the debt outstanding in 2020 as compared to the same periods in 2019. provision for income taxes provision for income taxes decreased $ 18.1 million , or 22.1 % , in 2020 and the effective tax rate decreased to 11.5 % in 2020 as compared to 17.0 % in 2019 due primarily to higher excess tax benefits on equity-based compensation , which are recorded as a reduction to the income tax provision . excess tax benefits from equity-based compensation were $ 60.4 million in 2020 and were $ 25.7 million in 2019. the increase in excess tax benefits resulted from a significant increase in stock options exercised in 2020 as compared to 2019. the decrease in provision for income taxes was partially offset by higher pre-tax income and , to a lesser extent , an increase in the valuation allowance associated with foreign tax credits and interest deductibility in separately-filed states . we estimate the 53 rd week resulted in an increase of $ 4.0 million on the provision for income taxes . segment income we evaluate the performance of our reportable segments and allocate resources to them based on earnings before interest , taxes , depreciation , amortization and other , referred to as segment income . segment income for each of our reportable segments is summarized in the table below . other segment income primarily includes corporate administrative costs that are not allocable to an operating segment , including labor , computer expenses , professional fees , travel and entertainment , rent , insurance and other corporate administrative costs . replace_table_token_12_th 34 u.s. stores u.s. stores segment income increased $ 73.4 million , or 20.3 % , in 2020 , primarily as a result of the increase in revenues from u.s. franchise royalties and fees of $ 74.7 million discussed above . u.s. franchise revenues do not have a cost of sales component , so changes in these revenues have a disproportionate effect on u.s. stores segment income . u.s. franchise advertising costs are accrued and expensed when the related u.s. franchise advertising revenues are recognized and have no impact on u.s. stores segment income . the increase in u.s. stores segment income was partially offset by the $ 1.4 million decrease in u.s. company-owned store operating margin discussed above . supply chain supply chain segment income increased $ 38.6 million , or 19.3 % , in 2020 , due primarily to the $ 38.5 million increase in operating margin described above . international franchise international franchise segment income increased $ 10.3 million , or 5.5 % , in 2020 , due primarily to the $ 8.8 million increase in international franchise revenues discussed above . international franchise revenues do not have a cost of sales component , so changes in these revenues have a disproportionate effect on international franchise segment income . lower travel expenses , primarily due to travel restrictions resulting from the covid-19 pandemic , also contributed to the increase in international franchise segment income . other other segment income decreased $ 16.6 million , or 45.1 % , in 2020 , due primarily to higher variable performance-based compensation expense . the decrease in other segment income was partially offset by higher corporate administrative costs allocated to our segments as compared to 2019. the increase in allocated costs in 2020 was due primarily to higher investments in technological initiatives to support technology for our u.s. and international franchise stores . new accounting pronouncements the impact of new accounting pronouncements adopted and the estimated impact of new accounting pronouncements that we will adopt in future years is included
| debt , of the notes to consolidated financial statements included in this annual report . 25 cash flow overview replace_table_token_11_th cash flow from operating activities net cash provided by operating activities increased $ 14.3 million in 2016 compared to 2015. cash provided by operating activities in 2016 included $ 104.5 million in net income , $ 83.0 million in non-cash adjustments ( primarily $ 53.1 million in depreciation and amortization ) and $ 7.4 million of unfavorable changes in operating assets and liabilities . changes in operating assets and liabilities ( including short-term and long-term items ) that negatively impacted cash flows in 2016 consisted of changes in accounts receivable ( $ 25.2 million ) , accrued taxes ( $ 18.1 million ) and prepaid expenses and other ( $ 0.3 million ) . the increase in accounts receivable reflects increased sales in 2016 compared to the prior year . positively impacting cash flows were changes in inventory ( $ 8.5 million ) , accrued expenses including post-retirement ( $ 2.3 million ) , accounts payable ( $ 19.2 million ) and accrued payroll and severance ( $ 6.1 million ) . cash flow from investing activities net cash used in investing activities increased $ 467.1 million in 2016 compared to 2015 primarily due to the acquisitions of polyswitch ( $ 344.5 million , net of cash acquired ) , the on portfolio business ( $ 104.0 million ) , and menber 's ( $ 19.2 million ) . cash flow from financing activities net cash provided by financing activities increased $ 351.9 million in 2016 compared to 2015. the increase was primarily due to an increase in net proceeds from debt of $ 314.8 million in 2016 compared to 2015. in march the company replaced its credit agreement with a new agreement and in december the company received proceeds from the issuance of senior notes . also contributing to the increase in comparative periods was the use of cash for the share repurchase in 2015 of $ 31.3 million . information regarding the company 's debt is provided in note 8 , debt , of the notes to consolidated financial statements included in this annual report .
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on an ongoing basis , our management evaluates its estimates , including those related to revenue recognition , long-lived assets , insurance and legal matters , share-based payments and income taxes . we base our estimates on historical experience and on various other assumptions that we believe are 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 those estimates . changes in our accounting policies and estimates could materially impact our results of operations and financial condition for any particular period . we believe that our most critical accounting policies and estimates are : revenue recognition . we earn revenues through our network of u.s. company-owned and franchised stores , dough manufacturing and supply chain centers and international operations . retail sales from franchised stores are reported to us by our franchisees and are not included in our revenues . retail sales from company-owned stores and royalty revenues resulting from the retail sales from franchised stores are recognized as revenues when the items are delivered to or carried out by customers . retail sales are generally reported , and the related royalties paid to us based on a percentage of retail sales , as specified in the related standard franchise agreement ( generally 5.5 % of u.s. franchise retail sales and were on average , 2.9 % of international franchise retail sales in 2020 ) . u.s. and international franchise fee revenue primarily relates to per-transaction technology fees that are recognized as the related sales occur . we also generate revenues from u.s. franchise advertising contributions to dnaf , our consolidated not-for-profit advertising fund ( generally 6.0 % of u.s. franchise retail sales ) . although these revenues are restricted to be used only for advertising and promotional activities to benefit franchised stores , we have determined there are not performance obligations associated with the franchise advertising contributions received by dnaf that are separate from our u.s. royalty payment stream and as a result , these franchise contributions and the related expenses are presented gross in the consolidated statements of income . revenues from company-owned stores and revenues from franchised stores ( including u.s. franchise royalties and fees and u.s. franchise advertising revenues ) can fluctuate from time-to-time as a result of store count and sales level changes . sales of food from our supply chain centers are recognized as revenues upon delivery of the food to franchisees , while sales of equipment and supplies are generally recognized as revenues upon shipment of the related products to franchisees . long-lived assets . we record long-lived assets , including property , plant and equipment and capitalized software , at cost . for acquisitions of franchise operations , we estimate the fair values of the assets and liabilities acquired based on physical inspection of assets , historical experience and other information available to us regarding the acquisition . we depreciate and amortize long-lived assets using useful lives determined by us based on historical experience and other information available to us . we evaluate the potential impairment of long-lived assets at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable . our evaluation is based on various analyses , including the projection of undiscounted cash flows . for company-owned stores , we perform related impairment tests on an operating market basis , which we have determined to be the lowest level for which identifiable cash flows are largely independent of other cash flows . if the carrying amount of a long-lived asset exceeds the amount of the expected future undiscounted cash flows of that asset , we estimate the fair value of the asset . if the carrying amount of the asset exceeds the estimated fair value of the asset , an impairment loss is recognized , and the asset is written down to its estimated fair value . we have not made any significant changes in the methodology used to project the future market cash flows of company-owned stores during the years presented . same store sales fluctuations and the rates at which operating costs will fluctuate in the future are key factors in evaluating recoverability of the related assets . if our same store sales significantly decline or if operating costs increase and we are unable to recover these costs , the carrying value of our company-owned stores , by market , may be unrecoverable and we may be required to recognize an impairment charge . insurance and legal matters . we are a party to lawsuits and legal proceedings arising in the ordinary course of business . management closely monitors these legal matters and estimates the probable costs for the resolution of such matters . these estimates are primarily determined by consulting with both internal and external parties handling the matters and are based upon an analysis of potential results , assuming a combination of litigation and settlement strategies . legal judgments can be volatile and difficult to predict . accordingly , if our estimates relating to legal matters proved inaccurate for any reason , we may be required to increase or decrease the related expense in future periods . we had accruals for legal matters of approximately $ 1.3 million and $ 1.8 million at january 3 , 2021 december 29 , 2019 , respectively . 28 for certain periods prior to december 1998 and for periods after december 2001 , we maintain insurance coverage for workers ' compensation , general liability and owned and non-owned auto liabilities . we are generally responsible for up to $ 2.0 million per occurrence under these retention programs for workers ' compensation and general liability , depending on policy year and line of coverage . story_separator_special_tag labor costs increased 1.9 percentage points to 30.9 % in 2020 , due primarily to additional compensation expense for frontline team members during the covid-19 pandemic . these increases were partially offset by reduced labor costs as a percentage of store revenues resulting from the 2019 store sale due to the higher labor rates in the market in which the sold stores operated . 33 supply chain operating margin replace_table_token_11_th supply chain operating margin increased $ 38.5 million , or 16.4 % , in 2020 , primarily driven by higher volumes from increased orders , as well as an estimated $ 6.4 million impact of the 53 rd week . as a percentage of supply chain revenues , the supply chain operating margin increased 0.1 percentage points in 2020 , due primarily to lower delivery costs as a percentage of revenues as a result of leveraging of higher same store sales and lower fuel prices , partially offset by higher food costs . general and administrative expenses general and administrative expenses increased $ 24.3 million , or 6.4 % , in 2020 , driven primarily by higher variable performance-based compensation expense and professional fees , as well as an estimated $ 5.6 million impact of the 53 rd week . these increases were partially offset by lower travel expenses resulting from travel restrictions associated with the covid-19 pandemic . u.s. franchise advertising expenses u.s. franchise advertising expenses increased $ 71.4 million , or 18.3 % , in 2020 , due to higher u.s. franchise advertising revenue , including an estimated $ 10.4 million impact of the 53 rd week . u.s. franchise advertising costs are accrued and expensed when the related u.s. franchise advertising revenues are recognized , as our consolidated not-for-profit advertising fund is obligated to expend such revenues on advertising and these revenues can not be used for general corporate purposes . interest expense , net interest expense , net , increased $ 23.7 million , or 16.1 % , in 2020 driven primarily by higher average debt balances resulting from the 2019 recapitalization and borrowings under the company 's variable funding notes in 2020 , as well as an estimated $ 2.6 million impact of the 53 rd week . our weighted average borrowing rate decreased to 3.9 % in 2020 , from 4.1 % in 2019 , resulting from the lower interest rates on the debt outstanding in 2020 as compared to the same periods in 2019. provision for income taxes provision for income taxes decreased $ 18.1 million , or 22.1 % , in 2020 and the effective tax rate decreased to 11.5 % in 2020 as compared to 17.0 % in 2019 due primarily to higher excess tax benefits on equity-based compensation , which are recorded as a reduction to the income tax provision . excess tax benefits from equity-based compensation were $ 60.4 million in 2020 and were $ 25.7 million in 2019. the increase in excess tax benefits resulted from a significant increase in stock options exercised in 2020 as compared to 2019. the decrease in provision for income taxes was partially offset by higher pre-tax income and , to a lesser extent , an increase in the valuation allowance associated with foreign tax credits and interest deductibility in separately-filed states . we estimate the 53 rd week resulted in an increase of $ 4.0 million on the provision for income taxes . segment income we evaluate the performance of our reportable segments and allocate resources to them based on earnings before interest , taxes , depreciation , amortization and other , referred to as segment income . segment income for each of our reportable segments is summarized in the table below . other segment income primarily includes corporate administrative costs that are not allocable to an operating segment , including labor , computer expenses , professional fees , travel and entertainment , rent , insurance and other corporate administrative costs . replace_table_token_12_th 34 u.s. stores u.s. stores segment income increased $ 73.4 million , or 20.3 % , in 2020 , primarily as a result of the increase in revenues from u.s. franchise royalties and fees of $ 74.7 million discussed above . u.s. franchise revenues do not have a cost of sales component , so changes in these revenues have a disproportionate effect on u.s. stores segment income . u.s. franchise advertising costs are accrued and expensed when the related u.s. franchise advertising revenues are recognized and have no impact on u.s. stores segment income . the increase in u.s. stores segment income was partially offset by the $ 1.4 million decrease in u.s. company-owned store operating margin discussed above . supply chain supply chain segment income increased $ 38.6 million , or 19.3 % , in 2020 , due primarily to the $ 38.5 million increase in operating margin described above . international franchise international franchise segment income increased $ 10.3 million , or 5.5 % , in 2020 , due primarily to the $ 8.8 million increase in international franchise revenues discussed above . international franchise revenues do not have a cost of sales component , so changes in these revenues have a disproportionate effect on international franchise segment income . lower travel expenses , primarily due to travel restrictions resulting from the covid-19 pandemic , also contributed to the increase in international franchise segment income . other other segment income decreased $ 16.6 million , or 45.1 % , in 2020 , due primarily to higher variable performance-based compensation expense . the decrease in other segment income was partially offset by higher corporate administrative costs allocated to our segments as compared to 2019. the increase in allocated costs in 2020 was due primarily to higher investments in technological initiatives to support technology for our u.s. and international franchise stores . new accounting pronouncements the impact of new accounting pronouncements adopted and the estimated impact of new accounting pronouncements that we will adopt in future years is included
| restricted cash as of january 3 , 2021 , we had approximately $ 177.1 million of restricted cash and cash equivalents held for future principal and interest payments and other working capital requirements of our asset-backed securitization structure , $ 39.6 million of restricted cash equivalents held in a three-month interest reserve as required by the related debt agreements and $ 0.8 million of other restricted cash for a total of $ 217.5 million of restricted cash and cash equivalents . as of january 3 , 2021 , we also held $ 115.9 million of advertising fund restricted cash and cash equivalents , which can only be used for activities that promote the domino 's brand . long-term debt 2019 recapitalization on november 19 , 2019 , we completed the 2019 recapitalization in which certain of our subsidiaries issued $ 675.0 million series 2019-1 3.668 % fixed rate senior secured notes , class a-2 with an anticipated term of 10 years ( the โ 2019 fixed rate notes โ ) pursuant to an asset-backed securitization . concurrently , we also issued the 2019 variable funding notes . our previous variable funding note facility was canceled . gross proceeds from the issuance of the 2019 fixed rate notes was $ 675.0 million . additional information related to the 2019 recapitalization transaction is included in note 4 to our consolidated financial statements . the proceeds from the 2019 recapitalization were used to pre-fund a portion of the principal and interest payable on the 2019 fixed rate notes , pay transaction fees and expenses and repurchase and retire shares of our common stock .
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the company 's goal is to deliver returns to shareholders by increasing higher-yielding assets ( in particular , commercial real estate and commercial business loans ) , increasing core deposit balances , managing problem assets , reducing expenses , hiring experienced employees with a commercial lending focus and exploring expansion opportunities . the company seeks to achieve these results by focusing on the following objectives : execution of our business plan . the company is focused on increasing its loan portfolio , especially higher yielding commercial and construction loans , and its core deposits by expanding its customer base throughout its primary market areas . by emphasizing total relationship banking , the company intends to deepen the relationships with its customers and increase individual customer profitability through cross-marketing programs , which allows the company to better identify lending opportunities and services for customers . to build its core deposit base , the company will continue to utilize additional product offerings , technology and a focus on customer service in working toward this goal . the company will also continue to seek to expand its franchise through the selective acquisition of individual branches , loan purchases and whole bank transactions that meet its investment and market objectives , such as the february 2017 mbank transaction . 48 maintaining strong asset quality . the company believes that strong asset quality is a key to long-term financial success . the company has actively managed delinquent loans and nonperforming assets by aggressively pursuing the collection of consumer debts , marketing saleable properties upon foreclosure or repossession , and through work-outs of classified assets and loan charge-offs . in the past several years , the company has applied more conservative and stringent underwriting practices to new loans , including , among other things , increasing the amount of required collateral or equity requirements , reducing loan-to-value ratios and increasing debt service coverage ratios resulting in improved credit metrics/asset quality . although the company intends to prudently increase the percentage of its assets consisting of higher-yielding commercial real estate , real estate construction and commercial business loans , which offer higher risk-adjusted returns , shorter maturities and more sensitivity to interest rate fluctuations , the company intends to manage credit exposure through the use of experienced bankers in these areas and a conservative approach to its lending . implementation of a profit improvement plan ( `` pip `` ) . the company 's pip committee is comprised of several members of management and the board of directors to undertake several initiatives to reduce non-interest expense and continue its on-going efforts to identify cost saving opportunities throughout all aspects of the company 's operations . the pip committee 's mission is not only to find additional cost saving opportunities but also to search for and implement revenue enhancements and additional areas for improvement . as a result , the company has improved its efficiency ratio over the last several years from 98.0 % at march 31 , 2014 to 61.4 % at march 31 , 2019. introduction of new products and services . the company continuously reviews new products and services to provide its customers more financial options . all new technology and services are generally reviewed for business development and cost saving purposes . the company continues to experience growth in customer use of its online banking services , where the bank provides a full array of traditional cash management products as well as online banking products including mobile banking , mobile deposit , bill pay , e-statements , and text banking . the products are tailored to meet the needs of small to medium size businesses and households in the markets we serve . the bank has implemented remote check capture at all of its branches and for selected customers of the bank . the company intends to selectively add other products to further diversify revenue sources and to capture more of each customer 's banking relationship by cross selling loan and deposit products and additional services , including services provided through the trust company to increase its fee income . assets under management by the trust company totaled $ 646.0 million and $ 484.3 million at march 31 , 2019 and march 31 , 2018 , respectively . the company offers a third-party identity theft product to its customers . the identity theft product assists our customers in monitoring their credit and includes an identity theft restoration service . attracting core deposits and other deposit products . the company offers personal checking , savings and money-market accounts , which generally are lower-cost sources of funds than certificates of deposit and are less likely to be withdrawn when interest rates fluctuate . to build its core deposit base , the company has sought to reduce its dependence on traditional higher cost deposits in favor of stable lower cost core deposits to fund loan growth and decrease its reliance on other wholesale funding sources , including fhlb and frb advances . the company believes that its continued focus on building customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit . in addition , the company intends to increase demand deposits by growing business banking relationships through expanded product lines tailored to meet its target business customers ' needs . the company maintains technology-based products to encourage the growth of lower cost deposits , such as personal financial management , business cash management , and business remote deposit products , that enable it to meet its customers ' cash management needs and compete effectively with banks of all sizes . core branch deposits decreased $ 71.1 million at march 31 , 2019 compared to march 31 , 2018 reflecting increased competition and pricing pressure for deposits over the last year . recruiting and retaining highly competent personnel with a focus on commercial lending . story_separator_special_tag interest and dividend income increased to $ 49.1 million for the fiscal year ended march 31 , 2019 from $ 45.0 million for the fiscal year ended march 31 , 2018 due primarily to increases in interest from loans receivable of $ 4.5 million . this increase was due to higher average balances for loans receivable as compared to the prior fiscal year . the average balance of net loans increased $ 54.9 million to $ 844.1 million for the fiscal year ended march 31 , 2019 from $ 789.2 million for the prior fiscal year . the average yield on net loans was 5.23 % for the fiscal year ended march 31 , 2019 compared to 5.03 % for the prior fiscal year . interest expense . interest expense for the fiscal year ended march 31 , 2019 totaled $ 2.8 million , a $ 466,000 or 19.8 % increase from $ 2.3 million for the fiscal year ended march 31 , 2018. the increase in interest expense was primarily the result of an increase in fhlb advances and an interest rate increase related to the company 's variable rate subordinated debentures , which repriced quarterly based on the three-month libor . the weighted average interest rate on other interest-bearing liabilities increased to 4.10 % for the fiscal year ended march 31 , 2019 compared to 3.85 % for the prior fiscal year . 52 interest expense on deposits decreased $ 212,000 due to the decrease in the average balance of interest-bearing deposits primarily as a result of the increased competition and pricing pressures in the company 's market area . the average balance of interest-bearing deposits decreased $ 39.7 million to $ 674.2 million for the fiscal year ended march 31 , 2019 compared to $ 714.0 million for the fiscal year ended march 31 , 2018. the weighted average interest rate on interest-bearing deposits was relatively unchanged , decreasing to 0.15 % for the fiscal year ended march 31 , 2019 from 0.17 % for the prior fiscal year . provision for loan losses . the provision for loan losses totaled $ 50,000 for the fiscal year ended march 31 , 2019 compared to no provision for the fiscal year ended march 31 , 2018. the increase in the provision for loan losses for the fiscal year 2019 was primarily due to the required provision related to the overall increase in the loan portfolio . the lack of a provision for loan losses for the fiscal year 2018 was based primarily upon net recoveries and the stabilization of real estate values in our market areas . in accordance with gaap , loans acquired from mbank were recorded at their estimated fair value , which resulted in a net discount to the loans ' contractual amounts , of which a portion reflects a discount for possible credit losses . credit discounts are included in the determination of fair value and as a result no allowance for loan losses is recorded for acquired loans at the acquisition date . the discount recorded on the acquired loans is not reflected in the allowance for loan losses or related allowance coverage ratios . however , we believe it should be considered when comparing certain financial ratios of the company calculated in periods after the mbank transaction , compared to the same financial ratios of the company in periods prior to the mbank transaction . for additional information , see note 1 and note 3 of the notes to the consolidated financial statements contained in item 8 of this form 10-k. at march 31 , 2019 , the company had an allowance for loan losses of $ 11.5 million , or 1.31 % of total loans , compared to $ 10.8 million , or 1.33 % at march 31 , 2018. net recoveries for the years ended march 31 , 2019 and 2018 were $ 641,000 and $ 238,000 , respectively . net recoveries to average net loans for the years ended march 31 , 2019 and 2018 were ( 0.08 ) % and ( 0.03 ) % , respectively . impaired loans are subjected to an impairment analysis to determine an appropriate reserve amount to be held against each loan . as of march 31 , 2019 , the company had identified $ 5.7 million of impaired loans . because the significant majority of the impaired loans are collateral dependent , nearly all of the specific allowances are calculated based on the estimated fair value of the collateral . of those impaired loans , $ 5.2 million have no specific valuation allowance as their estimated net collateral value is equal to or exceeds the carrying amount of the loan , which in some cases is the result of previous loan charge-offs . the remaining $ 416,000 have specific valuation allowances totaling $ 22,000. charge-offs on these impaired loans totaled $ 83,000 from their original loan balances . based on a comprehensive analysis , management deemed the allowance for loan losses adequate to cover probable losses inherent in the loan portfolio at march 31 , 2019. see note 6 of the notes to the consolidated financial statements in item 8 of this form 10-k for additional information regarding the allowance for loan losses . non-interest income . non-interest income increased $ 854,000 to $ 11.9 million for the year ended march 31 , 2019 from $ 11.0 million for fiscal year 2018. the increase in non-interest income was primarily due to the increase in fees and service charges and asset management fees of $ 920,000 and $ 343,000 , respectively . these increases were partially offset by a decrease in net gains on sales of loans held for sale of $ 324,000 for the year ended march 31 , 2019 compared to the same prior fiscal year reflecting the decline in loans originated for sale . non-interest expense . non-interest expense increased $ 81,000 to $ 35.7 million for the fiscal year
| restricted cash as of january 3 , 2021 , we had approximately $ 177.1 million of restricted cash and cash equivalents held for future principal and interest payments and other working capital requirements of our asset-backed securitization structure , $ 39.6 million of restricted cash equivalents held in a three-month interest reserve as required by the related debt agreements and $ 0.8 million of other restricted cash for a total of $ 217.5 million of restricted cash and cash equivalents . as of january 3 , 2021 , we also held $ 115.9 million of advertising fund restricted cash and cash equivalents , which can only be used for activities that promote the domino 's brand . long-term debt 2019 recapitalization on november 19 , 2019 , we completed the 2019 recapitalization in which certain of our subsidiaries issued $ 675.0 million series 2019-1 3.668 % fixed rate senior secured notes , class a-2 with an anticipated term of 10 years ( the โ 2019 fixed rate notes โ ) pursuant to an asset-backed securitization . concurrently , we also issued the 2019 variable funding notes . our previous variable funding note facility was canceled . gross proceeds from the issuance of the 2019 fixed rate notes was $ 675.0 million . additional information related to the 2019 recapitalization transaction is included in note 4 to our consolidated financial statements . the proceeds from the 2019 recapitalization were used to pre-fund a portion of the principal and interest payable on the 2019 fixed rate notes , pay transaction fees and expenses and repurchase and retire shares of our common stock .
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the company 's goal is to deliver returns to shareholders by increasing higher-yielding assets ( in particular , commercial real estate and commercial business loans ) , increasing core deposit balances , managing problem assets , reducing expenses , hiring experienced employees with a commercial lending focus and exploring expansion opportunities . the company seeks to achieve these results by focusing on the following objectives : execution of our business plan . the company is focused on increasing its loan portfolio , especially higher yielding commercial and construction loans , and its core deposits by expanding its customer base throughout its primary market areas . by emphasizing total relationship banking , the company intends to deepen the relationships with its customers and increase individual customer profitability through cross-marketing programs , which allows the company to better identify lending opportunities and services for customers . to build its core deposit base , the company will continue to utilize additional product offerings , technology and a focus on customer service in working toward this goal . the company will also continue to seek to expand its franchise through the selective acquisition of individual branches , loan purchases and whole bank transactions that meet its investment and market objectives , such as the february 2017 mbank transaction . 48 maintaining strong asset quality . the company believes that strong asset quality is a key to long-term financial success . the company has actively managed delinquent loans and nonperforming assets by aggressively pursuing the collection of consumer debts , marketing saleable properties upon foreclosure or repossession , and through work-outs of classified assets and loan charge-offs . in the past several years , the company has applied more conservative and stringent underwriting practices to new loans , including , among other things , increasing the amount of required collateral or equity requirements , reducing loan-to-value ratios and increasing debt service coverage ratios resulting in improved credit metrics/asset quality . although the company intends to prudently increase the percentage of its assets consisting of higher-yielding commercial real estate , real estate construction and commercial business loans , which offer higher risk-adjusted returns , shorter maturities and more sensitivity to interest rate fluctuations , the company intends to manage credit exposure through the use of experienced bankers in these areas and a conservative approach to its lending . implementation of a profit improvement plan ( `` pip `` ) . the company 's pip committee is comprised of several members of management and the board of directors to undertake several initiatives to reduce non-interest expense and continue its on-going efforts to identify cost saving opportunities throughout all aspects of the company 's operations . the pip committee 's mission is not only to find additional cost saving opportunities but also to search for and implement revenue enhancements and additional areas for improvement . as a result , the company has improved its efficiency ratio over the last several years from 98.0 % at march 31 , 2014 to 61.4 % at march 31 , 2019. introduction of new products and services . the company continuously reviews new products and services to provide its customers more financial options . all new technology and services are generally reviewed for business development and cost saving purposes . the company continues to experience growth in customer use of its online banking services , where the bank provides a full array of traditional cash management products as well as online banking products including mobile banking , mobile deposit , bill pay , e-statements , and text banking . the products are tailored to meet the needs of small to medium size businesses and households in the markets we serve . the bank has implemented remote check capture at all of its branches and for selected customers of the bank . the company intends to selectively add other products to further diversify revenue sources and to capture more of each customer 's banking relationship by cross selling loan and deposit products and additional services , including services provided through the trust company to increase its fee income . assets under management by the trust company totaled $ 646.0 million and $ 484.3 million at march 31 , 2019 and march 31 , 2018 , respectively . the company offers a third-party identity theft product to its customers . the identity theft product assists our customers in monitoring their credit and includes an identity theft restoration service . attracting core deposits and other deposit products . the company offers personal checking , savings and money-market accounts , which generally are lower-cost sources of funds than certificates of deposit and are less likely to be withdrawn when interest rates fluctuate . to build its core deposit base , the company has sought to reduce its dependence on traditional higher cost deposits in favor of stable lower cost core deposits to fund loan growth and decrease its reliance on other wholesale funding sources , including fhlb and frb advances . the company believes that its continued focus on building customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit . in addition , the company intends to increase demand deposits by growing business banking relationships through expanded product lines tailored to meet its target business customers ' needs . the company maintains technology-based products to encourage the growth of lower cost deposits , such as personal financial management , business cash management , and business remote deposit products , that enable it to meet its customers ' cash management needs and compete effectively with banks of all sizes . core branch deposits decreased $ 71.1 million at march 31 , 2019 compared to march 31 , 2018 reflecting increased competition and pricing pressure for deposits over the last year . recruiting and retaining highly competent personnel with a focus on commercial lending . story_separator_special_tag interest and dividend income increased to $ 49.1 million for the fiscal year ended march 31 , 2019 from $ 45.0 million for the fiscal year ended march 31 , 2018 due primarily to increases in interest from loans receivable of $ 4.5 million . this increase was due to higher average balances for loans receivable as compared to the prior fiscal year . the average balance of net loans increased $ 54.9 million to $ 844.1 million for the fiscal year ended march 31 , 2019 from $ 789.2 million for the prior fiscal year . the average yield on net loans was 5.23 % for the fiscal year ended march 31 , 2019 compared to 5.03 % for the prior fiscal year . interest expense . interest expense for the fiscal year ended march 31 , 2019 totaled $ 2.8 million , a $ 466,000 or 19.8 % increase from $ 2.3 million for the fiscal year ended march 31 , 2018. the increase in interest expense was primarily the result of an increase in fhlb advances and an interest rate increase related to the company 's variable rate subordinated debentures , which repriced quarterly based on the three-month libor . the weighted average interest rate on other interest-bearing liabilities increased to 4.10 % for the fiscal year ended march 31 , 2019 compared to 3.85 % for the prior fiscal year . 52 interest expense on deposits decreased $ 212,000 due to the decrease in the average balance of interest-bearing deposits primarily as a result of the increased competition and pricing pressures in the company 's market area . the average balance of interest-bearing deposits decreased $ 39.7 million to $ 674.2 million for the fiscal year ended march 31 , 2019 compared to $ 714.0 million for the fiscal year ended march 31 , 2018. the weighted average interest rate on interest-bearing deposits was relatively unchanged , decreasing to 0.15 % for the fiscal year ended march 31 , 2019 from 0.17 % for the prior fiscal year . provision for loan losses . the provision for loan losses totaled $ 50,000 for the fiscal year ended march 31 , 2019 compared to no provision for the fiscal year ended march 31 , 2018. the increase in the provision for loan losses for the fiscal year 2019 was primarily due to the required provision related to the overall increase in the loan portfolio . the lack of a provision for loan losses for the fiscal year 2018 was based primarily upon net recoveries and the stabilization of real estate values in our market areas . in accordance with gaap , loans acquired from mbank were recorded at their estimated fair value , which resulted in a net discount to the loans ' contractual amounts , of which a portion reflects a discount for possible credit losses . credit discounts are included in the determination of fair value and as a result no allowance for loan losses is recorded for acquired loans at the acquisition date . the discount recorded on the acquired loans is not reflected in the allowance for loan losses or related allowance coverage ratios . however , we believe it should be considered when comparing certain financial ratios of the company calculated in periods after the mbank transaction , compared to the same financial ratios of the company in periods prior to the mbank transaction . for additional information , see note 1 and note 3 of the notes to the consolidated financial statements contained in item 8 of this form 10-k. at march 31 , 2019 , the company had an allowance for loan losses of $ 11.5 million , or 1.31 % of total loans , compared to $ 10.8 million , or 1.33 % at march 31 , 2018. net recoveries for the years ended march 31 , 2019 and 2018 were $ 641,000 and $ 238,000 , respectively . net recoveries to average net loans for the years ended march 31 , 2019 and 2018 were ( 0.08 ) % and ( 0.03 ) % , respectively . impaired loans are subjected to an impairment analysis to determine an appropriate reserve amount to be held against each loan . as of march 31 , 2019 , the company had identified $ 5.7 million of impaired loans . because the significant majority of the impaired loans are collateral dependent , nearly all of the specific allowances are calculated based on the estimated fair value of the collateral . of those impaired loans , $ 5.2 million have no specific valuation allowance as their estimated net collateral value is equal to or exceeds the carrying amount of the loan , which in some cases is the result of previous loan charge-offs . the remaining $ 416,000 have specific valuation allowances totaling $ 22,000. charge-offs on these impaired loans totaled $ 83,000 from their original loan balances . based on a comprehensive analysis , management deemed the allowance for loan losses adequate to cover probable losses inherent in the loan portfolio at march 31 , 2019. see note 6 of the notes to the consolidated financial statements in item 8 of this form 10-k for additional information regarding the allowance for loan losses . non-interest income . non-interest income increased $ 854,000 to $ 11.9 million for the year ended march 31 , 2019 from $ 11.0 million for fiscal year 2018. the increase in non-interest income was primarily due to the increase in fees and service charges and asset management fees of $ 920,000 and $ 343,000 , respectively . these increases were partially offset by a decrease in net gains on sales of loans held for sale of $ 324,000 for the year ended march 31 , 2019 compared to the same prior fiscal year reflecting the decline in loans originated for sale . non-interest expense . non-interest expense increased $ 81,000 to $ 35.7 million for the fiscal year
| liquidity and capital resources liquidity is essential to our business . the objective of the bank 's liquidity management is to maintain ample cash flows to meet obligations for depositor withdrawals , to fund the borrowing needs of loan customers , and to fund ongoing operations . core relationship deposits are the primary source of the bank 's liquidity . as such , the bank focuses on deposit relationships with local consumer and business clients who maintain multiple accounts and services at the bank . liquidity management is both a short and long-term responsibility of the company 's management . the company adjusts its investments in liquid assets based upon management 's assessment of ( i ) expected loan demand , ( ii ) projected loan sales , ( iii ) expected deposit flows , ( iv ) yields available on interest-bearing deposits and ( v ) its asset/liability management program objectives . excess liquidity is invested generally in interest-bearing overnight deposits and other short-term government and agency obligations . if the company requires funds beyond its ability to generate them internally , it has additional diversified and reliable sources of funds with the fhlb , the frb and other wholesale facilities . these sources of funds may be used on a long or short-term basis to compensate for a reduction in other sources of funds or on a long-term basis to support lending activities . the company 's primary sources of funds are customer deposits , proceeds from principal and interest payments on loans , proceeds from the sale of loans , maturing securities , fhlb advances and frb borrowings . while maturities and scheduled amortization of loans and securities are a predictable source of funds , deposit flows and prepayment of mortgage loans and mortgage-backed securities are greatly influenced by general interest rates , economic conditions and competition . management believes that its focus on core relationship deposits coupled with access to borrowing through reliable counterparties provides reasonable and prudent assurance that ample liquidity is available . however , depositor or counterparty behavior could change in response to competition , economic or market situations or other unforeseen circumstances , which could have liquidity implications that may require different strategic or operational actions .
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since the company 's revenues are based on large discrete projects , the company 's operating results in any reporting period could be negatively impacted as a result of large variations in the level of overall market demand or delays in the timing of the specific project phases in both geographies and reporting periods . the analysis presented below and discussed in more detail throughout the md & a was organized to provide instructive information for understanding the company 's business . however , this md & a should be read in conjunction with the consolidated financial statements in item 8 of this report , including the notes thereto and the risk factors contained herein . 12 consolidated results of operation : replace_table_token_3_th 2017 compared to 2016 net sales : net sales were $ 105.2 million in 2017 , an increase of 6.5 % from $ 98.8 million in 2016 . higher revenues resulted primarily from increased sales to distributors in canada . cost of sales and gross profit : gross profit remained unchanged at $ 11.7 million in 2017 and 2016 . gross margin decreased to 11 % from 12 % of net sales in the prior year due to changes in the north american product mix and continued competitive pricing pressures in the united states and middle east . selling expenses : selling expenses decreased to $ 5.0 million from $ 5.7 million , an improvement of 11.9 % . as a percentage of net sales , selling expenses decreased to 4.8 % in 2017 from 5.8 % in the prior year . this improvement was due to management changes in the middle east and realignment of the north american sales organization . general and administrative expenses : general and administrative expenses were $ 16.2 million in 2017 compared to $ 17.6 million 2016 , an improvement of 7.8 % . following the departures of the president and vice president of the company 's middle east region in june 2017 and the related regional management transition , the company 's management became concerned that its corporate policies , procedures and internal controls within the region may not have been adhered to fully by the prior management team . as a result of these concerns , the company engaged outside third-party firms to complete an extensive review of regional management activities from early 2014. the total non-recurring costs for this review and the resulting policy improvement implementations for the year 2017 were approximately $ 1.2 million . the 2016 year-to-date expenses included one-time legal settlement expenses of $ 0.8 million , and changes in the senior executive positions of the company with related hiring and separation costs of $ 0.7 million . on a comparative basis , not including these one-time charges , general and administrative expenses were $ 15.0 million and $ 16.1 million , in 2017 and 2016 , respectively . this decrease of $ 1.1 million was primarily due to the relocation of the u.s. headquarters and realignment of administrative functions , all of which contributed to the overall improvement year over year . interest expense : interest expense increased to $ 0.8 million in 2017 from $ 0.7 million in 2016 due to higher borrowings and increased interest rates , both domestic and foreign , in 2017. operating results from continuing operations before income taxes : operating results from continuing operations before income taxes improved to a loss of $ 10.2 million in 2017 compared to a loss of $ 13.8 million in 2016 . the positive contributing factors were : increased coating volume from distributors in canada ; decreased selling , general and administrative expenses due to operational realignment . accounts receivable : in 2013 , the company started a project in the middle east as a sub-contractor , with billings in the aggregate amount of approximately $ 41.9 million . the company completed all of its deliverables in 2015 , and has collected approximately $ 36.5 million , with a remaining balance due in the amount of $ 5.4 million . included in this balance is an amount of $ 3.7 million , which pertains to retention clauses within the agreements of our customer ( contractor ) , and which become payable by the customer when this project is fully tested and commissioned . in the absence of a firm date for the final commissioning of the project , and due to the long-term nature of this receivable , $ 3.2 million of this retention amount was reclassed to a long-term receivable account . the company has been engaged in ongoing active efforts to collect the outstanding amount , and has recently received an updated acknowledgment of the outstanding balances and assurances of payment from the customer . as a result , the company did not reserve any allowance against this amount as of january 31 , 2018. however , if the company 's efforts to collect on this account are not successful in fiscal 2018 , then the company may be required to recognize an allowance for all , or substantially all , of any such then uncollected amounts in the future . income taxes : the company 's worldwide effective tax rates ( `` etr `` ) were 2.3 % and 4.4 % in 2017 and 2016 , respectively . the etr in 2017 has been significantly impacted by the company reporting a pre-tax loss for the year , a portion of which was generated by the subsidiary in the u.a.e . , which receives no tax benefit due to a zero tax rate in that country and due to the impact of the full valuation allowance maintained against domestic deferred tax assets . story_separator_special_tag the company remains in a net operating loss ( `` nol `` ) carryforward position . on december 22 , 2017 , the u.s. government enacted comprehensive federal tax legislation commonly referred to as the tax cuts and jobs act of 2017 ( `` tax act `` ) . the tax act contains significant changes to corporate taxation , including reduction of the corporate tax rate from 35 % to 21 % , additional limitations on the tax deductibility of interest , substantial changes to the taxation of foreign earnings , immediate deductions for certain new investments instead of deductions for depreciation expense over time , and modification or repeal of many business deductions and credits . the company has made reasonable estimates of the financial impact of the tax act on the company . however , the estimates are provisional and may change . 13 the tax act requires multinational companies to pay u.s. income taxes on accumulated earnings of its foreign subsidiaries not previously subject to u.s. income tax at a rate of 15.5 % to the extent of foreign cash and certain other net current assets and 8 % on the remaining earnings . after going through the steps of the deemed repatriation calculation , the aggregate deferred foreign income inclusion is estimated at $ 23.2 million . this income is fully offset by the use of nol carryforwards and the current year domestic loss , resulting in no regular tax on the income . for further information , see note 10 - income taxes , in the notes to consolidated financial statements . other the company has made a bid to provide insulation of pipes to the east africa crude oil pipeline ( `` eacop `` ) project . the eacop project is a 1450 km ( 900 mile ) long heavy crude oil pipeline from the lake albert basin in uganda to the tanga port in tanzania being developed by french oil company total e & p , china national offshore oil corporation ( cnooc ) and london-based tullow oil . the pipeline is 24 inches in diameter , and is electrically heat traced . once completed , it will be the longest insulated and heat traced pipeline in the world . there can be no assurance that the company will be successful in its bid for this project , and what the final terms of any such potential engagement will be until the bid is awarded . liquidity and capital resources story_separator_special_tag $ 2.4 million . in 2017 , the company obtained three capital leases for $ 1.1 million cad ( approximately $ 0.8 million usd at the prevailing exchange rates on the transaction dates ) to finance vehicle equipment . the interest rates for these capital leases were from 4.0 % to 7.8 % per annum with monthly principal and interest payments of less than $ 0.1 million . these leases mature from april 30 , 2021 to september 29 , 2022 . critical accounting estimates and policies the company 's significant accounting policies are discussed in the notes to consolidated financial statements included in item 8 of this annual report on form 10-k. the application of certain of these policies requires significant judgments or a historical based estimation process that can affect the results of operations and financial position of the company as well as the related footnote disclosures . the company bases its estimates on historical experience and other assumptions that it believes are reasonable . if actual amounts ultimately differ from previous estimates , the revisions are included in the company 's results of operations for the period in which the actual amounts become known . revenue recognition . the company recognizes revenues , including shipping and handling charges billed to customers , when all the following criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred or services have been rendered , ( iii ) the seller 's price to the buyer is fixed or determinable , and ( iv ) collectability is reasonably assured . all subsidiaries of the company , except as noted below , recognize revenues upon shipment or delivery of goods or services when title and risk of loss pass to customers . percentage of completion revenue recognition . all divisions recognize revenues under the above stated revenue recognition policy except for domestic complex contracts that require periodic recognition of income . for these contracts , the company uses the `` percentage of completion `` accounting method . under this approach , income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete . the choice of accounting method is made at the time the contract is received based on the expected length and complexity of the project . the percentage of completion is determined by the relationship of costs incurred to the total estimated costs of the contract . provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined . changes in job performance , job conditions , and estimated profitability , including those arising from contract penalty provisions and final contract settlements , may result in revisions to costs and income . such revisions are recognized in the period in which they are determined . claims for additional compensation 16 due to the company are recognized in contract revenues when realization is probable and the amount can be reliably estimated . inventories . inventories are stated at the lower of cost or market . cost is determined using the first-in , first-out method for all inventories . income taxes . deferred income taxes have been provided for temporary differences arising from differences in the basis of assets and liabilities for tax and financial reporting purposes . deferred income taxes on temporary differences have been recorded at the current tax rate . the company
| liquidity and capital resources liquidity is essential to our business . the objective of the bank 's liquidity management is to maintain ample cash flows to meet obligations for depositor withdrawals , to fund the borrowing needs of loan customers , and to fund ongoing operations . core relationship deposits are the primary source of the bank 's liquidity . as such , the bank focuses on deposit relationships with local consumer and business clients who maintain multiple accounts and services at the bank . liquidity management is both a short and long-term responsibility of the company 's management . the company adjusts its investments in liquid assets based upon management 's assessment of ( i ) expected loan demand , ( ii ) projected loan sales , ( iii ) expected deposit flows , ( iv ) yields available on interest-bearing deposits and ( v ) its asset/liability management program objectives . excess liquidity is invested generally in interest-bearing overnight deposits and other short-term government and agency obligations . if the company requires funds beyond its ability to generate them internally , it has additional diversified and reliable sources of funds with the fhlb , the frb and other wholesale facilities . these sources of funds may be used on a long or short-term basis to compensate for a reduction in other sources of funds or on a long-term basis to support lending activities . the company 's primary sources of funds are customer deposits , proceeds from principal and interest payments on loans , proceeds from the sale of loans , maturing securities , fhlb advances and frb borrowings . while maturities and scheduled amortization of loans and securities are a predictable source of funds , deposit flows and prepayment of mortgage loans and mortgage-backed securities are greatly influenced by general interest rates , economic conditions and competition . management believes that its focus on core relationship deposits coupled with access to borrowing through reliable counterparties provides reasonable and prudent assurance that ample liquidity is available . however , depositor or counterparty behavior could change in response to competition , economic or market situations or other unforeseen circumstances , which could have liquidity implications that may require different strategic or operational actions .
| 0 |
since the company 's revenues are based on large discrete projects , the company 's operating results in any reporting period could be negatively impacted as a result of large variations in the level of overall market demand or delays in the timing of the specific project phases in both geographies and reporting periods . the analysis presented below and discussed in more detail throughout the md & a was organized to provide instructive information for understanding the company 's business . however , this md & a should be read in conjunction with the consolidated financial statements in item 8 of this report , including the notes thereto and the risk factors contained herein . 12 consolidated results of operation : replace_table_token_3_th 2017 compared to 2016 net sales : net sales were $ 105.2 million in 2017 , an increase of 6.5 % from $ 98.8 million in 2016 . higher revenues resulted primarily from increased sales to distributors in canada . cost of sales and gross profit : gross profit remained unchanged at $ 11.7 million in 2017 and 2016 . gross margin decreased to 11 % from 12 % of net sales in the prior year due to changes in the north american product mix and continued competitive pricing pressures in the united states and middle east . selling expenses : selling expenses decreased to $ 5.0 million from $ 5.7 million , an improvement of 11.9 % . as a percentage of net sales , selling expenses decreased to 4.8 % in 2017 from 5.8 % in the prior year . this improvement was due to management changes in the middle east and realignment of the north american sales organization . general and administrative expenses : general and administrative expenses were $ 16.2 million in 2017 compared to $ 17.6 million 2016 , an improvement of 7.8 % . following the departures of the president and vice president of the company 's middle east region in june 2017 and the related regional management transition , the company 's management became concerned that its corporate policies , procedures and internal controls within the region may not have been adhered to fully by the prior management team . as a result of these concerns , the company engaged outside third-party firms to complete an extensive review of regional management activities from early 2014. the total non-recurring costs for this review and the resulting policy improvement implementations for the year 2017 were approximately $ 1.2 million . the 2016 year-to-date expenses included one-time legal settlement expenses of $ 0.8 million , and changes in the senior executive positions of the company with related hiring and separation costs of $ 0.7 million . on a comparative basis , not including these one-time charges , general and administrative expenses were $ 15.0 million and $ 16.1 million , in 2017 and 2016 , respectively . this decrease of $ 1.1 million was primarily due to the relocation of the u.s. headquarters and realignment of administrative functions , all of which contributed to the overall improvement year over year . interest expense : interest expense increased to $ 0.8 million in 2017 from $ 0.7 million in 2016 due to higher borrowings and increased interest rates , both domestic and foreign , in 2017. operating results from continuing operations before income taxes : operating results from continuing operations before income taxes improved to a loss of $ 10.2 million in 2017 compared to a loss of $ 13.8 million in 2016 . the positive contributing factors were : increased coating volume from distributors in canada ; decreased selling , general and administrative expenses due to operational realignment . accounts receivable : in 2013 , the company started a project in the middle east as a sub-contractor , with billings in the aggregate amount of approximately $ 41.9 million . the company completed all of its deliverables in 2015 , and has collected approximately $ 36.5 million , with a remaining balance due in the amount of $ 5.4 million . included in this balance is an amount of $ 3.7 million , which pertains to retention clauses within the agreements of our customer ( contractor ) , and which become payable by the customer when this project is fully tested and commissioned . in the absence of a firm date for the final commissioning of the project , and due to the long-term nature of this receivable , $ 3.2 million of this retention amount was reclassed to a long-term receivable account . the company has been engaged in ongoing active efforts to collect the outstanding amount , and has recently received an updated acknowledgment of the outstanding balances and assurances of payment from the customer . as a result , the company did not reserve any allowance against this amount as of january 31 , 2018. however , if the company 's efforts to collect on this account are not successful in fiscal 2018 , then the company may be required to recognize an allowance for all , or substantially all , of any such then uncollected amounts in the future . income taxes : the company 's worldwide effective tax rates ( `` etr `` ) were 2.3 % and 4.4 % in 2017 and 2016 , respectively . the etr in 2017 has been significantly impacted by the company reporting a pre-tax loss for the year , a portion of which was generated by the subsidiary in the u.a.e . , which receives no tax benefit due to a zero tax rate in that country and due to the impact of the full valuation allowance maintained against domestic deferred tax assets . story_separator_special_tag the company remains in a net operating loss ( `` nol `` ) carryforward position . on december 22 , 2017 , the u.s. government enacted comprehensive federal tax legislation commonly referred to as the tax cuts and jobs act of 2017 ( `` tax act `` ) . the tax act contains significant changes to corporate taxation , including reduction of the corporate tax rate from 35 % to 21 % , additional limitations on the tax deductibility of interest , substantial changes to the taxation of foreign earnings , immediate deductions for certain new investments instead of deductions for depreciation expense over time , and modification or repeal of many business deductions and credits . the company has made reasonable estimates of the financial impact of the tax act on the company . however , the estimates are provisional and may change . 13 the tax act requires multinational companies to pay u.s. income taxes on accumulated earnings of its foreign subsidiaries not previously subject to u.s. income tax at a rate of 15.5 % to the extent of foreign cash and certain other net current assets and 8 % on the remaining earnings . after going through the steps of the deemed repatriation calculation , the aggregate deferred foreign income inclusion is estimated at $ 23.2 million . this income is fully offset by the use of nol carryforwards and the current year domestic loss , resulting in no regular tax on the income . for further information , see note 10 - income taxes , in the notes to consolidated financial statements . other the company has made a bid to provide insulation of pipes to the east africa crude oil pipeline ( `` eacop `` ) project . the eacop project is a 1450 km ( 900 mile ) long heavy crude oil pipeline from the lake albert basin in uganda to the tanga port in tanzania being developed by french oil company total e & p , china national offshore oil corporation ( cnooc ) and london-based tullow oil . the pipeline is 24 inches in diameter , and is electrically heat traced . once completed , it will be the longest insulated and heat traced pipeline in the world . there can be no assurance that the company will be successful in its bid for this project , and what the final terms of any such potential engagement will be until the bid is awarded . liquidity and capital resources story_separator_special_tag $ 2.4 million . in 2017 , the company obtained three capital leases for $ 1.1 million cad ( approximately $ 0.8 million usd at the prevailing exchange rates on the transaction dates ) to finance vehicle equipment . the interest rates for these capital leases were from 4.0 % to 7.8 % per annum with monthly principal and interest payments of less than $ 0.1 million . these leases mature from april 30 , 2021 to september 29 , 2022 . critical accounting estimates and policies the company 's significant accounting policies are discussed in the notes to consolidated financial statements included in item 8 of this annual report on form 10-k. the application of certain of these policies requires significant judgments or a historical based estimation process that can affect the results of operations and financial position of the company as well as the related footnote disclosures . the company bases its estimates on historical experience and other assumptions that it believes are reasonable . if actual amounts ultimately differ from previous estimates , the revisions are included in the company 's results of operations for the period in which the actual amounts become known . revenue recognition . the company recognizes revenues , including shipping and handling charges billed to customers , when all the following criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred or services have been rendered , ( iii ) the seller 's price to the buyer is fixed or determinable , and ( iv ) collectability is reasonably assured . all subsidiaries of the company , except as noted below , recognize revenues upon shipment or delivery of goods or services when title and risk of loss pass to customers . percentage of completion revenue recognition . all divisions recognize revenues under the above stated revenue recognition policy except for domestic complex contracts that require periodic recognition of income . for these contracts , the company uses the `` percentage of completion `` accounting method . under this approach , income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete . the choice of accounting method is made at the time the contract is received based on the expected length and complexity of the project . the percentage of completion is determined by the relationship of costs incurred to the total estimated costs of the contract . provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined . changes in job performance , job conditions , and estimated profitability , including those arising from contract penalty provisions and final contract settlements , may result in revisions to costs and income . such revisions are recognized in the period in which they are determined . claims for additional compensation 16 due to the company are recognized in contract revenues when realization is probable and the amount can be reliably estimated . inventories . inventories are stated at the lower of cost or market . cost is determined using the first-in , first-out method for all inventories . income taxes . deferred income taxes have been provided for temporary differences arising from differences in the basis of assets and liabilities for tax and financial reporting purposes . deferred income taxes on temporary differences have been recorded at the current tax rate . the company
| cash and cash equivalents as of january 31 , 2018 were $ 7.1 million , compared to $ 7.6 million on january 31 , 2017 . on january 31 , 2018 , $ 0.7 million was held in the u.s. and $ 6.4 million was held in the foreign subsidiaries . the company 's working capital was $ 23.1 million on january 31 , 2018 compared to $ 29.8 million on january 31 , 2017 . of the working capital components , accounts receivable increased $ 1.7 million as a result of higher sales . accounts payable increased $ 3.2 million due to the corresponding increase in inventory , and customer deposits increased $ 2.6 million in the middle east related to new project business . cash used in operations in 2017 was $ 1.8 million compared to $ 5.5 million in 2016 , an improvement of $ 3.7 million . net cash used in investing activities during 2017 was $ 2.4 million , compared to net cash provided by investing activities during 2016 of $ 10.2 million . the company estimates that capital expenditures for 2018 may be between $ 3.0 million to $ 4.0 million , and the company may finance capital expenditures through real estate mortgages , term loans , equipment financing loans , internally generated funds and its revolving line of credit . the majority of such expenditures relates to diversification and expansion of business worldwide . debt totaled $ 15.8 million on january 31 , 2018 . net cash provided by financing activities in 2017 was $ 3.5 million , compared to net cash used in 2016 was $ 14.9 million . for additional information , see note 8 - debt , in the notes to consolidated financial statements . other long-term liabilities of $ 0.5 million were composed primarily of deferred rent . 14 the following table summarizes the company 's estimated contractual obligations on january 31 , 2018 . replace_table_token_4_th notes to contractual obligations table : ( 1 ) interest obligations exclude floating rate interest on debt payable under the north american revolving line of credit . based on the amount of such debt on january 31 , 2018 , and the weighted average interest rate of 4.65
| 1 |
we have successfully completed development activities associated with the scale up of manufacturing to supply our ongoing abaloparatide-patch phase 3 wearable study . we have also made significant progress scaling up for potential commercial batches , if our phase 3 trial is successful and abaloparatide-patch is approved . in october 2018 , we committed to fund 3m 's purchase of capital equipment totaling approximately $ 9.6 million in preparation for manufacturing phase 3 and potential commercial supplies of abaloparatide-patch . milestone payments for the equipment commenced in the fourth quarter of 2018 and are expected to be paid in full in the second quarter of 2021. in addition , there are cancellable purchase commitments in place to fund the facility build out and future purchases of capital equipment . the completion of the engineering equipment designs for critical equipment to produce the abaloparatide-patch at the commercial site is on target , and critical equipment has started to arrive and is being installed . in december 2019 , we aligned with the fda on requirements for an nda filing . in connection with our strategic plan to focus on bone health and targeted endocrine diseases , we are exploring all strategic options for our oncology programs , including elacestrant ( rad1901 ) and rad140 . our investigational product candidate , elacestrant ( rad1901 ) , a selective estrogen receptor degrader ( โ serd โ ) , is being developed for potential use in the treatment of hormone receptor-positive breast cancer . we initiated our phase 3 emerald study of elacestrant in late november 2018 and expect to complete enrollment in the third quarter of 2020. the phase 3 study is a single , randomized , open label , active-controlled phase 3 trial of elacestrant as a second or third-line monotherapy in approximately 460 patients with estrogen receptor-positive ( โ er+ โ ) and human epidermal growth factor receptor 2-negative ( โ her2- โ ) advanced or 60 metastatic breast cancer who have received prior treatment with one or two endocrine therapies , including a cyclin-dependent kinase ( โ cdk โ ) 4/6 inhibitor . patients in the study will be randomized to receive either elacestrant or the investigator 's choice of an approved hormonal agent . the primary endpoint of the study will be progression-free survival ( โ pfs โ ) , which we will analyze in the overall patient population and in patients with estrogen receptor 1 gene ( โ esr1 โ ) mutations . secondary endpoints will include evaluation of overall survival ( โ os โ ) , objective response rate ( โ orr โ ) , and duration of response ( โ dor โ ) . we believe that , depending on results , this single trial would support applications for marketing approvals for elacestrant as a second- and third-line monotherapy in the u.s. , european union ( โ eu โ ) , and other markets . in november 2018 , the fda granted fast track designation for elacestrant for the population to be included in the phase 3 study . we previously completed enrollment in our ongoing dose escalation part a , and dose expansion parts b and c , and in the 18f fluoroestradiol positron emission tomography ( โ fes-pet โ ) imaging phase 1 studies of elacestrant in advanced metastatic breast cancer . enrollment in part d of the phase 1 dose-escalation and expansion study was discontinued as the data was no longer required to support the final design of our phase 3 study . we do not plan to initiate any further clinical development of elacestrant beyond the ongoing emerald study . we developed our internally discovered investigational product candidate , rad140 , a non-steroidal selective androgen receptor modulator ( โ sarm โ ) , for potential use in the treatment of hormone-receptor positive breast cancer . in september 2017 , we initiated a phase 1 study of rad140 in patients with er+/ar+/her2- locally advanced or metastatic breast cancer . the clinical trial was designed to evaluate the safety and maximum tolerated dose ( โ mtd โ ) of rad140 in approximately 40 patients . primary safety endpoints from the trial included the incidence rate of dose-limiting toxicities , adverse events related to treatment , and tolerability as measured by dose interruptions or adjustments . in addition , pharmacokinetics , pharmacodynamics and tumor response were evaluated . in december 2019 , we presented the phase 1a data based on a data cut-off of october 31 , 2019. the data showed that a total of 22 patients with advanced/metastatic breast cancer had been treated at once daily oral doses ranging from 50mg to 150mg , and that the mtd was 100mg per day . the patients were heavily pre-treated , with a median of four prior lines of therapy for metastatic disease , including chemotherapy in all but two patients . as of february 11 , 2020 , one patient remained on treatment . evidence of clinical activity was seen with a partial response in one of nine recist evaluable patients and pharmacodynamic data consistent with androgen receptor ( โ ar โ ) modulatory activity was also seen . we do not plan to initiate any additional clinical studies of rad140 . abaloparatide in april 2017 , the fda approved tymlos ( abaloparatide-sc ) for the treatment of postmenopausal women with osteoporosis at high risk for fracture defined as history of osteoporotic fracture , multiple risk factors for fracture , or patients who have failed or are intolerant to other available osteoporosis therapy . we are developing two formulations of abaloparatide : abaloparatide-sc and abaloparatide-patch . abaloparatide-sc tymlos was approved in the united states in april 2017 for the treatment of postmenopausal women with osteoporosis at high risk for fracture . story_separator_special_tag in february 2020 , we terminated this collaboration . rad140 rad140 is an internally discovered sarm . the androgen receptor , or ar , is highly expressed in many er-positive , er-negative , and triple-negative receptor breast cancers . due to its receptor and tissue selectivity , potent activity , oral bioavailability , and long half-life , we believe rad140 could have clinical potential in the treatment of breast cancer . we hold worldwide commercialization rights to rad140 . in september 2017 , we initiated a phase 1 study of rad140 in patients with er+/ar+/her2- locally advanced or metastatic breast cancer . the clinical trial was designed to evaluate the safety and mtd of rad140 in approximately 40 patients . primary safety endpoints from the trial included the incidence rate of dose-limiting toxicities , adverse events related to treatment , and tolerability as measured by dose interruptions or adjustments . in addition , pharmacokinetics , pharmacodynamics and tumor response were also evaluated . in december 2019 , we presented the phase 1a data based on a data cut-off of october 31 , 2019. the data showed that a total of 22 patients with advanced/metastatic breast cancer had been treated at once daily oral doses ranging from 50mg to 150mg , and that the mtd was 100mg per day . the patients were heavily pre-treated , with a median of four prior lines of therapy for metastatic disease , including chemotherapy in all but two patients . as of february 11 , 2020 , one patient remained on treatment . evidence of clinical activity was seen with a partial response in one of nine recist 64 evaluable patients and pharmacodynamic data consistent with ar modulatory activity was also seen . we do not plan to initiate any additional clinical studies of rad140 . in july 2016 , we reported that rad140 in preclinical xenograft models of breast cancer demonstrated potent tumor growth inhibition when administered alone or in combinations with cdk 4/6 inhibitors . it is estimated that 77 % of breast cancers show expression of the androgen receptor . our data suggest that rad140 activity at the androgen receptor leads to activation of ar signaling pathways including an ar-specific tumor suppressor and suppression of er signaling . in april 2017 , we presented these rad140 preclinical results at a major scientific congress . in december 2018 , we presented a preclinical poster further demonstrating anti-tumor activity of rad140 in breast cancer models resistant to standard-of-care endocrine treatments . financial overview product revenue product revenue is derived from sales of our product , tymlos ยฎ , in the united states . cost of product revenue cost of product revenue consists primarily of costs associated with the manufacturing of tymlos , royalties owed to our licensor for such sales , and certain period costs . research and development expenses research and development expenses consist primarily of clinical testing costs , including payments made to contract research organizations , or cros , salaries and related personnel costs , fees paid to consultants and outside service providers for regulatory and quality assurance support , licensing of drug compounds and other expenses relating to the manufacture , development , testing , and enhancement of our investigational product candidates . we expense our research and development costs as they are incurred . none of the research and development expenses , in relation to our investigational product candidates , are currently borne by third parties . abaloparatide represents the largest portion of our research and development expenses for our investigational product candidates since our inception . we began tracking program expenses for abaloparatide-sc in 2005 , and program expenses from inception to december 31 , 2019 were approximately $ 230.4 million . we began tracking program expenses for abaloparatide-patch in 2007 , and program expenses from inception to december 31 , 2019 were approximately $ 78.4 million . we began tracking program expenses for elacestrant in 2006 , and program expenses from inception to december 31 , 2019 were approximately $ 112.7 million . we began tracking program expenses for rad140 in 2008 , and program expenses from inception to december 31 , 2019 were approximately $ 17.2 million . these expenses relate primarily to external costs associated with manufacturing , preclinical studies , and clinical trial costs . costs related to facilities , depreciation , stock-based compensation and research and development support services are not directly charged to programs as they benefit multiple research programs that share resources . the following table sets forth our research and development expenses related to abaloparatide-sc , abaloparatide-patch , elacestrant and rad140 for the years ended december 31 , 2019 , 2018 and 2017 ( in thousands ) : 65 replace_table_token_3_th selling , general and administrative expenses selling , general and administrative expenses consist primarily of salaries and related expenses for pre-launch and post-launch commercial operations , executive , finance and other administrative personnel , professional fees , business insurance , rent , general legal activities , including the cost of maintaining our intellectual property portfolio , and other corporate expenses . our results also include stock-based compensation expense as a result of the issuance of stock option , restricted stock unit , and performance unit grants to our employees , directors and consultants . the stock-based compensation expense is included in the respective categories of expense in our condensed consolidated statements of operations and comprehensive loss ( i.e . , research and development or general and administrative expenses ) . we expect to record additional non-cash compensation expense in the future , which may be significant . other operating expenses other operating expenses reflect a payment we made to ipsen in november 2018 , pursuant to a final decision in arbitration proceedings with ipsen . interest income and other income interest income reflects interest earned on our cash , cash equivalents and marketable securities . interest expense interest expense consists of interest expense related to the aggregate $ 305.0
| cash and cash equivalents as of january 31 , 2018 were $ 7.1 million , compared to $ 7.6 million on january 31 , 2017 . on january 31 , 2018 , $ 0.7 million was held in the u.s. and $ 6.4 million was held in the foreign subsidiaries . the company 's working capital was $ 23.1 million on january 31 , 2018 compared to $ 29.8 million on january 31 , 2017 . of the working capital components , accounts receivable increased $ 1.7 million as a result of higher sales . accounts payable increased $ 3.2 million due to the corresponding increase in inventory , and customer deposits increased $ 2.6 million in the middle east related to new project business . cash used in operations in 2017 was $ 1.8 million compared to $ 5.5 million in 2016 , an improvement of $ 3.7 million . net cash used in investing activities during 2017 was $ 2.4 million , compared to net cash provided by investing activities during 2016 of $ 10.2 million . the company estimates that capital expenditures for 2018 may be between $ 3.0 million to $ 4.0 million , and the company may finance capital expenditures through real estate mortgages , term loans , equipment financing loans , internally generated funds and its revolving line of credit . the majority of such expenditures relates to diversification and expansion of business worldwide . debt totaled $ 15.8 million on january 31 , 2018 . net cash provided by financing activities in 2017 was $ 3.5 million , compared to net cash used in 2016 was $ 14.9 million . for additional information , see note 8 - debt , in the notes to consolidated financial statements . other long-term liabilities of $ 0.5 million were composed primarily of deferred rent . 14 the following table summarizes the company 's estimated contractual obligations on january 31 , 2018 . replace_table_token_4_th notes to contractual obligations table : ( 1 ) interest obligations exclude floating rate interest on debt payable under the north american revolving line of credit . based on the amount of such debt on january 31 , 2018 , and the weighted average interest rate of 4.65
| 0 |
we have successfully completed development activities associated with the scale up of manufacturing to supply our ongoing abaloparatide-patch phase 3 wearable study . we have also made significant progress scaling up for potential commercial batches , if our phase 3 trial is successful and abaloparatide-patch is approved . in october 2018 , we committed to fund 3m 's purchase of capital equipment totaling approximately $ 9.6 million in preparation for manufacturing phase 3 and potential commercial supplies of abaloparatide-patch . milestone payments for the equipment commenced in the fourth quarter of 2018 and are expected to be paid in full in the second quarter of 2021. in addition , there are cancellable purchase commitments in place to fund the facility build out and future purchases of capital equipment . the completion of the engineering equipment designs for critical equipment to produce the abaloparatide-patch at the commercial site is on target , and critical equipment has started to arrive and is being installed . in december 2019 , we aligned with the fda on requirements for an nda filing . in connection with our strategic plan to focus on bone health and targeted endocrine diseases , we are exploring all strategic options for our oncology programs , including elacestrant ( rad1901 ) and rad140 . our investigational product candidate , elacestrant ( rad1901 ) , a selective estrogen receptor degrader ( โ serd โ ) , is being developed for potential use in the treatment of hormone receptor-positive breast cancer . we initiated our phase 3 emerald study of elacestrant in late november 2018 and expect to complete enrollment in the third quarter of 2020. the phase 3 study is a single , randomized , open label , active-controlled phase 3 trial of elacestrant as a second or third-line monotherapy in approximately 460 patients with estrogen receptor-positive ( โ er+ โ ) and human epidermal growth factor receptor 2-negative ( โ her2- โ ) advanced or 60 metastatic breast cancer who have received prior treatment with one or two endocrine therapies , including a cyclin-dependent kinase ( โ cdk โ ) 4/6 inhibitor . patients in the study will be randomized to receive either elacestrant or the investigator 's choice of an approved hormonal agent . the primary endpoint of the study will be progression-free survival ( โ pfs โ ) , which we will analyze in the overall patient population and in patients with estrogen receptor 1 gene ( โ esr1 โ ) mutations . secondary endpoints will include evaluation of overall survival ( โ os โ ) , objective response rate ( โ orr โ ) , and duration of response ( โ dor โ ) . we believe that , depending on results , this single trial would support applications for marketing approvals for elacestrant as a second- and third-line monotherapy in the u.s. , european union ( โ eu โ ) , and other markets . in november 2018 , the fda granted fast track designation for elacestrant for the population to be included in the phase 3 study . we previously completed enrollment in our ongoing dose escalation part a , and dose expansion parts b and c , and in the 18f fluoroestradiol positron emission tomography ( โ fes-pet โ ) imaging phase 1 studies of elacestrant in advanced metastatic breast cancer . enrollment in part d of the phase 1 dose-escalation and expansion study was discontinued as the data was no longer required to support the final design of our phase 3 study . we do not plan to initiate any further clinical development of elacestrant beyond the ongoing emerald study . we developed our internally discovered investigational product candidate , rad140 , a non-steroidal selective androgen receptor modulator ( โ sarm โ ) , for potential use in the treatment of hormone-receptor positive breast cancer . in september 2017 , we initiated a phase 1 study of rad140 in patients with er+/ar+/her2- locally advanced or metastatic breast cancer . the clinical trial was designed to evaluate the safety and maximum tolerated dose ( โ mtd โ ) of rad140 in approximately 40 patients . primary safety endpoints from the trial included the incidence rate of dose-limiting toxicities , adverse events related to treatment , and tolerability as measured by dose interruptions or adjustments . in addition , pharmacokinetics , pharmacodynamics and tumor response were evaluated . in december 2019 , we presented the phase 1a data based on a data cut-off of october 31 , 2019. the data showed that a total of 22 patients with advanced/metastatic breast cancer had been treated at once daily oral doses ranging from 50mg to 150mg , and that the mtd was 100mg per day . the patients were heavily pre-treated , with a median of four prior lines of therapy for metastatic disease , including chemotherapy in all but two patients . as of february 11 , 2020 , one patient remained on treatment . evidence of clinical activity was seen with a partial response in one of nine recist evaluable patients and pharmacodynamic data consistent with androgen receptor ( โ ar โ ) modulatory activity was also seen . we do not plan to initiate any additional clinical studies of rad140 . abaloparatide in april 2017 , the fda approved tymlos ( abaloparatide-sc ) for the treatment of postmenopausal women with osteoporosis at high risk for fracture defined as history of osteoporotic fracture , multiple risk factors for fracture , or patients who have failed or are intolerant to other available osteoporosis therapy . we are developing two formulations of abaloparatide : abaloparatide-sc and abaloparatide-patch . abaloparatide-sc tymlos was approved in the united states in april 2017 for the treatment of postmenopausal women with osteoporosis at high risk for fracture . story_separator_special_tag in february 2020 , we terminated this collaboration . rad140 rad140 is an internally discovered sarm . the androgen receptor , or ar , is highly expressed in many er-positive , er-negative , and triple-negative receptor breast cancers . due to its receptor and tissue selectivity , potent activity , oral bioavailability , and long half-life , we believe rad140 could have clinical potential in the treatment of breast cancer . we hold worldwide commercialization rights to rad140 . in september 2017 , we initiated a phase 1 study of rad140 in patients with er+/ar+/her2- locally advanced or metastatic breast cancer . the clinical trial was designed to evaluate the safety and mtd of rad140 in approximately 40 patients . primary safety endpoints from the trial included the incidence rate of dose-limiting toxicities , adverse events related to treatment , and tolerability as measured by dose interruptions or adjustments . in addition , pharmacokinetics , pharmacodynamics and tumor response were also evaluated . in december 2019 , we presented the phase 1a data based on a data cut-off of october 31 , 2019. the data showed that a total of 22 patients with advanced/metastatic breast cancer had been treated at once daily oral doses ranging from 50mg to 150mg , and that the mtd was 100mg per day . the patients were heavily pre-treated , with a median of four prior lines of therapy for metastatic disease , including chemotherapy in all but two patients . as of february 11 , 2020 , one patient remained on treatment . evidence of clinical activity was seen with a partial response in one of nine recist 64 evaluable patients and pharmacodynamic data consistent with ar modulatory activity was also seen . we do not plan to initiate any additional clinical studies of rad140 . in july 2016 , we reported that rad140 in preclinical xenograft models of breast cancer demonstrated potent tumor growth inhibition when administered alone or in combinations with cdk 4/6 inhibitors . it is estimated that 77 % of breast cancers show expression of the androgen receptor . our data suggest that rad140 activity at the androgen receptor leads to activation of ar signaling pathways including an ar-specific tumor suppressor and suppression of er signaling . in april 2017 , we presented these rad140 preclinical results at a major scientific congress . in december 2018 , we presented a preclinical poster further demonstrating anti-tumor activity of rad140 in breast cancer models resistant to standard-of-care endocrine treatments . financial overview product revenue product revenue is derived from sales of our product , tymlos ยฎ , in the united states . cost of product revenue cost of product revenue consists primarily of costs associated with the manufacturing of tymlos , royalties owed to our licensor for such sales , and certain period costs . research and development expenses research and development expenses consist primarily of clinical testing costs , including payments made to contract research organizations , or cros , salaries and related personnel costs , fees paid to consultants and outside service providers for regulatory and quality assurance support , licensing of drug compounds and other expenses relating to the manufacture , development , testing , and enhancement of our investigational product candidates . we expense our research and development costs as they are incurred . none of the research and development expenses , in relation to our investigational product candidates , are currently borne by third parties . abaloparatide represents the largest portion of our research and development expenses for our investigational product candidates since our inception . we began tracking program expenses for abaloparatide-sc in 2005 , and program expenses from inception to december 31 , 2019 were approximately $ 230.4 million . we began tracking program expenses for abaloparatide-patch in 2007 , and program expenses from inception to december 31 , 2019 were approximately $ 78.4 million . we began tracking program expenses for elacestrant in 2006 , and program expenses from inception to december 31 , 2019 were approximately $ 112.7 million . we began tracking program expenses for rad140 in 2008 , and program expenses from inception to december 31 , 2019 were approximately $ 17.2 million . these expenses relate primarily to external costs associated with manufacturing , preclinical studies , and clinical trial costs . costs related to facilities , depreciation , stock-based compensation and research and development support services are not directly charged to programs as they benefit multiple research programs that share resources . the following table sets forth our research and development expenses related to abaloparatide-sc , abaloparatide-patch , elacestrant and rad140 for the years ended december 31 , 2019 , 2018 and 2017 ( in thousands ) : 65 replace_table_token_3_th selling , general and administrative expenses selling , general and administrative expenses consist primarily of salaries and related expenses for pre-launch and post-launch commercial operations , executive , finance and other administrative personnel , professional fees , business insurance , rent , general legal activities , including the cost of maintaining our intellectual property portfolio , and other corporate expenses . our results also include stock-based compensation expense as a result of the issuance of stock option , restricted stock unit , and performance unit grants to our employees , directors and consultants . the stock-based compensation expense is included in the respective categories of expense in our condensed consolidated statements of operations and comprehensive loss ( i.e . , research and development or general and administrative expenses ) . we expect to record additional non-cash compensation expense in the future , which may be significant . other operating expenses other operating expenses reflect a payment we made to ipsen in november 2018 , pursuant to a final decision in arbitration proceedings with ipsen . interest income and other income interest income reflects interest earned on our cash , cash equivalents and marketable securities . interest expense interest expense consists of interest expense related to the aggregate $ 305.0
| cash flows from operating activities 73 net cash used in operating activities during the year ended december 31 , 2019 was $ 82.4 million , which was primarily the result of a net loss of $ 133.0 million , partially offset by net changes in working capital of $ 8.7 million and $ 41.9 million of net non-cash adjustments to reconcile net loss to net cash used in operations . the $ 41.9 million net non-cash adjustments to reconcile net loss to net cash used in operations included stock-based compensation expense of $ 23.6 million , amortization of the value of debt discount and issuance costs of $ 15.8 million , and depreciation and amortization of $ 2.3 million , impairment charge for the right of use operating lease of $ 0.3 million , and loss of fixed assets disposal of $ 0.2 million offset by amortization of premiums ( discounts ) on marketable securities of $ 0.4 million . net cash used in operating activities during the year ended december 31 , 2018 was $ 204.7 million , which was primarily the result of a net loss of $ 221.3 million , partially offset by net changes in working capital of $ 28.4 million and $ 45.0 million of net non-cash adjustments to reconcile net loss to net cash used in operations . the $ 221.3 million net loss was primarily due to costs related to the continued commercial operations for tymlos such as compensation costs , professional support costs , and consulting fees as well as ongoing research and development costs . the $ 45.0 million net non-cash adjustments to reconcile net loss to net cash used in operations included stock-based compensation expense of $ 28.7 million , amortization of debt discount and issuance costs of $ 13.8 million , depreciation and amortization of $ 2.9 million , offset by amortization of premiums ( discounts ) on marketable securities of $ 0.4 million .
| 1 |
the company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events . the following section presents information to assess the financial condition and results of operations of first defiance . this section should be read in conjunction with the consolidated financial statements and the supplemental financial data contained elsewhere in this annual report on form 10-k. overview first defiance is a unitary thrift holding company that conducts business through its subsidiaries , first federal , first insurance and first defiance risk management . first federal is a federally chartered stock savings bank that provides financial services to communities based in northwest ohio , northeast indiana , and southeastern michigan where it operates 33 full service banking centers in twelve northwest ohio counties , one northeast indiana county , and one southeastern michigan county . first federal operates one loan production office in one central ohio county . first federal provides a broad range of financial services including checking accounts , savings accounts , certificates of deposit , real estate mortgage loans , commercial loans , consumer loans , home equity loans and trust and wealth management services through its extensive branch network . first insurance sells a variety of property and casualty , group health and life and individual health and life insurance products . first insurance is an insurance agency that does business in the defiance , bryan , bowling green , maumee and oregon , ohio areas . first defiance risk management is a wholly owned insurance company subsidiary of the company to insure the company and its subsidiaries against certain risks unique to the operations of the company and for which insurance may not be currently available or economically feasible in today 's insurance marketplace . first defiance risk management pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves . first defiance risk management was incorporated on december 20 , 2012. financial condition assets at december 31 , 2014 totaled $ 2.18 billion compared to $ 2.14 billion at december 31 , 2013 , an increase of $ 41.8 million or 2.0 % . cash and cash equivalents decreased $ 66.4 million to $ 112.9 million at december 31 , 2014 from $ 179.3 million at december 31 , 2013. the increase in assets was due to an increase in the deposit base , net loans and securities as of december 31 , 2014 somewhat offset by a decrease in interest-bearing deposits . - 38 - securities the securities portfolio increased $ 41.1 million to $ 239.6 million at december 31 , 2014. the 2014 activity in the portfolio included $ 70.1 million of purchases , $ 2.9 million of amortization and maturities , $ 17.9 million of principal pay-downs and $ 14.9 million of securities being sold . there was a net increase of $ 5.8 million in market value on available-for-sale securities . for additional information regarding first defiance 's investment securities see note 5 to the financial statements . loans loans receivable , net of undisbursed loan funds and deferred fees and costs , increased $ 66.3 million to $ 1.65 billion at december 31 , 2014. for more details on the loan balances , see note 7 โ loans receivable in the notes to the financial statements . the majority of first defiance 's non-residential real estate and commercial loans are to small and mid-sized businesses . the combined commercial , non-residential real estate and multi-family real estate loan portfolios totaled $ 1.24 billion and $ 1.21 billion at december 31 , 2014 and 2013 , respectively , and accounted for approximately 73.6 % and 74.9 % of first defiance 's loan portfolio at the end of those respective periods . first defiance believes it has been able to establish itself as a leader in its market area in the commercial and commercial real estate lending area by hiring experienced lenders and providing a high level of customer service to its commercial lending clients . the one-to-four family residential portfolio totaled $ 206.4 million at december 31 , 2014 , compared with $ 195.8 million at the end of 2013. at the end of 2014 , those loans comprised 12.2 % of the total loan portfolio , up from 12.1 % at december 31 , 2013. construction loans , which include one-to-four family and commercial real estate properties , increased to $ 112.4 million at december 31 , 2014 compared to $ 86.1 million at december 31 , 2013. these loans accounted for approximately 6.7 % and 5.3 % of the total loan portfolio at december 31 , 2014 and 2013 , respectively . home equity and home improvement loans increased to $ 111.8 million at december 31 , 2014 , from $ 106.9 million at the end of 2013. at the end of 2014 , those loans comprised 6.6 % of the total loan portfolio , flat with december 31 , 2013. consumer finance and mobile home loans were $ 15.5 million at december 31 , 2014 , down from $ 16.9 million at the end of 2013. these loans comprised just 0.9 % and 1.1 % of the total portfolio at december 31 , 2014 and 2013 , respectively . in order to properly assess the collateral dependent loans included in its loan portfolio , the company has established policies regarding the monitoring of the collateral underlying such loans . the company requires an appraisal that is less than one year old for all new collateral dependent real estate loans , and all renewed collateral dependent real estate loans where significant new money is extended . the appraisal process is handled by the credit department , which selects the appraiser and orders the appraisal . story_separator_special_tag - 43 - table 1 โ net charge-offs and non-accruals by loan type replace_table_token_24_th replace_table_token_25_th the following table sets forth information concerning the allocation of first defiance 's allowance for loan losses by loan categories at december 31 , 2014 and december 31 , 2013. table 2 โ allowance for loan loss allocation by loan category replace_table_token_26_th - 44 - loans acquired with impairment certain loans acquired had evidence that the credit quality of the loan had deteriorated since its origination and , in management 's assessment at the acquisition date , it was probable that first defiance would be unable to collect all contractually required payments due . in accordance with fasb asc topic 310 subtopic 30 , loans and debt securities acquired with deteriorated credit quality , these loans were recorded based on management 's estimate of the fair value of the loans . as of december 31 , 2014 , the total contractual receivable for those loans was $ 413,000 and the recorded value was $ 186,000. high loan-to-value mortgage loans the majority of first defiance 's mortgage loans are collateralized by one-to-four-family residential real estate , have loan-to-value ratios of 80 % or less , and are made to borrowers in good credit standing . first federal usually requires residential mortgage loan borrowers whose loan-to-value is greater than 80 % to purchase private mortgage insurance ( โ pmi โ ) . management also periodically reviews and monitors the financial viability of its pmi providers . first federal originates and retains a limited number of residential mortgage loans with loan-to-value ratios that exceed 80 % where pmi is not required if the borrower possesses other demonstrable strengths . the loan-to-value ratios on these loans are generally limited to 85 % and exceptions must be approved by first federal 's senior loan committee . management monitors the balance of one-to-four family residential loans , including home equity loans and committed lines of credit that exceed certain loan to value standards ( 90 % for owner occupied residences , 85 % for non-owner occupied residences and one-to-four family construction loans , 75 % for developed land and 65 % for raw land ) . total loans that exceed those standards described above at december 31 , 2014 totaled $ 50.0 million , compared to $ 43.7 million at december 31 , 2013. these loans are generally paying as agreed . first defiance does not make interest-only first-mortgage residential loans , nor does it have residential mortgage loan products or other consumer products that allow negative amortization . goodwill and intangible assets goodwill was $ 61.5 million at december 31 , 2014 and 2013. no impairment of goodwill was recorded in 2014 or 2013. core deposit intangibles and other intangible assets decreased to $ 2.4 million at december 31 , 2014 compared to $ 3.5 million at december 31 , 2013. during 2014 , changes to the core deposit intangibles and other intangibles were due to the recognition of $ 1.1 million of amortization expense . deposits total deposits at december 31 , 2014 were $ 1.76 billion compared to $ 1.74 billion at december 31 , 2013 , an increase of $ 25.0 million or 1.4 % . non-interest bearing checking accounts grew by $ 30.6 million , money market and interest bearing checking accounts grew by $ 11.8 million , and savings grew by $ 18.6 million while retail certificates of deposit declined by $ 35.9 million . management can utilize the national market for certificates of deposit to supplement its funding needs if necessary . for more details on the deposit balances in general see note 11 โ deposits . borrowings fhlb advances totaled $ 21.5 million at december 31 , 2014 compared to $ 22.5 million at december 31 , 2013. the balance at the end of 2014 includes $ 12.0 million of convertible advances with rates ranging from 2.35 % to 3.04 % . these advances are all callable by the fhlb , at which point they would convert to a three-month libor advance if not paid off . those advances have final maturity dates ranging from 2015 to 2018. in addition , first defiance has two fixed-rate advances totaling $ 9.5 million with rates ranging from 1.78 % to 4.10 % . - 45 - at december 31 , 2014 , first defiance also had $ 54.8 million of securities that were sold with agreements to repurchase , compared to $ 51.9 million at december 31 , 2013. story_separator_special_tag table 3 โ net interest margin replace_table_token_27_th ( 1 ) interest on certain tax exempt loans ( amounting to $ 271,000 , $ 129,000 and $ 192,000 in 2014 , 2013 and 2012 respectively ) and tax-exempt securities ( $ 3.1 million , $ 2.9 million and $ 2.9 million in 2014 , 2013 , and 2012 ) is not taxable for federal income tax purposes . the average balance of such loans was $ 7.8 million , $ 4.2 million and $ 4.9 million in 2014 , 2013 , and 2012 while the average balance of such securities was $ 82.2 million , $ 76.0 million and $ 73.7 million in 2014 , 2013 , and 2012 , respectively . in order to compare the tax-exempt yields on these assets to taxable yields , the interest earned on these assets is adjusted to a pre-tax equivalent amount based on the marginal corporate federal income tax rate of 35 % . ( 2 ) at december 31 , 2014 , the yields earned and rates paid were as follows : loans receivable , 4.23 % ; securities , 3.09 % ; fhlb stock,4.00 % ; total interest-earning assets , 4.08 % ; deposits , 0.28 % ; fhlb advances , 2.38 % ; other borrowings , 0.28 % , subordinated debentures,1.67 % ; total including non- interest-bearing liabilities , 0.33 % ; and interest rate spread , 3.75 % . ( 3 ) interest rate
| cash flows from operating activities 73 net cash used in operating activities during the year ended december 31 , 2019 was $ 82.4 million , which was primarily the result of a net loss of $ 133.0 million , partially offset by net changes in working capital of $ 8.7 million and $ 41.9 million of net non-cash adjustments to reconcile net loss to net cash used in operations . the $ 41.9 million net non-cash adjustments to reconcile net loss to net cash used in operations included stock-based compensation expense of $ 23.6 million , amortization of the value of debt discount and issuance costs of $ 15.8 million , and depreciation and amortization of $ 2.3 million , impairment charge for the right of use operating lease of $ 0.3 million , and loss of fixed assets disposal of $ 0.2 million offset by amortization of premiums ( discounts ) on marketable securities of $ 0.4 million . net cash used in operating activities during the year ended december 31 , 2018 was $ 204.7 million , which was primarily the result of a net loss of $ 221.3 million , partially offset by net changes in working capital of $ 28.4 million and $ 45.0 million of net non-cash adjustments to reconcile net loss to net cash used in operations . the $ 221.3 million net loss was primarily due to costs related to the continued commercial operations for tymlos such as compensation costs , professional support costs , and consulting fees as well as ongoing research and development costs . the $ 45.0 million net non-cash adjustments to reconcile net loss to net cash used in operations included stock-based compensation expense of $ 28.7 million , amortization of debt discount and issuance costs of $ 13.8 million , depreciation and amortization of $ 2.9 million , offset by amortization of premiums ( discounts ) on marketable securities of $ 0.4 million .
| 0 |
the company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events . the following section presents information to assess the financial condition and results of operations of first defiance . this section should be read in conjunction with the consolidated financial statements and the supplemental financial data contained elsewhere in this annual report on form 10-k. overview first defiance is a unitary thrift holding company that conducts business through its subsidiaries , first federal , first insurance and first defiance risk management . first federal is a federally chartered stock savings bank that provides financial services to communities based in northwest ohio , northeast indiana , and southeastern michigan where it operates 33 full service banking centers in twelve northwest ohio counties , one northeast indiana county , and one southeastern michigan county . first federal operates one loan production office in one central ohio county . first federal provides a broad range of financial services including checking accounts , savings accounts , certificates of deposit , real estate mortgage loans , commercial loans , consumer loans , home equity loans and trust and wealth management services through its extensive branch network . first insurance sells a variety of property and casualty , group health and life and individual health and life insurance products . first insurance is an insurance agency that does business in the defiance , bryan , bowling green , maumee and oregon , ohio areas . first defiance risk management is a wholly owned insurance company subsidiary of the company to insure the company and its subsidiaries against certain risks unique to the operations of the company and for which insurance may not be currently available or economically feasible in today 's insurance marketplace . first defiance risk management pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves . first defiance risk management was incorporated on december 20 , 2012. financial condition assets at december 31 , 2014 totaled $ 2.18 billion compared to $ 2.14 billion at december 31 , 2013 , an increase of $ 41.8 million or 2.0 % . cash and cash equivalents decreased $ 66.4 million to $ 112.9 million at december 31 , 2014 from $ 179.3 million at december 31 , 2013. the increase in assets was due to an increase in the deposit base , net loans and securities as of december 31 , 2014 somewhat offset by a decrease in interest-bearing deposits . - 38 - securities the securities portfolio increased $ 41.1 million to $ 239.6 million at december 31 , 2014. the 2014 activity in the portfolio included $ 70.1 million of purchases , $ 2.9 million of amortization and maturities , $ 17.9 million of principal pay-downs and $ 14.9 million of securities being sold . there was a net increase of $ 5.8 million in market value on available-for-sale securities . for additional information regarding first defiance 's investment securities see note 5 to the financial statements . loans loans receivable , net of undisbursed loan funds and deferred fees and costs , increased $ 66.3 million to $ 1.65 billion at december 31 , 2014. for more details on the loan balances , see note 7 โ loans receivable in the notes to the financial statements . the majority of first defiance 's non-residential real estate and commercial loans are to small and mid-sized businesses . the combined commercial , non-residential real estate and multi-family real estate loan portfolios totaled $ 1.24 billion and $ 1.21 billion at december 31 , 2014 and 2013 , respectively , and accounted for approximately 73.6 % and 74.9 % of first defiance 's loan portfolio at the end of those respective periods . first defiance believes it has been able to establish itself as a leader in its market area in the commercial and commercial real estate lending area by hiring experienced lenders and providing a high level of customer service to its commercial lending clients . the one-to-four family residential portfolio totaled $ 206.4 million at december 31 , 2014 , compared with $ 195.8 million at the end of 2013. at the end of 2014 , those loans comprised 12.2 % of the total loan portfolio , up from 12.1 % at december 31 , 2013. construction loans , which include one-to-four family and commercial real estate properties , increased to $ 112.4 million at december 31 , 2014 compared to $ 86.1 million at december 31 , 2013. these loans accounted for approximately 6.7 % and 5.3 % of the total loan portfolio at december 31 , 2014 and 2013 , respectively . home equity and home improvement loans increased to $ 111.8 million at december 31 , 2014 , from $ 106.9 million at the end of 2013. at the end of 2014 , those loans comprised 6.6 % of the total loan portfolio , flat with december 31 , 2013. consumer finance and mobile home loans were $ 15.5 million at december 31 , 2014 , down from $ 16.9 million at the end of 2013. these loans comprised just 0.9 % and 1.1 % of the total portfolio at december 31 , 2014 and 2013 , respectively . in order to properly assess the collateral dependent loans included in its loan portfolio , the company has established policies regarding the monitoring of the collateral underlying such loans . the company requires an appraisal that is less than one year old for all new collateral dependent real estate loans , and all renewed collateral dependent real estate loans where significant new money is extended . the appraisal process is handled by the credit department , which selects the appraiser and orders the appraisal . story_separator_special_tag - 43 - table 1 โ net charge-offs and non-accruals by loan type replace_table_token_24_th replace_table_token_25_th the following table sets forth information concerning the allocation of first defiance 's allowance for loan losses by loan categories at december 31 , 2014 and december 31 , 2013. table 2 โ allowance for loan loss allocation by loan category replace_table_token_26_th - 44 - loans acquired with impairment certain loans acquired had evidence that the credit quality of the loan had deteriorated since its origination and , in management 's assessment at the acquisition date , it was probable that first defiance would be unable to collect all contractually required payments due . in accordance with fasb asc topic 310 subtopic 30 , loans and debt securities acquired with deteriorated credit quality , these loans were recorded based on management 's estimate of the fair value of the loans . as of december 31 , 2014 , the total contractual receivable for those loans was $ 413,000 and the recorded value was $ 186,000. high loan-to-value mortgage loans the majority of first defiance 's mortgage loans are collateralized by one-to-four-family residential real estate , have loan-to-value ratios of 80 % or less , and are made to borrowers in good credit standing . first federal usually requires residential mortgage loan borrowers whose loan-to-value is greater than 80 % to purchase private mortgage insurance ( โ pmi โ ) . management also periodically reviews and monitors the financial viability of its pmi providers . first federal originates and retains a limited number of residential mortgage loans with loan-to-value ratios that exceed 80 % where pmi is not required if the borrower possesses other demonstrable strengths . the loan-to-value ratios on these loans are generally limited to 85 % and exceptions must be approved by first federal 's senior loan committee . management monitors the balance of one-to-four family residential loans , including home equity loans and committed lines of credit that exceed certain loan to value standards ( 90 % for owner occupied residences , 85 % for non-owner occupied residences and one-to-four family construction loans , 75 % for developed land and 65 % for raw land ) . total loans that exceed those standards described above at december 31 , 2014 totaled $ 50.0 million , compared to $ 43.7 million at december 31 , 2013. these loans are generally paying as agreed . first defiance does not make interest-only first-mortgage residential loans , nor does it have residential mortgage loan products or other consumer products that allow negative amortization . goodwill and intangible assets goodwill was $ 61.5 million at december 31 , 2014 and 2013. no impairment of goodwill was recorded in 2014 or 2013. core deposit intangibles and other intangible assets decreased to $ 2.4 million at december 31 , 2014 compared to $ 3.5 million at december 31 , 2013. during 2014 , changes to the core deposit intangibles and other intangibles were due to the recognition of $ 1.1 million of amortization expense . deposits total deposits at december 31 , 2014 were $ 1.76 billion compared to $ 1.74 billion at december 31 , 2013 , an increase of $ 25.0 million or 1.4 % . non-interest bearing checking accounts grew by $ 30.6 million , money market and interest bearing checking accounts grew by $ 11.8 million , and savings grew by $ 18.6 million while retail certificates of deposit declined by $ 35.9 million . management can utilize the national market for certificates of deposit to supplement its funding needs if necessary . for more details on the deposit balances in general see note 11 โ deposits . borrowings fhlb advances totaled $ 21.5 million at december 31 , 2014 compared to $ 22.5 million at december 31 , 2013. the balance at the end of 2014 includes $ 12.0 million of convertible advances with rates ranging from 2.35 % to 3.04 % . these advances are all callable by the fhlb , at which point they would convert to a three-month libor advance if not paid off . those advances have final maturity dates ranging from 2015 to 2018. in addition , first defiance has two fixed-rate advances totaling $ 9.5 million with rates ranging from 1.78 % to 4.10 % . - 45 - at december 31 , 2014 , first defiance also had $ 54.8 million of securities that were sold with agreements to repurchase , compared to $ 51.9 million at december 31 , 2013. story_separator_special_tag table 3 โ net interest margin replace_table_token_27_th ( 1 ) interest on certain tax exempt loans ( amounting to $ 271,000 , $ 129,000 and $ 192,000 in 2014 , 2013 and 2012 respectively ) and tax-exempt securities ( $ 3.1 million , $ 2.9 million and $ 2.9 million in 2014 , 2013 , and 2012 ) is not taxable for federal income tax purposes . the average balance of such loans was $ 7.8 million , $ 4.2 million and $ 4.9 million in 2014 , 2013 , and 2012 while the average balance of such securities was $ 82.2 million , $ 76.0 million and $ 73.7 million in 2014 , 2013 , and 2012 , respectively . in order to compare the tax-exempt yields on these assets to taxable yields , the interest earned on these assets is adjusted to a pre-tax equivalent amount based on the marginal corporate federal income tax rate of 35 % . ( 2 ) at december 31 , 2014 , the yields earned and rates paid were as follows : loans receivable , 4.23 % ; securities , 3.09 % ; fhlb stock,4.00 % ; total interest-earning assets , 4.08 % ; deposits , 0.28 % ; fhlb advances , 2.38 % ; other borrowings , 0.28 % , subordinated debentures,1.67 % ; total including non- interest-bearing liabilities , 0.33 % ; and interest rate spread , 3.75 % . ( 3 ) interest rate
| capital resources total stockholders ' equity increased $ 7.4 million to $ 279.5 million at december 31 , 2014. this increase is a result of net income of $ 24.3 million and an increase in the market value of the available-for-sale security portfolio in the amount of $ 3.8 million mostly offset by common stock repurchases and $ 5.9 million in common stock dividends . in 2014 , 553,136 shares were repurchased , resulting in a $ 15.5 million decrease in stockholders ' equity , and 53,200 stock options were exercised resulting in a $ 921,000 increase in stockholder 's equity . in 2013 , 70,966 shares were repurchased , resulting in a $ 1.8 million decrease in stockholders ' equity , and a total of 35,147 stock options were exercised resulting in a $ 350,000 increase in stockholders ' equity . results of operations summary first defiance reported net income of $ 24.3 million for the year ended december 31 , 2014 compared to $ 22.2 million and $ 18.7 million for the years ended december 31 , 2013 and 2012 , respectively . net income applicable to common shares was $ 24.3 million in 2014 compared with $ 22.2 million in 2013 and $ 18.0 million in 2012. on a diluted per common share basis , first defiance earned $ 2.44 in 2014 , $ 2.19 in 2013 and $ 1.81 in 2012. net interest income first defiance 's net interest income is determined by its interest rate spread ( i.e . the difference between the yields on its interest-earning assets and the rates paid on its interest-bearing liabilities ) and the relative amounts of interest-earning assets and interest-bearing liabilities . net interest income was $ 69.7 million for the year ended december 31 , 2014 compared to $ 67.6 million and $ 69.0 million for the years ended december 31 , 2013 and 2012 , respectively .
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due to increased demand for take-away capabilities from this region , we are increasing this pipeline system further to 440,000 bpd by early 2019. we also launched a project to construct a 60-mile crude oil and condensate pipeline from the delaware basin to crane , texas , which essentially extends the reach of our longhorn pipeline system and will provide our customers an additional outlet to move volume from this rapidly growing basin to the houston gulf coast refining region . this project is driven by strong customer interest to source volumes directly to longhorn from the delaware basin instead of routing the volumes through midland . this new delaware basin pipeline , which is expected to be operational in mid-2019 , strengthens the supply options to our longhorn pipeline and serves as a logical next step in a broader strategy to expand our service offerings in the permian basin . significant progress has been made to build out our seabrook logistics joint venture , which provides an export solution for crude oil . the first phase of this facility became operational during 2017 , with the second phase on-target for a mid-2018 start-up , including connectivity to our houston crude oil distribution system . to further expand our marine strategy , we announced plans to join forces with valero energy to invest in and expand the pasadena marine terminal that is currently under construction in texas . the initial phase of this new facility is expected to be operational in early 2019 , with the second phase expected to come online in early 2020. combined , our joint venture with valero energy is building 5 million barrels of storage and two ship docks at this facility , with the potential to double its size in the future . recent developments cash distribution . in january 2018 , the board of directors of our general partner declared a quarterly cash distribution of $ 0.92 per unit for the period of october 1 , 2017 through december 31 , 2017. this quarterly cash distribution was paid on february 14 , 2018 to unitholders of record on february 6 , 2018. the total distribution paid on 228.2 million limited partner units outstanding was $ 209.9 million . results of operations we believe that investors benefit from having access to the same financial measures utilized by management . operating margin , which is presented in the following tables , is an important measure used by management to evaluate the economic performance of our core operations . operating margin is a non-generally accepted accounting principles ( โ gaap โ ) measure , but the components of operating margin are computed using amounts that are determined in accordance with gaap . a reconciliation of operating margin to operating profit , which is its nearest comparable gaap financial measure , is included in the following tables . operating profit includes expense items , such as depreciation and amortization expense and general and administrative ( โ g & a โ ) expenses , which management does not focus on when evaluating the core profitability of our separate operating segments . additionally , product margin , which management primarily uses to evaluate the profitability of our commodity-related activities , is provided in these tables . product margin is a non-gaap measure ; however , its components of product sales and cost of product sales are determined in accordance with gaap . our butane blending , fractionation and other commodity-related activities generate significant revenue . we believe the product margin from these activities , which takes into account the related cost of product sales , better represents its importance to our results of operations . 47 year ended december 31 , 2016 compared to year ended december 31 , 2017 replace_table_token_9_th ( a ) these volumes reflect the total shipments for the bridgetex pipeline , which is owned 50 % by us . ( b ) these volumes reflect the total shipments for the saddlehorn pipeline , which began operations in september 2016 and is owned 40 % by us . 48 transportation and terminals revenue increased by $ 140.7 million , resulting from : an increase in refined products revenue of $ 93.6 million . shipments increased in the current period primarily due to stronger demand for gasoline and distillate in the markets we serve and increased volumes from our little rock pipeline extension , which commenced commercial operations in july 2016. the average rate per barrel in the current period was favorably impacted by the mid-year 2016 and 2017 tariff adjustments but was largely offset by additional short-haul movements within south texas , which ship at a lower rate than our other pipeline segments . additionally , the current period benefited from a one-time customer payment associated with a contract dispute settlement and higher storage and other ancillary service fees along our pipeline system due to increased customer activity ; an increase in crude oil revenue of $ 50.7 million primarily due to contributions from our new condensate splitter at corpus christi that began commercial operations in june 2017 , higher volumes and higher average rates on our longhorn pipeline and higher deficiency revenue for volume committed but not moved on our houston distribution system ; and a decrease in marine storage revenue of $ 1.0 million primarily due to slightly lower utilization due to the timing of maintenance work and tanks damaged by hurricane harvey that are still under repair . otherwise , higher storage rates partially offset lower utilization . affiliate management fee revenue was $ 3.0 million higher than the prior year primarily resulting from management fees received from recently-formed joint ventures . story_separator_special_tag we record liabilities when environmental costs are probable and can be reasonably estimated . the determination of amounts recorded for environmental liabilities involves significant judgments and assumptions by management . due to the inherent uncertainties involved in determining environmental liabilities , it is reasonably possible that the actual amounts required to extinguish these liabilities could be materially different from those we have recognized . other items pipeline tariff increase . the federal energy regulatory commission ( โ ferc โ ) regulates the rates charged on interstate common carrier pipeline operations primarily through an indexing methodology , which establishes the maximum amount by which index-based tariffs can be adjusted each year . approximately 40 % of our refined products tariffs are subject to this indexing methodology . the remaining 60 % of our refined products tariffs are either subject to regulations by the states in which we operate or are approved for market-based rates by the ferc , and in both cases these rates can be adjusted at our discretion based on market factors . the current ferc-approved indexing method is the annual change in the producer price index for finished goods ( โ ppi-fg โ ) plus 1.23 % . based on the preliminary estimates for this indexing methodology in 2017 , we expect to increase virtually all of our refined 57 products pipeline rates by approximately 4.4 % on july 1 , 2018. most of the tariffs on our crude oil pipelines are established at negotiated rates that generally provide for annual adjustments in line with changes in the ferc index , subject to certain modifications . we also expect to increase the rates of our crude oil pipelines by between 2 % and 3 % on average in july 2018. longhorn pipeline contracts renewal . our current contracts for the longhorn pipeline expire on september 30 , 2018. we are in active discussions with shippers regarding potential new rates and terms upon re-contracting . although we remain confident that demand for space on the longhorn pipeline is strong , the pricing environment for term commitments on crude oil pipelines originating from the permian basin is very competitive . as a result , we assume the tariff rates for the longhorn pipeline will be lower upon re-contracting in the fourth quarter of 2018. commodity derivative agreements . certain of the business activities in which we engage result in our owning various commodities , which exposes us to commodity price risk . we use forward physical commodity contracts and exchange-based futures contracts to help manage this commodity price risk . we use forward physical contracts to purchase butane and sell refined products . we account for these forward physical contracts as normal purchase and sale contracts , using traditional accrual accounting . we use futures contracts to hedge against changes in prices of petroleum products that we expect to sell or purchase in future periods . we use and account for those futures contracts that qualify for hedge accounting treatment as either cash flow or fair value hedges , and we use and account for those futures contracts that do not qualify for hedge accounting treatment as economic hedges . as of december 31 , 2017 , our open derivative contracts and the impact of the derivatives we settled during the period were comprised of futures contracts used to hedge sales and purchases of refined products , crude oil and butane related to our tender deductions , product overages , butane blending , fractionation and certain crude oil inventory activities . these contracts were accounted for as economic hedges , with the change in fair value of contracts that hedge future sales recorded to product sales , and the change in fair value of contracts that hedge future purchases recorded to cost of product sales or operating expense . for further information regarding the quantities of refined products and crude oil hedged at december 31 , 2017 and the fair value of open hedge contracts at that date , please see item 7a . quantitative and qualitative disclosures about market risk . the following tables provide a summary of the impacts of the mark-to-market gains and losses associated with these futures contracts on our results of operations for the respective periods presented ( in millions ) : replace_table_token_13_th replace_table_token_14_th 58 replace_table_token_15_th senior management changes in 2017. melanie little was elected by our general partner 's board of directors as senior vice president , operations , effective july 1 , 2017. ms. little has 16 years of service with us and has held vice president level positions for the last six years in crude oil , commercial and operations . related party transactions . see note 11 โ related party transactions in item 8. financial statements and supplementary data of this report for detail of our related party transactions . critical accounting estimates our management has discussed the development and selection of the following critical accounting estimates with the audit committee of our general partner 's board of directors , which has reviewed and approved these disclosures . pension and postretirement obligations we sponsor two union pension plans covering certain employees ( โ usw plan โ and โ iuoe plan โ ) , a pension plan for all non-union employees ( โ salaried plan โ ) and a postretirement benefit plan for certain employees . various estimates and assumptions directly affect net periodic benefit expense and obligations for these plans . these estimates and assumptions include the expected long-term rates of return on plan assets , discount rates , expected rate of compensation increase and the assumed health care cost trend rate . management reviews these assumptions annually and makes adjustments as necessary . the following table presents the estimated increase ( decrease ) in net periodic benefit expense and obligations that would result from a 1 % change in the specified assumption ( in thousands ) : replace_table_token_16_th the following table sets forth the increase ( decrease ) in our
| capital resources total stockholders ' equity increased $ 7.4 million to $ 279.5 million at december 31 , 2014. this increase is a result of net income of $ 24.3 million and an increase in the market value of the available-for-sale security portfolio in the amount of $ 3.8 million mostly offset by common stock repurchases and $ 5.9 million in common stock dividends . in 2014 , 553,136 shares were repurchased , resulting in a $ 15.5 million decrease in stockholders ' equity , and 53,200 stock options were exercised resulting in a $ 921,000 increase in stockholder 's equity . in 2013 , 70,966 shares were repurchased , resulting in a $ 1.8 million decrease in stockholders ' equity , and a total of 35,147 stock options were exercised resulting in a $ 350,000 increase in stockholders ' equity . results of operations summary first defiance reported net income of $ 24.3 million for the year ended december 31 , 2014 compared to $ 22.2 million and $ 18.7 million for the years ended december 31 , 2013 and 2012 , respectively . net income applicable to common shares was $ 24.3 million in 2014 compared with $ 22.2 million in 2013 and $ 18.0 million in 2012. on a diluted per common share basis , first defiance earned $ 2.44 in 2014 , $ 2.19 in 2013 and $ 1.81 in 2012. net interest income first defiance 's net interest income is determined by its interest rate spread ( i.e . the difference between the yields on its interest-earning assets and the rates paid on its interest-bearing liabilities ) and the relative amounts of interest-earning assets and interest-bearing liabilities . net interest income was $ 69.7 million for the year ended december 31 , 2014 compared to $ 67.6 million and $ 69.0 million for the years ended december 31 , 2013 and 2012 , respectively .
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due to increased demand for take-away capabilities from this region , we are increasing this pipeline system further to 440,000 bpd by early 2019. we also launched a project to construct a 60-mile crude oil and condensate pipeline from the delaware basin to crane , texas , which essentially extends the reach of our longhorn pipeline system and will provide our customers an additional outlet to move volume from this rapidly growing basin to the houston gulf coast refining region . this project is driven by strong customer interest to source volumes directly to longhorn from the delaware basin instead of routing the volumes through midland . this new delaware basin pipeline , which is expected to be operational in mid-2019 , strengthens the supply options to our longhorn pipeline and serves as a logical next step in a broader strategy to expand our service offerings in the permian basin . significant progress has been made to build out our seabrook logistics joint venture , which provides an export solution for crude oil . the first phase of this facility became operational during 2017 , with the second phase on-target for a mid-2018 start-up , including connectivity to our houston crude oil distribution system . to further expand our marine strategy , we announced plans to join forces with valero energy to invest in and expand the pasadena marine terminal that is currently under construction in texas . the initial phase of this new facility is expected to be operational in early 2019 , with the second phase expected to come online in early 2020. combined , our joint venture with valero energy is building 5 million barrels of storage and two ship docks at this facility , with the potential to double its size in the future . recent developments cash distribution . in january 2018 , the board of directors of our general partner declared a quarterly cash distribution of $ 0.92 per unit for the period of october 1 , 2017 through december 31 , 2017. this quarterly cash distribution was paid on february 14 , 2018 to unitholders of record on february 6 , 2018. the total distribution paid on 228.2 million limited partner units outstanding was $ 209.9 million . results of operations we believe that investors benefit from having access to the same financial measures utilized by management . operating margin , which is presented in the following tables , is an important measure used by management to evaluate the economic performance of our core operations . operating margin is a non-generally accepted accounting principles ( โ gaap โ ) measure , but the components of operating margin are computed using amounts that are determined in accordance with gaap . a reconciliation of operating margin to operating profit , which is its nearest comparable gaap financial measure , is included in the following tables . operating profit includes expense items , such as depreciation and amortization expense and general and administrative ( โ g & a โ ) expenses , which management does not focus on when evaluating the core profitability of our separate operating segments . additionally , product margin , which management primarily uses to evaluate the profitability of our commodity-related activities , is provided in these tables . product margin is a non-gaap measure ; however , its components of product sales and cost of product sales are determined in accordance with gaap . our butane blending , fractionation and other commodity-related activities generate significant revenue . we believe the product margin from these activities , which takes into account the related cost of product sales , better represents its importance to our results of operations . 47 year ended december 31 , 2016 compared to year ended december 31 , 2017 replace_table_token_9_th ( a ) these volumes reflect the total shipments for the bridgetex pipeline , which is owned 50 % by us . ( b ) these volumes reflect the total shipments for the saddlehorn pipeline , which began operations in september 2016 and is owned 40 % by us . 48 transportation and terminals revenue increased by $ 140.7 million , resulting from : an increase in refined products revenue of $ 93.6 million . shipments increased in the current period primarily due to stronger demand for gasoline and distillate in the markets we serve and increased volumes from our little rock pipeline extension , which commenced commercial operations in july 2016. the average rate per barrel in the current period was favorably impacted by the mid-year 2016 and 2017 tariff adjustments but was largely offset by additional short-haul movements within south texas , which ship at a lower rate than our other pipeline segments . additionally , the current period benefited from a one-time customer payment associated with a contract dispute settlement and higher storage and other ancillary service fees along our pipeline system due to increased customer activity ; an increase in crude oil revenue of $ 50.7 million primarily due to contributions from our new condensate splitter at corpus christi that began commercial operations in june 2017 , higher volumes and higher average rates on our longhorn pipeline and higher deficiency revenue for volume committed but not moved on our houston distribution system ; and a decrease in marine storage revenue of $ 1.0 million primarily due to slightly lower utilization due to the timing of maintenance work and tanks damaged by hurricane harvey that are still under repair . otherwise , higher storage rates partially offset lower utilization . affiliate management fee revenue was $ 3.0 million higher than the prior year primarily resulting from management fees received from recently-formed joint ventures . story_separator_special_tag we record liabilities when environmental costs are probable and can be reasonably estimated . the determination of amounts recorded for environmental liabilities involves significant judgments and assumptions by management . due to the inherent uncertainties involved in determining environmental liabilities , it is reasonably possible that the actual amounts required to extinguish these liabilities could be materially different from those we have recognized . other items pipeline tariff increase . the federal energy regulatory commission ( โ ferc โ ) regulates the rates charged on interstate common carrier pipeline operations primarily through an indexing methodology , which establishes the maximum amount by which index-based tariffs can be adjusted each year . approximately 40 % of our refined products tariffs are subject to this indexing methodology . the remaining 60 % of our refined products tariffs are either subject to regulations by the states in which we operate or are approved for market-based rates by the ferc , and in both cases these rates can be adjusted at our discretion based on market factors . the current ferc-approved indexing method is the annual change in the producer price index for finished goods ( โ ppi-fg โ ) plus 1.23 % . based on the preliminary estimates for this indexing methodology in 2017 , we expect to increase virtually all of our refined 57 products pipeline rates by approximately 4.4 % on july 1 , 2018. most of the tariffs on our crude oil pipelines are established at negotiated rates that generally provide for annual adjustments in line with changes in the ferc index , subject to certain modifications . we also expect to increase the rates of our crude oil pipelines by between 2 % and 3 % on average in july 2018. longhorn pipeline contracts renewal . our current contracts for the longhorn pipeline expire on september 30 , 2018. we are in active discussions with shippers regarding potential new rates and terms upon re-contracting . although we remain confident that demand for space on the longhorn pipeline is strong , the pricing environment for term commitments on crude oil pipelines originating from the permian basin is very competitive . as a result , we assume the tariff rates for the longhorn pipeline will be lower upon re-contracting in the fourth quarter of 2018. commodity derivative agreements . certain of the business activities in which we engage result in our owning various commodities , which exposes us to commodity price risk . we use forward physical commodity contracts and exchange-based futures contracts to help manage this commodity price risk . we use forward physical contracts to purchase butane and sell refined products . we account for these forward physical contracts as normal purchase and sale contracts , using traditional accrual accounting . we use futures contracts to hedge against changes in prices of petroleum products that we expect to sell or purchase in future periods . we use and account for those futures contracts that qualify for hedge accounting treatment as either cash flow or fair value hedges , and we use and account for those futures contracts that do not qualify for hedge accounting treatment as economic hedges . as of december 31 , 2017 , our open derivative contracts and the impact of the derivatives we settled during the period were comprised of futures contracts used to hedge sales and purchases of refined products , crude oil and butane related to our tender deductions , product overages , butane blending , fractionation and certain crude oil inventory activities . these contracts were accounted for as economic hedges , with the change in fair value of contracts that hedge future sales recorded to product sales , and the change in fair value of contracts that hedge future purchases recorded to cost of product sales or operating expense . for further information regarding the quantities of refined products and crude oil hedged at december 31 , 2017 and the fair value of open hedge contracts at that date , please see item 7a . quantitative and qualitative disclosures about market risk . the following tables provide a summary of the impacts of the mark-to-market gains and losses associated with these futures contracts on our results of operations for the respective periods presented ( in millions ) : replace_table_token_13_th replace_table_token_14_th 58 replace_table_token_15_th senior management changes in 2017. melanie little was elected by our general partner 's board of directors as senior vice president , operations , effective july 1 , 2017. ms. little has 16 years of service with us and has held vice president level positions for the last six years in crude oil , commercial and operations . related party transactions . see note 11 โ related party transactions in item 8. financial statements and supplementary data of this report for detail of our related party transactions . critical accounting estimates our management has discussed the development and selection of the following critical accounting estimates with the audit committee of our general partner 's board of directors , which has reviewed and approved these disclosures . pension and postretirement obligations we sponsor two union pension plans covering certain employees ( โ usw plan โ and โ iuoe plan โ ) , a pension plan for all non-union employees ( โ salaried plan โ ) and a postretirement benefit plan for certain employees . various estimates and assumptions directly affect net periodic benefit expense and obligations for these plans . these estimates and assumptions include the expected long-term rates of return on plan assets , discount rates , expected rate of compensation increase and the assumed health care cost trend rate . management reviews these assumptions annually and makes adjustments as necessary . the following table presents the estimated increase ( decrease ) in net periodic benefit expense and obligations that would result from a 1 % change in the specified assumption ( in thousands ) : replace_table_token_16_th the following table sets forth the increase ( decrease ) in our
| liquidity and capital resources cash flows and capital expenditures operating activities . net cash provided by operating activities was $ 1,069.7 million , $ 964.0 million and $ 1,108.7 million for the years ended december 31 , 2015 , 2016 and 2017 , respectively . the $ 144.7 million increase from 2016 to 2017 was due to higher net income as previously described , adjustments to non-cash items and changes in our working capital . the $ 105.7 million decrease from 2015 to 2016 was due to changes in our working capital , adjustments to non-cash items and lower net income as previously described . investing activities . net cash used by investing activities for the years ended december 31 , 2015 , 2016 and 2017 was $ 810.8 million , $ 857.4 million and $ 570.6 million , respectively . during 2017 , we incurred $ 572.7 million for capital expenditures , which included $ 91.2 million for maintenance capital and $ 481.6 million for expansion capital . also during 2017 , we contributed capital of $ 134.8 million in conjunction with our joint venture capital projects , which we account for as investments in non-controlled entities . during 2016 , we incurred $ 653.5 million for capital expenditures , which included $ 103.5 million for maintenance capital and $ 550.0 million for expansion capital . also during 2016 , we contributed capital of $ 200.0 million in conjunction with our joint venture capital projects . during 2015 , we incurred $ 623.3 million for capital expenditures , which included $ 88.7
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accordingly , the warrant exchange will entitle the holders of outstanding warrants the right to receive , for each 180 outstanding warrants now held ( which together are now exercisable into a total of 10 common shares for a total exercise price of $ 144.00 ) , one new warrant to purchase one ( 1 ) common share at a price per share of $ 0.50 . 34 two of the company 's current shareholders , 683 capital management llc and southpoint capital advisors lp , have agreed with manchester , subject to shareholder and regulatory approval , to ( 1 ) vote in favor of the foregoing matters at the annual meeting and ( 2 ) subject to shareholder and regulatory approval , to exchange the story_separator_special_tag cautionary statement the discussion below contains forward-looking statements regarding our financial condition and our results of operations that are based upon our annual consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles within the united states , or u.s. gaap , and applicable u.s. securities and exchange commission , or sec , regulations for financial information . the preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets , liabilities , income and expenses , and related disclosure of contingent assets and liabilities . we evaluate our estimates on an ongoing basis . our estimates are based on historical experience and on various other assumptions that we believe to be reasonable . overview in december 2008 we received notice from the american stock exchange that we were not in compliance with section 1003 ( a ) ( ii ) of its company guide , because our stockholders ' equity was below $ 6 million and we incurred losses from continued operation and net losses in the five most recent fiscal years . on january 29 , 2009 , we voluntarily filed to delist our common stock from the american stock exchange and effective january 29 , 2009 our common stock was no longer traded on the american stock exchange . as a result , any trading of our common stock in the u.s. must now be conducted in the over-the-counter markets . our common stock continues to trade on the toronto stock exchange . the toronto stock exchange also has continuing listing standards , including minimum market capitalization and other requirements , that we might not meet in the future , particularly if the price of our common stock does not increase or we are unable to raise capital to continue our operations . on september 18 , 2012 , the toronto stock exchange issued an official delisting review of our common stock . on january 7 , 2013 , the toronto stock exchange announced that it had completed its review of the common shares of the company and had determined that the company meets tsx 's continuing listing requirements . patient enrollment has completed in the phase iii trial of sts conducted by the children 's oncology group . the final results of the study are expected to be presented in the second quarter of 2014. the international childhood liver tumour strategy group , known as siopel study is continuing to enroll patients . interim safety data are expected to be presented in the second quarter of 2014. each of these trials is managed by siopel and the children 's oncology group , respectively , and each group is responsible for the costs of the trial . we continue to hold sts patents and our responsibility in the testing is limited to providing the drug , drug distribution and pharmacovigilance , or safety monitoring , for the study . the siopel trial is expected to enroll approximately 100 pediatric patients with liver ( hepatoblastoma ) cancer at participating siopel centers worldwide . the company 's children oncology group study completed enrollment of 135 patients during the first quarter of 2012. the siopel trial has enrolled 95 patients as of march 14 , 2014. eniluracil was previously under development by gsk . gsk advanced eniluracil into a comprehensive phase iii clinical development program that did not produce positive results and gsk terminated further development . we developed a hypothesis as to why the gsk phase iii trials were not successful and licensed the compound from gsk in july 2005. we believe that eniluracil might enhance and expand the therapeutic spectrum of activity of 5-fu , reduce the occurrence of a disabling side effect known as hand foot syndrome and allow 5-fu to be given orally . adherex completed the enrollment of a phase ii trial comparing eniluracil/5-fu/leucovorin vs. capecitabine in metastatic breast cancer patients at the end of 2012 after having enrolled 153 patients . after the completion of enrollment and with preliminary results of the trial , adherex had an end-of-phase 2 meeting with the fda on may 22 , 2013 to discuss the potential further development of eniluracil . during the meeting , adherex reviewed the opportunity that eniluracil offers to metastatic breast cancer ( mbc ) patients who had rapid disease progression on capecitabine . adherex proposed a small pivotal single arm clinical study addressing the special ability of eniluracil/5-fu/leucovorin to meet the medical needs of these patients . however , the fda strongly recommended that adherex consider other larger clinical trial design alternatives for the future development of eniluracil in mbc . we believe that it would be in the best interests of our shareholders and the cancer community to focus on seeking a partnership for eniluracil , which may include the company evaluating viable indications for eniluracil other than mbc . story_separator_special_tag replace_table_token_7_th story_separator_special_tag table represents our contractual obligations and commitments at december 31 , 2013 ( in thousands of u.s. dollars ) : replace_table_token_9_th 24 ( 1 ) under the service agreement life sci advisors , llc , the company is required to make several payments over the course of a six month agreement . life sci advisors , llc services include , but are not limited , an investor meeting program and creating a key message platform . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. gaap requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenue and expense during the reporting period . these estimates are based on assumptions and judgments that may be affected by commercial , economic and other factors . actual results could differ from these estimates . an accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , and if different estimates reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact the financial statements . the following description of critical accounting policies , judgments and estimates should be read in conjunction with our december 31 , 2013 consolidated financial statements . stock-based compensation the calculation of the fair values of our stock-based compensation plans requires estimates that require management โ s judgments . under asc 718 , the fair value of each stock option is estimated on the grant date using the black-scholes option-pricing model . the valuation models require assumptions and estimates to determine expected volatility , expected life , expected dividends and expected risk-free interest rates . the expected volatility was determined using historical volatility of our stock based on the contractual life of the award . the risk-free interest rate assumption was based on the yield on zero-coupon u.s. treasury strips at the award grant date . we also used historical data to estimate forfeiture experience . in valuing options granted in the year ended december 31 , 2013 and fiscal year ended december 31 , 2012 we used the following weighted average assumptions : replace_table_token_10_th common stock and warrants common stock is recorded as the net proceeds received on issuance after deducting all share issuance costs and the value of investor warrants . warrants are recorded at fair value and are deducted from the proceeds of common stock and recorded on the consolidated statements of stockholders ' equity as additional paid-in capital . derivative instruments effective january 1 , 2009 , the company adopted asc topic 815-40 , `` derivatives and hedging `` ( asc 815-40 ) . one of the conclusions reached under asc 815-40 was that an equity-linked financial instrument would not be considered indexed to the entity 's own stock if the strike price is denominated in a currency other than the issuer 's functional currency . the conclusion reached under asc 815-40 clarified the accounting treatment for these and certain other financial instruments . asc 815-40 specifies that a contract would not be treated as a derivative if it met the following conditions : ( a ) indexed to the company 's own stock ; and ( b ) classified in shareholders ' equity in the company 's statement of financial position . the company 's outstanding warrants denominated in canadian dollars are not considered to be indexed to its own stock because the exercise price is denominated in canadian dollars and the company 's functional currency is united states dollars . therefore , these warrants have been treated as derivative financial instruments and recorded at their fair value as a liability . all other outstanding convertible instruments are considered to be indexed to the company 's stock , because their exercise price is denominated in the same currency as the company 's functional currency , and are included in stockholders ' deficiency . the company 's derivative instruments include warrants to purchase 18,035 shares , the exercise prices for which are denominated in a currency other than the company 's functional currency , as follows : ยท warrants to purchase 13,337 shares at cad $ 1.44 per whole share that expire on april 30 , 2015 ; and ยท warrants to purchase 4,698 shares exercisable at cad $ 1.44 per whole share that expire on march 29 , 2016 . 25 these warrants have been recorded at their fair value as a liability at issuance and will continue to be re-measured at fair value as a liability at each subsequent balance sheet date . any change in value between reporting periods will be recorded as unrealized gain/ ( loss ) . these warrants will continue to be reported as a liability until such time as they are exercised or expire . the fair value of these warrants is estimated using the black-scholes option-pricing model . as of december 31 , 2013 , the fair value of the warrants expiring april 30 , 2015 and march 29 , 2016 was determined to be $ 2,015 and $ 794 , respectively ( december 31 , 2012 โ warrants expiring april 30 , 2015 , fair value of $ 4,698 , march 29 , 2016 , fair value of $ 1,847 ) , and the gain on these warrants for the twelve months ended december 31 , 2013 was $ 2,683 and $ 1,052 , respectively ( december 31 , 2012 - warrants expiring april 30 , 2015 , loss of $ 1,026 ; march 29,2016 , loss of $ 507 ) . there is no cash flow impact for these derivatives until the warrants are exercised . if these warrants are exercised , the company will receive the proceeds from
| liquidity and capital resources cash flows and capital expenditures operating activities . net cash provided by operating activities was $ 1,069.7 million , $ 964.0 million and $ 1,108.7 million for the years ended december 31 , 2015 , 2016 and 2017 , respectively . the $ 144.7 million increase from 2016 to 2017 was due to higher net income as previously described , adjustments to non-cash items and changes in our working capital . the $ 105.7 million decrease from 2015 to 2016 was due to changes in our working capital , adjustments to non-cash items and lower net income as previously described . investing activities . net cash used by investing activities for the years ended december 31 , 2015 , 2016 and 2017 was $ 810.8 million , $ 857.4 million and $ 570.6 million , respectively . during 2017 , we incurred $ 572.7 million for capital expenditures , which included $ 91.2 million for maintenance capital and $ 481.6 million for expansion capital . also during 2017 , we contributed capital of $ 134.8 million in conjunction with our joint venture capital projects , which we account for as investments in non-controlled entities . during 2016 , we incurred $ 653.5 million for capital expenditures , which included $ 103.5 million for maintenance capital and $ 550.0 million for expansion capital . also during 2016 , we contributed capital of $ 200.0 million in conjunction with our joint venture capital projects . during 2015 , we incurred $ 623.3 million for capital expenditures , which included $ 88.7
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accordingly , the warrant exchange will entitle the holders of outstanding warrants the right to receive , for each 180 outstanding warrants now held ( which together are now exercisable into a total of 10 common shares for a total exercise price of $ 144.00 ) , one new warrant to purchase one ( 1 ) common share at a price per share of $ 0.50 . 34 two of the company 's current shareholders , 683 capital management llc and southpoint capital advisors lp , have agreed with manchester , subject to shareholder and regulatory approval , to ( 1 ) vote in favor of the foregoing matters at the annual meeting and ( 2 ) subject to shareholder and regulatory approval , to exchange the story_separator_special_tag cautionary statement the discussion below contains forward-looking statements regarding our financial condition and our results of operations that are based upon our annual consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles within the united states , or u.s. gaap , and applicable u.s. securities and exchange commission , or sec , regulations for financial information . the preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets , liabilities , income and expenses , and related disclosure of contingent assets and liabilities . we evaluate our estimates on an ongoing basis . our estimates are based on historical experience and on various other assumptions that we believe to be reasonable . overview in december 2008 we received notice from the american stock exchange that we were not in compliance with section 1003 ( a ) ( ii ) of its company guide , because our stockholders ' equity was below $ 6 million and we incurred losses from continued operation and net losses in the five most recent fiscal years . on january 29 , 2009 , we voluntarily filed to delist our common stock from the american stock exchange and effective january 29 , 2009 our common stock was no longer traded on the american stock exchange . as a result , any trading of our common stock in the u.s. must now be conducted in the over-the-counter markets . our common stock continues to trade on the toronto stock exchange . the toronto stock exchange also has continuing listing standards , including minimum market capitalization and other requirements , that we might not meet in the future , particularly if the price of our common stock does not increase or we are unable to raise capital to continue our operations . on september 18 , 2012 , the toronto stock exchange issued an official delisting review of our common stock . on january 7 , 2013 , the toronto stock exchange announced that it had completed its review of the common shares of the company and had determined that the company meets tsx 's continuing listing requirements . patient enrollment has completed in the phase iii trial of sts conducted by the children 's oncology group . the final results of the study are expected to be presented in the second quarter of 2014. the international childhood liver tumour strategy group , known as siopel study is continuing to enroll patients . interim safety data are expected to be presented in the second quarter of 2014. each of these trials is managed by siopel and the children 's oncology group , respectively , and each group is responsible for the costs of the trial . we continue to hold sts patents and our responsibility in the testing is limited to providing the drug , drug distribution and pharmacovigilance , or safety monitoring , for the study . the siopel trial is expected to enroll approximately 100 pediatric patients with liver ( hepatoblastoma ) cancer at participating siopel centers worldwide . the company 's children oncology group study completed enrollment of 135 patients during the first quarter of 2012. the siopel trial has enrolled 95 patients as of march 14 , 2014. eniluracil was previously under development by gsk . gsk advanced eniluracil into a comprehensive phase iii clinical development program that did not produce positive results and gsk terminated further development . we developed a hypothesis as to why the gsk phase iii trials were not successful and licensed the compound from gsk in july 2005. we believe that eniluracil might enhance and expand the therapeutic spectrum of activity of 5-fu , reduce the occurrence of a disabling side effect known as hand foot syndrome and allow 5-fu to be given orally . adherex completed the enrollment of a phase ii trial comparing eniluracil/5-fu/leucovorin vs. capecitabine in metastatic breast cancer patients at the end of 2012 after having enrolled 153 patients . after the completion of enrollment and with preliminary results of the trial , adherex had an end-of-phase 2 meeting with the fda on may 22 , 2013 to discuss the potential further development of eniluracil . during the meeting , adherex reviewed the opportunity that eniluracil offers to metastatic breast cancer ( mbc ) patients who had rapid disease progression on capecitabine . adherex proposed a small pivotal single arm clinical study addressing the special ability of eniluracil/5-fu/leucovorin to meet the medical needs of these patients . however , the fda strongly recommended that adherex consider other larger clinical trial design alternatives for the future development of eniluracil in mbc . we believe that it would be in the best interests of our shareholders and the cancer community to focus on seeking a partnership for eniluracil , which may include the company evaluating viable indications for eniluracil other than mbc . story_separator_special_tag replace_table_token_7_th story_separator_special_tag table represents our contractual obligations and commitments at december 31 , 2013 ( in thousands of u.s. dollars ) : replace_table_token_9_th 24 ( 1 ) under the service agreement life sci advisors , llc , the company is required to make several payments over the course of a six month agreement . life sci advisors , llc services include , but are not limited , an investor meeting program and creating a key message platform . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. gaap requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenue and expense during the reporting period . these estimates are based on assumptions and judgments that may be affected by commercial , economic and other factors . actual results could differ from these estimates . an accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , and if different estimates reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact the financial statements . the following description of critical accounting policies , judgments and estimates should be read in conjunction with our december 31 , 2013 consolidated financial statements . stock-based compensation the calculation of the fair values of our stock-based compensation plans requires estimates that require management โ s judgments . under asc 718 , the fair value of each stock option is estimated on the grant date using the black-scholes option-pricing model . the valuation models require assumptions and estimates to determine expected volatility , expected life , expected dividends and expected risk-free interest rates . the expected volatility was determined using historical volatility of our stock based on the contractual life of the award . the risk-free interest rate assumption was based on the yield on zero-coupon u.s. treasury strips at the award grant date . we also used historical data to estimate forfeiture experience . in valuing options granted in the year ended december 31 , 2013 and fiscal year ended december 31 , 2012 we used the following weighted average assumptions : replace_table_token_10_th common stock and warrants common stock is recorded as the net proceeds received on issuance after deducting all share issuance costs and the value of investor warrants . warrants are recorded at fair value and are deducted from the proceeds of common stock and recorded on the consolidated statements of stockholders ' equity as additional paid-in capital . derivative instruments effective january 1 , 2009 , the company adopted asc topic 815-40 , `` derivatives and hedging `` ( asc 815-40 ) . one of the conclusions reached under asc 815-40 was that an equity-linked financial instrument would not be considered indexed to the entity 's own stock if the strike price is denominated in a currency other than the issuer 's functional currency . the conclusion reached under asc 815-40 clarified the accounting treatment for these and certain other financial instruments . asc 815-40 specifies that a contract would not be treated as a derivative if it met the following conditions : ( a ) indexed to the company 's own stock ; and ( b ) classified in shareholders ' equity in the company 's statement of financial position . the company 's outstanding warrants denominated in canadian dollars are not considered to be indexed to its own stock because the exercise price is denominated in canadian dollars and the company 's functional currency is united states dollars . therefore , these warrants have been treated as derivative financial instruments and recorded at their fair value as a liability . all other outstanding convertible instruments are considered to be indexed to the company 's stock , because their exercise price is denominated in the same currency as the company 's functional currency , and are included in stockholders ' deficiency . the company 's derivative instruments include warrants to purchase 18,035 shares , the exercise prices for which are denominated in a currency other than the company 's functional currency , as follows : ยท warrants to purchase 13,337 shares at cad $ 1.44 per whole share that expire on april 30 , 2015 ; and ยท warrants to purchase 4,698 shares exercisable at cad $ 1.44 per whole share that expire on march 29 , 2016 . 25 these warrants have been recorded at their fair value as a liability at issuance and will continue to be re-measured at fair value as a liability at each subsequent balance sheet date . any change in value between reporting periods will be recorded as unrealized gain/ ( loss ) . these warrants will continue to be reported as a liability until such time as they are exercised or expire . the fair value of these warrants is estimated using the black-scholes option-pricing model . as of december 31 , 2013 , the fair value of the warrants expiring april 30 , 2015 and march 29 , 2016 was determined to be $ 2,015 and $ 794 , respectively ( december 31 , 2012 โ warrants expiring april 30 , 2015 , fair value of $ 4,698 , march 29 , 2016 , fair value of $ 1,847 ) , and the gain on these warrants for the twelve months ended december 31 , 2013 was $ 2,683 and $ 1,052 , respectively ( december 31 , 2012 - warrants expiring april 30 , 2015 , loss of $ 1,026 ; march 29,2016 , loss of $ 507 ) . there is no cash flow impact for these derivatives until the warrants are exercised . if these warrants are exercised , the company will receive the proceeds from
| liquidity and capital resources ยท the decrease in cash and cash equivalents between december 31 , 2012 and december 31 , 2013 is due to clinical trial expenses related to our phase ii study of eniluracil , our phase iii study of sts and our general and administrative expenses . the decrease was offset by the cash proceeds from our 2013 private placement . ยท the increase in other current assets between december 31 , 2012 and december 31 , 2013 is a result of an increase in prepaid insurance expenses . ยท our liabilities decreased $ 4.1 million between december 31 , 2012 and december 31 , 2013. the decrease was primarily a result of the valuation of the derivative liability at the two valuation dates as well as a decrease in accrued liabilities from costs related to the phase ii study of eniluracil . ยท current liabilities excluding derivative warrant liability decreased between december 31 , 2012 and december 31 , 2013. the decrease was due to primarily to the accrual of a milestone payment for the eniluracil trial at december 31 , 2012 . ยท at december 31 , 2013 , our working capital decreased by approximately $ 0.3 million from december 31 , 2012 due to operating expenses for the year .
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โ 20 pdi , inc. annual report on form 10-k ( continued ) critical accounting policies we prepare our financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) . the preparation of financial statements and related disclosures in conformity with gaap requires management to make judgments , estimates and assumptions at a specific point in time that affect the amounts reported in the consolidated financial statements and disclosed in the accompanying notes . these assumptions and estimates are inherently uncertain . outlined below are accounting policies , which are important to our financial position and results of operations , and require the most significant judgments on the part of our management in their application . some of those judgments can be subjective and complex . management 's estimates are based on historical experience , information from third-party professionals , facts and circumstances available at the time and various other assumptions that are believed to be reasonable . actual results could differ from those estimates . additionally , changes in estimates could have a material impact on our consolidated results of operations in any one period . for a summary of all of our significant accounting policies , including the accounting policies discussed below , see note 1 , nature of business and significant account policies , to our consolidated financial statements . revenue and cost of services we recognize revenue from services rendered when the following four revenue recognition criteria are met : persuasive evidence of an arrangement exists ; services have been rendered ; the selling price is fixed or determinable ; and collectability is reasonably assured . many of the product detailing contracts allow for additional periodic incentive fees to be earned if certain performance benchmarks have been attained . revenue under pharmaceutical detailing contracts is generally based on the number of physician details made or the number of sales representatives utilized . with respect to risk-based contracts , all or a portion of revenues earned are based on contractually defined percentages of either product revenues or the market value of prescriptions written and filled in a given period . these contracts are generally for terms of one to two years and may be renewed or extended . the majority of these contracts , however , are terminable by the customer for any reason upon 30 to 90 days ' notice . certain contracts provide for termination payments if the customer terminates the agreement without cause . typically , however , these penalties do not offset the revenue we could have earned under the contract or the costs we may incur as a result of its termination . revenue earned from incentive fees is recognized in the period earned and when we are reasonably assured that payment will be made . under performance based contracts , revenue is recognized when the performance criteria has been achieved . many contracts also stipulate penalties if agreed upon performance benchmarks have not been met . revenue is recognized net of any potential penalties until the performance criteria relating to the penalties have been achieved . commission based revenue is recognized when performance is completed . revenue from recruiting and hiring contracts is recognized at the time the candidate begins full-time employment less a provision for sales allowances based on contractual commitments and historical experience . the loss or termination of a large pharmaceutical detailing contract or the loss of multiple contracts could have a material adverse effect on our business , financial condition or results of operations . historically , we have derived a significant portion of service revenue from a limited number of customers . concentration of business in the pharmaceutical services industry is common and the industry continues to consolidate . as a result , we are likely to continue to experience significant customer concentration in future periods . for the year ended december 31 , 2009 our two largest customers , who each individually represented 10 % or more of our service revenue , together accounted for approximately 58.5 % of our service revenue . for the years ended december 31 , 2008 and 2007 , our three largest customers , who each individually represented 10 % or more of our service revenue , together accounted for approximately 52.5 % and 37.9 % of our service revenue , respectively . see note 14 , significant customers , to our consolidated financial statements for additional information . revenue under marketing service contracts are generally based on a series of deliverable services associated with the design and execution of interactive promotional programs or marketing research/advisory programs . the contracts are generally terminable by the customer for any reason . upon termination , the customer is generally responsible for payment for all work completed to date , plus the cost of any nonrefundable commitments made on behalf of the customer . there is significant customer concentration in our pharmakon business , and the loss or termination of one or more of pharmakon 's large master service agreements could have a material adverse effect on our business and results of operations . due to the typical size of most tvg contracts , it is unlikely the loss or termination of any individual tvg contract would have a material adverse effect on our business , financial condition or results of operations . revenue from certain promotional contracts that include more than one service offering is accounted for as multiple-element arrangements . for these contracts , the deliverable elements are divided into separate units of accounting provided the following criteria are met : the price is fixed and determinable ; the delivered elements have stand-alone value to the customer ; there is objective and reliable evidence of the fair value of the undelivered elements ; and there is no right of return or refund . the contract revenue is then allocated to the separate units of accounting based on their relative fair values . story_separator_special_tag sales services ' revenue from new contracts and expansions of existing contracts was more than offset by lost revenue from the internalization of our contract sales force by one of our long-term customers and the expiration or termination of certain sales force arrangements in effect during 2008. marketing services ' revenue for the year ended december 31 , 2009 decreased by approximately $ 7.1 million , or 29.8 % , as compared to the year ended december 31 , 2008. this was primarily attributable to a decrease in revenue within our tvg business unit of $ 2.8 million due to fewer projects in 2009 , and a decrease in our pharmakon business unit of $ 2.0 million due to a reduction in the number of projects performed for its two largest customers due to delays in the implementation or reduced scope of a number of marketing initiatives in the first six months of 2009. the segment was also affected by a decrease in revenue of approximately $ 2.3 million in our vital issues in medicine business unit which closed in 2009 . 26 pdi , inc. annual report on form 10-k ( continued ) pc services had no revenue for the year ended december 31 , 2009 and had negative revenue of $ 1.0 million for the year ended december 31 , 2008 due to a non-refundable upfront payment made to novartis as per the terms of our former promotion agreement . cost of services cost of services for the year ended december 31 , 2009 was $ 58.6 million , or 45.8 % less than the cost of services of $ 108.0 million for the year ended december 31 , 2008. sales services ' cost of services decreased for the year ended december 31 , 2009 versus the comparable prior year period primarily due to a reduction in the average sales representative headcount and related costs correlating to an overall reduction in the number and size of our sales force engagements . marketing services ' cost of services decreased $ 5.4 million for the year ended december 31 , 2009 versus the comparable prior year period due to the decline in revenue attributable to the overall continued softness in the market for these types of services . pc services ' cost of services was a credit of $ 2.5 million for the year ended december 31 , 2009 due to the reversal of the excess amount of our 2008 contract loss accrual . pc services had cost of services of $ 22.6 million for the year ended december 31 , 2008 , including $ 10.3 million that was recorded in the fourth quarter of 2008 related to the accrued contract loss . see note 11 , product commercialization contract , to our consolidated financial statements for additional details . gross profit the overall increase in gross profit percentage from 4.0 % for the year ended december 31 , 2008 to 31.0 % for the year ended december 31 , 2009 was primarily the result of the impact of our product commercialization contract with novartis . the year ended december 31 , 2009 benefited from the reversal of the excess contract loss accrual of approximately $ 2.5 million associated with the settlement of our promotional agreement within pc services . the year ended december 31 , 2008 had negative gross profit of approximately $ 23.6 million associated with the promotion agreement , including $ 10.3 million related to the contract loss accrual mentioned above . sales services ' gross profit percentages were 21.4 % and 20.5 % for the years ended december 31 , 2009 and 2008 , respectively . the 2009 increase in gross profit was attributable to an increase in gross profit percentage within the shared sales teams business unit due to : lower fuel and mileage reimbursement costs ; lower insurance costs ; and certain operating efficiencies within our shared sales teams . gross profit percentage for the marketing services increased to 48.0 % for the year ended december 31 , 2009 from 40.8 % for the year ended december 31 , 2008. this increase was driven by improved margins at pharmakon and tvg , both of which had increases of approximately five percentage points , as well as closing our lower-margin vital issues in medicine business unit during the quarter ended september 30 , 2009. the pharmakon margin improvement was driven primarily by a change in its product mix on a year-over-year basis . note : compensation expense and other selling , general and administrative ( other sg & a ) expense amounts for each segment include allocated corporate overhead . replace_table_token_4_th the decrease in compensation expense for the year ended december 31 , 2009 was primarily the result of 2008 costs of approximately $ 0.5 million related to replacing our former chief executive officer not recurring in 2009. as a percentage of revenue , compensation expense for the year ended december 31 , 2009 increased to 26.3 % as compared to 20.3 % for the year ended december 31 , 2008. this percentage increase was primarily due to the decrease in revenue in 2009. the increase in sales services was primarily attributable to greater recruiting and hiring costs during the year ended december 31 , 2009. marketing services ' compensation expense was comparable in both periods . compensation expense for the year ended december 31 , 2009 in marketing services included approximately $ 0.8 million in severance costs which were essentially offset by our savings from headcount reductions . pc services ' compensation expense decreased for the year ended december 31 , 2009 as compared to the prior year period as a result of the april 2009 termination of our promotion agreement within pc services . 27 pdi , inc. annual report on form 10-k ( continued ) replace_table_token_5_th total other selling , general and administrative expenses increased by approximately $ 0.7 million , or 4.2 % , for the year ended december 31 ,
| liquidity and capital resources ยท the decrease in cash and cash equivalents between december 31 , 2012 and december 31 , 2013 is due to clinical trial expenses related to our phase ii study of eniluracil , our phase iii study of sts and our general and administrative expenses . the decrease was offset by the cash proceeds from our 2013 private placement . ยท the increase in other current assets between december 31 , 2012 and december 31 , 2013 is a result of an increase in prepaid insurance expenses . ยท our liabilities decreased $ 4.1 million between december 31 , 2012 and december 31 , 2013. the decrease was primarily a result of the valuation of the derivative liability at the two valuation dates as well as a decrease in accrued liabilities from costs related to the phase ii study of eniluracil . ยท current liabilities excluding derivative warrant liability decreased between december 31 , 2012 and december 31 , 2013. the decrease was due to primarily to the accrual of a milestone payment for the eniluracil trial at december 31 , 2012 . ยท at december 31 , 2013 , our working capital decreased by approximately $ 0.3 million from december 31 , 2012 due to operating expenses for the year .
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โ 20 pdi , inc. annual report on form 10-k ( continued ) critical accounting policies we prepare our financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) . the preparation of financial statements and related disclosures in conformity with gaap requires management to make judgments , estimates and assumptions at a specific point in time that affect the amounts reported in the consolidated financial statements and disclosed in the accompanying notes . these assumptions and estimates are inherently uncertain . outlined below are accounting policies , which are important to our financial position and results of operations , and require the most significant judgments on the part of our management in their application . some of those judgments can be subjective and complex . management 's estimates are based on historical experience , information from third-party professionals , facts and circumstances available at the time and various other assumptions that are believed to be reasonable . actual results could differ from those estimates . additionally , changes in estimates could have a material impact on our consolidated results of operations in any one period . for a summary of all of our significant accounting policies , including the accounting policies discussed below , see note 1 , nature of business and significant account policies , to our consolidated financial statements . revenue and cost of services we recognize revenue from services rendered when the following four revenue recognition criteria are met : persuasive evidence of an arrangement exists ; services have been rendered ; the selling price is fixed or determinable ; and collectability is reasonably assured . many of the product detailing contracts allow for additional periodic incentive fees to be earned if certain performance benchmarks have been attained . revenue under pharmaceutical detailing contracts is generally based on the number of physician details made or the number of sales representatives utilized . with respect to risk-based contracts , all or a portion of revenues earned are based on contractually defined percentages of either product revenues or the market value of prescriptions written and filled in a given period . these contracts are generally for terms of one to two years and may be renewed or extended . the majority of these contracts , however , are terminable by the customer for any reason upon 30 to 90 days ' notice . certain contracts provide for termination payments if the customer terminates the agreement without cause . typically , however , these penalties do not offset the revenue we could have earned under the contract or the costs we may incur as a result of its termination . revenue earned from incentive fees is recognized in the period earned and when we are reasonably assured that payment will be made . under performance based contracts , revenue is recognized when the performance criteria has been achieved . many contracts also stipulate penalties if agreed upon performance benchmarks have not been met . revenue is recognized net of any potential penalties until the performance criteria relating to the penalties have been achieved . commission based revenue is recognized when performance is completed . revenue from recruiting and hiring contracts is recognized at the time the candidate begins full-time employment less a provision for sales allowances based on contractual commitments and historical experience . the loss or termination of a large pharmaceutical detailing contract or the loss of multiple contracts could have a material adverse effect on our business , financial condition or results of operations . historically , we have derived a significant portion of service revenue from a limited number of customers . concentration of business in the pharmaceutical services industry is common and the industry continues to consolidate . as a result , we are likely to continue to experience significant customer concentration in future periods . for the year ended december 31 , 2009 our two largest customers , who each individually represented 10 % or more of our service revenue , together accounted for approximately 58.5 % of our service revenue . for the years ended december 31 , 2008 and 2007 , our three largest customers , who each individually represented 10 % or more of our service revenue , together accounted for approximately 52.5 % and 37.9 % of our service revenue , respectively . see note 14 , significant customers , to our consolidated financial statements for additional information . revenue under marketing service contracts are generally based on a series of deliverable services associated with the design and execution of interactive promotional programs or marketing research/advisory programs . the contracts are generally terminable by the customer for any reason . upon termination , the customer is generally responsible for payment for all work completed to date , plus the cost of any nonrefundable commitments made on behalf of the customer . there is significant customer concentration in our pharmakon business , and the loss or termination of one or more of pharmakon 's large master service agreements could have a material adverse effect on our business and results of operations . due to the typical size of most tvg contracts , it is unlikely the loss or termination of any individual tvg contract would have a material adverse effect on our business , financial condition or results of operations . revenue from certain promotional contracts that include more than one service offering is accounted for as multiple-element arrangements . for these contracts , the deliverable elements are divided into separate units of accounting provided the following criteria are met : the price is fixed and determinable ; the delivered elements have stand-alone value to the customer ; there is objective and reliable evidence of the fair value of the undelivered elements ; and there is no right of return or refund . the contract revenue is then allocated to the separate units of accounting based on their relative fair values . story_separator_special_tag sales services ' revenue from new contracts and expansions of existing contracts was more than offset by lost revenue from the internalization of our contract sales force by one of our long-term customers and the expiration or termination of certain sales force arrangements in effect during 2008. marketing services ' revenue for the year ended december 31 , 2009 decreased by approximately $ 7.1 million , or 29.8 % , as compared to the year ended december 31 , 2008. this was primarily attributable to a decrease in revenue within our tvg business unit of $ 2.8 million due to fewer projects in 2009 , and a decrease in our pharmakon business unit of $ 2.0 million due to a reduction in the number of projects performed for its two largest customers due to delays in the implementation or reduced scope of a number of marketing initiatives in the first six months of 2009. the segment was also affected by a decrease in revenue of approximately $ 2.3 million in our vital issues in medicine business unit which closed in 2009 . 26 pdi , inc. annual report on form 10-k ( continued ) pc services had no revenue for the year ended december 31 , 2009 and had negative revenue of $ 1.0 million for the year ended december 31 , 2008 due to a non-refundable upfront payment made to novartis as per the terms of our former promotion agreement . cost of services cost of services for the year ended december 31 , 2009 was $ 58.6 million , or 45.8 % less than the cost of services of $ 108.0 million for the year ended december 31 , 2008. sales services ' cost of services decreased for the year ended december 31 , 2009 versus the comparable prior year period primarily due to a reduction in the average sales representative headcount and related costs correlating to an overall reduction in the number and size of our sales force engagements . marketing services ' cost of services decreased $ 5.4 million for the year ended december 31 , 2009 versus the comparable prior year period due to the decline in revenue attributable to the overall continued softness in the market for these types of services . pc services ' cost of services was a credit of $ 2.5 million for the year ended december 31 , 2009 due to the reversal of the excess amount of our 2008 contract loss accrual . pc services had cost of services of $ 22.6 million for the year ended december 31 , 2008 , including $ 10.3 million that was recorded in the fourth quarter of 2008 related to the accrued contract loss . see note 11 , product commercialization contract , to our consolidated financial statements for additional details . gross profit the overall increase in gross profit percentage from 4.0 % for the year ended december 31 , 2008 to 31.0 % for the year ended december 31 , 2009 was primarily the result of the impact of our product commercialization contract with novartis . the year ended december 31 , 2009 benefited from the reversal of the excess contract loss accrual of approximately $ 2.5 million associated with the settlement of our promotional agreement within pc services . the year ended december 31 , 2008 had negative gross profit of approximately $ 23.6 million associated with the promotion agreement , including $ 10.3 million related to the contract loss accrual mentioned above . sales services ' gross profit percentages were 21.4 % and 20.5 % for the years ended december 31 , 2009 and 2008 , respectively . the 2009 increase in gross profit was attributable to an increase in gross profit percentage within the shared sales teams business unit due to : lower fuel and mileage reimbursement costs ; lower insurance costs ; and certain operating efficiencies within our shared sales teams . gross profit percentage for the marketing services increased to 48.0 % for the year ended december 31 , 2009 from 40.8 % for the year ended december 31 , 2008. this increase was driven by improved margins at pharmakon and tvg , both of which had increases of approximately five percentage points , as well as closing our lower-margin vital issues in medicine business unit during the quarter ended september 30 , 2009. the pharmakon margin improvement was driven primarily by a change in its product mix on a year-over-year basis . note : compensation expense and other selling , general and administrative ( other sg & a ) expense amounts for each segment include allocated corporate overhead . replace_table_token_4_th the decrease in compensation expense for the year ended december 31 , 2009 was primarily the result of 2008 costs of approximately $ 0.5 million related to replacing our former chief executive officer not recurring in 2009. as a percentage of revenue , compensation expense for the year ended december 31 , 2009 increased to 26.3 % as compared to 20.3 % for the year ended december 31 , 2008. this percentage increase was primarily due to the decrease in revenue in 2009. the increase in sales services was primarily attributable to greater recruiting and hiring costs during the year ended december 31 , 2009. marketing services ' compensation expense was comparable in both periods . compensation expense for the year ended december 31 , 2009 in marketing services included approximately $ 0.8 million in severance costs which were essentially offset by our savings from headcount reductions . pc services ' compensation expense decreased for the year ended december 31 , 2009 as compared to the prior year period as a result of the april 2009 termination of our promotion agreement within pc services . 27 pdi , inc. annual report on form 10-k ( continued ) replace_table_token_5_th total other selling , general and administrative expenses increased by approximately $ 0.7 million , or 4.2 % , for the year ended december 31 ,
| liquidity and capital resources as of december 31 , 2009 , we had cash and cash equivalents and short-term investments of approximately $ 72.6 million and working capital of $ 71.6 million , compared to cash and cash equivalents and short-term investments of approximately $ 90.2 million and working capital of approximately $ 81.6 million at december 31 , 2008. as of december 31 , 2009 and 2008 , we had no outstanding commercial debt . during the years ended december 31 , 2009 and 2008 , net cash used in operating activities was $ 16.0 million and $ 16.0 million , respectively . the main components of cash used in operating activities during the year ended december 31 , 2009 was a net loss of $ 33.6 million , a reduction in the accrued contract loss of $ 10.0 million and a $ 3.3 million increase in income tax receivable . this was partially offset by a reduction in accounts receivable of $ 3.9 million and non-cash items of $ 23.6 million . the net non-cash items consist primarily of asset impairment charges of $ 18.1 million , depreciation and amortization of $ 2.8 million , non-cash facility realignment charges of $ 2.6 million and stock-based compensation of $ 1.4 million . as of december 31 , 2009 , we had $ 3.5 million of unbilled costs and accrued profits on contracts in progress . when services are performed in advance of billing , the value of such services is recorded as unbilled costs and accrued profits on contracts in progress . normally all unbilled costs and accrued profits on contracts in progress are earned and billed within a few months of the period they are originally recognized . as of december 31 , 2009 , we had approximately $ 6.8 million of unearned contract revenue . unearned contract revenue represents amounts billed to customers for services that have not been performed . these amounts are recorded as revenue in the periods when earned .
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because we use the direct-expense method of accounting for our crj200 engine expense , and because we recognize revenue using the applicable fixed hourly rates under our fixed-rate engine contracts , the number of engine maintenance events and related expense we incur each reporting period under the fixed-rate engine contracts has a direct impact on the comparability of our operating income for the presented reporting periods . because we recognize revenue at the same amount and in the same period when we incur engine maintenance expense on engines operating under our directly-reimbursed engine contracts , the number of engine events and related expense we incur each reporting period does not have a direct impact on the comparability of our operating income for the presented reporting periods . we have an agreement with a third-party vendor to provide long-term engine maintenance covering scheduled and unscheduled repairs for engines on our crj700s operating under our fixed-rate engine contracts ( a `` power by the hour agreement `` ) . under the terms of the power by the hour agreement , we are obligated to pay a set dollar amount per engine hour flown on a monthly basis and the vendor assumes the obligation to repair the engines at no additional cost to us , subject to certain specified exclusions . thus , under the power by the hour agreement , we expense the engine maintenance costs as flight hours are incurred on the engines and using the contractual rate set forth in the agreement . because we record engine maintenance expense based on the fixed hourly rate pursuant to the power by the hour agreement on our crj700s operating under our fixed-rate engine contracts , and because we recognize revenue using the applicable fixed hourly rates under our fixed-rate engine contracts , the number of engine events and related expense we incur each reporting period does not have a direct impact on the comparability of our operating income for the presented 39 reporting periods . the table below summarizes how we are compensated by our major partners under our flying contracts for engine expense and the method we use to recognize the corresponding expense . flying contract compensation of engine expense expense recognition skywest delta connection directly-reimbursed engine contracts direct expense method expressjet delta connection directly-reimbursed engine contracts direct expense method skywest united express ( crj200 ) fixed-rate engine contracts direct expense method skywest united express ( crj700 ) fixed-rate engine contracts power by the hour agreement skywest united express ( e175 ) fixed-rate engine contracts power by the hour agreement skywest united express ( emb120 ) fixed-rate engine contracts deferral method expressjet united ( crj200 ) fixed-rate engine contracts direct expense method expressjet united ( erj145 ) directly-reimbursed engine contracts power by the hour agreement alaska agreement ( crj700s ) fixed-rate engine contracts power by the hour agreement skywest american agreement ( crj200 ) fixed-rate engine contracts direct expense method expressjet american agreement ( crj200 ) fixed-rate engine contracts direct expense method us airways agreement ( crj200 / crj900 ) fixed-rate engine contracts direct expense method historically , multiple contractual relationships with major airlines have enabled us to reduce our reliance on any single major airline code and to enhance and stabilize operating results through a mix of fixed-fee flying arrangements and our pro-rate flying arrangements . for the year ended december 31 , 2014 , contract flying revenue and pro-rate revenue represented approximately 88 % and 12 % , respectively , of our total passenger revenues . on contract routes , the major airline partner controls scheduling , ticketing , pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on completed block hours , flight departures and other operating measures . financial highlights we had total operating revenues of $ 3.2 billion for the year ended december 31 , 2014 , a 1.8 % decrease , compared to total operating revenues of $ 3.3 billion for the year ended december 31 , 2013. we had a net loss of $ 24.2 million , or $ ( 0.47 ) per diluted share , for the year ended december 31 , 2014 , compared to $ 59.0 million , or $ 1.12 per diluted share , for the year ended december 31 , 2013. the significant items affecting our financial performance during the year ended december 31 , 2014 are outlined below : revenue under our fixed-fee arrangements , certain expenses are subject to direct reimbursement from our major partners and we record such reimbursements as passenger revenue ( referred to as pass through costs ) . these pass-through costs include fuel , landing fees , station rents and engine maintenance expenses under certain fixed-fee contracts . excluding the pass-through expenses for fuel , landing fees and engine maintenance and the associated direct reimbursement from our major partners , our passenger revenues increased from $ 2,570 million for the year ended december 31 , 2013 to $ 2,583 million for the year ended december 31 , 2014 , a $ 13 million increase . this increase during the 2014 year was primarily due to the addition of the e175 aircraft , certain contract renewals and modifications at improved rates and increased volume of departures on routes subject to government subsidies . block hours incurred on completed flights is a significant driver of our revenue under our fixed-fee arrangements . during the three months ended march 31 , 2014 , we experienced unusual weather-related disruptions and cancelled approximately 15,800 more flights compared to the three months ended march 31 , 2013 , or a 144 % increase in weather-cancelled flights . story_separator_special_tag the fasb issued asu 2014-12 to provide explicit guidance for share-based awards which allow for an employee 's award to vest upon achievement of a performance condition met after completion of a requisite service period regardless of whether the employee is rendering service on the date the performance target is achieved . asu 2014-12 provides that the performance target should not be reflected in estimating the grant-date fair value of the award , but rather compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and recognized prospectively over the remaining requisite service period . asu 2014-12 is effective for fiscal years and interim periods within those years beginning after december 15 , 2015. we do not believe the implementation of asu 2014-12 will have a material impact on our consolidated financial statements . in may 2014 , the fasb issued asu no . 2014-09 , `` revenue from contracts with customers `` ( asu no . 2014-09 ) . under asu no . 2014-09 , revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received for that specific good or service . asu 2014-09 is effective for annual reporting periods beginning after december 15 , 2016 , including interim reporting periods , and early adoption is not permitted . entities may use a full retrospective approach or report the cumulative effect as of the date of adoption . our management is currently evaluating the impact , the adoption of asu no . 2014-09 will have on our consolidated financial statements . in april 2014 , the fasb issued accounting standards update 2014-08 , presentation of financial statements ( topic 205 ) and property , plant , and equipment ( topic 360 ) : reporting discontinued operations and disclosures of disposals of components of an entity . the standard changes the requirements for reporting discontinued operations in subtopic 205-20. the standard is effective in the first quarter of 2015. we do not believe the implementation of the standard will have a material impact on our consolidated financial statements . 45 results of operations 2014 compared to 2013 operational statistics . the following table sets forth our major operational statistics and the associated percentages-of-change for the periods identified below . replace_table_token_12_th revenues . total operating revenues decreased $ 60.3 million , or 1.8 % , during the year ended december 31 , 2014 , compared to the year ended december 31 , 2013. under certain of our flying contracts , certain expenses are subject to direct reimbursement from our major partners and we record such reimbursements as passenger revenue . these reimbursed expenses include fuel , landing fees , station rents and certain engine maintenance expenses . our fuel expense , landing fees , station rents and directly-reimbursed engine expense decreased by $ 79.1 million during the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013 , due primarily to ( i ) our major partners purchasing an increased volume of fuel , landing fees and station rents directly from vendors on flights we operated under our code-share agreements and ( ii ) a reduction in the number of engine maintenance events . the following table summarizes the amount of fuel , landing fees , station rents , de-ice and engine overhaul reimbursements included in our passenger revenues for the periods indicated ( dollar amounts in thousands ) . replace_table_token_13_th passenger revenues . passenger revenues decreased $ 71.5 million , or 2.2 % , during year ended december 31 , 2014 , compared to the year ended december 31 , 2013. our passenger revenues , excluding fuel , landing fees , station rents and engine overhaul reimbursements from major partners , increased $ 7.6 million , or 0.3 % , during the year ended december 31 , 2014 , compared to the year ended december 31 , 2013. the increase in passenger revenues , excluding fuel , landing fees , station rents and engine overhaul reimbursements , was primarily due to the additional e175 operations that began in 2014 , improvements in the provisions in certain of our flying contracts and additional revenue sharing 46 operations , partially offset by reductions in the expressjet fleet size , severe weather experienced in the first half of 2014 and reduced contract performance incentives . ground handling and other . total ground handling and other revenues increased $ 11.3 million , or 19.3 % , during the year ended december 31 , 2014 , compared to the year ended december 31 , 2013. ground handling and other revenue primarily consists of ground handling services we provide to third-party airlines and government subsidies we receive for operating certain routes . revenues associated with ground handling services we provide for our aircraft are recorded as passenger revenues . the increase in ground handling and other revenue was primarily due to an increased volume of departures during the 2014 year on routes subject to government subsidies . individual expense components attributable to our operations are expressed in the following table on the basis of cents per asm ( dollar amounts in thousands ) . replace_table_token_14_th salaries , wages and employee benefits . salaries , wages and employee benefits increased $ 46.8 million , or 3.9 % , during the year ended december 31 , 2014 , compared to the year ended december 31 , 2013. the increase in salaries , wages and employee benefits was primarily due to additional expenses attributable to the implementation of the improvement act , which had a negative effect on pilot scheduling and work hours and resulted in increased crew costs . the increase was also due to the additional e175 operations and training costs associated with the commencement of our e175 flight operations during 2014. aircraft maintenance , materials and repairs . aircraft maintenance expense decreased $ 3.6 million , or 0.5
| liquidity and capital resources as of december 31 , 2009 , we had cash and cash equivalents and short-term investments of approximately $ 72.6 million and working capital of $ 71.6 million , compared to cash and cash equivalents and short-term investments of approximately $ 90.2 million and working capital of approximately $ 81.6 million at december 31 , 2008. as of december 31 , 2009 and 2008 , we had no outstanding commercial debt . during the years ended december 31 , 2009 and 2008 , net cash used in operating activities was $ 16.0 million and $ 16.0 million , respectively . the main components of cash used in operating activities during the year ended december 31 , 2009 was a net loss of $ 33.6 million , a reduction in the accrued contract loss of $ 10.0 million and a $ 3.3 million increase in income tax receivable . this was partially offset by a reduction in accounts receivable of $ 3.9 million and non-cash items of $ 23.6 million . the net non-cash items consist primarily of asset impairment charges of $ 18.1 million , depreciation and amortization of $ 2.8 million , non-cash facility realignment charges of $ 2.6 million and stock-based compensation of $ 1.4 million . as of december 31 , 2009 , we had $ 3.5 million of unbilled costs and accrued profits on contracts in progress . when services are performed in advance of billing , the value of such services is recorded as unbilled costs and accrued profits on contracts in progress . normally all unbilled costs and accrued profits on contracts in progress are earned and billed within a few months of the period they are originally recognized . as of december 31 , 2009 , we had approximately $ 6.8 million of unearned contract revenue . unearned contract revenue represents amounts billed to customers for services that have not been performed . these amounts are recorded as revenue in the periods when earned .
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because we use the direct-expense method of accounting for our crj200 engine expense , and because we recognize revenue using the applicable fixed hourly rates under our fixed-rate engine contracts , the number of engine maintenance events and related expense we incur each reporting period under the fixed-rate engine contracts has a direct impact on the comparability of our operating income for the presented reporting periods . because we recognize revenue at the same amount and in the same period when we incur engine maintenance expense on engines operating under our directly-reimbursed engine contracts , the number of engine events and related expense we incur each reporting period does not have a direct impact on the comparability of our operating income for the presented reporting periods . we have an agreement with a third-party vendor to provide long-term engine maintenance covering scheduled and unscheduled repairs for engines on our crj700s operating under our fixed-rate engine contracts ( a `` power by the hour agreement `` ) . under the terms of the power by the hour agreement , we are obligated to pay a set dollar amount per engine hour flown on a monthly basis and the vendor assumes the obligation to repair the engines at no additional cost to us , subject to certain specified exclusions . thus , under the power by the hour agreement , we expense the engine maintenance costs as flight hours are incurred on the engines and using the contractual rate set forth in the agreement . because we record engine maintenance expense based on the fixed hourly rate pursuant to the power by the hour agreement on our crj700s operating under our fixed-rate engine contracts , and because we recognize revenue using the applicable fixed hourly rates under our fixed-rate engine contracts , the number of engine events and related expense we incur each reporting period does not have a direct impact on the comparability of our operating income for the presented 39 reporting periods . the table below summarizes how we are compensated by our major partners under our flying contracts for engine expense and the method we use to recognize the corresponding expense . flying contract compensation of engine expense expense recognition skywest delta connection directly-reimbursed engine contracts direct expense method expressjet delta connection directly-reimbursed engine contracts direct expense method skywest united express ( crj200 ) fixed-rate engine contracts direct expense method skywest united express ( crj700 ) fixed-rate engine contracts power by the hour agreement skywest united express ( e175 ) fixed-rate engine contracts power by the hour agreement skywest united express ( emb120 ) fixed-rate engine contracts deferral method expressjet united ( crj200 ) fixed-rate engine contracts direct expense method expressjet united ( erj145 ) directly-reimbursed engine contracts power by the hour agreement alaska agreement ( crj700s ) fixed-rate engine contracts power by the hour agreement skywest american agreement ( crj200 ) fixed-rate engine contracts direct expense method expressjet american agreement ( crj200 ) fixed-rate engine contracts direct expense method us airways agreement ( crj200 / crj900 ) fixed-rate engine contracts direct expense method historically , multiple contractual relationships with major airlines have enabled us to reduce our reliance on any single major airline code and to enhance and stabilize operating results through a mix of fixed-fee flying arrangements and our pro-rate flying arrangements . for the year ended december 31 , 2014 , contract flying revenue and pro-rate revenue represented approximately 88 % and 12 % , respectively , of our total passenger revenues . on contract routes , the major airline partner controls scheduling , ticketing , pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on completed block hours , flight departures and other operating measures . financial highlights we had total operating revenues of $ 3.2 billion for the year ended december 31 , 2014 , a 1.8 % decrease , compared to total operating revenues of $ 3.3 billion for the year ended december 31 , 2013. we had a net loss of $ 24.2 million , or $ ( 0.47 ) per diluted share , for the year ended december 31 , 2014 , compared to $ 59.0 million , or $ 1.12 per diluted share , for the year ended december 31 , 2013. the significant items affecting our financial performance during the year ended december 31 , 2014 are outlined below : revenue under our fixed-fee arrangements , certain expenses are subject to direct reimbursement from our major partners and we record such reimbursements as passenger revenue ( referred to as pass through costs ) . these pass-through costs include fuel , landing fees , station rents and engine maintenance expenses under certain fixed-fee contracts . excluding the pass-through expenses for fuel , landing fees and engine maintenance and the associated direct reimbursement from our major partners , our passenger revenues increased from $ 2,570 million for the year ended december 31 , 2013 to $ 2,583 million for the year ended december 31 , 2014 , a $ 13 million increase . this increase during the 2014 year was primarily due to the addition of the e175 aircraft , certain contract renewals and modifications at improved rates and increased volume of departures on routes subject to government subsidies . block hours incurred on completed flights is a significant driver of our revenue under our fixed-fee arrangements . during the three months ended march 31 , 2014 , we experienced unusual weather-related disruptions and cancelled approximately 15,800 more flights compared to the three months ended march 31 , 2013 , or a 144 % increase in weather-cancelled flights . story_separator_special_tag the fasb issued asu 2014-12 to provide explicit guidance for share-based awards which allow for an employee 's award to vest upon achievement of a performance condition met after completion of a requisite service period regardless of whether the employee is rendering service on the date the performance target is achieved . asu 2014-12 provides that the performance target should not be reflected in estimating the grant-date fair value of the award , but rather compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and recognized prospectively over the remaining requisite service period . asu 2014-12 is effective for fiscal years and interim periods within those years beginning after december 15 , 2015. we do not believe the implementation of asu 2014-12 will have a material impact on our consolidated financial statements . in may 2014 , the fasb issued asu no . 2014-09 , `` revenue from contracts with customers `` ( asu no . 2014-09 ) . under asu no . 2014-09 , revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received for that specific good or service . asu 2014-09 is effective for annual reporting periods beginning after december 15 , 2016 , including interim reporting periods , and early adoption is not permitted . entities may use a full retrospective approach or report the cumulative effect as of the date of adoption . our management is currently evaluating the impact , the adoption of asu no . 2014-09 will have on our consolidated financial statements . in april 2014 , the fasb issued accounting standards update 2014-08 , presentation of financial statements ( topic 205 ) and property , plant , and equipment ( topic 360 ) : reporting discontinued operations and disclosures of disposals of components of an entity . the standard changes the requirements for reporting discontinued operations in subtopic 205-20. the standard is effective in the first quarter of 2015. we do not believe the implementation of the standard will have a material impact on our consolidated financial statements . 45 results of operations 2014 compared to 2013 operational statistics . the following table sets forth our major operational statistics and the associated percentages-of-change for the periods identified below . replace_table_token_12_th revenues . total operating revenues decreased $ 60.3 million , or 1.8 % , during the year ended december 31 , 2014 , compared to the year ended december 31 , 2013. under certain of our flying contracts , certain expenses are subject to direct reimbursement from our major partners and we record such reimbursements as passenger revenue . these reimbursed expenses include fuel , landing fees , station rents and certain engine maintenance expenses . our fuel expense , landing fees , station rents and directly-reimbursed engine expense decreased by $ 79.1 million during the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013 , due primarily to ( i ) our major partners purchasing an increased volume of fuel , landing fees and station rents directly from vendors on flights we operated under our code-share agreements and ( ii ) a reduction in the number of engine maintenance events . the following table summarizes the amount of fuel , landing fees , station rents , de-ice and engine overhaul reimbursements included in our passenger revenues for the periods indicated ( dollar amounts in thousands ) . replace_table_token_13_th passenger revenues . passenger revenues decreased $ 71.5 million , or 2.2 % , during year ended december 31 , 2014 , compared to the year ended december 31 , 2013. our passenger revenues , excluding fuel , landing fees , station rents and engine overhaul reimbursements from major partners , increased $ 7.6 million , or 0.3 % , during the year ended december 31 , 2014 , compared to the year ended december 31 , 2013. the increase in passenger revenues , excluding fuel , landing fees , station rents and engine overhaul reimbursements , was primarily due to the additional e175 operations that began in 2014 , improvements in the provisions in certain of our flying contracts and additional revenue sharing 46 operations , partially offset by reductions in the expressjet fleet size , severe weather experienced in the first half of 2014 and reduced contract performance incentives . ground handling and other . total ground handling and other revenues increased $ 11.3 million , or 19.3 % , during the year ended december 31 , 2014 , compared to the year ended december 31 , 2013. ground handling and other revenue primarily consists of ground handling services we provide to third-party airlines and government subsidies we receive for operating certain routes . revenues associated with ground handling services we provide for our aircraft are recorded as passenger revenues . the increase in ground handling and other revenue was primarily due to an increased volume of departures during the 2014 year on routes subject to government subsidies . individual expense components attributable to our operations are expressed in the following table on the basis of cents per asm ( dollar amounts in thousands ) . replace_table_token_14_th salaries , wages and employee benefits . salaries , wages and employee benefits increased $ 46.8 million , or 3.9 % , during the year ended december 31 , 2014 , compared to the year ended december 31 , 2013. the increase in salaries , wages and employee benefits was primarily due to additional expenses attributable to the implementation of the improvement act , which had a negative effect on pilot scheduling and work hours and resulted in increased crew costs . the increase was also due to the additional e175 operations and training costs associated with the commencement of our e175 flight operations during 2014. aircraft maintenance , materials and repairs . aircraft maintenance expense decreased $ 3.6 million , or 0.5
| cash position and liquidity . the following table provides a summary of the net cash provided by ( used in ) our operating , investing and financing activities for the years ended december 31 , 2014 and 2013 , and our total cash and marketable securities position as of december 31 , 2014 and december 31 , 2013 ( in thousands ) . replace_table_token_24_th 57 replace_table_token_25_th cash flows from operating activities . net cash provided by operating activities decreased $ 4.4 million , or 1.5 % , during 2014 , compared to 2013. the primary factors impacting our cash provided from operating activities include : our income before income taxes was $ 58.4 million , excluding special items of $ 74.8 million , in 2014 , compared to income before income taxes of $ 98.5 million for 2013 , resulting in a decrease in cash flows from operating activities of $ 40.1 million . this reduction in cash from operating activities was substantially offset by an increase in non-cash depreciation expense of $ 14.6 million from 2013 to 2014 , primarily due to 20 e175 aircraft purchased in 2014 ; a reduction in capitalized emb120 engine overhaul events , which are reflected as an operating activity , of $ 10.8 million from 2013 to 2014 primarily due to a reduction in the number of overhaul events ; and other changes in working capital accounts . cash flows from investing activities . net cash used in investing activities increased $ 519.3 million , or 787.2 % during 2014 , compared to 2013. the increase in cash used in investing activities was primarily due to the acquisition of 20 e175 aircraft , one used crj700 aircraft and related rotable spare assets in 2014 , which in total represented an increase of $ 563.4 million compared to the aircraft acquisition and related rotable spare aircraft purchases from 2013. this amount was offset by $ 40.0 million in aircraft deposits paid in 2013 associated with the order of 40 e175 aircraft .
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`` our participation under this projected five-year grant is awarded incrementally on an annual basis with the first year commencing september 15 , 2017. cumulative funding for this sub-award in the amount of $ 2,403 has been appropriated by the u.s. congress through the fourth contractual year ending in september 2021. during 2021 , we anticipate that the final option year ending on september 14 , 2022 will be awarded to yield10 , resulting in aggregate total sub-award funding of $ 2,957 , provided the u.s. congress continues to appropriate funds for the program , we are able to make progress towards meeting grant objectives and we remain in compliance with other terms and conditions of the sub-award . as of december 31 , 2020 , proceeds of $ 531 remain to be earned from the msu sub-award amounts awarded to date . this includes amounts for reimbursement to our subcontractors , as well as reimbursement for our employees ' time , benefits and other expenses related to future performance . program title funding agency total government funds total revenue recognized through december 31 , 2020 remaining amount to be recognized as of december 31 , 2020 contract/grant expiration subcontract from michigan state university project funded by doe entitled `` a systems approach to increasing carbon flux to seed oil `` department of energy $ 2,403 $ 1,872 $ 531 september 15 , 2021 funding from national research council canada through its industrial research assistance program ( nrc-irap ) entitled `` innovation assistance program `` national research council canada 67 67 โ june 24 , 2020 funding from national research council canada through its industrial research assistance program ( nrc-irap ) entitled `` innovation assistance program `` national research council canada 86 86 โ december 19 , 2020 total $ 2,556 $ 2,025 $ 531 critical accounting estimates and judgments our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related disclosures . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates . we believe that our significant accounting policies , which are described in note 2 to our consolidated financial statements , involve a degree of judgment and complexity . accordingly , we believe that the specific accounting policies and significant judgments described below are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . grant revenue government research grants currently represent our sole source of revenue . we recognize government grants as revenue because the grants are central to the company 's ongoing crop science program . revenue is earned as research expenses related to the grants are incurred . revenue earned on government grants , but not yet invoiced as of the balance sheet date , is recorded as unbilled receivables in the accompanying consolidated balance sheets for the years ended december 31 , 2020 and december 31 , 2019. funds received from government grants in advance of work being performed are recorded as deferred revenue until earned . 46 performance-based compensation accrual our employee compensation program includes a potential for bonus payments based on company and individual performance against annual goals that are established early in the fiscal year by management and the company 's board of directors . bonus payments are generally paid at the end of february following the most recently completed fiscal year . the compensation committee of our board of directors is responsible for reviewing annual performance against goals and approving bonus payments for the company 's executive officers . annual cash bonuses are accrued evenly throughout the fiscal year unless management and or the compensation committee determine that bonus compensation payments are unlikely to be paid at the existing rate . in that event , we make a cumulative year-to-date adjustment to our bonus accrual and adjust quarterly accruals for the remainder of the year in order to achieve a bonus compensation accrual at year-end that matches expected bonus payments . our quarterly performance-based compensation expense and accrual balances may vary significantly during the year as performance judgments change and we revise our estimates . stock-based compensation the accounting standards for stock-based compensation require that all stock-based awards be recognized as an expense in the consolidated financial statements and that such expense be measured based on the fair value of the award . determining the appropriate fair value model and calculating the fair value of stock-based payment awards requires the use of highly subjective assumptions , including the expected life of the stock-based payment awards and stock price volatility . we use the black-scholes option-pricing model to value our service-based option grants and to determine the related compensation expense . generally , we recognize the fair value of stock awards evenly over their vesting periods provided the individual receiving the award meets continuing service conditions . the assumptions used in calculating the fair value of stock-based awards represent management 's best estimates , but the estimates involve inherent uncertainties and the application of management judgment . see note 10 to the consolidated financial statements for further discussion on the key assumptions used to determine the fair values of option grants pursuant to the black-scholes option pricing model . income taxes due to the company 's history of annual income tax losses , it has never incurred significant income tax expenses . the company has , however , recorded significant deferred income tax assets for net operating loss carry forwards and research tax credits that are available to offset future income taxes . deferred income taxes are measured by applying currently enacted tax rates to the differences between financial statement and income tax reporting . story_separator_special_tag our forecasts related to research and development expense are subject to change due to the potential impact of the covid-19 pandemic , or as new collaborative and other business opportunities arise that alter our plans . 48 general and administrative expenses general and administrative expenses were $ 5,047 and $ 4,554 for the fiscal years ended december 31 , 2020 and december 31 , 2019 , respectively . the increase of $ 493 , or 11 % , was primarily due to increased employee compensation and benefits , professional fees and higher insurance premiums . employee compensation and benefits increased by $ 198 , from $ 1,826 during the year ended december 31 , 2019 to $ 2,024 during the year ended december 31 , 2020 , and was primarily a result of recording employee bonuses for 2020. stock compensation expense increased by $ 58 during the year ended december 31 , 2020 , as a result of stock option awards issued to employees during the year . professional fees increased by $ 239 , due to work performed by our outside legal and accounting firms in connection with securities registrations and corporate governance activities . during the year ended december 31 , 2020 , insurance expense increased by $ 81 as a result of higher director and officer ( `` d & o `` ) liability insurance premiums . higher d & o premiums are being assessed nationwide by insurance underwriters due to consecutive years of increased class action lawsuits and settlement claims . based on our current planning and budgeting , we anticipate that general and administrative expense will increase over the next twelve months as we add regulatory support and senior operations and business development resources to our company in connection with the future launch of our camelina products . our forecasts related to general and administrative expense are subject to change due to the potential impact of the covid-19 pandemic , or as new collaborative and other business opportunities arise that alter our plans . other income ( expense ) , net replace_table_token_3_th loss on issuance of securities on november 19 , 2019 , we closed on concurrent securities offerings that included a total of 2,875,000 warrants that received liability classification and were determined to have a black-scholes fair value of $ 24,518 on their date of issuance . the gross proceeds of the 2019 offerings were first allocated to the warrants . in accordance with applicable accounting guidance , the warrants were recorded at their full fair value and the difference between the fair value and the proceeds of $ 13,018 was recorded to other income ( expense ) . see note 9 - capital stock and warrants , in our consolidated financial statements . offering costs the combined proceeds of the november 2019 offerings were allocated solely to the liability classified warrants . all of the offering costs of $ 1,254 were therefore assigned to the warrants and expensed immediately to other income ( expense ) . change in fair value of warrants the fair value of the liability classified warrants issued in the november 2019 concurrent offerings were subject to mark-to-market adjustment on subsequent balance sheet dates . we remeasured the fair value of the warrant liability at december 31 , 2019 , recording a gain from the change in fair value of $ 9,541. on january 15 , 2020 , we remeasured the fair value of the warrant liability again in connection with the company 's 1-for-40 reverse stock split , recording a loss from the change in fair value of $ 957. the reverse stock split increased the number of shares of common stock available for issuance resulting in reclassification of the warrants from a liability to equity . 49 loan forgiveness income during april 2020 , we received $ 333 in loan proceeds through the paycheck protection program flexibility act ( `` ppp `` ) , established pursuant to the cares act . under the cares act and the ppp , a borrower may apply for and be granted forgiveness for all or a part of its ppp loan . the amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors , including the amount of loan proceeds used by the borrower during the twenty-four-week period after the loan origination for certain purposes including payroll costs , rent payments on certain leases , and certain qualified utility payments . we utilized the entire ppp loan amount for qualifying expenses and applied for loan forgiveness , receiving a favorable determination in november 2020 for the full amount of the loan . as a result , we recorded the $ 333 as loan forgiveness income within other income ( expense ) in our consolidated statement of operations for the year ended december 31 , 2020. interest income ( expense ) , net other income ( expense ) for the years ended december 31 , 2020 and december 31 , 2019 was derived primarily from investment income earned from the company 's cash equivalents and short-term investments . story_separator_special_tag the result of the company 's net loss of $ 12,956 , lease payments and modifications to reduce lease liabilities of $ 2,244 , partially offset by non-cash expenses , including the company 's loss on issuance of securities of $ 13,018 representing the difference between the fair value of the liability classified warrants issued in the company 's november 2019 securities offering and the proceeds received from the offering . net cash used for operating activities during the year ended december 31 , 2019 also included an offsetting non-cash gain of $ 9,541 as a result of remeasuring the fair value of the warrants on december 31 , 2019 and other non-cash expenses recorded during 2019 , including stock-based compensation , depreciation , 401 ( k ) stock matching contributions and non-cash lease expense resulting from our amortization of our leased right-of-use assets
| cash position and liquidity . the following table provides a summary of the net cash provided by ( used in ) our operating , investing and financing activities for the years ended december 31 , 2014 and 2013 , and our total cash and marketable securities position as of december 31 , 2014 and december 31 , 2013 ( in thousands ) . replace_table_token_24_th 57 replace_table_token_25_th cash flows from operating activities . net cash provided by operating activities decreased $ 4.4 million , or 1.5 % , during 2014 , compared to 2013. the primary factors impacting our cash provided from operating activities include : our income before income taxes was $ 58.4 million , excluding special items of $ 74.8 million , in 2014 , compared to income before income taxes of $ 98.5 million for 2013 , resulting in a decrease in cash flows from operating activities of $ 40.1 million . this reduction in cash from operating activities was substantially offset by an increase in non-cash depreciation expense of $ 14.6 million from 2013 to 2014 , primarily due to 20 e175 aircraft purchased in 2014 ; a reduction in capitalized emb120 engine overhaul events , which are reflected as an operating activity , of $ 10.8 million from 2013 to 2014 primarily due to a reduction in the number of overhaul events ; and other changes in working capital accounts . cash flows from investing activities . net cash used in investing activities increased $ 519.3 million , or 787.2 % during 2014 , compared to 2013. the increase in cash used in investing activities was primarily due to the acquisition of 20 e175 aircraft , one used crj700 aircraft and related rotable spare assets in 2014 , which in total represented an increase of $ 563.4 million compared to the aircraft acquisition and related rotable spare aircraft purchases from 2013. this amount was offset by $ 40.0 million in aircraft deposits paid in 2013 associated with the order of 40 e175 aircraft .
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`` our participation under this projected five-year grant is awarded incrementally on an annual basis with the first year commencing september 15 , 2017. cumulative funding for this sub-award in the amount of $ 2,403 has been appropriated by the u.s. congress through the fourth contractual year ending in september 2021. during 2021 , we anticipate that the final option year ending on september 14 , 2022 will be awarded to yield10 , resulting in aggregate total sub-award funding of $ 2,957 , provided the u.s. congress continues to appropriate funds for the program , we are able to make progress towards meeting grant objectives and we remain in compliance with other terms and conditions of the sub-award . as of december 31 , 2020 , proceeds of $ 531 remain to be earned from the msu sub-award amounts awarded to date . this includes amounts for reimbursement to our subcontractors , as well as reimbursement for our employees ' time , benefits and other expenses related to future performance . program title funding agency total government funds total revenue recognized through december 31 , 2020 remaining amount to be recognized as of december 31 , 2020 contract/grant expiration subcontract from michigan state university project funded by doe entitled `` a systems approach to increasing carbon flux to seed oil `` department of energy $ 2,403 $ 1,872 $ 531 september 15 , 2021 funding from national research council canada through its industrial research assistance program ( nrc-irap ) entitled `` innovation assistance program `` national research council canada 67 67 โ june 24 , 2020 funding from national research council canada through its industrial research assistance program ( nrc-irap ) entitled `` innovation assistance program `` national research council canada 86 86 โ december 19 , 2020 total $ 2,556 $ 2,025 $ 531 critical accounting estimates and judgments our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related disclosures . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates . we believe that our significant accounting policies , which are described in note 2 to our consolidated financial statements , involve a degree of judgment and complexity . accordingly , we believe that the specific accounting policies and significant judgments described below are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . grant revenue government research grants currently represent our sole source of revenue . we recognize government grants as revenue because the grants are central to the company 's ongoing crop science program . revenue is earned as research expenses related to the grants are incurred . revenue earned on government grants , but not yet invoiced as of the balance sheet date , is recorded as unbilled receivables in the accompanying consolidated balance sheets for the years ended december 31 , 2020 and december 31 , 2019. funds received from government grants in advance of work being performed are recorded as deferred revenue until earned . 46 performance-based compensation accrual our employee compensation program includes a potential for bonus payments based on company and individual performance against annual goals that are established early in the fiscal year by management and the company 's board of directors . bonus payments are generally paid at the end of february following the most recently completed fiscal year . the compensation committee of our board of directors is responsible for reviewing annual performance against goals and approving bonus payments for the company 's executive officers . annual cash bonuses are accrued evenly throughout the fiscal year unless management and or the compensation committee determine that bonus compensation payments are unlikely to be paid at the existing rate . in that event , we make a cumulative year-to-date adjustment to our bonus accrual and adjust quarterly accruals for the remainder of the year in order to achieve a bonus compensation accrual at year-end that matches expected bonus payments . our quarterly performance-based compensation expense and accrual balances may vary significantly during the year as performance judgments change and we revise our estimates . stock-based compensation the accounting standards for stock-based compensation require that all stock-based awards be recognized as an expense in the consolidated financial statements and that such expense be measured based on the fair value of the award . determining the appropriate fair value model and calculating the fair value of stock-based payment awards requires the use of highly subjective assumptions , including the expected life of the stock-based payment awards and stock price volatility . we use the black-scholes option-pricing model to value our service-based option grants and to determine the related compensation expense . generally , we recognize the fair value of stock awards evenly over their vesting periods provided the individual receiving the award meets continuing service conditions . the assumptions used in calculating the fair value of stock-based awards represent management 's best estimates , but the estimates involve inherent uncertainties and the application of management judgment . see note 10 to the consolidated financial statements for further discussion on the key assumptions used to determine the fair values of option grants pursuant to the black-scholes option pricing model . income taxes due to the company 's history of annual income tax losses , it has never incurred significant income tax expenses . the company has , however , recorded significant deferred income tax assets for net operating loss carry forwards and research tax credits that are available to offset future income taxes . deferred income taxes are measured by applying currently enacted tax rates to the differences between financial statement and income tax reporting . story_separator_special_tag our forecasts related to research and development expense are subject to change due to the potential impact of the covid-19 pandemic , or as new collaborative and other business opportunities arise that alter our plans . 48 general and administrative expenses general and administrative expenses were $ 5,047 and $ 4,554 for the fiscal years ended december 31 , 2020 and december 31 , 2019 , respectively . the increase of $ 493 , or 11 % , was primarily due to increased employee compensation and benefits , professional fees and higher insurance premiums . employee compensation and benefits increased by $ 198 , from $ 1,826 during the year ended december 31 , 2019 to $ 2,024 during the year ended december 31 , 2020 , and was primarily a result of recording employee bonuses for 2020. stock compensation expense increased by $ 58 during the year ended december 31 , 2020 , as a result of stock option awards issued to employees during the year . professional fees increased by $ 239 , due to work performed by our outside legal and accounting firms in connection with securities registrations and corporate governance activities . during the year ended december 31 , 2020 , insurance expense increased by $ 81 as a result of higher director and officer ( `` d & o `` ) liability insurance premiums . higher d & o premiums are being assessed nationwide by insurance underwriters due to consecutive years of increased class action lawsuits and settlement claims . based on our current planning and budgeting , we anticipate that general and administrative expense will increase over the next twelve months as we add regulatory support and senior operations and business development resources to our company in connection with the future launch of our camelina products . our forecasts related to general and administrative expense are subject to change due to the potential impact of the covid-19 pandemic , or as new collaborative and other business opportunities arise that alter our plans . other income ( expense ) , net replace_table_token_3_th loss on issuance of securities on november 19 , 2019 , we closed on concurrent securities offerings that included a total of 2,875,000 warrants that received liability classification and were determined to have a black-scholes fair value of $ 24,518 on their date of issuance . the gross proceeds of the 2019 offerings were first allocated to the warrants . in accordance with applicable accounting guidance , the warrants were recorded at their full fair value and the difference between the fair value and the proceeds of $ 13,018 was recorded to other income ( expense ) . see note 9 - capital stock and warrants , in our consolidated financial statements . offering costs the combined proceeds of the november 2019 offerings were allocated solely to the liability classified warrants . all of the offering costs of $ 1,254 were therefore assigned to the warrants and expensed immediately to other income ( expense ) . change in fair value of warrants the fair value of the liability classified warrants issued in the november 2019 concurrent offerings were subject to mark-to-market adjustment on subsequent balance sheet dates . we remeasured the fair value of the warrant liability at december 31 , 2019 , recording a gain from the change in fair value of $ 9,541. on january 15 , 2020 , we remeasured the fair value of the warrant liability again in connection with the company 's 1-for-40 reverse stock split , recording a loss from the change in fair value of $ 957. the reverse stock split increased the number of shares of common stock available for issuance resulting in reclassification of the warrants from a liability to equity . 49 loan forgiveness income during april 2020 , we received $ 333 in loan proceeds through the paycheck protection program flexibility act ( `` ppp `` ) , established pursuant to the cares act . under the cares act and the ppp , a borrower may apply for and be granted forgiveness for all or a part of its ppp loan . the amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors , including the amount of loan proceeds used by the borrower during the twenty-four-week period after the loan origination for certain purposes including payroll costs , rent payments on certain leases , and certain qualified utility payments . we utilized the entire ppp loan amount for qualifying expenses and applied for loan forgiveness , receiving a favorable determination in november 2020 for the full amount of the loan . as a result , we recorded the $ 333 as loan forgiveness income within other income ( expense ) in our consolidated statement of operations for the year ended december 31 , 2020. interest income ( expense ) , net other income ( expense ) for the years ended december 31 , 2020 and december 31 , 2019 was derived primarily from investment income earned from the company 's cash equivalents and short-term investments . story_separator_special_tag the result of the company 's net loss of $ 12,956 , lease payments and modifications to reduce lease liabilities of $ 2,244 , partially offset by non-cash expenses , including the company 's loss on issuance of securities of $ 13,018 representing the difference between the fair value of the liability classified warrants issued in the company 's november 2019 securities offering and the proceeds received from the offering . net cash used for operating activities during the year ended december 31 , 2019 also included an offsetting non-cash gain of $ 9,541 as a result of remeasuring the fair value of the warrants on december 31 , 2019 and other non-cash expenses recorded during 2019 , including stock-based compensation , depreciation , 401 ( k ) stock matching contributions and non-cash lease expense resulting from our amortization of our leased right-of-use assets
| liquidity and capital resources we require cash to fund our working capital needs , to purchase capital assets , to pay our lease obligations and other operating costs . the primary sources of our liquidity have historically included equity financings , government research grants and income earned on cash equivalents and short-term investments . since our inception , we have incurred significant expenses related to our research , development and commercialization efforts . with the exception of 2012 , we have recorded annual losses since the company 's initial founding , including our fiscal year ended december 31 , 2020. as of december 31 , 2020 , we had an accumulated deficit of $ 375,100. our total unrestricted cash , cash equivalents and short-term investments as of december 31 , 2020 , totaled $ 9,702 as compared to $ 11,117 at december 31 , 2019. as of december 31 , 2020 , we had no outstanding debt . our cash , cash equivalents and short-term investments at december 31 , 2020 , were held for working capital purposes . as of december 31 , 2020 , we had restricted cash of $ 264 , which consisted of $ 229 held in connection with the lease agreement for our woburn , massachusetts facility and $ 35 held in connection with our corporate credit card program . investments are made in accordance with our corporate investment policy , as approved by our board of directors . the primary objective of this policy is to preserve principal , and consequently , investments are limited to high quality corporate debt , u.s. treasury bills and notes , money market funds , bank debt obligations , municipal debt obligations and asset-backed securities . the policy establishes maturity limits , concentration limits , and liquidity requirements . as of december 31 , 2020 , we were in compliance with this policy . subsequent to year-end , on february 3 , 2021 , we raised $ 11,996 , net of estimated offering costs of $ 744 , through the public sale of 1,040,000 shares of common stock at an issuance price of $ 12.25. these shares were offered by us pursuant to a registration statement on form s-3 ( file no .
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this strategic repositioning included several key actions , including : we initiated a plan to divest strathmore products ( the `` coatings `` business ) in the third quarter of the fiscal year ended march 31 , 2018 , the revenues of which were approximately one-third of the former coatings , sealants & adhesives ( โ cs & a โ ) segment . in connection with this plan , the coatings business was classified as assets held for sale and presented as discontinued operations . we condensed our three reportable segments into two : industrial products and specialty chemicals . as a result , the sealants and adhesives businesses , which were part of the former cs & a segment , were integrated into the specialty chemicals segment . we flattened our operational leadership structure , resulting in the departure of our president and chief operating officer , and our operational leadership reporting directly to our chairman and chief executive officer . 21 for additional information regarding discontinued operations and our segment realignment , see note 1 to our consolidated financial statements included in `` item 8. financial statements and supplementary data `` ( `` item 8 `` ) of this annual report . the share distribution on september 30 , 2015 , capital southwest corporation ( โ capital southwest โ ) spun-off certain of its industrial products , coatings , sealants and adhesives and specialty chemicals businesses by means of a distribution of the outstanding shares of common stock of cswi on a pro rata basis to holders of capital southwest common stock ( the โ share distribution โ ) . cswi became an independent , publicly-traded company on october 1 , 2015 following the share distribution . following the share distribution , we incurred capital costs in the process of integrating our operations , including the consolidation of some of our manufacturing facilities and operational improvement initiatives . through these efforts , we expect to continue to generate sales synergies through greater cross-selling opportunities and expansion of product line applications , and to generate cost synergies through operating more efficiently and effectively . we have also incurred additional costs as a result of being a public company , such as additional employee-related costs , costs to build out certain standalone corporate functions , information systems costs and other organizational-related costs . while we believe the majority of these expected post-share distribution costs have been incurred to date , we may incur additional costs in the future as we seek to further optimize our organization and operations . markets and outlook looking ahead , fiscal year 2019 should be a transitional year as we expect to complete the disposition of the coatings business , which is reflected in our discontinued operations . we expect this strategic repositioning to allow us to focus on a faster growing , more profitable and streamlined group of businesses and the underlying products , as we have simplified our reporting segments to industrial products and specialty chemicals . our diverse product portfolio in those segments serve attractive end markets that should continue to benefit from growth , primarily in north america , but we anticipate continued growth in key international regions primarily for our specialty chemical product portfolio , such as asia , latin america , south america and the middle east . we anticipate revenue growth in our key end markets during fiscal year ending march 31 , 2019 due to our innovative technologies , new product introductions , product differentiation and favorable industry trends . in fiscal year 2019 , we expect capital expenditures to be approximately $ 5 to $ 7 million . capital expenditures will be focused on maintenance and replacement , continuous improvement and revenue growth . we were pleased with our most recent acquisition , greco , as it outperformed in all respects from our acquisition model , driving revenue growth of 5.7 % and $ 2.8 million of our operating profit growth in the fiscal year ended march 31 , 2018 . we will continue to pursue bolt-on acquisitions in our key end markets and channels in fiscal year 2019 , but we will remain disciplined in our approach , including but not limited to our assessment of valuation , prospective synergies , diligence , cultural fit , integration , etc . hvac the hvac market is our largest market served and it represented approximately 30 % of our net sales in both fiscal years ended march 31 , 2018 and 2017 . we provide an extensive array of products for installation , repair and maintenance of hvac systems that includes our largest product family , consisting of condensate switches , as well as condensate pans , air diffusers , condensate pumps , refrigerant caps , line set covers and other chemical and mechanical products . the industry is driven by new construction projects , as well as replacement and repair of existing hvac systems . new hvac systems are heavily influenced by macro trends in building construction . the hvac market tends to be seasonal with the peak sales season beginning in march and continuing through august . construction and repair is typically performed by contractors , and we utilize our global distribution network to drive sales of our brands to such contractors . for the fiscal year ending march 31 , 2019 , we anticipate growth in the hvac market to be stronger than the gross domestic product . architecturally-specified building products architecturally-specified building products represented approximately 28 % and 24 % of our net sales in the fiscal years ended march 31 , 2018 and 2017 , respectively . we manufacture and sell products such as engineered railings , smoke and fire protection systems , expansion joints and stair edge nosings for large commercial buildings and parking facilities . story_separator_special_tag the increase was attributable to increased sales volumes into the energy market ( $ 7.6 million ) and increased sales volumes and prices of thread sealants and firestopping products ( $ 3.4 million ) . net revenues for the fiscal year ended march 31 , 2017 increased $ 0.7 million , or 0.5 % , as compared with the fiscal year ended march 31 , 2016 , net of $ 3.9 million contributed by acquisitions . excluding the impact of acquisitions , the decrease was due to decreases in sales volumes into the energy ( $ 6.7 million ) , industrial ( $ 1.9 million ) and rail ( $ 1.8 million ) markets , partially offset by increased sales of thread sealants and firestopping products ( $ 7.1 million ) . operating income for the fiscal year ended march 31 , 2018 increased $ 4.9 million , or 36.4 % , as compared with the fiscal year ended march 31 , 2017 . the increase was attributable to the impact of increased net revenues and a decline in restructuring and realignment costs ( $ 5.3 million ) , partially offset by negative product mix . operating income for the fiscal year ended march 31 , 2017 decreased $ 8.6 million , or 38.9 % , as compared with the fiscal year ended march 31 , 2016 , net of $ 2.2 million contributed by acquisitions . excluding the impact of acquisitions , the decrease was attributable to the impact of decreased net revenue , restructuring and realignment costs ( $ 7.1 million ) , a pension plan curtailment benefit in the prior year that did not recur ( $ 4.8 million ) and inventory write-offs ( $ 0.4 million ) . 26 for additional information on segments , see note 18 to our consolidated financial statements included in item 8 of this annual report . story_separator_special_tag style= `` font-family : inherit ; font-size:9pt ; `` > operating lease and purchase obligations denominated in foreign currencies are projected based on the exchange rate in effect on march 31 , 2018 . excludes amounts that have been eliminated in our consolidated financial statements . critical accounting estimates the process of preparing financial statements in conformity with u.s. gaap requires the use of estimates and assumptions to determine reported amounts of certain assets , liabilities , revenues and expenses and the disclosure of related contingent assets and liabilities . these estimates and assumptions are based upon information available at the time of the estimates or assumptions , including our historical experience , where relevant . the most significant estimates made by management include : timing and amount of revenue recognition ; deferred taxes and tax reserves ; pension benefits ; and valuation of goodwill and indefinite-lived intangible assets , both at the time of initial acquisition , as well as part of recurring impairment analyses , as applicable . the significant estimates are reviewed at least annually , if not quarterly , by management . because of the uncertainty of factors surrounding the estimates , assumptions and judgments used in the preparation of our financial statements , actual results may differ from the estimates , and the difference may be material . our critical accounting policies are those policies that are both most important to our financial condition and results of operations and require the most difficult , subjective or complex judgments on the part of management in their application , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . we believe that the following represent our critical accounting policies . for a summary of all of our significant accounting policies , see note 1 to our consolidated 28 financial statements included in item 8 of this annual report . management and our external auditors have discussed our critical accounting estimates and policies with the audit committee of our board of directors . revenue recognition we generally recognize revenue upon shipment of product , at which time title and risk of loss pass to the customer . additionally , we require that all of the following circumstances are satisfied : ( a ) persuasive evidence of an arrangement exists , ( b ) price is fixed or determinable , ( c ) collectability is reasonably assured and ( d ) delivery has occurred or services have been rendered . net revenues represent gross revenues invoiced to customers less certain related charges for contractual discounts or rebates . discounts provided to customers at the point of sale are recognized as reductions in revenue as the products are sold . rebate amounts are recorded as a reduction of revenue , at least quarterly , using estimates of customer participation and performance . freight charges billed to customers are included in net revenues and the related shipping costs are included in cost of revenues in our consolidated statements of operations . deferred taxes and tax reserves deferred tax assets and liabilities are determined based on temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities , applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse . 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 . based on the evaluation of available evidence , both positive and negative , we recognize future tax benefits , such as net operating loss carryforwards and tax credit carryforwards , to the extent that these benefits are more likely than not to be realized . we base our judgment of the recoverability of our deferred tax assets primarily on historical earnings , our estimate of current and expected future earnings using historical and projected future operating results , and prudent and feasible tax planning strategies . the amount of income taxes we pay is
| liquidity and capital resources we require cash to fund our working capital needs , to purchase capital assets , to pay our lease obligations and other operating costs . the primary sources of our liquidity have historically included equity financings , government research grants and income earned on cash equivalents and short-term investments . since our inception , we have incurred significant expenses related to our research , development and commercialization efforts . with the exception of 2012 , we have recorded annual losses since the company 's initial founding , including our fiscal year ended december 31 , 2020. as of december 31 , 2020 , we had an accumulated deficit of $ 375,100. our total unrestricted cash , cash equivalents and short-term investments as of december 31 , 2020 , totaled $ 9,702 as compared to $ 11,117 at december 31 , 2019. as of december 31 , 2020 , we had no outstanding debt . our cash , cash equivalents and short-term investments at december 31 , 2020 , were held for working capital purposes . as of december 31 , 2020 , we had restricted cash of $ 264 , which consisted of $ 229 held in connection with the lease agreement for our woburn , massachusetts facility and $ 35 held in connection with our corporate credit card program . investments are made in accordance with our corporate investment policy , as approved by our board of directors . the primary objective of this policy is to preserve principal , and consequently , investments are limited to high quality corporate debt , u.s. treasury bills and notes , money market funds , bank debt obligations , municipal debt obligations and asset-backed securities . the policy establishes maturity limits , concentration limits , and liquidity requirements . as of december 31 , 2020 , we were in compliance with this policy . subsequent to year-end , on february 3 , 2021 , we raised $ 11,996 , net of estimated offering costs of $ 744 , through the public sale of 1,040,000 shares of common stock at an issuance price of $ 12.25. these shares were offered by us pursuant to a registration statement on form s-3 ( file no .
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this strategic repositioning included several key actions , including : we initiated a plan to divest strathmore products ( the `` coatings `` business ) in the third quarter of the fiscal year ended march 31 , 2018 , the revenues of which were approximately one-third of the former coatings , sealants & adhesives ( โ cs & a โ ) segment . in connection with this plan , the coatings business was classified as assets held for sale and presented as discontinued operations . we condensed our three reportable segments into two : industrial products and specialty chemicals . as a result , the sealants and adhesives businesses , which were part of the former cs & a segment , were integrated into the specialty chemicals segment . we flattened our operational leadership structure , resulting in the departure of our president and chief operating officer , and our operational leadership reporting directly to our chairman and chief executive officer . 21 for additional information regarding discontinued operations and our segment realignment , see note 1 to our consolidated financial statements included in `` item 8. financial statements and supplementary data `` ( `` item 8 `` ) of this annual report . the share distribution on september 30 , 2015 , capital southwest corporation ( โ capital southwest โ ) spun-off certain of its industrial products , coatings , sealants and adhesives and specialty chemicals businesses by means of a distribution of the outstanding shares of common stock of cswi on a pro rata basis to holders of capital southwest common stock ( the โ share distribution โ ) . cswi became an independent , publicly-traded company on october 1 , 2015 following the share distribution . following the share distribution , we incurred capital costs in the process of integrating our operations , including the consolidation of some of our manufacturing facilities and operational improvement initiatives . through these efforts , we expect to continue to generate sales synergies through greater cross-selling opportunities and expansion of product line applications , and to generate cost synergies through operating more efficiently and effectively . we have also incurred additional costs as a result of being a public company , such as additional employee-related costs , costs to build out certain standalone corporate functions , information systems costs and other organizational-related costs . while we believe the majority of these expected post-share distribution costs have been incurred to date , we may incur additional costs in the future as we seek to further optimize our organization and operations . markets and outlook looking ahead , fiscal year 2019 should be a transitional year as we expect to complete the disposition of the coatings business , which is reflected in our discontinued operations . we expect this strategic repositioning to allow us to focus on a faster growing , more profitable and streamlined group of businesses and the underlying products , as we have simplified our reporting segments to industrial products and specialty chemicals . our diverse product portfolio in those segments serve attractive end markets that should continue to benefit from growth , primarily in north america , but we anticipate continued growth in key international regions primarily for our specialty chemical product portfolio , such as asia , latin america , south america and the middle east . we anticipate revenue growth in our key end markets during fiscal year ending march 31 , 2019 due to our innovative technologies , new product introductions , product differentiation and favorable industry trends . in fiscal year 2019 , we expect capital expenditures to be approximately $ 5 to $ 7 million . capital expenditures will be focused on maintenance and replacement , continuous improvement and revenue growth . we were pleased with our most recent acquisition , greco , as it outperformed in all respects from our acquisition model , driving revenue growth of 5.7 % and $ 2.8 million of our operating profit growth in the fiscal year ended march 31 , 2018 . we will continue to pursue bolt-on acquisitions in our key end markets and channels in fiscal year 2019 , but we will remain disciplined in our approach , including but not limited to our assessment of valuation , prospective synergies , diligence , cultural fit , integration , etc . hvac the hvac market is our largest market served and it represented approximately 30 % of our net sales in both fiscal years ended march 31 , 2018 and 2017 . we provide an extensive array of products for installation , repair and maintenance of hvac systems that includes our largest product family , consisting of condensate switches , as well as condensate pans , air diffusers , condensate pumps , refrigerant caps , line set covers and other chemical and mechanical products . the industry is driven by new construction projects , as well as replacement and repair of existing hvac systems . new hvac systems are heavily influenced by macro trends in building construction . the hvac market tends to be seasonal with the peak sales season beginning in march and continuing through august . construction and repair is typically performed by contractors , and we utilize our global distribution network to drive sales of our brands to such contractors . for the fiscal year ending march 31 , 2019 , we anticipate growth in the hvac market to be stronger than the gross domestic product . architecturally-specified building products architecturally-specified building products represented approximately 28 % and 24 % of our net sales in the fiscal years ended march 31 , 2018 and 2017 , respectively . we manufacture and sell products such as engineered railings , smoke and fire protection systems , expansion joints and stair edge nosings for large commercial buildings and parking facilities . story_separator_special_tag the increase was attributable to increased sales volumes into the energy market ( $ 7.6 million ) and increased sales volumes and prices of thread sealants and firestopping products ( $ 3.4 million ) . net revenues for the fiscal year ended march 31 , 2017 increased $ 0.7 million , or 0.5 % , as compared with the fiscal year ended march 31 , 2016 , net of $ 3.9 million contributed by acquisitions . excluding the impact of acquisitions , the decrease was due to decreases in sales volumes into the energy ( $ 6.7 million ) , industrial ( $ 1.9 million ) and rail ( $ 1.8 million ) markets , partially offset by increased sales of thread sealants and firestopping products ( $ 7.1 million ) . operating income for the fiscal year ended march 31 , 2018 increased $ 4.9 million , or 36.4 % , as compared with the fiscal year ended march 31 , 2017 . the increase was attributable to the impact of increased net revenues and a decline in restructuring and realignment costs ( $ 5.3 million ) , partially offset by negative product mix . operating income for the fiscal year ended march 31 , 2017 decreased $ 8.6 million , or 38.9 % , as compared with the fiscal year ended march 31 , 2016 , net of $ 2.2 million contributed by acquisitions . excluding the impact of acquisitions , the decrease was attributable to the impact of decreased net revenue , restructuring and realignment costs ( $ 7.1 million ) , a pension plan curtailment benefit in the prior year that did not recur ( $ 4.8 million ) and inventory write-offs ( $ 0.4 million ) . 26 for additional information on segments , see note 18 to our consolidated financial statements included in item 8 of this annual report . story_separator_special_tag style= `` font-family : inherit ; font-size:9pt ; `` > operating lease and purchase obligations denominated in foreign currencies are projected based on the exchange rate in effect on march 31 , 2018 . excludes amounts that have been eliminated in our consolidated financial statements . critical accounting estimates the process of preparing financial statements in conformity with u.s. gaap requires the use of estimates and assumptions to determine reported amounts of certain assets , liabilities , revenues and expenses and the disclosure of related contingent assets and liabilities . these estimates and assumptions are based upon information available at the time of the estimates or assumptions , including our historical experience , where relevant . the most significant estimates made by management include : timing and amount of revenue recognition ; deferred taxes and tax reserves ; pension benefits ; and valuation of goodwill and indefinite-lived intangible assets , both at the time of initial acquisition , as well as part of recurring impairment analyses , as applicable . the significant estimates are reviewed at least annually , if not quarterly , by management . because of the uncertainty of factors surrounding the estimates , assumptions and judgments used in the preparation of our financial statements , actual results may differ from the estimates , and the difference may be material . our critical accounting policies are those policies that are both most important to our financial condition and results of operations and require the most difficult , subjective or complex judgments on the part of management in their application , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . we believe that the following represent our critical accounting policies . for a summary of all of our significant accounting policies , see note 1 to our consolidated 28 financial statements included in item 8 of this annual report . management and our external auditors have discussed our critical accounting estimates and policies with the audit committee of our board of directors . revenue recognition we generally recognize revenue upon shipment of product , at which time title and risk of loss pass to the customer . additionally , we require that all of the following circumstances are satisfied : ( a ) persuasive evidence of an arrangement exists , ( b ) price is fixed or determinable , ( c ) collectability is reasonably assured and ( d ) delivery has occurred or services have been rendered . net revenues represent gross revenues invoiced to customers less certain related charges for contractual discounts or rebates . discounts provided to customers at the point of sale are recognized as reductions in revenue as the products are sold . rebate amounts are recorded as a reduction of revenue , at least quarterly , using estimates of customer participation and performance . freight charges billed to customers are included in net revenues and the related shipping costs are included in cost of revenues in our consolidated statements of operations . deferred taxes and tax reserves deferred tax assets and liabilities are determined based on temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities , applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse . 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 . based on the evaluation of available evidence , both positive and negative , we recognize future tax benefits , such as net operating loss carryforwards and tax credit carryforwards , to the extent that these benefits are more likely than not to be realized . we base our judgment of the recoverability of our deferred tax assets primarily on historical earnings , our estimate of current and expected future earnings using historical and projected future operating results , and prudent and feasible tax planning strategies . the amount of income taxes we pay is
| liquidity and capital resources cash flow analysis replace_table_token_9_th existing cash , cash generated by operations and borrowings available under our revolving credit facility are our primary sources of short-term liquidity . we monitor the depository institutions that hold our cash and cash equivalents on a regular basis , and we believe that we have placed our deposits with creditworthy financial institutions . our sources of operating cash generally include the sale of our products and services and the conversion of our working capital , particularly accounts receivable and inventories . our cash balance ( including cash and equivalents and bank time deposits ) at march 31 , 2018 was $ 11.7 million , as compared with $ 23.1 million at march 31 , 2017 . for the fiscal year ended march 31 , 2018 , our cash provided by operating activities from continuing operations was $ 57.4 million , as compared with $ 39.4 million and $ 37.8 million for the fiscal years ended march 31 , 2017 and 2016 , respectively . cash flows from working capital increased for the fiscal year ended march 31 , 2018 due to lower prepaid expenses and other current assets ( $ 7.7 million ) , higher accounts payable and other current liabilities ( $ 6.3 million ) and lower inventories ( $ 1.0 million ) and , partially offset by higher accounts receivable ( $ 2.7 million ) . cash flows from working capital increased for the fiscal year ended march 31 , 2017 due to higher accounts payable and other current liabilities ( $ 5.7 million ) , partially offset by higher accounts receivable ( $ 5.0 million ) and higher prepaid expenses and other current assets ( $ 0.8 million ) . cash flows from working capital increased for the fiscal year ended march 31 , 2016 , due primarily to lower inventories ( $ 4.6 million ) , higher accounts payable and other current liabilities ( $ 3.1 million ) and lower accounts receivable ( $ 0.9 million ) , partially offset by higher prepaid expenses and other current assets ( $ 4.7 million ) .
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4 to the amended and restated senior secured revolving credit facility agreement that , among other things , ( a ) reduced the aggregate principal amount of revolving loan commitments from $ 200.0 million to $ 125.0 million , ( b ) extended the agreement 's maturity until march 31 , 2021 , ( c ) revised the definition of ebitda to permit an add-back for ongoing litigation expenses related to the h225 helicopters , and ( d ) adjusted the 38 covenant requirement to maintain an interest coverage ratio of not less than 1.75:1:00 and a senior secured leverage ratio of not more than 3.25:100 ( see โ liquidity and capital resources โ below ) . sale of alaska flightseeing assets on february 23 , 2018 , the company sold all of its flightseeing assets in alaska , which consisted of eight as350 single engine helicopters , two operating facilities , and related property and equipment for $ 10.0 million . as a result , the company will not conduct flightseeing operations in 2018. u.s. tax reform the u.s. government recently enacted comprehensive tax legislation commonly referred to as the tax act . the tax act makes broad and complex changes to the u.s. tax code that resulted in a significant reduction in the company 's u.s. net deferred tax liabilities as of december 31 , 2017. the tax act also establishes new regulations that will affect 2018 and after , including a reduction in the u.s. federal corporate income tax rate from 35 % to 21 % . refer to note 7 of the notes to consolidated financial statements in item 8 of this annual report on form 10-k for additional information . cessation of h225 operations in april 2016 , an airbus helicopters h225 ( also known as an ec225lp ) model helicopter operated by a global competitor was involved in an accident in norway . the helicopter was carrying eleven passengers and two crew members , who were all killed in the accident . the root cause of the accident is still under investigation , but preliminary reports published by aibn contain findings linking the accident to a design flaw . following the crash , a number of regulatory authorities issued safety directives grounding , with limited exceptions , all airbus h225 and as332 l2 model helicopters registered in their jurisdictions . a number of customers and operators voluntarily suspended operations of those two helicopter models . on october 7 , 2016 , the easa issued an airworthiness directive that allowed h225 and as332l2 helicopters to return to service , subject to significant additional maintenance and inspection requirements . on december 9 , 2016 , the federal aviation administration in the united states issued an amoc that allowed these helicopters to return to service , subject to significant additional maintenance and inspection requirements to allow these helicopters to return to service in the united states . on july 20 , 2017 , the civil aviation authorities in each of norway and the united kingdom , the major european markets for the h225 helicopters , published directives that set forth their requirements with respect to the return to service of these helicopter models , subject to significant additional maintenance and inspection requirements . prior to a return to service , an operator must develop a return to service plan for the applicable helicopter model that must be approved by the relevant regulatory authority . such a plan would need to include a detailed safety case , outlining specific maintenance processes and tooling and training requirements . in addition , these directives mandate that an operator must comply with an easa directive issued on june 23 , 2017 that requires the replacement of , and prescribes reduced service limits and inspections with respect to , certain identified parts . easa also requires the installation of a new easa-approved full flow magnetic plug device and imposes maintenance protocols to support the inspection of the main gearbox oil system particle detection . even though h225 helicopters are no longer suspended by the regulatory authorities , there is not confidence amongst our customers , their employees , and the unions to which our customers ' employees belong in a detailed safety case that would justify a return to service of the h225 model helicopters . as a result , we believe a full return to service for the h225 helicopters in offshore oil and gas operations is unlikely . we will not operate the h225 helicopters in our fleet unless and until we can develop a detailed safety case that demonstrates the h225 model helicopter can be operated safely . during the third quarter of 2017 , we determined that we can not develop such a case and that a broad-based return to service is improbable . we therefore can not operate the h225 helicopters in our operations as we had planned at the time the helicopters were purchased . we own nine h225 helicopters , including five currently located in the u.s. , three currently located in brazil , and one currently located in norway . since the accident , we have utilized other heavy and medium helicopters to service our operations . these developments led us to conclude that the cash flows associated with our h225 helicopters are largely independent from the cash flows associated with the remainder of our fleet and should be evaluated separately for impairment . we have performed an impairment analysis on our h225 helicopters , capital parts , and related inventory and determined that the projected undiscounted cash flows over the remaining useful life were less than the carrying amount . story_separator_special_tag administrative and general expenses were $ 5.9 million higher in the current year primarily due to increases of $ 6.3 million in professional services fees and $ 0.7 million due to the recognition of a bad debt recovery in brazil in the prior year . these increases were partially offset by a decrease of $ 0.8 million in compensation and employee costs as a result of lower headcount and a decrease of $ 0.3 million in other administrative and general costs . 43 depreciation and amortization . depreciation and amortization expense was $ 3.6 million lower in the current year primarily due to certain assets becoming fully depreciated and asset dispositions subsequent to the prior year and a decrease in depreciation on the company 's h225 helicopters following their impairment during the current year , partially offset by new heavy helicopters placed in service . gains on asset dispositions , net . in the current year , we sold or otherwise disposed of a hangar in alaska , three helicopters , capital parts and other assets for gains of $ 4.5 million . in the prior year , we sold or otherwise disposed of two hangars in alaska , nine helicopters and related equipment for gains of $ 4.8 million . loss on impairment . we recorded a loss on impairment of $ 117.0 million in the current year related to a decline in the value of our h225 helicopters . operating income ( loss ) . operating loss as a percentage of revenues was 58 % in the current year compared to 2 % in the prior year . excluding gains on asset dispositions , operating loss as a percentage of revenues was 61 % in the current year compared to 3 % in the prior year . the increase in operating loss as a percentage of revenues in the current year was primarily due to the loss on impairment and increased professional services fees and repairs and maintenance expenses as described above . interest expense . interest expense was $ 0.6 million lower in the current year primarily due to lower outstanding debt balances and the resumption of the capitalization of interest on certain helicopter deposits in the current year compared to the expensing of interest on these deposits in the prior year due to the refund of helicopter deposits . this was partially offset by $ 0.8 million of additional accrued interest resulting from the correction of immaterial accounting errors . gain on debt extinguishment . gain on debt extinguishment was $ 0.5 million in the prior year due to the repurchase of $ 5.0 million of our 7.750 % senior notes . income tax benefit . income tax benefit was $ 119.3 million higher in the current year primarily due to approximately $ 70.0 million related to the impact of the tax act , as well as the tax impact of the impairment of our h225 helicopters , capital parts and inventory during the current year . equity earnings . equity earnings , net of tax , were $ 0.3 million higher in the current year primarily due to higher earnings at our dart holding company ltd. ( โ dart โ ) joint venture . year ended december 31 , 2016 compared with year ended december 31 , 2015 operating revenues . operating revenues were $ 34.6 million lower in the twelve months ended december 31 , 2016 compared to the twelve months ended december 31 , 2015. operating revenues from oil and gas operations in the u.s. gulf of mexico were $ 30.8 million lower in 2016. operating revenues from medium helicopters were $ 16.8 million lower primarily due to lower utilization and lower average rates . operating revenues from heavy helicopters were $ 8.1 million lower primarily due to fewer helicopters on contract and lower average rates . operating revenues from light twin and single engine helicopters were $ 3.8 million and $ 1.6 million lower , respectively , primarily due to lower utilization . miscellaneous revenues were $ 0.5 million lower primarily due to reduced part sales . operating revenues from oil and gas operations in alaska were $ 14.0 million lower in 2016 primarily due to lower utilization . operating revenues from international oil and gas operations were $ 44.1 million higher in 2016. international revenues increased by $ 44.2 million due to the consolidation of aerรณleo effective october 1 , 2015 , by $ 4.9 million due to new contracts in suriname and by $ 0.9 million due to higher utilization in colombia . these increases were partially offset by a decrease of $ 5.9 million in brazil primarily due to lower utilization during the period in which aeroleo 's revenues were consolidated in both years . revenues from dry-leasing activities were $ 27.6 million lower in 2016. dry-leasing revenues decreased by $ 21.4 million due to the consolidation of aerรณleo , by $ 6.4 million due to contracts that ended and by $ 1.5 million due to the bankruptcy of a customer . these decreases were partially offset by increases of $ 1.0 million due to new leases and $ 0.5 million due to lease return charges . operating revenues from sar activities were $ 2.3 million lower in 2016 primarily due to fewer subscribers and reduced charter activity . operating revenues from air medical services were consistent with 2015. revenues decreased by $ 0.7 million primarily due to a contract that ended in march 2015 , partially offset by increases of $ 0.5 million due to increased part sales and $ 0.2 million due to increased flight hours . operating revenues from flightseeing activities were $ 1.3 million lower in 2016 primarily due to unfavorable weather conditions which resulted in a shorter flightseeing season and increased flight cancellations . 44 operating revenues from our fixed base operations ( โ fbo โ ) were $ 2.8 million lower in 2016 due to the sale of the fbo on may 1
| liquidity and capital resources cash flow analysis replace_table_token_9_th existing cash , cash generated by operations and borrowings available under our revolving credit facility are our primary sources of short-term liquidity . we monitor the depository institutions that hold our cash and cash equivalents on a regular basis , and we believe that we have placed our deposits with creditworthy financial institutions . our sources of operating cash generally include the sale of our products and services and the conversion of our working capital , particularly accounts receivable and inventories . our cash balance ( including cash and equivalents and bank time deposits ) at march 31 , 2018 was $ 11.7 million , as compared with $ 23.1 million at march 31 , 2017 . for the fiscal year ended march 31 , 2018 , our cash provided by operating activities from continuing operations was $ 57.4 million , as compared with $ 39.4 million and $ 37.8 million for the fiscal years ended march 31 , 2017 and 2016 , respectively . cash flows from working capital increased for the fiscal year ended march 31 , 2018 due to lower prepaid expenses and other current assets ( $ 7.7 million ) , higher accounts payable and other current liabilities ( $ 6.3 million ) and lower inventories ( $ 1.0 million ) and , partially offset by higher accounts receivable ( $ 2.7 million ) . cash flows from working capital increased for the fiscal year ended march 31 , 2017 due to higher accounts payable and other current liabilities ( $ 5.7 million ) , partially offset by higher accounts receivable ( $ 5.0 million ) and higher prepaid expenses and other current assets ( $ 0.8 million ) . cash flows from working capital increased for the fiscal year ended march 31 , 2016 , due primarily to lower inventories ( $ 4.6 million ) , higher accounts payable and other current liabilities ( $ 3.1 million ) and lower accounts receivable ( $ 0.9 million ) , partially offset by higher prepaid expenses and other current assets ( $ 4.7 million ) .
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4 to the amended and restated senior secured revolving credit facility agreement that , among other things , ( a ) reduced the aggregate principal amount of revolving loan commitments from $ 200.0 million to $ 125.0 million , ( b ) extended the agreement 's maturity until march 31 , 2021 , ( c ) revised the definition of ebitda to permit an add-back for ongoing litigation expenses related to the h225 helicopters , and ( d ) adjusted the 38 covenant requirement to maintain an interest coverage ratio of not less than 1.75:1:00 and a senior secured leverage ratio of not more than 3.25:100 ( see โ liquidity and capital resources โ below ) . sale of alaska flightseeing assets on february 23 , 2018 , the company sold all of its flightseeing assets in alaska , which consisted of eight as350 single engine helicopters , two operating facilities , and related property and equipment for $ 10.0 million . as a result , the company will not conduct flightseeing operations in 2018. u.s. tax reform the u.s. government recently enacted comprehensive tax legislation commonly referred to as the tax act . the tax act makes broad and complex changes to the u.s. tax code that resulted in a significant reduction in the company 's u.s. net deferred tax liabilities as of december 31 , 2017. the tax act also establishes new regulations that will affect 2018 and after , including a reduction in the u.s. federal corporate income tax rate from 35 % to 21 % . refer to note 7 of the notes to consolidated financial statements in item 8 of this annual report on form 10-k for additional information . cessation of h225 operations in april 2016 , an airbus helicopters h225 ( also known as an ec225lp ) model helicopter operated by a global competitor was involved in an accident in norway . the helicopter was carrying eleven passengers and two crew members , who were all killed in the accident . the root cause of the accident is still under investigation , but preliminary reports published by aibn contain findings linking the accident to a design flaw . following the crash , a number of regulatory authorities issued safety directives grounding , with limited exceptions , all airbus h225 and as332 l2 model helicopters registered in their jurisdictions . a number of customers and operators voluntarily suspended operations of those two helicopter models . on october 7 , 2016 , the easa issued an airworthiness directive that allowed h225 and as332l2 helicopters to return to service , subject to significant additional maintenance and inspection requirements . on december 9 , 2016 , the federal aviation administration in the united states issued an amoc that allowed these helicopters to return to service , subject to significant additional maintenance and inspection requirements to allow these helicopters to return to service in the united states . on july 20 , 2017 , the civil aviation authorities in each of norway and the united kingdom , the major european markets for the h225 helicopters , published directives that set forth their requirements with respect to the return to service of these helicopter models , subject to significant additional maintenance and inspection requirements . prior to a return to service , an operator must develop a return to service plan for the applicable helicopter model that must be approved by the relevant regulatory authority . such a plan would need to include a detailed safety case , outlining specific maintenance processes and tooling and training requirements . in addition , these directives mandate that an operator must comply with an easa directive issued on june 23 , 2017 that requires the replacement of , and prescribes reduced service limits and inspections with respect to , certain identified parts . easa also requires the installation of a new easa-approved full flow magnetic plug device and imposes maintenance protocols to support the inspection of the main gearbox oil system particle detection . even though h225 helicopters are no longer suspended by the regulatory authorities , there is not confidence amongst our customers , their employees , and the unions to which our customers ' employees belong in a detailed safety case that would justify a return to service of the h225 model helicopters . as a result , we believe a full return to service for the h225 helicopters in offshore oil and gas operations is unlikely . we will not operate the h225 helicopters in our fleet unless and until we can develop a detailed safety case that demonstrates the h225 model helicopter can be operated safely . during the third quarter of 2017 , we determined that we can not develop such a case and that a broad-based return to service is improbable . we therefore can not operate the h225 helicopters in our operations as we had planned at the time the helicopters were purchased . we own nine h225 helicopters , including five currently located in the u.s. , three currently located in brazil , and one currently located in norway . since the accident , we have utilized other heavy and medium helicopters to service our operations . these developments led us to conclude that the cash flows associated with our h225 helicopters are largely independent from the cash flows associated with the remainder of our fleet and should be evaluated separately for impairment . we have performed an impairment analysis on our h225 helicopters , capital parts , and related inventory and determined that the projected undiscounted cash flows over the remaining useful life were less than the carrying amount . story_separator_special_tag administrative and general expenses were $ 5.9 million higher in the current year primarily due to increases of $ 6.3 million in professional services fees and $ 0.7 million due to the recognition of a bad debt recovery in brazil in the prior year . these increases were partially offset by a decrease of $ 0.8 million in compensation and employee costs as a result of lower headcount and a decrease of $ 0.3 million in other administrative and general costs . 43 depreciation and amortization . depreciation and amortization expense was $ 3.6 million lower in the current year primarily due to certain assets becoming fully depreciated and asset dispositions subsequent to the prior year and a decrease in depreciation on the company 's h225 helicopters following their impairment during the current year , partially offset by new heavy helicopters placed in service . gains on asset dispositions , net . in the current year , we sold or otherwise disposed of a hangar in alaska , three helicopters , capital parts and other assets for gains of $ 4.5 million . in the prior year , we sold or otherwise disposed of two hangars in alaska , nine helicopters and related equipment for gains of $ 4.8 million . loss on impairment . we recorded a loss on impairment of $ 117.0 million in the current year related to a decline in the value of our h225 helicopters . operating income ( loss ) . operating loss as a percentage of revenues was 58 % in the current year compared to 2 % in the prior year . excluding gains on asset dispositions , operating loss as a percentage of revenues was 61 % in the current year compared to 3 % in the prior year . the increase in operating loss as a percentage of revenues in the current year was primarily due to the loss on impairment and increased professional services fees and repairs and maintenance expenses as described above . interest expense . interest expense was $ 0.6 million lower in the current year primarily due to lower outstanding debt balances and the resumption of the capitalization of interest on certain helicopter deposits in the current year compared to the expensing of interest on these deposits in the prior year due to the refund of helicopter deposits . this was partially offset by $ 0.8 million of additional accrued interest resulting from the correction of immaterial accounting errors . gain on debt extinguishment . gain on debt extinguishment was $ 0.5 million in the prior year due to the repurchase of $ 5.0 million of our 7.750 % senior notes . income tax benefit . income tax benefit was $ 119.3 million higher in the current year primarily due to approximately $ 70.0 million related to the impact of the tax act , as well as the tax impact of the impairment of our h225 helicopters , capital parts and inventory during the current year . equity earnings . equity earnings , net of tax , were $ 0.3 million higher in the current year primarily due to higher earnings at our dart holding company ltd. ( โ dart โ ) joint venture . year ended december 31 , 2016 compared with year ended december 31 , 2015 operating revenues . operating revenues were $ 34.6 million lower in the twelve months ended december 31 , 2016 compared to the twelve months ended december 31 , 2015. operating revenues from oil and gas operations in the u.s. gulf of mexico were $ 30.8 million lower in 2016. operating revenues from medium helicopters were $ 16.8 million lower primarily due to lower utilization and lower average rates . operating revenues from heavy helicopters were $ 8.1 million lower primarily due to fewer helicopters on contract and lower average rates . operating revenues from light twin and single engine helicopters were $ 3.8 million and $ 1.6 million lower , respectively , primarily due to lower utilization . miscellaneous revenues were $ 0.5 million lower primarily due to reduced part sales . operating revenues from oil and gas operations in alaska were $ 14.0 million lower in 2016 primarily due to lower utilization . operating revenues from international oil and gas operations were $ 44.1 million higher in 2016. international revenues increased by $ 44.2 million due to the consolidation of aerรณleo effective october 1 , 2015 , by $ 4.9 million due to new contracts in suriname and by $ 0.9 million due to higher utilization in colombia . these increases were partially offset by a decrease of $ 5.9 million in brazil primarily due to lower utilization during the period in which aeroleo 's revenues were consolidated in both years . revenues from dry-leasing activities were $ 27.6 million lower in 2016. dry-leasing revenues decreased by $ 21.4 million due to the consolidation of aerรณleo , by $ 6.4 million due to contracts that ended and by $ 1.5 million due to the bankruptcy of a customer . these decreases were partially offset by increases of $ 1.0 million due to new leases and $ 0.5 million due to lease return charges . operating revenues from sar activities were $ 2.3 million lower in 2016 primarily due to fewer subscribers and reduced charter activity . operating revenues from air medical services were consistent with 2015. revenues decreased by $ 0.7 million primarily due to a contract that ended in march 2015 , partially offset by increases of $ 0.5 million due to increased part sales and $ 0.2 million due to increased flight hours . operating revenues from flightseeing activities were $ 1.3 million lower in 2016 primarily due to unfavorable weather conditions which resulted in a shorter flightseeing season and increased flight cancellations . 44 operating revenues from our fixed base operations ( โ fbo โ ) were $ 2.8 million lower in 2016 due to the sale of the fbo on may 1
| cash flows provided by operating activities de creased by $ 38.4 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . cash flows provided by operating activities in creased by $ 14.0 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 . the components of cash flows provided by operating activities during the years ended december 31 , 2017 , 2016 and 2015 were as follows : replace_table_token_9_th operating income before depreciation and gains on asset dispositions and impairments , net was $ 19.7 million lower for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , due to a $ 15.9 million de crease in revenues resulting from reduced utilization of our helicopter fleet and dry-leasing contracts that ended during and subsequent to 2016 and a $ 5.9 million in crease in administrative and general expenses . this de crease in revenues and increase in g & a was partially offset by a $ 2.4 million de crease in operating expenses primarily due to a reduction in activity and cost-cutting measures . operating income before depreciation and gains on asset dispositions and impairments , net was $ 26.4 million lower for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , primarily due to a $ 34.6 million decrease in revenues resulting from reduced utilization of medium helicopters , dry-leasing contracts that ended during and subsequent to 2015 and the sale of the fbo in may 2015. this
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the net profits interest entitles the trust to receive 80 % of the net profits from the sale and production of oil and natural gas attributable to the underlying properties that are produced during the term of the conveyance , which commenced on july 1 , 2011. the trust is not subject to any pre-set termination provisions based on a maximum volume of oil or natural gas to be produced or the passage of time . the trust will dissolve upon the earliest to occur of the following : ( 1 ) the trust , upon approval of the holders of at least 75 % of the outstanding trust units , sells the net profits interest , ( 2 ) the annual cash proceeds received by the trust attributable to the net profits interest are less than $ 2 million for each of any two consecutive years , ( 3 ) the holders of at least 75 % of the outstanding trust units vote in favor of dissolution or ( 4 ) the trust is judicially dissolved . the trust is required to make monthly cash distributions of substantially all of its monthly cash receipts , after deducting the trust 's administrative expenses , to holders of record ( generally the last business day of each calendar month ) on or before the 10 th business day after the record date . the net profits interest will be entitled to a share of the profits from and after july 1 , 2011 attributable to production occurring on or after june 1 , 2011. during 2011 , the trust paid one distribution , which was announced on november 18 , 2011. the trust 's first distribution related to net profits generated during the calculation period from july 1 , 2011 through september 30 , 2011 as provided in the conveyance . the distribution primarily represented oil and natural gas production during the months of june and july 2011 and a portion of oil production related to august 2011 , while expenses were included for the full three months in the calculation period . the amount of trust revenues and cash distributions to trust unitholders depends on , among other things : oil and gas sales prices ; volumes of oil and natural gas produced and sold attributable to the underlying properties ; production and development costs ; price differentials ; potential reductions or suspensions of production ; and the amount and timing of trust administrative expenses . 38 results of operations the following table displays oil and natural gas sales , volumes and average prices ( excluding the effects of the hedging arrangements discussed in note 4 of the notes to financial statements ) from the underlying properties , representing the amounts included in the net profits calculation for the distributions paid during the years ended december 31 , 2013 and 2012 and for the period from inception through december 31 , 2011. replace_table_token_12_th commodity hedges the trust is exposed to fluctuations in energy prices in the normal course of business due to the net profits interest in the underlying properties . the revenues derived from the underlying properties depend substantially on prevailing crude oil prices and , to a lesser extent , natural gas prices . as a result , commodity prices affect the amount of cash flow available for distribution to the trust unitholders . lower prices may also reduce the amount of oil and natural gas that enduro and its third party operators can economically produce . to mitigate the negative effects of a possible decline in oil and natural gas prices on distributable income to the trust and to achieve more predictable cash flows , enduro entered into hedge contracts with respect to approximately 52 % and 48 % of oil and natural gas production for 2012 and 2013 , respectively . enduro has not entered into any hedge contracts relating to oil and natural gas volumes expected to be produced after 2013 and the terms of the net profits interest prohibit enduro from entering into new hedging arrangements burdening the trust . as of december 31 , 2013 , all hedge contracts had matured . consequently , all production attributable to the trust in 2014 and thereafter is expected to be unhedged . 39 the following table summarizes hedge settlements for 2013 production that are or will be included in distributions made during the first and second quarters of 2014. replace_table_token_13_th computation of net profits income received by the trust the trust was formed in may 2011. in connection with the closing of the initial public offering , on november 8 , 2011 , enduro contributed the net profits interest to the trust in exchange for 33,000,000 newly issued trust units . the net profits interest entitles the trust to receive 80 % of the net profits from the sale and production of oil and natural gas attributable to the underlying properties that are produced during the term of the conveyance , which commenced on july 1 , 2011. the trust 's net profits income consists of monthly net profits attributable to the net profits interest . net profits income for the years ended december 31 , 2013 and 2012 and for the period from inception through december 31 , 2011 were determined as shown in the following table : replace_table_token_14_th years ended december 31 , 2013 and 2012 net profits from the underlying properties was approximately $ 61.3 million in 2013. this amount includes settlements of approximately $ 8.2 million related to hedge contracts . story_separator_special_tag this development is anticipated to increase the trust 's oil production in 2014. historical results of the underlying properties the following table sets forth revenues , direct operating expenses and the excess of revenues over direct operating expenses relating to the underlying properties for the six months ended june 30 , 2011 derived from the historical revenues and direct operating expenses of the underlying properties included elsewhere in this annual report on form 10-k. replace_table_token_15_th 42 the following table provides oil and natural gas sales volumes , average sales prices , average costs per boe and capital expenditures relating to the underlying properties for the six months ended june 30 , 2011. replace_table_token_16_th 43 story_separator_special_tag margin-bottom:0pt ; font-size:8pt ; font-family : times new roman `` > new accounting pronouncements as the trust 's financial statements are prepared on the modified cash basis , most accounting pronouncements are not applicable to the trust 's financial statements ; therefore , no new accounting pronouncements have been adopted or issued that would impact the financial statements of the trust . critical accounting policies and estimates the trust uses the modified cash basis of accounting to report trust receipts of income from the net profits interest and payments of expenses incurred . the net profits interest represents the right to receive revenues ( oil and natural gas sales ) , less direct operating expenses ( lease operating expenses and production and property taxes ) and development expenses of the underlying properties plus any payments made or net of payments received in connection with the settlement of certain hedge contracts , multiplied by 80 % . cash distributions of the trust will be made based on the amount of cash received by the trust pursuant to terms of the conveyance creating the net profits interest . the financial statements of the trust , as prepared on a modified cash basis , reflect the trust 's assets , liabilities , trust corpus , earnings and distributions as follows : ( a ) income from net profits interest is recorded when distributions are received by the trust ; ( b ) distributions to trust unitholders are recorded when paid by the trust ; ( c ) trust general and administrative expenses ( which includes the trustee 's fees as well as accounting , engineering , legal , and other professional fees ) are recorded when paid ; ( d ) cash reserves for trust expenses may be established by the trustee for certain expenditures that would not be recorded as contingent liabilities under accounting principles generally accepted in the united states of america ( ยgaapย ) ; ( e ) amortization of the investment in the net profits interest is calculated on a unit-of-production basis and is charged directly to the trust corpus . such amortization does not affect cash earnings of the trust ; and ( f ) the net profits interest in oil and natural gas properties is periodically assessed whenever events or circumstances indicate that the aggregate value may have been impaired below its total capitalized cost based on the underlying properties . if an impairment loss is indicated by the carrying amount of the assets exceeding the sum of the undiscounted expected future net cash flows of the net profits interest , then an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its estimated fair value determined using discounted cash flows . while these statements differ from financial statements prepared in accordance with gaap , the modified cash basis of reporting revenues , expenses , and distributions is considered to be the most meaningful because monthly distributions to the trust unitholders are based on net cash receipts . this comprehensive basis of accounting other than gaap corresponds to the accounting permitted for royalty trusts by the sec as specified by staff accounting bulletin topic 12 : e , financial statements of royalty trusts . the preparation of financial statements requires the trust to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . 45 oil and gas reserves . the proved oil and gas reserves for the underlying properties are estimated by independent petroleum engineers . reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof . estimates by different engineers often vary , sometimes significantly . in addition , physical factors such as the results of drilling , testing and production subsequent to the date of an estimate , as well as economic factors such as changes in product prices , may justify revision of such estimates . because proved reserves are required to be estimated using prices at the date of the evaluation , estimated reserve quantities can be significantly impacted by changes in product prices . accordingly , oil and gas quantities ultimately recovered and the timing of production may be substantially different from original estimates . the financial accounting standards board requires supplemental disclosures for oil and gas producers based on a standardized measure of discounted future net cash flows relating to proved oil and gas reserve quantities . under this disclosure , future cash inflows are computed by applying the average prices during the 12-month period prior to fiscal year-end , determined as an unweighted arithmetic average of the first-day-of-the-month benchmark price for each month within such period , unless prices are defined by contractual arrangements , excluding escalations based upon future conditions . future price changes are only considered to the extent provided by contractual arrangements in existence at year end . the standardized measure of discounted future net cash flows is achieved by using a discount rate of 10 % a year to reflect the timing of future cash flows relating to proved oil and gas reserves . changes in any of these assumptions ,
| cash flows provided by operating activities de creased by $ 38.4 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . cash flows provided by operating activities in creased by $ 14.0 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 . the components of cash flows provided by operating activities during the years ended december 31 , 2017 , 2016 and 2015 were as follows : replace_table_token_9_th operating income before depreciation and gains on asset dispositions and impairments , net was $ 19.7 million lower for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , due to a $ 15.9 million de crease in revenues resulting from reduced utilization of our helicopter fleet and dry-leasing contracts that ended during and subsequent to 2016 and a $ 5.9 million in crease in administrative and general expenses . this de crease in revenues and increase in g & a was partially offset by a $ 2.4 million de crease in operating expenses primarily due to a reduction in activity and cost-cutting measures . operating income before depreciation and gains on asset dispositions and impairments , net was $ 26.4 million lower for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , primarily due to a $ 34.6 million decrease in revenues resulting from reduced utilization of medium helicopters , dry-leasing contracts that ended during and subsequent to 2015 and the sale of the fbo in may 2015. this
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the net profits interest entitles the trust to receive 80 % of the net profits from the sale and production of oil and natural gas attributable to the underlying properties that are produced during the term of the conveyance , which commenced on july 1 , 2011. the trust is not subject to any pre-set termination provisions based on a maximum volume of oil or natural gas to be produced or the passage of time . the trust will dissolve upon the earliest to occur of the following : ( 1 ) the trust , upon approval of the holders of at least 75 % of the outstanding trust units , sells the net profits interest , ( 2 ) the annual cash proceeds received by the trust attributable to the net profits interest are less than $ 2 million for each of any two consecutive years , ( 3 ) the holders of at least 75 % of the outstanding trust units vote in favor of dissolution or ( 4 ) the trust is judicially dissolved . the trust is required to make monthly cash distributions of substantially all of its monthly cash receipts , after deducting the trust 's administrative expenses , to holders of record ( generally the last business day of each calendar month ) on or before the 10 th business day after the record date . the net profits interest will be entitled to a share of the profits from and after july 1 , 2011 attributable to production occurring on or after june 1 , 2011. during 2011 , the trust paid one distribution , which was announced on november 18 , 2011. the trust 's first distribution related to net profits generated during the calculation period from july 1 , 2011 through september 30 , 2011 as provided in the conveyance . the distribution primarily represented oil and natural gas production during the months of june and july 2011 and a portion of oil production related to august 2011 , while expenses were included for the full three months in the calculation period . the amount of trust revenues and cash distributions to trust unitholders depends on , among other things : oil and gas sales prices ; volumes of oil and natural gas produced and sold attributable to the underlying properties ; production and development costs ; price differentials ; potential reductions or suspensions of production ; and the amount and timing of trust administrative expenses . 38 results of operations the following table displays oil and natural gas sales , volumes and average prices ( excluding the effects of the hedging arrangements discussed in note 4 of the notes to financial statements ) from the underlying properties , representing the amounts included in the net profits calculation for the distributions paid during the years ended december 31 , 2013 and 2012 and for the period from inception through december 31 , 2011. replace_table_token_12_th commodity hedges the trust is exposed to fluctuations in energy prices in the normal course of business due to the net profits interest in the underlying properties . the revenues derived from the underlying properties depend substantially on prevailing crude oil prices and , to a lesser extent , natural gas prices . as a result , commodity prices affect the amount of cash flow available for distribution to the trust unitholders . lower prices may also reduce the amount of oil and natural gas that enduro and its third party operators can economically produce . to mitigate the negative effects of a possible decline in oil and natural gas prices on distributable income to the trust and to achieve more predictable cash flows , enduro entered into hedge contracts with respect to approximately 52 % and 48 % of oil and natural gas production for 2012 and 2013 , respectively . enduro has not entered into any hedge contracts relating to oil and natural gas volumes expected to be produced after 2013 and the terms of the net profits interest prohibit enduro from entering into new hedging arrangements burdening the trust . as of december 31 , 2013 , all hedge contracts had matured . consequently , all production attributable to the trust in 2014 and thereafter is expected to be unhedged . 39 the following table summarizes hedge settlements for 2013 production that are or will be included in distributions made during the first and second quarters of 2014. replace_table_token_13_th computation of net profits income received by the trust the trust was formed in may 2011. in connection with the closing of the initial public offering , on november 8 , 2011 , enduro contributed the net profits interest to the trust in exchange for 33,000,000 newly issued trust units . the net profits interest entitles the trust to receive 80 % of the net profits from the sale and production of oil and natural gas attributable to the underlying properties that are produced during the term of the conveyance , which commenced on july 1 , 2011. the trust 's net profits income consists of monthly net profits attributable to the net profits interest . net profits income for the years ended december 31 , 2013 and 2012 and for the period from inception through december 31 , 2011 were determined as shown in the following table : replace_table_token_14_th years ended december 31 , 2013 and 2012 net profits from the underlying properties was approximately $ 61.3 million in 2013. this amount includes settlements of approximately $ 8.2 million related to hedge contracts . story_separator_special_tag this development is anticipated to increase the trust 's oil production in 2014. historical results of the underlying properties the following table sets forth revenues , direct operating expenses and the excess of revenues over direct operating expenses relating to the underlying properties for the six months ended june 30 , 2011 derived from the historical revenues and direct operating expenses of the underlying properties included elsewhere in this annual report on form 10-k. replace_table_token_15_th 42 the following table provides oil and natural gas sales volumes , average sales prices , average costs per boe and capital expenditures relating to the underlying properties for the six months ended june 30 , 2011. replace_table_token_16_th 43 story_separator_special_tag margin-bottom:0pt ; font-size:8pt ; font-family : times new roman `` > new accounting pronouncements as the trust 's financial statements are prepared on the modified cash basis , most accounting pronouncements are not applicable to the trust 's financial statements ; therefore , no new accounting pronouncements have been adopted or issued that would impact the financial statements of the trust . critical accounting policies and estimates the trust uses the modified cash basis of accounting to report trust receipts of income from the net profits interest and payments of expenses incurred . the net profits interest represents the right to receive revenues ( oil and natural gas sales ) , less direct operating expenses ( lease operating expenses and production and property taxes ) and development expenses of the underlying properties plus any payments made or net of payments received in connection with the settlement of certain hedge contracts , multiplied by 80 % . cash distributions of the trust will be made based on the amount of cash received by the trust pursuant to terms of the conveyance creating the net profits interest . the financial statements of the trust , as prepared on a modified cash basis , reflect the trust 's assets , liabilities , trust corpus , earnings and distributions as follows : ( a ) income from net profits interest is recorded when distributions are received by the trust ; ( b ) distributions to trust unitholders are recorded when paid by the trust ; ( c ) trust general and administrative expenses ( which includes the trustee 's fees as well as accounting , engineering , legal , and other professional fees ) are recorded when paid ; ( d ) cash reserves for trust expenses may be established by the trustee for certain expenditures that would not be recorded as contingent liabilities under accounting principles generally accepted in the united states of america ( ยgaapย ) ; ( e ) amortization of the investment in the net profits interest is calculated on a unit-of-production basis and is charged directly to the trust corpus . such amortization does not affect cash earnings of the trust ; and ( f ) the net profits interest in oil and natural gas properties is periodically assessed whenever events or circumstances indicate that the aggregate value may have been impaired below its total capitalized cost based on the underlying properties . if an impairment loss is indicated by the carrying amount of the assets exceeding the sum of the undiscounted expected future net cash flows of the net profits interest , then an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its estimated fair value determined using discounted cash flows . while these statements differ from financial statements prepared in accordance with gaap , the modified cash basis of reporting revenues , expenses , and distributions is considered to be the most meaningful because monthly distributions to the trust unitholders are based on net cash receipts . this comprehensive basis of accounting other than gaap corresponds to the accounting permitted for royalty trusts by the sec as specified by staff accounting bulletin topic 12 : e , financial statements of royalty trusts . the preparation of financial statements requires the trust to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . 45 oil and gas reserves . the proved oil and gas reserves for the underlying properties are estimated by independent petroleum engineers . reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof . estimates by different engineers often vary , sometimes significantly . in addition , physical factors such as the results of drilling , testing and production subsequent to the date of an estimate , as well as economic factors such as changes in product prices , may justify revision of such estimates . because proved reserves are required to be estimated using prices at the date of the evaluation , estimated reserve quantities can be significantly impacted by changes in product prices . accordingly , oil and gas quantities ultimately recovered and the timing of production may be substantially different from original estimates . the financial accounting standards board requires supplemental disclosures for oil and gas producers based on a standardized measure of discounted future net cash flows relating to proved oil and gas reserve quantities . under this disclosure , future cash inflows are computed by applying the average prices during the 12-month period prior to fiscal year-end , determined as an unweighted arithmetic average of the first-day-of-the-month benchmark price for each month within such period , unless prices are defined by contractual arrangements , excluding escalations based upon future conditions . future price changes are only considered to the extent provided by contractual arrangements in existence at year end . the standardized measure of discounted future net cash flows is achieved by using a discount rate of 10 % a year to reflect the timing of future cash flows relating to proved oil and gas reserves . changes in any of these assumptions ,
| liquidity and capital resources the trust 's principal sources of liquidity are cash flow generated from the net profits interest and borrowing capacity under the letter of credit described below . other than trust administrative expenses , including any reserves established by the trustee for future liabilities , the trust 's only use of cash is for distributions to trust unitholders . available funds are the excess cash , if any , received by the trust from the net profits interest and other sources ( such as interest earned on any amounts reserved by the trustee ) in that month , over the trust 's expenses paid for that month . available funds are reduced by any cash the trustee determines to hold as a reserve against future expenses . the trustee may create a cash reserve to pay for future liabilities of the trust . if the trustee determines that the cash on hand and the cash to be received are , or will be , insufficient to cover the trust 's liabilities , the trustee may authorize the trust to borrow money to pay administrative or incidental expenses of the trust that exceed cash held by the trust . the trustee may authorize the trust to borrow from any person , including the trustee or the delaware trustee or an affiliate thereof , although none of the trustee , the delaware trustee or any affiliate thereof intends to lend funds to the trust . the trustee may also cause the trust to mortgage its assets to secure payment of the indebtedness . the terms of such indebtedness and security interest , if funds were loaned by the entity serving as trustee or delaware trustee or an affiliate thereof , would be similar to the terms which such entity would grant to a similarly situated commercial customer with whom it did not have a fiduciary relationship .
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on march 16 , 2020 , the fed also announced action to inject more liquidity into the financial system by purchasing up to $ 500 billion of u.s. treasuries and $ 200 billion of mortgage-backed securities . all major stock exchanges experienced dramatic sell-offs . the dow , which had peaked at 29,568 in february , closed on friday , march 20 , 2020 at 19,174 , down 10,394 points , or 35 % . nasdaq was down 30 % , while the s & p 500 was down 32 % . even with a significant equity market recovery since the initial impact of covid-19 , economic conditions remain uncertain . with the closing of non-essential businesses throughout various parts of the country for a number of months and a continued impact to consumer spending , it is anticipated that the financial impact will be long-term . the coronavirus aid relief and economic security act , also known as the cares act , was a $ 2.2 trillion economic stimulus bill passed by congress and signed into law on march 27 , 2020 , by president donald trump . the major provisions of the cares act were direct small business aid for employers with fewer than 500 employees ; direct deposit stimulus payments to american households ; enhanced unemployment compensation benefits ; and direct aid to hospitals and health care 33 enb financial corp management 's discussion and analysis providers . the paycheck protection program ( ppp ) was part of this legislation , which provided relief to businesses and organizations provided they would retain their workforce and act within the provisions of the plan . the ppp was responsible for the corporation generating $ 77.7 million of loans by september 30 , 2020 , which was the highpoint in ppp loans for 2020. by december 31 , 2020 , ppp loan balances declined to $ 48.0 million , as a result of loan forgiveness and payoffs . after december 31 , 2020 , but prior to the filing of this form 10-k , legislation for a second round of ppp loans was passed , which resulted in the corporation 's total ppp loans increasing again in early 2021. consistent with the marketplace , the impact of the second round of ppp was not near as large as the first round . management anticipated that $ 25 million to $ 30 million of ppp loans would be generated in the second round . prior to the filing of this report , the corporation 's total ppp loans had again started to decline due to further loan forgiveness and payoffs . the economic impact of covid-19 had both negative and positive impacts on the corporation 's financial results . the corporation was able to achieve a higher level of earnings in 2020 than in 2019 , but the efficiency of these earnings was reduced . the pandemic caused a very low interest rate environment , which in turn caused a much larger balance sheet with a historic increase in deposits , increasing the corporation 's net interest income , despite a lower net interest margin . the corporation 's net interest income was also increased by the recognition of ppp loan fee income . offsetting the increase in net interest income was a larger increase in the provision for loan losses . as a result of the pandemic , management was guarded about expected increases in loan losses and higher associated provision for loan losses . management did incur $ 2.2 million more provision for loan loss expense in 2020 than it did in 2019 , however much of the provision increase was focused on a very small number of commercial loans . it remains to be determined what the long-term economic impact of covid-19 will be on the corporation 's borrowers and how it will affect the corporation 's forward earnings . the corporation recorded net income of $ 12,299,000 for the year ended december 31 , 2020 , a 7.9 % increase from the $ 11,395,000 earned during the same period in 2019. the 2019 net income was 16.9 % higher than the 2018 net income of $ 9,749,000. earnings per share , basic and diluted , were $ 2.20 in 2020 , compared to $ 2.01 in 2019 , and $ 1.71 in 2018. the increase in the corporation 's 2020 earnings was caused primarily by an increase in mortgage gains from selling mortgage assets on the secondary market . these gains increased by $ 3,914,000 , or 202.2 % in 2020 compared to 2019 due to a high volume of mortgage refinancings stemming from the very low interest rate environment as well as high margins received on loans sold on the secondary market . the corporation 's 2020 earnings were also aided by an increase in net interest income of $ 1,630,000 , or 4.5 % . net interest income accounts for 71 % of the gross income stream of the corporation . the corporation 's net interest margin decreased in 2020 to 3.24 % , from 3.53 % in 2019. loan yields decreased as a result of the federal reserve rate decrease in the first quarter of 2020 , immediately impacting the yields on the corporation 's variable rate loans . the decline in interest expense helped to partially offset the declining asset yields , but to a much smaller degree . the financial services industry uses two primary performance measurements to gauge performance : return on average assets ( roa ) and return on average equity ( roe ) . roa measures how efficiently a bank generates income based on the amount of assets or size of a company . roe measures the efficiency of a company in generating income based on the amount of equity or capital utilized . the latter measurement typically receives more attention from shareholders . the corporation 's 2020 roa was 0.96 % , compared to 1.01 % in 2019. story_separator_special_tag a result of the growth in balances as well as ppp fees that caused an increase in interest and fees on loans . loan pricing was challenging in 2020 as a result of the very low rate environment and competition resulting in fixed-rate loans being priced at very low levels and variable-rate loans priced at the prime rate or below . the prime rate was 4.75 % as of december 31 , 2019 , and was moderately higher than the typical business or commercial five-year fixed rates being extended at that time . the prime rate decreased by 1.50 % in march of 2020 to 3.25 % , which is now comparable to the typical rate of a five-year fixed-rate loan . the commercial or business fixed rates do increase with longer fixed terms or lower credit quality . in terms of the variable rate pricing , nearly all variable rate loans offered are prime-based . management is able to price loan customers with higher levels of credit risk at prime plus pricing , such as prime plus 0.75 % , which amounted to 4.00 % at december 31 , 2020 , still a relatively low rate . however , only a small minority of the loans in the commercial and agricultural portfolios are at these higher rates due to the strong credit quality of the corporation 's borrowers and market competition . competition in the immediate market area has been pricing select shorter-term fixed-rate commercial and agricultural lending rates below 3.25 % for the strongest loan credits . tax equivalent yields on the corporation 's securities decreased by 49 basis points for the year ended december 31 , 2020 , compared to 2019. the corporation 's securities portfolio consists of approximately 79 % fixed income debt instruments and 21 % variable rate product as of december 31 , 2020. the corporation 's taxable securities experienced a 64 basis-point decrease in yield for the year ended december 31 , 2020 , compared to 2019. security reinvestment in 2020 has been occurring at lower rates due to the significant decline in u.s. treasury rates . the sharp growth in the investment portfolio during a period of very low rates also contributed to the decline in average security yield . this large amount of new investment was caused by the significant influx of deposits , which caused excess liquidity . the sharpest growth in the securities portfolio occurred in the fourth quarter . in addition to these negative influences , the corporation 's u.s. agency mortgage-backed securities and collateralized mortgage obligations experience faster principal prepayments as market rates decrease , causing the amortization of premium to increase , effectively decreasing the yield . the yield on tax-exempt securities decreased by 20 basis points in 2020 compared to 2019. for the corporation , these bonds consist entirely of tax-free municipal bonds . while the tax-exempt yields on municipal bonds declined with the tax rate change at the end of 2017 , yields became more attractive again during the latter part of 2019 and throughout 2020. management began investing in more of these bonds in 2020 as yields stood out and provided better returns than other sectors of the portfolio . the interest rate paid on deposits decreased for the year ended december 31 , 2020 , from the same period in 2019. management follows a disciplined pricing strategy on core deposit products that are not rate sensitive , meaning that the balances do not fluctuate significantly when interest rates change . rates on interest-bearing checking accounts and money market accounts were decreased in 2020 , resulting in a decrease in the cost of funds on these accounts of 47 basis points . savings account rates were also decreased during the year resulting in a two basis point reduction in the cost of funds associated with these accounts . additionally , the cost of funds on time deposits decreased by six basis points during 2020. typically , the corporation sees increases in core deposit products during periods when consumers are not confident in the stock market and economic conditions deteriorate . during these periods , there is a โ flight to safety โ to federally insured deposits . this trend occurred in 2020. as the rate between time deposits and core deposits narrowed , many customers chose to transfer funds from maturing time deposits into checking and savings accounts . since the financial crisis , depositors have been more concerned about the financial health of their financial institution . this concern affects their desire to obtain the best possible market interest rates . this trend benefits the corporation 40 enb financial corp management 's discussion and analysis due to its high capital levels and track record of strong and stable earnings . the corporation 's bauer financial rating of 5 , the highest level of their rating scale , has assisted the bank in gaining core deposits over the past several years . the corporation 's average rate on borrowed funds increased by 39 basis points from 2019 to 2020 , as fhlb borrowings were paid off early throughout the year accelerating $ 234,000 of interest expense . provision for loan losses the allowance for credit losses provides for losses inherent in the loan portfolio as determined by a quarterly analysis and calculation of various factors related to the loan portfolio . the amount of the provision reflects the adjustment that management determines is necessary to ensure that the allowance for credit losses is adequate to cover any losses inherent in the loan portfolio . the corporation gives special attention to the level of underperforming loans when calculating the necessary provision for loan losses . the analysis of the credit loss allowance takes into consideration , among other things , the following factors : ยท levels and trends in delinquencies , non-accruals , and charge-offs , ยท levels of classified loans , ยท trends within the loan portfolio , ยท changes in lending policies
| liquidity and capital resources the trust 's principal sources of liquidity are cash flow generated from the net profits interest and borrowing capacity under the letter of credit described below . other than trust administrative expenses , including any reserves established by the trustee for future liabilities , the trust 's only use of cash is for distributions to trust unitholders . available funds are the excess cash , if any , received by the trust from the net profits interest and other sources ( such as interest earned on any amounts reserved by the trustee ) in that month , over the trust 's expenses paid for that month . available funds are reduced by any cash the trustee determines to hold as a reserve against future expenses . the trustee may create a cash reserve to pay for future liabilities of the trust . if the trustee determines that the cash on hand and the cash to be received are , or will be , insufficient to cover the trust 's liabilities , the trustee may authorize the trust to borrow money to pay administrative or incidental expenses of the trust that exceed cash held by the trust . the trustee may authorize the trust to borrow from any person , including the trustee or the delaware trustee or an affiliate thereof , although none of the trustee , the delaware trustee or any affiliate thereof intends to lend funds to the trust . the trustee may also cause the trust to mortgage its assets to secure payment of the indebtedness . the terms of such indebtedness and security interest , if funds were loaned by the entity serving as trustee or delaware trustee or an affiliate thereof , would be similar to the terms which such entity would grant to a similarly situated commercial customer with whom it did not have a fiduciary relationship .
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on march 16 , 2020 , the fed also announced action to inject more liquidity into the financial system by purchasing up to $ 500 billion of u.s. treasuries and $ 200 billion of mortgage-backed securities . all major stock exchanges experienced dramatic sell-offs . the dow , which had peaked at 29,568 in february , closed on friday , march 20 , 2020 at 19,174 , down 10,394 points , or 35 % . nasdaq was down 30 % , while the s & p 500 was down 32 % . even with a significant equity market recovery since the initial impact of covid-19 , economic conditions remain uncertain . with the closing of non-essential businesses throughout various parts of the country for a number of months and a continued impact to consumer spending , it is anticipated that the financial impact will be long-term . the coronavirus aid relief and economic security act , also known as the cares act , was a $ 2.2 trillion economic stimulus bill passed by congress and signed into law on march 27 , 2020 , by president donald trump . the major provisions of the cares act were direct small business aid for employers with fewer than 500 employees ; direct deposit stimulus payments to american households ; enhanced unemployment compensation benefits ; and direct aid to hospitals and health care 33 enb financial corp management 's discussion and analysis providers . the paycheck protection program ( ppp ) was part of this legislation , which provided relief to businesses and organizations provided they would retain their workforce and act within the provisions of the plan . the ppp was responsible for the corporation generating $ 77.7 million of loans by september 30 , 2020 , which was the highpoint in ppp loans for 2020. by december 31 , 2020 , ppp loan balances declined to $ 48.0 million , as a result of loan forgiveness and payoffs . after december 31 , 2020 , but prior to the filing of this form 10-k , legislation for a second round of ppp loans was passed , which resulted in the corporation 's total ppp loans increasing again in early 2021. consistent with the marketplace , the impact of the second round of ppp was not near as large as the first round . management anticipated that $ 25 million to $ 30 million of ppp loans would be generated in the second round . prior to the filing of this report , the corporation 's total ppp loans had again started to decline due to further loan forgiveness and payoffs . the economic impact of covid-19 had both negative and positive impacts on the corporation 's financial results . the corporation was able to achieve a higher level of earnings in 2020 than in 2019 , but the efficiency of these earnings was reduced . the pandemic caused a very low interest rate environment , which in turn caused a much larger balance sheet with a historic increase in deposits , increasing the corporation 's net interest income , despite a lower net interest margin . the corporation 's net interest income was also increased by the recognition of ppp loan fee income . offsetting the increase in net interest income was a larger increase in the provision for loan losses . as a result of the pandemic , management was guarded about expected increases in loan losses and higher associated provision for loan losses . management did incur $ 2.2 million more provision for loan loss expense in 2020 than it did in 2019 , however much of the provision increase was focused on a very small number of commercial loans . it remains to be determined what the long-term economic impact of covid-19 will be on the corporation 's borrowers and how it will affect the corporation 's forward earnings . the corporation recorded net income of $ 12,299,000 for the year ended december 31 , 2020 , a 7.9 % increase from the $ 11,395,000 earned during the same period in 2019. the 2019 net income was 16.9 % higher than the 2018 net income of $ 9,749,000. earnings per share , basic and diluted , were $ 2.20 in 2020 , compared to $ 2.01 in 2019 , and $ 1.71 in 2018. the increase in the corporation 's 2020 earnings was caused primarily by an increase in mortgage gains from selling mortgage assets on the secondary market . these gains increased by $ 3,914,000 , or 202.2 % in 2020 compared to 2019 due to a high volume of mortgage refinancings stemming from the very low interest rate environment as well as high margins received on loans sold on the secondary market . the corporation 's 2020 earnings were also aided by an increase in net interest income of $ 1,630,000 , or 4.5 % . net interest income accounts for 71 % of the gross income stream of the corporation . the corporation 's net interest margin decreased in 2020 to 3.24 % , from 3.53 % in 2019. loan yields decreased as a result of the federal reserve rate decrease in the first quarter of 2020 , immediately impacting the yields on the corporation 's variable rate loans . the decline in interest expense helped to partially offset the declining asset yields , but to a much smaller degree . the financial services industry uses two primary performance measurements to gauge performance : return on average assets ( roa ) and return on average equity ( roe ) . roa measures how efficiently a bank generates income based on the amount of assets or size of a company . roe measures the efficiency of a company in generating income based on the amount of equity or capital utilized . the latter measurement typically receives more attention from shareholders . the corporation 's 2020 roa was 0.96 % , compared to 1.01 % in 2019. story_separator_special_tag a result of the growth in balances as well as ppp fees that caused an increase in interest and fees on loans . loan pricing was challenging in 2020 as a result of the very low rate environment and competition resulting in fixed-rate loans being priced at very low levels and variable-rate loans priced at the prime rate or below . the prime rate was 4.75 % as of december 31 , 2019 , and was moderately higher than the typical business or commercial five-year fixed rates being extended at that time . the prime rate decreased by 1.50 % in march of 2020 to 3.25 % , which is now comparable to the typical rate of a five-year fixed-rate loan . the commercial or business fixed rates do increase with longer fixed terms or lower credit quality . in terms of the variable rate pricing , nearly all variable rate loans offered are prime-based . management is able to price loan customers with higher levels of credit risk at prime plus pricing , such as prime plus 0.75 % , which amounted to 4.00 % at december 31 , 2020 , still a relatively low rate . however , only a small minority of the loans in the commercial and agricultural portfolios are at these higher rates due to the strong credit quality of the corporation 's borrowers and market competition . competition in the immediate market area has been pricing select shorter-term fixed-rate commercial and agricultural lending rates below 3.25 % for the strongest loan credits . tax equivalent yields on the corporation 's securities decreased by 49 basis points for the year ended december 31 , 2020 , compared to 2019. the corporation 's securities portfolio consists of approximately 79 % fixed income debt instruments and 21 % variable rate product as of december 31 , 2020. the corporation 's taxable securities experienced a 64 basis-point decrease in yield for the year ended december 31 , 2020 , compared to 2019. security reinvestment in 2020 has been occurring at lower rates due to the significant decline in u.s. treasury rates . the sharp growth in the investment portfolio during a period of very low rates also contributed to the decline in average security yield . this large amount of new investment was caused by the significant influx of deposits , which caused excess liquidity . the sharpest growth in the securities portfolio occurred in the fourth quarter . in addition to these negative influences , the corporation 's u.s. agency mortgage-backed securities and collateralized mortgage obligations experience faster principal prepayments as market rates decrease , causing the amortization of premium to increase , effectively decreasing the yield . the yield on tax-exempt securities decreased by 20 basis points in 2020 compared to 2019. for the corporation , these bonds consist entirely of tax-free municipal bonds . while the tax-exempt yields on municipal bonds declined with the tax rate change at the end of 2017 , yields became more attractive again during the latter part of 2019 and throughout 2020. management began investing in more of these bonds in 2020 as yields stood out and provided better returns than other sectors of the portfolio . the interest rate paid on deposits decreased for the year ended december 31 , 2020 , from the same period in 2019. management follows a disciplined pricing strategy on core deposit products that are not rate sensitive , meaning that the balances do not fluctuate significantly when interest rates change . rates on interest-bearing checking accounts and money market accounts were decreased in 2020 , resulting in a decrease in the cost of funds on these accounts of 47 basis points . savings account rates were also decreased during the year resulting in a two basis point reduction in the cost of funds associated with these accounts . additionally , the cost of funds on time deposits decreased by six basis points during 2020. typically , the corporation sees increases in core deposit products during periods when consumers are not confident in the stock market and economic conditions deteriorate . during these periods , there is a โ flight to safety โ to federally insured deposits . this trend occurred in 2020. as the rate between time deposits and core deposits narrowed , many customers chose to transfer funds from maturing time deposits into checking and savings accounts . since the financial crisis , depositors have been more concerned about the financial health of their financial institution . this concern affects their desire to obtain the best possible market interest rates . this trend benefits the corporation 40 enb financial corp management 's discussion and analysis due to its high capital levels and track record of strong and stable earnings . the corporation 's bauer financial rating of 5 , the highest level of their rating scale , has assisted the bank in gaining core deposits over the past several years . the corporation 's average rate on borrowed funds increased by 39 basis points from 2019 to 2020 , as fhlb borrowings were paid off early throughout the year accelerating $ 234,000 of interest expense . provision for loan losses the allowance for credit losses provides for losses inherent in the loan portfolio as determined by a quarterly analysis and calculation of various factors related to the loan portfolio . the amount of the provision reflects the adjustment that management determines is necessary to ensure that the allowance for credit losses is adequate to cover any losses inherent in the loan portfolio . the corporation gives special attention to the level of underperforming loans when calculating the necessary provision for loan losses . the analysis of the credit loss allowance takes into consideration , among other things , the following factors : ยท levels and trends in delinquencies , non-accruals , and charge-offs , ยท levels of classified loans , ยท trends within the loan portfolio , ยท changes in lending policies
| cash and cash equivalents cash and cash equivalents consist of the cash on hand in the corporation 's vaults , operational transaction accounts with the federal reserve bank ( frb ) , and deposits in other banks . the frb requires a specified amount of cash available either in vault cash or in an frb account . known as cash reserves , these funds provide for the daily clearing house activity of the corporation and fluctuate based on the volume of each day 's transactions . beyond these requirements , the corporation maintains additional cash levels as part of management 's active asset liability and liquidity strategy . management has been carrying larger cash balances as a result of the large increase in deposit balances during 2020 with lower levels of loan growth . additionally , higher cash balances provide an immediate hedge against interest rate risk and liquidity risk . as of december 31 , 2020 , the corporation had $ 94.9 million in cash and cash equivalents , compared to $ 41.1 million as of december 31 , 2019. the overnight rate that the federal reserve bank pays on excess cash balances fluctuates as the overnight federal funds rate fluctuates and as of december 31 , 2020 , it stood at 0.10 % . the corporation does not aim to keep excess cash at the frb as the overnight rate is much less then rates received on balances held in correspondent money market accounts . management invests excess cash in three money market accounts at other financial institutions .
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acs is a provider of supply chain management solutions for a broad range of production components through its service centers throughout north america . the company recorded a gain of $ 2.2 million representing the excess of the aggregate fair value of purchased net assets over the purchase price . see note c to the consolidated financial statements included elsewhere herein . on september 30 , 2010 , the company entered a bill of sale with rome , a producer of aluminum high pressure die castings , pursuant to which rome agreed to transfer to the company substantially all of its assets in exchange for approximately $ 7.5 million of notes receivable due from rome held by the company . see note c to the consolidated financial statements included elsewhere herein . on december 31 , 2010 , the company through its subsidiary , ajax tocco magnethermic , acquired the assets and the related induction heating intellectual property of pillar for $ 10.3 million in cash . pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market . see note c to the consolidated financial statements included elsewhere herein . during the third quarter of 2010 , the company recorded an asset impairment charge of $ 3.5 million related to the writedown of one of its investments . on april 7 , 2011 , the company completed the sale of $ 250 million aggregate principal amount of the notes . the notes bear an interest rate of 8.125 % per annum , payable semi-annually in arrears on april 1 and october 1 of each year commencing on october 1 , 2011. the notes mature on april 1 , 2021. in connection with the sale of the notes , the company also entered into the amended credit agreement . the amended credit agreement among other things , provides an increased credit facility up to $ 200 million , extends the maturity date of the borrowings under the facility to april 7 , 2016 and amends fee and pricing terms . furthermore , the company has the option , pursuant to the amended credit agreement , to increase the availability under the revolving credit facility by $ 50 million . the company also purchased all of its outstanding $ 183.8 million aggregate principal amount of the senior subordinated notes that were not held by its affiliates pursuant to a tender offer and subsequent redemption , repaid all of the term loan a and term loan b outstanding under its then existing credit facility and retired the senior subordinated notes in the aggregate principal amount of $ 26.2 million that were held by an affiliate . the company incurred debt extinguishment costs related to premiums and other transaction costs associated with the tender offer and subsequent redemption of the senior subordinated notes and wrote off deferred financing costs totaling $ 7.3 million and recorded a provision for foreign income taxes of $ 2.1 million resulting from the retirement of the senior subordinated notes that were held by an affiliate . during the third quarter of 2011 , the company recorded an asset impairment charge of $ 5.4 million associated with the underperformance of the assets of its rubber products business unit . 27 on march 5 , 2012 , the company entered into an agreement to acquire frs , a leading manufacturer of industrial hose products and fuel filler and hydraulic fluid assemblies , in an all cash transaction valued at $ 97.5 million . frs products include fuel filler , hydraulic , and thermoplastic assemblies and several forms of manufactured hose including bulk and formed fuel , power steering , transmission oil cooling , hydraulic and thermoplastic hose . frs sells to automotive and industrial customers throughout north america , europe and asia . frs has five production facilities located in florida , michigan , ohio , tennessee and the czech republic . the transaction is expected to close by march 30 , 2012 subject to a number of customary conditions , including the expiration of waiting periods and the receipt of approvals under hart-scott-rodino antitrust improvements act . the transaction is expected to be funded by the company 's cash of $ 40.0 million ( $ 10.0 million domestic and $ 30.0 million foreign ) , a new $ 25.0 million seven-year amortizing term loan secured by certain real estate and machinery and equipment of the company for which the company has received a commitment letter from its bank group and $ 32.5 million of borrowings under the company 's revolving credit facility . results of operations 2011 versus 2010 net sales by segment : replace_table_token_7_th net sales increased $ 153.1 million to $ 966.6 million in 2011 compared to $ 813.5 million in 2010 as the company experienced volume increases in the supply technologies and manufactured products segments . supply technologies sales increased 23 % primarily due to volume ( $ 53.8 million ) increases in the heavy-duty truck , electrical , industrial equipment , auto , power sports , hvac , furniture , agricultural and construction equipment industries and price increases of $ 7.3 million , which were offset primarily by declines in the instruments , medical and semi-conductor industries . in addition , there were $ 29.8 million of incremental sales resulting from the acquisition of the acs business . aluminum products sales decreased 12 % , resulting primarily from the completion of certain automotive supply contracts ( $ 31.7 million ) offset by sales of $ 9.6 million resulting from the acquisition of the rome business and price increases of $ 5.4 million . manufactured products sales increased 29 % primarily due to increased business in the capital equipment and forged and machined products business units offset by a minor decline in the rubber products business unit . in addition , there were $ 26.3 million of incremental sales resulting from the acquisition of pillar . story_separator_special_tag a reporting unit is a reportable operating segment pursuant to asc 280 , ยsegment reportingย , or one level below the reportable operating segment ( component level ) as determined by the availability of discrete financial information that is regularly reviewed by operating segment management or an aggregate of component levels of a reportable operating segment having similar economic characteristics . the company completed the assessment of the qualitative factors and determined that there was no impairment with respect to the capital equipment reporting unit 's goodwill . with respect to aluminum products , management determined fair value through the use of a discounted cash flow valuation model incorporating discount rates commensurate with the risks involved for the reporting unit . if the calculated fair value is less than the carrying value , impairment of the reporting unit may exist . the use of a discounted cash flow valuation model to determine estimated fair value is common practice in impairment testing in the absence of available domestic and international transactional market evidence to determine the fair value . the key assumptions used in the discounted cash flow valuation model for impairment testing include discount rates , growth rates , cash flow projections and terminal value rates . discount rates are set by using the weighted average cost of capital ( ยwaccย ) methodology . the wacc methodology considers market and industry data as well as company-specific risk factors for each reporting unity in determining the appropriate discount rates to be used . the discount rate utilized for the reporting unit , which ranged from 12 % to 13 % , is indicative of the return an investor would expect to receive for investing in such a business . 37 operational management , considering industry and company-specific historical and projected data , develops growth rates and cash flow projections . terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant wacc and low long-term growth rates . at december 31 , 2009 , the company had goodwill of $ 4.1 million in the capital equipment reporting unit . on december 31 , 2010 , the company completed the acquisition of pillar and recorded additional goodwill of $ 1.0 million in the capital equipment reporting unit . at december 31 , 2011 the company had goodwill of $ 9.5 million . we completed the annual impairment tests as of october 1 , 2009 , 2010 and 2011 and concluded that no goodwill impairment existed . income taxes : in accordance with asc 740 , ยincome taxesย ( ยasc 740ย ) , the company accounts for income taxes under the asset and liability method , whereby deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax bases of assets and liabilities and are measured using the currently enacted tax rates . specifically , we measure gross deferred tax assets for deductible temporary differences and carryforwards , such as operating losses and tax credits , using the applicable enacted tax rates and apply the more likely than not measurement criterion . asc 740 provides that future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback , carryforward period available under the tax law . the company analyzed the four possible sources of taxable income as set forth in asc 740 and concluded that the only relevant sources of taxable income is the reversal of its existing taxable temporary differences . the company reviewed the projected timing of the reversal of its taxable temporary differences and determined that such reversals will offset the company 's deferred tax assets prior to their expiration . as of december 31 , 2011 , the company was not in a cumulative three-year loss position and it was determined that it was more likely than not that its u.s. net deferred tax assets will be realized . as of december 31 , 2011 , the company reversed a valuation allowance against its u.s. net deferred tax assets . see note h to the consolidated financial statements included elsewhere herein . pension and other postretirement benefit plans : we and our subsidiaries have pension plans , principally noncontributory defined benefit or noncontributory defined contribution plans and postretirement benefit plans covering substantially all employees . the measurement of liabilities related to these plans is based on management 's assumptions related to future events , including interest rates , return on pension plan assets , rate of compensation increases , and health care cost trends . pension plan asset performance in the future will directly impact our net income . we have evaluated our pension and other postretirement benefit assumptions , considering current trends in interest rates and market conditions and believe our assumptions are appropriate . stock-based compensation : asc 718 , ยcompensation-stock compensation , ย requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and establishes a fair-value measurement objective in determining the value of such a cost . the company recorded expense related to stock-based compensation in 2011 , 2010 , and 2009 of $ 2.1 million , $ 1.7 million and $ 2.4 million ( before tax ) , respectively . 38 recent accounting pronouncements in june 2011 , the fasb issued asu no . 2011-05 , ยcomprehensive income ( topic 220 ) : presentation of comprehensive income.ย asu no . 2011-05 amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income : ( 1 ) in a single continuous financial statement , statement of comprehensive income or ( 2 ) in two separate but consecutive financial statements , consisting of an income statement followed by a separate statement of other comprehensive income . also , items that are reclassified
| cash and cash equivalents cash and cash equivalents consist of the cash on hand in the corporation 's vaults , operational transaction accounts with the federal reserve bank ( frb ) , and deposits in other banks . the frb requires a specified amount of cash available either in vault cash or in an frb account . known as cash reserves , these funds provide for the daily clearing house activity of the corporation and fluctuate based on the volume of each day 's transactions . beyond these requirements , the corporation maintains additional cash levels as part of management 's active asset liability and liquidity strategy . management has been carrying larger cash balances as a result of the large increase in deposit balances during 2020 with lower levels of loan growth . additionally , higher cash balances provide an immediate hedge against interest rate risk and liquidity risk . as of december 31 , 2020 , the corporation had $ 94.9 million in cash and cash equivalents , compared to $ 41.1 million as of december 31 , 2019. the overnight rate that the federal reserve bank pays on excess cash balances fluctuates as the overnight federal funds rate fluctuates and as of december 31 , 2020 , it stood at 0.10 % . the corporation does not aim to keep excess cash at the frb as the overnight rate is much less then rates received on balances held in correspondent money market accounts . management invests excess cash in three money market accounts at other financial institutions .
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acs is a provider of supply chain management solutions for a broad range of production components through its service centers throughout north america . the company recorded a gain of $ 2.2 million representing the excess of the aggregate fair value of purchased net assets over the purchase price . see note c to the consolidated financial statements included elsewhere herein . on september 30 , 2010 , the company entered a bill of sale with rome , a producer of aluminum high pressure die castings , pursuant to which rome agreed to transfer to the company substantially all of its assets in exchange for approximately $ 7.5 million of notes receivable due from rome held by the company . see note c to the consolidated financial statements included elsewhere herein . on december 31 , 2010 , the company through its subsidiary , ajax tocco magnethermic , acquired the assets and the related induction heating intellectual property of pillar for $ 10.3 million in cash . pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market . see note c to the consolidated financial statements included elsewhere herein . during the third quarter of 2010 , the company recorded an asset impairment charge of $ 3.5 million related to the writedown of one of its investments . on april 7 , 2011 , the company completed the sale of $ 250 million aggregate principal amount of the notes . the notes bear an interest rate of 8.125 % per annum , payable semi-annually in arrears on april 1 and october 1 of each year commencing on october 1 , 2011. the notes mature on april 1 , 2021. in connection with the sale of the notes , the company also entered into the amended credit agreement . the amended credit agreement among other things , provides an increased credit facility up to $ 200 million , extends the maturity date of the borrowings under the facility to april 7 , 2016 and amends fee and pricing terms . furthermore , the company has the option , pursuant to the amended credit agreement , to increase the availability under the revolving credit facility by $ 50 million . the company also purchased all of its outstanding $ 183.8 million aggregate principal amount of the senior subordinated notes that were not held by its affiliates pursuant to a tender offer and subsequent redemption , repaid all of the term loan a and term loan b outstanding under its then existing credit facility and retired the senior subordinated notes in the aggregate principal amount of $ 26.2 million that were held by an affiliate . the company incurred debt extinguishment costs related to premiums and other transaction costs associated with the tender offer and subsequent redemption of the senior subordinated notes and wrote off deferred financing costs totaling $ 7.3 million and recorded a provision for foreign income taxes of $ 2.1 million resulting from the retirement of the senior subordinated notes that were held by an affiliate . during the third quarter of 2011 , the company recorded an asset impairment charge of $ 5.4 million associated with the underperformance of the assets of its rubber products business unit . 27 on march 5 , 2012 , the company entered into an agreement to acquire frs , a leading manufacturer of industrial hose products and fuel filler and hydraulic fluid assemblies , in an all cash transaction valued at $ 97.5 million . frs products include fuel filler , hydraulic , and thermoplastic assemblies and several forms of manufactured hose including bulk and formed fuel , power steering , transmission oil cooling , hydraulic and thermoplastic hose . frs sells to automotive and industrial customers throughout north america , europe and asia . frs has five production facilities located in florida , michigan , ohio , tennessee and the czech republic . the transaction is expected to close by march 30 , 2012 subject to a number of customary conditions , including the expiration of waiting periods and the receipt of approvals under hart-scott-rodino antitrust improvements act . the transaction is expected to be funded by the company 's cash of $ 40.0 million ( $ 10.0 million domestic and $ 30.0 million foreign ) , a new $ 25.0 million seven-year amortizing term loan secured by certain real estate and machinery and equipment of the company for which the company has received a commitment letter from its bank group and $ 32.5 million of borrowings under the company 's revolving credit facility . results of operations 2011 versus 2010 net sales by segment : replace_table_token_7_th net sales increased $ 153.1 million to $ 966.6 million in 2011 compared to $ 813.5 million in 2010 as the company experienced volume increases in the supply technologies and manufactured products segments . supply technologies sales increased 23 % primarily due to volume ( $ 53.8 million ) increases in the heavy-duty truck , electrical , industrial equipment , auto , power sports , hvac , furniture , agricultural and construction equipment industries and price increases of $ 7.3 million , which were offset primarily by declines in the instruments , medical and semi-conductor industries . in addition , there were $ 29.8 million of incremental sales resulting from the acquisition of the acs business . aluminum products sales decreased 12 % , resulting primarily from the completion of certain automotive supply contracts ( $ 31.7 million ) offset by sales of $ 9.6 million resulting from the acquisition of the rome business and price increases of $ 5.4 million . manufactured products sales increased 29 % primarily due to increased business in the capital equipment and forged and machined products business units offset by a minor decline in the rubber products business unit . in addition , there were $ 26.3 million of incremental sales resulting from the acquisition of pillar . story_separator_special_tag a reporting unit is a reportable operating segment pursuant to asc 280 , ยsegment reportingย , or one level below the reportable operating segment ( component level ) as determined by the availability of discrete financial information that is regularly reviewed by operating segment management or an aggregate of component levels of a reportable operating segment having similar economic characteristics . the company completed the assessment of the qualitative factors and determined that there was no impairment with respect to the capital equipment reporting unit 's goodwill . with respect to aluminum products , management determined fair value through the use of a discounted cash flow valuation model incorporating discount rates commensurate with the risks involved for the reporting unit . if the calculated fair value is less than the carrying value , impairment of the reporting unit may exist . the use of a discounted cash flow valuation model to determine estimated fair value is common practice in impairment testing in the absence of available domestic and international transactional market evidence to determine the fair value . the key assumptions used in the discounted cash flow valuation model for impairment testing include discount rates , growth rates , cash flow projections and terminal value rates . discount rates are set by using the weighted average cost of capital ( ยwaccย ) methodology . the wacc methodology considers market and industry data as well as company-specific risk factors for each reporting unity in determining the appropriate discount rates to be used . the discount rate utilized for the reporting unit , which ranged from 12 % to 13 % , is indicative of the return an investor would expect to receive for investing in such a business . 37 operational management , considering industry and company-specific historical and projected data , develops growth rates and cash flow projections . terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant wacc and low long-term growth rates . at december 31 , 2009 , the company had goodwill of $ 4.1 million in the capital equipment reporting unit . on december 31 , 2010 , the company completed the acquisition of pillar and recorded additional goodwill of $ 1.0 million in the capital equipment reporting unit . at december 31 , 2011 the company had goodwill of $ 9.5 million . we completed the annual impairment tests as of october 1 , 2009 , 2010 and 2011 and concluded that no goodwill impairment existed . income taxes : in accordance with asc 740 , ยincome taxesย ( ยasc 740ย ) , the company accounts for income taxes under the asset and liability method , whereby deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax bases of assets and liabilities and are measured using the currently enacted tax rates . specifically , we measure gross deferred tax assets for deductible temporary differences and carryforwards , such as operating losses and tax credits , using the applicable enacted tax rates and apply the more likely than not measurement criterion . asc 740 provides that future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback , carryforward period available under the tax law . the company analyzed the four possible sources of taxable income as set forth in asc 740 and concluded that the only relevant sources of taxable income is the reversal of its existing taxable temporary differences . the company reviewed the projected timing of the reversal of its taxable temporary differences and determined that such reversals will offset the company 's deferred tax assets prior to their expiration . as of december 31 , 2011 , the company was not in a cumulative three-year loss position and it was determined that it was more likely than not that its u.s. net deferred tax assets will be realized . as of december 31 , 2011 , the company reversed a valuation allowance against its u.s. net deferred tax assets . see note h to the consolidated financial statements included elsewhere herein . pension and other postretirement benefit plans : we and our subsidiaries have pension plans , principally noncontributory defined benefit or noncontributory defined contribution plans and postretirement benefit plans covering substantially all employees . the measurement of liabilities related to these plans is based on management 's assumptions related to future events , including interest rates , return on pension plan assets , rate of compensation increases , and health care cost trends . pension plan asset performance in the future will directly impact our net income . we have evaluated our pension and other postretirement benefit assumptions , considering current trends in interest rates and market conditions and believe our assumptions are appropriate . stock-based compensation : asc 718 , ยcompensation-stock compensation , ย requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and establishes a fair-value measurement objective in determining the value of such a cost . the company recorded expense related to stock-based compensation in 2011 , 2010 , and 2009 of $ 2.1 million , $ 1.7 million and $ 2.4 million ( before tax ) , respectively . 38 recent accounting pronouncements in june 2011 , the fasb issued asu no . 2011-05 , ยcomprehensive income ( topic 220 ) : presentation of comprehensive income.ย asu no . 2011-05 amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income : ( 1 ) in a single continuous financial statement , statement of comprehensive income or ( 2 ) in two separate but consecutive financial statements , consisting of an income statement followed by a separate statement of other comprehensive income . also , items that are reclassified
| liquidity and sources of capital our liquidity needs are primarily for working capital and capital expenditures . our primary sources of liquidity have been funds provided by operations and funds available from existing bank credit arrangements and the sale of our long-term debt securities . in 2003 , we entered into a revolving credit facility with a group of banks which , as subsequently amended , matures at april 7 , 2016 and , as amended , currently provides for availability of up to $ 200 million subject to an asset-based formula . we have the option to increase the availability under the revolving loan portion of the credit facility by $ 50.0 million . the revolving credit facility is secured by substantially all our accounts receivable and inventory in the united states and canada . borrowings from this revolving credit facility will be used for general corporate purposes . as of december 31 , 2011 , the company had $ 93.0 million outstanding under the revolving credit facility , and approximately $ 68.1 million of unused borrowing availability . on march 5 , 2012 , the company entered into an agreement to acquire frs , a leading manufacturer of industrial hose products and fuel filler and hydraulic fluid assemblies , in an all cash transaction valued at $ 97.5 million . frs products include fuel filler , hydraulic , and thermoplastic assemblies and several forms of manufactured hose including bulk and formed fuel , power steering , transmission oil cooling , hydraulic and thermoplastic hose . frs sells to automotive and industrial customers throughout north america , europe and asia . frs has five production facilities located in florida , michigan , ohio , tennessee and the czech republic . the transaction is expected to close by march 30 , 2012 subject to a number of customary conditions , including the expiration of waiting periods and the receipt of approvals under hart-scott-rodino antitrust improvements act .
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to supplement our internal research programs , we seek to collaborate with biopharmaceutical and technology companies , leading academic research institutions , government laboratories , foundations and other organizations as needed to advance research in our areas of therapeutic interest and to access technologies needed to execute on our strategy . we believe that pursuing research in diverse areas allows us to balance the risks inherent in drug development and may provide drug candidates that will form our pipeline in future years . 48 drug discovery and development discovery and development of a new pharmaceutical product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise and can take 10 to 15 years or more . potential drug candidates are subjected to rigorous evaluations , driven in part by stringent regulatory considerations , designed to generate information concerning efficacy , side-effects , proper dosage levels and a variety of other physical and chemical characteristics that are important in determining whether a drug candidate should be approved for marketing as a pharmaceutical product . most chemical compounds that are investigated as potential drug candidates never progress into development , and most drug candidates that do advance into development never receive marketing approval . because our investments in drug candidates are subject to considerable risks , we closely monitor the results of our discovery , research , clinical trials and nonclinical studies and frequently evaluate our drug development programs in light of new data and scientific , business and commercial insights , with the objective of balancing risk and potential . this process can result in abrupt changes in focus and priorities as new information becomes available and as we gain additional understanding of our ongoing programs and potential new programs , as well as those of our competitors . if we believe that data from a completed registration program support approval of a drug candidate , we submit an nda to the fda requesting approval to market the drug candidate in the united states and seek analogous approvals from comparable regulatory authorities in foreign jurisdictions . to obtain approval , we must , among other things , demonstrate with evidence gathered in nonclinical studies and well-controlled clinical trials that the drug candidate is safe and effective for the disease it is intended to treat and that the manufacturing facilities , processes and controls for the manufacture of the drug candidate are adequate . the fda and foreign regulatory authorities have substantial discretion in deciding whether or not a drug candidate should be granted approval based on the benefits and risks of the drug candidate in the treatment of a particular disease , and could delay , limit or deny regulatory approval . if regulatory delays are significant or regulatory approval is limited or denied altogether , our financial results and the commercial prospects for the drug candidate involved will be harmed . regulatory compliance our marketing of pharmaceutical products is subject to extensive and complex laws and regulations . we have a corporate compliance program designed to actively identify , prevent and mitigate risk through the implementation of compliance policies and systems , and through the promotion of a culture of compliance . among other laws , regulations and standards , we are subject to various u.s. federal and state laws , and comparable foreign laws , pertaining to health care fraud and abuse , including anti-kickback and false claims laws , and laws prohibiting the promotion of drugs for unapproved or off-label uses . anti-kickback laws make it illegal for a prescription drug manufacturer to solicit , offer , receive or pay any remuneration to induce the referral of business , including the purchase or prescription of a particular drug that is reimbursed by a state or federal program . false claims laws prohibit anyone from knowingly or willfully presenting for payment to third-party payors , including medicare and medicaid , claims for reimbursed drugs or services that are false or fraudulent , claims for items or services not provided as claimed , or claims for medically unnecessary items or services . we are subject to laws and regulations that regulate the sales and marketing practices of pharmaceutical manufacturers , as well as laws such as the u.s. foreign corrupt practices act that govern our international business practices with respect to payments to government officials . we expect to continue to devote substantial resources to maintain , administer and expand these compliance programs globally . reimbursement sales of our products depend , to a large degree , on the extent to which our products are covered by third-party payors , such as government health programs , commercial insurance and managed health care organizations . we dedicate substantial management and other resources in order to obtain and maintain appropriate levels of reimbursement for our products from third-party payors , including governmental organizations in the united states and ex-u.s. markets . in the united states , we continue to engage in discussions with numerous commercial insurers and managed health care organizations , along with government health programs that are typically managed by authorities in the individual states . in europe and other ex-u.s. markets , we work to obtain government reimbursement for orkambi on a country-by-country basis , because in many foreign countries patients are unable to access prescription pharmaceutical products that are not reimbursed by their governments . in the united states , we worked successfully with third party payors in order to promptly obtain appropriate levels of reimbursement for kalydeco and orkambi and are beginning that process for symdeko . we also successfully obtained reimbursement for kalydeco in each significant ex-u.s. market within two years of approval . story_separator_special_tag any estimates regarding development and regulatory timelines for our drug candidates are highly subjective and subject to change . we expect the ema to complete its review of our maa for tezacaftor in combination with ivacaftor in the second half of 2018. we can not make a meaningful estimate when , if ever , our other clinical development programs will generate revenues and cash flows . research expenses replace_table_token_9_th 55 over the past three years we have maintained a substantial and consistent investment in our internal research activities . our total research expenses have been affected by research expenses associated with our business development activities , which are reflected in collaboration and asset acquisition payments . collaboration and asset acquisition payments in 2016 included a $ 20.0 million upfront payment to moderna and approximately $ 10.0 million in expenses related to the acquisition of early-stage research assets . collaboration and asset acquisition payments in 2015 consisted of a $ 75.0 million upfront payment we made to crispr . we expect to continue to invest in our research programs with a focus on identifying drug candidates with the goal of creating transformative medicines . development expenses replace_table_token_10_th our development expenses increased by $ 280.3 million , or 38 % , in 2017 as compared to 2016 and increased by $ 75.0 million , or 11 % , in 2016 as compared to 2015 . the increase in 2017 as compared to 2016 was primarily due to the $ 160.0 million payment to concert in connection with the acquisition of vx-561 in the third quarter of 2017 and to increased outsourced services expenses related to ongoing clinical trials , including trials involving our next-generation cftr corrector compounds that we are evaluating as part of triple combination treatment regimens . we expect our development expenses , excluding collaboration and asset acquisition payments , to increase in 2018 as compared to 2017 due to expenses related to the advancement of our triple combination regimens into phase 3 development . the increased development expenses in 2016 as compared to 2015 were primarily due to an increase in outsourced services related to clinical trials , including our phase 3 development program for tezacaftor in combination with ivacaftor and increases in salary and benefits , laboratory supplies and other direct expenses and infrastructure costs . sales , general and administrative expenses replace_table_token_11_th sales , general and administrative expenses increased by 15 % in 2017 as compared to 2016 , and by 15 % in 2016 as compared to 2015 . these increases were primarily due to increased global support for kalydeco and orkambi and costs incurred to prepare for the launch of symdeko in the united states . restructuring expenses in 2017 , 2016 and 2015 , we recorded restructuring expenses of $ 14.2 million , $ 1.3 million and $ 2.2 million , respectively . our restructuring expenses in 2017 were primarily related to our decision to consolidate our research activities into our boston , milton park and san diego locations and to close our research site in canada . 56 intangible asset impairment charge in 2017 , we recorded a $ 255.3 million impairment charge related to parion 's pulmonary enac platform that we licensed from parion in 2015 and a benefit from income taxes of $ 97.7 million related to this impairment charge attributable to parion . there were no corresponding intangible asset impairment charges in 2016 or 2015. other items , net interest expense , net our interest expense , net relates primarily to interest expenses associated with our real estate leases and interest on our outstanding debt . in 2017 , 2016 and 2015 , interest expense , net was $ 57.6 million , $ 81.4 million and $ 84.2 million , respectively . the decrease in interest expense , net in 2017 as compared to 2016 was primarily due to the repayment of the $ 300.0 million outstanding under our revolving credit facility in february 2017. in 2018 , we expect that we will incur approximately $ 66 million in interest expenses related to our real estate leases and that our interest expense related to outstanding debt will be dependent on whether , and to what extent , we reborrow amounts under our credit facility . other ( expense ) income , net in 2017 , other ( expense ) income , net was an expense of $ 81.4 million primarily related to the deconsolidation of parion . in 2016 , we recorded net other income of $ 4.1 million primarily related to foreign exchange gains . in 2015 , we recorded net other expense of $ 6.7 million primarily related to foreign exchange losses . income taxes in 2017 , we recorded a benefit from income taxes of $ 107.3 million , related to a benefit from income taxes of $ 114.1 million attributable to noncontrolling interest primarily as a result of our impairment of parion 's pulmonary enac platform and decrease in the fair value of the contingent payments payable by us to parion in the third quarter of 2017 , partially offset by a provision for income taxes of $ 6.8 million related primarily to u.s. state and foreign taxes . as discussed below in critical accounting policies - income taxes , we continue to maintain a valuation allowance on the majority of our net operating losses and other deferred tax assets and are in the process of determining the impact that h.r.1 . , known as the tax cuts and jobs act of 2017 , will have on our provision for ( benefit from ) income taxes in the future . in 2016 , we recorded a provision for income taxes of $ 16.7 million , principally due to income taxes payable by our vies . in 2015 , we recorded a provision for income taxes of $ 30.4 million , principally due to the consolidation of parion as a vie into our consolidated financial statements .
| liquidity and sources of capital our liquidity needs are primarily for working capital and capital expenditures . our primary sources of liquidity have been funds provided by operations and funds available from existing bank credit arrangements and the sale of our long-term debt securities . in 2003 , we entered into a revolving credit facility with a group of banks which , as subsequently amended , matures at april 7 , 2016 and , as amended , currently provides for availability of up to $ 200 million subject to an asset-based formula . we have the option to increase the availability under the revolving loan portion of the credit facility by $ 50.0 million . the revolving credit facility is secured by substantially all our accounts receivable and inventory in the united states and canada . borrowings from this revolving credit facility will be used for general corporate purposes . as of december 31 , 2011 , the company had $ 93.0 million outstanding under the revolving credit facility , and approximately $ 68.1 million of unused borrowing availability . on march 5 , 2012 , the company entered into an agreement to acquire frs , a leading manufacturer of industrial hose products and fuel filler and hydraulic fluid assemblies , in an all cash transaction valued at $ 97.5 million . frs products include fuel filler , hydraulic , and thermoplastic assemblies and several forms of manufactured hose including bulk and formed fuel , power steering , transmission oil cooling , hydraulic and thermoplastic hose . frs sells to automotive and industrial customers throughout north america , europe and asia . frs has five production facilities located in florida , michigan , ohio , tennessee and the czech republic . the transaction is expected to close by march 30 , 2012 subject to a number of customary conditions , including the expiration of waiting periods and the receipt of approvals under hart-scott-rodino antitrust improvements act .
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to supplement our internal research programs , we seek to collaborate with biopharmaceutical and technology companies , leading academic research institutions , government laboratories , foundations and other organizations as needed to advance research in our areas of therapeutic interest and to access technologies needed to execute on our strategy . we believe that pursuing research in diverse areas allows us to balance the risks inherent in drug development and may provide drug candidates that will form our pipeline in future years . 48 drug discovery and development discovery and development of a new pharmaceutical product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise and can take 10 to 15 years or more . potential drug candidates are subjected to rigorous evaluations , driven in part by stringent regulatory considerations , designed to generate information concerning efficacy , side-effects , proper dosage levels and a variety of other physical and chemical characteristics that are important in determining whether a drug candidate should be approved for marketing as a pharmaceutical product . most chemical compounds that are investigated as potential drug candidates never progress into development , and most drug candidates that do advance into development never receive marketing approval . because our investments in drug candidates are subject to considerable risks , we closely monitor the results of our discovery , research , clinical trials and nonclinical studies and frequently evaluate our drug development programs in light of new data and scientific , business and commercial insights , with the objective of balancing risk and potential . this process can result in abrupt changes in focus and priorities as new information becomes available and as we gain additional understanding of our ongoing programs and potential new programs , as well as those of our competitors . if we believe that data from a completed registration program support approval of a drug candidate , we submit an nda to the fda requesting approval to market the drug candidate in the united states and seek analogous approvals from comparable regulatory authorities in foreign jurisdictions . to obtain approval , we must , among other things , demonstrate with evidence gathered in nonclinical studies and well-controlled clinical trials that the drug candidate is safe and effective for the disease it is intended to treat and that the manufacturing facilities , processes and controls for the manufacture of the drug candidate are adequate . the fda and foreign regulatory authorities have substantial discretion in deciding whether or not a drug candidate should be granted approval based on the benefits and risks of the drug candidate in the treatment of a particular disease , and could delay , limit or deny regulatory approval . if regulatory delays are significant or regulatory approval is limited or denied altogether , our financial results and the commercial prospects for the drug candidate involved will be harmed . regulatory compliance our marketing of pharmaceutical products is subject to extensive and complex laws and regulations . we have a corporate compliance program designed to actively identify , prevent and mitigate risk through the implementation of compliance policies and systems , and through the promotion of a culture of compliance . among other laws , regulations and standards , we are subject to various u.s. federal and state laws , and comparable foreign laws , pertaining to health care fraud and abuse , including anti-kickback and false claims laws , and laws prohibiting the promotion of drugs for unapproved or off-label uses . anti-kickback laws make it illegal for a prescription drug manufacturer to solicit , offer , receive or pay any remuneration to induce the referral of business , including the purchase or prescription of a particular drug that is reimbursed by a state or federal program . false claims laws prohibit anyone from knowingly or willfully presenting for payment to third-party payors , including medicare and medicaid , claims for reimbursed drugs or services that are false or fraudulent , claims for items or services not provided as claimed , or claims for medically unnecessary items or services . we are subject to laws and regulations that regulate the sales and marketing practices of pharmaceutical manufacturers , as well as laws such as the u.s. foreign corrupt practices act that govern our international business practices with respect to payments to government officials . we expect to continue to devote substantial resources to maintain , administer and expand these compliance programs globally . reimbursement sales of our products depend , to a large degree , on the extent to which our products are covered by third-party payors , such as government health programs , commercial insurance and managed health care organizations . we dedicate substantial management and other resources in order to obtain and maintain appropriate levels of reimbursement for our products from third-party payors , including governmental organizations in the united states and ex-u.s. markets . in the united states , we continue to engage in discussions with numerous commercial insurers and managed health care organizations , along with government health programs that are typically managed by authorities in the individual states . in europe and other ex-u.s. markets , we work to obtain government reimbursement for orkambi on a country-by-country basis , because in many foreign countries patients are unable to access prescription pharmaceutical products that are not reimbursed by their governments . in the united states , we worked successfully with third party payors in order to promptly obtain appropriate levels of reimbursement for kalydeco and orkambi and are beginning that process for symdeko . we also successfully obtained reimbursement for kalydeco in each significant ex-u.s. market within two years of approval . story_separator_special_tag any estimates regarding development and regulatory timelines for our drug candidates are highly subjective and subject to change . we expect the ema to complete its review of our maa for tezacaftor in combination with ivacaftor in the second half of 2018. we can not make a meaningful estimate when , if ever , our other clinical development programs will generate revenues and cash flows . research expenses replace_table_token_9_th 55 over the past three years we have maintained a substantial and consistent investment in our internal research activities . our total research expenses have been affected by research expenses associated with our business development activities , which are reflected in collaboration and asset acquisition payments . collaboration and asset acquisition payments in 2016 included a $ 20.0 million upfront payment to moderna and approximately $ 10.0 million in expenses related to the acquisition of early-stage research assets . collaboration and asset acquisition payments in 2015 consisted of a $ 75.0 million upfront payment we made to crispr . we expect to continue to invest in our research programs with a focus on identifying drug candidates with the goal of creating transformative medicines . development expenses replace_table_token_10_th our development expenses increased by $ 280.3 million , or 38 % , in 2017 as compared to 2016 and increased by $ 75.0 million , or 11 % , in 2016 as compared to 2015 . the increase in 2017 as compared to 2016 was primarily due to the $ 160.0 million payment to concert in connection with the acquisition of vx-561 in the third quarter of 2017 and to increased outsourced services expenses related to ongoing clinical trials , including trials involving our next-generation cftr corrector compounds that we are evaluating as part of triple combination treatment regimens . we expect our development expenses , excluding collaboration and asset acquisition payments , to increase in 2018 as compared to 2017 due to expenses related to the advancement of our triple combination regimens into phase 3 development . the increased development expenses in 2016 as compared to 2015 were primarily due to an increase in outsourced services related to clinical trials , including our phase 3 development program for tezacaftor in combination with ivacaftor and increases in salary and benefits , laboratory supplies and other direct expenses and infrastructure costs . sales , general and administrative expenses replace_table_token_11_th sales , general and administrative expenses increased by 15 % in 2017 as compared to 2016 , and by 15 % in 2016 as compared to 2015 . these increases were primarily due to increased global support for kalydeco and orkambi and costs incurred to prepare for the launch of symdeko in the united states . restructuring expenses in 2017 , 2016 and 2015 , we recorded restructuring expenses of $ 14.2 million , $ 1.3 million and $ 2.2 million , respectively . our restructuring expenses in 2017 were primarily related to our decision to consolidate our research activities into our boston , milton park and san diego locations and to close our research site in canada . 56 intangible asset impairment charge in 2017 , we recorded a $ 255.3 million impairment charge related to parion 's pulmonary enac platform that we licensed from parion in 2015 and a benefit from income taxes of $ 97.7 million related to this impairment charge attributable to parion . there were no corresponding intangible asset impairment charges in 2016 or 2015. other items , net interest expense , net our interest expense , net relates primarily to interest expenses associated with our real estate leases and interest on our outstanding debt . in 2017 , 2016 and 2015 , interest expense , net was $ 57.6 million , $ 81.4 million and $ 84.2 million , respectively . the decrease in interest expense , net in 2017 as compared to 2016 was primarily due to the repayment of the $ 300.0 million outstanding under our revolving credit facility in february 2017. in 2018 , we expect that we will incur approximately $ 66 million in interest expenses related to our real estate leases and that our interest expense related to outstanding debt will be dependent on whether , and to what extent , we reborrow amounts under our credit facility . other ( expense ) income , net in 2017 , other ( expense ) income , net was an expense of $ 81.4 million primarily related to the deconsolidation of parion . in 2016 , we recorded net other income of $ 4.1 million primarily related to foreign exchange gains . in 2015 , we recorded net other expense of $ 6.7 million primarily related to foreign exchange losses . income taxes in 2017 , we recorded a benefit from income taxes of $ 107.3 million , related to a benefit from income taxes of $ 114.1 million attributable to noncontrolling interest primarily as a result of our impairment of parion 's pulmonary enac platform and decrease in the fair value of the contingent payments payable by us to parion in the third quarter of 2017 , partially offset by a provision for income taxes of $ 6.8 million related primarily to u.s. state and foreign taxes . as discussed below in critical accounting policies - income taxes , we continue to maintain a valuation allowance on the majority of our net operating losses and other deferred tax assets and are in the process of determining the impact that h.r.1 . , known as the tax cuts and jobs act of 2017 , will have on our provision for ( benefit from ) income taxes in the future . in 2016 , we recorded a provision for income taxes of $ 16.7 million , principally due to income taxes payable by our vies . in 2015 , we recorded a provision for income taxes of $ 30.4 million , principally due to the consolidation of parion as a vie into our consolidated financial statements .
| liquidity and capital resources the following table summarizes the components of our financial condition as of december 31 , 2017 and 2016 : replace_table_token_13_th as of december 31 , 2017 , we had cash , cash equivalents and marketable securities of $ 2.1 billion , which represented an increase of $ 654.1 million from approximately $ 1.4 billion as of december 31 , 2016 . the increase in our cash , cash equivalents and marketable securities balance in 2017 was primarily due to increased cash receipts from product sales , cash received from issuances of common stock under our employee benefit plans and $ 193.6 million of the $ 230.0 million upfront payment received from our collaboration with merck kgaa , partially offset by cash expenditures in 2017 , related to among other things research and development expenses and sales , general and administrative expenses , the $ 300.0 million repayment of our revolving credit facility and the $ 160.0 million payment to concert in connection with the acquisition of vx-561 . we expect that our future cash flows will be substantially dependent on our cf product sales . as of december 31 , 2017 , total working capital was $ 1.8 billion , which represented an increase of $ 802.7 million from approximately $ 1.0 billion as of december 31 , 2016 . the most significant items that increased total working capital in 2017 were $ 844.9 million cash provided by operations and $ 344.8 million cash received from issuances of common stock under our employee benefit plans , partially offset by the $ 300.0 million repayment of our revolving credit facility .
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to date , we have funded our operations with proceeds from the sales of preferred stock and our initial public offering , or ipo , and we have raised additional capital through an underwritten public offering that closed in july 2019 , or the july 2019 follow-on offering , and an underwritten public offering that closed in february 2020 , or the february 2020 follow-on offering . through december 31 , 2019 , we had received gross cash proceeds of $ 87.5 million from sales of our preferred stock , and gross cash proceeds , before deducting underwriting discounts and commissions and expenses , of $ 114.7 million and $ 138.3 million from sales of our common stock through our ipo and july 2019 follow-on offering , respectively . since our inception , we have incurred significant operating losses . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates and programs . our net losses were $ 73.0 million and $ 46.4 million for the years ended december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 144.7 million . we expect to continue to incur significant expenses for at least the next several years as we advance our current and future product candidates from discovery through preclinical development and clinical trials and seek regulatory approval of our product candidates . in addition , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . we may also incur expenses in connection with the in-licensing or acquisition of additional product candidates . furthermore , we expect to continue incurring additional costs associated with operating as a public company , including significant legal , accounting , investor relations and other expenses . 89 as a result , we will need substantial additional funding to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations with proceeds from outside sources , with a majority of such proceeds to be derived from sales of equity , including the net proceeds from our ipo and follow-on offerings . we also plan to pursue additional funding from outside sources , including our expansion of , or our entry into , new borrowing arrangements ; research and development incentive payments from the australian government ; and our entry into potential future collaboration agreements for one or more of our programs . we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms , or at all . if we fail to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . as of december 31 , 2019 , we had cash and cash equivalents of $ 187.0 million . we believe that our existing cash and cash equivalents as of december 31 , 2019 , together with the estimated net proceeds of $ 93.5 million from our february 2020 follow-on offering , will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2022. we have based this estimate on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . see โ โliquidity and capital resources . โ to finance our operations beyond that point , we will need to raise additional capital , which can not be assured . components of our consolidated results of operations revenue we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future . if development efforts for our product candidates are successful and result in regulatory approval or additional license agreements with third parties , we may generate revenue in the future from product sales . operating expenses research and development expenses research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates . we expense research and development costs as incurred . these expenses consist of costs incurred in connection with the development of our product candidates , including : license maintenance fees and milestone fees incurred in connection with various license agreements ; expenses incurred under agreements with contract research organizations , or cros , contract manufacturing organizations , or cmos , as well as investigative sites and consultants that conduct our clinical trials , preclinical studies and other scientific development services ; manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials , including manufacturing validation batches ; employee-related expenses , including salaries , related benefits , travel and stock-based compensation expense for employees engaged in research and development functions ; costs related to compliance with regulatory requirements ; and allocated facilities costs , depreciation and other expenses , which include rent story_separator_special_tag the preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and the disclosure of contingent assets and liabilities in our financial statements . we base our estimates on historical experience , known trends and events and various other factors that we believe are 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 . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in note 2 to our consolidated financial statements appearing elsewhere in this report , we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs . the majority of our service providers invoice us in arrears for services performed , on a pre-determined schedule or when contractual milestones are met ; however , some require advanced payments . we make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of these estimates with the service providers and make adjustments if necessary . examples of estimated accrued research and development expenses include fees paid to : vendors , including central laboratories , in connection with preclinical development activities ; cros and investigative sites in connection with preclinical and clinical studies ; and cmos in connection with drug substance and drug product formulation of preclinical and clinical trial materials . we base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and cros that conduct and manage preclinical studies and clinical trials on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from the estimate , we adjust the accrual or the amount of prepaid expenses accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period . to date , there have not been any material adjustments to our prior estimates of accrued research and development expenses . 97 stock-based compensation we measure stock options and other stock-based awards granted to employees and members of our board of directors for their services as directors based on the fair value on the date of the grant and recognize the corresponding compensation expense of those awards over the requisite service period , which is generally the vesting period of the respective award . we have issued stock options , restricted stock and restricted stock units with service-based vesting conditions . prior to the adoption of accounting standards update ( asu ) no . 2018-07 , compensationโstock compensation ( topic 718 ) : improvements to nonemployee share-based payment accounting ( asu 2018-07 ) , as discussed in note 2 to our consolidated financial statements appearing at the end of this document , the measurement date for non-employee awards was generally the date the services are completed , resulting in financial reporting period adjustments to stock-based compensation during the vesting terms for changes in the fair value of the awards . after the adoption of asu 2018-07 , the measurement date for non-employee awards is the later of the adoption date of asu 2018-07 , or the date of grant , without change in the fair value of the award . we estimate the fair value of each stock option grant using the black-scholes option-pricing model , which uses as inputs the estimated fair value of our common stock and assumptions we make for the volatility of our common stock , the expected term of our stock options , the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield . we determined the assumptions for the black-scholes option-pricing model as discussed below . each of these inputs is subjective and generally requires significant judgment to determine . fair value of our common stock . the fair value of our common stock is determined based on the quoted market price of our common stock . prior to our ipo , our stock was not publicly traded , and therefore we estimated the fair value of
| liquidity and capital resources the following table summarizes the components of our financial condition as of december 31 , 2017 and 2016 : replace_table_token_13_th as of december 31 , 2017 , we had cash , cash equivalents and marketable securities of $ 2.1 billion , which represented an increase of $ 654.1 million from approximately $ 1.4 billion as of december 31 , 2016 . the increase in our cash , cash equivalents and marketable securities balance in 2017 was primarily due to increased cash receipts from product sales , cash received from issuances of common stock under our employee benefit plans and $ 193.6 million of the $ 230.0 million upfront payment received from our collaboration with merck kgaa , partially offset by cash expenditures in 2017 , related to among other things research and development expenses and sales , general and administrative expenses , the $ 300.0 million repayment of our revolving credit facility and the $ 160.0 million payment to concert in connection with the acquisition of vx-561 . we expect that our future cash flows will be substantially dependent on our cf product sales . as of december 31 , 2017 , total working capital was $ 1.8 billion , which represented an increase of $ 802.7 million from approximately $ 1.0 billion as of december 31 , 2016 . the most significant items that increased total working capital in 2017 were $ 844.9 million cash provided by operations and $ 344.8 million cash received from issuances of common stock under our employee benefit plans , partially offset by the $ 300.0 million repayment of our revolving credit facility .
| 0 |
to date , we have funded our operations with proceeds from the sales of preferred stock and our initial public offering , or ipo , and we have raised additional capital through an underwritten public offering that closed in july 2019 , or the july 2019 follow-on offering , and an underwritten public offering that closed in february 2020 , or the february 2020 follow-on offering . through december 31 , 2019 , we had received gross cash proceeds of $ 87.5 million from sales of our preferred stock , and gross cash proceeds , before deducting underwriting discounts and commissions and expenses , of $ 114.7 million and $ 138.3 million from sales of our common stock through our ipo and july 2019 follow-on offering , respectively . since our inception , we have incurred significant operating losses . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates and programs . our net losses were $ 73.0 million and $ 46.4 million for the years ended december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 144.7 million . we expect to continue to incur significant expenses for at least the next several years as we advance our current and future product candidates from discovery through preclinical development and clinical trials and seek regulatory approval of our product candidates . in addition , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . we may also incur expenses in connection with the in-licensing or acquisition of additional product candidates . furthermore , we expect to continue incurring additional costs associated with operating as a public company , including significant legal , accounting , investor relations and other expenses . 89 as a result , we will need substantial additional funding to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations with proceeds from outside sources , with a majority of such proceeds to be derived from sales of equity , including the net proceeds from our ipo and follow-on offerings . we also plan to pursue additional funding from outside sources , including our expansion of , or our entry into , new borrowing arrangements ; research and development incentive payments from the australian government ; and our entry into potential future collaboration agreements for one or more of our programs . we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms , or at all . if we fail to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . as of december 31 , 2019 , we had cash and cash equivalents of $ 187.0 million . we believe that our existing cash and cash equivalents as of december 31 , 2019 , together with the estimated net proceeds of $ 93.5 million from our february 2020 follow-on offering , will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2022. we have based this estimate on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . see โ โliquidity and capital resources . โ to finance our operations beyond that point , we will need to raise additional capital , which can not be assured . components of our consolidated results of operations revenue we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future . if development efforts for our product candidates are successful and result in regulatory approval or additional license agreements with third parties , we may generate revenue in the future from product sales . operating expenses research and development expenses research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates . we expense research and development costs as incurred . these expenses consist of costs incurred in connection with the development of our product candidates , including : license maintenance fees and milestone fees incurred in connection with various license agreements ; expenses incurred under agreements with contract research organizations , or cros , contract manufacturing organizations , or cmos , as well as investigative sites and consultants that conduct our clinical trials , preclinical studies and other scientific development services ; manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials , including manufacturing validation batches ; employee-related expenses , including salaries , related benefits , travel and stock-based compensation expense for employees engaged in research and development functions ; costs related to compliance with regulatory requirements ; and allocated facilities costs , depreciation and other expenses , which include rent story_separator_special_tag the preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and the disclosure of contingent assets and liabilities in our financial statements . we base our estimates on historical experience , known trends and events and various other factors that we believe are 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 . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in note 2 to our consolidated financial statements appearing elsewhere in this report , we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs . the majority of our service providers invoice us in arrears for services performed , on a pre-determined schedule or when contractual milestones are met ; however , some require advanced payments . we make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of these estimates with the service providers and make adjustments if necessary . examples of estimated accrued research and development expenses include fees paid to : vendors , including central laboratories , in connection with preclinical development activities ; cros and investigative sites in connection with preclinical and clinical studies ; and cmos in connection with drug substance and drug product formulation of preclinical and clinical trial materials . we base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and cros that conduct and manage preclinical studies and clinical trials on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from the estimate , we adjust the accrual or the amount of prepaid expenses accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period . to date , there have not been any material adjustments to our prior estimates of accrued research and development expenses . 97 stock-based compensation we measure stock options and other stock-based awards granted to employees and members of our board of directors for their services as directors based on the fair value on the date of the grant and recognize the corresponding compensation expense of those awards over the requisite service period , which is generally the vesting period of the respective award . we have issued stock options , restricted stock and restricted stock units with service-based vesting conditions . prior to the adoption of accounting standards update ( asu ) no . 2018-07 , compensationโstock compensation ( topic 718 ) : improvements to nonemployee share-based payment accounting ( asu 2018-07 ) , as discussed in note 2 to our consolidated financial statements appearing at the end of this document , the measurement date for non-employee awards was generally the date the services are completed , resulting in financial reporting period adjustments to stock-based compensation during the vesting terms for changes in the fair value of the awards . after the adoption of asu 2018-07 , the measurement date for non-employee awards is the later of the adoption date of asu 2018-07 , or the date of grant , without change in the fair value of the award . we estimate the fair value of each stock option grant using the black-scholes option-pricing model , which uses as inputs the estimated fair value of our common stock and assumptions we make for the volatility of our common stock , the expected term of our stock options , the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield . we determined the assumptions for the black-scholes option-pricing model as discussed below . each of these inputs is subjective and generally requires significant judgment to determine . fair value of our common stock . the fair value of our common stock is determined based on the quoted market price of our common stock . prior to our ipo , our stock was not publicly traded , and therefore we estimated the fair value of
| liquidity and capital resources since our inception , we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations . we have funded our operations to date primarily with proceeds from the sale of preferred stock and our common stock through our ipo , and we have raised additional capital through our july 2019 follow-on offering and our february 2020 follow-on offering . through december 31 , 2019 , we had received gross cash proceeds of $ 87.5 million from sales of our preferred stock , and gross cash proceeds , before deducting underwriting discounts and commissions and expenses , of $ 114.7 million and $ 138.3 million from sales of our common stock through our ipo and july 2019 follow-on offering , respectively . on july 1 , 2019 , we filed a shelf registration statement on form s-3 with the sec , or the july 2019 shelf , which covers the offering , issuance and sale by us of up to an aggregate of $ 200.0 million of our common stock , preferred stock , debt securities , warrants and or units . we simultaneously entered into a sales agreement with cowen and company , llc , as sales agent , to provide for the offering , issuance and sale by us of up to $ 50.0 million of our common stock from time to time in โ at-the-market โ offerings under the july 2019 shelf . the july 2019 shelf was declared effective by the sec on july 10 , 2019. on december 20 , 2019 , we filed a shelf registration statement on form s-3 with the sec , or the december 2019 shelf , which covers the offering , issuance and sale by us of up to an aggregate of $ 250.0 million of our common stock , preferred stock , debt securities , warrants and or units .
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vimseltinib we are currently studying vimseltinib in an open-label phase 1/2 study designed to evaluate the safety , efficacy , pk , and pd of vimseltinib in patients with malignant solid tumors as well as patients with tgct . in november 2020 , we announced the selection of a phase 2 dose and initiated the expansion portion of the study with vimseltinib in patients with symptomatic tgct not suitable for surgery . we are continuing to enroll tgct patients in cohort 9 of the dose escalation portion of the study to complete enrollment in this cohort . we expect to present updated data for vimseltinib in the second half of 2021. rebastinib we are currently studying rebastinib in two phase 1b/2 studies in combination with chemotherapy , one with paclitaxel and one with carboplatin . in october 2018 , we initiated an open-label , multicenter , phase 1b/2 study of rebastinib in combination with paclitaxel to assess safety , tolerability , pk , and efficacy in patients with advanced or metastatic solid tumors . in january 2019 , we initiated an open-label , multicenter , phase 1b/2 study of rebastinib in combination with carboplatin in patients with advanced or metastatic solid tumors . in january 2020 , we selected a phase 2 dose for , and activated , part 2 of the phase 1b/2 study of rebastinib in combination with carboplatin . in may 2020 , we announced that in part 2 of the study of rebastinib in combination with paclitaxel , we observed the required number of responses in the first stage in both the endometrial and platinum-resistant ovarian cancer cohorts , triggering the expansion of enrollment in these cohorts . in addition , based on the clinical activity observed in part 1 , we added a cohort for patients with carcinosarcoma in part 2 of the study of rebastinib in combination with paclitaxel . we expect to present updated data from the study of rebastinib in combination with paclitaxel in patients with endometrial cancer in the second quarter of 2021 and in patients with proc in the second half of 2021. dcc-3116 in january 2021 , we announced our plans to initiate a phase 1 study of dcc-3116 in the second quarter of 2021 , subject to fda authorization to proceed under our ind for dcc-3116 , submitted in the fourth quarter of 2020 and cleared by the fda . coronavirus ( covid-19 ) the full extent to which the covid-19 pandemic , or the future outbreak of any other highly infectious or contagious diseases , may impact our business , including our preclinical studies , clinical trial operations , or commercialization efforts will depend on continuously changing circumstances , which are highly uncertain and can not be predicted at this time , such as the duration of such pandemic including future waves of infection , new strains of the virus that causes covid-19 , or the broad availability of effective vaccines , the actions taken to contain the pandemic or mitigate its impact , and the direct and indirect economic effects of the pandemic and containment measures , among others . the ongoing fluidity of this situation precludes any prediction as to the full impact of the covid-19 pandemic but it could have a material adverse effect on our business , financial condition , and results of operations . the covid-19 pandemic may also have the effect of heightening the risks to which we are subject , including various aspects of our preclinical studies and ongoing clinical trials , the reliance on third parties in our supply chain for materials and manufacturing of our drug and drug candidates , disruptions in health regulatory agencies ' operations globally , the volatility of our common stock , our ability to access capital markets , and our ability to successfully launch , commercialize , and generate revenue from qinlock . we are continuing to assess the long-term impact of covid-19 on our business operations in an effort to mitigate interruption to our clinical programs , research efforts , commercial launch of qinlock , and other business activities and to ensure the safety and well-being of our employees , as well as the physicians and patients participating in our clinical studies . because covid-19 infections have been reported throughout the u.s. and worldwide , certain national , state , and local governmental authorities have issued orders , proclamations , and or directives aimed at minimizing the spread of covid-19 . although some of these restrictions were eased or lifted , in response to local surges and new waves of infection , some countries , states , and local governments have reinstituted these restrictions , and additional , more restrictive orders , proclamations , and or directives may be issued in the future . in response to the covid-19 pandemic , we have implemented precautionary measures to protect the health and safety of our employees , partners , and patients , including encouraging all employees , other than those engaged in laboratory research activities , to work-from-home , and requiring adherence to onsite occupancy limits and appropriate safety measures designed to comply with federal , state , and local guidelines . 105 our ability to successfully launch , commercialize , and generate revenue from qinlock may be adversely affected by the impact of the covid-19 pandemic . for example , limited hospital access for non-patients , social distancing requirements , and precautionary measures due to covid-19 have impacted the ability of our sales personnel to interact in-person with customers . in response , we have implemented a virtual launch model , which may adversely affect the ability of our sales professionals to effectively market qinlock to physicians , which may have a negative impact on our sales and our market penetration . in addition , in the u.s. we are utilizing various programs to help patients afford our products , including patient assistance programs for eligible patients . story_separator_special_tag chargebacks and administrative fees : chargebacks for discounts represent our estimated obligations resulting from contractual commitments to sell product to qualified healthcare providers and government agencies at prices lower than the list 109 prices charged to the customers who directly purchase the product from us . the customers charge us for the difference between what the customers pay us for the product and the customer 's ultimate contractually committed or government required lower selling price to the qualified healthcare providers . as part of our contractual commitments to sell product to qualified healthcare providers , we pay fees for administrative services , such as account management and data reporting . government rebates : government rebates consist of medicare , tricare , and medicaid rebates . these reserves are recorded in the same period the related revenue is recognized . for medicare , we also estimate the number of patients in the prescription drug coverage gap for whom we will owe a rebate under the medicare part d program . trade discounts and allowances : we provide customers with discounts that are explicitly stated in contracts and recorded in the period the related product revenue is recognized . in addition , we also receive sales order management , inventory management , and data services from customers in exchange for certain fees . product returns : we estimate the amount of our product sales that may be returned by our customers and record this estimate in the period the related product revenue is recognized . we currently estimate product return liabilities based on available industry data and our visibility into the inventory remaining in the distribution channel . other incentives : other incentives include co-payment assistance provided to qualified patients , whereby we may provide financial assistance to patients with prescription drug co-payments required by the patient 's insurance provider . reserves for co-payment assistance are recorded in the same period the related revenue is recognized . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing open contracts and purchase orders , communicating with our applicable personnel to identify services that have been performed on our behalf , and estimating the associated cost incurred for the services when we have not yet been invoiced or otherwise notified of actual costs . the majority of our service providers invoice us in arrears for services performed , on a pre-determined schedule or when contractual milestones are met ; however , some require advance payments . we make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary . examples of estimated accrued research and development expenses include fees paid to : vendors in connection with the preclinical development activities ; cmos in connection with the production of preclinical and clinical trial materials ; cros in connection with preclinical and clinical studies ; and investigative sites in connection with clinical trials . we base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and cros that conduct and manage preclinical studies and clinical trials on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from the estimate , we adjust the accrual or prepaid expense accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period . to date , there have not been any material adjustments to our prior estimates of accrued research and development expenses . stock-based compensation we measure all stock option awards granted to employees and directors based on the fair value on the date of the grant and recognize compensation expense of those awards over the requisite service period , which is generally the vesting period of the respective award . the straight-line method of expense recognition is applied to all awards with service-only conditions . we estimate the fair value of each stock option award using the black-scholes option-pricing model , which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock , the expected term of our 110 stock-based awards , the risk-free interest rate for a period that approximates the expected term of our stock-based awards , and our expected dividend yield . prior to october 2017 , we were a privately-held company and lacked company-specific historical and implied volatility information . therefore , we estimate our expected volatility based on the historical volatility of a set of our publicly traded peer companies as well as the limited historical volatility of our own traded stock price . we estimate the expected term of our options using the `` simplified `` method for awards that qualify as `` plain-vanilla `` options . the risk-free interest rate is determined by reference to the u.s. treasury yield curve in effect at the time of grant of the
| liquidity and capital resources since our inception , we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations . we have funded our operations to date primarily with proceeds from the sale of preferred stock and our common stock through our ipo , and we have raised additional capital through our july 2019 follow-on offering and our february 2020 follow-on offering . through december 31 , 2019 , we had received gross cash proceeds of $ 87.5 million from sales of our preferred stock , and gross cash proceeds , before deducting underwriting discounts and commissions and expenses , of $ 114.7 million and $ 138.3 million from sales of our common stock through our ipo and july 2019 follow-on offering , respectively . on july 1 , 2019 , we filed a shelf registration statement on form s-3 with the sec , or the july 2019 shelf , which covers the offering , issuance and sale by us of up to an aggregate of $ 200.0 million of our common stock , preferred stock , debt securities , warrants and or units . we simultaneously entered into a sales agreement with cowen and company , llc , as sales agent , to provide for the offering , issuance and sale by us of up to $ 50.0 million of our common stock from time to time in โ at-the-market โ offerings under the july 2019 shelf . the july 2019 shelf was declared effective by the sec on july 10 , 2019. on december 20 , 2019 , we filed a shelf registration statement on form s-3 with the sec , or the december 2019 shelf , which covers the offering , issuance and sale by us of up to an aggregate of $ 250.0 million of our common stock , preferred stock , debt securities , warrants and or units .
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vimseltinib we are currently studying vimseltinib in an open-label phase 1/2 study designed to evaluate the safety , efficacy , pk , and pd of vimseltinib in patients with malignant solid tumors as well as patients with tgct . in november 2020 , we announced the selection of a phase 2 dose and initiated the expansion portion of the study with vimseltinib in patients with symptomatic tgct not suitable for surgery . we are continuing to enroll tgct patients in cohort 9 of the dose escalation portion of the study to complete enrollment in this cohort . we expect to present updated data for vimseltinib in the second half of 2021. rebastinib we are currently studying rebastinib in two phase 1b/2 studies in combination with chemotherapy , one with paclitaxel and one with carboplatin . in october 2018 , we initiated an open-label , multicenter , phase 1b/2 study of rebastinib in combination with paclitaxel to assess safety , tolerability , pk , and efficacy in patients with advanced or metastatic solid tumors . in january 2019 , we initiated an open-label , multicenter , phase 1b/2 study of rebastinib in combination with carboplatin in patients with advanced or metastatic solid tumors . in january 2020 , we selected a phase 2 dose for , and activated , part 2 of the phase 1b/2 study of rebastinib in combination with carboplatin . in may 2020 , we announced that in part 2 of the study of rebastinib in combination with paclitaxel , we observed the required number of responses in the first stage in both the endometrial and platinum-resistant ovarian cancer cohorts , triggering the expansion of enrollment in these cohorts . in addition , based on the clinical activity observed in part 1 , we added a cohort for patients with carcinosarcoma in part 2 of the study of rebastinib in combination with paclitaxel . we expect to present updated data from the study of rebastinib in combination with paclitaxel in patients with endometrial cancer in the second quarter of 2021 and in patients with proc in the second half of 2021. dcc-3116 in january 2021 , we announced our plans to initiate a phase 1 study of dcc-3116 in the second quarter of 2021 , subject to fda authorization to proceed under our ind for dcc-3116 , submitted in the fourth quarter of 2020 and cleared by the fda . coronavirus ( covid-19 ) the full extent to which the covid-19 pandemic , or the future outbreak of any other highly infectious or contagious diseases , may impact our business , including our preclinical studies , clinical trial operations , or commercialization efforts will depend on continuously changing circumstances , which are highly uncertain and can not be predicted at this time , such as the duration of such pandemic including future waves of infection , new strains of the virus that causes covid-19 , or the broad availability of effective vaccines , the actions taken to contain the pandemic or mitigate its impact , and the direct and indirect economic effects of the pandemic and containment measures , among others . the ongoing fluidity of this situation precludes any prediction as to the full impact of the covid-19 pandemic but it could have a material adverse effect on our business , financial condition , and results of operations . the covid-19 pandemic may also have the effect of heightening the risks to which we are subject , including various aspects of our preclinical studies and ongoing clinical trials , the reliance on third parties in our supply chain for materials and manufacturing of our drug and drug candidates , disruptions in health regulatory agencies ' operations globally , the volatility of our common stock , our ability to access capital markets , and our ability to successfully launch , commercialize , and generate revenue from qinlock . we are continuing to assess the long-term impact of covid-19 on our business operations in an effort to mitigate interruption to our clinical programs , research efforts , commercial launch of qinlock , and other business activities and to ensure the safety and well-being of our employees , as well as the physicians and patients participating in our clinical studies . because covid-19 infections have been reported throughout the u.s. and worldwide , certain national , state , and local governmental authorities have issued orders , proclamations , and or directives aimed at minimizing the spread of covid-19 . although some of these restrictions were eased or lifted , in response to local surges and new waves of infection , some countries , states , and local governments have reinstituted these restrictions , and additional , more restrictive orders , proclamations , and or directives may be issued in the future . in response to the covid-19 pandemic , we have implemented precautionary measures to protect the health and safety of our employees , partners , and patients , including encouraging all employees , other than those engaged in laboratory research activities , to work-from-home , and requiring adherence to onsite occupancy limits and appropriate safety measures designed to comply with federal , state , and local guidelines . 105 our ability to successfully launch , commercialize , and generate revenue from qinlock may be adversely affected by the impact of the covid-19 pandemic . for example , limited hospital access for non-patients , social distancing requirements , and precautionary measures due to covid-19 have impacted the ability of our sales personnel to interact in-person with customers . in response , we have implemented a virtual launch model , which may adversely affect the ability of our sales professionals to effectively market qinlock to physicians , which may have a negative impact on our sales and our market penetration . in addition , in the u.s. we are utilizing various programs to help patients afford our products , including patient assistance programs for eligible patients . story_separator_special_tag chargebacks and administrative fees : chargebacks for discounts represent our estimated obligations resulting from contractual commitments to sell product to qualified healthcare providers and government agencies at prices lower than the list 109 prices charged to the customers who directly purchase the product from us . the customers charge us for the difference between what the customers pay us for the product and the customer 's ultimate contractually committed or government required lower selling price to the qualified healthcare providers . as part of our contractual commitments to sell product to qualified healthcare providers , we pay fees for administrative services , such as account management and data reporting . government rebates : government rebates consist of medicare , tricare , and medicaid rebates . these reserves are recorded in the same period the related revenue is recognized . for medicare , we also estimate the number of patients in the prescription drug coverage gap for whom we will owe a rebate under the medicare part d program . trade discounts and allowances : we provide customers with discounts that are explicitly stated in contracts and recorded in the period the related product revenue is recognized . in addition , we also receive sales order management , inventory management , and data services from customers in exchange for certain fees . product returns : we estimate the amount of our product sales that may be returned by our customers and record this estimate in the period the related product revenue is recognized . we currently estimate product return liabilities based on available industry data and our visibility into the inventory remaining in the distribution channel . other incentives : other incentives include co-payment assistance provided to qualified patients , whereby we may provide financial assistance to patients with prescription drug co-payments required by the patient 's insurance provider . reserves for co-payment assistance are recorded in the same period the related revenue is recognized . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing open contracts and purchase orders , communicating with our applicable personnel to identify services that have been performed on our behalf , and estimating the associated cost incurred for the services when we have not yet been invoiced or otherwise notified of actual costs . the majority of our service providers invoice us in arrears for services performed , on a pre-determined schedule or when contractual milestones are met ; however , some require advance payments . we make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary . examples of estimated accrued research and development expenses include fees paid to : vendors in connection with the preclinical development activities ; cmos in connection with the production of preclinical and clinical trial materials ; cros in connection with preclinical and clinical studies ; and investigative sites in connection with clinical trials . we base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and cros that conduct and manage preclinical studies and clinical trials on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from the estimate , we adjust the accrual or prepaid expense accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period . to date , there have not been any material adjustments to our prior estimates of accrued research and development expenses . stock-based compensation we measure all stock option awards granted to employees and directors based on the fair value on the date of the grant and recognize compensation expense of those awards over the requisite service period , which is generally the vesting period of the respective award . the straight-line method of expense recognition is applied to all awards with service-only conditions . we estimate the fair value of each stock option award using the black-scholes option-pricing model , which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock , the expected term of our 110 stock-based awards , the risk-free interest rate for a period that approximates the expected term of our stock-based awards , and our expected dividend yield . prior to october 2017 , we were a privately-held company and lacked company-specific historical and implied volatility information . therefore , we estimate our expected volatility based on the historical volatility of a set of our publicly traded peer companies as well as the limited historical volatility of our own traded stock price . we estimate the expected term of our options using the `` simplified `` method for awards that qualify as `` plain-vanilla `` options . the risk-free interest rate is determined by reference to the u.s. treasury yield curve in effect at the time of grant of the
| cash flows as of december 31 , 2020 , our principal sources of liquidity were cash , cash equivalents , and marketable securities of $ 561.3 million , which consisted of cash , money market funds , u.s. government securities , commercial paper , corporate debt securities , and certificates of deposit . the primary objectives of our investment activities are to preserve principal , provide liquidity , and maximize income without significantly increasing risk . given the nature of these investments , we believe that the market for these instruments is not illiquid . the following table summarizes our sources and uses of cash and cash equivalents for each of the periods presented : replace_table_token_6_th operating activities during the year ended december 31 , 2020 compared to the same period in 2019 , net cash used by operating activities increased $ 90.4 million , primarily resulting from an increase in our net loss of $ 74.2 million and increases in net cash outflows related to changes in our operating assets and liabilities of $ 38.6 million , partially offset by increases in net non-cash charges of $ 22.5 million . the increase in net cash outflows related to changes in our operating assets and liabilities was primarily due to an increase in accounts receivable of $ 13.9 million and an increase in inventory of $ 3.2 million . the increases in accounts receivable and inventory were primarily associated with sales of qinlock and the commencement of the capitalization of qinlock inventory , respectively , following the fda approval of qinlock in may 2020. other net cash outflows related to changes in our operating assets and liabilities were generally due to the timing of vendor invoicing and payments . net non-cash charges increased primarily due to an increase in share-based compensation of $ 16.7 million .
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because of these unique characteristics of stock-based compensation and related employer-paid payroll taxes , management excludes these expenses when analyzing the organization 's business performance . acquisition and other costs . we exclude certain expense items resulting from the take private and other acquisitions , such as legal , accounting and advisory fees , changes in fair value of contingent consideration , costs related to integrating the acquired businesses , deferred compensation , severance and retention expense . in addition , we exclude 50 certain other costs including expense related to our offerings . we consider these adjustments , to some extent , to be unpredictable and dependent on a significant number of factors that are outside of our control . furthermore , acquisitions result in operating expenses that would not otherwise have been incurred by us in the normal course of our organic business operations . we believe that providing these non-gaap measures that exclude acquisition and other costs , allows users of our financial statements to better review and understand the historical and current results of our continuing operations , and also facilitates comparisons to our historical results and results of less acquisitive peer companies , both with and without such adjustments . spin-off exploration costs . we exclude certain expense items resulting from the exploration of a potential spin-off transaction of our msp business into a newly created and separately traded public company . these costs include legal , accounting and advisory fees , implementation and integration costs , duplicative costs for subscriptions and information technology systems , employee and contractor costs and other incremental separation costs related to the potential spin-off of the msp business . the potential msp spin-off transaction results in operating expenses that would not otherwise have been incurred by us in the normal course of our organic business operations . we believe that providing non-gaap measures that exclude these costs facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance . restructuring costs . we provide non-gaap information that excludes restructuring costs such as severance and the estimated costs of exiting and terminating facility lease commitments , as they relate to our corporate restructuring and exit activities and costs related to the separation of employment with executives of the company . these costs are inconsistent in amount and are significantly impacted by the timing and nature of these events . therefore , although we may incur these types of expenses in the future , we believe that eliminating these costs for purposes of calculating the non-gaap financial measures facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance . cyber incident costs . we exclude certain expenses resulting from the cyber incident . expenses include costs to investigate and remediate the cyber incident , and legal and other professional services related thereto , and consulting services being provided to customers at no charge . cyber incident costs are provided net of insurance reimbursements , although the timing of recognizing insurance reimbursements may differ from the timing of recognizing the associated expenses . we expect to incur significant legal and other professional services expenses associated with the cyber incident in future periods . the cyber incident results in operating expenses that would not have otherwise been incurred by us in the normal course of our organic business operations . we believe that providing non-gaap measures that exclude these costs facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance . we continue to invest significantly in cybersecurity and expect to make additional investments . these estimated investments are in addition to the cyber incident costs and not included in the net cyber incident costs reported . replace_table_token_8_th 51 adjusted ebitda and adjusted ebitda margin we regularly monitor adjusted ebitda and adjusted ebitda margin , as it is a measure we use to assess our operating performance . we define adjusted ebitda as net income or loss , excluding the impact of purchase accounting on total revenue , amortization of acquired intangible assets and developed technology , depreciation expense , stock-based compensation expense and related employer-paid payroll taxes , restructuring costs , acquisition and other costs , spin-off exploration costs , cyber incident costs , interest expense , net , debt related costs including fees related to our credit agreements , debt extinguishment and refinancing costs , unrealized foreign currency ( gains ) losses , and income tax expense ( benefit ) . we define adjusted ebitda margin as adjusted ebitda divided by non-gaap revenue . adjusted ebitda has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our results as reported under gaap . some of these limitations are : although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and adjusted ebitda does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements ; adjusted ebitda excludes the impact of the write-down of deferred revenue due to purchase accounting in connection with our acquisition , and therefore includes revenue that will never be recognized under gaap ; adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; adjusted ebitda does not reflect the significant interest expense , or the cash requirements necessary to service interest or principal payments , on our debt ; adjusted ebitda does not reflect tax payments that may represent a reduction in cash available to us ; and other companies , including companies in our industry , may calculate adjusted ebitda differently , which reduces its usefulness as a comparative measure . because of these limitations , you should consider adjusted ebitda alongside other financial performance measures , including net income ( loss ) and our other gaap results . story_separator_special_tag if an event occurs that would cause us to revise our estimates and assumptions used in analyzing the value of our property and equipment or our finite-lived intangibles and other assets , that revision could result in a non-cash impairment charge that could have a material impact on our financial results . 56 revenue recognition we generate revenue from fees received for subscriptions , the sale of maintenance services associated with our perpetual license products and the sale of perpetual license products . we recognize revenue related to contracts from customers when we transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . this is determined by following a five-step process which includes ( 1 ) identifying the contract with a customer , ( 2 ) identifying the performance obligations in the contract , ( 3 ) determining the transaction price , ( 4 ) allocating the transaction price and ( 5 ) recognizing revenue when or as we satisfy a performance obligation . we identify performance obligations in a contract based on the goods and services that will be transferred to the customer that are identifiable from other promises in the contract , or distinct . if not considered distinct , the promised goods or services are combined with other goods or services and accounted for as a combined performance obligation . determining the distinct performance obligations in a contract requires judgment . our performance obligations primarily include perpetual and time-based licenses , maintenance support including unspecified upgrades or enhancements to new versions of our software products and saas offerings . we allocate the transaction price of the contract to each distinct performance obligation based on a relative standalone selling price basis . determining standalone selling prices for our performance obligations requires judgment and are based on multiple factors including , but not limited to historical selling prices and discounting practices for products and services , internal pricing policies and pricing practices in different regions and through different sales channels . for our subscription products and maintenance services , our standalone selling prices are generally observable using standalone sales or renewals . for our perpetual and time-based license products , given there are no observable standalone sales , we estimate our standalone selling prices by evaluating our historical pricing and discounting practices in observable bundled transactions . we review the standalone selling price for our performance obligations periodically and update , if needed , to ensure that the methodology utilized reflects our current pricing practices . stock-based compensation we have granted our employees , directors and certain contractors stock-based incentive awards . our stock awards vest on service-based or performance-based vesting conditions . these awards are in the form of stock options , restricted stock and restricted stock units . we measure stock-based compensation expense for all share-based awards granted based on the estimated fair value of those awards on the date of grant . the fair values of stock option awards are estimated using a black-scholes valuation model . the fair value of restricted stock unit awards and restricted stock is determined using the fair market value of our common stock on the date of grant less any amount paid at the time of the grant , or intrinsic value . we use various assumptions that can be subjective in estimating the fair value of options at the date of grant using the black-scholes option model including expected dividend yield , volatility , risk-free rate of return and expected life . in addition , we estimate the probability of the performance-based awards vesting upon the achievement of the specified performance targets at each reporting period . based on the extent to which the performance targets are achieved , shares vest at a specified percent of the target award amount . changes in the probability estimates associated with performance-based awards are accounted for in the period of change using a cumulative expense adjustment to apply the new probability estimate . in any period in which we determine the achievement of the performance targets is not probable , we cease recording compensation expense and all previously recognized compensation expense for the performance-based award is reversed . because the actual number of shares to be awarded is not known until the end of the performance period , the actual compensation expense related to these awards could differ from our current expectations . income taxes we use the liability method of accounting for income taxes as set forth in the authoritative guidance for accounting for income taxes . under this method , we recognize deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the respective carrying amounts and tax basis of our assets and liabilities . in calculating our effective tax rate , we make judgments regarding certain tax positions , including the timing and amount of deductions and allocations of income among various tax jurisdictions . the guidance requires us to identify , evaluate and measure all uncertain tax positions taken or to be taken on tax returns and to record liabilities for the amount of these positions that may not be sustained , or may only partially be sustained , upon examination by the relevant taxing authorities . although we believe that our estimates and judgments are reasonable , actual results may differ from these estimates . some or all of these judgments are subject to review by the taxing authorities . to the extent that the actual results of these matters is different than the amounts recorded , such differences will affect our effective tax rate . 57 we establish valuation allowances when necessary to reduce deferred tax assets to the amounts expected to be realized . on a quarterly basis , we evaluate the need for , and the adequacy of , valuation allowances based on the expected realization of our deferred
| cash flows as of december 31 , 2020 , our principal sources of liquidity were cash , cash equivalents , and marketable securities of $ 561.3 million , which consisted of cash , money market funds , u.s. government securities , commercial paper , corporate debt securities , and certificates of deposit . the primary objectives of our investment activities are to preserve principal , provide liquidity , and maximize income without significantly increasing risk . given the nature of these investments , we believe that the market for these instruments is not illiquid . the following table summarizes our sources and uses of cash and cash equivalents for each of the periods presented : replace_table_token_6_th operating activities during the year ended december 31 , 2020 compared to the same period in 2019 , net cash used by operating activities increased $ 90.4 million , primarily resulting from an increase in our net loss of $ 74.2 million and increases in net cash outflows related to changes in our operating assets and liabilities of $ 38.6 million , partially offset by increases in net non-cash charges of $ 22.5 million . the increase in net cash outflows related to changes in our operating assets and liabilities was primarily due to an increase in accounts receivable of $ 13.9 million and an increase in inventory of $ 3.2 million . the increases in accounts receivable and inventory were primarily associated with sales of qinlock and the commencement of the capitalization of qinlock inventory , respectively , following the fda approval of qinlock in may 2020. other net cash outflows related to changes in our operating assets and liabilities were generally due to the timing of vendor invoicing and payments . net non-cash charges increased primarily due to an increase in share-based compensation of $ 16.7 million .
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because of these unique characteristics of stock-based compensation and related employer-paid payroll taxes , management excludes these expenses when analyzing the organization 's business performance . acquisition and other costs . we exclude certain expense items resulting from the take private and other acquisitions , such as legal , accounting and advisory fees , changes in fair value of contingent consideration , costs related to integrating the acquired businesses , deferred compensation , severance and retention expense . in addition , we exclude 50 certain other costs including expense related to our offerings . we consider these adjustments , to some extent , to be unpredictable and dependent on a significant number of factors that are outside of our control . furthermore , acquisitions result in operating expenses that would not otherwise have been incurred by us in the normal course of our organic business operations . we believe that providing these non-gaap measures that exclude acquisition and other costs , allows users of our financial statements to better review and understand the historical and current results of our continuing operations , and also facilitates comparisons to our historical results and results of less acquisitive peer companies , both with and without such adjustments . spin-off exploration costs . we exclude certain expense items resulting from the exploration of a potential spin-off transaction of our msp business into a newly created and separately traded public company . these costs include legal , accounting and advisory fees , implementation and integration costs , duplicative costs for subscriptions and information technology systems , employee and contractor costs and other incremental separation costs related to the potential spin-off of the msp business . the potential msp spin-off transaction results in operating expenses that would not otherwise have been incurred by us in the normal course of our organic business operations . we believe that providing non-gaap measures that exclude these costs facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance . restructuring costs . we provide non-gaap information that excludes restructuring costs such as severance and the estimated costs of exiting and terminating facility lease commitments , as they relate to our corporate restructuring and exit activities and costs related to the separation of employment with executives of the company . these costs are inconsistent in amount and are significantly impacted by the timing and nature of these events . therefore , although we may incur these types of expenses in the future , we believe that eliminating these costs for purposes of calculating the non-gaap financial measures facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance . cyber incident costs . we exclude certain expenses resulting from the cyber incident . expenses include costs to investigate and remediate the cyber incident , and legal and other professional services related thereto , and consulting services being provided to customers at no charge . cyber incident costs are provided net of insurance reimbursements , although the timing of recognizing insurance reimbursements may differ from the timing of recognizing the associated expenses . we expect to incur significant legal and other professional services expenses associated with the cyber incident in future periods . the cyber incident results in operating expenses that would not have otherwise been incurred by us in the normal course of our organic business operations . we believe that providing non-gaap measures that exclude these costs facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance . we continue to invest significantly in cybersecurity and expect to make additional investments . these estimated investments are in addition to the cyber incident costs and not included in the net cyber incident costs reported . replace_table_token_8_th 51 adjusted ebitda and adjusted ebitda margin we regularly monitor adjusted ebitda and adjusted ebitda margin , as it is a measure we use to assess our operating performance . we define adjusted ebitda as net income or loss , excluding the impact of purchase accounting on total revenue , amortization of acquired intangible assets and developed technology , depreciation expense , stock-based compensation expense and related employer-paid payroll taxes , restructuring costs , acquisition and other costs , spin-off exploration costs , cyber incident costs , interest expense , net , debt related costs including fees related to our credit agreements , debt extinguishment and refinancing costs , unrealized foreign currency ( gains ) losses , and income tax expense ( benefit ) . we define adjusted ebitda margin as adjusted ebitda divided by non-gaap revenue . adjusted ebitda has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our results as reported under gaap . some of these limitations are : although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and adjusted ebitda does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements ; adjusted ebitda excludes the impact of the write-down of deferred revenue due to purchase accounting in connection with our acquisition , and therefore includes revenue that will never be recognized under gaap ; adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; adjusted ebitda does not reflect the significant interest expense , or the cash requirements necessary to service interest or principal payments , on our debt ; adjusted ebitda does not reflect tax payments that may represent a reduction in cash available to us ; and other companies , including companies in our industry , may calculate adjusted ebitda differently , which reduces its usefulness as a comparative measure . because of these limitations , you should consider adjusted ebitda alongside other financial performance measures , including net income ( loss ) and our other gaap results . story_separator_special_tag if an event occurs that would cause us to revise our estimates and assumptions used in analyzing the value of our property and equipment or our finite-lived intangibles and other assets , that revision could result in a non-cash impairment charge that could have a material impact on our financial results . 56 revenue recognition we generate revenue from fees received for subscriptions , the sale of maintenance services associated with our perpetual license products and the sale of perpetual license products . we recognize revenue related to contracts from customers when we transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . this is determined by following a five-step process which includes ( 1 ) identifying the contract with a customer , ( 2 ) identifying the performance obligations in the contract , ( 3 ) determining the transaction price , ( 4 ) allocating the transaction price and ( 5 ) recognizing revenue when or as we satisfy a performance obligation . we identify performance obligations in a contract based on the goods and services that will be transferred to the customer that are identifiable from other promises in the contract , or distinct . if not considered distinct , the promised goods or services are combined with other goods or services and accounted for as a combined performance obligation . determining the distinct performance obligations in a contract requires judgment . our performance obligations primarily include perpetual and time-based licenses , maintenance support including unspecified upgrades or enhancements to new versions of our software products and saas offerings . we allocate the transaction price of the contract to each distinct performance obligation based on a relative standalone selling price basis . determining standalone selling prices for our performance obligations requires judgment and are based on multiple factors including , but not limited to historical selling prices and discounting practices for products and services , internal pricing policies and pricing practices in different regions and through different sales channels . for our subscription products and maintenance services , our standalone selling prices are generally observable using standalone sales or renewals . for our perpetual and time-based license products , given there are no observable standalone sales , we estimate our standalone selling prices by evaluating our historical pricing and discounting practices in observable bundled transactions . we review the standalone selling price for our performance obligations periodically and update , if needed , to ensure that the methodology utilized reflects our current pricing practices . stock-based compensation we have granted our employees , directors and certain contractors stock-based incentive awards . our stock awards vest on service-based or performance-based vesting conditions . these awards are in the form of stock options , restricted stock and restricted stock units . we measure stock-based compensation expense for all share-based awards granted based on the estimated fair value of those awards on the date of grant . the fair values of stock option awards are estimated using a black-scholes valuation model . the fair value of restricted stock unit awards and restricted stock is determined using the fair market value of our common stock on the date of grant less any amount paid at the time of the grant , or intrinsic value . we use various assumptions that can be subjective in estimating the fair value of options at the date of grant using the black-scholes option model including expected dividend yield , volatility , risk-free rate of return and expected life . in addition , we estimate the probability of the performance-based awards vesting upon the achievement of the specified performance targets at each reporting period . based on the extent to which the performance targets are achieved , shares vest at a specified percent of the target award amount . changes in the probability estimates associated with performance-based awards are accounted for in the period of change using a cumulative expense adjustment to apply the new probability estimate . in any period in which we determine the achievement of the performance targets is not probable , we cease recording compensation expense and all previously recognized compensation expense for the performance-based award is reversed . because the actual number of shares to be awarded is not known until the end of the performance period , the actual compensation expense related to these awards could differ from our current expectations . income taxes we use the liability method of accounting for income taxes as set forth in the authoritative guidance for accounting for income taxes . under this method , we recognize deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the respective carrying amounts and tax basis of our assets and liabilities . in calculating our effective tax rate , we make judgments regarding certain tax positions , including the timing and amount of deductions and allocations of income among various tax jurisdictions . the guidance requires us to identify , evaluate and measure all uncertain tax positions taken or to be taken on tax returns and to record liabilities for the amount of these positions that may not be sustained , or may only partially be sustained , upon examination by the relevant taxing authorities . although we believe that our estimates and judgments are reasonable , actual results may differ from these estimates . some or all of these judgments are subject to review by the taxing authorities . to the extent that the actual results of these matters is different than the amounts recorded , such differences will affect our effective tax rate . 57 we establish valuation allowances when necessary to reduce deferred tax assets to the amounts expected to be realized . on a quarterly basis , we evaluate the need for , and the adequacy of , valuation allowances based on the expected realization of our deferred
| liquidity and capital resources cash and cash equivalents were $ 370.5 million as of december 31 , 2020. our international subsidiaries held approximately $ 163.4 million of cash and cash equivalents , of which 39.6 % were held in euros . we intend either to invest our foreign earnings permanently in foreign operations or to remit these earnings to our u.s. entities in a tax-free manner with the exception for immaterial state income taxes . the tax act imposed a mandatory transition tax on accumulated foreign earnings and eliminates u.s. federal income taxes on foreign subsidiary distribution . our primary source of cash for funding operations and growth has been through cash provided by operating activities . given the uncertainty in the rapidly changing market and economic conditions related to the covid-19 pandemic , we continue to evaluate the nature and extent of the impact to our business and financial position . in addition , currently it is not possible to estimate the amount of loss or range of possible loss that might result from adverse judgments , settlements , penalties , or other resolution of the proceedings and investigations resulting from the cyber incident . such potential payments , if great enough , could have an adverse effect on our liquidity . however , despite these uncertainties , we believe that our existing cash and cash equivalents , our cash flows from operating activities and our borrowing capacity under our credit facilities will be sufficient to fund our operations , fund required debt repayments and meet our commitments for capital expenditures for at least the next 12 months .
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the health & science technologies segment designs , produces and distributes a wide range of precision fluidics , rotary lobe pumps , centrifugal and positive displacement pumps , roll compaction and drying systems used in beverage , food processing , pharmaceutical and cosmetics , pneumatic components and sealing solutions , including very high precision , low-flow rate pumping solutions required in analytical instrumentation , clinical diagnostics and drug discovery , high performance molded and extruded , biocompatible medical devices and implantables , air compressors used in medical , dental and industrial applications , optical components and 14 coatings for applications in the fields of scientific research , defense , biotechnology , aerospace , telecommunications and electronics manufacturing , laboratory and commercial equipment used in the production of micro and nano scale materials , precision photonic solutions used in life sciences , research and defense markets , and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications . the fire & safety/diversified products segment produces firefighting pumps and controls , rescue tools , lifting bags and other components and systems for the fire and rescue industry , and engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications , precision equipment for dispensing , metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world . some of our 2012 financial results are as follows : sales of $ 1.95 billion rose 6 % ; organic sales ย excluding acquisitions and foreign currency translation ย were up 3 % . asset impairment charge recorded for $ 198.5 million . operating income of $ 128.2 million decreased 58 % . net income decreased 81 % to $ 37.6 million . diluted eps of $ 0.45 decreased $ 1.87 or 81 % compared to 2011. on a regional basis north america has remained strong , the asian markets are improving and we see stabilization in europe . for 2013 , based on the company 's current outlook , we are forecasting fully diluted eps of $ 2.85 to $ 2.95. results of operations the following is a discussion and analysis of our results of operations for each of the three years in the period ended december 31 , 2012. for purposes of this item , reference is made to the consolidated statements of operations in part ii , item 8 , ยfinancial statements and supplementary data.ย segment operating income excludes unallocated corporate operating expenses . certain prior year amounts have been revised to include the dispensing equipment segment as part of the fire & safety/diversified products segment and to reflect the movement of our trebor business unit from the health & science technologies segment to the fluid & metering technologies segment . in this report , references to organic sales , a non-gaap measure , refers to sales from continuing operations calculated according to generally accepted accounting principles in the united states but excludes ( 1 ) sales from acquired businesses during the first twelve months of ownership and ( 2 ) the impact of foreign currency translation . the portion of sales attributable to foreign currency translation is calculated as the difference between ( a ) the period-to-period change in organic sales and ( b ) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period . management believes that reporting organic sales provides useful information to investors by helping identify underlying growth trends in our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our peers . the company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management 's control , is subject to volatility and can obscure underlying business trends . the company excludes the effect of acquisitions because the nature , size , and number of acquisitions can vary dramatically from period to period and between the company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult . management 's primary measurements of segment performance are sales , operating income , and operating margin . in addition , due to the highly acquisitive nature of the company , the determination of operating income includes amortization of acquired intangible assets and , as a result , management reviews depreciation and 15 amortization as a percentage of sales . these measures are monitored by management and significant changes in operating results versus current trends in end markets and variances from forecasts are analyzed with segment management . performance in 2012 compared with 2011 replace_table_token_6_th sales in 2012 were $ 1,954.3 million , a 6 % increase from the comparable period last year . this increase reflects a 3 % increase in organic sales , 5 % from acquisitions ( at films ย january 2011 , microfluidics ย march 2011 , cvi mg ย june 2011 , erc ย april 2012 and matcon ย july 2012 ) and 2 % unfavorable foreign currency translation . organic sales to customers outside the u.s. represented approximately 50 % of total sales in the period compared with 52 % in 2011. in 2012 , fluid & metering technologies contributed 43 % of sales and 82 % of operating income ; health & science technologies accounted for 35 % of sales and ( 35 ) % of operating income ; and fire & safety/diversified products represented 22 % of sales and 53 % of operating income . story_separator_special_tag fire & safety/diversified products segment replace_table_token_13_th sales of $ 402.4 million increased $ 11.6 million , or 3 % , in 2011 compared with 2010. this change reflected 3 % favorable foreign currency translation , while organic sales were essentially flat . the change in organic sales reflected strength in rescue equipment , engineered band clamping systems and the dispensing group within 21 eastern europe and asia , partially offset by weakness in fire suppression and market softness in north america within our dispensing business . in 2011 , organic sales decreased 7 % domestically and increased 5 % internationally . organic sales to customers outside the u.s. were 63 % of total segment sales in 2011 and 59 % in 2010. operating income and operating margins in the fire & safety/diversified products segment of $ 85.9 million and 21.3 % , respectively , were higher than the $ 82.3 million and 21.1 % recorded in 2010 , primarily due to volume leverage , favorable product mix and a gain from the sale of a facility in italy , partially offset by restructuring related costs . story_separator_special_tag all the company 's assets . the terms of the 4.2 % senior notes also require the company to make an offer to repurchase the 4.2 % senior notes upon a change of control triggering event ( as defined in the indenture ) at a price equal to 101 % of their principal amount plus accrued and unpaid interest , if any . 23 on april 15 , 2010 , the company entered into a forward starting interest rate contract with a notional amount of $ 300.0 million and a settlement date in december 2010. this contract was entered into in anticipation of the issuance of the 4.5 % senior notes and was designed to lock in the market interest rate as of april 15 , 2010. in december 2010 , the company settled and paid this interest rate contract for $ 31.0 million . the $ 31.0 million is being amortized into interest expense over the 10 year term of the 4.5 % senior notes , which results in an effective interest rate of 5.8 % . on july 12 , 2011 , the company entered into a forward starting interest rate contract with a notional amount of $ 350.0 million and a settlement date of september 30 , 2011. this contract was entered into in anticipation of the issuance of the 4.2 % senior notes and was designed to lock in the market interest rate as of july 12 , 2011. on september 29 , 2011 , the company settled this interest rate contract for $ 34.7 million with a payment made on october 3 , 2011. simultaneously , the company entered into a separate interest rate contract with a notional amount of $ 350.0 million and a settlement date of february 28 , 2012. the contract was entered into in anticipation of the expected issuance of the 4.2 % senior notes and was designed to maintain the market rate as of july 12 , 2011. in december 2011 , the company settled and paid the september interest rate contract for $ 4.0 million , resulting in a total settlement of $ 38.7 million . of the $ 38.7 million , $ 0.8 was recognized as other expense in 2011 and the balance of $ 37.9 million is being amortized into interest expense over the 10 year term of the 4.2 % senior notes , which results in an effective interest rate of 5.3 % . there are two key financial covenants that the company is required to maintain in connection with the revolving facility and the 2.58 % senior euro notes . the key financial covenants require a minimum interest coverage ratio of 3.0 to 1 and a maximum leverage ratio of 3.25 to 1. at december 31 , 2012 , the company was in compliance with both of these financial covenants , as the company 's interest coverage ratio was 10.05 to 1 and the leverage ratio was 1.92 to 1. there are no financial covenants relating to the 4.5 % senior notes or 4.2 % senior notes . on october 22 , 2012 , the company 's board of directors approved an increase in the authorized level for repurchases of common stock by $ 200.0 million . repurchases under the program will be funded with future cash flow generation . during 2012 , 2.2 million shares were purchased at a cost of $ 89.6 million . the company believes current cash and cash that will be generated from operations will be sufficient to meet its operating cash requirements , planned capital expenditures , interest on all borrowings , pension and postretirement funding requirements , authorized share repurchases and annual dividend payments to holders of the company 's stock for the next twelve months . additionally , in the event that suitable businesses are available for acquisition upon acceptable terms , the company may obtain all or a portion of the financing for these acquisitions through the incurrence of additional borrowings . as of december 31 , 2012 , $ 21.0 million was outstanding under the revolving facility . contractual obligations our contractual obligations include pension and postretirement medical benefit plans , rental payments under operating leases , payments under capital leases , and other long-term obligations arising in the ordinary course of business . there are no identifiable events or uncertainties , including the lowering of our credit rating that would accelerate payment or maturity of any of these commitments or obligations . 24 the following table summarizes our significant contractual obligations and commercial commitments at december 31 , 2012 , and the future periods in which such obligations are expected to be settled in cash . in addition , the table reflects the timing of principal and interest payments on outstanding borrowings . additional detail regarding these obligations is provided in the notes to consolidated financial statements
| liquidity and capital resources cash and cash equivalents were $ 370.5 million as of december 31 , 2020. our international subsidiaries held approximately $ 163.4 million of cash and cash equivalents , of which 39.6 % were held in euros . we intend either to invest our foreign earnings permanently in foreign operations or to remit these earnings to our u.s. entities in a tax-free manner with the exception for immaterial state income taxes . the tax act imposed a mandatory transition tax on accumulated foreign earnings and eliminates u.s. federal income taxes on foreign subsidiary distribution . our primary source of cash for funding operations and growth has been through cash provided by operating activities . given the uncertainty in the rapidly changing market and economic conditions related to the covid-19 pandemic , we continue to evaluate the nature and extent of the impact to our business and financial position . in addition , currently it is not possible to estimate the amount of loss or range of possible loss that might result from adverse judgments , settlements , penalties , or other resolution of the proceedings and investigations resulting from the cyber incident . such potential payments , if great enough , could have an adverse effect on our liquidity . however , despite these uncertainties , we believe that our existing cash and cash equivalents , our cash flows from operating activities and our borrowing capacity under our credit facilities will be sufficient to fund our operations , fund required debt repayments and meet our commitments for capital expenditures for at least the next 12 months .
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the health & science technologies segment designs , produces and distributes a wide range of precision fluidics , rotary lobe pumps , centrifugal and positive displacement pumps , roll compaction and drying systems used in beverage , food processing , pharmaceutical and cosmetics , pneumatic components and sealing solutions , including very high precision , low-flow rate pumping solutions required in analytical instrumentation , clinical diagnostics and drug discovery , high performance molded and extruded , biocompatible medical devices and implantables , air compressors used in medical , dental and industrial applications , optical components and 14 coatings for applications in the fields of scientific research , defense , biotechnology , aerospace , telecommunications and electronics manufacturing , laboratory and commercial equipment used in the production of micro and nano scale materials , precision photonic solutions used in life sciences , research and defense markets , and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications . the fire & safety/diversified products segment produces firefighting pumps and controls , rescue tools , lifting bags and other components and systems for the fire and rescue industry , and engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications , precision equipment for dispensing , metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world . some of our 2012 financial results are as follows : sales of $ 1.95 billion rose 6 % ; organic sales ย excluding acquisitions and foreign currency translation ย were up 3 % . asset impairment charge recorded for $ 198.5 million . operating income of $ 128.2 million decreased 58 % . net income decreased 81 % to $ 37.6 million . diluted eps of $ 0.45 decreased $ 1.87 or 81 % compared to 2011. on a regional basis north america has remained strong , the asian markets are improving and we see stabilization in europe . for 2013 , based on the company 's current outlook , we are forecasting fully diluted eps of $ 2.85 to $ 2.95. results of operations the following is a discussion and analysis of our results of operations for each of the three years in the period ended december 31 , 2012. for purposes of this item , reference is made to the consolidated statements of operations in part ii , item 8 , ยfinancial statements and supplementary data.ย segment operating income excludes unallocated corporate operating expenses . certain prior year amounts have been revised to include the dispensing equipment segment as part of the fire & safety/diversified products segment and to reflect the movement of our trebor business unit from the health & science technologies segment to the fluid & metering technologies segment . in this report , references to organic sales , a non-gaap measure , refers to sales from continuing operations calculated according to generally accepted accounting principles in the united states but excludes ( 1 ) sales from acquired businesses during the first twelve months of ownership and ( 2 ) the impact of foreign currency translation . the portion of sales attributable to foreign currency translation is calculated as the difference between ( a ) the period-to-period change in organic sales and ( b ) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period . management believes that reporting organic sales provides useful information to investors by helping identify underlying growth trends in our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our peers . the company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management 's control , is subject to volatility and can obscure underlying business trends . the company excludes the effect of acquisitions because the nature , size , and number of acquisitions can vary dramatically from period to period and between the company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult . management 's primary measurements of segment performance are sales , operating income , and operating margin . in addition , due to the highly acquisitive nature of the company , the determination of operating income includes amortization of acquired intangible assets and , as a result , management reviews depreciation and 15 amortization as a percentage of sales . these measures are monitored by management and significant changes in operating results versus current trends in end markets and variances from forecasts are analyzed with segment management . performance in 2012 compared with 2011 replace_table_token_6_th sales in 2012 were $ 1,954.3 million , a 6 % increase from the comparable period last year . this increase reflects a 3 % increase in organic sales , 5 % from acquisitions ( at films ย january 2011 , microfluidics ย march 2011 , cvi mg ย june 2011 , erc ย april 2012 and matcon ย july 2012 ) and 2 % unfavorable foreign currency translation . organic sales to customers outside the u.s. represented approximately 50 % of total sales in the period compared with 52 % in 2011. in 2012 , fluid & metering technologies contributed 43 % of sales and 82 % of operating income ; health & science technologies accounted for 35 % of sales and ( 35 ) % of operating income ; and fire & safety/diversified products represented 22 % of sales and 53 % of operating income . story_separator_special_tag fire & safety/diversified products segment replace_table_token_13_th sales of $ 402.4 million increased $ 11.6 million , or 3 % , in 2011 compared with 2010. this change reflected 3 % favorable foreign currency translation , while organic sales were essentially flat . the change in organic sales reflected strength in rescue equipment , engineered band clamping systems and the dispensing group within 21 eastern europe and asia , partially offset by weakness in fire suppression and market softness in north america within our dispensing business . in 2011 , organic sales decreased 7 % domestically and increased 5 % internationally . organic sales to customers outside the u.s. were 63 % of total segment sales in 2011 and 59 % in 2010. operating income and operating margins in the fire & safety/diversified products segment of $ 85.9 million and 21.3 % , respectively , were higher than the $ 82.3 million and 21.1 % recorded in 2010 , primarily due to volume leverage , favorable product mix and a gain from the sale of a facility in italy , partially offset by restructuring related costs . story_separator_special_tag all the company 's assets . the terms of the 4.2 % senior notes also require the company to make an offer to repurchase the 4.2 % senior notes upon a change of control triggering event ( as defined in the indenture ) at a price equal to 101 % of their principal amount plus accrued and unpaid interest , if any . 23 on april 15 , 2010 , the company entered into a forward starting interest rate contract with a notional amount of $ 300.0 million and a settlement date in december 2010. this contract was entered into in anticipation of the issuance of the 4.5 % senior notes and was designed to lock in the market interest rate as of april 15 , 2010. in december 2010 , the company settled and paid this interest rate contract for $ 31.0 million . the $ 31.0 million is being amortized into interest expense over the 10 year term of the 4.5 % senior notes , which results in an effective interest rate of 5.8 % . on july 12 , 2011 , the company entered into a forward starting interest rate contract with a notional amount of $ 350.0 million and a settlement date of september 30 , 2011. this contract was entered into in anticipation of the issuance of the 4.2 % senior notes and was designed to lock in the market interest rate as of july 12 , 2011. on september 29 , 2011 , the company settled this interest rate contract for $ 34.7 million with a payment made on october 3 , 2011. simultaneously , the company entered into a separate interest rate contract with a notional amount of $ 350.0 million and a settlement date of february 28 , 2012. the contract was entered into in anticipation of the expected issuance of the 4.2 % senior notes and was designed to maintain the market rate as of july 12 , 2011. in december 2011 , the company settled and paid the september interest rate contract for $ 4.0 million , resulting in a total settlement of $ 38.7 million . of the $ 38.7 million , $ 0.8 was recognized as other expense in 2011 and the balance of $ 37.9 million is being amortized into interest expense over the 10 year term of the 4.2 % senior notes , which results in an effective interest rate of 5.3 % . there are two key financial covenants that the company is required to maintain in connection with the revolving facility and the 2.58 % senior euro notes . the key financial covenants require a minimum interest coverage ratio of 3.0 to 1 and a maximum leverage ratio of 3.25 to 1. at december 31 , 2012 , the company was in compliance with both of these financial covenants , as the company 's interest coverage ratio was 10.05 to 1 and the leverage ratio was 1.92 to 1. there are no financial covenants relating to the 4.5 % senior notes or 4.2 % senior notes . on october 22 , 2012 , the company 's board of directors approved an increase in the authorized level for repurchases of common stock by $ 200.0 million . repurchases under the program will be funded with future cash flow generation . during 2012 , 2.2 million shares were purchased at a cost of $ 89.6 million . the company believes current cash and cash that will be generated from operations will be sufficient to meet its operating cash requirements , planned capital expenditures , interest on all borrowings , pension and postretirement funding requirements , authorized share repurchases and annual dividend payments to holders of the company 's stock for the next twelve months . additionally , in the event that suitable businesses are available for acquisition upon acceptable terms , the company may obtain all or a portion of the financing for these acquisitions through the incurrence of additional borrowings . as of december 31 , 2012 , $ 21.0 million was outstanding under the revolving facility . contractual obligations our contractual obligations include pension and postretirement medical benefit plans , rental payments under operating leases , payments under capital leases , and other long-term obligations arising in the ordinary course of business . there are no identifiable events or uncertainties , including the lowering of our credit rating that would accelerate payment or maturity of any of these commitments or obligations . 24 the following table summarizes our significant contractual obligations and commercial commitments at december 31 , 2012 , and the future periods in which such obligations are expected to be settled in cash . in addition , the table reflects the timing of principal and interest payments on outstanding borrowings . additional detail regarding these obligations is provided in the notes to consolidated financial statements
| liquidity and capital resources at december 31 , 2012 , working capital was $ 590.4 million and the company 's current ratio was 3.0 to 1. cash flows from operating activities increased $ 108.9 million , or 50 % , to $ 326.2 million in 2012 , primarily due to higher operating income , excluding the non-cash asset impairment charge ; improved working capital ; and the settlement of an interest rate contract for $ 38.7 million in 2011. at december 31 , 2012 , the company 's cash and cash equivalents totaled $ 318.9 million , of which $ 201.9 million was held outside of the united states . the company has not provided an estimate for any u.s. or additional foreign taxes on undistributed earnings of foreign subsidiaries that might be payable if these earnings were repatriated since the company considers these amounts to be permanently invested . cash flows from operations were more than adequate to fund capital expenditures of $ 35.5 million and $ 34.5 million in 2012 and 2011 , respectively . capital expenditures were generally for machinery and equipment that improved productivity and tooling to support global sourcing initiatives , although a portion was for business system technology and replacement of equipment and facilities . management believes that the company has ample capacity in its plants and equipment to meet expected needs for future growth in the intermediate term . the company acquired precision photonics corporation ( ยppcย ) in april 2012 for cash consideration of $ 20.6 million , erc in april 2012 for cash consideration of $ 13.3 million and the assumption of approximately $ 4.7 million of debt , and matcon in july 2012 for cash consideration of $ 35.0 million , $ 2.4 million of working capital adjustments to be paid in the first quarter of 2013 , and contingent consideration valued at $ 8.4 million as of the opening balance sheet date . the cash payments for erc and matcon were financed with borrowings under the company 's credit facility , while the acquisition of ppc was funded with available cash on hand .
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the discussion and analysis presented below refers to , and should be read in conjunction with , the consolidated financial statements and accompanying notes included in item 8 of part ii of this annual report on form 10-k. overview owens & minor , inc. , along with its subsidiaries , ( we , us , or our ) is a leading national distributor of name-brand medical and surgical supplies and a healthcare logistics company . we report our business under two segments : domestic and international . our domestic segment includes all operations in the united states relating to our role as a healthcare logistics company providing distribution , packaging and logistics services to healthcare providers and manufacturers . the international segment consists of our european third-party logistics and packaging businesses . segment financial information is provided in note 20 of notes to consolidated financial statements included in this annual report . financial highlights . the following table provides a reconciliation of reported operating earnings , net income and diluted net income per common share to non-gaap measures used by management : replace_table_token_4_th the following items have been excluded in our non-gaap financial measures : ( 1 ) acquisition-related charges , pre-tax , were $ 16.1 million in 2014 , $ 3.5 million in 2013 and $ 10.5 million in 2012. current year charges consist primarily of costs incurred to perform due diligence and analysis related to the medical action and arc royal acquisitions , costs to complete the transactions , and costs to begin the integration of the acquired operations ( including certain severance and contractual payments to former management ) as well as certain costs in movianto to resolve issues and claims with the former owner . charges in 2013 included costs to transition the information technology and other operations and administrative functions of movianto from the former owner . acquisition-related charges in 2012 were primarily transaction costs incurred with movianto to perform due diligence and to analyze , negotiate and consummate the acquisition as well as costs to perform certain post-closing activities to establish the organizational structure . 15 exit and realignment charges ( income ) , pre-tax , were $ 26.7 million in 2014 , $ 8.9 million in 2013 and $ ( 0.4 ) million in 2012. these charges were associated with optimizing our operations and include the closure and consolidation of certain distribution and logistics centers , administrative offices and warehouses in the united states and europe . these charges also include other costs associated with our strategic organizational realignment which include management changes , certain professional fees , and costs to streamline administrative functions and processes . further information regarding these items is included in note 9 of notes to consolidated financial statements . ( 2 ) the fourth quarter of 2014 includes a gain of $ 6.7 million ( pretax ) recorded in other operating income , net from a fair value adjustment to contingent consideration related to the 2012 movianto acquisition purchase price , offset by the incremental charge to cost of goods sold of $ 3.0 million ( pretax ) from purchase accounting impacts related to the sale of acquired inventory that was written up to fair value in connection with the current year acquisitions . ( 3 ) the fourth quarter of 2014 includes a loss in other operating income , net related to an accrual for the estimated settlement amount of a breach of contract claim in the united kingdom for $ 3.9 million ( pretax ) . ( 4 ) in 2014 , we repaid our 2016 notes and recorded a net loss on the early retirement of $ 14.9 million ( pretax ) , which includes the redemption premium offset by the recognition of a gain on previously settled interest rate swaps . these charges have been tax effected in the preceding table by determining the income tax rate depending on the amount of charges incurred in different tax jurisdictions and the deductibility of those charges for income tax purposes . more information about these charges is provided in notes 3 , 9 and 10 of notes to consolidated financial statements included in this annual report . adjusted eps decreased to $ 1.76 in 2014 from $ 1.90 in 2013 primarily due to a decrease in adjusted operating earnings of $ 8.0 million and an increase in interest expense of $ 5.1 million . domestic segment operating earnings were $ 209.3 million for 2014 , a decrease of $ 2.7 million when compared to the prior year . international segment operating losses were $ 6.7 million for 2014 compared to $ 1.4 million in 2013. the higher operating loss in the international segment was largely attributable to the loss of certain customers in the united kingdom early in 2014 as well as increased costs in the united kingdom to transition a significant new customer . the domestic segment experienced lower margins on new and renewed customer contracts in 2014 compared to 2013 and higher sg & a costs to support sales growth . the domestic segment operating earnings included a $ 5.3 million recovery in the first quarter from the settlement of a direct purchaser , anti-trust class-action lawsuit related to the purchases of medical devices which , for the year , was largely offset by increased legal fees related to ongoing litigation . use of non-gaap measures adjusted operating earnings , adjusted net income and adjusted eps are an alternative view of performance used by management , and we believe that investors ' understanding of our performance is enhanced by disclosing these performance measures . story_separator_special_tag critical accounting policies are defined as those policies that relate to estimates that require us to make assumptions about matters that are highly uncertain at the time the estimate is made and could have a material impact on our results due to changes in the estimate or the use of different assumptions that could reasonably have been used . our estimates are generally based on historical experience and various other assumptions that are judged to be reasonable in light of the relevant facts and circumstances . because of the uncertainty inherent in such estimates , actual results may differ . we believe our critical accounting policies and estimates include allowances for losses on accounts and notes receivable , inventory valuation , accounting for goodwill and long-lived assets , self-insurance liabilities , supplier incentives , and business combinations . 23 allowances for losses on accounts and notes receivable . we maintain valuation allowances based upon the expected collectability of accounts and notes receivable . the allowances include specific amounts for accounts that are likely to be uncollectible , such as customer bankruptcies and disputed amounts , and general allowances for accounts that may become uncollectible . these allowances are estimated based on a number of factors , including industry trends , current economic conditions , creditworthiness of customers , age of the receivables , changes in customer payment patterns , and historical experience . at december 31 , 2014 , accounts and notes receivable were $ 626.2 million , net of allowances of $ 13.3 million . an unexpected bankruptcy or other adverse change in the financial condition of a customer could result in increases in these allowances , which could have a material effect on the results of operations . inventory valuation . merchandise inventories are valued at the lower of cost or market , with cost determined using the last-in , first-out ( lifo ) method for domestic segment inventories and the first-in , first-out ( fifo ) method for international segment inventories . an actual valuation of inventory under the lifo method is made only at the end of the year based on the inventory levels and costs at that time . lifo calculations are required for interim reporting purposes and are based on estimates of the expected mix of products in year-end inventory . in addition , inventory valuation includes estimates of allowances for obsolescence and variances between actual inventory on-hand and perpetual inventory records that can arise throughout the year . these estimates are based on factors such as the age of inventory and historical trends . at december 31 , 2014 , the carrying value of inventory was $ 872.5 million , which is $ 116.2 million lower than the value of inventory had it all been accounted for on a fifo basis . goodwill and long-lived assets . goodwill represents the excess of consideration paid over the fair value of identifiable net assets acquired . long-lived assets , which are a component of identifiable net assets , include intangible assets with finite useful lives , property and equipment , and computer software costs . intangible assets with finite useful lives consist primarily of customer relationships and non-compete agreements acquired through business combinations . certain assumptions and estimates are employed in determining the fair value of identifiable net assets acquired . we evaluate goodwill for impairment annually and whenever events occur or changes in circumstance indicate that the carrying amount of goodwill may not be recoverable . in performing the impairment test , we perform qualitative assessments based on macroeconomic conditions , structural changes in the industry , estimated financial performance , and other relevant information . if necessary , we perform a quantitative analysis to estimate the fair value of the reporting unit using valuation techniques , including comparable multiples of the reporting unit 's earnings before interest , taxes , depreciation and amortization ( ebitda ) and discounted cash flows . the ebitda multiples are based on an analysis of current enterprise valuations and recent acquisition prices of similar companies , if available . goodwill totaled $ 423.3 million at december 31 , 2014. long-lived assets , which exclude goodwill , are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable . we assess long-lived assets for potential impairment by comparing the carrying value of an asset , or group of related assets , to its estimated undiscounted future cash flows . at december 31 , 2014 , long-lived assets included property and equipment of $ 233.0 million , net of accumulated depreciation ; intangible assets of $ 108.6 million , net of accumulated amortization ; and computer software costs of $ 75.2 million , net of accumulated amortization . we did not record any material impairment losses related to goodwill or long-lived assets in 2014. however , the impairment review of goodwill and long-lived assets requires the extensive use of accounting judgment , estimates and assumptions . the application of alternative assumptions could produce materially different results . self-insurance liabilities . we are self-insured for most employee healthcare , workers ' compensation and automobile liability costs ; however , we maintain insurance for individual losses exceeding certain limits . liabilities are estimated for healthcare costs using current and historical claims data . liabilities for workers ' compensation and automobile liability claims are estimated using historical claims data and loss development factors . if the underlying facts and circumstances of existing claims change or historical trends are not indicative of future trends , then we may be required to record additional expense that could have a material effect on the results of operations . self-insurance liabilities recorded in our consolidated balance sheets for employee healthcare , workers ' compensation and automobile liability costs totaled $ 13.0 million at december 31 , 2014 and $ 13.9 million at december 31 , 2013. supplier incentives . we have contractual arrangements with certain suppliers
| liquidity and capital resources at december 31 , 2012 , working capital was $ 590.4 million and the company 's current ratio was 3.0 to 1. cash flows from operating activities increased $ 108.9 million , or 50 % , to $ 326.2 million in 2012 , primarily due to higher operating income , excluding the non-cash asset impairment charge ; improved working capital ; and the settlement of an interest rate contract for $ 38.7 million in 2011. at december 31 , 2012 , the company 's cash and cash equivalents totaled $ 318.9 million , of which $ 201.9 million was held outside of the united states . the company has not provided an estimate for any u.s. or additional foreign taxes on undistributed earnings of foreign subsidiaries that might be payable if these earnings were repatriated since the company considers these amounts to be permanently invested . cash flows from operations were more than adequate to fund capital expenditures of $ 35.5 million and $ 34.5 million in 2012 and 2011 , respectively . capital expenditures were generally for machinery and equipment that improved productivity and tooling to support global sourcing initiatives , although a portion was for business system technology and replacement of equipment and facilities . management believes that the company has ample capacity in its plants and equipment to meet expected needs for future growth in the intermediate term . the company acquired precision photonics corporation ( ยppcย ) in april 2012 for cash consideration of $ 20.6 million , erc in april 2012 for cash consideration of $ 13.3 million and the assumption of approximately $ 4.7 million of debt , and matcon in july 2012 for cash consideration of $ 35.0 million , $ 2.4 million of working capital adjustments to be paid in the first quarter of 2013 , and contingent consideration valued at $ 8.4 million as of the opening balance sheet date . the cash payments for erc and matcon were financed with borrowings under the company 's credit facility , while the acquisition of ppc was funded with available cash on hand .
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the discussion and analysis presented below refers to , and should be read in conjunction with , the consolidated financial statements and accompanying notes included in item 8 of part ii of this annual report on form 10-k. overview owens & minor , inc. , along with its subsidiaries , ( we , us , or our ) is a leading national distributor of name-brand medical and surgical supplies and a healthcare logistics company . we report our business under two segments : domestic and international . our domestic segment includes all operations in the united states relating to our role as a healthcare logistics company providing distribution , packaging and logistics services to healthcare providers and manufacturers . the international segment consists of our european third-party logistics and packaging businesses . segment financial information is provided in note 20 of notes to consolidated financial statements included in this annual report . financial highlights . the following table provides a reconciliation of reported operating earnings , net income and diluted net income per common share to non-gaap measures used by management : replace_table_token_4_th the following items have been excluded in our non-gaap financial measures : ( 1 ) acquisition-related charges , pre-tax , were $ 16.1 million in 2014 , $ 3.5 million in 2013 and $ 10.5 million in 2012. current year charges consist primarily of costs incurred to perform due diligence and analysis related to the medical action and arc royal acquisitions , costs to complete the transactions , and costs to begin the integration of the acquired operations ( including certain severance and contractual payments to former management ) as well as certain costs in movianto to resolve issues and claims with the former owner . charges in 2013 included costs to transition the information technology and other operations and administrative functions of movianto from the former owner . acquisition-related charges in 2012 were primarily transaction costs incurred with movianto to perform due diligence and to analyze , negotiate and consummate the acquisition as well as costs to perform certain post-closing activities to establish the organizational structure . 15 exit and realignment charges ( income ) , pre-tax , were $ 26.7 million in 2014 , $ 8.9 million in 2013 and $ ( 0.4 ) million in 2012. these charges were associated with optimizing our operations and include the closure and consolidation of certain distribution and logistics centers , administrative offices and warehouses in the united states and europe . these charges also include other costs associated with our strategic organizational realignment which include management changes , certain professional fees , and costs to streamline administrative functions and processes . further information regarding these items is included in note 9 of notes to consolidated financial statements . ( 2 ) the fourth quarter of 2014 includes a gain of $ 6.7 million ( pretax ) recorded in other operating income , net from a fair value adjustment to contingent consideration related to the 2012 movianto acquisition purchase price , offset by the incremental charge to cost of goods sold of $ 3.0 million ( pretax ) from purchase accounting impacts related to the sale of acquired inventory that was written up to fair value in connection with the current year acquisitions . ( 3 ) the fourth quarter of 2014 includes a loss in other operating income , net related to an accrual for the estimated settlement amount of a breach of contract claim in the united kingdom for $ 3.9 million ( pretax ) . ( 4 ) in 2014 , we repaid our 2016 notes and recorded a net loss on the early retirement of $ 14.9 million ( pretax ) , which includes the redemption premium offset by the recognition of a gain on previously settled interest rate swaps . these charges have been tax effected in the preceding table by determining the income tax rate depending on the amount of charges incurred in different tax jurisdictions and the deductibility of those charges for income tax purposes . more information about these charges is provided in notes 3 , 9 and 10 of notes to consolidated financial statements included in this annual report . adjusted eps decreased to $ 1.76 in 2014 from $ 1.90 in 2013 primarily due to a decrease in adjusted operating earnings of $ 8.0 million and an increase in interest expense of $ 5.1 million . domestic segment operating earnings were $ 209.3 million for 2014 , a decrease of $ 2.7 million when compared to the prior year . international segment operating losses were $ 6.7 million for 2014 compared to $ 1.4 million in 2013. the higher operating loss in the international segment was largely attributable to the loss of certain customers in the united kingdom early in 2014 as well as increased costs in the united kingdom to transition a significant new customer . the domestic segment experienced lower margins on new and renewed customer contracts in 2014 compared to 2013 and higher sg & a costs to support sales growth . the domestic segment operating earnings included a $ 5.3 million recovery in the first quarter from the settlement of a direct purchaser , anti-trust class-action lawsuit related to the purchases of medical devices which , for the year , was largely offset by increased legal fees related to ongoing litigation . use of non-gaap measures adjusted operating earnings , adjusted net income and adjusted eps are an alternative view of performance used by management , and we believe that investors ' understanding of our performance is enhanced by disclosing these performance measures . story_separator_special_tag critical accounting policies are defined as those policies that relate to estimates that require us to make assumptions about matters that are highly uncertain at the time the estimate is made and could have a material impact on our results due to changes in the estimate or the use of different assumptions that could reasonably have been used . our estimates are generally based on historical experience and various other assumptions that are judged to be reasonable in light of the relevant facts and circumstances . because of the uncertainty inherent in such estimates , actual results may differ . we believe our critical accounting policies and estimates include allowances for losses on accounts and notes receivable , inventory valuation , accounting for goodwill and long-lived assets , self-insurance liabilities , supplier incentives , and business combinations . 23 allowances for losses on accounts and notes receivable . we maintain valuation allowances based upon the expected collectability of accounts and notes receivable . the allowances include specific amounts for accounts that are likely to be uncollectible , such as customer bankruptcies and disputed amounts , and general allowances for accounts that may become uncollectible . these allowances are estimated based on a number of factors , including industry trends , current economic conditions , creditworthiness of customers , age of the receivables , changes in customer payment patterns , and historical experience . at december 31 , 2014 , accounts and notes receivable were $ 626.2 million , net of allowances of $ 13.3 million . an unexpected bankruptcy or other adverse change in the financial condition of a customer could result in increases in these allowances , which could have a material effect on the results of operations . inventory valuation . merchandise inventories are valued at the lower of cost or market , with cost determined using the last-in , first-out ( lifo ) method for domestic segment inventories and the first-in , first-out ( fifo ) method for international segment inventories . an actual valuation of inventory under the lifo method is made only at the end of the year based on the inventory levels and costs at that time . lifo calculations are required for interim reporting purposes and are based on estimates of the expected mix of products in year-end inventory . in addition , inventory valuation includes estimates of allowances for obsolescence and variances between actual inventory on-hand and perpetual inventory records that can arise throughout the year . these estimates are based on factors such as the age of inventory and historical trends . at december 31 , 2014 , the carrying value of inventory was $ 872.5 million , which is $ 116.2 million lower than the value of inventory had it all been accounted for on a fifo basis . goodwill and long-lived assets . goodwill represents the excess of consideration paid over the fair value of identifiable net assets acquired . long-lived assets , which are a component of identifiable net assets , include intangible assets with finite useful lives , property and equipment , and computer software costs . intangible assets with finite useful lives consist primarily of customer relationships and non-compete agreements acquired through business combinations . certain assumptions and estimates are employed in determining the fair value of identifiable net assets acquired . we evaluate goodwill for impairment annually and whenever events occur or changes in circumstance indicate that the carrying amount of goodwill may not be recoverable . in performing the impairment test , we perform qualitative assessments based on macroeconomic conditions , structural changes in the industry , estimated financial performance , and other relevant information . if necessary , we perform a quantitative analysis to estimate the fair value of the reporting unit using valuation techniques , including comparable multiples of the reporting unit 's earnings before interest , taxes , depreciation and amortization ( ebitda ) and discounted cash flows . the ebitda multiples are based on an analysis of current enterprise valuations and recent acquisition prices of similar companies , if available . goodwill totaled $ 423.3 million at december 31 , 2014. long-lived assets , which exclude goodwill , are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable . we assess long-lived assets for potential impairment by comparing the carrying value of an asset , or group of related assets , to its estimated undiscounted future cash flows . at december 31 , 2014 , long-lived assets included property and equipment of $ 233.0 million , net of accumulated depreciation ; intangible assets of $ 108.6 million , net of accumulated amortization ; and computer software costs of $ 75.2 million , net of accumulated amortization . we did not record any material impairment losses related to goodwill or long-lived assets in 2014. however , the impairment review of goodwill and long-lived assets requires the extensive use of accounting judgment , estimates and assumptions . the application of alternative assumptions could produce materially different results . self-insurance liabilities . we are self-insured for most employee healthcare , workers ' compensation and automobile liability costs ; however , we maintain insurance for individual losses exceeding certain limits . liabilities are estimated for healthcare costs using current and historical claims data . liabilities for workers ' compensation and automobile liability claims are estimated using historical claims data and loss development factors . if the underlying facts and circumstances of existing claims change or historical trends are not indicative of future trends , then we may be required to record additional expense that could have a material effect on the results of operations . self-insurance liabilities recorded in our consolidated balance sheets for employee healthcare , workers ' compensation and automobile liability costs totaled $ 13.0 million at december 31 , 2014 and $ 13.9 million at december 31 , 2013. supplier incentives . we have contractual arrangements with certain suppliers
| liquidity and capital expenditures . the following table summarizes our consolidated statements of cash flows for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_16_th cash used for operating activities in 2014 reflected unfavorable changes in working capital driven primarily by the timing of vendor payments and increased net working capital needs resulting from strong sales growth . depreciation and amortization in the statement of cash flow for 2014 includes $ 6.0 million in accelerated amortization which is included in acquisition-related and exit and realignment charges in the statement of income related to the change in useful life ( from 10 years to 1 year ) for an information system which is being replaced in the international segment . cash from operating activities for 2013 decreased compared to 2012 due to changes in working capital , including increases in accounts and notes receivable which experienced an increase in dso of 1.3 days ( unfavorable impact on cash of $ 33.3 million ) . cash used for investing activities in 2014 included cash paid for the acquisitions of medical action and arc royal of approximately $ 261.6 million plus assumed third-party debt ( capital lease obligations ) of $ 13.4 million and capital expenditures of $ 70.8 million ( compared to $ 60.1 million in 2013 ) primarily related to distribution center and logistics facility moves and modifications and information technology initiatives . in 2012 , we acquired movianto in exchange for approximately $ 155.2 million of cash plus assumed third-party debt ( primarily capitalized leases ) of $ 2.1 million . domestic segment capital expenditures were $ 34.5 million in 2012 , primarily related to our strategic and operational efficiency initiatives , particularly initiatives relating to information technology enhancements . in 2014 , cash provided by financing activities reflects proceeds from borrowings of $ 581.4 million and the repayment of long-term debt of $ 217.4 million . we paid dividends of $ 63.1 million , $ 60.7 million and $ 55.7 million and repurchased common stock under a share repurchase program for $ 9.9 million , $ 18.9 million and $ 15.0 million in the years ended december 31 , 2014 , 2013 and 2012 .
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โ one of our core profitably measurements is our portfolio related net interest margin , which measures the difference between interest income earned on our loan portfolio and interest expense paid on our portfolio-related debt , relative to the amount of loans outstanding over the period . our portfolio-related debt consists of our warehouse repurchase facilities and securitizations and excludes our corporate debt . for the year ended december 31 , 2019 , our portfolio related net interest margin was 4.13 % . we generate profits to the extent that our portfolio related net interest income exceeds our interest expense on corporate debt , provision for loan losses and operating expenses . for the year ended december 31 , 2019 , we generated income before income taxes and net income of $ 25.4 million and $ 17.3 million , respectively , and earned a pre-tax return on equity and return on equity of 17.4 % and 11.8 % , respectively . 40 items affecting comparability of results due to a number of factors , our historical financial results may not be comparable , either from period to period , or to our financial results in future periods . we have summarized the key factors affecting the comparability of our financial results below . income taxes prior to our initial public offering , the company operated as velocity financial , llc , which was formed as a delaware limited liability company , or llc , in 2012. until january 1 , 2018 , as an llc , we had elected to be treated as a partnership for u.s. federal and state income tax purposes , and as such , had generally not been subject to federal and state income taxes prior to january 1 , 2018. accordingly , the results of operations presented for the years prior to january 1 , 2018 do not include any provision for federal or state income taxes . as part of our initial public offering , we converted velocity financial , llc into a delaware corporation and changed our name to velocity financial , inc. , a transaction that we refer to as the โ conversion โ in this annual report form 10-k. the conversion is accounted for in accordance with asc 805-50 โbusiness combinations , as a transaction between entities under common control . the conversion is not expected to impact our provision for income taxes or our deferred tax assets and liabilities . effective january 1 , 2018 , we elected to be treated as a corporation for u.s. federal and state income tax purposes . accordingly , the results of operations for the year ended december 31 , 2018 include the impacts of income taxes . as a result , the historical net income reported for any period prior to january 1 , 2018 , is not comparable to the net income reported for the year ended december 31 , 2018 or the net income anticipated in future periods . furthermore , in connection with the new tax treatment , we began recognizing , and will continue to recognize , deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of our existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using the 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 the statements of operations in the period that included the enactment date , as applicable . interest expense on corporate debt in 2014 , we entered into a five-year , $ 100.0 million corporate debt agreement with the owners of our class c preferred units , pursuant to which we issued at par senior secured notes , the 2014 senior secured notes , that mature on december 16 , 2019. the 2014 senior secured notes bear interest , at our election , at either 10 % annually paid in cash or 11 % annually paid in kind . in august 2019 , we entered into a five-year $ 153.0 million corporate debt agreement with owl rock capital corporation ( โ 2019 term loans โ ) . the 2019 term loans under this agreement bear interest at a rate equal to one-month libor plus 7.50 % and mature in august 2024. a portion of the net proceeds from the 2019 term loans was used to redeem all of the outstanding 2014 senior secured notes in august 2019. another portion of the net proceeds from the 2019 term loans , together with cash on hand , was used to repurchase our outstanding class c preferred units . as of december 31 , 2018 , including paid-in-kind interest , the 2014 senior secured notes balance was $ 127.6 million , and is presented as secured financing , net of debt issuance costs , on the consolidated statement of financial condition . the 2019 term loans balance was $ 153.0 million as of december 31 , 2019. during the year ended december 31 , 2019 , we incurred $ 14.6 million of interest expense related to the 2014 senior secured notes and the 2019 term loans . we used $ 75.7 million of the net proceeds from our ipo to lower our interest expense through the repayment of the $ 75.0 million outstanding principal amount on the 2019 term loans . 41 recent developments january 2020 ipo on january 16 , 2020 , velocity financial , llc converted from a delaware limited liability company to a delaware corporation and changed its name to velocity financial , inc. the conversion was accounted for in accordance with asc 805-50 โ business combinations , as a transaction between entities under common control . all assets and liabilities of velocity financial , llc were contributed to velocity financial , inc. story_separator_special_tag operating efficiency we generate positive operating leverage to the extent that our revenue grows at a faster rate than our expenses . we believe our platform is highly scalable and that we can generate positive operating leverage in future periods , primarily due to the technology and other investments we have made in our platform to date and our focus on a scalable , cost-effective mortgage broker network to generate new loan originations . portfolio and asset quality key portfolio statistics replace_table_token_3_th total loans . total loans reflects the aggregate upb at the end of the period . it excludes deferred origination costs , acquisition discounts , fair value adjustments and allowance for loan losses . loan count . loan count reflects the number of loans at the end of the period . it includes all loans with an outstanding principal balance . average loan balance . average loan balance reflects the average upb at the end of the period ( i.e . , total loans divided by loan count ) . weighted average loan-to-value . loan-to-value , or ltv , reflects the ratio of the original loan amount to the appraised value of the underlying property at the time of origination . in instances where the ltv at origination is not available for an acquired loan , the ltv reflects our best estimate of value at the time of acquisition . weighted average ltv is calculated for the population of loans outstanding at the end of each specified period using the original loan amounts and appraised ltvs at the time of origination of each loan . ltv is a key statistic because requiring the borrower to invest more equity in the collateral minimizes our exposure for future credit losses . nonperforming loans . loans that are 90 or more days past due , in bankruptcy , or in foreclosure are not accruing interest and are considered nonperforming loans . the dollar amount of nonperforming loans presented in the table above reflects the upb of all loans that meet this definition . 46 originations and acquisitions the following table presents new loan originations and acquisitions and includes average loan size , weighted average coupon and weighted average loan-to-value for the periods indicated : replace_table_token_4_th over the periods shown , we have increased our origination volume by executing our strategy of continuing to serve and build loyalty within our network of mortgage brokers , while also expanding our network with new mortgage brokers through improved brand recognition . for the year ended december 31 , 2019 , we originated $ 1.0 billion of loans , which was an increase of $ 275.4 million , or 37.4 % from $ 737.3 million for the year ended december 31 , 2018. for the year ended december 31 , 2018 , we originated $ 737.3 million of loans , which was an increase of $ 182.6 million , or 32.9 % , from $ 554.7 million for the year ended december 31 , 2017. loans held for investment our total portfolio of loans held for investment consists of both loans held for investment at cost , which are presented in the consolidated financial statements as loans held for investment , net , and loans held for investment at fair value , which are presented in the financial statements as loans held for investment at fair value . the following tables show the various components of loans held for investment as of the dates indicated : replace_table_token_5_th 47 the following table illustrates the contractual maturities for our loans held for investment in aggregate upb and as a percentage of our total held for investment loan portfolio as of december 31 , 2019 : replace_table_token_6_th allowance for loan losses our allowance for loan losses increased to $ 2.2 million as of december 31 , 2019 , compared to $ 1.7 million as of december 31 , 2018. the increase in allowance is primarily due to the increase in our loan portfolio from december 31 , 2018 to december 31 , 2019. our allowance decreased to $ 1.7 million as of december 31 , 2018 , compared to $ 1.9 million as of december 31 , 2017. the decrease in the allowance for loan losses is based on an analysis of historical loan loss data from january 1 , 2012 through december 31 , 2019. we strive to minimize actual credit losses through our rigorous screening and underwriting process , life of loan portfolio management and special servicing practices . additionally , we believe borrower equity of 25 % to 40 % provides significant protection against credit losses should a loan become impaired . to estimate the allowance for loan losses in our loans held for investment portfolio , we follow a detailed internal process , considering a number of different factors including , but not limited to , our ongoing analyses of loans , historical loss rates , relevant environmental factors , relevant market research , trends in delinquencies , effects and changes in credit concentrations , and ongoing evaluation of fair values . the following table illustrates the activity in our allowance for loan losses over the periods indicated : replace_table_token_7_th credit quality โ loans held for investment the following table provides delinquency information on our held for investment loan portfolio as of the dates indicated : replace_table_token_8_th 48 loans that are 90+ days past due , in bankruptcy , or in foreclosure are not accruing interest and are considered nonperforming loans . nonperforming loans were $ 112.2 million , or 6.1 % of our held for investment loan portfolio as of december 31 , 2019 , compared to $ 91.1 million , or 5.9 % as of december 31 , 2018 , and $ 73.3 million , or 5.7 % of the loan portfolio as of december 31 , 2017. we believe the significant equity cushion at origination and the active management of loans will continue to minimize credit losses on the resolution of
| liquidity and capital expenditures . the following table summarizes our consolidated statements of cash flows for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_16_th cash used for operating activities in 2014 reflected unfavorable changes in working capital driven primarily by the timing of vendor payments and increased net working capital needs resulting from strong sales growth . depreciation and amortization in the statement of cash flow for 2014 includes $ 6.0 million in accelerated amortization which is included in acquisition-related and exit and realignment charges in the statement of income related to the change in useful life ( from 10 years to 1 year ) for an information system which is being replaced in the international segment . cash from operating activities for 2013 decreased compared to 2012 due to changes in working capital , including increases in accounts and notes receivable which experienced an increase in dso of 1.3 days ( unfavorable impact on cash of $ 33.3 million ) . cash used for investing activities in 2014 included cash paid for the acquisitions of medical action and arc royal of approximately $ 261.6 million plus assumed third-party debt ( capital lease obligations ) of $ 13.4 million and capital expenditures of $ 70.8 million ( compared to $ 60.1 million in 2013 ) primarily related to distribution center and logistics facility moves and modifications and information technology initiatives . in 2012 , we acquired movianto in exchange for approximately $ 155.2 million of cash plus assumed third-party debt ( primarily capitalized leases ) of $ 2.1 million . domestic segment capital expenditures were $ 34.5 million in 2012 , primarily related to our strategic and operational efficiency initiatives , particularly initiatives relating to information technology enhancements . in 2014 , cash provided by financing activities reflects proceeds from borrowings of $ 581.4 million and the repayment of long-term debt of $ 217.4 million . we paid dividends of $ 63.1 million , $ 60.7 million and $ 55.7 million and repurchased common stock under a share repurchase program for $ 9.9 million , $ 18.9 million and $ 15.0 million in the years ended december 31 , 2014 , 2013 and 2012 .
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โ one of our core profitably measurements is our portfolio related net interest margin , which measures the difference between interest income earned on our loan portfolio and interest expense paid on our portfolio-related debt , relative to the amount of loans outstanding over the period . our portfolio-related debt consists of our warehouse repurchase facilities and securitizations and excludes our corporate debt . for the year ended december 31 , 2019 , our portfolio related net interest margin was 4.13 % . we generate profits to the extent that our portfolio related net interest income exceeds our interest expense on corporate debt , provision for loan losses and operating expenses . for the year ended december 31 , 2019 , we generated income before income taxes and net income of $ 25.4 million and $ 17.3 million , respectively , and earned a pre-tax return on equity and return on equity of 17.4 % and 11.8 % , respectively . 40 items affecting comparability of results due to a number of factors , our historical financial results may not be comparable , either from period to period , or to our financial results in future periods . we have summarized the key factors affecting the comparability of our financial results below . income taxes prior to our initial public offering , the company operated as velocity financial , llc , which was formed as a delaware limited liability company , or llc , in 2012. until january 1 , 2018 , as an llc , we had elected to be treated as a partnership for u.s. federal and state income tax purposes , and as such , had generally not been subject to federal and state income taxes prior to january 1 , 2018. accordingly , the results of operations presented for the years prior to january 1 , 2018 do not include any provision for federal or state income taxes . as part of our initial public offering , we converted velocity financial , llc into a delaware corporation and changed our name to velocity financial , inc. , a transaction that we refer to as the โ conversion โ in this annual report form 10-k. the conversion is accounted for in accordance with asc 805-50 โbusiness combinations , as a transaction between entities under common control . the conversion is not expected to impact our provision for income taxes or our deferred tax assets and liabilities . effective january 1 , 2018 , we elected to be treated as a corporation for u.s. federal and state income tax purposes . accordingly , the results of operations for the year ended december 31 , 2018 include the impacts of income taxes . as a result , the historical net income reported for any period prior to january 1 , 2018 , is not comparable to the net income reported for the year ended december 31 , 2018 or the net income anticipated in future periods . furthermore , in connection with the new tax treatment , we began recognizing , and will continue to recognize , deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of our existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using the 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 the statements of operations in the period that included the enactment date , as applicable . interest expense on corporate debt in 2014 , we entered into a five-year , $ 100.0 million corporate debt agreement with the owners of our class c preferred units , pursuant to which we issued at par senior secured notes , the 2014 senior secured notes , that mature on december 16 , 2019. the 2014 senior secured notes bear interest , at our election , at either 10 % annually paid in cash or 11 % annually paid in kind . in august 2019 , we entered into a five-year $ 153.0 million corporate debt agreement with owl rock capital corporation ( โ 2019 term loans โ ) . the 2019 term loans under this agreement bear interest at a rate equal to one-month libor plus 7.50 % and mature in august 2024. a portion of the net proceeds from the 2019 term loans was used to redeem all of the outstanding 2014 senior secured notes in august 2019. another portion of the net proceeds from the 2019 term loans , together with cash on hand , was used to repurchase our outstanding class c preferred units . as of december 31 , 2018 , including paid-in-kind interest , the 2014 senior secured notes balance was $ 127.6 million , and is presented as secured financing , net of debt issuance costs , on the consolidated statement of financial condition . the 2019 term loans balance was $ 153.0 million as of december 31 , 2019. during the year ended december 31 , 2019 , we incurred $ 14.6 million of interest expense related to the 2014 senior secured notes and the 2019 term loans . we used $ 75.7 million of the net proceeds from our ipo to lower our interest expense through the repayment of the $ 75.0 million outstanding principal amount on the 2019 term loans . 41 recent developments january 2020 ipo on january 16 , 2020 , velocity financial , llc converted from a delaware limited liability company to a delaware corporation and changed its name to velocity financial , inc. the conversion was accounted for in accordance with asc 805-50 โ business combinations , as a transaction between entities under common control . all assets and liabilities of velocity financial , llc were contributed to velocity financial , inc. story_separator_special_tag operating efficiency we generate positive operating leverage to the extent that our revenue grows at a faster rate than our expenses . we believe our platform is highly scalable and that we can generate positive operating leverage in future periods , primarily due to the technology and other investments we have made in our platform to date and our focus on a scalable , cost-effective mortgage broker network to generate new loan originations . portfolio and asset quality key portfolio statistics replace_table_token_3_th total loans . total loans reflects the aggregate upb at the end of the period . it excludes deferred origination costs , acquisition discounts , fair value adjustments and allowance for loan losses . loan count . loan count reflects the number of loans at the end of the period . it includes all loans with an outstanding principal balance . average loan balance . average loan balance reflects the average upb at the end of the period ( i.e . , total loans divided by loan count ) . weighted average loan-to-value . loan-to-value , or ltv , reflects the ratio of the original loan amount to the appraised value of the underlying property at the time of origination . in instances where the ltv at origination is not available for an acquired loan , the ltv reflects our best estimate of value at the time of acquisition . weighted average ltv is calculated for the population of loans outstanding at the end of each specified period using the original loan amounts and appraised ltvs at the time of origination of each loan . ltv is a key statistic because requiring the borrower to invest more equity in the collateral minimizes our exposure for future credit losses . nonperforming loans . loans that are 90 or more days past due , in bankruptcy , or in foreclosure are not accruing interest and are considered nonperforming loans . the dollar amount of nonperforming loans presented in the table above reflects the upb of all loans that meet this definition . 46 originations and acquisitions the following table presents new loan originations and acquisitions and includes average loan size , weighted average coupon and weighted average loan-to-value for the periods indicated : replace_table_token_4_th over the periods shown , we have increased our origination volume by executing our strategy of continuing to serve and build loyalty within our network of mortgage brokers , while also expanding our network with new mortgage brokers through improved brand recognition . for the year ended december 31 , 2019 , we originated $ 1.0 billion of loans , which was an increase of $ 275.4 million , or 37.4 % from $ 737.3 million for the year ended december 31 , 2018. for the year ended december 31 , 2018 , we originated $ 737.3 million of loans , which was an increase of $ 182.6 million , or 32.9 % , from $ 554.7 million for the year ended december 31 , 2017. loans held for investment our total portfolio of loans held for investment consists of both loans held for investment at cost , which are presented in the consolidated financial statements as loans held for investment , net , and loans held for investment at fair value , which are presented in the financial statements as loans held for investment at fair value . the following tables show the various components of loans held for investment as of the dates indicated : replace_table_token_5_th 47 the following table illustrates the contractual maturities for our loans held for investment in aggregate upb and as a percentage of our total held for investment loan portfolio as of december 31 , 2019 : replace_table_token_6_th allowance for loan losses our allowance for loan losses increased to $ 2.2 million as of december 31 , 2019 , compared to $ 1.7 million as of december 31 , 2018. the increase in allowance is primarily due to the increase in our loan portfolio from december 31 , 2018 to december 31 , 2019. our allowance decreased to $ 1.7 million as of december 31 , 2018 , compared to $ 1.9 million as of december 31 , 2017. the decrease in the allowance for loan losses is based on an analysis of historical loan loss data from january 1 , 2012 through december 31 , 2019. we strive to minimize actual credit losses through our rigorous screening and underwriting process , life of loan portfolio management and special servicing practices . additionally , we believe borrower equity of 25 % to 40 % provides significant protection against credit losses should a loan become impaired . to estimate the allowance for loan losses in our loans held for investment portfolio , we follow a detailed internal process , considering a number of different factors including , but not limited to , our ongoing analyses of loans , historical loss rates , relevant environmental factors , relevant market research , trends in delinquencies , effects and changes in credit concentrations , and ongoing evaluation of fair values . the following table illustrates the activity in our allowance for loan losses over the periods indicated : replace_table_token_7_th credit quality โ loans held for investment the following table provides delinquency information on our held for investment loan portfolio as of the dates indicated : replace_table_token_8_th 48 loans that are 90+ days past due , in bankruptcy , or in foreclosure are not accruing interest and are considered nonperforming loans . nonperforming loans were $ 112.2 million , or 6.1 % of our held for investment loan portfolio as of december 31 , 2019 , compared to $ 91.1 million , or 5.9 % as of december 31 , 2018 , and $ 73.3 million , or 5.7 % of the loan portfolio as of december 31 , 2017. we believe the significant equity cushion at origination and the active management of loans will continue to minimize credit losses on the resolution of
| cash provided by ( used in ) operating activities , investing activities and financing activities as of the periods indicated : replace_table_token_30_th operating activities cash flows from operating activities primarily includes net income adjusted for ( 1 ) cash used for origination of held for sale loans and the related cash proceeds from the sales of such loans , ( 2 ) non-cash items including depreciation , provision for loan loss , discount accretion , and valuation changes , and ( 3 ) changes in the balances of operating assets and liabilities . for the year ended december 31 , 2019 , our net cash used in operating activities of $ 105.3 million consisted mainly of $ 336.9 million cash used to originate held for sale loans , offset by $ 179.6 million proceeds from sale of loans held for sale , $ 25.1 million in repayments on loans held for sale , and net income of $ 17.3 million . for the year ended december 31 , 2018 , our net cash used in operating activities of $ 72.5 million consisted mainly of net income of $ 7.6 million , offset by $ 148.8 million in cash used to originate held for sale loans , less proceeds from the sale and repayments of loans held for sale of $ 72.9 million and $ 3.5 million , respectively . changes in operating assets and liabilities resulted in cash used of $ 18.9 million , mainly as a result of a $ 16.2 million increase in interest receivable due to portfolio growth . for the year ended december 31 , 2017 , our net cash provided by operating activities of $ 37.6 million consisted mainly of net income of $ 14.0 million , offset by $ 42.9 million in cash used to originate held for sale loans , less proceeds from the sale of such loans of $ 46.3 million . changes in operating assets and liabilities resulted in cash provided of $ 4.8
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as of december 31 , 2020 , cash and cash equivalents totaled approximately $ 16.7 million . subsequent to the year ended december 31 , 2020 , the company entered into a securities purchase agreement with an investor , pursuant to which the company sold and issued an aggregate of $ 25.0 million of the company 's common stock . the company anticipates that its current cash , cash equivalents and cash to be generated from operations , the $ 25.0 million received from the financing described above and available line of credit up to $ 7.0 million from western alliance bank will be sufficient to meet its projected operating plans through at least the next twelve months from the issuance date of this report . the company may , however , seek additional capital within the next twelve months , both to meet its projected operating plans within the next twelve months and or to fund its longer term strategic objectives . in june 2020 , we filed a $ 125.0 million registration statement on form s-3 with the commission , utilizing a โ shelf โ registration process . under this shelf registration process , we may sell securities from time to time , including up to $ 50.0 million pursuant to the at market issuance sales agreement , dated as of june 12 , 2020 , with b. riley fbr , inc. and raymond james & associates , inc. as of december 31 , 2020 , we have not sold any securities pursuant to the atm facility . additional capital may come from public and or private stock or debt offerings , borrowings under lines of credit or other sources . these additional funds may not be available on favorable terms , or at all . further , if we issue equity or debt securities to raise additional funds , our existing stockholders may experience dilution and the new equity or debt securities we issue may have rights , preferences and privileges senior to those of our existing stockholders . in addition , if we raise additional funds through collaboration , licensing or other similar arrangements , it may be necessary to relinquish valuable rights to our products or proprietary technologies , or to grant licenses on terms that are not favorable to us . if we can not raise funds on acceptable terms , we may not be able to develop or enhance our products , obtain the required regulatory clearances or approvals , achieve long term strategic objectives , take advantage of future opportunities , or respond to competitive pressures or unanticipated customer requirements . any of these events could adversely affect our ability to achieve our development and commercialization goals , which could have a material and adverse effect on our business , results of operations and financial condition . 38 some of our operations are subject to regulation by various state and federal agencies . dietary supplements are subject to fda , ftc and u.s. department of agriculture regulations relating to composition , labeling and advertising claims . these regulations may in some cases , particularly with respect to those applicable to new ingredients , require a notification that must be submitted to the fda along with evidence of safety . there are similar regulations related to food additives . impact of covid-19 the covid-19 pandemic continues to drive global uncertainty and disruption , which has created headwinds for our business . our ecommerce business continues to perform relatively well in this challenging environment . our retail business , including sales to a.s. watson group and other partners in international markets , has been more impacted by the effects of covid-19 , due to store closures and reduced operating hours . to date , we have successfully navigated the business during the covid-19 pandemic , managing our working capital effectively . we have experienced shipment delays from our suppliers ; however , we have not encountered any major disruptions in our supply chain . we have been maintaining adequate safety stocks to support our growth and we currently have adequate inventory on hand to meet our current demands . overall , we believe the supply chain disruptions due to the covid-19 pandemic will not have a material impact to our business operations . in response to the outbreak , we prioritized the health and safety of our employees by closing our offices or enhancing safety protocols in place to ensure the well-being of our employees . we have been able to successfully conduct business virtually . r esults of operations our losses per basic and diluted share were $ 0.33 and $ 0.56 for the twelve-month periods ended december 31 , 2020 and december 31 , 2019 , respectively . replace_table_token_6_th the following table sets forth the computations of loss per share amounts applicable to common stockholders for the years ended december 31 , 2020 and december 31 , 2019 . 39 replace_table_token_7_th ( 1 ) includes approximately 0.2 million shares of restricted stock for each of the years 2020 and 2019 , which are participating securities that feature voting and dividend rights . ( 2 ) excluded from the computation of loss per share as their impact is antidilutive . net sales . net sales consist of gross sales less discounts and returns . replace_table_token_8_th total net sales increased by 28 % for the twelve-month period ended december 31 , 2020 , compared to the comparable period in 2019 . ยท the company 's tru niagenยฎ sales for consumer products segment continue to increase after the company 's strategic shift towards consumer products in 2017 . ยท the increase in sales for the ingredients segment is largely due to strong demand from our niagenยฎ ingredient customers , who resell niagenยฎ under their own brands . story_separator_special_tag twelve months ending ( in thousands ) december 31 , 2020 december 31 , 2019 change general and administrative $ 30,448 $ 34,308 -11 % the following expenses contributed to the decrease in general and administrative expenses for the twelve-month period ended december 31 , 2020 , compared to the comparable period in 2019 : ยท a decrease in legal expenses . our legal expense decreased to approximately $ 8.6 million in the twelve-month period ended december 31 , 2020 compared to approximately $ 11.3 million in the comparable period in 2019 . ยท a decrease in bad debt expense . our bad debt expense decreased to an insignificant amount in the twelve-month period ended december 31 , 2020 compared to approximately $ 2.2 million in 2019. this is due to recording a write off of $ 2.2 million related to the trade receivable from elysium health in 2019 by increasing the allowance from $ 0.5 million to the entire trade receivable balance of $ 2.7 million . we placed a reserve for the entire outstanding balance as it was no longer deemed collectible . nonoperating - interest expense , net . interest expense , net consists of interest earned from bank deposit accounts less interest expenses from convertible notes , the line of credit arrangement and finance leases . twelve months ending ( in thousands ) december 31 , 2020 december 31 , 2019 change interest expense , net $ 71 $ 847 -92 % ยท in the second and third quarter of 2019 , we incurred debt issuance costs of approximately $ 0.8 million in connection with the issuance of convertible promissory notes in the aggregate principal amount of $ 10.0 million to winsave resources limited and pioneer step holdings limited . the issuance costs were recorded as a debt discount and have been amortized as interest expense using the effective interest method . 43 depreciation and amortization . for the twelve-month period ended december 31 , 2020 , we recorded approximately $ 0.9 million in depreciation compared to approximately $ 0.8 million for the twelve-month period ended december 31 , 2019. we depreciate our assets on a straight-line basis , based on the estimated useful lives of the respective assets . we amortize intangible assets using a straight-line method , generally over 10 years . for licensed patent rights , the useful lives are 10 years or the remaining term of the patents underlying licensing rights , whichever is shorter . the useful lives of subsequent milestone payments that are capitalized are the remaining useful life of the initial licensing payment that was capitalized . in the twelve-month period ended december 31 , 2020 , we recorded amortization on intangible assets of approximately $ 0.2 million compared to approximately $ 0.2 million for the twelve-month period ended december 31 , 2019. income taxes . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all of the deferred tax assets will not be realized . at december 31 , 2020 and december 31 , 2019 , the company maintained a full valuation allowance against the entire deferred income tax balance which resulted in an effective tax rate of 0 % for each of 2020 and 2019. as defined in asc 740 , income taxes , future realization of the tax benefit will depend on the existence of sufficient taxable income , including the expectation of continued future taxable income . net cash provided by ( used in ) operating activities . net cash used in operating activities for the twelve-month period ended december 31 , 2020 was approximately $ 10.6 million as compared to approximately $ 20.4 million for the twelve-month period ended december 31 , 2019. along with the net loss , an increase in trade receivables and payments on operating leases were the largest use of cash during the twelve-month period ended december 31 , 2020. net cash used in operating activities for the twelve-month period ended december 31 , 2019 largely reflects an increase in inventories along with the net loss . we expect our operating cash flows to fluctuate significantly in future periods as a result of fluctuations in our operating results , shipment timetables , accounts receivable collections , inventory management , and the timing of our payments , among other factors . net cash provided by ( used in ) investing activities . net cash used in investing activities was approximately $ 0.2 million for the twelve-month period ended december 31 , 2020 , compared to approximately $ 0.2 million for the twelve-month period ended december 31 , 2019. net cash used in investing activities for the twelve-month period ended december 31 , 2020 , mainly consisted of purchases of leasehold improvements and equipment . net cash used in investing activities for the twelve-month period ended december 31 , 2019 , mainly consisted of purchases of leasehold improvements and equipment , offset by proceeds from disposal of assets held at escrow . net cash provided by ( used in ) financing activities . net cash provided by financing activities was approximately $ 8.7 million for the twelve-month period ended december 31 , 2020 , compared to approximately $ 16.9 million for the twelve-month period ended december 31 , 2019. net cash provided by financing activities for 2020 primarily consisted of proceeds from issuance of our common stock and exercise of stock options , offset by principal payments on finance leases . net cash used in financing activities for 2019 mainly consisted of proceeds from issuances of our common stock , sale of convertible notes and exercise of stock options , offset by principal payments on finance leases . trade receivables . as of december 31 , 2020 , we had approximately $ 2.7 million in trade receivables as compared to approximately $ 2.2 million as of december 31 , 2019 . 44 inventories .
| cash provided by ( used in ) operating activities , investing activities and financing activities as of the periods indicated : replace_table_token_30_th operating activities cash flows from operating activities primarily includes net income adjusted for ( 1 ) cash used for origination of held for sale loans and the related cash proceeds from the sales of such loans , ( 2 ) non-cash items including depreciation , provision for loan loss , discount accretion , and valuation changes , and ( 3 ) changes in the balances of operating assets and liabilities . for the year ended december 31 , 2019 , our net cash used in operating activities of $ 105.3 million consisted mainly of $ 336.9 million cash used to originate held for sale loans , offset by $ 179.6 million proceeds from sale of loans held for sale , $ 25.1 million in repayments on loans held for sale , and net income of $ 17.3 million . for the year ended december 31 , 2018 , our net cash used in operating activities of $ 72.5 million consisted mainly of net income of $ 7.6 million , offset by $ 148.8 million in cash used to originate held for sale loans , less proceeds from the sale and repayments of loans held for sale of $ 72.9 million and $ 3.5 million , respectively . changes in operating assets and liabilities resulted in cash used of $ 18.9 million , mainly as a result of a $ 16.2 million increase in interest receivable due to portfolio growth . for the year ended december 31 , 2017 , our net cash provided by operating activities of $ 37.6 million consisted mainly of net income of $ 14.0 million , offset by $ 42.9 million in cash used to originate held for sale loans , less proceeds from the sale of such loans of $ 46.3 million . changes in operating assets and liabilities resulted in cash provided of $ 4.8
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as of december 31 , 2020 , cash and cash equivalents totaled approximately $ 16.7 million . subsequent to the year ended december 31 , 2020 , the company entered into a securities purchase agreement with an investor , pursuant to which the company sold and issued an aggregate of $ 25.0 million of the company 's common stock . the company anticipates that its current cash , cash equivalents and cash to be generated from operations , the $ 25.0 million received from the financing described above and available line of credit up to $ 7.0 million from western alliance bank will be sufficient to meet its projected operating plans through at least the next twelve months from the issuance date of this report . the company may , however , seek additional capital within the next twelve months , both to meet its projected operating plans within the next twelve months and or to fund its longer term strategic objectives . in june 2020 , we filed a $ 125.0 million registration statement on form s-3 with the commission , utilizing a โ shelf โ registration process . under this shelf registration process , we may sell securities from time to time , including up to $ 50.0 million pursuant to the at market issuance sales agreement , dated as of june 12 , 2020 , with b. riley fbr , inc. and raymond james & associates , inc. as of december 31 , 2020 , we have not sold any securities pursuant to the atm facility . additional capital may come from public and or private stock or debt offerings , borrowings under lines of credit or other sources . these additional funds may not be available on favorable terms , or at all . further , if we issue equity or debt securities to raise additional funds , our existing stockholders may experience dilution and the new equity or debt securities we issue may have rights , preferences and privileges senior to those of our existing stockholders . in addition , if we raise additional funds through collaboration , licensing or other similar arrangements , it may be necessary to relinquish valuable rights to our products or proprietary technologies , or to grant licenses on terms that are not favorable to us . if we can not raise funds on acceptable terms , we may not be able to develop or enhance our products , obtain the required regulatory clearances or approvals , achieve long term strategic objectives , take advantage of future opportunities , or respond to competitive pressures or unanticipated customer requirements . any of these events could adversely affect our ability to achieve our development and commercialization goals , which could have a material and adverse effect on our business , results of operations and financial condition . 38 some of our operations are subject to regulation by various state and federal agencies . dietary supplements are subject to fda , ftc and u.s. department of agriculture regulations relating to composition , labeling and advertising claims . these regulations may in some cases , particularly with respect to those applicable to new ingredients , require a notification that must be submitted to the fda along with evidence of safety . there are similar regulations related to food additives . impact of covid-19 the covid-19 pandemic continues to drive global uncertainty and disruption , which has created headwinds for our business . our ecommerce business continues to perform relatively well in this challenging environment . our retail business , including sales to a.s. watson group and other partners in international markets , has been more impacted by the effects of covid-19 , due to store closures and reduced operating hours . to date , we have successfully navigated the business during the covid-19 pandemic , managing our working capital effectively . we have experienced shipment delays from our suppliers ; however , we have not encountered any major disruptions in our supply chain . we have been maintaining adequate safety stocks to support our growth and we currently have adequate inventory on hand to meet our current demands . overall , we believe the supply chain disruptions due to the covid-19 pandemic will not have a material impact to our business operations . in response to the outbreak , we prioritized the health and safety of our employees by closing our offices or enhancing safety protocols in place to ensure the well-being of our employees . we have been able to successfully conduct business virtually . r esults of operations our losses per basic and diluted share were $ 0.33 and $ 0.56 for the twelve-month periods ended december 31 , 2020 and december 31 , 2019 , respectively . replace_table_token_6_th the following table sets forth the computations of loss per share amounts applicable to common stockholders for the years ended december 31 , 2020 and december 31 , 2019 . 39 replace_table_token_7_th ( 1 ) includes approximately 0.2 million shares of restricted stock for each of the years 2020 and 2019 , which are participating securities that feature voting and dividend rights . ( 2 ) excluded from the computation of loss per share as their impact is antidilutive . net sales . net sales consist of gross sales less discounts and returns . replace_table_token_8_th total net sales increased by 28 % for the twelve-month period ended december 31 , 2020 , compared to the comparable period in 2019 . ยท the company 's tru niagenยฎ sales for consumer products segment continue to increase after the company 's strategic shift towards consumer products in 2017 . ยท the increase in sales for the ingredients segment is largely due to strong demand from our niagenยฎ ingredient customers , who resell niagenยฎ under their own brands . story_separator_special_tag twelve months ending ( in thousands ) december 31 , 2020 december 31 , 2019 change general and administrative $ 30,448 $ 34,308 -11 % the following expenses contributed to the decrease in general and administrative expenses for the twelve-month period ended december 31 , 2020 , compared to the comparable period in 2019 : ยท a decrease in legal expenses . our legal expense decreased to approximately $ 8.6 million in the twelve-month period ended december 31 , 2020 compared to approximately $ 11.3 million in the comparable period in 2019 . ยท a decrease in bad debt expense . our bad debt expense decreased to an insignificant amount in the twelve-month period ended december 31 , 2020 compared to approximately $ 2.2 million in 2019. this is due to recording a write off of $ 2.2 million related to the trade receivable from elysium health in 2019 by increasing the allowance from $ 0.5 million to the entire trade receivable balance of $ 2.7 million . we placed a reserve for the entire outstanding balance as it was no longer deemed collectible . nonoperating - interest expense , net . interest expense , net consists of interest earned from bank deposit accounts less interest expenses from convertible notes , the line of credit arrangement and finance leases . twelve months ending ( in thousands ) december 31 , 2020 december 31 , 2019 change interest expense , net $ 71 $ 847 -92 % ยท in the second and third quarter of 2019 , we incurred debt issuance costs of approximately $ 0.8 million in connection with the issuance of convertible promissory notes in the aggregate principal amount of $ 10.0 million to winsave resources limited and pioneer step holdings limited . the issuance costs were recorded as a debt discount and have been amortized as interest expense using the effective interest method . 43 depreciation and amortization . for the twelve-month period ended december 31 , 2020 , we recorded approximately $ 0.9 million in depreciation compared to approximately $ 0.8 million for the twelve-month period ended december 31 , 2019. we depreciate our assets on a straight-line basis , based on the estimated useful lives of the respective assets . we amortize intangible assets using a straight-line method , generally over 10 years . for licensed patent rights , the useful lives are 10 years or the remaining term of the patents underlying licensing rights , whichever is shorter . the useful lives of subsequent milestone payments that are capitalized are the remaining useful life of the initial licensing payment that was capitalized . in the twelve-month period ended december 31 , 2020 , we recorded amortization on intangible assets of approximately $ 0.2 million compared to approximately $ 0.2 million for the twelve-month period ended december 31 , 2019. income taxes . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all of the deferred tax assets will not be realized . at december 31 , 2020 and december 31 , 2019 , the company maintained a full valuation allowance against the entire deferred income tax balance which resulted in an effective tax rate of 0 % for each of 2020 and 2019. as defined in asc 740 , income taxes , future realization of the tax benefit will depend on the existence of sufficient taxable income , including the expectation of continued future taxable income . net cash provided by ( used in ) operating activities . net cash used in operating activities for the twelve-month period ended december 31 , 2020 was approximately $ 10.6 million as compared to approximately $ 20.4 million for the twelve-month period ended december 31 , 2019. along with the net loss , an increase in trade receivables and payments on operating leases were the largest use of cash during the twelve-month period ended december 31 , 2020. net cash used in operating activities for the twelve-month period ended december 31 , 2019 largely reflects an increase in inventories along with the net loss . we expect our operating cash flows to fluctuate significantly in future periods as a result of fluctuations in our operating results , shipment timetables , accounts receivable collections , inventory management , and the timing of our payments , among other factors . net cash provided by ( used in ) investing activities . net cash used in investing activities was approximately $ 0.2 million for the twelve-month period ended december 31 , 2020 , compared to approximately $ 0.2 million for the twelve-month period ended december 31 , 2019. net cash used in investing activities for the twelve-month period ended december 31 , 2020 , mainly consisted of purchases of leasehold improvements and equipment . net cash used in investing activities for the twelve-month period ended december 31 , 2019 , mainly consisted of purchases of leasehold improvements and equipment , offset by proceeds from disposal of assets held at escrow . net cash provided by ( used in ) financing activities . net cash provided by financing activities was approximately $ 8.7 million for the twelve-month period ended december 31 , 2020 , compared to approximately $ 16.9 million for the twelve-month period ended december 31 , 2019. net cash provided by financing activities for 2020 primarily consisted of proceeds from issuance of our common stock and exercise of stock options , offset by principal payments on finance leases . net cash used in financing activities for 2019 mainly consisted of proceeds from issuances of our common stock , sale of convertible notes and exercise of stock options , offset by principal payments on finance leases . trade receivables . as of december 31 , 2020 , we had approximately $ 2.7 million in trade receivables as compared to approximately $ 2.2 million as of december 31 , 2019 . 44 inventories .
| liquidity and capital resources for the twelve-month period ended december 31 , 2020 , the company incurred losses from operations of approximately $ 19.9 million . net cash used in operating activities for the twelve-month period ended december 31 , 2020 was approximately $ 10.6 million . the losses and the uses of cash are primarily due to expenses associated with the development and expansion of our operations , as well as legal expenses . these operations have been financed through capital contributions , primarily through the issuance of common stock in private placements . our board of directors periodically reviews our capital requirements in light of our proposed business plan . our future capital requirements will remain dependent upon a variety of factors , including cash flow from operations , the ability to increase sales , increasing our gross profits from current levels , reducing sales and administrative expenses as a percentage of net sales , continued development of customer relationships , and our ability to market our new products successfully . however , based on our results from operations , we may determine that we need additional financing to implement our business plan . additional financing may come from public and private equity or debt offerings , borrowings under lines of credit or other sources . these additional funds may not be available on favorable terms , or at all . there can be no assurance we will be successful in raising these additional funds . without adequate financing we may have to further delay or terminate product or service expansion plans . any inability to raise additional financing would have a material adverse effect on us . as of december 31 , 2020 , the cash and cash equivalents totaled approximately $ 16.7 million .
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tc2 ku and lg & e constructed a 732 mw summer capacity coal-fired unit , tc2 , which is jointly owned by ku ( 60.75 % ) and lg & e ( 14.25 % ) , together with the illinois municipal electric agency and the indiana municipal power agency ( combined 25 % ) . with limited exceptions , ku and lg & e took care , custody and control of tc2 in january 2011. ku and lg & e and the construction contractor further amended the construction agreement to provide that the contractor will complete certain actions to identify and complete any necessary modifications to allow operation of tc2 on all fuels in accordance with initial specifications prior to certain dates , and amending the provisions relating to liquidated damages . a number of remaining issues regarding these matters are still under discussion with the contractor . see notes 8 and 15 to the financial statements for additional information . registered debt exchange offer by ku in april 2011 , ku filed a registration statement with the sec , related to an offer to exchange certain first mortgage bonds issued in november 2010 , in transactions not subject to registration under the securities act of 1933 , with similar but registered securities . the 2011 registration statement became effective in june 2011 , and the exchange was completed in july 2011 with substantially all of the first mortgage bonds being exchanged . see note 7 to the financial statements and ku 's 2011 registration statement for additional information . csapr in july 2011 , the epa signed the csapr , which finalizes and renames the clean air transport rule ( transport rule ) proposed in august 2010 , and made revisions to the rule on february 7 , 2012. this rule applies to the kentucky coal plants . the csapr is meant to facilitate attainment of ambient air quality standards for ozone and fine particulates by requiring reductions in sulfur dioxide and nitrogen oxide emissions . in december 2011 , the u.s. court of appeals for the district of columbia ( court ) stayed implementation of the csapr and left cair in effect pending a final resolution on the merits of the validity of the rule . oral argument on the various challenges to the csapr is scheduled for april 2012 , and a final decision on the validity of the rule could be issued as early as may 2012. with respect to ku 's kentucky coal-fired generating plants , the stay of the csapr will initially only impact the unit dispatch order . with the return of the cair and ku 's significant number of sulfur dioxide allowances , those units will be dispatched with lower operating cost , but slightly higher sulfur dioxide and nitrogen oxide emissions . however , a key component of the court 's final decision , even if the csapr is upheld , will be whether the ruling delays the implementation of the csapr by one year for both phases i and ii , or instead still requires the significant sulfur dioxide and nitrogen oxide reductions associated with phase ii to begin in 2014. ku 's csapr compliance strategy is based on over-compliance during phase i to generate allowances sufficient to cover the expected shortage during the first two years of phase ii ( 2014 and 2015 ) when additional pollution control equipment will be installed . should phase i of the csapr be shortened to one year , it will be more difficult and costly to provide enough excess allowances in one year to meet the shortage projected for 2014 and 2015. see note 15 to the financial statements for additional information on the csapr . 175 pending bluegrass cts acquisition and ngcc construction in september 2011 , ku and lg & e filed a cpcn with the kpsc requesting approval to build a 640 mw ngcc at the existing cane run plant site . in conjunction with this request and to meet new , stricter epa regulations , ku anticipates retiring three older coal-fired electric generating units . these units are located at the green river and tyrone plants , which have a combined summer rating of 234 mw . ku and lg & e also requested approval to purchase the bluegrass cts , which are expected to provide up to 495 mw of peak generation supply . ku anticipates that its share of the ngcc construction and the acquisition of the bluegrass cts could require up to $ 500 million in capital costs including related transmission projects . formal requests for recovery of the costs associated with the ngcc construction and the acquisition of the bluegrass cts were not included in the cpcn filing with the kpsc but are expected to be included in future rate proceedings . the kpsc issued an order on the procedural schedule in the cpcn filing that has discovery , scheduled through early february 2012. a kpsc order on the cpcn filing is anticipated in the second quarter of 2012. see note 8 to the financial statements for additional information . ecr filing - environmental upgrades in june 2011 , in order to achieve compliance with new and pending mandated federal epa regulations , ku filed an ecr plan with the kpsc requesting approval to install environmental upgrades for certain of its coal-fired plants along with the recovery of the expected $ 1.1 billion in associated capital costs , as well as operating expenses incurred . the ecr plan detailed upgrades that will be made to certain of ku 's coal-fired generating plants to continue to be compliant with epa regulations . in november 2011 , ku filed a unanimous settlement agreement , stipulation and recommendation with the kpsc . in december 2011 , ku received kpsc approval in its proceedings relating to the ecr plan . story_separator_special_tag ( b ) in april 2011 , ku entered into a new $ 198 million letter of credit facility that has been used to issue letters of credit to support outstanding tax-exempt bonds . ku pays customary commitment and letter of credit fees under the new facility . the facility matures in april 2014. in august 2011 , ku amended its letter of credit facility such that the fees depend upon ku 's senior secured long-term debt rating rather than the senior unsecured debt rating . ( c ) in october 2011 , ku amended its syndicated credit facility . the amendment included extending the expiration date from december 2014 to october 2016. under this facility ku continues to have the ability to make cash borrowings and to request the lenders to issue letters of credit . the commitments under ku 's credit facilities are provided by a diverse bank group , with no one bank and its affiliates providing an aggregate commitment of more than 19 % of the total committed capacity available to ku . ku participates in an intercompany money pool agreement whereby lke and or lg & e make available to ku funds up to $ 500 million at an interest rate based on a market index of commercial paper issues . at december 31 , 2011 , there was no balance outstanding . at december 31 , 2010 , $ 10 million was outstanding . the interest rate for the period ended december 31 , 2010 was 0.25 % . see note 7 to the financial statements for further discussion of ku 's credit facilities . operating leases ku also has available funding sources that are provided through operating leases . ku leases office space and certain equipment . these leasing structures provide ku additional operating and financing flexibility . the operating leases contain covenants that are typical for these agreements , such as maintaining insurance , maintaining corporate existence and timely payment of rent and other fees . see note 11 to the financial statements for further discussion of the operating leases . forecasted uses of cash in addition to expenditures required for normal operating activities , such as purchased power , payroll , fuel and taxes , ku currently expects to incur future cash outflows for capital expenditures , various contractual obligations , payment of dividends on its common securities and possibly the purchase or redemption of a portion of debt securities . 183 capital expenditures the table below shows ku 's current capital expenditure projections for the years 2012 through 2016. replace_table_token_145_th ( a ) construction expenditures include afudc , which is not expected to be significant for the years 2012 through 2016 . ( b ) includes approximately $ 500 million of currently estimable costs related to replacement generation units due to epa regulations not recoverable through the ecr mechanism . ku expects to recover these costs over a period equivalent to the related depreciable lives of the assets through future rate proceedings . ( c ) includes approximately $ 30 million of currently estimable transmission costs related to replacement generation units . ku expects to recover these costs over a period equivalent to the related depreciable lives of the assets through future rate proceedings . ku 's capital expenditure projections for the years 2012 through 2016 total approximately $ 3.1 billion . capital expenditure plans are revised periodically to reflect changes in operational , market and regulatory conditions . this table includes current estimates for ku 's environmental projects related to new and anticipated epa compliance standards . actual costs may be significantly lower or higher depending on the final requirements and market conditions . certain environmental compliance costs incurred by ku in serving kpsc jurisdictional customers are generally eligible for recovery through the ecr mechanism . ku plans to fund its capital expenditures in 2012 with cash on hand , cash from operations and short-term debt . contractual obligations ku has assumed various financial obligations and commitments in the ordinary course of conducting its business . at december 31 , 2011 , the estimated contractual cash obligations of ku were : replace_table_token_146_th ( a ) reflects principal maturities only based on stated maturity dates . see note 7 to the financial statements for a discussion of variable-rate remarketable bonds issued on behalf of ku . ku does not have any significant capital lease obligations . ( b ) assumes interest payments through stated maturity . the payments herein are subject to change , as payments for debt that is or becomes variable-rate debt have been estimated . ( c ) see note 11 to the financial statements for additional information . ( d ) represents contracts to purchase coal , natural gas and natural gas transportation . see note 15 to the financial statements for additional information . ( e ) represents future minimum payments under ovec power purchase agreements through june 2040. see note 15 to the financial statements for additional information . ( f ) represents construction commitments , including commitments for the ghent landfill and brown scr construction including associated material transport systems for coal combustion residuals , which are also reflected in the capital expenditures table presented above . ( g ) based on the current funded status of lke 's qualified pension plan , which covers ku employees , no cash contributions are required . see note 13 to the financial statements for a discussion of expected contributions . ( h ) represents other contractual obligations . purchase orders made in the ordinary course of business are excluded from the amounts presented . dividends from time to time , as determined by its board of directors , ku pays dividends to its sole shareholder , lke . 184 as discussed in note 7 to the financial statements , ku 's ability to pay dividends is limited under a covenant in its $ 400 million revolving line of credit facility . this covenant restricts the
| liquidity and capital resources for the twelve-month period ended december 31 , 2020 , the company incurred losses from operations of approximately $ 19.9 million . net cash used in operating activities for the twelve-month period ended december 31 , 2020 was approximately $ 10.6 million . the losses and the uses of cash are primarily due to expenses associated with the development and expansion of our operations , as well as legal expenses . these operations have been financed through capital contributions , primarily through the issuance of common stock in private placements . our board of directors periodically reviews our capital requirements in light of our proposed business plan . our future capital requirements will remain dependent upon a variety of factors , including cash flow from operations , the ability to increase sales , increasing our gross profits from current levels , reducing sales and administrative expenses as a percentage of net sales , continued development of customer relationships , and our ability to market our new products successfully . however , based on our results from operations , we may determine that we need additional financing to implement our business plan . additional financing may come from public and private equity or debt offerings , borrowings under lines of credit or other sources . these additional funds may not be available on favorable terms , or at all . there can be no assurance we will be successful in raising these additional funds . without adequate financing we may have to further delay or terminate product or service expansion plans . any inability to raise additional financing would have a material adverse effect on us . as of december 31 , 2020 , the cash and cash equivalents totaled approximately $ 16.7 million .
| 0 |
tc2 ku and lg & e constructed a 732 mw summer capacity coal-fired unit , tc2 , which is jointly owned by ku ( 60.75 % ) and lg & e ( 14.25 % ) , together with the illinois municipal electric agency and the indiana municipal power agency ( combined 25 % ) . with limited exceptions , ku and lg & e took care , custody and control of tc2 in january 2011. ku and lg & e and the construction contractor further amended the construction agreement to provide that the contractor will complete certain actions to identify and complete any necessary modifications to allow operation of tc2 on all fuels in accordance with initial specifications prior to certain dates , and amending the provisions relating to liquidated damages . a number of remaining issues regarding these matters are still under discussion with the contractor . see notes 8 and 15 to the financial statements for additional information . registered debt exchange offer by ku in april 2011 , ku filed a registration statement with the sec , related to an offer to exchange certain first mortgage bonds issued in november 2010 , in transactions not subject to registration under the securities act of 1933 , with similar but registered securities . the 2011 registration statement became effective in june 2011 , and the exchange was completed in july 2011 with substantially all of the first mortgage bonds being exchanged . see note 7 to the financial statements and ku 's 2011 registration statement for additional information . csapr in july 2011 , the epa signed the csapr , which finalizes and renames the clean air transport rule ( transport rule ) proposed in august 2010 , and made revisions to the rule on february 7 , 2012. this rule applies to the kentucky coal plants . the csapr is meant to facilitate attainment of ambient air quality standards for ozone and fine particulates by requiring reductions in sulfur dioxide and nitrogen oxide emissions . in december 2011 , the u.s. court of appeals for the district of columbia ( court ) stayed implementation of the csapr and left cair in effect pending a final resolution on the merits of the validity of the rule . oral argument on the various challenges to the csapr is scheduled for april 2012 , and a final decision on the validity of the rule could be issued as early as may 2012. with respect to ku 's kentucky coal-fired generating plants , the stay of the csapr will initially only impact the unit dispatch order . with the return of the cair and ku 's significant number of sulfur dioxide allowances , those units will be dispatched with lower operating cost , but slightly higher sulfur dioxide and nitrogen oxide emissions . however , a key component of the court 's final decision , even if the csapr is upheld , will be whether the ruling delays the implementation of the csapr by one year for both phases i and ii , or instead still requires the significant sulfur dioxide and nitrogen oxide reductions associated with phase ii to begin in 2014. ku 's csapr compliance strategy is based on over-compliance during phase i to generate allowances sufficient to cover the expected shortage during the first two years of phase ii ( 2014 and 2015 ) when additional pollution control equipment will be installed . should phase i of the csapr be shortened to one year , it will be more difficult and costly to provide enough excess allowances in one year to meet the shortage projected for 2014 and 2015. see note 15 to the financial statements for additional information on the csapr . 175 pending bluegrass cts acquisition and ngcc construction in september 2011 , ku and lg & e filed a cpcn with the kpsc requesting approval to build a 640 mw ngcc at the existing cane run plant site . in conjunction with this request and to meet new , stricter epa regulations , ku anticipates retiring three older coal-fired electric generating units . these units are located at the green river and tyrone plants , which have a combined summer rating of 234 mw . ku and lg & e also requested approval to purchase the bluegrass cts , which are expected to provide up to 495 mw of peak generation supply . ku anticipates that its share of the ngcc construction and the acquisition of the bluegrass cts could require up to $ 500 million in capital costs including related transmission projects . formal requests for recovery of the costs associated with the ngcc construction and the acquisition of the bluegrass cts were not included in the cpcn filing with the kpsc but are expected to be included in future rate proceedings . the kpsc issued an order on the procedural schedule in the cpcn filing that has discovery , scheduled through early february 2012. a kpsc order on the cpcn filing is anticipated in the second quarter of 2012. see note 8 to the financial statements for additional information . ecr filing - environmental upgrades in june 2011 , in order to achieve compliance with new and pending mandated federal epa regulations , ku filed an ecr plan with the kpsc requesting approval to install environmental upgrades for certain of its coal-fired plants along with the recovery of the expected $ 1.1 billion in associated capital costs , as well as operating expenses incurred . the ecr plan detailed upgrades that will be made to certain of ku 's coal-fired generating plants to continue to be compliant with epa regulations . in november 2011 , ku filed a unanimous settlement agreement , stipulation and recommendation with the kpsc . in december 2011 , ku received kpsc approval in its proceedings relating to the ecr plan . story_separator_special_tag ( b ) in april 2011 , ku entered into a new $ 198 million letter of credit facility that has been used to issue letters of credit to support outstanding tax-exempt bonds . ku pays customary commitment and letter of credit fees under the new facility . the facility matures in april 2014. in august 2011 , ku amended its letter of credit facility such that the fees depend upon ku 's senior secured long-term debt rating rather than the senior unsecured debt rating . ( c ) in october 2011 , ku amended its syndicated credit facility . the amendment included extending the expiration date from december 2014 to october 2016. under this facility ku continues to have the ability to make cash borrowings and to request the lenders to issue letters of credit . the commitments under ku 's credit facilities are provided by a diverse bank group , with no one bank and its affiliates providing an aggregate commitment of more than 19 % of the total committed capacity available to ku . ku participates in an intercompany money pool agreement whereby lke and or lg & e make available to ku funds up to $ 500 million at an interest rate based on a market index of commercial paper issues . at december 31 , 2011 , there was no balance outstanding . at december 31 , 2010 , $ 10 million was outstanding . the interest rate for the period ended december 31 , 2010 was 0.25 % . see note 7 to the financial statements for further discussion of ku 's credit facilities . operating leases ku also has available funding sources that are provided through operating leases . ku leases office space and certain equipment . these leasing structures provide ku additional operating and financing flexibility . the operating leases contain covenants that are typical for these agreements , such as maintaining insurance , maintaining corporate existence and timely payment of rent and other fees . see note 11 to the financial statements for further discussion of the operating leases . forecasted uses of cash in addition to expenditures required for normal operating activities , such as purchased power , payroll , fuel and taxes , ku currently expects to incur future cash outflows for capital expenditures , various contractual obligations , payment of dividends on its common securities and possibly the purchase or redemption of a portion of debt securities . 183 capital expenditures the table below shows ku 's current capital expenditure projections for the years 2012 through 2016. replace_table_token_145_th ( a ) construction expenditures include afudc , which is not expected to be significant for the years 2012 through 2016 . ( b ) includes approximately $ 500 million of currently estimable costs related to replacement generation units due to epa regulations not recoverable through the ecr mechanism . ku expects to recover these costs over a period equivalent to the related depreciable lives of the assets through future rate proceedings . ( c ) includes approximately $ 30 million of currently estimable transmission costs related to replacement generation units . ku expects to recover these costs over a period equivalent to the related depreciable lives of the assets through future rate proceedings . ku 's capital expenditure projections for the years 2012 through 2016 total approximately $ 3.1 billion . capital expenditure plans are revised periodically to reflect changes in operational , market and regulatory conditions . this table includes current estimates for ku 's environmental projects related to new and anticipated epa compliance standards . actual costs may be significantly lower or higher depending on the final requirements and market conditions . certain environmental compliance costs incurred by ku in serving kpsc jurisdictional customers are generally eligible for recovery through the ecr mechanism . ku plans to fund its capital expenditures in 2012 with cash on hand , cash from operations and short-term debt . contractual obligations ku has assumed various financial obligations and commitments in the ordinary course of conducting its business . at december 31 , 2011 , the estimated contractual cash obligations of ku were : replace_table_token_146_th ( a ) reflects principal maturities only based on stated maturity dates . see note 7 to the financial statements for a discussion of variable-rate remarketable bonds issued on behalf of ku . ku does not have any significant capital lease obligations . ( b ) assumes interest payments through stated maturity . the payments herein are subject to change , as payments for debt that is or becomes variable-rate debt have been estimated . ( c ) see note 11 to the financial statements for additional information . ( d ) represents contracts to purchase coal , natural gas and natural gas transportation . see note 15 to the financial statements for additional information . ( e ) represents future minimum payments under ovec power purchase agreements through june 2040. see note 15 to the financial statements for additional information . ( f ) represents construction commitments , including commitments for the ghent landfill and brown scr construction including associated material transport systems for coal combustion residuals , which are also reflected in the capital expenditures table presented above . ( g ) based on the current funded status of lke 's qualified pension plan , which covers ku employees , no cash contributions are required . see note 13 to the financial statements for a discussion of expected contributions . ( h ) represents other contractual obligations . purchase orders made in the ordinary course of business are excluded from the amounts presented . dividends from time to time , as determined by its board of directors , ku pays dividends to its sole shareholder , lke . 184 as discussed in note 7 to the financial statements , ku 's ability to pay dividends is limited under a covenant in its $ 400 million revolving line of credit facility . this covenant restricts the
| liquidity and capital resources ku expects to continue to have adequate liquidity available through operating cash flows , cash and cash equivalents and its credit facilities . ku currently has no plans to access capital markets in 2012. ku 's cash flows from operations and access to cost-effective bank and capital markets are subject to risks and uncertainties including , but not limited to : ยท changes in market prices for electricity ; ยท changes in commodity prices that may increase the cost of producing power or decrease the amount ku receives from selling power ; ยท operational and credit risks associated with selling and marketing products in the wholesale power markets ; ยท unusual or extreme weather that may damage ku 's transmission and distribution facilities or affect energy sales to customers ; ยท reliance on transmission and distribution facilities that ku does not own or control to deliver its electricity and natural gas ; ยท unavailability of generating units ( due to unscheduled or longer-than-anticipated generation outages , weather and natural disasters ) and the resulting loss of revenues and additional costs of replacement electricity ; ยท the ability to recover and the timeliness and adequacy of recovery of costs associated with regulated utility businesses ; ยท costs of compliance with existing and new environmental laws ; ยท any adverse outcome of legal proceedings and investigations with respect to ku 's current and past business activities ; ยท deterioration in the financial markets that could make obtaining new sources ofbank and capital markets funding more difficult and more costly ; and ยท a downgrade in ku 's credit ratings that could adversely affect its ability to access capital and increase the cost of credit facilities and any new debt .
| 1 |
in addition , total nonperforming assets ( consisting of nonperforming loans and foreclosed real estate ) decreased $ 1.8 million from $ 9.5 million , or 1.32 % of total assets , at december 31 , 2015 to $ 7.7 million , or 1.04 % of total assets , at december 31 , 2016. management has worked diligently throughout 2016 to address nonperforming assets acquired from peoples . the allowance for loan losses was 0.84 % of total loans and 112.0 % of nonperforming loans at december 31 , 2016 compared to 0.93 % of total loans and 74.6 % of nonperforming loans at december 31 , 2015 . ยท shareholder return โ total shareholder return , including the increase in the company 's stock price from $ 26.10 at december 31 , 2015 to $ 32.42 at december 31 , 2016 and dividends of $ 0.84 per share , was 27.4 % for 2016 compared to 10.7 % for 2015. management 's discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the company and the bank . the information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes to consolidated financial statements included elsewhere in this report . 43 operating strategy the company is the parent company of an independent community-oriented financial institution that delivers quality customer service and offers a wide range of deposit , loan and investment products to its customers . the commitment to customer needs , the focus on providing consistent customer service , and community service and support are the keys to the bank 's past and future success . the company has no other material income other than that generated by the bank and its subsidiaries . the bank 's primary business strategy is attracting deposits from the general public and using those funds to originate residential mortgage loans , multi-family residential loans , commercial real estate and business loans and consumer loans . the bank invests excess liquidity primarily in interest-bearing deposits with the fhlb and other financial institutions , federal funds sold , u.s. government and agency securities , local municipal obligations and mortgage-backed securities . in recent years , the company 's operating strategy has also included strategies designed to enhance profitability by increasing sources of noninterest income and improving operating efficiency while managing its capital and limiting its credit risk and interest rate risk exposures . to accomplish these objectives , the company has focused on the following : ยท monitoring asset quality and credit risk in the loan and investment portfolios , with an emphasis on reducing nonperforming assets and originating high-quality commercial and consumer loans . as noted above , nonperforming assets acquired with peoples decreased from $ 6.3 million at december 31 , 2015 to $ 5.4 million at december 31 , 2016. a key focus of management in 2017 will be the continued reduction of nonperforming assets through improved collection efforts and underwriting on nonperforming loans and the sale of foreclosed real estate properties . ยท being active in the local community , particularly through our efforts with local schools , to uphold our high standing in our community and marketing to our next generation of customers . ยท improving profitability by expanding our product offerings to customers and investing in technology to increase the productivity and efficiency of our staff . ยท continuing to emphasize commercial real estate and other commercial business lending as well as consumer lending . the bank will also continue to focus on increasing secondary market lending as a source of noninterest income . with our integration of peoples now complete , management intends to continue to focus on growth in the loan portfolio as well as the implementation of a secondary market lending program in the bullitt county , kentucky market . ยท growing commercial and personal demand deposit accounts which provide a low-cost funding source . ยท evaluating vendor contracts for potential cost savings and efficiencies . ยท continuing our capital management strategy to enhance shareholder value through the repurchase of company stock and the payment of dividends . ยท evaluating growth opportunities to expand the bank 's market area and market share through acquisitions of other financial institutions or branches of other institutions . the acquisition of peoples in december 2015 expanded our market area into bullitt county , kentucky , where peoples was the leader in deposit account market share among fdic-insured institutions . we also expect to open our new river ridge office in clark county , indiana in april 2017. our focus in 2017 will be to continue the enhancement and expansion of our customer relationships in these new markets . ยท ensuring that the company attracts and retains talented personnel and that an optimal level of performance and customer service is promoted at all levels of the company . 44 critical accounting policies and estimates the accounting and reporting policies of the company comply with u.s. gaap and conform to general practices within the banking industry . the preparation of financial statements in conformity with u.s. gaap requires management to make estimates and assumptions . the financial position and results of operations can be affected by these estimates and assumptions , which are integral to understanding reported results . critical accounting policies are those policies that require management to make assumptions about matters that are highly uncertain at the time an accounting estimate is made ; and different estimates that the company reasonably could have 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 company 's financial condition , changes in financial condition or results of operations . story_separator_special_tag this amount includes the contingent assets identified in note 2 in the accompanying notes to consolidated financial statements , which is incorporated herein by reference , for the potential impact the sale of this property ( referred to as the โ contingent assets โ in the note ) could have on the total cash consideration paid as part of the peoples acquisition . total deposits increased $ 27.5 million from $ 637.2 million at december 31 , 2015 to $ 664.7 million at december 31 , 2016. during 2016 , savings and interest-bearing demand deposit accounts increased $ 14.4 million and $ 28.0 million , respectively , while noninterest-bearing demand deposits and time deposits decreased $ 3.8 million and $ 11.7 million , respectively . this continues a trend of decreasing certificate of deposit balances as some customers are unwilling to lock into long-term commitments while interest rates remain at their current low levels . deposits attributable to the peoples locations increased from $ 221.0 million at december 31 , 2015 to $ 225.1 million at december 31 , 2016 , as the bank has been able to retain , and in some cases increase , the peoples deposit base . 49 total stockholders ' equity attributable to the company increased $ 1.3 million from $ 74.4 million at december 31 , 2015 to $ 75.7 million at december 31 , 2016. this increase is primarily the result of retained net income of $ 4.1 million partially offset by a net unrealized loss on available for sale securities of $ 2.8 million due to changes in the yield curve and long-term rate forecasts . as of december 31 , 2016 , the company had repurchased 96,847 shares of the 240,467 shares authorized by the board of directors under the current stock repurchase program which was announced in august 2008 and 425,381 shares since the original repurchase program began in 2001. off-balance-sheet arrangements the company is a party to financial instruments with off-balance-sheet risk including commitments to extend credit under existing lines of credit and commitments to originate loans . these instruments involve , to varying degrees , elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements . off-balance-sheet financial instruments whose contract amounts represent credit and interest rate risk are summarized as follows : replace_table_token_22_th the company does not have any special purpose entities , derivative financial instruments or other forms of off-balance-sheet financing arrangements . commitments to originate new loans or to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract . most equity line commitments are for a term of five to 10 years and commercial lines of credit are generally renewable on an annual basis . commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee . since many of the commitments are expected to expire without being drawn upon , the total commitment amounts do not necessarily represent future cash requirements . the company evaluates each customer 's creditworthiness on a case-by-case basis . the amounts of collateral obtained , if deemed necessary by the company upon extension of credit , are based on management 's credit evaluation of the borrower . contractual obligations the following table summarizes information regarding the company 's contractual obligations as of december 31 , 2016 : replace_table_token_23_th 50 story_separator_special_tag over a one-year horizon . the model assumes a semi-static balance sheet and measures the impact on net interest income relative to a base case scenario of hypothetical changes in interest rates over twelve months and provides no effect given to any steps that management might take to counter the effect of the interest rate movements . the scenarios include prepayment assumptions , changes in the level of interest rates , the shape of the yield curve , and spreads between market interest rates in order to capture the impact from re-pricing , yield curve , option , and basis risks . results of the company 's simulation modeling , which assumes an immediate and sustained parallel shift in market interest rates , project that the company 's net interest income could change as follows over a one-year horizon , relative to our base case scenario , based on december 31 , 2016 and 2015 financial information . replace_table_token_24_th 52 at december 31 , 2016 , the company 's simulated exposure to an increase in interest rates shows that an immediate and sustained increase in rates of 1.00 % would increase the company 's net interest income by $ 736,000 , or 3.00 % , over a one year horizon compared to a flat interest rate scenario . furthermore , a rate increase of 2.00 % or 3.00 % would cause net interest income to increase by 6.05 % and 14.14 % , respectively . alternatively , an immediate and sustained decrease in rates of 1.00 % would decrease the company 's net interest income by 4.61 % over a one year horizon compared to a flat interest rate scenario . the company also has longer term interest rate risk exposure , which may not be appropriately measured by net interest income at risk modeling . therefore , the company also uses an economic value of equity ( โ eve โ ) interest rate sensitivity analysis in order to evaluate the impact of its interest rate risk on earnings and capital . this is measured by computing the changes in net eve for its cash flows from assets , liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates . eve modeling involves discounting present values of all cash flows for on and off balance sheet items under different interest rate scenarios and provides no effect given to any steps that management might take to counter the effect of the interest rate movements
| liquidity and capital resources ku expects to continue to have adequate liquidity available through operating cash flows , cash and cash equivalents and its credit facilities . ku currently has no plans to access capital markets in 2012. ku 's cash flows from operations and access to cost-effective bank and capital markets are subject to risks and uncertainties including , but not limited to : ยท changes in market prices for electricity ; ยท changes in commodity prices that may increase the cost of producing power or decrease the amount ku receives from selling power ; ยท operational and credit risks associated with selling and marketing products in the wholesale power markets ; ยท unusual or extreme weather that may damage ku 's transmission and distribution facilities or affect energy sales to customers ; ยท reliance on transmission and distribution facilities that ku does not own or control to deliver its electricity and natural gas ; ยท unavailability of generating units ( due to unscheduled or longer-than-anticipated generation outages , weather and natural disasters ) and the resulting loss of revenues and additional costs of replacement electricity ; ยท the ability to recover and the timeliness and adequacy of recovery of costs associated with regulated utility businesses ; ยท costs of compliance with existing and new environmental laws ; ยท any adverse outcome of legal proceedings and investigations with respect to ku 's current and past business activities ; ยท deterioration in the financial markets that could make obtaining new sources ofbank and capital markets funding more difficult and more costly ; and ยท a downgrade in ku 's credit ratings that could adversely affect its ability to access capital and increase the cost of credit facilities and any new debt .
| 0 |
in addition , total nonperforming assets ( consisting of nonperforming loans and foreclosed real estate ) decreased $ 1.8 million from $ 9.5 million , or 1.32 % of total assets , at december 31 , 2015 to $ 7.7 million , or 1.04 % of total assets , at december 31 , 2016. management has worked diligently throughout 2016 to address nonperforming assets acquired from peoples . the allowance for loan losses was 0.84 % of total loans and 112.0 % of nonperforming loans at december 31 , 2016 compared to 0.93 % of total loans and 74.6 % of nonperforming loans at december 31 , 2015 . ยท shareholder return โ total shareholder return , including the increase in the company 's stock price from $ 26.10 at december 31 , 2015 to $ 32.42 at december 31 , 2016 and dividends of $ 0.84 per share , was 27.4 % for 2016 compared to 10.7 % for 2015. management 's discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the company and the bank . the information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes to consolidated financial statements included elsewhere in this report . 43 operating strategy the company is the parent company of an independent community-oriented financial institution that delivers quality customer service and offers a wide range of deposit , loan and investment products to its customers . the commitment to customer needs , the focus on providing consistent customer service , and community service and support are the keys to the bank 's past and future success . the company has no other material income other than that generated by the bank and its subsidiaries . the bank 's primary business strategy is attracting deposits from the general public and using those funds to originate residential mortgage loans , multi-family residential loans , commercial real estate and business loans and consumer loans . the bank invests excess liquidity primarily in interest-bearing deposits with the fhlb and other financial institutions , federal funds sold , u.s. government and agency securities , local municipal obligations and mortgage-backed securities . in recent years , the company 's operating strategy has also included strategies designed to enhance profitability by increasing sources of noninterest income and improving operating efficiency while managing its capital and limiting its credit risk and interest rate risk exposures . to accomplish these objectives , the company has focused on the following : ยท monitoring asset quality and credit risk in the loan and investment portfolios , with an emphasis on reducing nonperforming assets and originating high-quality commercial and consumer loans . as noted above , nonperforming assets acquired with peoples decreased from $ 6.3 million at december 31 , 2015 to $ 5.4 million at december 31 , 2016. a key focus of management in 2017 will be the continued reduction of nonperforming assets through improved collection efforts and underwriting on nonperforming loans and the sale of foreclosed real estate properties . ยท being active in the local community , particularly through our efforts with local schools , to uphold our high standing in our community and marketing to our next generation of customers . ยท improving profitability by expanding our product offerings to customers and investing in technology to increase the productivity and efficiency of our staff . ยท continuing to emphasize commercial real estate and other commercial business lending as well as consumer lending . the bank will also continue to focus on increasing secondary market lending as a source of noninterest income . with our integration of peoples now complete , management intends to continue to focus on growth in the loan portfolio as well as the implementation of a secondary market lending program in the bullitt county , kentucky market . ยท growing commercial and personal demand deposit accounts which provide a low-cost funding source . ยท evaluating vendor contracts for potential cost savings and efficiencies . ยท continuing our capital management strategy to enhance shareholder value through the repurchase of company stock and the payment of dividends . ยท evaluating growth opportunities to expand the bank 's market area and market share through acquisitions of other financial institutions or branches of other institutions . the acquisition of peoples in december 2015 expanded our market area into bullitt county , kentucky , where peoples was the leader in deposit account market share among fdic-insured institutions . we also expect to open our new river ridge office in clark county , indiana in april 2017. our focus in 2017 will be to continue the enhancement and expansion of our customer relationships in these new markets . ยท ensuring that the company attracts and retains talented personnel and that an optimal level of performance and customer service is promoted at all levels of the company . 44 critical accounting policies and estimates the accounting and reporting policies of the company comply with u.s. gaap and conform to general practices within the banking industry . the preparation of financial statements in conformity with u.s. gaap requires management to make estimates and assumptions . the financial position and results of operations can be affected by these estimates and assumptions , which are integral to understanding reported results . critical accounting policies are those policies that require management to make assumptions about matters that are highly uncertain at the time an accounting estimate is made ; and different estimates that the company reasonably could have 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 company 's financial condition , changes in financial condition or results of operations . story_separator_special_tag this amount includes the contingent assets identified in note 2 in the accompanying notes to consolidated financial statements , which is incorporated herein by reference , for the potential impact the sale of this property ( referred to as the โ contingent assets โ in the note ) could have on the total cash consideration paid as part of the peoples acquisition . total deposits increased $ 27.5 million from $ 637.2 million at december 31 , 2015 to $ 664.7 million at december 31 , 2016. during 2016 , savings and interest-bearing demand deposit accounts increased $ 14.4 million and $ 28.0 million , respectively , while noninterest-bearing demand deposits and time deposits decreased $ 3.8 million and $ 11.7 million , respectively . this continues a trend of decreasing certificate of deposit balances as some customers are unwilling to lock into long-term commitments while interest rates remain at their current low levels . deposits attributable to the peoples locations increased from $ 221.0 million at december 31 , 2015 to $ 225.1 million at december 31 , 2016 , as the bank has been able to retain , and in some cases increase , the peoples deposit base . 49 total stockholders ' equity attributable to the company increased $ 1.3 million from $ 74.4 million at december 31 , 2015 to $ 75.7 million at december 31 , 2016. this increase is primarily the result of retained net income of $ 4.1 million partially offset by a net unrealized loss on available for sale securities of $ 2.8 million due to changes in the yield curve and long-term rate forecasts . as of december 31 , 2016 , the company had repurchased 96,847 shares of the 240,467 shares authorized by the board of directors under the current stock repurchase program which was announced in august 2008 and 425,381 shares since the original repurchase program began in 2001. off-balance-sheet arrangements the company is a party to financial instruments with off-balance-sheet risk including commitments to extend credit under existing lines of credit and commitments to originate loans . these instruments involve , to varying degrees , elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements . off-balance-sheet financial instruments whose contract amounts represent credit and interest rate risk are summarized as follows : replace_table_token_22_th the company does not have any special purpose entities , derivative financial instruments or other forms of off-balance-sheet financing arrangements . commitments to originate new loans or to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract . most equity line commitments are for a term of five to 10 years and commercial lines of credit are generally renewable on an annual basis . commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee . since many of the commitments are expected to expire without being drawn upon , the total commitment amounts do not necessarily represent future cash requirements . the company evaluates each customer 's creditworthiness on a case-by-case basis . the amounts of collateral obtained , if deemed necessary by the company upon extension of credit , are based on management 's credit evaluation of the borrower . contractual obligations the following table summarizes information regarding the company 's contractual obligations as of december 31 , 2016 : replace_table_token_23_th 50 story_separator_special_tag over a one-year horizon . the model assumes a semi-static balance sheet and measures the impact on net interest income relative to a base case scenario of hypothetical changes in interest rates over twelve months and provides no effect given to any steps that management might take to counter the effect of the interest rate movements . the scenarios include prepayment assumptions , changes in the level of interest rates , the shape of the yield curve , and spreads between market interest rates in order to capture the impact from re-pricing , yield curve , option , and basis risks . results of the company 's simulation modeling , which assumes an immediate and sustained parallel shift in market interest rates , project that the company 's net interest income could change as follows over a one-year horizon , relative to our base case scenario , based on december 31 , 2016 and 2015 financial information . replace_table_token_24_th 52 at december 31 , 2016 , the company 's simulated exposure to an increase in interest rates shows that an immediate and sustained increase in rates of 1.00 % would increase the company 's net interest income by $ 736,000 , or 3.00 % , over a one year horizon compared to a flat interest rate scenario . furthermore , a rate increase of 2.00 % or 3.00 % would cause net interest income to increase by 6.05 % and 14.14 % , respectively . alternatively , an immediate and sustained decrease in rates of 1.00 % would decrease the company 's net interest income by 4.61 % over a one year horizon compared to a flat interest rate scenario . the company also has longer term interest rate risk exposure , which may not be appropriately measured by net interest income at risk modeling . therefore , the company also uses an economic value of equity ( โ eve โ ) interest rate sensitivity analysis in order to evaluate the impact of its interest rate risk on earnings and capital . this is measured by computing the changes in net eve for its cash flows from assets , liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates . eve modeling involves discounting present values of all cash flows for on and off balance sheet items under different interest rate scenarios and provides no effect given to any steps that management might take to counter the effect of the interest rate movements
| liquidity and capital resources liquidity refers to the ability of a financial institution to generate sufficient cash flow to fund current loan demand , meet deposit withdrawals and pay operating expenses . the bank 's primary sources of funds are new deposits , proceeds from loan repayments and prepayments and proceeds from the maturity of securities . the bank may also borrow from the fhlb . while loan repayments and maturities of securities are predictable sources of funds , deposit flows and mortgage prepayments are greatly influenced by market interest rates , general economic conditions and competition . at december 31 , 2016 , the bank had cash and interest-bearing deposits with banks ( including interest-bearing time deposits ) of $ 60.6 million and securities available for sale with a fair value of $ 255.8 million . if the bank requires funds beyond its ability to generate them internally , it has additional borrowing capacity with the fhlb , collateral eligible for repurchase agreements and an unsecured federal funds purchased line of credit with another financial institution . the bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals , to satisfy financial commitments and to take advantage of investment opportunities . at december 31 , 2016 , the bank had total commitments to extend credit of $ 106.6 million . see note 17 in the accompanying notes to consolidated financial statements , which are incorporated herein by reference . at december 31 , 2016 , the bank had certificates of deposit scheduled to mature within one year of $ 49.2 million . historically , the bank has been able to retain a significant amount of its deposits as they mature . the company is a separate legal entity from the bank and must provide for its own liquidity . in addition to its operating expenses , the company requires funds to pay any dividends to its shareholders and to repurchase any shares of its common stock . the company 's primary source of income is dividends received from the bank and the captive .
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impact of acquisitions in order to provide a more meaningful period-over-period discussion of our operating results , we may discuss amounts generated or incurred ( revenues , gross profit , selling , general and administrative expenses and operating income ) from companies acquired . the amounts discussed reflect the acquired companies ' operating results in the current reported period only for the time period these entities were not owned by emcor in the comparable prior reported period . 21 2017 versus 2016 overview the following table presents selected financial data for the fiscal years ended december 31 , 2017 and 2016 ( in thousands , except percentages and per share data ) : replace_table_token_6_th the results of our operations for 2017 set new company records in terms of revenues , operating income , net income attributable to emcor group , inc. and diluted earnings per common share from continuing operations , despite the challenges faced by our united states industrial services segment during 2017. the increase in revenues for 2017 was primarily attributable to incremental revenues of $ 192.4 million generated by companies acquired in 2017 and 2016 , which are reported in our united states electrical construction and facilities services segment , our united states mechanical construction and facilities services segment and our united states building services segment . excluding the effect of these acquisitions , revenues for 2017 decreased due to lower revenues from : ( a ) our united states industrial services segment , due to : ( i ) a decrease in large project activity from our specialty services offerings within our field services operations , ( ii ) the negative impact of hurricane harvey , which resulted in the deferral of , and may lead to the potential cancellation of , previously scheduled turnaround projects , and ( iii ) our industrial shop services operations and ( b ) our united states building services segment , primarily attributable to : ( i ) the loss of certain contracts not renewed pursuant to rebid within our commercial and government site-based services operations and ( ii ) a reduction in large project activity within their energy services operations . these decreases in revenues were partially offset by by an increase in revenues from both of our domestic construction segments and our united kingdom building services segment . despite a recent increase in crude oil prices , we continue to experience a decrease in demand for new heat exchangers due to a prolonged curtailment in capital spending from customers within our united states industrial services segment . in addition , adverse market conditions and an increasingly competitive business environment within both our shop services operations and our field services operations have resulted in a decrease in our billing rates and related gross profit margins . consequently , we have tempered our expectations regarding the strength of a near-term recovery within the united states industrial services segment and recorded a non-cash goodwill impairment charge of $ 57.5 million during the fourth quarter of 2017. operating income and operating margin ( operating income as a percentage of revenues ) increased within all of our reportable segments , except for our united states industrial services segment . the overall increase in operating income and operating margin was mainly attributable to the results of our domestic construction segments , which were favorably impacted by an increase in gross profit within the majority of the market sectors in which we operate . in addition , our 2016 operating results were negatively impacted by : ( a ) $ 27.9 million of aggregate losses incurred on two construction projects reported within our united states mechanical construction and facilities services segment and ( b ) $ 19.4 million of losses incurred on a transportation construction project in the northeastern region of the united states reported within our united states electrical construction and facilities services segment . companies acquired in 2017 and 2016 contributed incremental operating income of $ 3.5 million , inclusive of $ 10.7 million of amortization expense associated with identifiable intangible assets . we acquired three companies during 2017. one company provides fire protection and alarm services primarily in the southern region of the united states . the second company provides millwright services for manufacturing companies throughout the united states . both of their results have been included in our united states mechanical construction and facilities services segment . the third company provides mobile mechanical services within the western region of the united states , and its results have been included in our united states building services segment . we completed the acquisition of ardent services , l.l.c . and rabalais constructors , llc ( collectively , โ ardent โ ) during 2016. this acquisition has been included in our united states electrical construction and facilities services segment . ardent provides 22 electrical and instrumentation services to the energy infrastructure market in north america , and this acquisition further strengthens our position in electrical construction and services and broadens our capabilities across the industrial and energy sectors , especially in the gulf coast , midwest and western regions of the united states . additionally during 2016 , we acquired another company for an immaterial amount . this company provides mobile mechanical services within the southeastern region of the united states , and its results have been included in our united states building services segment . we acquired three companies in 2015 , each for an immaterial amount . two of the companies acquired primarily provide mechanical construction services , and their results of operations have been included in our united states mechanical construction and facilities services segment . the results of operations for the other company acquired have been included in our united states building services segment . story_separator_special_tag from january 1 , 2017 to april 15 , 2017 , ardent incurred an operating loss of $ 1.8 million , inclusive of $ 0.9 million of amortization expense associated with identifiable intangible assets . as previously discussed under โ impact of acquisitions โ , these amounts represent ardent 's operating results in the current reported period only for the time period ardent was not owned by emcor in the comparable prior reported period . our united states mechanical construction and facilities services segment operating income for the year ended december 31 , 2017 was $ 212.3 million , a $ 79.7 million increase compared to operating income of $ 132.7 million for the year ended december 31 , 2016. the increase in operating income for the year ended december 31 , 2017 was attributable to an increase in gross profit from the majority of the market sectors in which we operate . additionally , this segment 's operating income benefited from the recovery of certain contract costs previously disputed on a project completed in 2016 , which resulted in $ 18.1 million of gross profit . companies acquired in 2017 contributed incremental operating income of $ 2.7 million , inclusive of $ 8.3 million of amortization expense associated with identifiable intangible assets . the increase in operating margin for the year ended december 31 , 2017 was attributable to an increase in gross profit margin . the recovery of the previously disputed contract costs discussed above favorably impacted this segment 's operating margin by 0.6 % for the year ended december 31 , 2017. operating income of our united states building services segment was $ 81.5 million and $ 76.8 million in 2017 and 2016 , respectively . the increase in operating income for the year ended december 31 , 2017 was due to increases in operating income from : ( a ) our mobile mechanical services operations , as a result of increases in gross profit from project , service and control activities , and ( b ) our energy services operations . the increase in operating income for our energy services operations primarily resulted from improved project execution , as the results for the year ended december 31 , 2016 included a loss incurred on a large project . additionally , companies acquired in 2017 and 2016 within our mobile mechanical services operations , contributed incremental operating income of $ 2.6 million , inclusive of $ 1.5 million of amortization expense associated with identifiable intangible assets , for the year ended december 31 , 2017. the increase in operating income for the year ended december 31 , 2017 was partially offset by a decrease in gross profit from our commercial site-based services operations partially due to : ( a ) the loss of certain contracts not renewed pursuant to rebid and ( b ) a reduction in snow removal activities . the increase in operating margin for the year ended december 31 , 2017 was attributable to an increase in gross profit margin . operating income of our united states industrial services segment for the year ended december 31 , 2017 was $ 19.1 million , a $ 58.8 million decrease compared to operating income of $ 77.8 million for the year ended december 31 , 2016. the decrease in operating income for the year ended december 31 , 2017 was attributable to a decrease in gross profit from : ( a ) our specialty services offerings within our field services operations , as a result of reduced large project activity , ( b ) a decrease in turnaround activity from our field services operations , partially due to hurricane harvey , which resulted in the deferral of , and may lead to the potential cancellation of , previously scheduled turnaround projects , and ( c ) the mix of work in our industrial shop services operations , which included fewer repair projects that generate higher gross profit margins . the decrease in operating margin was attributable to a decrease in gross profit margin and an increase in the ratio of selling , general and administrative expenses to revenues . the increase in sg & a margin for the year ended december 31 , 2017 was partially the result of unabsorbed overhead costs as a result of the project deferrals due to hurricane harvey and lower specialty services revenues . our united kingdom building services segment 's operating income for the year ended december 31 , 2017 was $ 14.8 million compared to operating income of $ 11.9 million for the year ended december 31 , 2016. operating income increased primarily due to an increase in gross profit from new contract awards , partially offset by a decrease in gross profit from project activity . this segment 's results included a decrease in operating income of $ 0.3 million relating to the effect of unfavorable exchange rates for the british pound versus the united states dollar . the increase in operating margin for the year ended december 31 , 2017 was attributable to an increase in gross profit margin and a decrease in sg & a margin . our corporate administration operating loss was $ 87.8 million for 2017 compared to $ 88.7 million in 2016. the decrease in corporate administration expenses for the year ended december 31 , 2017 was primarily due to a decrease in professional fees , as the prior year included $ 3.8 million of transaction costs associated with the acquisition of ardent . the decrease was partially offset by an increase in software licensing costs and incentive compensation expense . non-operating items interest expense was $ 12.8 million and $ 12.6 million for 2017 and 2016 , respectively . the increase in interest expense was primarily due to increased average outstanding borrowings in 2017 and a higher united states dollar libor rate . interest income was $ 1.0 million and $ 0.7 million for 2017 and 2016 , respectively . 27 for
| liquidity and capital resources liquidity refers to the ability of a financial institution to generate sufficient cash flow to fund current loan demand , meet deposit withdrawals and pay operating expenses . the bank 's primary sources of funds are new deposits , proceeds from loan repayments and prepayments and proceeds from the maturity of securities . the bank may also borrow from the fhlb . while loan repayments and maturities of securities are predictable sources of funds , deposit flows and mortgage prepayments are greatly influenced by market interest rates , general economic conditions and competition . at december 31 , 2016 , the bank had cash and interest-bearing deposits with banks ( including interest-bearing time deposits ) of $ 60.6 million and securities available for sale with a fair value of $ 255.8 million . if the bank requires funds beyond its ability to generate them internally , it has additional borrowing capacity with the fhlb , collateral eligible for repurchase agreements and an unsecured federal funds purchased line of credit with another financial institution . the bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals , to satisfy financial commitments and to take advantage of investment opportunities . at december 31 , 2016 , the bank had total commitments to extend credit of $ 106.6 million . see note 17 in the accompanying notes to consolidated financial statements , which are incorporated herein by reference . at december 31 , 2016 , the bank had certificates of deposit scheduled to mature within one year of $ 49.2 million . historically , the bank has been able to retain a significant amount of its deposits as they mature . the company is a separate legal entity from the bank and must provide for its own liquidity . in addition to its operating expenses , the company requires funds to pay any dividends to its shareholders and to repurchase any shares of its common stock . the company 's primary source of income is dividends received from the bank and the captive .
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impact of acquisitions in order to provide a more meaningful period-over-period discussion of our operating results , we may discuss amounts generated or incurred ( revenues , gross profit , selling , general and administrative expenses and operating income ) from companies acquired . the amounts discussed reflect the acquired companies ' operating results in the current reported period only for the time period these entities were not owned by emcor in the comparable prior reported period . 21 2017 versus 2016 overview the following table presents selected financial data for the fiscal years ended december 31 , 2017 and 2016 ( in thousands , except percentages and per share data ) : replace_table_token_6_th the results of our operations for 2017 set new company records in terms of revenues , operating income , net income attributable to emcor group , inc. and diluted earnings per common share from continuing operations , despite the challenges faced by our united states industrial services segment during 2017. the increase in revenues for 2017 was primarily attributable to incremental revenues of $ 192.4 million generated by companies acquired in 2017 and 2016 , which are reported in our united states electrical construction and facilities services segment , our united states mechanical construction and facilities services segment and our united states building services segment . excluding the effect of these acquisitions , revenues for 2017 decreased due to lower revenues from : ( a ) our united states industrial services segment , due to : ( i ) a decrease in large project activity from our specialty services offerings within our field services operations , ( ii ) the negative impact of hurricane harvey , which resulted in the deferral of , and may lead to the potential cancellation of , previously scheduled turnaround projects , and ( iii ) our industrial shop services operations and ( b ) our united states building services segment , primarily attributable to : ( i ) the loss of certain contracts not renewed pursuant to rebid within our commercial and government site-based services operations and ( ii ) a reduction in large project activity within their energy services operations . these decreases in revenues were partially offset by by an increase in revenues from both of our domestic construction segments and our united kingdom building services segment . despite a recent increase in crude oil prices , we continue to experience a decrease in demand for new heat exchangers due to a prolonged curtailment in capital spending from customers within our united states industrial services segment . in addition , adverse market conditions and an increasingly competitive business environment within both our shop services operations and our field services operations have resulted in a decrease in our billing rates and related gross profit margins . consequently , we have tempered our expectations regarding the strength of a near-term recovery within the united states industrial services segment and recorded a non-cash goodwill impairment charge of $ 57.5 million during the fourth quarter of 2017. operating income and operating margin ( operating income as a percentage of revenues ) increased within all of our reportable segments , except for our united states industrial services segment . the overall increase in operating income and operating margin was mainly attributable to the results of our domestic construction segments , which were favorably impacted by an increase in gross profit within the majority of the market sectors in which we operate . in addition , our 2016 operating results were negatively impacted by : ( a ) $ 27.9 million of aggregate losses incurred on two construction projects reported within our united states mechanical construction and facilities services segment and ( b ) $ 19.4 million of losses incurred on a transportation construction project in the northeastern region of the united states reported within our united states electrical construction and facilities services segment . companies acquired in 2017 and 2016 contributed incremental operating income of $ 3.5 million , inclusive of $ 10.7 million of amortization expense associated with identifiable intangible assets . we acquired three companies during 2017. one company provides fire protection and alarm services primarily in the southern region of the united states . the second company provides millwright services for manufacturing companies throughout the united states . both of their results have been included in our united states mechanical construction and facilities services segment . the third company provides mobile mechanical services within the western region of the united states , and its results have been included in our united states building services segment . we completed the acquisition of ardent services , l.l.c . and rabalais constructors , llc ( collectively , โ ardent โ ) during 2016. this acquisition has been included in our united states electrical construction and facilities services segment . ardent provides 22 electrical and instrumentation services to the energy infrastructure market in north america , and this acquisition further strengthens our position in electrical construction and services and broadens our capabilities across the industrial and energy sectors , especially in the gulf coast , midwest and western regions of the united states . additionally during 2016 , we acquired another company for an immaterial amount . this company provides mobile mechanical services within the southeastern region of the united states , and its results have been included in our united states building services segment . we acquired three companies in 2015 , each for an immaterial amount . two of the companies acquired primarily provide mechanical construction services , and their results of operations have been included in our united states mechanical construction and facilities services segment . the results of operations for the other company acquired have been included in our united states building services segment . story_separator_special_tag from january 1 , 2017 to april 15 , 2017 , ardent incurred an operating loss of $ 1.8 million , inclusive of $ 0.9 million of amortization expense associated with identifiable intangible assets . as previously discussed under โ impact of acquisitions โ , these amounts represent ardent 's operating results in the current reported period only for the time period ardent was not owned by emcor in the comparable prior reported period . our united states mechanical construction and facilities services segment operating income for the year ended december 31 , 2017 was $ 212.3 million , a $ 79.7 million increase compared to operating income of $ 132.7 million for the year ended december 31 , 2016. the increase in operating income for the year ended december 31 , 2017 was attributable to an increase in gross profit from the majority of the market sectors in which we operate . additionally , this segment 's operating income benefited from the recovery of certain contract costs previously disputed on a project completed in 2016 , which resulted in $ 18.1 million of gross profit . companies acquired in 2017 contributed incremental operating income of $ 2.7 million , inclusive of $ 8.3 million of amortization expense associated with identifiable intangible assets . the increase in operating margin for the year ended december 31 , 2017 was attributable to an increase in gross profit margin . the recovery of the previously disputed contract costs discussed above favorably impacted this segment 's operating margin by 0.6 % for the year ended december 31 , 2017. operating income of our united states building services segment was $ 81.5 million and $ 76.8 million in 2017 and 2016 , respectively . the increase in operating income for the year ended december 31 , 2017 was due to increases in operating income from : ( a ) our mobile mechanical services operations , as a result of increases in gross profit from project , service and control activities , and ( b ) our energy services operations . the increase in operating income for our energy services operations primarily resulted from improved project execution , as the results for the year ended december 31 , 2016 included a loss incurred on a large project . additionally , companies acquired in 2017 and 2016 within our mobile mechanical services operations , contributed incremental operating income of $ 2.6 million , inclusive of $ 1.5 million of amortization expense associated with identifiable intangible assets , for the year ended december 31 , 2017. the increase in operating income for the year ended december 31 , 2017 was partially offset by a decrease in gross profit from our commercial site-based services operations partially due to : ( a ) the loss of certain contracts not renewed pursuant to rebid and ( b ) a reduction in snow removal activities . the increase in operating margin for the year ended december 31 , 2017 was attributable to an increase in gross profit margin . operating income of our united states industrial services segment for the year ended december 31 , 2017 was $ 19.1 million , a $ 58.8 million decrease compared to operating income of $ 77.8 million for the year ended december 31 , 2016. the decrease in operating income for the year ended december 31 , 2017 was attributable to a decrease in gross profit from : ( a ) our specialty services offerings within our field services operations , as a result of reduced large project activity , ( b ) a decrease in turnaround activity from our field services operations , partially due to hurricane harvey , which resulted in the deferral of , and may lead to the potential cancellation of , previously scheduled turnaround projects , and ( c ) the mix of work in our industrial shop services operations , which included fewer repair projects that generate higher gross profit margins . the decrease in operating margin was attributable to a decrease in gross profit margin and an increase in the ratio of selling , general and administrative expenses to revenues . the increase in sg & a margin for the year ended december 31 , 2017 was partially the result of unabsorbed overhead costs as a result of the project deferrals due to hurricane harvey and lower specialty services revenues . our united kingdom building services segment 's operating income for the year ended december 31 , 2017 was $ 14.8 million compared to operating income of $ 11.9 million for the year ended december 31 , 2016. operating income increased primarily due to an increase in gross profit from new contract awards , partially offset by a decrease in gross profit from project activity . this segment 's results included a decrease in operating income of $ 0.3 million relating to the effect of unfavorable exchange rates for the british pound versus the united states dollar . the increase in operating margin for the year ended december 31 , 2017 was attributable to an increase in gross profit margin and a decrease in sg & a margin . our corporate administration operating loss was $ 87.8 million for 2017 compared to $ 88.7 million in 2016. the decrease in corporate administration expenses for the year ended december 31 , 2017 was primarily due to a decrease in professional fees , as the prior year included $ 3.8 million of transaction costs associated with the acquisition of ardent . the decrease was partially offset by an increase in software licensing costs and incentive compensation expense . non-operating items interest expense was $ 12.8 million and $ 12.6 million for 2017 and 2016 , respectively . the increase in interest expense was primarily due to increased average outstanding borrowings in 2017 and a higher united states dollar libor rate . interest income was $ 1.0 million and $ 0.7 million for 2017 and 2016 , respectively . 27 for
| liquidity and capital resources the following table presents net cash provided by ( used in ) operating activities , investing activities and financing activities for the years ended december 31 , 2017 , 2016 and 2015 ( in thousands ) : replace_table_token_18_th our consolidated cash balance increased by approximately $ 2.8 million from $ 464.6 million at december 31 , 2016 to $ 467.4 million at december 31 , 2017. net cash provided by operating activities for 2017 was $ 366.1 million compared to $ 264.6 million of net cash provided by operating activities for 2016. the increase in cash provided by operating activities was primarily due to a $ 45.0 million increase in net income and improved cash flows from accounts payable . net cash used in investing activities was $ 138.1 million for 2017 compared to net cash used in investing activities of $ 270.7 million for 2016. the decrease in net cash used in investing activities was primarily due to a reduction in payments for acquisitions of businesses . net cash flows from financing activities for 2017 decreased by approximately $ 219.0 million compared to 2016 primarily as a result of net borrowings made under our credit agreements in 2016. cash flows from discontinued operations were immaterial and are not expected to significantly affect future liquidity .
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in addition , if the actual compensation of a placed candidate exceeds the estimated compensation , we often are authorized to bill the client for one-third of the excess . indirect expenses are calculated as a percentage of the retainer with certain dollar limits per search . 18 key performance indicators we manage and assess heidrick & struggles ' performance through various means , with the primary financial and operational measures including net revenue , operating income , operating margin , adjusted ebitda ( non-gaap ) , and adjusted ebitda margin ( non-gaap ) . executive search and leadership consulting performance is also measured using consultant headcount . specific to executive search , confirmation trends , consultant productivity and average revenue per search are used to measure performance . revenue is driven by market conditions and a combination of the number of executive search engagements and leadership consulting and culture shaping projects and the average revenue per search or project . with the exception of compensation expense , incremental increases in revenue do not necessarily result in proportionate increases in costs , particularly operating and administrative expenses , thus potentially improving operating margins . the number of consultants , confirmation trends , number of searches or projects completed , productivity levels and the average revenue per search or project will vary from quarter to quarter , affecting net revenue and operating margin . our compensation model at the executive search consultant level there are fixed and variable components of compensation . individuals are rewarded for their performance based on a system that directly ties a portion of their compensation to the amount of net revenue for which they are responsible . a portion of the reward may be based upon individual performance against a series of non-financial measures . credit towards the variable portion of an executive search consultant 's compensation is earned by generating net revenue for winning and executing work . each quarter , we review and update the expected annual performance of all executive search consultants and accrue variable compensation accordingly . the amount of variable compensation that is accrued for each executive search consultant is based on a tiered payout model . overall company performance determines the amount available for total variable compensation . the more net revenue that is generated by the consultant , the higher the percentage credited towards the consultant 's variable compensation and thus accrued by our company as expense . the mix of individual consultants who generate the revenue can significantly affect the total amount of compensation expense recorded , which directly impacts operating margin . as a result , the variable portion of the compensation expense may fluctuate significantly from quarter to quarter . the total variable compensation is discretionary and is based on company-wide financial targets approved by the human resources and compensation committee of the board of directors . a portion of our executive search consultants ' and management cash bonuses is deferred and paid over a three-year vesting period . the compensation expense related to the amounts being deferred is recognized on a graded vesting attribution method over the requisite service period . this service period begins on january 1 of the respective fiscal year and continues through the deferral date , which coincides with our bonus payments in the first quarter of the following year , and for an additional three year vesting period . the deferrals are recorded in accrued salaries and employee benefits in the consolidated balance sheets . 2017 overview consolidated net revenue was $ 621.4 million for the year ended december 31 , 2017 , an increase of $ 39.0 million or 6.7 % compared to december 31 , 2016. specific to executive search , our largest business , consultant productivity measured by net executive search revenue per consultant was $ 1.6 million for each of the years ended december 31 , 2017 and 2016. average revenue per executive search was $ 120,300 for the year ended december 31 , 2017 compared to $ 117,700 for the year ended december 31 , 2016. operating loss as a percentage of net revenue was 4.3 % in 2017 compared to operating margin of 6.0 % in 2016. the change in operating income was primarily due to an increase in net revenue of $ 39.0 million , which was offset by an increase in salaries and employee benefits expense of $ 34.1 million , an increase in general and administrative expenses of $ 0.2 million , impairment charges of $ 50.7 million and restructuring charges of $ 15.7 million . salaries and employee benefits expense as a percentage of net revenue was 69.9 % in 2017 and 68.7 % in 2016. general and administrative expense as a percentage of net revenue was 23.7 % in 2017 and 25.3 % in 2016 we ended the year with combined cash and cash equivalents of $ 207.5 million , an increase of $ 42.5 million compared to $ 165.0 million at december 31 , 2016. the increase is primarily due increased cash collections and lower acquisition investments . these increases in cash were partially offset by cash paid for restructuring charges . we pay the majority of bonuses in the first quarter following the year in which they were earned . employee bonuses are accrued throughout the year and are based on the company 's performance and the performance of the individual employee . we expect to pay approximately 19 $ 148.0 million in bonuses related to 2017 performance in march and april 2018. in january 2018 , we paid approximately $ 13.0 million in cash bonuses deferred in prior years . 2018 outlook we are currently forecasting 2018 first quarter net revenue of between $ 150 million and $ 160 million . story_separator_special_tag the impairment charge is recorded within impairment charges in the condensed consolidated statement of comprehensive income ( loss ) for the year ended december 31 , 2017. leadership consulting incurred approximately $ 0.9 million in restructuring charges for the year ended december 31 , 2017. these charges include approximately $ 0.6 million in professional fees and other expenses , $ 0.2 million in severance related charges and $ 0.1 million in office related charges . the leadership consulting segment reported an operating loss of $ 15.6 million in 2017 , a decrease of $ 14.1 million , compared to an operating loss of $ 1.5 million in 2016. the increased operating loss primarily reflects $ 11.6 million of impairment charges for goodwill and intangible assets , as well as restructuring charges of $ 0.9 million . excluding the impact of impairment and restructuring charges , the leadership consulting segment reported an operating loss of $ 3.1 million . culture shaping the culture shaping segment reported net revenue of $ 28.1 million in 2017 , a decrease of 22.3 % compared to $ 36.2 million in 2016. net revenue decreased due to a decline in the volume of client work . excluding the impact of exchange rate fluctuations , which negatively impacted results by $ 0.2 million , or 0.8 % , net revenue decreased $ 7.9 million , or 21.7 % . 25 salaries and employee benefits expense decreased $ 5.9 million , primarily due to investments in new and existing consultants incurred in the prior year that did not reoccur in 2017. general and administrative expenses decreased $ 3.6 million primarily due to lower intangible amortization , earnout accretion and professional fees , partially offset by increases in internal travel and office occupancy costs . impairment charges for the year ended december 31 , 2017 were $ 39.2 million as a result of an interim impairment evaluation on the goodwill and amortizable intangible assets related to our culture shaping reporting unit . culture shaping incurred approximately $ 2.5 million in restructuring charges for the year ended december 31 , 2017. these charges include approximately $ 1.9 million in severance related charges and $ 0.6 million in professional fees and other expenses . the culture shaping segment reported an operating loss of $ 41.8 million in 2017 , a decrease of $ 40.3 million , compared to an operating loss of $ 1.6 million in 2016. the increase in operating loss is primarily attributed to goodwill and intangible impairment charges of $ 39.2 million and restructuring charges of $ 2.5 million . excluding the impact of impairment and restructuring charges , the culture shaping segment reported an operating loss of $ 0.2 million . global operations support global operations support expenses in 2017 increased $ 7.6 million , or 16.0 % , to $ 54.8 million from $ 47.2 million in 2016. salaries and employee benefits expense decreased $ 0.1 million due to lower stock compensation expense as a result of forfeitures during the year , separation costs , and management and support bonuses . these decreases were partially offset by increases in deferred compensation plan expenses and base salaries and payroll taxes . general and administrative expense increased $ 2.2 million due to increases in internal travel , audit fees and information technology costs that were partially offset by decreases in professional fees and hiring fees and temporary labor . global operations support incurred approximately $ 5.5 million in restructuring charges for the year ended december 31 , 2017. these charges include approximately $ 4.5 million of severance related charges and $ 0.9 million of professional fees and other costs . year ended december 31 , 2016 compared to year ended december 31 , 2015 total revenue . consolidated total revenue increased $ 52.6 million , or 9.6 % , to $ 600.9 million in 2016 from $ 548.3 million in 2015. the increase in total revenue was primarily due to the increase in revenue before reimbursements ( net revenue ) . revenue before reimbursements ( net revenue ) . consolidated net revenue increased $ 51.2 million or 9.6 % , to $ 582.4 million in 2016 from $ 531.1 million in 2015. excluding the impact of exchange rate fluctuations , which decreased revenue by $ 11.4 million , or 2.1 % , net revenue increased $ 62.6 million , or 11.8 % . executive search net revenue was $ 507.4 million in 2016 , an increase of $ 31.6 million compared to 2015. the increase in executive search net revenue was the result of growth in the americas and europe . leadership consulting net revenue increased $ 19.8 million , or 103.8 % , to $ 38.8 million in 2016 from $ 19.0 million in 2015. the increase in leadership consulting net revenue was primarily the result of the co company , dsi and philosophy ib acquisitions . culture shaping net revenue was $ 36.2 million in 2016 , a decrease of $ 0.1 million compared to 2015. the number of executive search and leadership consulting consultants was 335 and 22 , respectively , as of december 31 , 2016 compared to 308 and 26 , respectively , as of december 31 , 2015. specific to executive search , our largest business , productivity as measured by annualized net executive search revenue per consultant was $ 1.6 million and $ 1.5 million for the years ended december 31 , 2016 and 2015 , respectively . the number of confirmed searches increased 7.1 % compared to 2015. the average revenue per executive search increased to $ 117,700 for the year ended december 31 , 2016 compared to $ 115,300 for the year ended december 31 , 2015. salaries and employee benefits . consolidated salaries and employee benefits expense increased $ 30.7 million or 8.3 % , to $ 400.1 million in 2016 from $ 369.4 million in 2015. the increase was due to higher fixed compensation of $ 31.7
| liquidity and capital resources the following table presents net cash provided by ( used in ) operating activities , investing activities and financing activities for the years ended december 31 , 2017 , 2016 and 2015 ( in thousands ) : replace_table_token_18_th our consolidated cash balance increased by approximately $ 2.8 million from $ 464.6 million at december 31 , 2016 to $ 467.4 million at december 31 , 2017. net cash provided by operating activities for 2017 was $ 366.1 million compared to $ 264.6 million of net cash provided by operating activities for 2016. the increase in cash provided by operating activities was primarily due to a $ 45.0 million increase in net income and improved cash flows from accounts payable . net cash used in investing activities was $ 138.1 million for 2017 compared to net cash used in investing activities of $ 270.7 million for 2016. the decrease in net cash used in investing activities was primarily due to a reduction in payments for acquisitions of businesses . net cash flows from financing activities for 2017 decreased by approximately $ 219.0 million compared to 2016 primarily as a result of net borrowings made under our credit agreements in 2016. cash flows from discontinued operations were immaterial and are not expected to significantly affect future liquidity .
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in addition , if the actual compensation of a placed candidate exceeds the estimated compensation , we often are authorized to bill the client for one-third of the excess . indirect expenses are calculated as a percentage of the retainer with certain dollar limits per search . 18 key performance indicators we manage and assess heidrick & struggles ' performance through various means , with the primary financial and operational measures including net revenue , operating income , operating margin , adjusted ebitda ( non-gaap ) , and adjusted ebitda margin ( non-gaap ) . executive search and leadership consulting performance is also measured using consultant headcount . specific to executive search , confirmation trends , consultant productivity and average revenue per search are used to measure performance . revenue is driven by market conditions and a combination of the number of executive search engagements and leadership consulting and culture shaping projects and the average revenue per search or project . with the exception of compensation expense , incremental increases in revenue do not necessarily result in proportionate increases in costs , particularly operating and administrative expenses , thus potentially improving operating margins . the number of consultants , confirmation trends , number of searches or projects completed , productivity levels and the average revenue per search or project will vary from quarter to quarter , affecting net revenue and operating margin . our compensation model at the executive search consultant level there are fixed and variable components of compensation . individuals are rewarded for their performance based on a system that directly ties a portion of their compensation to the amount of net revenue for which they are responsible . a portion of the reward may be based upon individual performance against a series of non-financial measures . credit towards the variable portion of an executive search consultant 's compensation is earned by generating net revenue for winning and executing work . each quarter , we review and update the expected annual performance of all executive search consultants and accrue variable compensation accordingly . the amount of variable compensation that is accrued for each executive search consultant is based on a tiered payout model . overall company performance determines the amount available for total variable compensation . the more net revenue that is generated by the consultant , the higher the percentage credited towards the consultant 's variable compensation and thus accrued by our company as expense . the mix of individual consultants who generate the revenue can significantly affect the total amount of compensation expense recorded , which directly impacts operating margin . as a result , the variable portion of the compensation expense may fluctuate significantly from quarter to quarter . the total variable compensation is discretionary and is based on company-wide financial targets approved by the human resources and compensation committee of the board of directors . a portion of our executive search consultants ' and management cash bonuses is deferred and paid over a three-year vesting period . the compensation expense related to the amounts being deferred is recognized on a graded vesting attribution method over the requisite service period . this service period begins on january 1 of the respective fiscal year and continues through the deferral date , which coincides with our bonus payments in the first quarter of the following year , and for an additional three year vesting period . the deferrals are recorded in accrued salaries and employee benefits in the consolidated balance sheets . 2017 overview consolidated net revenue was $ 621.4 million for the year ended december 31 , 2017 , an increase of $ 39.0 million or 6.7 % compared to december 31 , 2016. specific to executive search , our largest business , consultant productivity measured by net executive search revenue per consultant was $ 1.6 million for each of the years ended december 31 , 2017 and 2016. average revenue per executive search was $ 120,300 for the year ended december 31 , 2017 compared to $ 117,700 for the year ended december 31 , 2016. operating loss as a percentage of net revenue was 4.3 % in 2017 compared to operating margin of 6.0 % in 2016. the change in operating income was primarily due to an increase in net revenue of $ 39.0 million , which was offset by an increase in salaries and employee benefits expense of $ 34.1 million , an increase in general and administrative expenses of $ 0.2 million , impairment charges of $ 50.7 million and restructuring charges of $ 15.7 million . salaries and employee benefits expense as a percentage of net revenue was 69.9 % in 2017 and 68.7 % in 2016. general and administrative expense as a percentage of net revenue was 23.7 % in 2017 and 25.3 % in 2016 we ended the year with combined cash and cash equivalents of $ 207.5 million , an increase of $ 42.5 million compared to $ 165.0 million at december 31 , 2016. the increase is primarily due increased cash collections and lower acquisition investments . these increases in cash were partially offset by cash paid for restructuring charges . we pay the majority of bonuses in the first quarter following the year in which they were earned . employee bonuses are accrued throughout the year and are based on the company 's performance and the performance of the individual employee . we expect to pay approximately 19 $ 148.0 million in bonuses related to 2017 performance in march and april 2018. in january 2018 , we paid approximately $ 13.0 million in cash bonuses deferred in prior years . 2018 outlook we are currently forecasting 2018 first quarter net revenue of between $ 150 million and $ 160 million . story_separator_special_tag the impairment charge is recorded within impairment charges in the condensed consolidated statement of comprehensive income ( loss ) for the year ended december 31 , 2017. leadership consulting incurred approximately $ 0.9 million in restructuring charges for the year ended december 31 , 2017. these charges include approximately $ 0.6 million in professional fees and other expenses , $ 0.2 million in severance related charges and $ 0.1 million in office related charges . the leadership consulting segment reported an operating loss of $ 15.6 million in 2017 , a decrease of $ 14.1 million , compared to an operating loss of $ 1.5 million in 2016. the increased operating loss primarily reflects $ 11.6 million of impairment charges for goodwill and intangible assets , as well as restructuring charges of $ 0.9 million . excluding the impact of impairment and restructuring charges , the leadership consulting segment reported an operating loss of $ 3.1 million . culture shaping the culture shaping segment reported net revenue of $ 28.1 million in 2017 , a decrease of 22.3 % compared to $ 36.2 million in 2016. net revenue decreased due to a decline in the volume of client work . excluding the impact of exchange rate fluctuations , which negatively impacted results by $ 0.2 million , or 0.8 % , net revenue decreased $ 7.9 million , or 21.7 % . 25 salaries and employee benefits expense decreased $ 5.9 million , primarily due to investments in new and existing consultants incurred in the prior year that did not reoccur in 2017. general and administrative expenses decreased $ 3.6 million primarily due to lower intangible amortization , earnout accretion and professional fees , partially offset by increases in internal travel and office occupancy costs . impairment charges for the year ended december 31 , 2017 were $ 39.2 million as a result of an interim impairment evaluation on the goodwill and amortizable intangible assets related to our culture shaping reporting unit . culture shaping incurred approximately $ 2.5 million in restructuring charges for the year ended december 31 , 2017. these charges include approximately $ 1.9 million in severance related charges and $ 0.6 million in professional fees and other expenses . the culture shaping segment reported an operating loss of $ 41.8 million in 2017 , a decrease of $ 40.3 million , compared to an operating loss of $ 1.6 million in 2016. the increase in operating loss is primarily attributed to goodwill and intangible impairment charges of $ 39.2 million and restructuring charges of $ 2.5 million . excluding the impact of impairment and restructuring charges , the culture shaping segment reported an operating loss of $ 0.2 million . global operations support global operations support expenses in 2017 increased $ 7.6 million , or 16.0 % , to $ 54.8 million from $ 47.2 million in 2016. salaries and employee benefits expense decreased $ 0.1 million due to lower stock compensation expense as a result of forfeitures during the year , separation costs , and management and support bonuses . these decreases were partially offset by increases in deferred compensation plan expenses and base salaries and payroll taxes . general and administrative expense increased $ 2.2 million due to increases in internal travel , audit fees and information technology costs that were partially offset by decreases in professional fees and hiring fees and temporary labor . global operations support incurred approximately $ 5.5 million in restructuring charges for the year ended december 31 , 2017. these charges include approximately $ 4.5 million of severance related charges and $ 0.9 million of professional fees and other costs . year ended december 31 , 2016 compared to year ended december 31 , 2015 total revenue . consolidated total revenue increased $ 52.6 million , or 9.6 % , to $ 600.9 million in 2016 from $ 548.3 million in 2015. the increase in total revenue was primarily due to the increase in revenue before reimbursements ( net revenue ) . revenue before reimbursements ( net revenue ) . consolidated net revenue increased $ 51.2 million or 9.6 % , to $ 582.4 million in 2016 from $ 531.1 million in 2015. excluding the impact of exchange rate fluctuations , which decreased revenue by $ 11.4 million , or 2.1 % , net revenue increased $ 62.6 million , or 11.8 % . executive search net revenue was $ 507.4 million in 2016 , an increase of $ 31.6 million compared to 2015. the increase in executive search net revenue was the result of growth in the americas and europe . leadership consulting net revenue increased $ 19.8 million , or 103.8 % , to $ 38.8 million in 2016 from $ 19.0 million in 2015. the increase in leadership consulting net revenue was primarily the result of the co company , dsi and philosophy ib acquisitions . culture shaping net revenue was $ 36.2 million in 2016 , a decrease of $ 0.1 million compared to 2015. the number of executive search and leadership consulting consultants was 335 and 22 , respectively , as of december 31 , 2016 compared to 308 and 26 , respectively , as of december 31 , 2015. specific to executive search , our largest business , productivity as measured by annualized net executive search revenue per consultant was $ 1.6 million and $ 1.5 million for the years ended december 31 , 2016 and 2015 , respectively . the number of confirmed searches increased 7.1 % compared to 2015. the average revenue per executive search increased to $ 117,700 for the year ended december 31 , 2016 compared to $ 115,300 for the year ended december 31 , 2015. salaries and employee benefits . consolidated salaries and employee benefits expense increased $ 30.7 million or 8.3 % , to $ 400.1 million in 2016 from $ 369.4 million in 2015. the increase was due to higher fixed compensation of $ 31.7
| cash and cash equivalents . cash and cash equivalents at december 31 , 2017 were $ 207.5 million , an increase of $ 42.5 million compared to $ 165.0 million at december 31 , 2016 . the $ 207.5 million of cash and cash equivalents at december 31 , 29 2017 includes $ 103.0 million held by our foreign subsidiaries . a portion of the $ 103.0 million is considered permanently reinvested in these foreign subsidiaries . if these funds were required to satisfy obligations in the u.s. , the repatriation of these funds could cause us to incur additional foreign withholding taxes . we expect to pay approximately $ 148.0 million in variable compensation related to 2017 performance in march and april 2018 . in january 2018 , we paid approximately $ 13.0 million in variable compensation that was deferred in prior years . cash flows provided by operating activities . in 2017 , cash provided by operating activities was $ 70.0 million , principally reflecting net income net of non-cash charges of $ 21.1 million , an increase in accrued expenses of $ 18.3 million and a restructuring accrual of $ 13.0 million . the increae in accrued expenses primarily reflects approximately $ 148 million of current year bonus accruals partially offset by $ 128 million of bonus payments for 2016 made in early 2017. in 2016 , cash provided by operating activities was $ 24.8 million , primarily reflecting depreciation and amortization expense of $ 16.4 million , net income of $ 15.4 million , stock based compensation expense of $ 6.4 million and an increase in the net retirement and pension plan liability of $ 4.2 million , partially offset by an increase in accounts receivable of $ 14.4 million , a change in other assets and liabilities of $ 3.0 million and an increase in prepaid expenses of $ 2.3 million .
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cbiz management will determine the timing and amount of the transaction based on its evaluation of market conditions and other factors . pursuant to previously authorized share repurchase programs , we repurchased 2.3 million shares of our common stock at a total cost of approximately $ 57.6 million in 2020 , 1.2 million shares at a total cost of approximately $ 25.3 million in 2019 and 0.8 million shares at a total cost of approximately $ 15.6 million in 2018. refer to note 13 , common stock , to the accompanying consolidated financial statements for further discussion on the share repurchase program . recent accomplishments and other events workplace awards - in 2020 , we were honored and recognized for 68 various national and local market awards . a sample of the awards won include : best workplace in consulting and professional services - we were named one of the โ 2020 best workplaces in consulting and professional services โ by great place to work . alliance for workplace excellence - we were recognized for three awards in 2020 by the alliance for workplace excellence ; ( i ) workplace excellence seal of approval , ( ii ) health & wellness seal of approval and ( iii ) certificate of recognition โ best practices for supporting works 50+ . 21 best places to work - we were selected and honored for the sixth consecutive year as a โ best places to work in insurance โ by business insurance magazine based on our commitment to attracting , developing and retaining great talent through employee benefits and other programs . we were recognized for this award based on core focus areas such as leadership and planning , corporate culture , communications , work environment and overall engagement . 2020 healthiest 100 workplaces in america โ springbuk evaluated over 1,000 applicants across six key categories : culture and leadership commitment , foundational components , strategic planning , marketing and communications , programming and interventions , and reporting and analytics . we were honored to be named one of the top 100 winners for the third time . 2020 best and brightest companies in the nation top 101 - for the fifth year in a row , we were honored as a โ best and brightest company โ by nabr based on our commitment to human resource practices and employee enrichment . 2020 best and brightness in wellness โ we were honored by nabr , for the fourth consecutive time , as an organization that promotes a culture of wellness . results of operations - continuing operations we provide professional business services that help clients manage their finances and employees . we deliver our integrated services through the following three practice groups : financial services , benefits and insurance services and national practices . a description of these groups ' operating results and factors affecting their businesses is provided below . same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures . for example , for a business acquired on july 1 , 2019 , revenue for the period january 1 , 2020 through june 30 , 2020 would be reported as revenue from acquired businesses ; same-unit revenue would include revenue for the periods july 1 through december 31 of both years . divested operations represent operations that did not meet the criteria for treatment as discontinued operations . those businesses that have met the requirements to be treated as a discontinued operation are eliminated from continuing operations for all periods presented below . revenue the following table summarizes total revenue for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_5_th a detailed discussion of same-unit revenue by practice group is included under โ operating practice groups . โ non-qualified deferred compensation plan - we sponsor a non-qualified deferred compensation plan , under which a cbiz employee 's compensation deferral is held in a rabbi trust and invested accordingly as directed by the employee . income and expenses related to the deferred compensation plan are included in โ operating expenses , โ โ gross margin โ and โ corporate general & administrative expenses โ and are directly offset by deferred compensation gains or losses in โ other income ( expense ) , net โ in the accompanying consolidated statements of comprehensive income . the deferred compensation plan has no impact on โ income from continuing operations before income tax expense โ or diluted earnings per share from continuing operations . 22 operating expenses the following table presents our operating expenses for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_6_th 2020 compared to 2019 - our operating expenses increased by $ 1.9 million . operating expense as a percentage of revenue decreased to 85.6 % of revenue from 86.8 % of revenue for the prior year . the deferred compensation plan increased operating expenses by $ 13.8 million and $ 17.2 million in 2020 and 2019 , respectively . excluding the impact of the deferred compensation plan , operating expenses would have been $ 811.5 million , or 84.2 % of revenue , in 2020 compared to $ 806.3 million , or 85.0 % of revenue , in 2019. the majority of our operating expenses relate to personnel costs , which includes ( i ) salaries and benefits , ( ii ) commissions paid to producers ( iii ) incentive compensation and ( iv ) share-based compensation . personnel costs increased $ 24.2 million , or 3.8 % . acquisitions contributed approximately $ 12.1 million to personnel costs . the increase in personnel costs was offset by approximately $ 20.1 million lower travel and entertainment and other discretionary spending in 2020 due to covid-19 . personnel costs and other operating expenses are discussed in further detail under โ operating practice groups . story_separator_special_tag we repurchased 2.4 million shares of our common stock at a total cost of approximately $ 59.6 million in 2020 , 1.3 million shares at a total cost of approximately $ 27.2 million in 2019 and 0.9 million shares at a total cost of approximately $ 17.5 million in 2018. refer to note 13 , common stock , to the accompanying consolidated financial statements for further discussion on the share repurchase program . cash requirements for 2021 - cash requirements for 2021 will include acquisitions , interest payments on debt , seasonal working capital requirements , contingent earnout payments for previous acquisitions , share repurchases and capital expenditures . we believe that cash provided by operations , as well as available funds under our credit facility will be sufficient to meet cash requirements for the next 12 months . 29 obligations and commitments our aggregate amount of future obligations for the next five years and thereafter is set forth below ( in thousands ) : replace_table_token_18_th ( 1 ) our credit facility matures on april 3 , 2023. interest on the credit facility is not determinable due to the revolving nature of the credit facility and the variability of the related interest rate . dollar amounts are estimates based on applying the 2.45 % weighted average rate of the credit facility at december 31 , 2020 to the $ 108.0 million outstanding balance of the credit facility at december 31 , 2020 . ( 2 ) operating leases include the minimum rent commitments under non-cancelable operating leases . amount excludes cash expected to be received under subleases and impact of future renewals . ( 3 ) represents the contingent purchase price liability that is expected to be paid over the next five years resulting from business acquisitions . for the years ended december 31 , 2021 , 2022 , 2023 , 2024 , and 2025 , the cash portions of the contingent purchase price liability are $ 12.2 million , $ 15.4 million , $ 9.0 million , $ 13.0 million , and $ 0.8 million , respectively , with the remaining balance representing the stock portions . ( 4 ) other liabilities include letters of credit and license bonds , contingencies related to the purchase of client lists and federal and state income taxes . for further discussion regarding commitments and contingencies , refer to note 11 , commitments and contingencies , to the accompanying consolidated financial statements . the liability for unrecognized tax benefits of $ 1.5 million under fasb asc topic 740 , income taxes , is excluded , since we are unable to reasonably estimate the timing of cash settlements with the respective tax authorities . off-balance sheet arrangements - we maintain asas with independent cpa firms ( as described more fully under โ business - financial services โ and in note 1 , basis of presentation and significant accounting policies , to the accompanying consolidated financial statements ) , which qualify as variable interest entities . the accompanying consolidated financial statements do not reflect the operations or accounts of variable interest entities as the impact is not material to the consolidated financial condition , results of operations , or cash flows of cbiz . we provide letters of credit for insurance needs as well as to landlords ( lessors ) of our leased premises in lieu of cash security deposits . letters of credit totaled $ 1.7 million and $ 1.3 million at december 31 , 2020 and 2019. in addition , we provide license bonds to various state agencies to meet certain licensing requirements . the amount of license bonds outstanding was $ 2.2 million and $ 2.3 million at december 31 , 2020 and 2019 , respectively . we have various agreements under which we may be obligated to indemnify the other party with respect to certain matters . generally , these indemnification clauses are included in contracts arising in the normal course of business under which we customarily agree to hold the other party harmless against losses arising from a breach of representations , warranties , covenants or agreements , related to matters such as title to assets sold and certain tax matters . payment by us under such indemnification clauses are generally conditioned upon the other party making a claim . such claims are typically subject to challenge by us and to dispute resolution procedures specified in the particular contract . further , our obligations under these agreements may be limited in terms of time and or amount and , in some instances , we may have recourse against third parties for certain payments made by us . it is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular agreement . historically , we have not made any payments under these agreements that have been material individually or in the aggregate . as of december 31 , 2020 , we were not aware of any obligations arising under indemnification agreements that would require material payments . interest rate risk management - we do not purchase or hold any derivative instruments for trading or speculative purposes . we utilize interest rate swaps to manage interest rate risk exposure associated with our floating-rate debt under the credit facility . under these interest rate swap contracts , we receive cash flows from counterparties at variable rates based on the london interbank offered rate ( โ libor โ ) and pay the counterparties a fixed rate . to mitigate counterparty credit risk , we only enter into contracts with selected major financial institutions with investment grade ratings and continually assess their creditworthiness . there are no credit risk-related contingent features in our interest rate swaps nor do the swaps contain provisions under which we would be required to post collateral . 30 as of december 31 , 2020 , the notional value of all
| cash and cash equivalents . cash and cash equivalents at december 31 , 2017 were $ 207.5 million , an increase of $ 42.5 million compared to $ 165.0 million at december 31 , 2016 . the $ 207.5 million of cash and cash equivalents at december 31 , 29 2017 includes $ 103.0 million held by our foreign subsidiaries . a portion of the $ 103.0 million is considered permanently reinvested in these foreign subsidiaries . if these funds were required to satisfy obligations in the u.s. , the repatriation of these funds could cause us to incur additional foreign withholding taxes . we expect to pay approximately $ 148.0 million in variable compensation related to 2017 performance in march and april 2018 . in january 2018 , we paid approximately $ 13.0 million in variable compensation that was deferred in prior years . cash flows provided by operating activities . in 2017 , cash provided by operating activities was $ 70.0 million , principally reflecting net income net of non-cash charges of $ 21.1 million , an increase in accrued expenses of $ 18.3 million and a restructuring accrual of $ 13.0 million . the increae in accrued expenses primarily reflects approximately $ 148 million of current year bonus accruals partially offset by $ 128 million of bonus payments for 2016 made in early 2017. in 2016 , cash provided by operating activities was $ 24.8 million , primarily reflecting depreciation and amortization expense of $ 16.4 million , net income of $ 15.4 million , stock based compensation expense of $ 6.4 million and an increase in the net retirement and pension plan liability of $ 4.2 million , partially offset by an increase in accounts receivable of $ 14.4 million , a change in other assets and liabilities of $ 3.0 million and an increase in prepaid expenses of $ 2.3 million .
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cbiz management will determine the timing and amount of the transaction based on its evaluation of market conditions and other factors . pursuant to previously authorized share repurchase programs , we repurchased 2.3 million shares of our common stock at a total cost of approximately $ 57.6 million in 2020 , 1.2 million shares at a total cost of approximately $ 25.3 million in 2019 and 0.8 million shares at a total cost of approximately $ 15.6 million in 2018. refer to note 13 , common stock , to the accompanying consolidated financial statements for further discussion on the share repurchase program . recent accomplishments and other events workplace awards - in 2020 , we were honored and recognized for 68 various national and local market awards . a sample of the awards won include : best workplace in consulting and professional services - we were named one of the โ 2020 best workplaces in consulting and professional services โ by great place to work . alliance for workplace excellence - we were recognized for three awards in 2020 by the alliance for workplace excellence ; ( i ) workplace excellence seal of approval , ( ii ) health & wellness seal of approval and ( iii ) certificate of recognition โ best practices for supporting works 50+ . 21 best places to work - we were selected and honored for the sixth consecutive year as a โ best places to work in insurance โ by business insurance magazine based on our commitment to attracting , developing and retaining great talent through employee benefits and other programs . we were recognized for this award based on core focus areas such as leadership and planning , corporate culture , communications , work environment and overall engagement . 2020 healthiest 100 workplaces in america โ springbuk evaluated over 1,000 applicants across six key categories : culture and leadership commitment , foundational components , strategic planning , marketing and communications , programming and interventions , and reporting and analytics . we were honored to be named one of the top 100 winners for the third time . 2020 best and brightest companies in the nation top 101 - for the fifth year in a row , we were honored as a โ best and brightest company โ by nabr based on our commitment to human resource practices and employee enrichment . 2020 best and brightness in wellness โ we were honored by nabr , for the fourth consecutive time , as an organization that promotes a culture of wellness . results of operations - continuing operations we provide professional business services that help clients manage their finances and employees . we deliver our integrated services through the following three practice groups : financial services , benefits and insurance services and national practices . a description of these groups ' operating results and factors affecting their businesses is provided below . same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures . for example , for a business acquired on july 1 , 2019 , revenue for the period january 1 , 2020 through june 30 , 2020 would be reported as revenue from acquired businesses ; same-unit revenue would include revenue for the periods july 1 through december 31 of both years . divested operations represent operations that did not meet the criteria for treatment as discontinued operations . those businesses that have met the requirements to be treated as a discontinued operation are eliminated from continuing operations for all periods presented below . revenue the following table summarizes total revenue for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_5_th a detailed discussion of same-unit revenue by practice group is included under โ operating practice groups . โ non-qualified deferred compensation plan - we sponsor a non-qualified deferred compensation plan , under which a cbiz employee 's compensation deferral is held in a rabbi trust and invested accordingly as directed by the employee . income and expenses related to the deferred compensation plan are included in โ operating expenses , โ โ gross margin โ and โ corporate general & administrative expenses โ and are directly offset by deferred compensation gains or losses in โ other income ( expense ) , net โ in the accompanying consolidated statements of comprehensive income . the deferred compensation plan has no impact on โ income from continuing operations before income tax expense โ or diluted earnings per share from continuing operations . 22 operating expenses the following table presents our operating expenses for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_6_th 2020 compared to 2019 - our operating expenses increased by $ 1.9 million . operating expense as a percentage of revenue decreased to 85.6 % of revenue from 86.8 % of revenue for the prior year . the deferred compensation plan increased operating expenses by $ 13.8 million and $ 17.2 million in 2020 and 2019 , respectively . excluding the impact of the deferred compensation plan , operating expenses would have been $ 811.5 million , or 84.2 % of revenue , in 2020 compared to $ 806.3 million , or 85.0 % of revenue , in 2019. the majority of our operating expenses relate to personnel costs , which includes ( i ) salaries and benefits , ( ii ) commissions paid to producers ( iii ) incentive compensation and ( iv ) share-based compensation . personnel costs increased $ 24.2 million , or 3.8 % . acquisitions contributed approximately $ 12.1 million to personnel costs . the increase in personnel costs was offset by approximately $ 20.1 million lower travel and entertainment and other discretionary spending in 2020 due to covid-19 . personnel costs and other operating expenses are discussed in further detail under โ operating practice groups . story_separator_special_tag we repurchased 2.4 million shares of our common stock at a total cost of approximately $ 59.6 million in 2020 , 1.3 million shares at a total cost of approximately $ 27.2 million in 2019 and 0.9 million shares at a total cost of approximately $ 17.5 million in 2018. refer to note 13 , common stock , to the accompanying consolidated financial statements for further discussion on the share repurchase program . cash requirements for 2021 - cash requirements for 2021 will include acquisitions , interest payments on debt , seasonal working capital requirements , contingent earnout payments for previous acquisitions , share repurchases and capital expenditures . we believe that cash provided by operations , as well as available funds under our credit facility will be sufficient to meet cash requirements for the next 12 months . 29 obligations and commitments our aggregate amount of future obligations for the next five years and thereafter is set forth below ( in thousands ) : replace_table_token_18_th ( 1 ) our credit facility matures on april 3 , 2023. interest on the credit facility is not determinable due to the revolving nature of the credit facility and the variability of the related interest rate . dollar amounts are estimates based on applying the 2.45 % weighted average rate of the credit facility at december 31 , 2020 to the $ 108.0 million outstanding balance of the credit facility at december 31 , 2020 . ( 2 ) operating leases include the minimum rent commitments under non-cancelable operating leases . amount excludes cash expected to be received under subleases and impact of future renewals . ( 3 ) represents the contingent purchase price liability that is expected to be paid over the next five years resulting from business acquisitions . for the years ended december 31 , 2021 , 2022 , 2023 , 2024 , and 2025 , the cash portions of the contingent purchase price liability are $ 12.2 million , $ 15.4 million , $ 9.0 million , $ 13.0 million , and $ 0.8 million , respectively , with the remaining balance representing the stock portions . ( 4 ) other liabilities include letters of credit and license bonds , contingencies related to the purchase of client lists and federal and state income taxes . for further discussion regarding commitments and contingencies , refer to note 11 , commitments and contingencies , to the accompanying consolidated financial statements . the liability for unrecognized tax benefits of $ 1.5 million under fasb asc topic 740 , income taxes , is excluded , since we are unable to reasonably estimate the timing of cash settlements with the respective tax authorities . off-balance sheet arrangements - we maintain asas with independent cpa firms ( as described more fully under โ business - financial services โ and in note 1 , basis of presentation and significant accounting policies , to the accompanying consolidated financial statements ) , which qualify as variable interest entities . the accompanying consolidated financial statements do not reflect the operations or accounts of variable interest entities as the impact is not material to the consolidated financial condition , results of operations , or cash flows of cbiz . we provide letters of credit for insurance needs as well as to landlords ( lessors ) of our leased premises in lieu of cash security deposits . letters of credit totaled $ 1.7 million and $ 1.3 million at december 31 , 2020 and 2019. in addition , we provide license bonds to various state agencies to meet certain licensing requirements . the amount of license bonds outstanding was $ 2.2 million and $ 2.3 million at december 31 , 2020 and 2019 , respectively . we have various agreements under which we may be obligated to indemnify the other party with respect to certain matters . generally , these indemnification clauses are included in contracts arising in the normal course of business under which we customarily agree to hold the other party harmless against losses arising from a breach of representations , warranties , covenants or agreements , related to matters such as title to assets sold and certain tax matters . payment by us under such indemnification clauses are generally conditioned upon the other party making a claim . such claims are typically subject to challenge by us and to dispute resolution procedures specified in the particular contract . further , our obligations under these agreements may be limited in terms of time and or amount and , in some instances , we may have recourse against third parties for certain payments made by us . it is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular agreement . historically , we have not made any payments under these agreements that have been material individually or in the aggregate . as of december 31 , 2020 , we were not aware of any obligations arising under indemnification agreements that would require material payments . interest rate risk management - we do not purchase or hold any derivative instruments for trading or speculative purposes . we utilize interest rate swaps to manage interest rate risk exposure associated with our floating-rate debt under the credit facility . under these interest rate swap contracts , we receive cash flows from counterparties at variable rates based on the london interbank offered rate ( โ libor โ ) and pay the counterparties a fixed rate . to mitigate counterparty credit risk , we only enter into contracts with selected major financial institutions with investment grade ratings and continually assess their creditworthiness . there are no credit risk-related contingent features in our interest rate swaps nor do the swaps contain provisions under which we would be required to post collateral . 30 as of december 31 , 2020 , the notional value of all
| cash provided by operating activities 2020 compared to 2019 - operating activities generated cash of $ 146.8 million during 2020 and consisted of net income of $ 78.3 million , adjusted for certain non-cash items , such as depreciation and amortization expense of $ 23.1 million , share-based compensation expense of $ 8.9 million , bad debt expense of $ 4.4 million , as well as $ 35.0 million of cash generated from working capital management . the $ 48.7 million increase in cash provided by operating activities in 2020 as compared to 2019 was primarily due to a net increase of $ 46.4 million in cash generated from working capital of which approximately $ 16.3 million related to the deferral of payroll tax deposit and payment , as well as an increase of $ 7.6 million in net income , offset by $ 5.3 million decrease in non-cash items . 2019 compared to 2018 - cash flow from operating activities generated cash of $ 98.2 million during 2019 and consisted of net income of $ 70.7 million , adjusted for certain non-cash items , such as depreciation and amortization expense of $ 22.3 million , deferred income taxes of $ 9.7 million , and share-based compensation expense of $ 7.3 million , as well as a working capital use of cash of $ 11.4 million . the $ 7.1 million decrease in cash provided by operating activities in 2019 compared to 2018 was primarily due to a net decrease in cash from working capital of $ 16.5 million , which was offset by the increase in net income of $ 9.1 million . investing activities the majority of our investing activities relate to acquisitions , capital expenditures and net activity related to funds held for clients .
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also included in net income for the fiscal year is an estimated tax benefit of approximately $ 77.4 million ( $ 2.62 per share ) related to the tax cuts and jobs act of 2017. during fiscal 2018 , the company repurchased $ 127.9 million , or 1.8 million shares , of class a common stock under the company 's stock repurchase plans , with $ 406.9 million in authorization remaining under the march 2018 stock plan at february 2 , 2019. as of february 2 , 2019 , we had working capital of $ 837.0 million ( including cash and cash equivalents of $ 123.5 million ) and $ 565.6 million of total debt outstanding , excluding capital lease obligations , with no scheduled maturities in fiscal 2019. we operated 265 dillard 's locations , 26 clearance centers and one internet store as of february 2 , 2019 . 18 key performance indicators we use a number of key indicators of financial condition and operating performance to evaluate the performance of our business , including the following : replace_table_token_7_th * based upon the 52 weeks ended february 2 , 2019 and the 52 weeks ended february 3 , 2018 * * based upon the 52 weeks ended january 27 , 2018 and the 52 weeks ended january 28 , 2017. trends and uncertainties fluctuations in the following key trends and uncertainties may have a material effect on our operating results . cash flowโcash from operating activities is a primary source of our liquidity that is adversely affected when the retail industry faces economic challenges . furthermore , operating cash flow can be negatively affected by competitive factors . pricingโif our customers do not purchase our merchandise offerings in sufficient quantities , we respond by taking markdowns . if we have to reduce our retail selling prices , the cost of sales on our consolidated statement of income will correspondingly rise , thus reducing our net income and cash flow . success of brandโthe success of our exclusive brand merchandise as well as merchandise we source from national vendors is dependent upon customer fashion preferences and how well we can predict and anticipate trends . sourcingโour store merchandise selection is dependent upon our ability to acquire appealing products from a number of sources . our ability to attract and retain compelling vendors as well as in-house design talent , the adequacy and stable availability of materials and production facilities from which we source our merchandise and the speed at which we can respond to customer trends and preferences all have a significant impact on our merchandise mix and , thus , our ability to sell merchandise at profitable prices . store growthโour ability to open new stores is dependent upon a number of factors , such as the identification of suitable markets and locations and the availability of shopping developments , especially in a weak economic environment . store growth can be further hindered by mall attrition and subsequent closure of underperforming properties . seasonality and inflation our business , like many other retailers , is subject to seasonal influences , with a significant portion of sales and income typically realized during the last quarter of our fiscal year due to the holiday season . because of the seasonality of our business , results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year . we do not believe that inflation has had a material effect on our results during the periods presented ; however , our business could be affected by such in the future . 19 2019 guidance a summary of management 's estimates of certain financial measures for fiscal 2019 is shown below . replace_table_token_8_th general net sales . net sales includes merchandise sales of comparable and non-comparable stores and revenue recognized on contracts of cdi contractors , llc ( โ cdi โ ) , the company 's general contracting construction company . comparable store sales includes sales for those stores which were in operation for a full period in both the current quarter and the corresponding quarter for the prior fiscal year . comparable store sales excludes changes in the allowance for sales returns . non-comparable store sales includes : sales in the current fiscal year from stores opened during the previous fiscal year before they are considered comparable stores ; sales from new stores opened during the current fiscal year ; sales in the previous fiscal year for stores closed during the current or previous fiscal year that are no longer considered comparable stores ; sales in clearance centers ; and changes in the allowance for sales returns . service charges and other income . service charges and other income includes income generated through the long-term marketing and servicing alliance with wells fargo bank , n.a . ( โ wells fargo alliance โ ) . other income includes rental income , shipping and handling fees , gift card breakage and lease income on leased departments . cost of sales . cost of sales includes the cost of merchandise sold ( net of purchase discounts , non-specific margin maintenance allowances and merchandise margin maintenance allowances ) , bankcard fees , freight to the distribution centers , employee and promotional discounts , shipping to customers and direct payroll for salon personnel . cost of sales also includes cdi contract costs , which comprise all direct material and labor costs , subcontract costs and those indirect costs related to contract performance , such as indirect labor , employee benefits and insurance program costs . selling , general and administrative expenses . selling , general and administrative expenses include buying , occupancy , selling , distribution , warehousing , store and corporate expenses ( including payroll and employee benefits ) , insurance , employment taxes , advertising , management information systems , legal and other corporate level expenses . story_separator_special_tag net sales from the construction segment increased $ 81.9 million or 53.4 % during fiscal 2018 as compared to fiscal 2017 due to an increase in construction projects . the backlog of awarded construction contracts at february 2 , 2019 totaled $ 335.1 million , increasing approximately 5 % from february 3 , 2018 . 2017 compared to 2016 net sales from the retail operations segment increased $ 36.6 million during the 53-week period ended february 3 , 2018 compared to the 52-week period ended january 28 , 2017 , increasing 1 % in total stores . sales in comparable stores remained unchanged on a percentage basis for the 52-week period ended january 27 , 2018 compared to the 52-week period ended january 28 , 2017. during the same 52-week periods , sales of ladies ' apparel increased moderately , and sales of juniors ' and children 's apparel increased slightly . sales of men 's apparel and accessories remained essentially flat . sales of ladies ' accessories and lingerie decreased slightly , while sales of cosmetics , shoes and home and furniture decreased moderately . the number of sales transactions during the 52-week period ended january 27 , 2018 decreased 3 % over the 52-week period ended january 28 , 2017 while the average dollars per sales transaction increased 2 % . 25 net sales from the construction segment decreased $ 32.1 million or 17.3 % during fiscal 2017 as compared to fiscal 2016 due to a decrease in construction projects . the backlog of awarded construction contracts at february 3 , 2018 totaled $ 319.7 million , increasing approximately 36 % from january 28 , 2017. exclusive brand merchandise sales penetration of exclusive brand merchandise for fiscal years 2018 , 2017 and 2016 was 20.7 % , 21.4 % and 21.7 % of total net sales , respectively . service charges and other income replace_table_token_12_th 2018 compared to 2017 service charges and other income is composed primarily of income from the wells fargo alliance . income from the alliances decreased $ 7.7 million in fiscal 2018 compared to fiscal 2017 primarily due to an increase in funding costs in 2018 and a sales tax settlement from the former synchrony alliance during fiscal 2017. shipping and handling income decreased in fiscal 2018 compared to fiscal 2017 primarily due to an increase in online orders qualifying for free shipping . 2017 compared to 2016 service charges and other income is composed primarily of income from the wells fargo alliance and former synchrony alliance . income from the alliances decreased $ 2.2 million in fiscal 2017 compared to fiscal 2016 primarily due to a decrease in finance charge income and an increase in funding costs , partially offset by a sales tax settlement from the former synchrony alliance . leased department income is primarily earned from an upscale women 's apparel vendor in certain stores . during fiscal 2017 , the vendor filed for bankruptcy ; however , the vendor was subsequently acquired , and the operations of the business remained intact . gross profit replace_table_token_13_th 26 2018 compared to 2017 gross profit as a percentage of net sales declined 45 basis points of sales during fiscal 2018 compared to fiscal 2017. gross profit from retail operations was flat as a percentage of segment net sales during the same periods . during fiscal 2018 , gross margin increased slightly in men 's apparel and shoes . gross margin remained essentially flat in ladies ' apparel , juniors ' and children 's apparel and home and furniture . gross margin declined slightly in ladies ' accessories and lingerie and cosmetics . gross profit from the construction segment decreased 78 basis points of segment net sales . the basis point decrease was due to a decrease in fees for external contracts . retail store inventory increased 4 % at february 2 , 2019 compared to february 3 , 2018 . 2017 compared to 2016 gross profit as a percentage of net sales declined 48 basis points of sales during fiscal 2017 compared to fiscal 2016. gross profit from retail operations declined 65 basis points of segment net sales during the same periods primarily due to increased markdowns . during fiscal 2017 , gross margin declined slightly in ladies ' apparel , cosmetics and juniors ' and children 's apparel . gross margin declined moderately in ladies ' accessories and lingerie . gross margin remained essentially flat in shoes and home and furniture . gross margin increased slightly in men 's apparel and accessories . gross profit from the construction segment decreased $ 2.0 million and 31 basis points of segment net sales . the basis point decrease was due to a decrease in fees for external contracts . retail store inventory increased 4 % at february 3 , 2018 compared to january 28 , 2017. selling , general and administrative expenses ( `` sg & a `` ) replace_table_token_14_th 2018 compared to 2017 sg & a increased $ 6.3 million and decreased 30 basis points of sales during the 52 weeks ended february 2 , 2019 compared to the 53 weeks ended february 3 , 2018. the dollar increase in expenses was primarily driven by payroll , primarily selling payroll , and services purchased . 2017 compared to 2016 sg & a increased $ 38.1 million and 59 basis points of sales during the 53 weeks ended february 3 , 2018 compared to the 52 weeks ended january 28 , 2017. the dollar increase in expenses was primarily driven by payroll due to the additional week of operations during the 2017 reporting period . 27 depreciation and amortization replace_table_token_15_th 2018 compared to 2017 depreciation and amortization expense decreased $ 7.8 million during fiscal 2018 compared to fiscal 2017 , primarily due to the timing and composition of capital expenditures . 2017 compared to 2016 depreciation and amortization expense decreased $ 12.1 million during fiscal 2017 compared to fiscal 2016 , primarily due to
| cash provided by operating activities 2020 compared to 2019 - operating activities generated cash of $ 146.8 million during 2020 and consisted of net income of $ 78.3 million , adjusted for certain non-cash items , such as depreciation and amortization expense of $ 23.1 million , share-based compensation expense of $ 8.9 million , bad debt expense of $ 4.4 million , as well as $ 35.0 million of cash generated from working capital management . the $ 48.7 million increase in cash provided by operating activities in 2020 as compared to 2019 was primarily due to a net increase of $ 46.4 million in cash generated from working capital of which approximately $ 16.3 million related to the deferral of payroll tax deposit and payment , as well as an increase of $ 7.6 million in net income , offset by $ 5.3 million decrease in non-cash items . 2019 compared to 2018 - cash flow from operating activities generated cash of $ 98.2 million during 2019 and consisted of net income of $ 70.7 million , adjusted for certain non-cash items , such as depreciation and amortization expense of $ 22.3 million , deferred income taxes of $ 9.7 million , and share-based compensation expense of $ 7.3 million , as well as a working capital use of cash of $ 11.4 million . the $ 7.1 million decrease in cash provided by operating activities in 2019 compared to 2018 was primarily due to a net decrease in cash from working capital of $ 16.5 million , which was offset by the increase in net income of $ 9.1 million . investing activities the majority of our investing activities relate to acquisitions , capital expenditures and net activity related to funds held for clients .
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also included in net income for the fiscal year is an estimated tax benefit of approximately $ 77.4 million ( $ 2.62 per share ) related to the tax cuts and jobs act of 2017. during fiscal 2018 , the company repurchased $ 127.9 million , or 1.8 million shares , of class a common stock under the company 's stock repurchase plans , with $ 406.9 million in authorization remaining under the march 2018 stock plan at february 2 , 2019. as of february 2 , 2019 , we had working capital of $ 837.0 million ( including cash and cash equivalents of $ 123.5 million ) and $ 565.6 million of total debt outstanding , excluding capital lease obligations , with no scheduled maturities in fiscal 2019. we operated 265 dillard 's locations , 26 clearance centers and one internet store as of february 2 , 2019 . 18 key performance indicators we use a number of key indicators of financial condition and operating performance to evaluate the performance of our business , including the following : replace_table_token_7_th * based upon the 52 weeks ended february 2 , 2019 and the 52 weeks ended february 3 , 2018 * * based upon the 52 weeks ended january 27 , 2018 and the 52 weeks ended january 28 , 2017. trends and uncertainties fluctuations in the following key trends and uncertainties may have a material effect on our operating results . cash flowโcash from operating activities is a primary source of our liquidity that is adversely affected when the retail industry faces economic challenges . furthermore , operating cash flow can be negatively affected by competitive factors . pricingโif our customers do not purchase our merchandise offerings in sufficient quantities , we respond by taking markdowns . if we have to reduce our retail selling prices , the cost of sales on our consolidated statement of income will correspondingly rise , thus reducing our net income and cash flow . success of brandโthe success of our exclusive brand merchandise as well as merchandise we source from national vendors is dependent upon customer fashion preferences and how well we can predict and anticipate trends . sourcingโour store merchandise selection is dependent upon our ability to acquire appealing products from a number of sources . our ability to attract and retain compelling vendors as well as in-house design talent , the adequacy and stable availability of materials and production facilities from which we source our merchandise and the speed at which we can respond to customer trends and preferences all have a significant impact on our merchandise mix and , thus , our ability to sell merchandise at profitable prices . store growthโour ability to open new stores is dependent upon a number of factors , such as the identification of suitable markets and locations and the availability of shopping developments , especially in a weak economic environment . store growth can be further hindered by mall attrition and subsequent closure of underperforming properties . seasonality and inflation our business , like many other retailers , is subject to seasonal influences , with a significant portion of sales and income typically realized during the last quarter of our fiscal year due to the holiday season . because of the seasonality of our business , results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year . we do not believe that inflation has had a material effect on our results during the periods presented ; however , our business could be affected by such in the future . 19 2019 guidance a summary of management 's estimates of certain financial measures for fiscal 2019 is shown below . replace_table_token_8_th general net sales . net sales includes merchandise sales of comparable and non-comparable stores and revenue recognized on contracts of cdi contractors , llc ( โ cdi โ ) , the company 's general contracting construction company . comparable store sales includes sales for those stores which were in operation for a full period in both the current quarter and the corresponding quarter for the prior fiscal year . comparable store sales excludes changes in the allowance for sales returns . non-comparable store sales includes : sales in the current fiscal year from stores opened during the previous fiscal year before they are considered comparable stores ; sales from new stores opened during the current fiscal year ; sales in the previous fiscal year for stores closed during the current or previous fiscal year that are no longer considered comparable stores ; sales in clearance centers ; and changes in the allowance for sales returns . service charges and other income . service charges and other income includes income generated through the long-term marketing and servicing alliance with wells fargo bank , n.a . ( โ wells fargo alliance โ ) . other income includes rental income , shipping and handling fees , gift card breakage and lease income on leased departments . cost of sales . cost of sales includes the cost of merchandise sold ( net of purchase discounts , non-specific margin maintenance allowances and merchandise margin maintenance allowances ) , bankcard fees , freight to the distribution centers , employee and promotional discounts , shipping to customers and direct payroll for salon personnel . cost of sales also includes cdi contract costs , which comprise all direct material and labor costs , subcontract costs and those indirect costs related to contract performance , such as indirect labor , employee benefits and insurance program costs . selling , general and administrative expenses . selling , general and administrative expenses include buying , occupancy , selling , distribution , warehousing , store and corporate expenses ( including payroll and employee benefits ) , insurance , employment taxes , advertising , management information systems , legal and other corporate level expenses . story_separator_special_tag net sales from the construction segment increased $ 81.9 million or 53.4 % during fiscal 2018 as compared to fiscal 2017 due to an increase in construction projects . the backlog of awarded construction contracts at february 2 , 2019 totaled $ 335.1 million , increasing approximately 5 % from february 3 , 2018 . 2017 compared to 2016 net sales from the retail operations segment increased $ 36.6 million during the 53-week period ended february 3 , 2018 compared to the 52-week period ended january 28 , 2017 , increasing 1 % in total stores . sales in comparable stores remained unchanged on a percentage basis for the 52-week period ended january 27 , 2018 compared to the 52-week period ended january 28 , 2017. during the same 52-week periods , sales of ladies ' apparel increased moderately , and sales of juniors ' and children 's apparel increased slightly . sales of men 's apparel and accessories remained essentially flat . sales of ladies ' accessories and lingerie decreased slightly , while sales of cosmetics , shoes and home and furniture decreased moderately . the number of sales transactions during the 52-week period ended january 27 , 2018 decreased 3 % over the 52-week period ended january 28 , 2017 while the average dollars per sales transaction increased 2 % . 25 net sales from the construction segment decreased $ 32.1 million or 17.3 % during fiscal 2017 as compared to fiscal 2016 due to a decrease in construction projects . the backlog of awarded construction contracts at february 3 , 2018 totaled $ 319.7 million , increasing approximately 36 % from january 28 , 2017. exclusive brand merchandise sales penetration of exclusive brand merchandise for fiscal years 2018 , 2017 and 2016 was 20.7 % , 21.4 % and 21.7 % of total net sales , respectively . service charges and other income replace_table_token_12_th 2018 compared to 2017 service charges and other income is composed primarily of income from the wells fargo alliance . income from the alliances decreased $ 7.7 million in fiscal 2018 compared to fiscal 2017 primarily due to an increase in funding costs in 2018 and a sales tax settlement from the former synchrony alliance during fiscal 2017. shipping and handling income decreased in fiscal 2018 compared to fiscal 2017 primarily due to an increase in online orders qualifying for free shipping . 2017 compared to 2016 service charges and other income is composed primarily of income from the wells fargo alliance and former synchrony alliance . income from the alliances decreased $ 2.2 million in fiscal 2017 compared to fiscal 2016 primarily due to a decrease in finance charge income and an increase in funding costs , partially offset by a sales tax settlement from the former synchrony alliance . leased department income is primarily earned from an upscale women 's apparel vendor in certain stores . during fiscal 2017 , the vendor filed for bankruptcy ; however , the vendor was subsequently acquired , and the operations of the business remained intact . gross profit replace_table_token_13_th 26 2018 compared to 2017 gross profit as a percentage of net sales declined 45 basis points of sales during fiscal 2018 compared to fiscal 2017. gross profit from retail operations was flat as a percentage of segment net sales during the same periods . during fiscal 2018 , gross margin increased slightly in men 's apparel and shoes . gross margin remained essentially flat in ladies ' apparel , juniors ' and children 's apparel and home and furniture . gross margin declined slightly in ladies ' accessories and lingerie and cosmetics . gross profit from the construction segment decreased 78 basis points of segment net sales . the basis point decrease was due to a decrease in fees for external contracts . retail store inventory increased 4 % at february 2 , 2019 compared to february 3 , 2018 . 2017 compared to 2016 gross profit as a percentage of net sales declined 48 basis points of sales during fiscal 2017 compared to fiscal 2016. gross profit from retail operations declined 65 basis points of segment net sales during the same periods primarily due to increased markdowns . during fiscal 2017 , gross margin declined slightly in ladies ' apparel , cosmetics and juniors ' and children 's apparel . gross margin declined moderately in ladies ' accessories and lingerie . gross margin remained essentially flat in shoes and home and furniture . gross margin increased slightly in men 's apparel and accessories . gross profit from the construction segment decreased $ 2.0 million and 31 basis points of segment net sales . the basis point decrease was due to a decrease in fees for external contracts . retail store inventory increased 4 % at february 3 , 2018 compared to january 28 , 2017. selling , general and administrative expenses ( `` sg & a `` ) replace_table_token_14_th 2018 compared to 2017 sg & a increased $ 6.3 million and decreased 30 basis points of sales during the 52 weeks ended february 2 , 2019 compared to the 53 weeks ended february 3 , 2018. the dollar increase in expenses was primarily driven by payroll , primarily selling payroll , and services purchased . 2017 compared to 2016 sg & a increased $ 38.1 million and 59 basis points of sales during the 53 weeks ended february 3 , 2018 compared to the 52 weeks ended january 28 , 2017. the dollar increase in expenses was primarily driven by payroll due to the additional week of operations during the 2017 reporting period . 27 depreciation and amortization replace_table_token_15_th 2018 compared to 2017 depreciation and amortization expense decreased $ 7.8 million during fiscal 2018 compared to fiscal 2017 , primarily due to the timing and composition of capital expenditures . 2017 compared to 2016 depreciation and amortization expense decreased $ 12.1 million during fiscal 2017 compared to fiscal 2016 , primarily due to
| liquidity and capital resources the company 's current non-operating priorities for its use of cash are strategic investments to enhance the value of existing properties , stock repurchases and dividend payments to stockholders . cash flows for the company 's most recent three fiscal years were as follows : replace_table_token_19_th operating activities the primary source of the company 's liquidity is cash flows from operations . due to the seasonality of the company 's business , we have historically realized a significant portion of the cash flows from operating activities during the second half of the fiscal year . retail operations sales are the key operating cash component , providing 94.1 % , 95.1 % and 94.6 % of total revenues in fiscal 2018 , 2017 and 2016 , respectively . operating cash inflows also include the company 's income and reimbursements from the wells fargo alliance and cash distributions from joint ventures ( excluding returns of investments ) . operating cash outflows include payments to vendors for inventory , services and supplies , payments to employees and payments of interest and taxes . wells fargo owns and manages the dillard 's private label cards under the wells fargo alliance . under the wells fargo alliance , wells fargo establishes and owns private label card accounts for our customers , retains the benefits and risks associated with the ownership of the accounts , provides key customer service functions , including new account openings , transaction authorization , billing adjustments and customer inquiries , receives the finance charge income and incurs the bad debts associated with those accounts . pursuant to the wells fargo alliance , we receive on-going cash compensation from wells fargo based upon the portfolio 's earnings . the compensation received from the portfolio is determined monthly and has no recourse provisions .
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as a result of prioritizing microline , in tandem with its micropine ( progressive myopia ) and microstat ( mydriasis ) programs , the company deferred development activities for its microprost ( glaucoma and ocular hypertension ) and microtears ( red eye and itch relief lubrication ) programs . presbyopia is a non-preventable , age-related hardening of the lens , which causes the gradual loss of the eye 's ability to focus on nearby objects . there currently are no known fda-approved drugs for the improvement of near vision in patients with presbyopia , although other companies have related therapies in their pipeline . eyenovia plans to initiate and complete its phase iii vision trials for microline in 2020. micropine is the company 's first-in-class topical therapy for the treatment of progressive myopia , a back-of-the-eye ocular disease associated with pathologic axial elongation and sclero-retinal stretching affecting approximately five million people in the united states . in february 2019 , the fda accepted eyenovia 's investigational new drug application , or ind , to initiate its phase iii registration trial of micropine ( the chaperone study ) to reduce the progression of myopia in children . eyenovia enrolled its first patient in the chaperone study in june 2019 and expects to complete enrollment in 2020. microstat is eyenovia 's fixed combination formulation of phenylephrine-tropicamide for mydriasis , designed to be a novel approach for the estimated 80 million office-based comprehensive and diabetic eye exams performed every year in the united states . eyenovia has completed its phase iii trials for microstat and announced positive results from these studies , known as mist-1 and mist-2 . with the primary objectives of its phase iii program for microstat met , eyenovia plans to submit a new drug application , or nda , to the fda in 2020 for marketing approval in the united states . results from our previous three phase ii clinical trials have been published in peer-reviewed literature . two studies evaluating our mydriatic agents demonstrated how the optejet consistently delivered precision dosing at the volume of the eye 's natural tear film capacity of 6-8 ยตl , which reduced ocular and systemic drug and preservative exposure , while demonstrating pupil dilation comparable to conventional eye drops with fewer side effects . in the third study , we evaluated usability , patient tolerability and iop lowering of microdosed latanoprost administered with the optejet . in this study , eyes receiving microdosed latanoprost achieved iop reduction consistent with published literature on latanoprost eye drops , and administration of the medication was successful in a single attempt in more than 90 % of cases . based on the results from these clinical trials , we are advancing microline , micropine , microstat , and microprost ( should we resume the program ) utilizing the 505 ( b ) ( 2 ) pathway . where possible , we also intend to use this pathway for future clinical trials in new indications with significant unmet needs . we have not completed development of any product candidate and we have therefore not generated any revenues from product sales . historically , we have financed our operations principally through stock offerings , including our initial public offering and follow-on public offering that closed in january and december 2018 , respectively and our public offering that closed in july 2019. based upon our current operating plan , substantial doubt about our ability to continue as a going concern for a period of at least one year from the date that the financial statements included elsewhere in this annual report on form 10-k are issued exists . our ability to continue as a going concern depends on our ability to raise additional capital , through the sale of equity or debt securities to support our future operations . if the company is unable to secure additional capital , it may be required to curtail its research and development initiatives and take additional measures to reduce costs . our net loss was $ 21.2 million for the year ended december 31 , 2019. as of december 31 , 2019 , we had working capital of $ 11.4 million and an accumulated deficit of $ 57.7 million . financial overview revenue we have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future . our ability to generate revenues will depend heavily on the successful development , regulatory approval and commercialization of our microdose therapeutic product candidates . 62 research and development expenses research and development expenses are incurred in connection with the research and development of our microdose- therapeutics and consist primarily of contract service expenses . given where we are in our life cycle , we do not separately track research and development expenses by project . our research and development expenses consist of : ยท direct clinical and non-clinical expenses , which include expenses incurred under agreements with contract research organizations , contract manufacturing organizations , and costs associated with preclinical activities , development activities and regulatory activities ; ยท personnel-related expenses , which include expenses related to consulting agreements with individuals that have since entered into employment agreements with us as well as salaries and other compensation of employees that is attributable to research and development activities ; and ยท facilities and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , marketing , insurance and other supplies used in research and development activities . we expense research and development costs as incurred . we record costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or other information our vendors provide to us . we expect that our research and development expenses will increase with the continuation of the story_separator_special_tag as a result of prioritizing microline , in tandem with its micropine ( progressive myopia ) and microstat ( mydriasis ) programs , the company deferred development activities for its microprost ( glaucoma and ocular hypertension ) and microtears ( red eye and itch relief lubrication ) programs . presbyopia is a non-preventable , age-related hardening of the lens , which causes the gradual loss of the eye 's ability to focus on nearby objects . there currently are no known fda-approved drugs for the improvement of near vision in patients with presbyopia , although other companies have related therapies in their pipeline . eyenovia plans to initiate and complete its phase iii vision trials for microline in 2020. micropine is the company 's first-in-class topical therapy for the treatment of progressive myopia , a back-of-the-eye ocular disease associated with pathologic axial elongation and sclero-retinal stretching affecting approximately five million people in the united states . in february 2019 , the fda accepted eyenovia 's investigational new drug application , or ind , to initiate its phase iii registration trial of micropine ( the chaperone study ) to reduce the progression of myopia in children . eyenovia enrolled its first patient in the chaperone study in june 2019 and expects to complete enrollment in 2020. microstat is eyenovia 's fixed combination formulation of phenylephrine-tropicamide for mydriasis , designed to be a novel approach for the estimated 80 million office-based comprehensive and diabetic eye exams performed every year in the united states . eyenovia has completed its phase iii trials for microstat and announced positive results from these studies , known as mist-1 and mist-2 . with the primary objectives of its phase iii program for microstat met , eyenovia plans to submit a new drug application , or nda , to the fda in 2020 for marketing approval in the united states . results from our previous three phase ii clinical trials have been published in peer-reviewed literature . two studies evaluating our mydriatic agents demonstrated how the optejet consistently delivered precision dosing at the volume of the eye 's natural tear film capacity of 6-8 ยตl , which reduced ocular and systemic drug and preservative exposure , while demonstrating pupil dilation comparable to conventional eye drops with fewer side effects . in the third study , we evaluated usability , patient tolerability and iop lowering of microdosed latanoprost administered with the optejet . in this study , eyes receiving microdosed latanoprost achieved iop reduction consistent with published literature on latanoprost eye drops , and administration of the medication was successful in a single attempt in more than 90 % of cases . based on the results from these clinical trials , we are advancing microline , micropine , microstat , and microprost ( should we resume the program ) utilizing the 505 ( b ) ( 2 ) pathway . where possible , we also intend to use this pathway for future clinical trials in new indications with significant unmet needs . we have not completed development of any product candidate and we have therefore not generated any revenues from product sales . historically , we have financed our operations principally through stock offerings , including our initial public offering and follow-on public offering that closed in january and december 2018 , respectively and our public offering that closed in july 2019. based upon our current operating plan , substantial doubt about our ability to continue as a going concern for a period of at least one year from the date that the financial statements included elsewhere in this annual report on form 10-k are issued exists . our ability to continue as a going concern depends on our ability to raise additional capital , through the sale of equity or debt securities to support our future operations . if the company is unable to secure additional capital , it may be required to curtail its research and development initiatives and take additional measures to reduce costs . our net loss was $ 21.2 million for the year ended december 31 , 2019. as of december 31 , 2019 , we had working capital of $ 11.4 million and an accumulated deficit of $ 57.7 million . financial overview revenue we have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future . our ability to generate revenues will depend heavily on the successful development , regulatory approval and commercialization of our microdose therapeutic product candidates . 62 research and development expenses research and development expenses are incurred in connection with the research and development of our microdose- therapeutics and consist primarily of contract service expenses . given where we are in our life cycle , we do not separately track research and development expenses by project . our research and development expenses consist of : ยท direct clinical and non-clinical expenses , which include expenses incurred under agreements with contract research organizations , contract manufacturing organizations , and costs associated with preclinical activities , development activities and regulatory activities ; ยท personnel-related expenses , which include expenses related to consulting agreements with individuals that have since entered into employment agreements with us as well as salaries and other compensation of employees that is attributable to research and development activities ; and ยท facilities and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , marketing , insurance and other supplies used in research and development activities . we expense research and development costs as incurred . we record costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or other information our vendors provide to us . we expect that our research and development expenses will increase with the continuation of the
| liquidity and capital resources the company 's current non-operating priorities for its use of cash are strategic investments to enhance the value of existing properties , stock repurchases and dividend payments to stockholders . cash flows for the company 's most recent three fiscal years were as follows : replace_table_token_19_th operating activities the primary source of the company 's liquidity is cash flows from operations . due to the seasonality of the company 's business , we have historically realized a significant portion of the cash flows from operating activities during the second half of the fiscal year . retail operations sales are the key operating cash component , providing 94.1 % , 95.1 % and 94.6 % of total revenues in fiscal 2018 , 2017 and 2016 , respectively . operating cash inflows also include the company 's income and reimbursements from the wells fargo alliance and cash distributions from joint ventures ( excluding returns of investments ) . operating cash outflows include payments to vendors for inventory , services and supplies , payments to employees and payments of interest and taxes . wells fargo owns and manages the dillard 's private label cards under the wells fargo alliance . under the wells fargo alliance , wells fargo establishes and owns private label card accounts for our customers , retains the benefits and risks associated with the ownership of the accounts , provides key customer service functions , including new account openings , transaction authorization , billing adjustments and customer inquiries , receives the finance charge income and incurs the bad debts associated with those accounts . pursuant to the wells fargo alliance , we receive on-going cash compensation from wells fargo based upon the portfolio 's earnings . the compensation received from the portfolio is determined monthly and has no recourse provisions .
| 0 |
as a result of prioritizing microline , in tandem with its micropine ( progressive myopia ) and microstat ( mydriasis ) programs , the company deferred development activities for its microprost ( glaucoma and ocular hypertension ) and microtears ( red eye and itch relief lubrication ) programs . presbyopia is a non-preventable , age-related hardening of the lens , which causes the gradual loss of the eye 's ability to focus on nearby objects . there currently are no known fda-approved drugs for the improvement of near vision in patients with presbyopia , although other companies have related therapies in their pipeline . eyenovia plans to initiate and complete its phase iii vision trials for microline in 2020. micropine is the company 's first-in-class topical therapy for the treatment of progressive myopia , a back-of-the-eye ocular disease associated with pathologic axial elongation and sclero-retinal stretching affecting approximately five million people in the united states . in february 2019 , the fda accepted eyenovia 's investigational new drug application , or ind , to initiate its phase iii registration trial of micropine ( the chaperone study ) to reduce the progression of myopia in children . eyenovia enrolled its first patient in the chaperone study in june 2019 and expects to complete enrollment in 2020. microstat is eyenovia 's fixed combination formulation of phenylephrine-tropicamide for mydriasis , designed to be a novel approach for the estimated 80 million office-based comprehensive and diabetic eye exams performed every year in the united states . eyenovia has completed its phase iii trials for microstat and announced positive results from these studies , known as mist-1 and mist-2 . with the primary objectives of its phase iii program for microstat met , eyenovia plans to submit a new drug application , or nda , to the fda in 2020 for marketing approval in the united states . results from our previous three phase ii clinical trials have been published in peer-reviewed literature . two studies evaluating our mydriatic agents demonstrated how the optejet consistently delivered precision dosing at the volume of the eye 's natural tear film capacity of 6-8 ยตl , which reduced ocular and systemic drug and preservative exposure , while demonstrating pupil dilation comparable to conventional eye drops with fewer side effects . in the third study , we evaluated usability , patient tolerability and iop lowering of microdosed latanoprost administered with the optejet . in this study , eyes receiving microdosed latanoprost achieved iop reduction consistent with published literature on latanoprost eye drops , and administration of the medication was successful in a single attempt in more than 90 % of cases . based on the results from these clinical trials , we are advancing microline , micropine , microstat , and microprost ( should we resume the program ) utilizing the 505 ( b ) ( 2 ) pathway . where possible , we also intend to use this pathway for future clinical trials in new indications with significant unmet needs . we have not completed development of any product candidate and we have therefore not generated any revenues from product sales . historically , we have financed our operations principally through stock offerings , including our initial public offering and follow-on public offering that closed in january and december 2018 , respectively and our public offering that closed in july 2019. based upon our current operating plan , substantial doubt about our ability to continue as a going concern for a period of at least one year from the date that the financial statements included elsewhere in this annual report on form 10-k are issued exists . our ability to continue as a going concern depends on our ability to raise additional capital , through the sale of equity or debt securities to support our future operations . if the company is unable to secure additional capital , it may be required to curtail its research and development initiatives and take additional measures to reduce costs . our net loss was $ 21.2 million for the year ended december 31 , 2019. as of december 31 , 2019 , we had working capital of $ 11.4 million and an accumulated deficit of $ 57.7 million . financial overview revenue we have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future . our ability to generate revenues will depend heavily on the successful development , regulatory approval and commercialization of our microdose therapeutic product candidates . 62 research and development expenses research and development expenses are incurred in connection with the research and development of our microdose- therapeutics and consist primarily of contract service expenses . given where we are in our life cycle , we do not separately track research and development expenses by project . our research and development expenses consist of : ยท direct clinical and non-clinical expenses , which include expenses incurred under agreements with contract research organizations , contract manufacturing organizations , and costs associated with preclinical activities , development activities and regulatory activities ; ยท personnel-related expenses , which include expenses related to consulting agreements with individuals that have since entered into employment agreements with us as well as salaries and other compensation of employees that is attributable to research and development activities ; and ยท facilities and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , marketing , insurance and other supplies used in research and development activities . we expense research and development costs as incurred . we record costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or other information our vendors provide to us . we expect that our research and development expenses will increase with the continuation of the story_separator_special_tag as a result of prioritizing microline , in tandem with its micropine ( progressive myopia ) and microstat ( mydriasis ) programs , the company deferred development activities for its microprost ( glaucoma and ocular hypertension ) and microtears ( red eye and itch relief lubrication ) programs . presbyopia is a non-preventable , age-related hardening of the lens , which causes the gradual loss of the eye 's ability to focus on nearby objects . there currently are no known fda-approved drugs for the improvement of near vision in patients with presbyopia , although other companies have related therapies in their pipeline . eyenovia plans to initiate and complete its phase iii vision trials for microline in 2020. micropine is the company 's first-in-class topical therapy for the treatment of progressive myopia , a back-of-the-eye ocular disease associated with pathologic axial elongation and sclero-retinal stretching affecting approximately five million people in the united states . in february 2019 , the fda accepted eyenovia 's investigational new drug application , or ind , to initiate its phase iii registration trial of micropine ( the chaperone study ) to reduce the progression of myopia in children . eyenovia enrolled its first patient in the chaperone study in june 2019 and expects to complete enrollment in 2020. microstat is eyenovia 's fixed combination formulation of phenylephrine-tropicamide for mydriasis , designed to be a novel approach for the estimated 80 million office-based comprehensive and diabetic eye exams performed every year in the united states . eyenovia has completed its phase iii trials for microstat and announced positive results from these studies , known as mist-1 and mist-2 . with the primary objectives of its phase iii program for microstat met , eyenovia plans to submit a new drug application , or nda , to the fda in 2020 for marketing approval in the united states . results from our previous three phase ii clinical trials have been published in peer-reviewed literature . two studies evaluating our mydriatic agents demonstrated how the optejet consistently delivered precision dosing at the volume of the eye 's natural tear film capacity of 6-8 ยตl , which reduced ocular and systemic drug and preservative exposure , while demonstrating pupil dilation comparable to conventional eye drops with fewer side effects . in the third study , we evaluated usability , patient tolerability and iop lowering of microdosed latanoprost administered with the optejet . in this study , eyes receiving microdosed latanoprost achieved iop reduction consistent with published literature on latanoprost eye drops , and administration of the medication was successful in a single attempt in more than 90 % of cases . based on the results from these clinical trials , we are advancing microline , micropine , microstat , and microprost ( should we resume the program ) utilizing the 505 ( b ) ( 2 ) pathway . where possible , we also intend to use this pathway for future clinical trials in new indications with significant unmet needs . we have not completed development of any product candidate and we have therefore not generated any revenues from product sales . historically , we have financed our operations principally through stock offerings , including our initial public offering and follow-on public offering that closed in january and december 2018 , respectively and our public offering that closed in july 2019. based upon our current operating plan , substantial doubt about our ability to continue as a going concern for a period of at least one year from the date that the financial statements included elsewhere in this annual report on form 10-k are issued exists . our ability to continue as a going concern depends on our ability to raise additional capital , through the sale of equity or debt securities to support our future operations . if the company is unable to secure additional capital , it may be required to curtail its research and development initiatives and take additional measures to reduce costs . our net loss was $ 21.2 million for the year ended december 31 , 2019. as of december 31 , 2019 , we had working capital of $ 11.4 million and an accumulated deficit of $ 57.7 million . financial overview revenue we have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future . our ability to generate revenues will depend heavily on the successful development , regulatory approval and commercialization of our microdose therapeutic product candidates . 62 research and development expenses research and development expenses are incurred in connection with the research and development of our microdose- therapeutics and consist primarily of contract service expenses . given where we are in our life cycle , we do not separately track research and development expenses by project . our research and development expenses consist of : ยท direct clinical and non-clinical expenses , which include expenses incurred under agreements with contract research organizations , contract manufacturing organizations , and costs associated with preclinical activities , development activities and regulatory activities ; ยท personnel-related expenses , which include expenses related to consulting agreements with individuals that have since entered into employment agreements with us as well as salaries and other compensation of employees that is attributable to research and development activities ; and ยท facilities and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , marketing , insurance and other supplies used in research and development activities . we expense research and development costs as incurred . we record costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or other information our vendors provide to us . we expect that our research and development expenses will increase with the continuation of the
| liquidity and going concern since inception , we have experienced negative cash flows from operations . at december 31 , 2019 , our accumulated deficit since inception was $ 57.7 million . at december 31 , 2019 , we had working capital of $ 11.4 million and stockholders ' equity of $ 11.7 million . at december 31 , 2019 and 2018 , we had no debt outstanding . at december 31 , 2019 , we had a cash and cash equivalents balance of $ 14.2 million . these conditions raise substantial doubt about our ability to continue as a going concern for a period of at least one year from the date that the financial statements included elsewhere in this annual report on form 10-k are issued . our financial statements do not include adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern . our ability to continue as a going concern depends on our ability to raise additional capital , through the sale of equity or debt securities to support our future operations . our operating needs include the planned costs to operate our business , including amounts required to fund research and development activities including clinical studies , working capital and capital expenditures .
| 1 |
see ยliquidity and capital resources.ย factors affecting our results of operations we expect our expenses to increase substantially in connection with our ongoing activities , particularly as we continue to invest in research and development and commence our phase 3 program of trabodenoson in 2015. we also expect our expenses to increase as we complete formulation and manufacturing activities of our fdc product candidate and commence clinical trials in 2016. in addition , if we successfully launch trabodenoson as a monotherapy or any other product candidates , we expect to incur significant commercialization expenses related to sales , marketing , manufacturing and distribution of our products . furthermore , we expect to incur additional costs associated with operating as a public company . we expect operating expenses to increase substantially to support an increased infrastructure and expanded operations . 85 accordingly , we will need to obtain additional funding in connection with our continuing operations . adequate additional financing may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on attractive terms , we would be forced to delay , reduce or eliminate our research and development programs or any potential future commercialization efforts . we will need to generate significant revenues to achieve profitability , and we may never do so . as a result , we expect to incur significant expenses and increasing operating losses for the foreseeable future . financial overview revenue we have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future . our ability to generate revenues will depend on the successful development , regulatory approval and commercialization of trabodenoson and any other future product candidates . historically , we generated revenues primarily from research grants received from governmental agencies and private companies as well as revenue earned under licensing and research collaboration contracts that were unrelated to our current research and development programs . research and development expenses research and development expenses consist primarily of the costs associated with our research and development activities , conducting preclinical studies and clinical trials and activities related to regulatory filings . our research and development expenses consist of : direct clinical and non-clinical expenses which include expenses incurred under agreements with contract research organizations , or cros , contract manufacturing organizations and costs associated with preclinical activities and development activities and costs associated with regulatory activities ; employee and consultant-related expenses , including salaries , benefits , travel and stock-based compensation expense for research and development personnel as well as consultants that conduct and support clinical trials and preclinical studies ; and facilities and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies used in research and development activities . we expense research and development costs as incurred . we record costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or other information our vendors provide to us . the following table summarizes our research and development expenses by type of activity for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_7_th 86 all research and development efforts and expenses for the years ended december 31 , 2014 , 2013 and 2012 relate to the development of trabodenoson . we do not track trabodenoson -related expenses by product candidate . all expenses related to trabodenoson as a monotherapy also benefit the fdc product candidate trabodenoson with latanoprost . we have expended approximately $ 41 million for external development costs related to trabodenoson from inception through december 31 , 2014. the process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming and the successful development of our product candidates is highly uncertain . our future research and development expenses will depend on the clinical success of our product candidates , as well as ongoing assessments of the commercial potential of such product candidates . in addition , we can not forecast with any degree of certainty which product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . we expect our research and development expenses to increase in future periods for the foreseeable future as we seek to complete development of our lead product candidate , trabodenoson , further develop our other product candidates and expand our research and development personnel to focus on these product candidate development activities . the successful development and commercialization of our product candidates is highly uncertain . this is due to the numerous risks and uncertainties associated with product development and commercialization , including the uncertainty of : the scope , progress , outcome and costs of our clinical trials and other research and development activities ; the efficacy and potential advantages of our product candidates compared to alternative treatments , including any standard of care ; the market acceptance of our product candidates ; obtaining , maintaining , defending and enforcing patent claims and other intellectual property rights ; significant and changing government regulation ; and the timing , receipt and terms of any marketing approvals . a change in the outcome of any of these variables with respect to the development of trabodenoson or any other product candidate that we may develop could mean a significant change in the costs and timing associated with the development of that product candidate . story_separator_special_tag unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability , and are developed based on the best information available in the circumstances . the fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality . the three levels of the fair value hierarchy are described below : level 1ยvaluations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date ; level 2ยvaluations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable , either directly or indirectly ; level 3ยvaluations that require inputs that reflect our own assumptions that are both significant to the fair value measurement and unobservable . to the extent that valuation is based on models or inputs that are less observable or unobservable in the market , the determination of fair value requires more judgment . accordingly , the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in level 3. a financial instrument 's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement . our material financial instruments at december 31 , 2014 and 2013 consisted of cash and cash equivalents , preferred stock warrant liabilities and a convertible debt redemption rights derivative . we have determined that 94 our preferred stock warrant liabilities and convertible debt redemption rights derivative are subject to level 3 fair value measurements . we account for both our preferred stock warrant liabilities and convertible debt redemption rights derivative as liabilities based upon the characteristics and provisions of the underlying instruments . these liabilities were recorded at their fair value on the date of issuance and are re-measured on each subsequent balance sheet date , with fair value changes recognized as income ( decreases in fair value ) or expense ( increases in fair value ) in change in fair value of warrant liabilities and convertible notes redemption rights derivative in the statements of operations . stock-based compensation we measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award . that cost is recognized on a straight-line basis over the period during which the employee is required to provide service in exchange for the award . the fair value of options on the date of grant is calculated using the black-scholes option pricing model based on key assumptions such as stock price , expected volatility and expected term . our estimates of these assumptions are primarily based on third-party valuations , historical data , peer company data and judgment regarding future trends and factors . we account for stock options issued to non-employees in accordance with the provisions of the financial accounting standards board , or fasb , asc subtopic 505-50 , equity-based payments to non-employees , which requires valuing the stock options using the black-scholes option pricing model and re-measuring such stock options at their current fair value as they vest . significant factors , assumptions and methodologies used in determining fair value determining the fair value of our convertible preferred stock warrants , convertible debt derivative and stock-based awards requires the use of subjective assumptions . in the absence of a publicly traded market for our securities , we conducted periodic valuations of our securities . valuations conducted in 2014 and 2013 a third-party valuation consultant was engaged to advise and assist us in connection with the valuations of our ( i ) series aa preferred stock warrants outstanding on december 31 , 2014 and 2013 , ( ii ) our convertible debt redemption rights derivative at issuance and at december 31 , 2014 , ( iii ) our common stock options issued in august 2014 and ( iv ) our series aa preferred stock warrants exercised in august and september 2014. because our series x preferred stock is entitled to a contingent liquidation preference which varies based on the total value of our equity , we were precluded from using a closed-form model , such as the black-scholes option pricing method , to value the series aa preferred stock warrants . therefore , we employed a monte carlo simulation methodology for all models used to determine the fair value of securities in our capital structure . common stock and preferred stock warrant valuations our initial equity value , or ev , was determined by utilizing a risk-adjusted discounted cash flow model based upon market research and management 's assessment thereof , which is an income approach and was corroborated with market data , coupled with a series of monte carlo simulations which projected various equity values under different possible liquidity events including ( i ) initial public offering , or ipo , ( ii ) merger and acquisition , or m & a , and ( iii ) stay-private , or sp , scenarios . the first two scenarios assume positive results from our recent phase 2 clinical trial , while the third scenario considered unfavorable results for valuations performed prior to december 31 , 2014 and , at december 31 , 2014 , no ipo or m & a transaction . key assumptions underlying the discounted cash flow model are described below : based on the research and industry knowledge of our officers and consultants , we developed projections of market penetration , product selling prices and required infrastructure to estimate our future revenues and operating expenses to determine projected free cash flows from our two current product candidates containing trabodenoson , through patent expiration . 95 probability of success . to determine the probability of success for the various phases of
| liquidity and going concern since inception , we have experienced negative cash flows from operations . at december 31 , 2019 , our accumulated deficit since inception was $ 57.7 million . at december 31 , 2019 , we had working capital of $ 11.4 million and stockholders ' equity of $ 11.7 million . at december 31 , 2019 and 2018 , we had no debt outstanding . at december 31 , 2019 , we had a cash and cash equivalents balance of $ 14.2 million . these conditions raise substantial doubt about our ability to continue as a going concern for a period of at least one year from the date that the financial statements included elsewhere in this annual report on form 10-k are issued . our financial statements do not include adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern . our ability to continue as a going concern depends on our ability to raise additional capital , through the sale of equity or debt securities to support our future operations . our operating needs include the planned costs to operate our business , including amounts required to fund research and development activities including clinical studies , working capital and capital expenditures .
| 0 |
see ยliquidity and capital resources.ย factors affecting our results of operations we expect our expenses to increase substantially in connection with our ongoing activities , particularly as we continue to invest in research and development and commence our phase 3 program of trabodenoson in 2015. we also expect our expenses to increase as we complete formulation and manufacturing activities of our fdc product candidate and commence clinical trials in 2016. in addition , if we successfully launch trabodenoson as a monotherapy or any other product candidates , we expect to incur significant commercialization expenses related to sales , marketing , manufacturing and distribution of our products . furthermore , we expect to incur additional costs associated with operating as a public company . we expect operating expenses to increase substantially to support an increased infrastructure and expanded operations . 85 accordingly , we will need to obtain additional funding in connection with our continuing operations . adequate additional financing may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on attractive terms , we would be forced to delay , reduce or eliminate our research and development programs or any potential future commercialization efforts . we will need to generate significant revenues to achieve profitability , and we may never do so . as a result , we expect to incur significant expenses and increasing operating losses for the foreseeable future . financial overview revenue we have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future . our ability to generate revenues will depend on the successful development , regulatory approval and commercialization of trabodenoson and any other future product candidates . historically , we generated revenues primarily from research grants received from governmental agencies and private companies as well as revenue earned under licensing and research collaboration contracts that were unrelated to our current research and development programs . research and development expenses research and development expenses consist primarily of the costs associated with our research and development activities , conducting preclinical studies and clinical trials and activities related to regulatory filings . our research and development expenses consist of : direct clinical and non-clinical expenses which include expenses incurred under agreements with contract research organizations , or cros , contract manufacturing organizations and costs associated with preclinical activities and development activities and costs associated with regulatory activities ; employee and consultant-related expenses , including salaries , benefits , travel and stock-based compensation expense for research and development personnel as well as consultants that conduct and support clinical trials and preclinical studies ; and facilities and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies used in research and development activities . we expense research and development costs as incurred . we record costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or other information our vendors provide to us . the following table summarizes our research and development expenses by type of activity for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_7_th 86 all research and development efforts and expenses for the years ended december 31 , 2014 , 2013 and 2012 relate to the development of trabodenoson . we do not track trabodenoson -related expenses by product candidate . all expenses related to trabodenoson as a monotherapy also benefit the fdc product candidate trabodenoson with latanoprost . we have expended approximately $ 41 million for external development costs related to trabodenoson from inception through december 31 , 2014. the process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming and the successful development of our product candidates is highly uncertain . our future research and development expenses will depend on the clinical success of our product candidates , as well as ongoing assessments of the commercial potential of such product candidates . in addition , we can not forecast with any degree of certainty which product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . we expect our research and development expenses to increase in future periods for the foreseeable future as we seek to complete development of our lead product candidate , trabodenoson , further develop our other product candidates and expand our research and development personnel to focus on these product candidate development activities . the successful development and commercialization of our product candidates is highly uncertain . this is due to the numerous risks and uncertainties associated with product development and commercialization , including the uncertainty of : the scope , progress , outcome and costs of our clinical trials and other research and development activities ; the efficacy and potential advantages of our product candidates compared to alternative treatments , including any standard of care ; the market acceptance of our product candidates ; obtaining , maintaining , defending and enforcing patent claims and other intellectual property rights ; significant and changing government regulation ; and the timing , receipt and terms of any marketing approvals . a change in the outcome of any of these variables with respect to the development of trabodenoson or any other product candidate that we may develop could mean a significant change in the costs and timing associated with the development of that product candidate . story_separator_special_tag unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability , and are developed based on the best information available in the circumstances . the fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality . the three levels of the fair value hierarchy are described below : level 1ยvaluations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date ; level 2ยvaluations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable , either directly or indirectly ; level 3ยvaluations that require inputs that reflect our own assumptions that are both significant to the fair value measurement and unobservable . to the extent that valuation is based on models or inputs that are less observable or unobservable in the market , the determination of fair value requires more judgment . accordingly , the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in level 3. a financial instrument 's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement . our material financial instruments at december 31 , 2014 and 2013 consisted of cash and cash equivalents , preferred stock warrant liabilities and a convertible debt redemption rights derivative . we have determined that 94 our preferred stock warrant liabilities and convertible debt redemption rights derivative are subject to level 3 fair value measurements . we account for both our preferred stock warrant liabilities and convertible debt redemption rights derivative as liabilities based upon the characteristics and provisions of the underlying instruments . these liabilities were recorded at their fair value on the date of issuance and are re-measured on each subsequent balance sheet date , with fair value changes recognized as income ( decreases in fair value ) or expense ( increases in fair value ) in change in fair value of warrant liabilities and convertible notes redemption rights derivative in the statements of operations . stock-based compensation we measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award . that cost is recognized on a straight-line basis over the period during which the employee is required to provide service in exchange for the award . the fair value of options on the date of grant is calculated using the black-scholes option pricing model based on key assumptions such as stock price , expected volatility and expected term . our estimates of these assumptions are primarily based on third-party valuations , historical data , peer company data and judgment regarding future trends and factors . we account for stock options issued to non-employees in accordance with the provisions of the financial accounting standards board , or fasb , asc subtopic 505-50 , equity-based payments to non-employees , which requires valuing the stock options using the black-scholes option pricing model and re-measuring such stock options at their current fair value as they vest . significant factors , assumptions and methodologies used in determining fair value determining the fair value of our convertible preferred stock warrants , convertible debt derivative and stock-based awards requires the use of subjective assumptions . in the absence of a publicly traded market for our securities , we conducted periodic valuations of our securities . valuations conducted in 2014 and 2013 a third-party valuation consultant was engaged to advise and assist us in connection with the valuations of our ( i ) series aa preferred stock warrants outstanding on december 31 , 2014 and 2013 , ( ii ) our convertible debt redemption rights derivative at issuance and at december 31 , 2014 , ( iii ) our common stock options issued in august 2014 and ( iv ) our series aa preferred stock warrants exercised in august and september 2014. because our series x preferred stock is entitled to a contingent liquidation preference which varies based on the total value of our equity , we were precluded from using a closed-form model , such as the black-scholes option pricing method , to value the series aa preferred stock warrants . therefore , we employed a monte carlo simulation methodology for all models used to determine the fair value of securities in our capital structure . common stock and preferred stock warrant valuations our initial equity value , or ev , was determined by utilizing a risk-adjusted discounted cash flow model based upon market research and management 's assessment thereof , which is an income approach and was corroborated with market data , coupled with a series of monte carlo simulations which projected various equity values under different possible liquidity events including ( i ) initial public offering , or ipo , ( ii ) merger and acquisition , or m & a , and ( iii ) stay-private , or sp , scenarios . the first two scenarios assume positive results from our recent phase 2 clinical trial , while the third scenario considered unfavorable results for valuations performed prior to december 31 , 2014 and , at december 31 , 2014 , no ipo or m & a transaction . key assumptions underlying the discounted cash flow model are described below : based on the research and industry knowledge of our officers and consultants , we developed projections of market penetration , product selling prices and required infrastructure to estimate our future revenues and operating expenses to determine projected free cash flows from our two current product candidates containing trabodenoson , through patent expiration . 95 probability of success . to determine the probability of success for the various phases of
| liquidity and capital resources since inception , we have incurred accumulated net losses and negative cash flows from our operations . we incurred net losses of $ 9.5 million , $ 7.6 million and $ 6.1 million for the years ended december 31 , 2014 , 2013 and 2012 respectively . our operating activities used $ 9.7 million , $ 6.5 million and $ 6.9 million of cash during the years ended december 2014 , 2013 and 2012 , respectively . as of december 31 , 2014 , the company had $ 3.6 million of cash and cash equivalents . in february 2015 , we completed our ipo and concurrent note offering and in march 2015 the underwriters purchased a portion of their common stock and notes overallotment options resulting in net proceeds to us of approximately $ 55.5 million . as of march 30 , 2015 we have outstanding $ 21.0 million of 2020 notes . the company estimates that it has sufficient funding to sustain operations through at least the next 18 months . in december 2014 , the company sold an aggregate of $ 2.0 million of the 2014 bridge notes . in addition to other terms , the 2014 bridge notes had a maturity of june 30 , 2015 , accrued interest at the rate of 8 % per annum and were subordinate to all other senior indebtedness of the company . upon the closing of our ipo , the 2014 bridge notes , including accrued interest , automatically converted into 337,932 shares of our common stock . on june 28 , 2013 , we entered into notes payable agreements with two financial entities pursuant to which we issued a $ 3.5 million note to each lender and received net proceeds of $ 6.9 million .
| 1 |
as permitted by jobs act , so long as it qualifies as an egc , the company will take advantage of some of the reduced regulatory and reporting requirements that are available to it , including , but not limited to , not being required to comply with the auditor attestation requirements of section 404 ( b ) of the sarbanes-oxley act , reduced disclosure obligations regarding executive compensation , and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments . discussion on the results of operations for the years ended december 31 , 2017 , december 31 , 2016 and december 31 , 2015 net income for the year ended december 31 , 2017 , net income was $ 12.4 million , an increase of $ 7.4 million or 146.7 % from $ 5.0 million for the year ended december 31 , 2016. the increase was due to an increase in net interest income after provision for loan losses of $ 15.0 million , primarily driven by higher volume of loans combined with higher yield on loans , and an increase in non-interest income of $ 5.9 million , primarily driven by an increase in service charges and fees . these increases were offset by an increase of $ 5.4 million in non-interest expense , driven by the growth of the business , and an increase of $ 8.2 million in income tax expense , which is a result of higher pretax net income in 2017 and a one-time u.s. tax expense of $ 1.6 million resulting from the tax act , which the u.s. government enacted on december 22 , 2017. net income increased $ 744,000 , or 17.4 % , to $ 5.0 million for the year ended december 31 , 2016 from $ 4.3 million for the year ended december 31 , 2015. the increase was due to an increase in net interest income and debit card income . the increase in net interest income was caused by an increase in interest and fees on loans , which increased $ 11.3 million , or 36.1 % for the year ended december 31 , 2016. this increase was due to the bank 's continued success in growing its loans . 46 net interest income analysis net interest income is the difference between interest earned on assets and interest incurred on liabilities . the following table presents an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities for the years ended december 31 , 2017 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_2_th โ ( 1 ) represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities . โ ( 2 ) represents total interest-earning assets less total interest-bearing liabilities . โ ( 3 ) represents net interest income divided by total interest-earning assets . โ rate/volume analysis the following table presents the effects of changing rates and volumes on net interest income for the periods indicated . the rate column shows the effects attributable to changes in rate ( changes in rate multiplied by prior volume ) . the volume column shows the effects attributable to changes in volume 47 ( changes in volume multiplied by prior rate ) . the net column represents the sum of the prior columns . for purposes of this table , changes attributable to both rate and volume , which can not be segregated , have been allocated proportionately , based on the changes due to rate and the changes due to volume . dollars are in thousands . โ โ โ at december 31 , โ โ โ โ 2017 over 2016 โ โ 2016 over 2015 โ โ โ โ increase ( decrease ) due to โ โ total increase ( decrease ) โ โ increase ( decrease ) due to โ โ total increase ( decrease ) โ โ โ โ volume โ โ rate โ โ volume โ โ rate โ interest-earning assets : โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ loans โ โ โ $ 14,457 โ โ โ โ $ 258 โ โ โ โ $ 14,715 โ โ โ โ $ 10,235 โ โ โ โ $ 1,017 โ โ โ โ $ 11,252 โ โ available-for-sale securities โ โ โ โ ( 82 ) โ โ โ โ โ ( 40 ) โ โ โ โ โ ( 122 ) โ โ โ โ โ ( 213 ) โ โ โ โ โ 9 โ โ โ โ โ ( 204 ) โ โ held-to-maturity securities โ โ โ โ ( 2 ) โ โ โ โ โ 4 โ โ โ โ โ 2 โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ other interest-earning assets โ โ โ โ 1,502 โ โ โ โ โ 501 โ โ โ โ โ 2,003 โ โ โ โ โ 216 โ โ โ โ โ 209 โ โ โ โ โ 425 โ โ total interest-earning assets โ โ โ $ 15,875 โ โ โ โ $ 723 โ โ โ โ $ 16,598 โ โ โ โ $ 10,238 โ โ โ โ $ 1,235 โ โ โ โ $ 11,473 โ โ interest-bearing liabilities : โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ money market and savings accounts โ โ โ $ 469 โ โ โ โ $ 697 โ โ โ โ $ 1,166 โ โ โ โ $ 760 โ โ โ โ $ 235 โ story_separator_special_tag โ โ โ โ โ 2.27 โ โ total securities available-for-sale โ โ โ $ โ โ โ โ โ โ โ โ โ โ โ $ 1,581 โ โ โ โ โ 1.47 % โ โ โ โ $ 17,036 โ โ โ โ โ 2.17 % โ โ โ โ $ 11,727 โ โ โ โ โ 2.23 % โ โ โ โ $ 32,504 โ โ โ โ $ 32,157 โ โ โ โ โ 2.10 % โ โ held-to-maturity โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ residential mortgage-backed securities โ โ โ $ โ โ โ โ โ โ โ % โ โ โ โ $ โ โ โ โ โ โ โ % โ โ โ โ $ โ โ โ โ โ โ โ % โ โ โ โ $ 5,403 โ โ โ โ โ 2.06 % โ โ โ โ $ 5,403 โ โ โ โ $ 5,305 โ โ โ โ โ 2.06 % โ โ foreign government securities โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ 25 โ โ โ โ โ 1.83 โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ 25 โ โ โ โ โ 25 โ โ โ โ โ 1.83 โ โ total securities held-to-maturity โ โ โ $ โ โ โ โ โ โ โ % โ โ โ โ $ 25 โ โ โ โ โ 1.83 % โ โ โ โ $ โ โ โ โ โ โ โ % โ โ โ โ $ 5,403 โ โ โ โ โ 2.06 % โ โ โ โ $ 5,428 โ โ โ โ $ 5,330 โ โ โ โ โ 2.06 % โ โ โ โ ( 1 ) cra mutual funds do not have a stated maturity . โ at december 31 , 2017 , 2016 and 2015 , the company 's securities portfolio primarily consisted of investment grade mortgage-backed securities and collateralized mortgage obligations issued by government agencies . other-than-temporary impairment each reporting period , the bank evaluates all securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other-than-temporary . other-than-temporary impairment ( โ otti โ ) is required to be recognized if ( 1 ) it intends to sell the security ; ( 2 ) it is more likely than not that it 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 . marketable equity securities are evaluated for otti based on the severity and duration of the impairment and , if deemed to be other than temporary , the declines in fair value are reflected in earnings as realized losses . for impaired debt securities that the bank intends to sell , or more likely than not will be required to sell , the full amount of the depreciation is recognized as otti , resulting in a realized loss that is a charged to earnings through a reduction in noninterest income . for all other impaired debt securities , credit-related otti is recognized through earnings and non-credit related otti is recognized in other comprehensive income/loss , net of applicable taxes . the company did not recognize any otti during the years ended december 31 , 2017 , 2016 and 2015. loans loans are the bank 's primary interest-earning asset . the following tables set forth certain information about the loan portfolio and asset quality . the following table sets forth the composition of the loan portfolio , by type of loan at the dates indicated ( dollars in thousands ) : 51 โ โ โ at december 31 , โ โ โ โ 2017 โ โ 2016 โ โ 2015 โ โ 2014 โ โ 2013 โ โ โ โ loan balance โ โ % of total loans โ โ loan balance โ โ % of total loans โ โ loan balance โ โ % of total loans โ โ loan balance โ โ % of total loans โ โ loan balance โ โ % of total loans โ real estate : โ commercial โ โ โ $ 783,745 โ โ โ โ โ 55.15 % โ โ โ โ $ 547,711 โ โ โ โ โ 51.88 % โ โ โ โ $ 364,802 โ โ โ โ โ 44.40 % โ โ โ โ $ 295,347 โ โ โ โ โ 46.52 % โ โ โ โ $ 284,187 โ โ โ โ โ 56.58 % โ โ construction โ โ โ โ 36,960 โ โ โ โ โ 2.60 โ โ โ โ โ 29,447 โ โ โ โ โ 2.79 โ โ โ โ โ 38,447 โ โ โ โ โ 4.68 โ โ โ โ โ 18,923 โ โ โ โ โ 2.98 โ โ โ โ โ 9,563 โ โ โ โ โ 1.90 โ โ multifamily โ โ โ โ 190,097 โ โ โ โ โ 13.38 โ โ โ โ โ 117,373 โ โ โ โ โ 11.12 โ โ โ โ โ 118,367 โ โ โ โ โ 14.41 โ โ โ โ โ 93,054 โ โ โ โ โ 14.66 โ โ โ โ โ 58,921 โ โ โ โ โ 11.73 โ โ one-to-four family โ โ โ โ 25,568 โ โ
| liquidity and capital resources since inception , we have incurred accumulated net losses and negative cash flows from our operations . we incurred net losses of $ 9.5 million , $ 7.6 million and $ 6.1 million for the years ended december 31 , 2014 , 2013 and 2012 respectively . our operating activities used $ 9.7 million , $ 6.5 million and $ 6.9 million of cash during the years ended december 2014 , 2013 and 2012 , respectively . as of december 31 , 2014 , the company had $ 3.6 million of cash and cash equivalents . in february 2015 , we completed our ipo and concurrent note offering and in march 2015 the underwriters purchased a portion of their common stock and notes overallotment options resulting in net proceeds to us of approximately $ 55.5 million . as of march 30 , 2015 we have outstanding $ 21.0 million of 2020 notes . the company estimates that it has sufficient funding to sustain operations through at least the next 18 months . in december 2014 , the company sold an aggregate of $ 2.0 million of the 2014 bridge notes . in addition to other terms , the 2014 bridge notes had a maturity of june 30 , 2015 , accrued interest at the rate of 8 % per annum and were subordinate to all other senior indebtedness of the company . upon the closing of our ipo , the 2014 bridge notes , including accrued interest , automatically converted into 337,932 shares of our common stock . on june 28 , 2013 , we entered into notes payable agreements with two financial entities pursuant to which we issued a $ 3.5 million note to each lender and received net proceeds of $ 6.9 million .
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as permitted by jobs act , so long as it qualifies as an egc , the company will take advantage of some of the reduced regulatory and reporting requirements that are available to it , including , but not limited to , not being required to comply with the auditor attestation requirements of section 404 ( b ) of the sarbanes-oxley act , reduced disclosure obligations regarding executive compensation , and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments . discussion on the results of operations for the years ended december 31 , 2017 , december 31 , 2016 and december 31 , 2015 net income for the year ended december 31 , 2017 , net income was $ 12.4 million , an increase of $ 7.4 million or 146.7 % from $ 5.0 million for the year ended december 31 , 2016. the increase was due to an increase in net interest income after provision for loan losses of $ 15.0 million , primarily driven by higher volume of loans combined with higher yield on loans , and an increase in non-interest income of $ 5.9 million , primarily driven by an increase in service charges and fees . these increases were offset by an increase of $ 5.4 million in non-interest expense , driven by the growth of the business , and an increase of $ 8.2 million in income tax expense , which is a result of higher pretax net income in 2017 and a one-time u.s. tax expense of $ 1.6 million resulting from the tax act , which the u.s. government enacted on december 22 , 2017. net income increased $ 744,000 , or 17.4 % , to $ 5.0 million for the year ended december 31 , 2016 from $ 4.3 million for the year ended december 31 , 2015. the increase was due to an increase in net interest income and debit card income . the increase in net interest income was caused by an increase in interest and fees on loans , which increased $ 11.3 million , or 36.1 % for the year ended december 31 , 2016. this increase was due to the bank 's continued success in growing its loans . 46 net interest income analysis net interest income is the difference between interest earned on assets and interest incurred on liabilities . the following table presents an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities for the years ended december 31 , 2017 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_2_th โ ( 1 ) represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities . โ ( 2 ) represents total interest-earning assets less total interest-bearing liabilities . โ ( 3 ) represents net interest income divided by total interest-earning assets . โ rate/volume analysis the following table presents the effects of changing rates and volumes on net interest income for the periods indicated . the rate column shows the effects attributable to changes in rate ( changes in rate multiplied by prior volume ) . the volume column shows the effects attributable to changes in volume 47 ( changes in volume multiplied by prior rate ) . the net column represents the sum of the prior columns . for purposes of this table , changes attributable to both rate and volume , which can not be segregated , have been allocated proportionately , based on the changes due to rate and the changes due to volume . dollars are in thousands . โ โ โ at december 31 , โ โ โ โ 2017 over 2016 โ โ 2016 over 2015 โ โ โ โ increase ( decrease ) due to โ โ total increase ( decrease ) โ โ increase ( decrease ) due to โ โ total increase ( decrease ) โ โ โ โ volume โ โ rate โ โ volume โ โ rate โ interest-earning assets : โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ loans โ โ โ $ 14,457 โ โ โ โ $ 258 โ โ โ โ $ 14,715 โ โ โ โ $ 10,235 โ โ โ โ $ 1,017 โ โ โ โ $ 11,252 โ โ available-for-sale securities โ โ โ โ ( 82 ) โ โ โ โ โ ( 40 ) โ โ โ โ โ ( 122 ) โ โ โ โ โ ( 213 ) โ โ โ โ โ 9 โ โ โ โ โ ( 204 ) โ โ held-to-maturity securities โ โ โ โ ( 2 ) โ โ โ โ โ 4 โ โ โ โ โ 2 โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ other interest-earning assets โ โ โ โ 1,502 โ โ โ โ โ 501 โ โ โ โ โ 2,003 โ โ โ โ โ 216 โ โ โ โ โ 209 โ โ โ โ โ 425 โ โ total interest-earning assets โ โ โ $ 15,875 โ โ โ โ $ 723 โ โ โ โ $ 16,598 โ โ โ โ $ 10,238 โ โ โ โ $ 1,235 โ โ โ โ $ 11,473 โ โ interest-bearing liabilities : โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ money market and savings accounts โ โ โ $ 469 โ โ โ โ $ 697 โ โ โ โ $ 1,166 โ โ โ โ $ 760 โ โ โ โ $ 235 โ story_separator_special_tag โ โ โ โ โ 2.27 โ โ total securities available-for-sale โ โ โ $ โ โ โ โ โ โ โ โ โ โ โ $ 1,581 โ โ โ โ โ 1.47 % โ โ โ โ $ 17,036 โ โ โ โ โ 2.17 % โ โ โ โ $ 11,727 โ โ โ โ โ 2.23 % โ โ โ โ $ 32,504 โ โ โ โ $ 32,157 โ โ โ โ โ 2.10 % โ โ held-to-maturity โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ residential mortgage-backed securities โ โ โ $ โ โ โ โ โ โ โ % โ โ โ โ $ โ โ โ โ โ โ โ % โ โ โ โ $ โ โ โ โ โ โ โ % โ โ โ โ $ 5,403 โ โ โ โ โ 2.06 % โ โ โ โ $ 5,403 โ โ โ โ $ 5,305 โ โ โ โ โ 2.06 % โ โ foreign government securities โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ 25 โ โ โ โ โ 1.83 โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ 25 โ โ โ โ โ 25 โ โ โ โ โ 1.83 โ โ total securities held-to-maturity โ โ โ $ โ โ โ โ โ โ โ % โ โ โ โ $ 25 โ โ โ โ โ 1.83 % โ โ โ โ $ โ โ โ โ โ โ โ % โ โ โ โ $ 5,403 โ โ โ โ โ 2.06 % โ โ โ โ $ 5,428 โ โ โ โ $ 5,330 โ โ โ โ โ 2.06 % โ โ โ โ ( 1 ) cra mutual funds do not have a stated maturity . โ at december 31 , 2017 , 2016 and 2015 , the company 's securities portfolio primarily consisted of investment grade mortgage-backed securities and collateralized mortgage obligations issued by government agencies . other-than-temporary impairment each reporting period , the bank evaluates all securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other-than-temporary . other-than-temporary impairment ( โ otti โ ) is required to be recognized if ( 1 ) it intends to sell the security ; ( 2 ) it is more likely than not that it 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 . marketable equity securities are evaluated for otti based on the severity and duration of the impairment and , if deemed to be other than temporary , the declines in fair value are reflected in earnings as realized losses . for impaired debt securities that the bank intends to sell , or more likely than not will be required to sell , the full amount of the depreciation is recognized as otti , resulting in a realized loss that is a charged to earnings through a reduction in noninterest income . for all other impaired debt securities , credit-related otti is recognized through earnings and non-credit related otti is recognized in other comprehensive income/loss , net of applicable taxes . the company did not recognize any otti during the years ended december 31 , 2017 , 2016 and 2015. loans loans are the bank 's primary interest-earning asset . the following tables set forth certain information about the loan portfolio and asset quality . the following table sets forth the composition of the loan portfolio , by type of loan at the dates indicated ( dollars in thousands ) : 51 โ โ โ at december 31 , โ โ โ โ 2017 โ โ 2016 โ โ 2015 โ โ 2014 โ โ 2013 โ โ โ โ loan balance โ โ % of total loans โ โ loan balance โ โ % of total loans โ โ loan balance โ โ % of total loans โ โ loan balance โ โ % of total loans โ โ loan balance โ โ % of total loans โ real estate : โ commercial โ โ โ $ 783,745 โ โ โ โ โ 55.15 % โ โ โ โ $ 547,711 โ โ โ โ โ 51.88 % โ โ โ โ $ 364,802 โ โ โ โ โ 44.40 % โ โ โ โ $ 295,347 โ โ โ โ โ 46.52 % โ โ โ โ $ 284,187 โ โ โ โ โ 56.58 % โ โ construction โ โ โ โ 36,960 โ โ โ โ โ 2.60 โ โ โ โ โ 29,447 โ โ โ โ โ 2.79 โ โ โ โ โ 38,447 โ โ โ โ โ 4.68 โ โ โ โ โ 18,923 โ โ โ โ โ 2.98 โ โ โ โ โ 9,563 โ โ โ โ โ 1.90 โ โ multifamily โ โ โ โ 190,097 โ โ โ โ โ 13.38 โ โ โ โ โ 117,373 โ โ โ โ โ 11.12 โ โ โ โ โ 118,367 โ โ โ โ โ 14.41 โ โ โ โ โ 93,054 โ โ โ โ โ 14.66 โ โ โ โ โ 58,921 โ โ โ โ โ 11.73 โ โ one-to-four family โ โ โ โ 25,568 โ โ
| liquidity and capital resources liquidity is the ability to meet current and future financial obligations of a short-term nature . the company 's primary sources of funds consist of deposit inflows , loan repayments and maturities and sales of securities . while maturities and scheduled amortization of loans and securities are predictable sources of funds , deposit flows and mortgage prepayments are greatly influenced by general interest rates , economic conditions and competition . the bank regularly reviews the need to adjust investments in liquid assets based upon an assessment of : ( 1 ) expected loan demand , ( 2 ) expected deposit flows , ( 3 ) yields available on interest earning deposits and securities , and ( 4 ) the objectives of the alco program . excess liquid assets are invested generally in interest earning deposits and short- and intermediate-term securities . the bank 's most liquid assets are cash and cash equivalents . the levels of these assets are dependent on operating , financing , lending and investing activities during any given period . at december 31 , 2017 and december 31 , 2016 , cash and cash equivalents totaled $ 261.2 million and $ 82.9 million , respectively . securities classified as available-for-sale , which provide additional sources of liquidity , totaled $ 32.2 million at december 31 , 2017 and $ 37.3 million at december 31 , 2016. at december 31 , 2017 , the bank had the ability to borrow a total of $ 263.4 million from the fhlbny , subject to pledging additional collateral . it also had an available line of credit with the frbny discount window of $ 92.9 million . at december 31 , 2016 , the bank had the ability to borrow a total of $ 204.4 million from the fhlbny . it also had an available line of credit with the frbny discount window of $ 67.9 million . the bank has no material commitments or demands that are likely to affect its liquidity other than set forth below .
| 1 |
for fiscal 2016 , the company incurred fire-related costs which included $ 86 million in inventory at cost , $ 12 million in property , plant , and equipment at net book value , and $ 35 million in other fire-related costs . in january of fiscal 2016 , the company agreed upon a partial settlement of $ 159 million related to the inventory and recorded a gain of $ 73 million , representing the excess over the loss on inventory . based on the provisions of the company 's insurance policies , the company has determined that recovery of certain remaining fire-related costs incurred during fiscal 2016 is probable , and an insurance receivable , net of advance insurance proceeds received , has been recorded as of january 28 , 2017 to offset the fire-related costs . the company expects to continue to record additional costs and recoveries until the insurance claim is fully settled . fiscal 2015 results were impacted by a series of strategic actions to position gap brand for improved business performance in the future , including rightsizing the gap brand store fleet primarily in north america , streamlining the brand 's headquarter workforce , and developing a clear , on-brand product aesthetic framework to strengthen the gap brand to compete more successfully on the global stage . during fiscal 2015 , the company completed the closure of about 150 gap global specialty stores related to the strategic actions . during fiscal 2015 , the company incurred $ 132 million of charges in connection with the strategic actions , primarily consisting of impairment of store assets related to underperforming stores , lease termination fees and lease losses , employee related expenses , and impairment of inventory that did not meet brand standards . financial results for fiscal 2016 are as follows : net sales for fiscal 2016 decreased 2 percent to $ 15.5 billion compared with $ 15.8 billion for fiscal 2015 . comparable sales ( `` comp sales `` ) for fiscal 2016 decreased 2 percent . gross profit for fiscal 2016 was $ 5.6 billion compared with $ 5.7 billion for fiscal 2015 . gross margin for fiscal 2016 was 36.3 percent compared with 36.2 percent for fiscal 2015 . operating margin for fiscal 2016 was 7.7 percent compared with 9.6 percent for fiscal 2015 . operating margin is defined as operating income as a percentage of net sales . net income for fiscal 2016 was $ 676 million compared with $ 920 million for fiscal 2015 , and diluted earnings per share was $ 1.69 for fiscal 2016 compared with $ 2.23 for fiscal 2015 . diluted earnings per share for fiscal 2016 included about a $ 0.41 impact of restructuring costs incurred during fiscal 2016 , a non-cash goodwill impairment charge of $ 0.18 related to intermix , an $ 0.11 benefit from the gain from insurance proceeds related to the fire which occurred at the company 's fishkill distribution center campus , and a favorable income tax impact of a legal structure realignment of about $ 0.15. diluted earnings per share for fiscal 2015 included a $ 0.20 impact of costs related to strategic actions incurred during fiscal 2015. during fiscal 2016 , we distributed $ 367 million to shareholders through dividends . our business priorities in 2017 include : offering product that is consistently brand-appropriate and on-trend with high customer acceptance , with a focus on expanding our advantage in the most promising categories ; delivering meaningful product innovation ; creating a unique and differentiated customer experience that builds loyalty , with focus on both the physical and digital expressions of our brands ; and attracting and retaining great talent in our businesses and functions . 19 in fiscal 2017 , we are focused on investing strategically in the business while also maintaining operating expense discipline . one of our primary objectives is to continue transforming our product to market process , with the development of an advantaged operating platform . to enable this , we have several product , supply chain , and it initiatives underway . further , we expect to continue our investment in customer experience , both in stores and online , to drive higher customer engagement and loyalty , resulting in market share gains . finally , we will continue to invest in strengthening brand awareness and customer acquisition . fiscal 2017 will consist of 53 weeks versus 52 weeks in fiscal 2016. results of operations net sales see item 8 , financial statements and supplementary data , note 17 of notes to consolidated financial statements for net sales by brand and region . comparable sales the percentage change in comp sales by global brand and for total company , as compared with the preceding year , is as follows : replace_table_token_4_th comp sales include the results of company-operated stores and sales through online channels in those countries where we have existing comparable store sales . the calculation of the gap , inc. comp sales includes the results of athleta and intermix but excludes the results of our franchise business . a store is included in the comp sales calculations when it has been open and operated by the company for at least one year and the selling square footage has not changed by 15 percent or more within the past year . a store is included in the comp sales calculations on the first day it has comparable prior year sales . stores in which the selling square footage has changed by 15 percent or more as a result of a remodel , expansion , or reduction are excluded from the comp sales calculations until the first day they have comparable prior year sales . story_separator_special_tag we review goodwill for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount , including goodwill , as a basis for determining whether it is necessary to perform the two-step goodwill impairment test . if it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount , the two-step test is performed to identify potential goodwill impairment . if it is determined that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount , it is unnecessary to perform the two-step goodwill impairment test . during the fourth quarter of fiscal 2016 , we determined that the fair value of the reporting unit for athleta significantly exceeded its carrying amount as of the date of our annual impairment review and therefore , we did not recognize any impairment charges for athleta . based on certain circumstances , we may elect to bypass the qualitative assessment and proceed directly to performing the first step of the two-step goodwill impairment test . the first step of the two-step goodwill impairment test compares the fair value of the reporting unit to its carrying amount , including goodwill . the second step includes hypothetically valuing all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination . then , the implied fair value of the reporting unit 's goodwill is compared to the carrying amount of that goodwill . if the carrying amount of the reporting unit 's goodwill exceeds the implied fair value of the goodwill , we recognize an impairment loss in an amount equal to the excess , not to exceed the carrying amount . at the end of each of the first three quarters of fiscal 2016 , given the information available at the time of those assessments , we determined that there were no events or circumstances that indicated any impairment for goodwill related to intermix . during the fourth quarter of fiscal 2016 , management updated the fiscal 2017 budget and financial projections beyond fiscal 2017 for intermix . there were several factors that caused the financial projections and estimates to significantly decrease from the previous estimates , which included : poor fourth quarter of fiscal 2016 holiday performance at intermix stores , the decision to reduce expected future store openings , the approval of additional store closures in fiscal 2017 , and the budgeting of additional headcount required to support increased focus on the online business . these factors arising during the fourth quarter of fiscal 2016 had a significant and negative impact on the estimated fair value of the intermix reporting unit , and we have determined that the intermix reporting unit 's carrying value exceeded its fair value as of the date of our annual impairment review . as such , we performed the second step of the goodwill impairment test which resulted in an impairment charge of $ 71 million for goodwill related to intermix in fiscal 2016. this impairment charge reduced the $ 81 million of purchase price allocated to goodwill in connection with the acquisition of intermix in december 2012 to $ 10 million as of january 28 , 2017. we did not recognize any impairment charges for goodwill in fiscal 2015. as of january 28 , 2017 , the aggregate carrying value of trade names was $ 95 million , which primarily consisted of $ 54 million and $ 38 million related to athleta and intermix , respectively . a trade name is considered impaired if the carrying amount exceeds its estimated fair value . if a trade name is considered impaired , we recognize a loss equal to the difference between the carrying amount and the estimated fair value of the trade name . the fair value of the trade names is determined using the relief from royalty method . during the fourth quarter of fiscal 2016 , we completed our annual impairment review of the trade names and we did not recognize any impairment charges . we determined that the fair value of the athleta trade name significantly exceeded its carrying amount as of the date of our annual impairment review . the fair value of the intermix trade name exceeded its carrying amount by less than 10 percent as of the date of our annual impairment review . these analyses require management to make assumptions and to apply judgment , including forecasting future sales and expenses , and selecting appropriate discount rates and royalty rates , which can be affected by economic conditions and other factors that can be difficult to predict . 29 if actual store and online results and brand performance , real estate market conditions , and economic conditions including interest rates are not consistent with our estimates and assumptions used in our calculations , we may be exposed to additional impairment losses that could be material . revenue recognition while revenue recognition for the company does not involve significant judgment , it represents an important accounting policy . we recognize revenue and the related cost of goods sold at the time the products are received by the customers . for sales transacted at stores , revenue is recognized when the customer receives and pays for the merchandise at the register . for sales where we ship the merchandise to the customer from a distribution center or store , revenue is recognized at the time we estimate the customer receives the merchandise . we sell merchandise to franchisees under multi-year franchise agreements . we recognize revenue from sales to franchisees at the time merchandise ownership is transferred to the franchisee , which generally occurs when the merchandise reaches the franchisee 's predesignated turnover point . we also receive royalties from
| liquidity and capital resources liquidity is the ability to meet current and future financial obligations of a short-term nature . the company 's primary sources of funds consist of deposit inflows , loan repayments and maturities and sales of securities . while maturities and scheduled amortization of loans and securities are predictable sources of funds , deposit flows and mortgage prepayments are greatly influenced by general interest rates , economic conditions and competition . the bank regularly reviews the need to adjust investments in liquid assets based upon an assessment of : ( 1 ) expected loan demand , ( 2 ) expected deposit flows , ( 3 ) yields available on interest earning deposits and securities , and ( 4 ) the objectives of the alco program . excess liquid assets are invested generally in interest earning deposits and short- and intermediate-term securities . the bank 's most liquid assets are cash and cash equivalents . the levels of these assets are dependent on operating , financing , lending and investing activities during any given period . at december 31 , 2017 and december 31 , 2016 , cash and cash equivalents totaled $ 261.2 million and $ 82.9 million , respectively . securities classified as available-for-sale , which provide additional sources of liquidity , totaled $ 32.2 million at december 31 , 2017 and $ 37.3 million at december 31 , 2016. at december 31 , 2017 , the bank had the ability to borrow a total of $ 263.4 million from the fhlbny , subject to pledging additional collateral . it also had an available line of credit with the frbny discount window of $ 92.9 million . at december 31 , 2016 , the bank had the ability to borrow a total of $ 204.4 million from the fhlbny . it also had an available line of credit with the frbny discount window of $ 67.9 million . the bank has no material commitments or demands that are likely to affect its liquidity other than set forth below .
| 0 |
for fiscal 2016 , the company incurred fire-related costs which included $ 86 million in inventory at cost , $ 12 million in property , plant , and equipment at net book value , and $ 35 million in other fire-related costs . in january of fiscal 2016 , the company agreed upon a partial settlement of $ 159 million related to the inventory and recorded a gain of $ 73 million , representing the excess over the loss on inventory . based on the provisions of the company 's insurance policies , the company has determined that recovery of certain remaining fire-related costs incurred during fiscal 2016 is probable , and an insurance receivable , net of advance insurance proceeds received , has been recorded as of january 28 , 2017 to offset the fire-related costs . the company expects to continue to record additional costs and recoveries until the insurance claim is fully settled . fiscal 2015 results were impacted by a series of strategic actions to position gap brand for improved business performance in the future , including rightsizing the gap brand store fleet primarily in north america , streamlining the brand 's headquarter workforce , and developing a clear , on-brand product aesthetic framework to strengthen the gap brand to compete more successfully on the global stage . during fiscal 2015 , the company completed the closure of about 150 gap global specialty stores related to the strategic actions . during fiscal 2015 , the company incurred $ 132 million of charges in connection with the strategic actions , primarily consisting of impairment of store assets related to underperforming stores , lease termination fees and lease losses , employee related expenses , and impairment of inventory that did not meet brand standards . financial results for fiscal 2016 are as follows : net sales for fiscal 2016 decreased 2 percent to $ 15.5 billion compared with $ 15.8 billion for fiscal 2015 . comparable sales ( `` comp sales `` ) for fiscal 2016 decreased 2 percent . gross profit for fiscal 2016 was $ 5.6 billion compared with $ 5.7 billion for fiscal 2015 . gross margin for fiscal 2016 was 36.3 percent compared with 36.2 percent for fiscal 2015 . operating margin for fiscal 2016 was 7.7 percent compared with 9.6 percent for fiscal 2015 . operating margin is defined as operating income as a percentage of net sales . net income for fiscal 2016 was $ 676 million compared with $ 920 million for fiscal 2015 , and diluted earnings per share was $ 1.69 for fiscal 2016 compared with $ 2.23 for fiscal 2015 . diluted earnings per share for fiscal 2016 included about a $ 0.41 impact of restructuring costs incurred during fiscal 2016 , a non-cash goodwill impairment charge of $ 0.18 related to intermix , an $ 0.11 benefit from the gain from insurance proceeds related to the fire which occurred at the company 's fishkill distribution center campus , and a favorable income tax impact of a legal structure realignment of about $ 0.15. diluted earnings per share for fiscal 2015 included a $ 0.20 impact of costs related to strategic actions incurred during fiscal 2015. during fiscal 2016 , we distributed $ 367 million to shareholders through dividends . our business priorities in 2017 include : offering product that is consistently brand-appropriate and on-trend with high customer acceptance , with a focus on expanding our advantage in the most promising categories ; delivering meaningful product innovation ; creating a unique and differentiated customer experience that builds loyalty , with focus on both the physical and digital expressions of our brands ; and attracting and retaining great talent in our businesses and functions . 19 in fiscal 2017 , we are focused on investing strategically in the business while also maintaining operating expense discipline . one of our primary objectives is to continue transforming our product to market process , with the development of an advantaged operating platform . to enable this , we have several product , supply chain , and it initiatives underway . further , we expect to continue our investment in customer experience , both in stores and online , to drive higher customer engagement and loyalty , resulting in market share gains . finally , we will continue to invest in strengthening brand awareness and customer acquisition . fiscal 2017 will consist of 53 weeks versus 52 weeks in fiscal 2016. results of operations net sales see item 8 , financial statements and supplementary data , note 17 of notes to consolidated financial statements for net sales by brand and region . comparable sales the percentage change in comp sales by global brand and for total company , as compared with the preceding year , is as follows : replace_table_token_4_th comp sales include the results of company-operated stores and sales through online channels in those countries where we have existing comparable store sales . the calculation of the gap , inc. comp sales includes the results of athleta and intermix but excludes the results of our franchise business . a store is included in the comp sales calculations when it has been open and operated by the company for at least one year and the selling square footage has not changed by 15 percent or more within the past year . a store is included in the comp sales calculations on the first day it has comparable prior year sales . stores in which the selling square footage has changed by 15 percent or more as a result of a remodel , expansion , or reduction are excluded from the comp sales calculations until the first day they have comparable prior year sales . story_separator_special_tag we review goodwill for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount , including goodwill , as a basis for determining whether it is necessary to perform the two-step goodwill impairment test . if it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount , the two-step test is performed to identify potential goodwill impairment . if it is determined that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount , it is unnecessary to perform the two-step goodwill impairment test . during the fourth quarter of fiscal 2016 , we determined that the fair value of the reporting unit for athleta significantly exceeded its carrying amount as of the date of our annual impairment review and therefore , we did not recognize any impairment charges for athleta . based on certain circumstances , we may elect to bypass the qualitative assessment and proceed directly to performing the first step of the two-step goodwill impairment test . the first step of the two-step goodwill impairment test compares the fair value of the reporting unit to its carrying amount , including goodwill . the second step includes hypothetically valuing all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination . then , the implied fair value of the reporting unit 's goodwill is compared to the carrying amount of that goodwill . if the carrying amount of the reporting unit 's goodwill exceeds the implied fair value of the goodwill , we recognize an impairment loss in an amount equal to the excess , not to exceed the carrying amount . at the end of each of the first three quarters of fiscal 2016 , given the information available at the time of those assessments , we determined that there were no events or circumstances that indicated any impairment for goodwill related to intermix . during the fourth quarter of fiscal 2016 , management updated the fiscal 2017 budget and financial projections beyond fiscal 2017 for intermix . there were several factors that caused the financial projections and estimates to significantly decrease from the previous estimates , which included : poor fourth quarter of fiscal 2016 holiday performance at intermix stores , the decision to reduce expected future store openings , the approval of additional store closures in fiscal 2017 , and the budgeting of additional headcount required to support increased focus on the online business . these factors arising during the fourth quarter of fiscal 2016 had a significant and negative impact on the estimated fair value of the intermix reporting unit , and we have determined that the intermix reporting unit 's carrying value exceeded its fair value as of the date of our annual impairment review . as such , we performed the second step of the goodwill impairment test which resulted in an impairment charge of $ 71 million for goodwill related to intermix in fiscal 2016. this impairment charge reduced the $ 81 million of purchase price allocated to goodwill in connection with the acquisition of intermix in december 2012 to $ 10 million as of january 28 , 2017. we did not recognize any impairment charges for goodwill in fiscal 2015. as of january 28 , 2017 , the aggregate carrying value of trade names was $ 95 million , which primarily consisted of $ 54 million and $ 38 million related to athleta and intermix , respectively . a trade name is considered impaired if the carrying amount exceeds its estimated fair value . if a trade name is considered impaired , we recognize a loss equal to the difference between the carrying amount and the estimated fair value of the trade name . the fair value of the trade names is determined using the relief from royalty method . during the fourth quarter of fiscal 2016 , we completed our annual impairment review of the trade names and we did not recognize any impairment charges . we determined that the fair value of the athleta trade name significantly exceeded its carrying amount as of the date of our annual impairment review . the fair value of the intermix trade name exceeded its carrying amount by less than 10 percent as of the date of our annual impairment review . these analyses require management to make assumptions and to apply judgment , including forecasting future sales and expenses , and selecting appropriate discount rates and royalty rates , which can be affected by economic conditions and other factors that can be difficult to predict . 29 if actual store and online results and brand performance , real estate market conditions , and economic conditions including interest rates are not consistent with our estimates and assumptions used in our calculations , we may be exposed to additional impairment losses that could be material . revenue recognition while revenue recognition for the company does not involve significant judgment , it represents an important accounting policy . we recognize revenue and the related cost of goods sold at the time the products are received by the customers . for sales transacted at stores , revenue is recognized when the customer receives and pays for the merchandise at the register . for sales where we ship the merchandise to the customer from a distribution center or store , revenue is recognized at the time we estimate the customer receives the merchandise . we sell merchandise to franchisees under multi-year franchise agreements . we recognize revenue from sales to franchisees at the time merchandise ownership is transferred to the franchisee , which generally occurs when the merchandise reaches the franchisee 's predesignated turnover point . we also receive royalties from
| net cash used for investing activities during fiscal 2016 decreased $ 201 million compared with fiscal 2015 , primarily due to less property and equipment purchases . net cash used for investing activities during fiscal 2015 increased $ 134 million compared with fiscal 2014 , primarily due to $ 121 million of proceeds from the sale of a building owned but no longer occupied by the company in fiscal 2014 and $ 12 million more property and equipment purchases in fiscal 2015. in fiscal 2016 , cash used for purchases of property and equipment was $ 524 million primarily related to investments in stores , information technology , and supply chain . in fiscal 2017 , we expect cash spending for purchases of property and equipment to be about $ 825 million which includes an estimated $ 200 million related to rebuilding of the company 's fishkill , new york distribution center campus , which the company expects will be covered by insurance proceeds . cash flows from financing activities net cash used for financing activities during fiscal 2016 decreased $ 213 million compared with fiscal 2015 , primarily due to the following : no repurchases of common stock in fiscal 2016 compared with $ 1 billion cash outflow related to repurchases of common stock in fiscal 2015 ; partially offset by no debt issuances in fiscal 2016 compared with the issuance of $ 400 million in short-term debt in fiscal 2015 ; and the repayment of the $ 400 million short-term debt in fiscal 2016 . 25 net cash used for financing activities during fiscal 2015 decreased $ 517 million compared with fiscal 2014 , primarily due to the following : $ 400 million proceeds from the issuance of short-term debt in fiscal 2015 ; and $ 164 million less repurchases of common stock ; partially offset by $ 4 million net cash out flows for fiscal 2015 compared with $ 38 million net cash inflows for fiscal 2014 related to issuance under share-based compensation plans and withholding tax payments related to vesting of stock units . free cash flow free cash flow is a non-gaap financial measure .
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through december 31 , 2020 , hst 's impact on revenues and net earnings was not material . in connection with the hst acquisition , the company incurred transaction costs . the transaction costs have been expensed as incurred and these amounts , totaling $ 0.9 million for the year ended december 31 , 2020 , are included in general and administrative expenses in the accompanying consolidated statements of ( loss ) income and comprehensive ( loss ) income . uncertainty relating to the covid-19 pandemic covid-19 has negatively impacted our business , results of operations and financial condition during 2020. effects from covid-19 began to impact our business in first quarter 2020 with various federal , state , and local governments and private entities mandating restrictions on travel , restrictions on public gatherings , closure of non-essential commerce , and shelter in place orders . the company experienced an approximately 4.6 % decline in revenues for the year ended december 31 , 2020 compared to 2019 primarily due to reduced volume from customers as a result of restrictions on elective medical procedures and non-essential medical services . the extent of the ultimate impact will depend on the severity and duration of the pandemic . future developments are highly uncertain , including the widespread availability and distribution of covid-19 vaccines , the emergence of highly contagious variants , and any actions taken by federal , state and local governments such as economic relief efforts , as well as u.s. and global economies and consumer behavior and health care utilization patterns . we have temporarily closed all of our offices and restricted travel due to concern for our employees ' health and safety and also in compliance with state shelter in place orders . most of our approximately 2,000 employees are working remotely . other than these modifications , we have not experienced any material changes to our operations including receiving and processing transactions with our customers as a result of covid-19 . the covid-19 pandemic is evolving rapidly . we believe covid-19 's impact on our businesses , operating results , cash flows and or financial condition primarily will be driven by the severity and duration of the pandemic ; the pandemic 's impact on the u.s. and global economies and consumer behavior and health care utilization patterns ; and the timing , scope and impact of stimulus legislation as well as other federal , state and local governmental responses to the pandemic . those primary drivers are beyond our knowledge and control . covid-19 will continue to impact our businesses , operating results , cash flows and or financial condition but it is uncertain if such impact will become more adverse or material as explained above . the cares act was enacted on march 27 , 2020 and included certain changes to corporate income taxes . specifically , the cares act provides numerous tax provisions and other stimulus measures , including temporary changes regarding the prior and future utilization of net operating losses , temporary changes to the prior and future limitations on interest deductions , temporary suspension of certain payment requirements for the employer portion of social security taxes , technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property , and the creation of certain payroll tax credits associated with the retention of employees . we assessed these impacts and noted the largest impact is due to the tax law change related to the interest disallowance rules retroactive to 2019. the other aspects of the cares act did not have a material effect on us . see note 12 income taxes of the notes to consolidated financial statements for additional information . factors affecting our results of operations key technology our strength as a company is our ability to use data and analytics to develop new service opportunities to enhance our customer relationships and to increase revenues . we use technology , data and analytics to transform healthcare transactions into multiple opportunities for savings and recurring revenues by leveraging data and analytics to inform our transaction processing systems ( i.e . , our claims processing systems ) . the transaction processing systems generate savings for our customers , revenues for us and each transaction adds more data to our intelligence engine and data warehouse . the intelligence engine drives our analytics and development of new saving opportunities and revenue growth through service enhancement or new product development . our technology also contributes to our ability to efficiently process our transactions through edi batch files , real time web services and online through customer and provider portals . we believe our current infrastructure can support significantly more than the current transaction volume giving us room for growth and increased volume . our application platforms are architected and built with redundancy to eliminate downtime . all of the claims processed in our system are received via edi or direct web service integration . as we process more claims through edi and direct service integration , our electronic integration with customers results in substantial back office interconnectivity and considerably reduces complexity and processing failures . 44 because we believe our transaction processing systems are scalable , we should be able to absorb significant increases in volume at minimal marginal costs . our integration into our customers ' systems and processes is an important component of our business model . medical cost savings our business and revenues are driven by the ability to lower medical costs through claims savings for our customers . the medical charges of those claims can influence our ability to generate claim savings . the following table presents the medical charges processed and the potential savings identified for the periods presented : replace_table_token_1_th _ ( 1 ) medical charges processed represents the aggregate dollar amount of claims processed by our cost management solutions in the period presented . story_separator_special_tag debt refinancings , repayments and repricing we made several principal prepayments of the term loan g principal in the amounts of $ 369.0 million , $ 100.0 million and $ 245.0 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . these prepayments reduce interest expense for term loan g for these and future time periods . in connection with the issuance of our debt instruments , the company incurred specific expenses related to raising the debt , including commissions , fees and expenses of investment bankers and underwriters , registration and listing fees , accounting and legal fees pertaining to the financing and other external , incremental expenses paid to advisors that were directly attributable to realizing the proceeds of the debt issues . these costs were capitalized and are being amortized over the term of the related debt using the effective interest method . the amortization of the debt issuance costs , premiums and discounts are included in interest expense in the accompanying consolidated statements of ( loss ) income and comprehensive ( loss ) income . during the year-ended december 31 , 2019 , we repurchased and cancelled $ 121.3 million of the senior pik notes . the cash repurchase of $ 101.0 million resulted in the recognition of a gain of $ 18.5 million as well as a write off of the pro-rata share of debt issue costs of $ 1.0 million and discount of $ 0.8 million . in the years ended december 31 , 2019 , 2018 , and 2017 , we did not recognize expense for the portions of debt issuance costs related to the amounts of the principal loan prepayments of term loan g made in each year , which resulted in an understatement of long-term debt of $ 2.3 million as of december 31 , 2019. we corrected this error as an out-of-period adjustment resulting in an overstatement of interest expense of $ 2.3 million in the year ended december 31 , 2020. on october 8 , 2020 , the company issued and sold $ 1,300.0 million in aggregate principal amount of the senior convertible pik notes . the senior convertible pik notes were issued with a 2.5 % discount with a maturity date of october 15 , 2027. the senior convertible pik notes will accrue interest at a rate per annum equal to six percent ( 6.00 % ) with respect to cash interest and seven percent ( 7.00 % ) with respect to pik interest . the company must elect prior to the third business day prior to any interest payment date to pay cash interest or pik interest for such interest period ; provided that prior to any such election , the company is deemed to have selected cash interest . on october 8 , 2020 , we redeemed the senior pik notes in full at a redemption price of 102.000 % of the principal amount plus accrued and unpaid interest for a total redemption price of $ 1,237.6 million . on october 29 , 2020 , mph issued $ 1,300.0 million in aggregate principal amount of its 5.750 % notes and redeemed the 7.125 % notes in full at a redemption price of 103.563 % of the principal amount plus accrued and unpaid interest for a total redemption price of $ 1,661.3 million . the company also entered into an amendment to increase the commitments under its senior secured revolving credit facility from $ 100.0 million to $ 450.0 million . stock-based compensation prior to the consummation of the transactions , we were a wholly owned subsidiary of holdings and our stock-based compensation was granted to employees in the form of units via a class b unit award agreement . see note 15 stock-based compensation of the notes to consolidated financial statements for additional information . the consummation of the transactions constituted a definitive liquidity event under the agreements governing the unit awards and as a result all unvested units vested on october 7 , 2020 and the fair value of the outstanding units were adjusted to the cumulative exit value of the class b units of $ 475.5 million , which reflects the transaction value plus prior distributions . the company removed the discount for lack of marketability . therefore , the company recorded a stock-based compensation expense for class b units of $ 405.8 million during the year ended december 31 , 2020. the company recorded these awards 50 within shareholders ' equity as an equity contribution from holdings based on the fair value of the outstanding units at each reporting period . the settlement of these awards was made in a combination of cash and shares of class a common stock and was included in the aggregate consideration paid to the company 's owners . after the consummation of the transactions , the company operates under the 2020 omnibus incentive plan effective october 8 , 2020. to date , awards granted under the 2020 omnibus incentive plan have been in the form of employee rs and director rsus . the company granted 1,500,000 shares of employee rs and 42,847 shares of director rsus during the year ended december 31 , 2020. the company recorded stock-based compensation expense under the 2020 omnibus incentive plan of $ 0.2 million in general and administrative expenses in the accompanying consolidated statements of ( loss ) income and comprehensive ( loss ) income during the year ended december 31 , 2020. there was $ 13.4 million of unrecognized compensation cost as of december 31 , 2020 related to the outstanding shares of employee rs and director rsus , which is expected to be recognized over a weighted average period of 3 years , 9 months . 51 results of operations for the years ended december 31 , 2020 and december 31 , 2019 the following table provides the results of operations for the periods indicated : replace_table_token_4_th nm = not meaningful revenues revenues
| net cash used for investing activities during fiscal 2016 decreased $ 201 million compared with fiscal 2015 , primarily due to less property and equipment purchases . net cash used for investing activities during fiscal 2015 increased $ 134 million compared with fiscal 2014 , primarily due to $ 121 million of proceeds from the sale of a building owned but no longer occupied by the company in fiscal 2014 and $ 12 million more property and equipment purchases in fiscal 2015. in fiscal 2016 , cash used for purchases of property and equipment was $ 524 million primarily related to investments in stores , information technology , and supply chain . in fiscal 2017 , we expect cash spending for purchases of property and equipment to be about $ 825 million which includes an estimated $ 200 million related to rebuilding of the company 's fishkill , new york distribution center campus , which the company expects will be covered by insurance proceeds . cash flows from financing activities net cash used for financing activities during fiscal 2016 decreased $ 213 million compared with fiscal 2015 , primarily due to the following : no repurchases of common stock in fiscal 2016 compared with $ 1 billion cash outflow related to repurchases of common stock in fiscal 2015 ; partially offset by no debt issuances in fiscal 2016 compared with the issuance of $ 400 million in short-term debt in fiscal 2015 ; and the repayment of the $ 400 million short-term debt in fiscal 2016 . 25 net cash used for financing activities during fiscal 2015 decreased $ 517 million compared with fiscal 2014 , primarily due to the following : $ 400 million proceeds from the issuance of short-term debt in fiscal 2015 ; and $ 164 million less repurchases of common stock ; partially offset by $ 4 million net cash out flows for fiscal 2015 compared with $ 38 million net cash inflows for fiscal 2014 related to issuance under share-based compensation plans and withholding tax payments related to vesting of stock units . free cash flow free cash flow is a non-gaap financial measure .
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