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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

cash flows from operating activities for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 cash flows from operating activities provided $ 377.4 million for the year ended december 31 , 2020 and $ 284.3 million for the year ended december 31 , 2019. this $ 93.1 million , or 32.7 % , increase in cash flows from operating activities was primarily the result of increases in net income after adjusting for non-cash items of $ 69.4 million and changes in net working capital of $ 23.7 million . the increase of net income adjusted for non-cash items of $ 69.4 million was due to an increase of non-cash items of $ 599.7 million partially offset by an increase in net loss of $ 530.3 million . the $ 599.7 million increase in non-cash items was primarily due to an increase in stock-based compensation of $ 420.9 million , increase in loss on extinguishment of debt of $ 121.4 million , change in the deferred tax benefit of $ 66.4 million , loss on investments of $ 12.2 million , and the increase in non-cash interest costs of $ 9.5 million including increases in debt issue costs , increases in depreciation expense of $ 4.8 million , increase in amortization of intangible assets $ 0.6 million , and loss on disposal of assets of $ 0.4 million , offset by the change in fair value of private placement warrants and unvested founder shares of $ 35.4 million and decrease in the amortization of right-of-use-asset of $ 1.2 million . the increase in net loss of $ 530.3 million was primarily the result of reductions in revenues , increases in costs of services , general and administrative expenses , depreciation , and loss on debt extinguishment , offset by reductions in interest expense , increases in change in fair value of private placement warrants and unvested founder shares , increases in the benefit for income taxes , and increases in interest income as explained above .

we believe the epam brand name and our reputation are important corporate assets that help distinguish our services from those of our competitors and also contribute to our efforts to recruit and retain talented employees in cee and the cis . we seek to accurately manage our pricing and cost estimates when negotiating contract terms with our clients to ensure we are able to maintain appropriate levels of project profitability while providing a high quality of service . we also seek to maintain optimal resource utilization levels and productivity with the efficient allocation of our it professionals and facilities in our development centers in cee and the cis . we believe that the most significant factors affecting our results of operations include : market demand for software development services ; economic growth rates in the industries and countries in which our clients operate ; shortages of skilled it professionals in the united states and europe ; isvs and technology companies increasingly outsourcing work to it service professionals to more efficiently scale their operations with strong software engineering skills ; wage rates in countries where we operate , particularly in cee countries where most of our employees are based ; and changes in foreign exchange rates , especially relative changes in exchange rates between the u.s dollar and the british pound , euro , russian ruble and hungarian forint . our results of operations in any given period are also directly affected by company-specific factors , including : our ability to obtain new clients and generate repeat business from existing clients ; our ability to expand the quality , range and delivery of our portfolio of service offerings and our expertise relative to our competitors ; our ability to efficiently manage and utilize our it professionals ; and our ability to identify , integrate and effectively manage businesses that we acquire . certain income statement line items revenues revenues are derived primarily from providing software development services to our clients . during the third quarter of 2008 , we started to experience a decrease in demand for our services as a result of the global economic downturn , which also continued to adversely affect demand during 2009. however , in 2010 and 2011 we experienced rapid growth in demand for our services and significantly expanded our business . in 2010 , revenues increased by 47.9 % to $ 221.8 million from $ 149.9 million in 2009 , and increased by 50.8 % to $ 334.5 million in 2011 from $ 221.8 million in 2010. we discuss below the breakdown of our revenues by service offering , vertical , client location , contract type and client concentration . revenues consist of it services revenues and reimbursable expenses and other revenues , which primarily include travel and entertainment costs that are chargeable to clients . 53 revenues by service offering software development includes software product development , custom application development services and enterprise application platforms services , and has historically represented , and we expect to continue to represent , the substantial majority of our business . the following table sets forth revenues by service offering by amount and as a percentage of our revenues for the periods indicated : replace_table_token_10_th revenues by vertical the foundation we have built with isvs and technology companies has enabled us to leverage our strong domain knowledge and industry-specific knowledge capabilities to become a premier it services provider to a range of additional verticals such as banking and financial services , business information and media , travel and hospitality and retail and consumer . the following table sets forth revenues by vertical by amount and as a percentage of our revenues for the periods indicated : replace_table_token_11_th 54 revenues by client location our revenues are sourced from three geographic markets : north america , europe and the cis . we present our revenues by client location based on the location of the specific client site that we serve , irrespective of the location of the headquarters of the client or the location of the delivery center where the work is performed . as such , revenues by client location differ from the segment information in our audited consolidated financial statements included elsewhere in this annual report , which is not solely based on the geographic location of the clients but rather is based on managerial responsibility for a particular client regardless of client location . the following table sets forth revenues by client location by amount and as a percentage of our revenues for the periods indicated : replace_table_token_12_th revenues by contract type our services are performed under both time-and-material and fixed-price arrangements . our engagement models depend on the type of services provided to a client , the mix and locations of professionals involved and the business outcomes our clients are looking to achieve . historically , the majority of our revenues have been generated under time-and-material contracts . under time-and-material contracts , we are compensated for actual time incurred by our it professionals at negotiated hourly , daily or monthly rates . fixed-price contracts require us to perform services throughout the contractual period and we are paid in installments on pre-agreed intervals . we expect time-and-material arrangements to continue to comprise the majority of our revenues in the future . the following table sets forth revenues by contract type by amount and as a percentage of our revenues for the periods indicated : replace_table_token_13_th revenues by client concentration we have grown our revenues from our clients by continually expanding the scope and size of our engagements , and we have grown our key client base through internal business development efforts and several strategic acquisitions . 55 our focus on delivering quality to our clients is reflected by an average of 86.0 % and 70.5 % of our revenues in 2011 coming from clients that had used our services for at least two and three years , respectively . story_separator_special_tag there is no assurance that we would be able to raise additional funds on favorable terms or at all . off-balance sheet commitments and arrangements we do not have any investments in special purpose entities or undisclosed borrowings or debt . accordingly , our results of operations , financial condition and cash flows are not subject to off-balance sheet risks . critical accounting policies we prepare our audited consolidated financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) , which require us to make judgments , estimates and assumptions that affect : ( i ) the reported amounts of assets and liabilities , ( ii ) disclosure of contingent assets and liabilities at the end of each reporting period and ( iii ) the reported amounts of revenues and expenses during each reporting period . we evaluate these estimates and assumptions based on historical experience , knowledge and assessment of current business and other conditions , and expectations regarding the future based on available information and reasonable assumptions , which together form a basis for making judgments about matters not readily apparent from other sources . since the use of estimates is an integral component of the financial reporting process , actual results could differ from those estimates . some of our accounting policies require higher degrees of judgment than others in their application . when reviewing our audited consolidated financial statements , you should consider ( i ) our selection of critical accounting policies , ( ii ) the judgment and other uncertainties affecting the application of such policies and ( iii ) the sensitivity of reported results to changes in conditions and assumptions . we consider the policies discussed below to be critical to an understanding of our audited consolidated financial statements as their application places significant demands on the judgment of our management . 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 that reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact the audited consolidated financial statements . we believe that the following critical accounting policies are the most sensitive and require more significant estimates and assumptions used in the preparation of our audited consolidated financial statements . you should read the following descriptions of critical accounting policies , judgments and estimates in conjunction with our audited consolidated financial statements and other disclosures included in this annual report . revenue recognition we generate revenues primarily from software development services . we recognize revenues when realized or realizable and earned , which is when the following criteria are met : persuasive evidence of an arrangement exists ; delivery has occurred ; the sales price is fixed or determinable ; and collectability is reasonably assured . if there is an uncertainty about the project completion or receipt of payment for the consulting services , revenues are deferred until the uncertainty is sufficiently resolved . at the time revenues are recognized , we provide for client incentive programs and reduce revenues accordingly . we defer amounts billed to our clients for revenues not yet earned . such amounts are anticipated to be recorded as revenues as services are performed in subsequent periods . unbilled revenues represent services provided which are billed subsequent to the period end in accordance with the contract terms . all such amounts are anticipated to be realized in subsequent periods . 63 our services are performed under both time-and-material and fixed-price contracts arrangements . for revenues generated under time-and-material contracts , revenues are recognized as services are performed with the corresponding cost of providing those services reflected as cost of revenues when incurred . the majority of such revenues are billed on an hourly , daily or monthly basis whereby actual time is charged directly to the client . we recognize revenues from fixed-price contracts based on the proportional performance method . in instances where final acceptance of the product , system or solution is specified by the client , revenues are deferred until all acceptance criteria have been met . in absence of a sufficient basis to measure progress towards completion , revenues are recognized upon receipt of final acceptance from the client . the complexity of the estimation process and factors relating to the assumptions , risks and uncertainties inherent with the application of the proportional performance method of accounting affects the amounts of revenues and related expenses reported in our audited consolidated financial statements . a number of internal and external factors can affect our estimates , including labor hours and specification and testing requirement changes . the cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known . our fixed price contracts are generally recognized over a period of twelve months or less . we enter into multiple element arrangements with our clients under time-and-material and fixed-fee contracts . in october 2009 , the fasb issued a new accounting standard which provides guidance for arrangements with multiple deliverables . we adopted this standard effective january 1 , 2010 for all new or amended contracts , and it did not have a material effect on our financial condition or consolidated results of operations , or change our units of accounting and how we allocate the arrangement consideration to various units of accounting . these arrangements consist of development services and other service deliverables that qualify for separate units of accounting . these other services include maintenance and support services for our time-and-material contracts and separately priced warranties for our fixed-fee contracts . these deliverables qualify for multiple units of accounting and therefore arrangement consideration is allocated among the units of accounting based on their relative selling price . the relative selling price is

cash flows from operating activities for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 cash flows from operating activities provided $ 377.4 million for the year ended december 31 , 2020 and $ 284.3 million for the year ended december 31 , 2019. this $ 93.1 million , or 32.7 % , increase in cash flows from operating activities was primarily the result of increases in net income after adjusting for non-cash items of $ 69.4 million and changes in net working capital of $ 23.7 million . the increase of net income adjusted for non-cash items of $ 69.4 million was due to an increase of non-cash items of $ 599.7 million partially offset by an increase in net loss of $ 530.3 million . the $ 599.7 million increase in non-cash items was primarily due to an increase in stock-based compensation of $ 420.9 million , increase in loss on extinguishment of debt of $ 121.4 million , change in the deferred tax benefit of $ 66.4 million , loss on investments of $ 12.2 million , and the increase in non-cash interest costs of $ 9.5 million including increases in debt issue costs , increases in depreciation expense of $ 4.8 million , increase in amortization of intangible assets $ 0.6 million , and loss on disposal of assets of $ 0.4 million , offset by the change in fair value of private placement warrants and unvested founder shares of $ 35.4 million and decrease in the amortization of right-of-use-asset of $ 1.2 million . the increase in net loss of $ 530.3 million was primarily the result of reductions in revenues , increases in costs of services , general and administrative expenses , depreciation , and loss on debt extinguishment , offset by reductions in interest expense , increases in change in fair value of private placement warrants and unvested founder shares , increases in the benefit for income taxes , and increases in interest income as explained above .

we believe the epam brand name and our reputation are important corporate assets that help distinguish our services from those of our competitors and also contribute to our efforts to recruit and retain talented employees in cee and the cis . we seek to accurately manage our pricing and cost estimates when negotiating contract terms with our clients to ensure we are able to maintain appropriate levels of project profitability while providing a high quality of service . we also seek to maintain optimal resource utilization levels and productivity with the efficient allocation of our it professionals and facilities in our development centers in cee and the cis . we believe that the most significant factors affecting our results of operations include : market demand for software development services ; economic growth rates in the industries and countries in which our clients operate ; shortages of skilled it professionals in the united states and europe ; isvs and technology companies increasingly outsourcing work to it service professionals to more efficiently scale their operations with strong software engineering skills ; wage rates in countries where we operate , particularly in cee countries where most of our employees are based ; and changes in foreign exchange rates , especially relative changes in exchange rates between the u.s dollar and the british pound , euro , russian ruble and hungarian forint . our results of operations in any given period are also directly affected by company-specific factors , including : our ability to obtain new clients and generate repeat business from existing clients ; our ability to expand the quality , range and delivery of our portfolio of service offerings and our expertise relative to our competitors ; our ability to efficiently manage and utilize our it professionals ; and our ability to identify , integrate and effectively manage businesses that we acquire . certain income statement line items revenues revenues are derived primarily from providing software development services to our clients . during the third quarter of 2008 , we started to experience a decrease in demand for our services as a result of the global economic downturn , which also continued to adversely affect demand during 2009. however , in 2010 and 2011 we experienced rapid growth in demand for our services and significantly expanded our business . in 2010 , revenues increased by 47.9 % to $ 221.8 million from $ 149.9 million in 2009 , and increased by 50.8 % to $ 334.5 million in 2011 from $ 221.8 million in 2010. we discuss below the breakdown of our revenues by service offering , vertical , client location , contract type and client concentration . revenues consist of it services revenues and reimbursable expenses and other revenues , which primarily include travel and entertainment costs that are chargeable to clients . 53 revenues by service offering software development includes software product development , custom application development services and enterprise application platforms services , and has historically represented , and we expect to continue to represent , the substantial majority of our business . the following table sets forth revenues by service offering by amount and as a percentage of our revenues for the periods indicated : replace_table_token_10_th revenues by vertical the foundation we have built with isvs and technology companies has enabled us to leverage our strong domain knowledge and industry-specific knowledge capabilities to become a premier it services provider to a range of additional verticals such as banking and financial services , business information and media , travel and hospitality and retail and consumer . the following table sets forth revenues by vertical by amount and as a percentage of our revenues for the periods indicated : replace_table_token_11_th 54 revenues by client location our revenues are sourced from three geographic markets : north america , europe and the cis . we present our revenues by client location based on the location of the specific client site that we serve , irrespective of the location of the headquarters of the client or the location of the delivery center where the work is performed . as such , revenues by client location differ from the segment information in our audited consolidated financial statements included elsewhere in this annual report , which is not solely based on the geographic location of the clients but rather is based on managerial responsibility for a particular client regardless of client location . the following table sets forth revenues by client location by amount and as a percentage of our revenues for the periods indicated : replace_table_token_12_th revenues by contract type our services are performed under both time-and-material and fixed-price arrangements . our engagement models depend on the type of services provided to a client , the mix and locations of professionals involved and the business outcomes our clients are looking to achieve . historically , the majority of our revenues have been generated under time-and-material contracts . under time-and-material contracts , we are compensated for actual time incurred by our it professionals at negotiated hourly , daily or monthly rates . fixed-price contracts require us to perform services throughout the contractual period and we are paid in installments on pre-agreed intervals . we expect time-and-material arrangements to continue to comprise the majority of our revenues in the future . the following table sets forth revenues by contract type by amount and as a percentage of our revenues for the periods indicated : replace_table_token_13_th revenues by client concentration we have grown our revenues from our clients by continually expanding the scope and size of our engagements , and we have grown our key client base through internal business development efforts and several strategic acquisitions . 55 our focus on delivering quality to our clients is reflected by an average of 86.0 % and 70.5 % of our revenues in 2011 coming from clients that had used our services for at least two and three years , respectively . story_separator_special_tag there is no assurance that we would be able to raise additional funds on favorable terms or at all . off-balance sheet commitments and arrangements we do not have any investments in special purpose entities or undisclosed borrowings or debt . accordingly , our results of operations , financial condition and cash flows are not subject to off-balance sheet risks . critical accounting policies we prepare our audited consolidated financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) , which require us to make judgments , estimates and assumptions that affect : ( i ) the reported amounts of assets and liabilities , ( ii ) disclosure of contingent assets and liabilities at the end of each reporting period and ( iii ) the reported amounts of revenues and expenses during each reporting period . we evaluate these estimates and assumptions based on historical experience , knowledge and assessment of current business and other conditions , and expectations regarding the future based on available information and reasonable assumptions , which together form a basis for making judgments about matters not readily apparent from other sources . since the use of estimates is an integral component of the financial reporting process , actual results could differ from those estimates . some of our accounting policies require higher degrees of judgment than others in their application . when reviewing our audited consolidated financial statements , you should consider ( i ) our selection of critical accounting policies , ( ii ) the judgment and other uncertainties affecting the application of such policies and ( iii ) the sensitivity of reported results to changes in conditions and assumptions . we consider the policies discussed below to be critical to an understanding of our audited consolidated financial statements as their application places significant demands on the judgment of our management . 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 that reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact the audited consolidated financial statements . we believe that the following critical accounting policies are the most sensitive and require more significant estimates and assumptions used in the preparation of our audited consolidated financial statements . you should read the following descriptions of critical accounting policies , judgments and estimates in conjunction with our audited consolidated financial statements and other disclosures included in this annual report . revenue recognition we generate revenues primarily from software development services . we recognize revenues when realized or realizable and earned , which is when the following criteria are met : persuasive evidence of an arrangement exists ; delivery has occurred ; the sales price is fixed or determinable ; and collectability is reasonably assured . if there is an uncertainty about the project completion or receipt of payment for the consulting services , revenues are deferred until the uncertainty is sufficiently resolved . at the time revenues are recognized , we provide for client incentive programs and reduce revenues accordingly . we defer amounts billed to our clients for revenues not yet earned . such amounts are anticipated to be recorded as revenues as services are performed in subsequent periods . unbilled revenues represent services provided which are billed subsequent to the period end in accordance with the contract terms . all such amounts are anticipated to be realized in subsequent periods . 63 our services are performed under both time-and-material and fixed-price contracts arrangements . for revenues generated under time-and-material contracts , revenues are recognized as services are performed with the corresponding cost of providing those services reflected as cost of revenues when incurred . the majority of such revenues are billed on an hourly , daily or monthly basis whereby actual time is charged directly to the client . we recognize revenues from fixed-price contracts based on the proportional performance method . in instances where final acceptance of the product , system or solution is specified by the client , revenues are deferred until all acceptance criteria have been met . in absence of a sufficient basis to measure progress towards completion , revenues are recognized upon receipt of final acceptance from the client . the complexity of the estimation process and factors relating to the assumptions , risks and uncertainties inherent with the application of the proportional performance method of accounting affects the amounts of revenues and related expenses reported in our audited consolidated financial statements . a number of internal and external factors can affect our estimates , including labor hours and specification and testing requirement changes . the cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known . our fixed price contracts are generally recognized over a period of twelve months or less . we enter into multiple element arrangements with our clients under time-and-material and fixed-fee contracts . in october 2009 , the fasb issued a new accounting standard which provides guidance for arrangements with multiple deliverables . we adopted this standard effective january 1 , 2010 for all new or amended contracts , and it did not have a material effect on our financial condition or consolidated results of operations , or change our units of accounting and how we allocate the arrangement consideration to various units of accounting . these arrangements consist of development services and other service deliverables that qualify for separate units of accounting . these other services include maintenance and support services for our time-and-material contracts and separately priced warranties for our fixed-fee contracts . these deliverables qualify for multiple units of accounting and therefore arrangement consideration is allocated among the units of accounting based on their relative selling price . the relative selling price is

capital resources at december 31 , 2011 , our principal sources of liquidity were cash and cash equivalents totaling $ 88.8 million and $ 30.0 million of available borrowings under our revolving line of credit . at december 31 , 2011 , we had cash and cash equivalents of $ 88.8 million , of which $ 55.5 million was held outside the united states , including $ 24.2 million held in u.s. dollar denominated accounts in belarus , which accrued at an average interest rate of 6.5 % during 2010 and 2011. we have a $ 30.0 million revolving line of credit with pnc bank , national association . advances under our revolving line of credit accrue interest at an annual rate equal to the london interbank offer rate , or libor , plus 1.25 % . our revolving line of credit is secured by the grant of a security interest in all of our u.s. trade receivables and cash on hand in favor of the bank and contains customary financial and reporting covenants and limitations . we are currently in compliance with all covenants contained in our revolving line of credit and believe that our revolving line of credit provides sufficient flexibility so that we will remain in compliance with its terms in the foreseeable future . our revolving line of credit expires on october 15 , 2013. at december 31 , 2011 , we had no borrowings outstanding under our revolving line of credit . the cash and cash equivalents held at locations outside of the united states are for future operating expenses and we have no intention of repatriating those funds . we are not , however , restricted in repatriating those funds back to the united states , if necessary . if we decide to remit funds to the united states in the form of dividends , $ 55.1 million would be subject to foreign withholding taxes , of which $ 46 million would also be 60 subject to u.s. corporate income tax .

see further discussion in `` note 14 - segment information `` to our consolidated financial statements included in part ii , item 8 , `` financial statements and supplementary data `` in this annual report on form 10-k. for financial information regarding revenue and long-lived assets by geographic areas , see `` note 15 - operations by geographic location `` to our consolidated financial statements included in part ii , item 8 , `` financial statements and supplementary data `` in this annual report on form 10-k. 65 new business awards and backlog in connection with the merger , we re-evaluated our existing backlog policy for our clinical solutions segment . as a result of this evaluation , effective during the third quarter of 2017 , we changed our policy for calculating and reporting the amounts of our net new business awards and backlog . under the new backlog policy for our clinical solutions segment , we add new business awards to backlog when we enter into a contract or when we receive a written commitment from the customer selecting us as a service provider , provided that : the customer has received appropriate internal funding approval and collection of the award value is probable ; the project or projects are not contingent upon completion of another trial or event ; the project or projects are expected to commence within the next six months ; the customer has entered or intends to enter into a comprehensive contract as soon as practicable ; and for awards related to our fsp offering , only a maximum of twelve months of services are included . in addition , we continually evaluate our backlog to determine if any of the previously awarded work is no longer expected to be performed , regardless of whether we have received formal cancellation notice from the customer . if we determine that any previously awarded work is no longer probable of being performed , we remove the value from our backlog based on risk . we recognize revenue from these awards as services are performed , provided we have entered into a contractual commitment with the customer . we recorded the backlog assumed in the merger consistent with our new backlog policy . we do not currently report new business awards or backlog data for our commercial solutions segment . accordingly , all disclosures related to net new service awards and backlog pertain solely to our clinical solutions segment . backlog our clinical solutions backlog consists of anticipated future net service revenue from business awards that either have not started but are anticipated to begin in the future ( as noted above ) , or that are in process and have not been completed . our backlog also reflects any cancellation or adjustment activity related to these contracts . the average duration of our contracts will fluctuate from period to period in the future based on the contracts comprising our backlog at any given time . the majority of our clinical solutions segment contracts can be terminated by the customer with a 30-day notice . as of december 31 , 2017 and 2016 , our clinical solutions backlog was $ 3.80 billion and $ 1.88 billion , respectively ( inventiv contributed approximately $ 1.51 billion of our december 31 , 2017 clinical solutions backlog ) . we expect approximately $ 1.88 billion of our clinical solutions backlog at december 31 , 2017 will be recognized as revenue during 2018 , with the remainder expected to be translated into revenue beyond 2018 . we adjust the amount of our backlog each quarter for the effects of fluctuations in foreign currency exchange rates . during the year ended december 31 , 2017 , fluctuations in foreign currency exchange rates resulted in a favorable impact on our december 31 , 2017 backlog in the amount of $ 47.3 million , primarily due to the strengthening of the euro against the u.s. dollar . we believe that our backlog and net new business awards might not be consistent indicators of future revenue because they have been , and likely will be , affected by a number of factors , including the variable size and duration of projects , many of which are performed over several years , and cancellations and changes to the scope of work during the course of projects . additionally , projects may be canceled or delayed by the customer or regulatory authorities . projects that have been delayed for less than six months generally remain in backlog , but the anticipated timing of the recognition of revenue is uncertain . we generally do not have a contractual right to the full amount of the awards reflected in our backlog . if a customer cancels an award , we might be reimbursed for the costs we have incurred . as we increasingly compete for and enter into large contracts that are more global in nature , we expect that the rate at which our backlog and net new business awards convert into revenue is likely to decrease , and the duration of projects and the period over 66 which related revenue is recognized to lengthen . in addition , our adoption of the new revenue recognition accounting standard on january 1 , 2018 might affect our backlog . see `` note 1 - basis of presentation and summary of principal accounting policies - recently issued accounting standards not yet adopted - revenue from contracts with customers . story_separator_special_tag million , or 63.9 % , to $ 282.6 million for the year ended december 31 , 2017 from $ 172.4 million for the year ended december 31 , 2016 , including a $ 0.4 million benefit from favorable fluctuations in foreign currency exchange rates compared to the prior year . these increases were primarily due to the merger with inventiv , which increased our overall employee base by approximately 15,000 employees in august 2017 and resulted in an increase of approximately $ 97.1 million in compensation related selling , general , and administrative expenses during 2017 compared to 2016. selling , general and administrative expenses increased by $ 15.8 million , or 10.1 % , to $ 172.4 million for the year ended december 31 , 2016 from $ 156.6 million for the year ended december 31 , 2015 , including a $ 4.0 million benefit from favorable fluctuations in foreign currency exchange rates compared to the prior year . the increase was primarily driven by : ( i ) an increase in salaries , benefits and incentive compensation , principally as a result of the additions in personnel to support the growth of our business and the one-time benefit from settlement of certain employee related liabilities in 2015 ; ( ii ) an increase in bad debt expense resulting from an increase in billed and unbilled receivables exposure ; and ( iii ) an increase in travel costs primarily driven by increased headcount . these cost increases were offset by reductions in : ( i ) professional fees for legal and 72 accounting fees associated with implementing sarbanes-oxley and tax planning that occurred in 2015 ; and ( ii ) facilities and it related costs through improved utilization of our existing infrastructure . during the year ended december 31 , 2015 , our selling , general and administrative expenses were positively impacted by settlement of certain employee related liabilities totaling approximately $ 1.1 million . selling , general and administrative expense as a percentage of total net service revenue has declined to 15.3 % from 16.7 % and 17.1 % for years ended december 31 , 2017 , 2016 and 2015 , respectively . fluctuations in foreign currency exchange rates could significantly impact our selling , general and administrative expenses as a percentage of revenue in the future . restructuring and other costs restructuring and other costs were $ 33.3 million for the year ended december 31 , 2017 . in connection with the merger , we established a restructuring plan to eliminate redundant positions and reduce our facility footprint worldwide . accordingly , during the year ended december 31 , 2017 , we recognized approximately $ 11.3 million of employee severance and benefit costs , facility closure and lease termination costs of $ 2.2 million , and other costs of $ 2.0 million related to the merger . we expect to incur significant additional costs related to the restructuring of our operations in order to achieve the targeted synergies as a result of the merger over the next several years . the timing and the estimate of the amount of these costs depends on various factors , including , but not limited to , the identification of synergy opportunities and the execution of the integration of our combined operations . in addition to costs incurred as a result of the merger , during the year ended december 31 , 2017 , we recognized approximately $ 9.4 million of employee severance costs and incurred $ 1.3 million of facility closure and lease termination costs related to non-merger restructuring activities . included in restructuring and other costs during 2017 are $ 5.0 million of consulting costs related to the continued consolidation of our legal entities and restructuring of our contract management process to meet the requirements of upcoming accounting regulation changes and $ 2.1 million of other costs . restructuring and other costs were $ 13.6 million for the year ended december 31 , 2016. in march 2016 , management approved a global plan to eliminate certain positions worldwide in an effort to ensure that our organizational focus and resources were properly aligned with our strategic goals and to continue strengthening the delivery of our growing backlog to customers . accordingly , we made changes to our therapeutic unit structure designed to realign with management focus and optimize the efficiency of our resourcing to achieve our strategic plan . as a result , we eliminated approximately 200 positions and incurred $ 7.0 million related to employee severance costs during the year ended december 31 , 2016. all actions under this plan were completed by december 31 , 2017. during the third quarter of 2016 , we also announced the closure of one of our facilities associated with this restructuring and we incurred facility closure costs of $ 1.5 million , which were partially offset by unamortized deferred rent of $ 0.5 million during the year ended december 31 , 2016. on july 27 , 2016 , we entered into a transition agreement with our former ceo related to the transition to a new ceo as of october 1 , 2016. the ceo transition agreement was effective through february 28 , 2017. in addition , in mid-september 2016 , we entered into retention agreements with certain key employees for various dates through september 2017. for the year ended december 31 , 2016 , we recognized $ 4.8 million of costs associated with the ceo transition and retention agreements , which will be paid through august 2018. restructuring and other costs were $ 1.8 million for the year ended december 31 , 2015 , primarily consisting of employee severance costs of $ 2.7 million , partially offset by a net reduction in facility closure costs of $ 0.9 million . 73 transaction and integration-related expenses transaction and integration-related expenses consisted of the following ( in thousands ) : replace_table_token_11_th during the year ended december 31 , 2017 , we incurred transaction

capital resources at december 31 , 2011 , our principal sources of liquidity were cash and cash equivalents totaling $ 88.8 million and $ 30.0 million of available borrowings under our revolving line of credit . at december 31 , 2011 , we had cash and cash equivalents of $ 88.8 million , of which $ 55.5 million was held outside the united states , including $ 24.2 million held in u.s. dollar denominated accounts in belarus , which accrued at an average interest rate of 6.5 % during 2010 and 2011. we have a $ 30.0 million revolving line of credit with pnc bank , national association . advances under our revolving line of credit accrue interest at an annual rate equal to the london interbank offer rate , or libor , plus 1.25 % . our revolving line of credit is secured by the grant of a security interest in all of our u.s. trade receivables and cash on hand in favor of the bank and contains customary financial and reporting covenants and limitations . we are currently in compliance with all covenants contained in our revolving line of credit and believe that our revolving line of credit provides sufficient flexibility so that we will remain in compliance with its terms in the foreseeable future . our revolving line of credit expires on october 15 , 2013. at december 31 , 2011 , we had no borrowings outstanding under our revolving line of credit . the cash and cash equivalents held at locations outside of the united states are for future operating expenses and we have no intention of repatriating those funds . we are not , however , restricted in repatriating those funds back to the united states , if necessary . if we decide to remit funds to the united states in the form of dividends , $ 55.1 million would be subject to foreign withholding taxes , of which $ 46 million would also be 60 subject to u.s. corporate income tax .

see further discussion in `` note 14 - segment information `` to our consolidated financial statements included in part ii , item 8 , `` financial statements and supplementary data `` in this annual report on form 10-k. for financial information regarding revenue and long-lived assets by geographic areas , see `` note 15 - operations by geographic location `` to our consolidated financial statements included in part ii , item 8 , `` financial statements and supplementary data `` in this annual report on form 10-k. 65 new business awards and backlog in connection with the merger , we re-evaluated our existing backlog policy for our clinical solutions segment . as a result of this evaluation , effective during the third quarter of 2017 , we changed our policy for calculating and reporting the amounts of our net new business awards and backlog . under the new backlog policy for our clinical solutions segment , we add new business awards to backlog when we enter into a contract or when we receive a written commitment from the customer selecting us as a service provider , provided that : the customer has received appropriate internal funding approval and collection of the award value is probable ; the project or projects are not contingent upon completion of another trial or event ; the project or projects are expected to commence within the next six months ; the customer has entered or intends to enter into a comprehensive contract as soon as practicable ; and for awards related to our fsp offering , only a maximum of twelve months of services are included . in addition , we continually evaluate our backlog to determine if any of the previously awarded work is no longer expected to be performed , regardless of whether we have received formal cancellation notice from the customer . if we determine that any previously awarded work is no longer probable of being performed , we remove the value from our backlog based on risk . we recognize revenue from these awards as services are performed , provided we have entered into a contractual commitment with the customer . we recorded the backlog assumed in the merger consistent with our new backlog policy . we do not currently report new business awards or backlog data for our commercial solutions segment . accordingly , all disclosures related to net new service awards and backlog pertain solely to our clinical solutions segment . backlog our clinical solutions backlog consists of anticipated future net service revenue from business awards that either have not started but are anticipated to begin in the future ( as noted above ) , or that are in process and have not been completed . our backlog also reflects any cancellation or adjustment activity related to these contracts . the average duration of our contracts will fluctuate from period to period in the future based on the contracts comprising our backlog at any given time . the majority of our clinical solutions segment contracts can be terminated by the customer with a 30-day notice . as of december 31 , 2017 and 2016 , our clinical solutions backlog was $ 3.80 billion and $ 1.88 billion , respectively ( inventiv contributed approximately $ 1.51 billion of our december 31 , 2017 clinical solutions backlog ) . we expect approximately $ 1.88 billion of our clinical solutions backlog at december 31 , 2017 will be recognized as revenue during 2018 , with the remainder expected to be translated into revenue beyond 2018 . we adjust the amount of our backlog each quarter for the effects of fluctuations in foreign currency exchange rates . during the year ended december 31 , 2017 , fluctuations in foreign currency exchange rates resulted in a favorable impact on our december 31 , 2017 backlog in the amount of $ 47.3 million , primarily due to the strengthening of the euro against the u.s. dollar . we believe that our backlog and net new business awards might not be consistent indicators of future revenue because they have been , and likely will be , affected by a number of factors , including the variable size and duration of projects , many of which are performed over several years , and cancellations and changes to the scope of work during the course of projects . additionally , projects may be canceled or delayed by the customer or regulatory authorities . projects that have been delayed for less than six months generally remain in backlog , but the anticipated timing of the recognition of revenue is uncertain . we generally do not have a contractual right to the full amount of the awards reflected in our backlog . if a customer cancels an award , we might be reimbursed for the costs we have incurred . as we increasingly compete for and enter into large contracts that are more global in nature , we expect that the rate at which our backlog and net new business awards convert into revenue is likely to decrease , and the duration of projects and the period over 66 which related revenue is recognized to lengthen . in addition , our adoption of the new revenue recognition accounting standard on january 1 , 2018 might affect our backlog . see `` note 1 - basis of presentation and summary of principal accounting policies - recently issued accounting standards not yet adopted - revenue from contracts with customers . story_separator_special_tag million , or 63.9 % , to $ 282.6 million for the year ended december 31 , 2017 from $ 172.4 million for the year ended december 31 , 2016 , including a $ 0.4 million benefit from favorable fluctuations in foreign currency exchange rates compared to the prior year . these increases were primarily due to the merger with inventiv , which increased our overall employee base by approximately 15,000 employees in august 2017 and resulted in an increase of approximately $ 97.1 million in compensation related selling , general , and administrative expenses during 2017 compared to 2016. selling , general and administrative expenses increased by $ 15.8 million , or 10.1 % , to $ 172.4 million for the year ended december 31 , 2016 from $ 156.6 million for the year ended december 31 , 2015 , including a $ 4.0 million benefit from favorable fluctuations in foreign currency exchange rates compared to the prior year . the increase was primarily driven by : ( i ) an increase in salaries , benefits and incentive compensation , principally as a result of the additions in personnel to support the growth of our business and the one-time benefit from settlement of certain employee related liabilities in 2015 ; ( ii ) an increase in bad debt expense resulting from an increase in billed and unbilled receivables exposure ; and ( iii ) an increase in travel costs primarily driven by increased headcount . these cost increases were offset by reductions in : ( i ) professional fees for legal and 72 accounting fees associated with implementing sarbanes-oxley and tax planning that occurred in 2015 ; and ( ii ) facilities and it related costs through improved utilization of our existing infrastructure . during the year ended december 31 , 2015 , our selling , general and administrative expenses were positively impacted by settlement of certain employee related liabilities totaling approximately $ 1.1 million . selling , general and administrative expense as a percentage of total net service revenue has declined to 15.3 % from 16.7 % and 17.1 % for years ended december 31 , 2017 , 2016 and 2015 , respectively . fluctuations in foreign currency exchange rates could significantly impact our selling , general and administrative expenses as a percentage of revenue in the future . restructuring and other costs restructuring and other costs were $ 33.3 million for the year ended december 31 , 2017 . in connection with the merger , we established a restructuring plan to eliminate redundant positions and reduce our facility footprint worldwide . accordingly , during the year ended december 31 , 2017 , we recognized approximately $ 11.3 million of employee severance and benefit costs , facility closure and lease termination costs of $ 2.2 million , and other costs of $ 2.0 million related to the merger . we expect to incur significant additional costs related to the restructuring of our operations in order to achieve the targeted synergies as a result of the merger over the next several years . the timing and the estimate of the amount of these costs depends on various factors , including , but not limited to , the identification of synergy opportunities and the execution of the integration of our combined operations . in addition to costs incurred as a result of the merger , during the year ended december 31 , 2017 , we recognized approximately $ 9.4 million of employee severance costs and incurred $ 1.3 million of facility closure and lease termination costs related to non-merger restructuring activities . included in restructuring and other costs during 2017 are $ 5.0 million of consulting costs related to the continued consolidation of our legal entities and restructuring of our contract management process to meet the requirements of upcoming accounting regulation changes and $ 2.1 million of other costs . restructuring and other costs were $ 13.6 million for the year ended december 31 , 2016. in march 2016 , management approved a global plan to eliminate certain positions worldwide in an effort to ensure that our organizational focus and resources were properly aligned with our strategic goals and to continue strengthening the delivery of our growing backlog to customers . accordingly , we made changes to our therapeutic unit structure designed to realign with management focus and optimize the efficiency of our resourcing to achieve our strategic plan . as a result , we eliminated approximately 200 positions and incurred $ 7.0 million related to employee severance costs during the year ended december 31 , 2016. all actions under this plan were completed by december 31 , 2017. during the third quarter of 2016 , we also announced the closure of one of our facilities associated with this restructuring and we incurred facility closure costs of $ 1.5 million , which were partially offset by unamortized deferred rent of $ 0.5 million during the year ended december 31 , 2016. on july 27 , 2016 , we entered into a transition agreement with our former ceo related to the transition to a new ceo as of october 1 , 2016. the ceo transition agreement was effective through february 28 , 2017. in addition , in mid-september 2016 , we entered into retention agreements with certain key employees for various dates through september 2017. for the year ended december 31 , 2016 , we recognized $ 4.8 million of costs associated with the ceo transition and retention agreements , which will be paid through august 2018. restructuring and other costs were $ 1.8 million for the year ended december 31 , 2015 , primarily consisting of employee severance costs of $ 2.7 million , partially offset by a net reduction in facility closure costs of $ 0.9 million . 73 transaction and integration-related expenses transaction and integration-related expenses consisted of the following ( in thousands ) : replace_table_token_11_th during the year ended december 31 , 2017 , we incurred transaction

liquidity and capital resources key measures of our liquidity are as follows ( in thousands ) : december 31 , 2017 december 31 , 2016 balance sheet statistics : cash and cash equivalents ( a ) $ 321,262 $ 102,471 working capital ( excluding restricted cash ) 261,903 55,295 ( a ) as of december 31 , 2017 , cash and cash equivalents held by our foreign subsidiaries was $ 192.0 million . a portion of these cash and cash equivalent balances may be subject to foreign withholding taxation , if repatriated . as of december 31 , 2017 , we had $ 321.3 million of cash and cash equivalents , including $ 57.3 million of cash acquired as part of the merger with inventiv . in addition , we had $ 481.4 million available for borrowing under our $ 500.0 million revolving credit facility . as disclosed in `` note 3 - business combinations '' in our consolidated financial statements included in part ii , item 8 , in this annual report on form 10-k , in august 2017 we completed the merger with inventiv . concurrently with the completion of the merger , we entered into the 2017 credit agreement for : ( i ) a $ 1.0 billion term loan a facility that matures on august 1 , 2022 ; ( ii ) a $ 1.6 billion term loan b facility that matures on august 1 , 2024 ; and ( iii ) a five- year $ 500.0 million revolving credit facility . we used the proceeds from the 2017 credit agreement to , among other things : ( i ) repay $ 445.0 million of outstanding loans and obligations under our previously existing long-term credit facility ; ( ii ) repay $ 1.7 billion of outstanding obligations under inventiv 's long-term credit facility , which was treated as merger consideration ; ( iii ) pay approximately $ 290.3 million to partially redeem obligations under the senior notes assumed in the merger , which included an early redemption penalty of $ 20.3 million ; and ( iv ) pay fees , premiums , and other transaction expenses related to the merger .

the two primary cannabinoids contained in cannabis are cbd and thc . clinical and preclinical data suggest that cbd has positive effects on treating behavioral symptoms of fxs , asd , 22q and seizures in patients with epilepsy . zygel is the first and only pharmaceutically-produced cbd formulated as a permeation‑enhanced gel for transdermal delivery , and the formulation is patent protected through 2030. an additional patent , directed to methods of treating fxs with synthetic or purified cbd , will expire in 2038. cbd is the primary non‑euphoric component of cannabis . in preclinical animal studies , zygel 's permeation enhancer increased delivery of cbd through the layers of the skin and into the circulatory system . these preclinical studies suggest increased bioavailability , consistent plasma levels and the avoidance of first‑pass liver metabolism of cbd when delivered transdermally . in addition , an in vitro study published in cannabis and cannabinoid research in april 2016 demonstrated that cbd is degraded to thc ( the major psychoactive cannabinoid in cannabis ) in an acidic environment such as the stomach . as a result , we believe such degradation may lead to increased psychoactive effects if cbd is delivered orally and may be avoided with the transdermal delivery of zygel , which maintains cbd in a neutral ph . zygel , which is being developed as a clear gel with once- or twice-daily dosing , is targeting treatment of behavioral symptoms of fxs , asd and 22q and reduction in seizures in patients with dee . we have been granted orphan drug designation from the fda for the use of cbd for the treatment of fxs . in our phase 1 program , zygel was demonstrated to be safe and well tolerated , provided a favorable cbd pharmacokinetic profile , and no thc was detected in plasma or urine . as of june 2018 , the zygel safety database across all clinical studies conducted by us includes data from 570 volunteers and patients . across these clinical studies , zygel has been well tolerated and consistent with previously reported data . 78 in april 2018 , we initiated the phase 2 believe 1 ( open label study to assess the safety and efficacy of zygel administered as a transdermal gel to children and adolescents with developmental and epileptic encephalopathy ) clinical trial , a six-month open label multi-dose clinical trial designed to evaluate the efficacy and safety of zygel in children and adolescents ( three to 17 years ) with dee as classified by the international league against epilepsy ( ilae ) ( scheffer et al . 2017 ) . enrollment in this study was complete in december 2018 and 48 patients with confirmed dee are being dosed in the clinical trial , 27 % of whom have either dravet or lennox-gastaut syndrome . enrolled patients will receive weight-based initial doses of 250 mg daily or 500 mg daily and during the maintenance phase patients may receive up to 1000 mg daily of zygel . the primary endpoint is change in seizure frequency from baseline . we expect to report top line results from the believe 1 trial in the third quarter of 2019. in july 2018 , we initiated the pivotal connect-fx ( clinical study of cannabidiol ( cbd ) in children and adolescents with fragile x ) clinical trial , a multi-national randomized , double-blind , placebo-controlled , 14-week study that will assess the efficacy and safety of zygel in children and adolescents ages three through 17 years who have full mutation of the fmr1 gene . approximately 200 male and female patients with fxs will be enrolled at approximately 20 clinical sites in the united states , australia , and new zealand . the study is being conducted in the united states under an investigational new drug ( ind ) application opened with the fda . patients will be randomized 1:1 to either trial drug or placebo . randomization will be stratified by gender , weight , and investigator geographic region . enrolled patients will receive weight-based doses of 250 mg or 500 mg daily . the primary endpoint is the change from baseline to the end of the treatment period in the aberrant behavior checklist-community fxs specific ( abc-c fxs ) social avoidance subscale . key secondary endpoints are the change from baseline to the end of the treatment period in the abc-c fxs irritability subscale score , the abc-c fxs socially unresponsive/lethargic subscale score , and improvement in clinical global impression - improvement ( cgi-i ) at the end of the treatment period . based on discussions with the fda , we will anchor the cgi-i scale to behavioral symptoms of fxs . consistent with recent guidance from the fda on capturing the voice of the patient in drug development , additional qualitative data on the clinical relevance of various fxs behaviors to caregivers and patients will be collected . if we obtain positive results from this trial , we plan to request a meeting with the fda to determine the acceptability of these data as the basis for an nda filing . we expect to report top line results from the connect-fx trial in the second half of 2019. in march 2019 , we initiated the phase 2 bright ( an open-label tolerability and efficacy study of zyn002 administered as a transdermal gel to children and adolescents with autism spectrum disorder ) trial . the study will assess the safety , tolerability and efficacy of zygel for the treatment of child and adolescent patients with asd . the company expects to present top line data from this study in the first half of 2020 . story_separator_special_tag substantial additional financings will be needed to fund our operations and to complete clinical development of and to commercially develop our product candidates . there is no assurance that such financing will be available when needed or on acceptable terms . equity financings during the year ended december 31 , 2016 , we entered into an open market sales agreement , or the 2016 sales agreement , with jefferies , pursuant to which we sold and issued 794,906 shares of our common stock in the open market at a weighted average selling price of $ 13.39 per share , for gross proceeds of $ 10.6 million . net proceeds received after deducting commissions and offering expenses were $ 10.0 million . in the first quarter of 2017 , we completed a follow-on public offering , selling 3,220,000 shares of our common stock at an offering price of $ 18.00 per share , resulting in gross proceeds of $ 58.0 million . net proceeds received after deducting underwriting and commissions and offering expenses were $ 54.2 million . in june 2017 , we terminated the 2016 sales agreement and entered into a new open market sales agreement , or sales agreement , with jefferies , pursuant to which we may sell , from time to time , up to $ 50.0 million of our common stock . during 2017 , we sold and issued 296,594 shares of common stock in the open market at a weighted average selling price of $ 10.74 per share , for gross proceeds of $ 3.2 million . net proceeds after deducting underwriting and commissions and offering expenses were $ 3.0 million . in july 2018 , we completed a follow-on public offering , selling 4,062,500 shares of our common stock at an offering price of $ 8.00 per share , resulting in gross proceeds of $ 32.5 million . net proceeds received after deducting underwriting discounts and commissions and offering expenses were $ 29.9 million . from january 29 , 2019 through march 6 , 2019 , we sold and issued 3,439,523 shares of common stock under the sales agreement with jefferies in the open market at a weighted average selling price of $ 5.44 per share , resulting in gross proceeds of $ 18.7 million . net proceeds after deducting commissions and offering expenses were $ 18.1 million . debt we had no debt outstanding as of december 31 , 2018 or 2017 . 85 future capital requirements during the year ended december 31 , 2018 , net cash used in operating activities was $ 32.4 million , and our accumulated deficit as of december 31 , 2018 was $ 117.9 million . our expectations regarding future cash requirements do not reflect the potential impact of any future acquisitions , mergers , dispositions , joint ventures or investments that we may make in the future . to the extent that we enter into any of those types of transactions , we may need to raise substantial additional capital . we expect to continue to incur substantial additional operating losses for at least the next several years as we continue to develop our product candidates and seek marketing approval and , subject to obtaining such approval , the eventual commercialization of our product candidates . if we obtain marketing approval for either of our product candidates , we will incur significant sales , marketing and manufacturing expenses . in addition , we expect to incur additional expenses to add operational , financial and information systems and personnel , including personnel to support our planned product commercialization efforts . we also expect to incur significant costs to comply with corporate governance , internal controls and similar requirements associated with operating as a public reporting company . our future use of operating cash and capital requirements will depend on many forward‑looking factors , including the following : · the initiation , progress , timing , costs and results of preclinical studies and clinical trials for our product candidates ; · the clinical development plans we establish for these product candidates ; · the number and characteristics of product candidates that we develop or may in‑license ; · the terms of any collaboration agreements we may choose to execute ; · the outcome , timing and cost of meeting regulatory requirements established by the dea , the fda , the ema or other comparable foreign regulatory authorities ; · the cost of filing , prosecuting , defending and enforcing our patent claims and other intellectual property rights ; · the cost of defending intellectual property disputes , including patent infringement actions brought by third parties against us ; · costs and timing of the implementation of commercial scale manufacturing activities ; and · the cost of establishing , or outsourcing , sales , marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own . to the extent that our capital resources are insufficient to meet our future operating and capital requirements , we will need to finance our cash needs through public or private equity offerings , debt financings , collaboration and licensing arrangements or other financing alternatives . we have no committed external sources of funds . additional equity or debt financing or collaboration and licensing arrangements may not be available on acceptable terms , if at all . if we raise additional funds by issuing equity securities , our stockholders will experience dilution . 86 story_separator_special_tag ; border-right:1pt none # d9d9d9 ; background-color : # cceeff ; padding:0pt ; `` valign= `` bottom `` > $ - recent accounting pronouncements in february 2016 , the financial accounting standards board , or fasb , issued accounting standards update , or asu , no . 2016-02 , leases , which requires that lease arrangements longer than 12 months result in an entity recognizing an asset and a liability . the pronouncement

liquidity and capital resources key measures of our liquidity are as follows ( in thousands ) : december 31 , 2017 december 31 , 2016 balance sheet statistics : cash and cash equivalents ( a ) $ 321,262 $ 102,471 working capital ( excluding restricted cash ) 261,903 55,295 ( a ) as of december 31 , 2017 , cash and cash equivalents held by our foreign subsidiaries was $ 192.0 million . a portion of these cash and cash equivalent balances may be subject to foreign withholding taxation , if repatriated . as of december 31 , 2017 , we had $ 321.3 million of cash and cash equivalents , including $ 57.3 million of cash acquired as part of the merger with inventiv . in addition , we had $ 481.4 million available for borrowing under our $ 500.0 million revolving credit facility . as disclosed in `` note 3 - business combinations '' in our consolidated financial statements included in part ii , item 8 , in this annual report on form 10-k , in august 2017 we completed the merger with inventiv . concurrently with the completion of the merger , we entered into the 2017 credit agreement for : ( i ) a $ 1.0 billion term loan a facility that matures on august 1 , 2022 ; ( ii ) a $ 1.6 billion term loan b facility that matures on august 1 , 2024 ; and ( iii ) a five- year $ 500.0 million revolving credit facility . we used the proceeds from the 2017 credit agreement to , among other things : ( i ) repay $ 445.0 million of outstanding loans and obligations under our previously existing long-term credit facility ; ( ii ) repay $ 1.7 billion of outstanding obligations under inventiv 's long-term credit facility , which was treated as merger consideration ; ( iii ) pay approximately $ 290.3 million to partially redeem obligations under the senior notes assumed in the merger , which included an early redemption penalty of $ 20.3 million ; and ( iv ) pay fees , premiums , and other transaction expenses related to the merger .

the two primary cannabinoids contained in cannabis are cbd and thc . clinical and preclinical data suggest that cbd has positive effects on treating behavioral symptoms of fxs , asd , 22q and seizures in patients with epilepsy . zygel is the first and only pharmaceutically-produced cbd formulated as a permeation‑enhanced gel for transdermal delivery , and the formulation is patent protected through 2030. an additional patent , directed to methods of treating fxs with synthetic or purified cbd , will expire in 2038. cbd is the primary non‑euphoric component of cannabis . in preclinical animal studies , zygel 's permeation enhancer increased delivery of cbd through the layers of the skin and into the circulatory system . these preclinical studies suggest increased bioavailability , consistent plasma levels and the avoidance of first‑pass liver metabolism of cbd when delivered transdermally . in addition , an in vitro study published in cannabis and cannabinoid research in april 2016 demonstrated that cbd is degraded to thc ( the major psychoactive cannabinoid in cannabis ) in an acidic environment such as the stomach . as a result , we believe such degradation may lead to increased psychoactive effects if cbd is delivered orally and may be avoided with the transdermal delivery of zygel , which maintains cbd in a neutral ph . zygel , which is being developed as a clear gel with once- or twice-daily dosing , is targeting treatment of behavioral symptoms of fxs , asd and 22q and reduction in seizures in patients with dee . we have been granted orphan drug designation from the fda for the use of cbd for the treatment of fxs . in our phase 1 program , zygel was demonstrated to be safe and well tolerated , provided a favorable cbd pharmacokinetic profile , and no thc was detected in plasma or urine . as of june 2018 , the zygel safety database across all clinical studies conducted by us includes data from 570 volunteers and patients . across these clinical studies , zygel has been well tolerated and consistent with previously reported data . 78 in april 2018 , we initiated the phase 2 believe 1 ( open label study to assess the safety and efficacy of zygel administered as a transdermal gel to children and adolescents with developmental and epileptic encephalopathy ) clinical trial , a six-month open label multi-dose clinical trial designed to evaluate the efficacy and safety of zygel in children and adolescents ( three to 17 years ) with dee as classified by the international league against epilepsy ( ilae ) ( scheffer et al . 2017 ) . enrollment in this study was complete in december 2018 and 48 patients with confirmed dee are being dosed in the clinical trial , 27 % of whom have either dravet or lennox-gastaut syndrome . enrolled patients will receive weight-based initial doses of 250 mg daily or 500 mg daily and during the maintenance phase patients may receive up to 1000 mg daily of zygel . the primary endpoint is change in seizure frequency from baseline . we expect to report top line results from the believe 1 trial in the third quarter of 2019. in july 2018 , we initiated the pivotal connect-fx ( clinical study of cannabidiol ( cbd ) in children and adolescents with fragile x ) clinical trial , a multi-national randomized , double-blind , placebo-controlled , 14-week study that will assess the efficacy and safety of zygel in children and adolescents ages three through 17 years who have full mutation of the fmr1 gene . approximately 200 male and female patients with fxs will be enrolled at approximately 20 clinical sites in the united states , australia , and new zealand . the study is being conducted in the united states under an investigational new drug ( ind ) application opened with the fda . patients will be randomized 1:1 to either trial drug or placebo . randomization will be stratified by gender , weight , and investigator geographic region . enrolled patients will receive weight-based doses of 250 mg or 500 mg daily . the primary endpoint is the change from baseline to the end of the treatment period in the aberrant behavior checklist-community fxs specific ( abc-c fxs ) social avoidance subscale . key secondary endpoints are the change from baseline to the end of the treatment period in the abc-c fxs irritability subscale score , the abc-c fxs socially unresponsive/lethargic subscale score , and improvement in clinical global impression - improvement ( cgi-i ) at the end of the treatment period . based on discussions with the fda , we will anchor the cgi-i scale to behavioral symptoms of fxs . consistent with recent guidance from the fda on capturing the voice of the patient in drug development , additional qualitative data on the clinical relevance of various fxs behaviors to caregivers and patients will be collected . if we obtain positive results from this trial , we plan to request a meeting with the fda to determine the acceptability of these data as the basis for an nda filing . we expect to report top line results from the connect-fx trial in the second half of 2019. in march 2019 , we initiated the phase 2 bright ( an open-label tolerability and efficacy study of zyn002 administered as a transdermal gel to children and adolescents with autism spectrum disorder ) trial . the study will assess the safety , tolerability and efficacy of zygel for the treatment of child and adolescent patients with asd . the company expects to present top line data from this study in the first half of 2020 . story_separator_special_tag substantial additional financings will be needed to fund our operations and to complete clinical development of and to commercially develop our product candidates . there is no assurance that such financing will be available when needed or on acceptable terms . equity financings during the year ended december 31 , 2016 , we entered into an open market sales agreement , or the 2016 sales agreement , with jefferies , pursuant to which we sold and issued 794,906 shares of our common stock in the open market at a weighted average selling price of $ 13.39 per share , for gross proceeds of $ 10.6 million . net proceeds received after deducting commissions and offering expenses were $ 10.0 million . in the first quarter of 2017 , we completed a follow-on public offering , selling 3,220,000 shares of our common stock at an offering price of $ 18.00 per share , resulting in gross proceeds of $ 58.0 million . net proceeds received after deducting underwriting and commissions and offering expenses were $ 54.2 million . in june 2017 , we terminated the 2016 sales agreement and entered into a new open market sales agreement , or sales agreement , with jefferies , pursuant to which we may sell , from time to time , up to $ 50.0 million of our common stock . during 2017 , we sold and issued 296,594 shares of common stock in the open market at a weighted average selling price of $ 10.74 per share , for gross proceeds of $ 3.2 million . net proceeds after deducting underwriting and commissions and offering expenses were $ 3.0 million . in july 2018 , we completed a follow-on public offering , selling 4,062,500 shares of our common stock at an offering price of $ 8.00 per share , resulting in gross proceeds of $ 32.5 million . net proceeds received after deducting underwriting discounts and commissions and offering expenses were $ 29.9 million . from january 29 , 2019 through march 6 , 2019 , we sold and issued 3,439,523 shares of common stock under the sales agreement with jefferies in the open market at a weighted average selling price of $ 5.44 per share , resulting in gross proceeds of $ 18.7 million . net proceeds after deducting commissions and offering expenses were $ 18.1 million . debt we had no debt outstanding as of december 31 , 2018 or 2017 . 85 future capital requirements during the year ended december 31 , 2018 , net cash used in operating activities was $ 32.4 million , and our accumulated deficit as of december 31 , 2018 was $ 117.9 million . our expectations regarding future cash requirements do not reflect the potential impact of any future acquisitions , mergers , dispositions , joint ventures or investments that we may make in the future . to the extent that we enter into any of those types of transactions , we may need to raise substantial additional capital . we expect to continue to incur substantial additional operating losses for at least the next several years as we continue to develop our product candidates and seek marketing approval and , subject to obtaining such approval , the eventual commercialization of our product candidates . if we obtain marketing approval for either of our product candidates , we will incur significant sales , marketing and manufacturing expenses . in addition , we expect to incur additional expenses to add operational , financial and information systems and personnel , including personnel to support our planned product commercialization efforts . we also expect to incur significant costs to comply with corporate governance , internal controls and similar requirements associated with operating as a public reporting company . our future use of operating cash and capital requirements will depend on many forward‑looking factors , including the following : · the initiation , progress , timing , costs and results of preclinical studies and clinical trials for our product candidates ; · the clinical development plans we establish for these product candidates ; · the number and characteristics of product candidates that we develop or may in‑license ; · the terms of any collaboration agreements we may choose to execute ; · the outcome , timing and cost of meeting regulatory requirements established by the dea , the fda , the ema or other comparable foreign regulatory authorities ; · the cost of filing , prosecuting , defending and enforcing our patent claims and other intellectual property rights ; · the cost of defending intellectual property disputes , including patent infringement actions brought by third parties against us ; · costs and timing of the implementation of commercial scale manufacturing activities ; and · the cost of establishing , or outsourcing , sales , marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own . to the extent that our capital resources are insufficient to meet our future operating and capital requirements , we will need to finance our cash needs through public or private equity offerings , debt financings , collaboration and licensing arrangements or other financing alternatives . we have no committed external sources of funds . additional equity or debt financing or collaboration and licensing arrangements may not be available on acceptable terms , if at all . if we raise additional funds by issuing equity securities , our stockholders will experience dilution . 86 story_separator_special_tag ; border-right:1pt none # d9d9d9 ; background-color : # cceeff ; padding:0pt ; `` valign= `` bottom `` > $ - recent accounting pronouncements in february 2016 , the financial accounting standards board , or fasb , issued accounting standards update , or asu , no . 2016-02 , leases , which requires that lease arrangements longer than 12 months result in an entity recognizing an asset and a liability . the pronouncement

cash flows years ended december 31 , 2018 and december 31 , 2017 — the following table summarizes our cash flows from operating , investing and financing activities for the years ended december 31 , 2018 and december 31 , 2017. replace_table_token_5_th operating activities for the year ended december 31 , 2018 , cash used in operating activities was $ 32.4 million , compared to $ 25.8 million for the year ended december 31 , 2017. the increase from the comparable 2017 period was primarily the result of increased research and development activities related to the clinical trials of our product candidates , and an increase in personnel costs . we expect cash used in operating activities to continue to increase in 2019 as compared to 2018 , due to an expected increase in our operating losses associated with ongoing development of our product candidates . investing activities for the years ended december 31 , 2018 and 2017 , cash used in investing activities consisted of expenditures made for manufacturing equipment and leasehold improvement and furniture and fixtures associated with our corporate headquarters . financing activities cash provided by financing activities for the year ended december 31 , 2018 consisted of $ 29.9 million in net proceeds from sales of our shares of common stock under a follow-on public offering .

we also believe that international growth is an opportunity and are expanding our foothold in markets by establishing local community connections , distributing to strategic sales partners and opening showrooms where we believe our guests are shopping . fiscal 2014 will be an investment year , as we refocus on building a solid foundation to drive growth and expand our business . in addition to our plans for domestic and international expansion , we are also focused on initiatives related to rebuilding our brand experience , connecting with our guests and communities , and creating innovative , technical and beautiful product . we continue to invest in our product quality and supply chain , as we believe this is the foundation of our guest loyalty . 20 our focus on building foundation will also extend to our other categories , including our men 's and ivivva business , where we see potential for future expansion . we believe our strong cash flow generation , solid balance sheet and healthy liquidity provide us with the financial flexibility to execute the initiatives which will continue to lead our profitable growth . operating segment overview lululemon is a designer and retailer of technical athletic apparel operating primarily in north america and australia . our yoga-inspired apparel is marketed under the lululemon athletica and ivivva athletica brand names . we offer a comprehensive line of apparel and accessories including pants , shorts , tops and jackets designed for athletic pursuits such as yoga , running and general fitness , and dance-inspired apparel for female youth . as of february 2 , 2014 , our branded apparel was principally sold through 254 corporate-owned stores that are located in the united states , canada , australia and new zealand and via our e-commerce websites through our direct to consumer sales channel . we believe our vertical retail strategy allows us to interact more directly with and gain insights from our customers while providing us with greater control of our brand . in fiscal 2013 , 66 % of our net revenue was derived from sales of our products in the united states , 29 % of our net revenue was derived from sales of our products in canada and 5 % of our net revenue was derived from sales of our products outside of north america . in fiscal 2012 , 61 % of our net revenue was derived from sales of our products in the united states , 34 % of our net revenue was derived from sales of our products in canada and 5 % of our net revenue was derived from sales of our products outside of north america . in fiscal 2011 , 53 % of our net revenue was derived from sales of our products in the united states , 43 % of our net revenue was derived from sales of our products in canada and 4 % of our net revenue was derived from sales of our products outside of north america . our net revenue increased from $ 1.4 billion in fiscal 2012 to $ 1.6 billion in fiscal 2013 , representing an annual growth rate of 16 % . our increase in net revenue from fiscal 2012 to fiscal 2013 resulted from the addition of 43 net new retail locations , and comparable store sales growth of 2 % in fiscal 2013 , excluding the impact of the 53rd week in fiscal 2012. our total comparable sales , which includes comparable store sales and direct to consumer , were 7 % in fiscal 2013 , excluding the impact of the 53rd week in fiscal 2012. our ability to open new stores and grow sales in existing stores has been driven by increasing demand for our technical athletic apparel and a growing recognition of the lululemon athletica brand . we believe our superior products , strategic store locations , inviting store environment and distinctive corporate culture are responsible for our strong financial performance . we have three reportable segments : corporate-owned stores , direct to consumer and other . we report our segments based on the financial information we use in managing our businesses . while we receive financial information for each corporate-owned store , we have aggregated all of the corporate-owned stores into one reportable segment due to the similarities in the economic and other characteristics of these stores . as of february 2 , 2014 , we sold our products through 254 corporate-owned stores located in the united states , canada , australia , and new zealand . we plan to increase our net revenue in north america and australia by opening additional corporate-owned stores in new and existing markets . corporate-owned stores accounted for 77.3 % of total net revenue in fiscal 2013 , 79.6 % of total net revenue in fiscal 2012 and 81.6 % of total net revenue in fiscal 2011 . as of february 2 , 2014 , our direct to consumer segment included our lululemon and ivivva e-commerce websites . e-commerce sales are taken directly from retail customers through www.lululemon.com and www.ivivva.com and other country and region specific websites . our direct to consumer segment is an increasingly substantial part of our growth strategy , and now represents 16.5 % of our net revenue compared to 14.4 % in fiscal 2012 and 10.6 % in fiscal 2011 . in addition to deriving revenue from sales through our corporate-owned stores and direct to consumer , we also derive other net revenue , which includes outlet , wholesale , and warehouse sales and as well as sales through a number of company-operated showrooms and temporary locations . outlets as well as warehouse sales , which are typically held one or more times a year , are both to sell slow moving inventory or inventory from prior seasons to retail customers at discounted prices . wholesale customers include select premium yoga studios , health clubs and fitness centers . story_separator_special_tag income from operations from our corporate-owned stores segment decreased $ 2.8 million , or 1 % , to $ 372.6 million for fiscal 2013 from $ 375.5 million for fiscal 2012 primarily due to an increase in selling , general and administrative expenses related to employee costs as well as operating expenses associated with new stores and a $ 17.5 million charge related to the pull-back of black luon pants , which was partially offset by an increase of $ 36.9 million in gross profit . income from operations as a percentage of corporate-owned stores revenue decreased by 410 basis points primarily from a decrease in gross margin due to a lower mix of higher margin core items related to the pull-back of black luon pants . direct to consumer . income from operations from our direct to consumer segment increased $ 24.9 million , or 29 % , to $ 109.6 million in fiscal 2013 from $ 84.7 million in fiscal 2012 due to increased sales through our e-commerce website , with gross profit increasing $ 36.0 million over fiscal 2012 . income from operations as a percentage of direct to consumer revenue decreased by 130 basis points in fiscal 2013 compared to fiscal 2012 . other . income from operations from our other segment decreased $ 3.8 million , or 19 % , to $ 16.1 million in fiscal 2013 from $ 19.9 million in fiscal 2012 . we continue to employ our other segment strategy to increase interest in our product in markets we have not otherwise entered with corporate-owned stores . general corporate expense . general corporate expenses increased $ 3.3 million , or 3 % , to $ 107.0 million in fiscal 2013 from $ 103.6 million in fiscal 2012 . this increase was primarily due to an increase in expenses related to our head office growth of $ 28.9 million , which was largely related to the growth of our of our information technology and human resources departments as well as the overall growth of our business , and increased professional fees related to investment in strategic initiatives and projects . increased depreciation and amortization expense of $ 3.3 million also contributed to the increase in general corporate expense . the increase in general corporate expense was offset by an increase of $ 17.9 million in net foreign exchange gains which were primarily from our canadian operating entity as well as decreased management incentive-based compensation of $ 5.0 million and decreased stock-based compensation expense of $ 4.9 million . general corporate expenses are expected to continue to increase in future years as we grow our overall business and require increased efforts at our head office to support our corporate-owned stores , direct to consumer and other segments . other income ( expense ) , net other income ( expense ) , net increased $ 0.8 million , to $ 5.8 million in fiscal 2013 from $ 5.0 million in fiscal 2012 . the increase was primarily a result of increased interest income earned in fiscal 2013 compared to fiscal 2012 on our increased cash balances . provision for income taxes provision for income taxes increased $ 7.6 million , or 7 % , to $ 117.6 million in fiscal 2013 from $ 110.0 million in fiscal 2012 . in fiscal 2013 , our effective tax rate was 29.6 % compared to 28.8 % in fiscal 2012 . net income net income increased $ 9.0 million , or 3 % , to $ 279.5 million in fiscal 2013 from $ 270.6 million in fiscal 2012 . the increase in net income in fiscal 2013 was primarily due to a $ 77.2 million increase in gross profit resulting from sales growth at existing and additional corporate-owned stores opened during fiscal 2013 and increasing traffic on our e-commerce website and the addition of regional websites and a $ 0.8 million increase in other income ( expense ) , net , offset by an increase of $ 62.3 million in selling , general and administrative expenses , and an increase of $ 7.6 million in provision for income taxes . comparison of fiscal 2012 to fiscal 2011 net revenue net revenue increased $ 369.5 million , or 37 % , to $ 1,370.4 million in fiscal 2012 from $ 1,000.8 million in fiscal 2011 . assuming the average exchange rates in fiscal 2012 remained constant with the average exchange rates in fiscal 2011 , our net revenue would have increased $ 370.5 million , or 37 % . the net revenue increase was driven by increased sales at locations in our comparable stores base , sales from new stores opened , and the growth of our direct to consumer segment . the constant dollar increase in comparable store sales was driven primarily by the strength of our existing product lines , successful introduction of new products and increasing recognition of the lululemon athletica brand name , especially at our u.s. stores , that drove higher transactions per store . 27 our net revenue on a segment basis for fiscal 2012 and fiscal 2011 are expressed in dollar amounts as well as relevant percentages , presented as a percentage of total net revenue below . replace_table_token_13_th corporate-owned stores . net revenue from our corporate-owned stores segment increased $ 273.3 million , or 33 % , to $ 1,090.2 million in fiscal 2012 from $ 816.9 million in fiscal 2011 . the following contributed to the increase in net revenue from our corporate-owned stores segment : comparable store sales increase of 16 % in fiscal 2012 resulted in a $ 118.3 million increase to net revenue , including the effect of foreign currency fluctuations . excluding the effect of foreign currency fluctuations , comparable store sales increased 16 % , or $ 119.3 million , in fiscal 2012 ; net revenue from corporate-owned stores we opened during fiscal 2012 , and during fiscal 2011 prior to sales from such stores

cash flows years ended december 31 , 2018 and december 31 , 2017 — the following table summarizes our cash flows from operating , investing and financing activities for the years ended december 31 , 2018 and december 31 , 2017. replace_table_token_5_th operating activities for the year ended december 31 , 2018 , cash used in operating activities was $ 32.4 million , compared to $ 25.8 million for the year ended december 31 , 2017. the increase from the comparable 2017 period was primarily the result of increased research and development activities related to the clinical trials of our product candidates , and an increase in personnel costs . we expect cash used in operating activities to continue to increase in 2019 as compared to 2018 , due to an expected increase in our operating losses associated with ongoing development of our product candidates . investing activities for the years ended december 31 , 2018 and 2017 , cash used in investing activities consisted of expenditures made for manufacturing equipment and leasehold improvement and furniture and fixtures associated with our corporate headquarters . financing activities cash provided by financing activities for the year ended december 31 , 2018 consisted of $ 29.9 million in net proceeds from sales of our shares of common stock under a follow-on public offering .

we also believe that international growth is an opportunity and are expanding our foothold in markets by establishing local community connections , distributing to strategic sales partners and opening showrooms where we believe our guests are shopping . fiscal 2014 will be an investment year , as we refocus on building a solid foundation to drive growth and expand our business . in addition to our plans for domestic and international expansion , we are also focused on initiatives related to rebuilding our brand experience , connecting with our guests and communities , and creating innovative , technical and beautiful product . we continue to invest in our product quality and supply chain , as we believe this is the foundation of our guest loyalty . 20 our focus on building foundation will also extend to our other categories , including our men 's and ivivva business , where we see potential for future expansion . we believe our strong cash flow generation , solid balance sheet and healthy liquidity provide us with the financial flexibility to execute the initiatives which will continue to lead our profitable growth . operating segment overview lululemon is a designer and retailer of technical athletic apparel operating primarily in north america and australia . our yoga-inspired apparel is marketed under the lululemon athletica and ivivva athletica brand names . we offer a comprehensive line of apparel and accessories including pants , shorts , tops and jackets designed for athletic pursuits such as yoga , running and general fitness , and dance-inspired apparel for female youth . as of february 2 , 2014 , our branded apparel was principally sold through 254 corporate-owned stores that are located in the united states , canada , australia and new zealand and via our e-commerce websites through our direct to consumer sales channel . we believe our vertical retail strategy allows us to interact more directly with and gain insights from our customers while providing us with greater control of our brand . in fiscal 2013 , 66 % of our net revenue was derived from sales of our products in the united states , 29 % of our net revenue was derived from sales of our products in canada and 5 % of our net revenue was derived from sales of our products outside of north america . in fiscal 2012 , 61 % of our net revenue was derived from sales of our products in the united states , 34 % of our net revenue was derived from sales of our products in canada and 5 % of our net revenue was derived from sales of our products outside of north america . in fiscal 2011 , 53 % of our net revenue was derived from sales of our products in the united states , 43 % of our net revenue was derived from sales of our products in canada and 4 % of our net revenue was derived from sales of our products outside of north america . our net revenue increased from $ 1.4 billion in fiscal 2012 to $ 1.6 billion in fiscal 2013 , representing an annual growth rate of 16 % . our increase in net revenue from fiscal 2012 to fiscal 2013 resulted from the addition of 43 net new retail locations , and comparable store sales growth of 2 % in fiscal 2013 , excluding the impact of the 53rd week in fiscal 2012. our total comparable sales , which includes comparable store sales and direct to consumer , were 7 % in fiscal 2013 , excluding the impact of the 53rd week in fiscal 2012. our ability to open new stores and grow sales in existing stores has been driven by increasing demand for our technical athletic apparel and a growing recognition of the lululemon athletica brand . we believe our superior products , strategic store locations , inviting store environment and distinctive corporate culture are responsible for our strong financial performance . we have three reportable segments : corporate-owned stores , direct to consumer and other . we report our segments based on the financial information we use in managing our businesses . while we receive financial information for each corporate-owned store , we have aggregated all of the corporate-owned stores into one reportable segment due to the similarities in the economic and other characteristics of these stores . as of february 2 , 2014 , we sold our products through 254 corporate-owned stores located in the united states , canada , australia , and new zealand . we plan to increase our net revenue in north america and australia by opening additional corporate-owned stores in new and existing markets . corporate-owned stores accounted for 77.3 % of total net revenue in fiscal 2013 , 79.6 % of total net revenue in fiscal 2012 and 81.6 % of total net revenue in fiscal 2011 . as of february 2 , 2014 , our direct to consumer segment included our lululemon and ivivva e-commerce websites . e-commerce sales are taken directly from retail customers through www.lululemon.com and www.ivivva.com and other country and region specific websites . our direct to consumer segment is an increasingly substantial part of our growth strategy , and now represents 16.5 % of our net revenue compared to 14.4 % in fiscal 2012 and 10.6 % in fiscal 2011 . in addition to deriving revenue from sales through our corporate-owned stores and direct to consumer , we also derive other net revenue , which includes outlet , wholesale , and warehouse sales and as well as sales through a number of company-operated showrooms and temporary locations . outlets as well as warehouse sales , which are typically held one or more times a year , are both to sell slow moving inventory or inventory from prior seasons to retail customers at discounted prices . wholesale customers include select premium yoga studios , health clubs and fitness centers . story_separator_special_tag income from operations from our corporate-owned stores segment decreased $ 2.8 million , or 1 % , to $ 372.6 million for fiscal 2013 from $ 375.5 million for fiscal 2012 primarily due to an increase in selling , general and administrative expenses related to employee costs as well as operating expenses associated with new stores and a $ 17.5 million charge related to the pull-back of black luon pants , which was partially offset by an increase of $ 36.9 million in gross profit . income from operations as a percentage of corporate-owned stores revenue decreased by 410 basis points primarily from a decrease in gross margin due to a lower mix of higher margin core items related to the pull-back of black luon pants . direct to consumer . income from operations from our direct to consumer segment increased $ 24.9 million , or 29 % , to $ 109.6 million in fiscal 2013 from $ 84.7 million in fiscal 2012 due to increased sales through our e-commerce website , with gross profit increasing $ 36.0 million over fiscal 2012 . income from operations as a percentage of direct to consumer revenue decreased by 130 basis points in fiscal 2013 compared to fiscal 2012 . other . income from operations from our other segment decreased $ 3.8 million , or 19 % , to $ 16.1 million in fiscal 2013 from $ 19.9 million in fiscal 2012 . we continue to employ our other segment strategy to increase interest in our product in markets we have not otherwise entered with corporate-owned stores . general corporate expense . general corporate expenses increased $ 3.3 million , or 3 % , to $ 107.0 million in fiscal 2013 from $ 103.6 million in fiscal 2012 . this increase was primarily due to an increase in expenses related to our head office growth of $ 28.9 million , which was largely related to the growth of our of our information technology and human resources departments as well as the overall growth of our business , and increased professional fees related to investment in strategic initiatives and projects . increased depreciation and amortization expense of $ 3.3 million also contributed to the increase in general corporate expense . the increase in general corporate expense was offset by an increase of $ 17.9 million in net foreign exchange gains which were primarily from our canadian operating entity as well as decreased management incentive-based compensation of $ 5.0 million and decreased stock-based compensation expense of $ 4.9 million . general corporate expenses are expected to continue to increase in future years as we grow our overall business and require increased efforts at our head office to support our corporate-owned stores , direct to consumer and other segments . other income ( expense ) , net other income ( expense ) , net increased $ 0.8 million , to $ 5.8 million in fiscal 2013 from $ 5.0 million in fiscal 2012 . the increase was primarily a result of increased interest income earned in fiscal 2013 compared to fiscal 2012 on our increased cash balances . provision for income taxes provision for income taxes increased $ 7.6 million , or 7 % , to $ 117.6 million in fiscal 2013 from $ 110.0 million in fiscal 2012 . in fiscal 2013 , our effective tax rate was 29.6 % compared to 28.8 % in fiscal 2012 . net income net income increased $ 9.0 million , or 3 % , to $ 279.5 million in fiscal 2013 from $ 270.6 million in fiscal 2012 . the increase in net income in fiscal 2013 was primarily due to a $ 77.2 million increase in gross profit resulting from sales growth at existing and additional corporate-owned stores opened during fiscal 2013 and increasing traffic on our e-commerce website and the addition of regional websites and a $ 0.8 million increase in other income ( expense ) , net , offset by an increase of $ 62.3 million in selling , general and administrative expenses , and an increase of $ 7.6 million in provision for income taxes . comparison of fiscal 2012 to fiscal 2011 net revenue net revenue increased $ 369.5 million , or 37 % , to $ 1,370.4 million in fiscal 2012 from $ 1,000.8 million in fiscal 2011 . assuming the average exchange rates in fiscal 2012 remained constant with the average exchange rates in fiscal 2011 , our net revenue would have increased $ 370.5 million , or 37 % . the net revenue increase was driven by increased sales at locations in our comparable stores base , sales from new stores opened , and the growth of our direct to consumer segment . the constant dollar increase in comparable store sales was driven primarily by the strength of our existing product lines , successful introduction of new products and increasing recognition of the lululemon athletica brand name , especially at our u.s. stores , that drove higher transactions per store . 27 our net revenue on a segment basis for fiscal 2012 and fiscal 2011 are expressed in dollar amounts as well as relevant percentages , presented as a percentage of total net revenue below . replace_table_token_13_th corporate-owned stores . net revenue from our corporate-owned stores segment increased $ 273.3 million , or 33 % , to $ 1,090.2 million in fiscal 2012 from $ 816.9 million in fiscal 2011 . the following contributed to the increase in net revenue from our corporate-owned stores segment : comparable store sales increase of 16 % in fiscal 2012 resulted in a $ 118.3 million increase to net revenue , including the effect of foreign currency fluctuations . excluding the effect of foreign currency fluctuations , comparable store sales increased 16 % , or $ 119.3 million , in fiscal 2012 ; net revenue from corporate-owned stores we opened during fiscal 2012 , and during fiscal 2011 prior to sales from such stores

liquidity and capital resources our primary sources of liquidity are our current balances of cash and cash equivalents , cash flows from operations and borrowings available under our revolving credit facility . our primary cash needs are capital expenditures for opening new stores and remodeling existing stores , making information technology system enhancements and funding working capital requirements . cash and cash equivalents in excess of our needs are held in interest bearing accounts with financial institutions . as of february 2 , 2014 , our working capital ( excluding cash and cash equivalents ) was $ 130.7 million and our cash and cash equivalents were $ 698.6 million . the following table summarizes our net cash flows provided by and used in operating , investing and financing activities for the periods indicated : 30 replace_table_token_15_th operating activities operating activities consist primarily of net income adjusted for certain non-cash items , including provision for inventories , depreciation and amortization , stock-based compensation expense and the effect of changes in non-cash working capital items , principally accounts payable , inventories , prepaid expenses , income taxes payable , and accrued compensation and related expenses . in fiscal 2013 , cash provided by operating activities decreased $ 1.8 million , to $ 278.3 million compared to cash provided by operating activities of $ 280.1 million in fiscal 2012 . the decrease was primarily a result of a decrease in income taxes payable and accrued compensation and related benefits , partially offset by increased accounts payable . the net increase in items not affecting cash was primarily due to an increase in depreciation related to our increased store base . depreciation and amortization relate almost entirely to leasehold improvements , furniture and fixtures , computer hardware and software , equipment and vehicles in our stores and other corporate buildings . depreciation and amortization increased $ 6.1 million to $ 49.1 million in fiscal 2013 from $ 43.0 million in fiscal 2012 .

revenues increased by 12.8 % from $ 8.1 billion for the year ended december 31 , 2018 to $ 9.2 billion for the year ended december 31 , 2019. operating income for 2019 of $ 460.9 million , or 5.0 % of revenues , increased by $ 57.8 million compared to operating income of $ 403.1 million , or 5.0 % of revenues , in 2018. the strong operating results were due to revenue growth and an increase in operating income within all of our reportable segments , as well as operating margin expansion across all such segments , except for our united states mechanical construction and facilities services segment due to a change in revenue mix compared to the prior year . 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 . during 2019 , we completed the acquisition of batchelor & kimball , inc. ( “ bki ” ) , a leading full service provider of mechanical construction and maintenance services . this acquisition strengthens our position and broadens our capabilities in the southern and southeastern regions of the united states , and the results of its operations have been included within our united states mechanical construction and facilities services segment . in addition to bki , during 2019 , we acquired : ( a ) a company which provides electrical contracting services in central iowa , the results of operations of which have been included within our united states electrical construction and facilities services segment , ( b ) a company which provides mechanical contracting services in south-central and eastern texas , the results of operations of which have been included within our united states mechanical construction and facilities services segment , and ( c ) four companies included within our united states building services segment , consisting of : ( i ) a company which provides mobile mechanical services in the southern region of the united states and ( ii ) three companies , the results of operations of which were de minimis , which bolster our presence in geographies where we have existing operations and provide either mobile mechanical services or building automation and controls solutions . we acquired four companies in 2018. two companies provide mobile mechanical services , one within the eastern region and the other within the western region of the united states . the third company is a full service provider of mechanical services within the southern region of the united states . the results of operations for these three companies have been included in our united states building services segment . the fourth company provides electrical construction and maintenance services for industrial and commercial buildings in north texas , and its results have been included in our united states electrical construction and facilities services segment . companies acquired in 2019 and 2018 generated incremental revenues of $ 290.3 million and incremental operating income of $ 16.6 million , inclusive of $ 9.3 million of amortization expense associated with identifiable intangible assets , for the year ended december 31 , 2019 . 23 discussion and analysis of results of operations revenues the following table presents our revenues for each of our operating segments and the approximate percentages that each segment 's revenues were of total revenues for the years ended december 31 , 2019 and 2018 ( in thousands , except for percentages ) : replace_table_token_7_th as described in more detail below , revenues for the year ended december 31 , 2019 increased to $ 9.2 billion compared to $ 8.1 billion for the year ended december 31 , 2018 , with all reportable segments experiencing revenue growth year over year . companies acquired in 2019 and 2018 , 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 , generated incremental revenues of $ 290.3 million in 2019. revenues of our united states electrical construction and facilities services segment were $ 2,216.6 million for the year ended december 31 , 2019 compared to revenues of $ 1,954.3 million for the year ended december 31 , 2018. the increase in revenues was attributable to : ( a ) an increase in revenues from the commercial market sector , primarily as a result of several large telecommunication construction projects , and ( b ) an increase in project activities within the manufacturing and institutional market sectors . in addition , the results for the year ended december 31 , 2019 included $ 134.5 million of incremental revenues generated by companies acquired in 2019 and 2018. these increases were partially offset by a decrease in revenues due to the completion or substantial completion of certain large construction projects within the transportation , healthcare , and hospitality market sectors . our united states mechanical construction and facilities services segment revenues for the year ended december 31 , 2019 were $ 3,340.3 million , a $ 377.5 million increase compared to revenues of $ 2,962.8 million for the year ended december 31 , 2018. the increase in revenues was primarily attributable to an increase in revenues from the majority of the market sectors in which we operate , including : ( a ) the manufacturing market sector , due to several food processing construction projects , ( b ) the commercial market sector , primarily as a result of certain telecommunication and technology construction projects currently in process , and ( c ) the healthcare , water and wastewater , and institutional market sectors due to increased story_separator_special_tag however , to the extent a service contract includes a cancellation clause which allows for the termination of such contract by either party without a substantive penalty , the remaining contract term , and therefore , the amount of unrecognized revenues included within remaining performance obligations , is limited to the notice period required for the termination . our remaining performance obligations are comprised of : ( a ) original contract amounts , ( b ) change orders for which we have received written confirmations from our customers , ( c ) pending change orders for which we expect to receive confirmations in the ordinary course of business , ( d ) claim amounts that we have made against customers for which we have determined we have a legal basis under existing contractual arrangements and as to which the variable consideration constraint does not apply , and ( e ) other forms of variable consideration to the extent that such variable consideration has been included within the transaction price of our contracts . such claim and other variable consideration amounts were immaterial for all periods presented . our remaining performance obligations at december 31 , 2019 were $ 4.04 billion compared to $ 3.96 billion at december 31 , 2018. the increase in remaining performance obligations at december 31 , 2019 was attributable to a increase in remaining performance obligations within all of our domestic segments , except for our united states electrical construction and facilities services segment . computer system attack on february 15 , 2020 , we became aware of an infiltration and encryption of portions of our information technology network . this attack disrupted our operations that utilize the impacted portions of the network . we continue to assess the magnitude of the consequences and we are actively seeking to mitigate the effects . as of the date of this filing , we continue our efforts to restore the portions of such systems that remain impacted . we are unable to predict when the entire network will be functional . we are additionally unable to estimate precisely the total costs which will result from the attack and the remediation efforts . we maintain insurance coverage for these types of incidents , however , such policies may not completely provide coverage for , or offset the costs of , this infiltration . 28 2018 versus 2017 overview the following table presents selected financial data for the fiscal years ended december 31 , 2018 and 2017 ( in thousands , except percentages and per share data ) : replace_table_token_12_th revenue for the year ended december 31 , 2018 increased by approximately 5.8 % compared to revenue for the year ended december 31 , 2017 as a result of revenue growth within all of our reportable segments . operating income increased to $ 403.1 million , or 5.0 % of revenues , in 2018 from $ 328.9 million , or 4.3 % of revenues in 2017. operating income increased within all of our reportable segments , except for our united states electrical construction and facilities services segment and our united states industrial services segment . operating margin increased within our united states mechanical construction and facilities services segment and our united states building services segment , while operating margin declined within our united states electrical construction and facilities services segment and our united states industrial services segment . operating margin remained flat within our united kingdom building services segment . the decrease in operating income and operating margin within our united states electrical construction and facilities services segment was attributable to $ 10.0 million of losses incurred in 2018 on a transportation construction project in the western region of the united states , which negatively impacted operating margin of this segment by 0.6 % and our consolidated operating margin by 0.1 % . operating income and operating margin within our united states industrial services segment declined as the results for the year ended december 31 , 2017 benefited from $ 18.1 million of gross profit related to the recovery of certain contract costs previously disputed on a project completed in 2016 , which favorably impacted operating margin of this segment by 2.1 % , and consolidated operating margin by 0.2 % , in 2017. operating income for 2017 included $ 57.8 million of non-cash impairment charges , which resulted in a 0.8 % negative impact on the company 's operating margin . the increase in net income attributable to emcor group , inc. and diluted earnings per common share from continuing operations in 2018 was due to an increase in operating income and the reduction in the u.s federal corporate tax rate due to the enactment of the tax act . our diluted earnings per common share from continuing operations for 2018 additionally benefited from a decrease in the weighted average number of shares outstanding as a result of the continued repurchase of our common stock . impact of acquisitions we acquired four companies in 2018. two companies provide mobile mechanical services , one within the eastern region and the other within the western region of the united states . the third company is a full service provider of mechanical services within the southern region of the united states . the results of these three companies have been included in our united states building services segment . the fourth company provides electrical construction and maintenance services for industrial and commercial buildings in north texas , and its results have been included in our united states electrical construction and facilities services segment . 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

liquidity and capital resources our primary sources of liquidity are our current balances of cash and cash equivalents , cash flows from operations and borrowings available under our revolving credit facility . our primary cash needs are capital expenditures for opening new stores and remodeling existing stores , making information technology system enhancements and funding working capital requirements . cash and cash equivalents in excess of our needs are held in interest bearing accounts with financial institutions . as of february 2 , 2014 , our working capital ( excluding cash and cash equivalents ) was $ 130.7 million and our cash and cash equivalents were $ 698.6 million . the following table summarizes our net cash flows provided by and used in operating , investing and financing activities for the periods indicated : 30 replace_table_token_15_th operating activities operating activities consist primarily of net income adjusted for certain non-cash items , including provision for inventories , depreciation and amortization , stock-based compensation expense and the effect of changes in non-cash working capital items , principally accounts payable , inventories , prepaid expenses , income taxes payable , and accrued compensation and related expenses . in fiscal 2013 , cash provided by operating activities decreased $ 1.8 million , to $ 278.3 million compared to cash provided by operating activities of $ 280.1 million in fiscal 2012 . the decrease was primarily a result of a decrease in income taxes payable and accrued compensation and related benefits , partially offset by increased accounts payable . the net increase in items not affecting cash was primarily due to an increase in depreciation related to our increased store base . depreciation and amortization relate almost entirely to leasehold improvements , furniture and fixtures , computer hardware and software , equipment and vehicles in our stores and other corporate buildings . depreciation and amortization increased $ 6.1 million to $ 49.1 million in fiscal 2013 from $ 43.0 million in fiscal 2012 .

revenues increased by 12.8 % from $ 8.1 billion for the year ended december 31 , 2018 to $ 9.2 billion for the year ended december 31 , 2019. operating income for 2019 of $ 460.9 million , or 5.0 % of revenues , increased by $ 57.8 million compared to operating income of $ 403.1 million , or 5.0 % of revenues , in 2018. the strong operating results were due to revenue growth and an increase in operating income within all of our reportable segments , as well as operating margin expansion across all such segments , except for our united states mechanical construction and facilities services segment due to a change in revenue mix compared to the prior year . 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 . during 2019 , we completed the acquisition of batchelor & kimball , inc. ( “ bki ” ) , a leading full service provider of mechanical construction and maintenance services . this acquisition strengthens our position and broadens our capabilities in the southern and southeastern regions of the united states , and the results of its operations have been included within our united states mechanical construction and facilities services segment . in addition to bki , during 2019 , we acquired : ( a ) a company which provides electrical contracting services in central iowa , the results of operations of which have been included within our united states electrical construction and facilities services segment , ( b ) a company which provides mechanical contracting services in south-central and eastern texas , the results of operations of which have been included within our united states mechanical construction and facilities services segment , and ( c ) four companies included within our united states building services segment , consisting of : ( i ) a company which provides mobile mechanical services in the southern region of the united states and ( ii ) three companies , the results of operations of which were de minimis , which bolster our presence in geographies where we have existing operations and provide either mobile mechanical services or building automation and controls solutions . we acquired four companies in 2018. two companies provide mobile mechanical services , one within the eastern region and the other within the western region of the united states . the third company is a full service provider of mechanical services within the southern region of the united states . the results of operations for these three companies have been included in our united states building services segment . the fourth company provides electrical construction and maintenance services for industrial and commercial buildings in north texas , and its results have been included in our united states electrical construction and facilities services segment . companies acquired in 2019 and 2018 generated incremental revenues of $ 290.3 million and incremental operating income of $ 16.6 million , inclusive of $ 9.3 million of amortization expense associated with identifiable intangible assets , for the year ended december 31 , 2019 . 23 discussion and analysis of results of operations revenues the following table presents our revenues for each of our operating segments and the approximate percentages that each segment 's revenues were of total revenues for the years ended december 31 , 2019 and 2018 ( in thousands , except for percentages ) : replace_table_token_7_th as described in more detail below , revenues for the year ended december 31 , 2019 increased to $ 9.2 billion compared to $ 8.1 billion for the year ended december 31 , 2018 , with all reportable segments experiencing revenue growth year over year . companies acquired in 2019 and 2018 , 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 , generated incremental revenues of $ 290.3 million in 2019. revenues of our united states electrical construction and facilities services segment were $ 2,216.6 million for the year ended december 31 , 2019 compared to revenues of $ 1,954.3 million for the year ended december 31 , 2018. the increase in revenues was attributable to : ( a ) an increase in revenues from the commercial market sector , primarily as a result of several large telecommunication construction projects , and ( b ) an increase in project activities within the manufacturing and institutional market sectors . in addition , the results for the year ended december 31 , 2019 included $ 134.5 million of incremental revenues generated by companies acquired in 2019 and 2018. these increases were partially offset by a decrease in revenues due to the completion or substantial completion of certain large construction projects within the transportation , healthcare , and hospitality market sectors . our united states mechanical construction and facilities services segment revenues for the year ended december 31 , 2019 were $ 3,340.3 million , a $ 377.5 million increase compared to revenues of $ 2,962.8 million for the year ended december 31 , 2018. the increase in revenues was primarily attributable to an increase in revenues from the majority of the market sectors in which we operate , including : ( a ) the manufacturing market sector , due to several food processing construction projects , ( b ) the commercial market sector , primarily as a result of certain telecommunication and technology construction projects currently in process , and ( c ) the healthcare , water and wastewater , and institutional market sectors due to increased story_separator_special_tag however , to the extent a service contract includes a cancellation clause which allows for the termination of such contract by either party without a substantive penalty , the remaining contract term , and therefore , the amount of unrecognized revenues included within remaining performance obligations , is limited to the notice period required for the termination . our remaining performance obligations are comprised of : ( a ) original contract amounts , ( b ) change orders for which we have received written confirmations from our customers , ( c ) pending change orders for which we expect to receive confirmations in the ordinary course of business , ( d ) claim amounts that we have made against customers for which we have determined we have a legal basis under existing contractual arrangements and as to which the variable consideration constraint does not apply , and ( e ) other forms of variable consideration to the extent that such variable consideration has been included within the transaction price of our contracts . such claim and other variable consideration amounts were immaterial for all periods presented . our remaining performance obligations at december 31 , 2019 were $ 4.04 billion compared to $ 3.96 billion at december 31 , 2018. the increase in remaining performance obligations at december 31 , 2019 was attributable to a increase in remaining performance obligations within all of our domestic segments , except for our united states electrical construction and facilities services segment . computer system attack on february 15 , 2020 , we became aware of an infiltration and encryption of portions of our information technology network . this attack disrupted our operations that utilize the impacted portions of the network . we continue to assess the magnitude of the consequences and we are actively seeking to mitigate the effects . as of the date of this filing , we continue our efforts to restore the portions of such systems that remain impacted . we are unable to predict when the entire network will be functional . we are additionally unable to estimate precisely the total costs which will result from the attack and the remediation efforts . we maintain insurance coverage for these types of incidents , however , such policies may not completely provide coverage for , or offset the costs of , this infiltration . 28 2018 versus 2017 overview the following table presents selected financial data for the fiscal years ended december 31 , 2018 and 2017 ( in thousands , except percentages and per share data ) : replace_table_token_12_th revenue for the year ended december 31 , 2018 increased by approximately 5.8 % compared to revenue for the year ended december 31 , 2017 as a result of revenue growth within all of our reportable segments . operating income increased to $ 403.1 million , or 5.0 % of revenues , in 2018 from $ 328.9 million , or 4.3 % of revenues in 2017. operating income increased within all of our reportable segments , except for our united states electrical construction and facilities services segment and our united states industrial services segment . operating margin increased within our united states mechanical construction and facilities services segment and our united states building services segment , while operating margin declined within our united states electrical construction and facilities services segment and our united states industrial services segment . operating margin remained flat within our united kingdom building services segment . the decrease in operating income and operating margin within our united states electrical construction and facilities services segment was attributable to $ 10.0 million of losses incurred in 2018 on a transportation construction project in the western region of the united states , which negatively impacted operating margin of this segment by 0.6 % and our consolidated operating margin by 0.1 % . operating income and operating margin within our united states industrial services segment declined as the results for the year ended december 31 , 2017 benefited from $ 18.1 million of gross profit related to the recovery of certain contract costs previously disputed on a project completed in 2016 , which favorably impacted operating margin of this segment by 2.1 % , and consolidated operating margin by 0.2 % , in 2017. operating income for 2017 included $ 57.8 million of non-cash impairment charges , which resulted in a 0.8 % negative impact on the company 's operating margin . the increase in net income attributable to emcor group , inc. and diluted earnings per common share from continuing operations in 2018 was due to an increase in operating income and the reduction in the u.s federal corporate tax rate due to the enactment of the tax act . our diluted earnings per common share from continuing operations for 2018 additionally benefited from a decrease in the weighted average number of shares outstanding as a result of the continued repurchase of our common stock . impact of acquisitions we acquired four companies in 2018. two companies provide mobile mechanical services , one within the eastern region and the other within the western region of the united states . the third company is a full service provider of mechanical services within the southern region of the united states . the results of these three companies have been included in our united states building services segment . the fourth company provides electrical construction and maintenance services for industrial and commercial buildings in north texas , and its results have been included in our united states electrical construction and facilities services segment . 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

cash flows the following table presents our net cash provided by ( used in ) operating activities , investing activities , and financing activities for the years ended december 31 , 2019 , 2018 , and 2017 ( in thousands ) : replace_table_token_17_th our consolidated cash balance , including cash equivalents and restricted cash , decreased by approximately $ 6.3 million from $ 366.2 million at december 31 , 2018 to $ 359.9 million at december 31 , 2019. net cash provided by operating activities for 2019 was $ 355.7 million compared to $ 271.0 million of net cash provided by operating activities for 2018. the increase in cash provided by operating activities was primarily due to : ( a ) a $ 41.6 million increase in net income and ( b ) the timing of cash receipts from our customers , including payments of advanced billings on our long-term construction contracts . net cash used in investing activities was $ 345.3 million for 2019 compared to net cash used in investing activities of $ 117.7 million for 2018. the increase in net cash used in investing activities was primarily due to an increase in payments for the acquisition of businesses . net cash used in financing activities for 2019 decreased by approximately $ 233.8 million compared to 2018 primarily as a result of a $ 216.2 million decrease in funds used for the repurchase of our common stock and $ 25.0 million in net borrowings made under our revolving credit facility during the 2019 period . our consolidated cash balance , including cash equivalents and restricted cash , decreased by approximately $ 103.2 million from $ 469.4 million at december 31 , 2017 to $ 366.2 million at december 31 , 2018. net cash provided by operating activities for 2018 was $ 271.0 million compared to $ 366.0 million of net cash provided by operating activities for 2017. the reduction in cash flows from operating activities was primarily due to organic revenue growth , which resulted in increased working capital levels .

related amounts in 2017 and 2016 were $ 157.6 million and $ 9.2 million , respectively . in may 2018 , we completed our investment of a 50 % ownership interest in a joint venture with mitsubishi electric corporation ( mitsubishi ) . the joint venture , reported within the climate segment , focuses on marketing , selling and supporting variable refrigerant flow ( vrf ) and ductless heating and air conditioning systems through trane , american standard and mitsubishi channels in the u.s. and select latin american countries . 20 in january 2018 , we acquired 100 % of the outstanding stock of ics group holdings limited ( ics cool energy ) . the acquired business , reported within the climate segment , specializes in the temporary rental of energy efficient chillers for commercial and industrial buildings across europe . it also sells , permanently installs and services high performance temperature control systems for all types of industrial processes . during 2017 , we acquired several businesses , including channel acquisitions , that complement existing products and services . acquisitions within the climate segment primarily consisted of independent dealers which support the ongoing strategy to expand our distribution network in north america . other acquisitions within the segment strengthen our product portfolio . acquisitions within the industrial segment primarily consisted of a telematics business which builds upon our growing portfolio of connected assets . in addition , other acquisitions within the segment expand sales and service channels across the globe . on february 6 , 2019 , we entered into a final , binding and irrevocable offer letter with silver ii gp holdings s.c.a . , an affiliate of bc partners advisors l.p. and the carlyle group ( the seller ) pursuant to which we made a binding offer to acquire the precision flow systems management business ( the business ) for approximately $ 1.45 billion in cash , subject to working capital and certain other adjustments ( the acquisition ) . the business is a manufacturer of precision flow control equipment including electric diaphragm pumps and controls that serve the global water , oil and gas , agriculture , industrial and specialty market segments . the offer is subject to completion of information and consultation processes with employee representative bodies of the business in applicable jurisdictions . if the offer is accepted , completion of the acquisition would be subject to customary closing conditions and expected to close mid-year 2019 subject to regulatory approvals . the results of the business will be included in our consolidated financial statements as of the date of acquisition and reported within the industrial segment . share repurchase program and dividends share repurchases are made from time to time in accordance with management 's capital allocation strategy , subject to market conditions and regulatory requirements . in february 2017 , our board of directors authorized the repurchase of up to $ 1.5 billion of our ordinary shares under a share repurchase program ( the 2017 authorization ) upon completion of the prior authorized share repurchase program . repurchases under the 2017 authorization began in may 2017 and ended in december 2018 , completing the program . in october 2018 , our board of directors authorized the repurchase of up to $ 1.5 billion of our ordinary shares upon completion of the 2017 authorization . however , no material amounts were repurchased under this program during 2018. in june 2018 , we announced an increase in our quarterly share dividend from $ 0.45 to $ 0.53 per ordinary share . this reflects an 18 % increase that began with our september 2018 payment and an 83 % increase since the beginning of 2016. issuance and redemption of senior notes in february 2018 , we issued $ 1.15 billion principal amount of senior notes in three tranches through an indirect , wholly-owned subsidiary . the tranches consist of $ 300 million aggregate principal amount of 2.900 % senior notes due 2021 , $ 550 million aggregate principal amount of 3.750 % senior notes due 2028 and $ 300 million aggregate principal amount of 4.300 % senior notes due 2048. in march 2018 , we used the proceeds to fund the redemption of $ 750 million aggregate principal amount of 6.875 % senior notes due 2018 and $ 350 million aggregate principal amount of 2.875 % senior notes due 2019 , with the remainder used for general corporate purposes . tax cuts and job act in december 2017 , the u.s. enacted the tax cuts and jobs act ( the act ) which made widespread changes to the internal revenue code . the act , among other things , reduced the u.s. federal corporate tax rate from 35 % to 21 % , requires companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously not subject to u.s. tax and creates new income taxes on certain foreign sourced earnings . the sec issued staff accounting bulletin no . 118 ( sab 118 ) which provided guidance on accounting for the tax effects of the act and allowed for adjustments to provisional amounts during a measurement period of up to one year . in accordance with sab 118 , we made reasonable estimates related to ( 1 ) the remeasurement of u.s. deferred tax balances for the reduction in the tax rate ( 2 ) the liability for the transition tax and ( 3 ) the taxes accrued relating to the change in permanent reinvestment assertion for unremitted earnings of certain foreign subsidiaries . story_separator_special_tag % . this decrease was partially offset by the transition tax cost , a change in permanent reinvestment assertion on the unremitted earnings of certain foreign subsidiaries and a non-cash charge related to the establishment of a valuation allowance on certain net deferred tax assets in brazil . in the aggregate these items increased the effective tax rate by 13.7 % . in addition , the reduction was also driven by earnings in non-u.s. jurisdictions , which in aggregate , have a lower effective tax rate . revenues from non-u.s. jurisdictions accounts for approximately 35 % of our total revenues , such that a material portion of our pretax income was earned and taxed outside the u.s. at rates ranging from 0 % to 38 % . when comparing the results of multiple reporting periods , among other factors , the mix of earnings between u.s. and foreign jurisdictions can cause variability in our overall effective tax rate . the 2016 effective tax rate was 16.2 % which is lower than the u.s. statutory rate of 35 % primarily due to the tax treatment of the hussmann gain . the gain , which is not subject to tax under the relevant local tax laws , decreased the effective tax rate by 4.8 % . in addition , the reduction was also driven by earnings in non-u.s. jurisdictions , which in aggregate , have a lower effective tax rate . revenues from non-u.s. jurisdictions accounts for approximately 35 % of our total revenues , such that a material portion of our pretax income was earned and taxed outside the u.s. at rates ranging from 0 % to 38 % . when comparing the results of multiple reporting periods , among other factors , the mix of earnings between u.s. and foreign jurisdictions can cause variability in our overall effective tax rate . discontinued operations the components of discontinued operations , net of tax for the years ended december 31 are as follows : replace_table_token_15_th discontinued operations are retained costs from previously sold businesses including postretirement benefits , product liability and legal costs . in addition , we include costs associated with ingersoll-rand company for the settlement and defense of asbestos-related claims , insurance settlements on asbestos-related matters and the revaluation of its liability for potential future claims . for the year ended december 31 , 2016 , ongoing costs were more than offset by asbestos-related settlements with various insurance carriers . a portion of the tax benefit ( expense ) in each period represents adjustments for certain tax matters associated with the 2013 spin-off of our commercial and residential security business , now an independent public company operating under the name of allegion . liquidity and capital resources we assess our liquidity in terms of our ability to generate cash to fund our operating , investing and financing activities . in doing so , we review and analyze our current cash on hand , the number of days our sales are outstanding , inventory turns , capital expenditure commitments and income tax payments . our cash requirements primarily consist of the following : funding of working capital funding of capital expenditures dividend payments debt service requirements our primary sources of liquidity include cash balances on hand , cash flows from operations , proceeds from debt offerings , commercial paper , and borrowing availability under our existing credit facilities . we earn a significant amount of our operating income in jurisdictions where it is deemed to be permanently reinvested . our most prominent jurisdiction of operation is the u.s. we expect existing cash and cash equivalents available to the u.s. operations , the cash generated by our u.s. operations , our committed credit lines as well as our expected ability to access the capital and debt markets will be sufficient to fund our u.s. operating and capital needs for at least the next twelve months and thereafter for the foreseeable future . in addition , we expect existing non-u.s. cash and cash equivalents and the cash generated by our non-u.s. operations will be sufficient to fund our non-u.s. operating and capital needs for at least the next twelve months and thereafter for the foreseeable future . as of december 31 , 2018 , we had $ 903.4 million of cash and cash equivalents on hand , of which $ 689.7 million was held by non-u.s. subsidiaries . cash and cash equivalents held by our non-u.s. subsidiaries are generally available for use in our u.s. operations 28 via intercompany loans , equity infusions or via distributions from direct or indirectly owned non-u.s. subsidiaries for which we do not assert permanent reinvestment . as a result of the tax cuts and jobs act in 2017 , additional repatriation opportunities to access cash and cash equivalents held by non-u.s. subsidiaries have been created . in general , repatriation of cash to the u.s. can be completed with no significant incremental u.s. tax . however , to the extent that we repatriate funds from non-u.s. subsidiaries for which we assert permanent reinvestment to fund our u.s. operations , we would be required to accrue and pay applicable non-u.s. taxes . as of december 31 , 2018 , we currently have no plans to repatriate funds from subsidiaries for which we assert permanent reinvestment . share repurchases are made from time to time in accordance with management 's capital allocation strategy , subject to market conditions and regulatory requirements . in february 2017 , our board of directors authorized the repurchase of up to $ 1.5 billion of our ordinary shares under a share repurchase program ( the 2017 authorization ) upon completion of the prior authorized share repurchase program . repurchases under the 2017 authorization began in may 2017 and ended in december 2018 , completing the program . in october 2018 , our board of directors authorized the repurchase of up to $ 1.5 billion of our ordinary shares upon completion of the 2017 authorization

cash flows the following table presents our net cash provided by ( used in ) operating activities , investing activities , and financing activities for the years ended december 31 , 2019 , 2018 , and 2017 ( in thousands ) : replace_table_token_17_th our consolidated cash balance , including cash equivalents and restricted cash , decreased by approximately $ 6.3 million from $ 366.2 million at december 31 , 2018 to $ 359.9 million at december 31 , 2019. net cash provided by operating activities for 2019 was $ 355.7 million compared to $ 271.0 million of net cash provided by operating activities for 2018. the increase in cash provided by operating activities was primarily due to : ( a ) a $ 41.6 million increase in net income and ( b ) the timing of cash receipts from our customers , including payments of advanced billings on our long-term construction contracts . net cash used in investing activities was $ 345.3 million for 2019 compared to net cash used in investing activities of $ 117.7 million for 2018. the increase in net cash used in investing activities was primarily due to an increase in payments for the acquisition of businesses . net cash used in financing activities for 2019 decreased by approximately $ 233.8 million compared to 2018 primarily as a result of a $ 216.2 million decrease in funds used for the repurchase of our common stock and $ 25.0 million in net borrowings made under our revolving credit facility during the 2019 period . our consolidated cash balance , including cash equivalents and restricted cash , decreased by approximately $ 103.2 million from $ 469.4 million at december 31 , 2017 to $ 366.2 million at december 31 , 2018. net cash provided by operating activities for 2018 was $ 271.0 million compared to $ 366.0 million of net cash provided by operating activities for 2017. the reduction in cash flows from operating activities was primarily due to organic revenue growth , which resulted in increased working capital levels .

related amounts in 2017 and 2016 were $ 157.6 million and $ 9.2 million , respectively . in may 2018 , we completed our investment of a 50 % ownership interest in a joint venture with mitsubishi electric corporation ( mitsubishi ) . the joint venture , reported within the climate segment , focuses on marketing , selling and supporting variable refrigerant flow ( vrf ) and ductless heating and air conditioning systems through trane , american standard and mitsubishi channels in the u.s. and select latin american countries . 20 in january 2018 , we acquired 100 % of the outstanding stock of ics group holdings limited ( ics cool energy ) . the acquired business , reported within the climate segment , specializes in the temporary rental of energy efficient chillers for commercial and industrial buildings across europe . it also sells , permanently installs and services high performance temperature control systems for all types of industrial processes . during 2017 , we acquired several businesses , including channel acquisitions , that complement existing products and services . acquisitions within the climate segment primarily consisted of independent dealers which support the ongoing strategy to expand our distribution network in north america . other acquisitions within the segment strengthen our product portfolio . acquisitions within the industrial segment primarily consisted of a telematics business which builds upon our growing portfolio of connected assets . in addition , other acquisitions within the segment expand sales and service channels across the globe . on february 6 , 2019 , we entered into a final , binding and irrevocable offer letter with silver ii gp holdings s.c.a . , an affiliate of bc partners advisors l.p. and the carlyle group ( the seller ) pursuant to which we made a binding offer to acquire the precision flow systems management business ( the business ) for approximately $ 1.45 billion in cash , subject to working capital and certain other adjustments ( the acquisition ) . the business is a manufacturer of precision flow control equipment including electric diaphragm pumps and controls that serve the global water , oil and gas , agriculture , industrial and specialty market segments . the offer is subject to completion of information and consultation processes with employee representative bodies of the business in applicable jurisdictions . if the offer is accepted , completion of the acquisition would be subject to customary closing conditions and expected to close mid-year 2019 subject to regulatory approvals . the results of the business will be included in our consolidated financial statements as of the date of acquisition and reported within the industrial segment . share repurchase program and dividends share repurchases are made from time to time in accordance with management 's capital allocation strategy , subject to market conditions and regulatory requirements . in february 2017 , our board of directors authorized the repurchase of up to $ 1.5 billion of our ordinary shares under a share repurchase program ( the 2017 authorization ) upon completion of the prior authorized share repurchase program . repurchases under the 2017 authorization began in may 2017 and ended in december 2018 , completing the program . in october 2018 , our board of directors authorized the repurchase of up to $ 1.5 billion of our ordinary shares upon completion of the 2017 authorization . however , no material amounts were repurchased under this program during 2018. in june 2018 , we announced an increase in our quarterly share dividend from $ 0.45 to $ 0.53 per ordinary share . this reflects an 18 % increase that began with our september 2018 payment and an 83 % increase since the beginning of 2016. issuance and redemption of senior notes in february 2018 , we issued $ 1.15 billion principal amount of senior notes in three tranches through an indirect , wholly-owned subsidiary . the tranches consist of $ 300 million aggregate principal amount of 2.900 % senior notes due 2021 , $ 550 million aggregate principal amount of 3.750 % senior notes due 2028 and $ 300 million aggregate principal amount of 4.300 % senior notes due 2048. in march 2018 , we used the proceeds to fund the redemption of $ 750 million aggregate principal amount of 6.875 % senior notes due 2018 and $ 350 million aggregate principal amount of 2.875 % senior notes due 2019 , with the remainder used for general corporate purposes . tax cuts and job act in december 2017 , the u.s. enacted the tax cuts and jobs act ( the act ) which made widespread changes to the internal revenue code . the act , among other things , reduced the u.s. federal corporate tax rate from 35 % to 21 % , requires companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously not subject to u.s. tax and creates new income taxes on certain foreign sourced earnings . the sec issued staff accounting bulletin no . 118 ( sab 118 ) which provided guidance on accounting for the tax effects of the act and allowed for adjustments to provisional amounts during a measurement period of up to one year . in accordance with sab 118 , we made reasonable estimates related to ( 1 ) the remeasurement of u.s. deferred tax balances for the reduction in the tax rate ( 2 ) the liability for the transition tax and ( 3 ) the taxes accrued relating to the change in permanent reinvestment assertion for unremitted earnings of certain foreign subsidiaries . story_separator_special_tag % . this decrease was partially offset by the transition tax cost , a change in permanent reinvestment assertion on the unremitted earnings of certain foreign subsidiaries and a non-cash charge related to the establishment of a valuation allowance on certain net deferred tax assets in brazil . in the aggregate these items increased the effective tax rate by 13.7 % . in addition , the reduction was also driven by earnings in non-u.s. jurisdictions , which in aggregate , have a lower effective tax rate . revenues from non-u.s. jurisdictions accounts for approximately 35 % of our total revenues , such that a material portion of our pretax income was earned and taxed outside the u.s. at rates ranging from 0 % to 38 % . when comparing the results of multiple reporting periods , among other factors , the mix of earnings between u.s. and foreign jurisdictions can cause variability in our overall effective tax rate . the 2016 effective tax rate was 16.2 % which is lower than the u.s. statutory rate of 35 % primarily due to the tax treatment of the hussmann gain . the gain , which is not subject to tax under the relevant local tax laws , decreased the effective tax rate by 4.8 % . in addition , the reduction was also driven by earnings in non-u.s. jurisdictions , which in aggregate , have a lower effective tax rate . revenues from non-u.s. jurisdictions accounts for approximately 35 % of our total revenues , such that a material portion of our pretax income was earned and taxed outside the u.s. at rates ranging from 0 % to 38 % . when comparing the results of multiple reporting periods , among other factors , the mix of earnings between u.s. and foreign jurisdictions can cause variability in our overall effective tax rate . discontinued operations the components of discontinued operations , net of tax for the years ended december 31 are as follows : replace_table_token_15_th discontinued operations are retained costs from previously sold businesses including postretirement benefits , product liability and legal costs . in addition , we include costs associated with ingersoll-rand company for the settlement and defense of asbestos-related claims , insurance settlements on asbestos-related matters and the revaluation of its liability for potential future claims . for the year ended december 31 , 2016 , ongoing costs were more than offset by asbestos-related settlements with various insurance carriers . a portion of the tax benefit ( expense ) in each period represents adjustments for certain tax matters associated with the 2013 spin-off of our commercial and residential security business , now an independent public company operating under the name of allegion . liquidity and capital resources we assess our liquidity in terms of our ability to generate cash to fund our operating , investing and financing activities . in doing so , we review and analyze our current cash on hand , the number of days our sales are outstanding , inventory turns , capital expenditure commitments and income tax payments . our cash requirements primarily consist of the following : funding of working capital funding of capital expenditures dividend payments debt service requirements our primary sources of liquidity include cash balances on hand , cash flows from operations , proceeds from debt offerings , commercial paper , and borrowing availability under our existing credit facilities . we earn a significant amount of our operating income in jurisdictions where it is deemed to be permanently reinvested . our most prominent jurisdiction of operation is the u.s. we expect existing cash and cash equivalents available to the u.s. operations , the cash generated by our u.s. operations , our committed credit lines as well as our expected ability to access the capital and debt markets will be sufficient to fund our u.s. operating and capital needs for at least the next twelve months and thereafter for the foreseeable future . in addition , we expect existing non-u.s. cash and cash equivalents and the cash generated by our non-u.s. operations will be sufficient to fund our non-u.s. operating and capital needs for at least the next twelve months and thereafter for the foreseeable future . as of december 31 , 2018 , we had $ 903.4 million of cash and cash equivalents on hand , of which $ 689.7 million was held by non-u.s. subsidiaries . cash and cash equivalents held by our non-u.s. subsidiaries are generally available for use in our u.s. operations 28 via intercompany loans , equity infusions or via distributions from direct or indirectly owned non-u.s. subsidiaries for which we do not assert permanent reinvestment . as a result of the tax cuts and jobs act in 2017 , additional repatriation opportunities to access cash and cash equivalents held by non-u.s. subsidiaries have been created . in general , repatriation of cash to the u.s. can be completed with no significant incremental u.s. tax . however , to the extent that we repatriate funds from non-u.s. subsidiaries for which we assert permanent reinvestment to fund our u.s. operations , we would be required to accrue and pay applicable non-u.s. taxes . as of december 31 , 2018 , we currently have no plans to repatriate funds from subsidiaries for which we assert permanent reinvestment . share repurchases are made from time to time in accordance with management 's capital allocation strategy , subject to market conditions and regulatory requirements . in february 2017 , our board of directors authorized the repurchase of up to $ 1.5 billion of our ordinary shares under a share repurchase program ( the 2017 authorization ) upon completion of the prior authorized share repurchase program . repurchases under the 2017 authorization began in may 2017 and ended in december 2018 , completing the program . in october 2018 , our board of directors authorized the repurchase of up to $ 1.5 billion of our ordinary shares upon completion of the 2017 authorization

cash flows the following table reflects the major categories of cash flows for the years ended december 31 , respectively . for additional details , please see the consolidated statements of cash flows in the consolidated financial statements . replace_table_token_17_th operating activities net cash provided by continuing operating activities for the year ended december 31 , 2018 was $ 1,474.5 million , of which net income provided $ 1,662.0 million after adjusting for non-cash transactions . changes in other assets and liabilities used $ 187.5 million . improvements in accounts payable were offset by higher accounts receivable and inventory balances . net cash provided by continuing operating activities for the year ended december 31 , 2017 was $ 1,561.6 million , of which net income provided $ 1,642.1 million after adjusting for non-cash transactions . changes in other assets and liabilities used $ 80.5 million . improvements in accounts payable were offset by higher accounts receivable and inventory balances . net cash provided by continuing operating activities for the year ended december 31 , 2016 was $ 1,433.0 million , of which net income provided $ 1,449.8 million after adjusting for non-cash transactions . changes in other assets and liabilities used $ 16.8 million . improvements in accounts payable were offset by higher accounts receivable balances . investing activities cash flows from investing activities represents inflows and outflows regarding the purchase and sale of assets .

see part i `` cautionary note regarding forward-looking statements , ” above . forward-looking statements are not guarantees of future performance and our actual results may differ materially from those currently anticipated and from historical results depending upon a variety of factors , including , but not limited to , those discussed in part i , item 1a of this report under the heading “ risk factors , ” which are incorporated herein by reference . business overview we are a clinical-stage biopharmaceutical company committed to advancing innovative products for women 's health . we are driven by a mission to identify , develop and bring to market a diverse portfolio of differentiated therapies that expand treatment options , improve outcomes and facilitate convenience for women , primarily in the areas of contraception , vaginal health , sexual health and fertility . our business strategy is to in-license or otherwise acquire the rights to differentiated product candidates in our areas of focus , some of which have existing clinical proof-of-concept data , to take those candidates through mid to late-stage clinical development , and to establish and leverage strategic partnerships to achieve commercialization . we and our wholly owned subsidiaries operate in one business segment . since july 2017 , we have assembled a portfolio of clinical-stage and pre-clinical-stage candidates . while we will continue to assess opportunities to expand our portfolio , our current focus is on advancing our existing product 82 candidates through mid and late stages of clinical development or fda approval . our portfolio includes three product candidates in advanced clinical development : dare-bv1 , a novel thermosetting bioadhesive hydrogel formulated with clindamycin phosphate 2 % to be administered in a single vaginally delivered application , as a first line treatment for bacterial vaginosis ; ovaprene® , a hormone-free , monthly vaginal contraceptive ; and sildenafil cream , 3.6 % , a proprietary cream formulation of sildenafil for topical administration to the vulva and vagina for treatment of female sexual arousal disorder . our portfolio also includes three product candidates in phase 1 clinical development or that we believe are phase 1-ready : dare-hrt1 , a combination bio-identical estradiol and progesterone intravaginal ring for the treatment of menopausal symptoms , including vasomotor symptoms , as part of a hormone therapy following menopause ; dare-frt1 , an intravaginal ring containing bio-identical progesterone for the prevention of preterm birth and broader luteal phase support as part of an in vitro fertilization treatment plan ; and dare-vva1 , a vaginally delivered formulation of tamoxifen to treat vulvar vaginal atrophy , or vva , in patients with hormone- receptor positive breast cancer . in addition , our portfolio includes these pre-clinical stage product candidates : dare-larc1 , a combination product designed to provide long-acting , reversible contraception comprising an implantable , user-controlled wireless drug delivery system and levonorgestrel ; orb-204 and orb-214 , injectable formulations of etonogestrel designed to provide contraception over 6-month and 12-month periods , respectively ; and dare-rh1 , a novel approach to non-hormonal contraception for both men and women by targeting the catsper ion channel . see item 1 . `` business , `` in part i of this report for additional information regarding our product candidates . our primary operations have consisted of , and are expected to continue to consist primarily of , product research and development and advancing our portfolio of product candidates through clinical development and regulatory approval . we expect that the majority of our research and development expenses in 2021 and 2022 will support the advancement of dare-bv1 , ovaprene and sildenafil cream , 3.6 % . to date , we have not obtained any regulatory approvals for any of our product candidates , commercialized any of our product candidates or generated any revenue . we are subject to several risks common to clinical-stage biopharmaceutical companies , including dependence on key individuals , competition from other companies , the need to develop commercially viable products in a timely and cost-effective manner , and the need to obtain adequate additional capital to fund the development of product candidates . we are also subject to several risks common to other companies in the industry , including rapid technology change , regulatory approval of products , uncertainty of market acceptance of products , competition from substitute products and larger companies , compliance with government regulations , protection of proprietary technology , dependence on third parties , and product liability . the effect of the covid-19 pandemic and efforts to reduce the spread of covid-19 remain a rapidly evolving and uncertain risk to our business , operating results , financial condition and stock price . in november 2020 , the u.s. began to experience a substantial surge in cases and hospitalizations and intensive care unit capacity became strained . states and counties across the country imposed or re-imposed stay-at-home orders and shutdowns of non-essential businesses in efforts to reduce spread of the disease . as of march 29 , 2021 , the u.s. food and drug administration ( fda ) had issued emergency use authorizations for three vaccines for the prevention of covid-19 . however , while president biden recently said that there will be enough vaccine supply for every adult in the u.s. by the end of may 2021 , the vaccination effort in the u.s. and elsewhere got off to a bumpy start and continues to face significant , complex challenges , and the timeline for the pandemic and its associated restrictions to end remain uncertain . story_separator_special_tag in increased salary , benefit and bonus expenses , ( ii ) expenses for legal , professional , and accounting services of approximately $ 212,000 , ( iii ) insurance costs of approximately $ 192,000 due to increased premiums , ( iv ) rent and facilities expenses of approximately $ 183,000 due to the addition of two leases for office and laboratory facilities when we acquired microchips in november 2019 , and ( v ) stock-based compensation expense of approximately $ 161,000. we expect an increase in general and administrative expenses of approximately 10 % to 15 % in 2021 compared to 2020 , primarily due to increased personnel expenses and other general corporate overhead . our 2021 general and administrative expenses could also include significant costs related to commercial readiness activities for dare-bv1 depending on the type and nature of commercial partnership we establish for dare-bv1 in the u.s. , which , if incurred , could increase our 2021 general and administrative expenses above our current expectation . 86 research and development expenses the increase of approximately $ 12.2 million in research and development expenses from 2019 to 2020 was primarily attributable to increases of approximately ( i ) $ 11.6 million in costs related to development activities for our clinical-stage product candidates , primarily driven by the dare-bvfree phase 3 clinical trial and manufacturing and regulatory affairs activities for ovaprene ; ( ii ) $ 2.0 million in costs related to development activities for our pre-clinical stage programs , primarily related to dare-larc1 ; ( iii ) $ 1.3 million in personnel costs reflecting our first full year of personnel costs for the former microchips employees we hired in november 2019 , and ( iv ) stock-based compensation expense of approximately $ 118,000. those increases were partially offset by ( a ) an increase in grant funding recorded as a reduction to research and development expenses of approximately $ 2.4 million under grant awards for dare-larc1 , ovaprene and dare-frt1 and ; ( b ) a cash payment of approximately $ 192,000 and a receivable of approximately $ 268,000 , both of which are recorded as a reduction to research and development expenses and are related to australia 's research and development tax incentive which gives 43.5 % of every dollar spent by eligible companies on eligible research and development activities back to those companies in a cash payment . we expect research and development expenses to increase significantly in 2021 as we continue to develop our product candidates and seek fda approval for dare-bv1 . if we advance our programs as currently planned , our research and development expenses for 2021 could be more than double our research and development expenses for 2020. our 2021 research and development expenses could include up to $ 4.5 million in milestone payments under license agreements related to certain of our product candidates payable by us to our third-party licensors and up to approximately $ 1.0 million in contingent consideration payments under our merger agreement with microchips , all or any portion of which we may elect to pay to the former stockholders of microchips in shares of our common stock . as discussed below in the section titled “ liquidity and capital resources , ” we will need to raise substantial additional capital to continue to fund our operations and successfully execute our current operating plan . the pace and extent of our research and development activities and , therefore , our research and development spend , will depend on our cash resources . we expect our research and development spend to vary across our fiscal quarters . in regard to sildenafil cream , 3.6 % , we anticipate that the costs of the planned phase 2b clinical study will be approximately $ 15.0 to $ 17.0 million , not all of which will be payable in fiscal 2021. license fees the $ 450,001 decrease in license expenses from 2019 to 2020 was attributable to a decrease in license fees accrued or paid . during 2019 , we accrued or paid $ 533,334 of license fees under our license agreements related to dare-hrt1 and dare-bv1 . during 2020 , we accrued or paid $ 83,333 of license fees under our license agreement related to dare-hrt1 . see note 3 `` license and collaboration agreements—in license agreements `` to the accompanying consolidated financial statements for more information about our license agreements . other income the decrease of $ 79,536 in other income from 2019 to 2020 was primarily due to a decrease in interest earned on cash balances in 2020. story_separator_special_tag style= `` min-height:36pt ; width:100 % `` > need to raise additional capital to continue our operations and execute our current product development plans , ” above . cash flows the following table shows a summary of our cash flows for the periods indicated : replace_table_token_3_th operating activities cash used in operating activities during the year ended december 31 , 2020 included a net loss of $ 27.4 million , decreased by non-cash stock-based compensation expense of $ 742,031. components providing operating cash were an approximately $ 1.3 million increase in accrued expenses , a $ 1.0 million increase in deferred license revenue , a $ 157,725 increase in other non-current assets and deferred charges and a $ 95,042 increase in other receivables . components reducing operating cash were a $ 454,133 increase in prepaid expenses , a $ 455,121 decrease in deferred grant funding , and a $ 61,850 decrease in accounts payable . cash used in operating activities during the year ended december 31 , 2019 included a net loss of $ 14.3 million , decreased by non-cash stock-based compensation expense of $ 462,239. components providing operating cash were a $ 621,618 increase in accrued expenses , an increase of $ 608,650 in accounts payable , and an increase of $ 237,937 in other non-current assets and deferred charges . components reducing operating cash were a $ 322,482

cash flows the following table reflects the major categories of cash flows for the years ended december 31 , respectively . for additional details , please see the consolidated statements of cash flows in the consolidated financial statements . replace_table_token_17_th operating activities net cash provided by continuing operating activities for the year ended december 31 , 2018 was $ 1,474.5 million , of which net income provided $ 1,662.0 million after adjusting for non-cash transactions . changes in other assets and liabilities used $ 187.5 million . improvements in accounts payable were offset by higher accounts receivable and inventory balances . net cash provided by continuing operating activities for the year ended december 31 , 2017 was $ 1,561.6 million , of which net income provided $ 1,642.1 million after adjusting for non-cash transactions . changes in other assets and liabilities used $ 80.5 million . improvements in accounts payable were offset by higher accounts receivable and inventory balances . net cash provided by continuing operating activities for the year ended december 31 , 2016 was $ 1,433.0 million , of which net income provided $ 1,449.8 million after adjusting for non-cash transactions . changes in other assets and liabilities used $ 16.8 million . improvements in accounts payable were offset by higher accounts receivable balances . investing activities cash flows from investing activities represents inflows and outflows regarding the purchase and sale of assets .

see part i `` cautionary note regarding forward-looking statements , ” above . forward-looking statements are not guarantees of future performance and our actual results may differ materially from those currently anticipated and from historical results depending upon a variety of factors , including , but not limited to , those discussed in part i , item 1a of this report under the heading “ risk factors , ” which are incorporated herein by reference . business overview we are a clinical-stage biopharmaceutical company committed to advancing innovative products for women 's health . we are driven by a mission to identify , develop and bring to market a diverse portfolio of differentiated therapies that expand treatment options , improve outcomes and facilitate convenience for women , primarily in the areas of contraception , vaginal health , sexual health and fertility . our business strategy is to in-license or otherwise acquire the rights to differentiated product candidates in our areas of focus , some of which have existing clinical proof-of-concept data , to take those candidates through mid to late-stage clinical development , and to establish and leverage strategic partnerships to achieve commercialization . we and our wholly owned subsidiaries operate in one business segment . since july 2017 , we have assembled a portfolio of clinical-stage and pre-clinical-stage candidates . while we will continue to assess opportunities to expand our portfolio , our current focus is on advancing our existing product 82 candidates through mid and late stages of clinical development or fda approval . our portfolio includes three product candidates in advanced clinical development : dare-bv1 , a novel thermosetting bioadhesive hydrogel formulated with clindamycin phosphate 2 % to be administered in a single vaginally delivered application , as a first line treatment for bacterial vaginosis ; ovaprene® , a hormone-free , monthly vaginal contraceptive ; and sildenafil cream , 3.6 % , a proprietary cream formulation of sildenafil for topical administration to the vulva and vagina for treatment of female sexual arousal disorder . our portfolio also includes three product candidates in phase 1 clinical development or that we believe are phase 1-ready : dare-hrt1 , a combination bio-identical estradiol and progesterone intravaginal ring for the treatment of menopausal symptoms , including vasomotor symptoms , as part of a hormone therapy following menopause ; dare-frt1 , an intravaginal ring containing bio-identical progesterone for the prevention of preterm birth and broader luteal phase support as part of an in vitro fertilization treatment plan ; and dare-vva1 , a vaginally delivered formulation of tamoxifen to treat vulvar vaginal atrophy , or vva , in patients with hormone- receptor positive breast cancer . in addition , our portfolio includes these pre-clinical stage product candidates : dare-larc1 , a combination product designed to provide long-acting , reversible contraception comprising an implantable , user-controlled wireless drug delivery system and levonorgestrel ; orb-204 and orb-214 , injectable formulations of etonogestrel designed to provide contraception over 6-month and 12-month periods , respectively ; and dare-rh1 , a novel approach to non-hormonal contraception for both men and women by targeting the catsper ion channel . see item 1 . `` business , `` in part i of this report for additional information regarding our product candidates . our primary operations have consisted of , and are expected to continue to consist primarily of , product research and development and advancing our portfolio of product candidates through clinical development and regulatory approval . we expect that the majority of our research and development expenses in 2021 and 2022 will support the advancement of dare-bv1 , ovaprene and sildenafil cream , 3.6 % . to date , we have not obtained any regulatory approvals for any of our product candidates , commercialized any of our product candidates or generated any revenue . we are subject to several risks common to clinical-stage biopharmaceutical companies , including dependence on key individuals , competition from other companies , the need to develop commercially viable products in a timely and cost-effective manner , and the need to obtain adequate additional capital to fund the development of product candidates . we are also subject to several risks common to other companies in the industry , including rapid technology change , regulatory approval of products , uncertainty of market acceptance of products , competition from substitute products and larger companies , compliance with government regulations , protection of proprietary technology , dependence on third parties , and product liability . the effect of the covid-19 pandemic and efforts to reduce the spread of covid-19 remain a rapidly evolving and uncertain risk to our business , operating results , financial condition and stock price . in november 2020 , the u.s. began to experience a substantial surge in cases and hospitalizations and intensive care unit capacity became strained . states and counties across the country imposed or re-imposed stay-at-home orders and shutdowns of non-essential businesses in efforts to reduce spread of the disease . as of march 29 , 2021 , the u.s. food and drug administration ( fda ) had issued emergency use authorizations for three vaccines for the prevention of covid-19 . however , while president biden recently said that there will be enough vaccine supply for every adult in the u.s. by the end of may 2021 , the vaccination effort in the u.s. and elsewhere got off to a bumpy start and continues to face significant , complex challenges , and the timeline for the pandemic and its associated restrictions to end remain uncertain . story_separator_special_tag in increased salary , benefit and bonus expenses , ( ii ) expenses for legal , professional , and accounting services of approximately $ 212,000 , ( iii ) insurance costs of approximately $ 192,000 due to increased premiums , ( iv ) rent and facilities expenses of approximately $ 183,000 due to the addition of two leases for office and laboratory facilities when we acquired microchips in november 2019 , and ( v ) stock-based compensation expense of approximately $ 161,000. we expect an increase in general and administrative expenses of approximately 10 % to 15 % in 2021 compared to 2020 , primarily due to increased personnel expenses and other general corporate overhead . our 2021 general and administrative expenses could also include significant costs related to commercial readiness activities for dare-bv1 depending on the type and nature of commercial partnership we establish for dare-bv1 in the u.s. , which , if incurred , could increase our 2021 general and administrative expenses above our current expectation . 86 research and development expenses the increase of approximately $ 12.2 million in research and development expenses from 2019 to 2020 was primarily attributable to increases of approximately ( i ) $ 11.6 million in costs related to development activities for our clinical-stage product candidates , primarily driven by the dare-bvfree phase 3 clinical trial and manufacturing and regulatory affairs activities for ovaprene ; ( ii ) $ 2.0 million in costs related to development activities for our pre-clinical stage programs , primarily related to dare-larc1 ; ( iii ) $ 1.3 million in personnel costs reflecting our first full year of personnel costs for the former microchips employees we hired in november 2019 , and ( iv ) stock-based compensation expense of approximately $ 118,000. those increases were partially offset by ( a ) an increase in grant funding recorded as a reduction to research and development expenses of approximately $ 2.4 million under grant awards for dare-larc1 , ovaprene and dare-frt1 and ; ( b ) a cash payment of approximately $ 192,000 and a receivable of approximately $ 268,000 , both of which are recorded as a reduction to research and development expenses and are related to australia 's research and development tax incentive which gives 43.5 % of every dollar spent by eligible companies on eligible research and development activities back to those companies in a cash payment . we expect research and development expenses to increase significantly in 2021 as we continue to develop our product candidates and seek fda approval for dare-bv1 . if we advance our programs as currently planned , our research and development expenses for 2021 could be more than double our research and development expenses for 2020. our 2021 research and development expenses could include up to $ 4.5 million in milestone payments under license agreements related to certain of our product candidates payable by us to our third-party licensors and up to approximately $ 1.0 million in contingent consideration payments under our merger agreement with microchips , all or any portion of which we may elect to pay to the former stockholders of microchips in shares of our common stock . as discussed below in the section titled “ liquidity and capital resources , ” we will need to raise substantial additional capital to continue to fund our operations and successfully execute our current operating plan . the pace and extent of our research and development activities and , therefore , our research and development spend , will depend on our cash resources . we expect our research and development spend to vary across our fiscal quarters . in regard to sildenafil cream , 3.6 % , we anticipate that the costs of the planned phase 2b clinical study will be approximately $ 15.0 to $ 17.0 million , not all of which will be payable in fiscal 2021. license fees the $ 450,001 decrease in license expenses from 2019 to 2020 was attributable to a decrease in license fees accrued or paid . during 2019 , we accrued or paid $ 533,334 of license fees under our license agreements related to dare-hrt1 and dare-bv1 . during 2020 , we accrued or paid $ 83,333 of license fees under our license agreement related to dare-hrt1 . see note 3 `` license and collaboration agreements—in license agreements `` to the accompanying consolidated financial statements for more information about our license agreements . other income the decrease of $ 79,536 in other income from 2019 to 2020 was primarily due to a decrease in interest earned on cash balances in 2020. story_separator_special_tag style= `` min-height:36pt ; width:100 % `` > need to raise additional capital to continue our operations and execute our current product development plans , ” above . cash flows the following table shows a summary of our cash flows for the periods indicated : replace_table_token_3_th operating activities cash used in operating activities during the year ended december 31 , 2020 included a net loss of $ 27.4 million , decreased by non-cash stock-based compensation expense of $ 742,031. components providing operating cash were an approximately $ 1.3 million increase in accrued expenses , a $ 1.0 million increase in deferred license revenue , a $ 157,725 increase in other non-current assets and deferred charges and a $ 95,042 increase in other receivables . components reducing operating cash were a $ 454,133 increase in prepaid expenses , a $ 455,121 decrease in deferred grant funding , and a $ 61,850 decrease in accounts payable . cash used in operating activities during the year ended december 31 , 2019 included a net loss of $ 14.3 million , decreased by non-cash stock-based compensation expense of $ 462,239. components providing operating cash were a $ 621,618 increase in accrued expenses , an increase of $ 608,650 in accounts payable , and an increase of $ 237,937 in other non-current assets and deferred charges . components reducing operating cash were a $ 322,482

liquidity and capital resources plan of operations and future funding requirements we prepared the accompanying consolidated financial statements on a going concern basis , which assumes that we will realize our assets and satisfy our liabilities in the normal course of business . we have a history of losses from operations , we expect negative cash flows from our operations to continue for the foreseeable future , and we expect that our net losses will continue for at least the next several years as we develop and seek to bring to market our existing product candidates and potentially acquire , license and develop additional product candidates . these circumstances raise substantial doubt about our ability to continue as a going concern . the accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and reclassification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty of our ability to remain a going concern . at december 31 , 2020 , our accumulated deficit was approximately $ 71.4 million , our cash and cash equivalents were approximately $ 4.7 million , and our working capital deficit was approximately $ 0.7 million . for the year ended december 31 , 2020 , we incurred a net loss of $ 27.4 million and had negative cash flow from operations of approximately $ 25.2 million . 87 our primary uses of capital are , and we expect will continue to be , staff-related expenses , the cost of clinical trials and regulatory activities related to our product candidates , costs associated with contract manufacturing services and third-party clinical research and development services , payments due under license agreements and our merger agreement with microchips upon the successful achievement of milestones of our product candidates , legal expenses , other regulatory expenses and general overhead costs . our future funding requirements could also include significant costs related to commercialization of our product candidates , if approved , depending on the type and nature of commercial partnerships we establish .

growth in active diners , which increased from 14.5 million as of december 31 , 2017 to 17.7 million at the end of december 31 , 2018 , driving an increase in daily average grubs to 435,900 during the year ended december 31 , 2018 from 334,000 daily average grubs during 2017. we processed $ 5.1 billion in gross food sales in 2018 , a 34 % increase from the $ 3.8 billion in gross food sales processed in 2017. the growth in active diners and daily average grubs was due to increased product and brand awareness largely as a result of marketing efforts and word-of-mouth referrals , better restaurant choices for diners in our markets , technology and product improvements to drive more orders and the full year impact of the eat24 acquisition . in addition , revenue increased during the year ended december 31 , 2018 compared to the same period in 2017 due to an increase in our average commission rates , a higher average order size and the inclusion of results from our recent acquisitions ( see part ii , item 8 , note 4 , acquisitions ) . net income decreased by $ 20.5 million to $ 78.5 million during the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the decrease was driven by the one-time income tax benefit of $ 34.1 million recognized in the year ended december 31 , 2017 related to the tax act ( see part ii , item 8 , note 11 , income taxes ) . additionally , net income during the year ended december 31 , 2018 reflects the impact of increased costs due to the expansion of the company 's delivery services and increased advertising to generate organic growth as well as an increase in certain other expenses to support organic growth in the business and higher order volume and as a result of the impact of recent acquisitions . these costs primarily included compensation and benefits expenses , payment processing costs , as well as depreciation and amortization of recently acquired intangible assets and other general and administrative expenses of the acquired companies . on november 7 , 2018 , we acquired tapingo and on september 13 , 2018 , we acquired levelup . the aggregate purchase price for the acquisitions was $ 521.5 million , net of cash acquired and including non-cash consideration . additionally , on october 30 , 2018 , we completed the acquisition of substantially all of the restaurant and diner network assets of orderup , an online and mobile food-ordering company for $ 18.5 million . we previously acquired certain assets of orderup in september 2017 from groupon , inc. the acquisition of businesses and other intangible assets has simplified our integrations with restaurants ' systems , increased diner engagement , accelerated product development and expanded the breadth and depth of our network of diners and restaurants . during the year ended december 31 , 2018 , the company borrowed $ 222.0 million under its credit facility entered into in october 2017 to finance a portion of the purchase price and transaction costs in connection with the acquisitions of levelup and 28 tapingo . during the year ended december 31 , 2018 , we made principal payments of $ 53.9 million from cash on hand . as of december 31 , 2018 , outstanding borrowings under the credit facility were $ 342.3 million . the company entered into an amended and restated credit agreement on february 6 , 2019 which expanded the available facility by $ 200.0 million ( see part ii , item 8 , note 16 , subsequent events , for additional details ) . on april 25 , 2018 , we sold 2,820,464 shares of our common stock to yum restaurant services group , llc ( the “ investor ” ) , a wholly owned subsidiary of yum ! brands , inc. , for an aggregate purchase price of $ 200.0 million pursuant to the investment agreement , dated as of february 7 , 2018 , by and among the company and the investor . the company has used and expects to use proceeds for general corporate purposes including accelerating the expansion of delivery services , investing in the platform , repayment of borrowings under the credit facility and pursuing growth opportunities . concurrent with the investment agreement , we entered into a services agreement with yum ! brands , inc. to provide online ordering and delivery services to its u.s. restaurants . key business metrics to analyze our business performance , determine financial forecasts and help develop long-term strategic plans , we review key business metrics which include transactions placed on the platform where the company provides marketing services to generate orders . the platform excludes transactions where the company exclusively provides technology or fulfillment services . the following key business metrics are reviewed : active diners . we count active diners as the number of unique diner accounts from which an order has been placed in the past twelve months through our platform . diner accounts from which an order has been placed on one of our websites or one of our mobile applications are included in our active diner metrics . active diners is an important metric for us because the number of diners using our platform is a key revenue driver and a valuable measure of the size of our engaged diner community . some of our diners could have more than one account if they were to set up multiple accounts using a different e-mail address for each account . as a result , it is possible that our active diners metric may count certain diners more than once during any given period . daily average grubs . we count daily average grubs as the number of orders placed on our platform divided by the number of days for a given period . story_separator_special_tag the increase was primarily due to the one-time $ 34.1 million benefit recorded in the year ended december 31 , 2017 as a result of a decrease in the value of our deferred tax liabilities caused by the reduction in the u.s. corporate income tax rate from 35 % to 21 % resulting from the tax act enacted in december of 2017 , partially offset by the impact of the lower u.s. federal tax rate in 2018 , an $ 8.8 million increase in discrete excess tax benefits from stock based compensation as compared to 2017 and the decrease in income before provision for income taxes due to the factors described above . s ee part ii , item 8 , note 11 , income taxes , to the company 's consolidated financial statements in the annual report on form 10-k for further description of the tax act and the impact to the company . 2017 compared to 2016 income tax expense decreased by $ 43.6 million for the year ended december 31 , 2017 compared to 2016. the decrease was primarily due to the decrease in the effective income tax rate from 41 % to negative 10 % during the respective periods , partially offset by the increase in income before provision for income taxes due to the factors described above . the prior period effective tax rate was primarily affected by the tax act and the adoption of asu no . 2016-09 , “ compensation – stock compensation ( topic 718 ) , improvements to employee share-based payment accounting ” ( “ asu 2016-09 ” ) , during the first quarter of 2017. the tax act resulted in an income tax benefit of $ 34.1 million during the year ended december 31 , 2017 primarily as a result of the decrease in the corporate income tax rate from 35 % to 21 % ( see part ii , item 8 , note 11 , income taxes , to the company 's consolidated financial statements in the annual report on form 10-k for further description of the tax act and the impact to the company ) . additionally , during the year ended december 31 , 2017 , we recognized a discrete excess tax benefit from stock-based compensation of $ 7.1 million in accordance with asu 2016-09. non-gaap financial measure - adjusted ebitda adjusted ebitda is a financial measure that is not calculated in accordance with gaap . we define adjusted ebitda as net income adjusted to exclude acquisition and restructuring costs , non-recurring legal costs , income taxes , net interest ( income ) expense , depreciation and amortization and stock-based compensation expense . a reconciliation of adjusted ebitda to net income , the most directly comparable financial measure calculated and presented in accordance with gaap , is provided below . adjusted ebitda should not be considered as an alternative to net income or any other measure of financial performance calculated and presented in accordance with gaap . the company 's adjusted ebitda may not be comparable to similarly titled measures of other organizations because other organizations may not calculate adjusted ebitda in the same manner . we have included adjusted ebitda in this annual report on form 10-k because it is an important measure upon which management assesses the company 's operating performance . we use adjusted ebitda as a key performance measure because we believe it facilitates operating performance comparisons from period to period by excluding potential differences primarily caused by variations in capital structures , tax positions , the impact of acquisitions and restructuring , the impact of depreciation and amortization expense on the company 's fixed assets and the impact of stock-based compensation expense . because adjusted ebitda facilitates internal comparisons of our historical operating performance on a more consistent basis , we also use adjusted ebitda for business planning purposes , in evaluating business opportunities and determining incentive compensation for certain employees . in addition , management believes adjusted ebitda and similar measures are widely used by investors , securities analysts , ratings agencies and other parties in evaluating companies in the industry as a measure of financial performance and debt-service capabilities . our use of 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 : adjusted ebitda does not reflect our cash expenditures for capital equipment or other contractual commitments ; 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 capital expenditure requirements for such replacements ; 34 adjusted ebitda does not reflect changes in , or cash r equirements for , our working capital needs ; and other companies , including companies in the same industry , may calculate adjusted ebitda differently , which reduces its usefulness as a comparative measure . in evaluating adjusted ebitda , you should be aware that in the future the company will incur expenses similar to some of the adjustments in this presentation . the presentation of adjusted ebitda should not be construed as indicating that our future results will be unaffected by these expenses or by any unusual or non-recurring items . when evaluating our performance , you should consider adjusted ebitda alongside other financial performance measures , including net income and other gaap results . the following table sets forth adjusted ebitda and a reconciliation to net income for each of the periods presented below : replace_table_token_12_th ( a ) due to the insignificance of net interest income during the year ended december 31 , 2016 , the company 's calculation of adjusted ebitda excludes this adjustment . ( b ) acquisition and restructuring costs include transaction and integration-related costs , such as legal and accounting costs , associated with acquisition and restructuring initiatives . legal

liquidity and capital resources plan of operations and future funding requirements we prepared the accompanying consolidated financial statements on a going concern basis , which assumes that we will realize our assets and satisfy our liabilities in the normal course of business . we have a history of losses from operations , we expect negative cash flows from our operations to continue for the foreseeable future , and we expect that our net losses will continue for at least the next several years as we develop and seek to bring to market our existing product candidates and potentially acquire , license and develop additional product candidates . these circumstances raise substantial doubt about our ability to continue as a going concern . the accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and reclassification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty of our ability to remain a going concern . at december 31 , 2020 , our accumulated deficit was approximately $ 71.4 million , our cash and cash equivalents were approximately $ 4.7 million , and our working capital deficit was approximately $ 0.7 million . for the year ended december 31 , 2020 , we incurred a net loss of $ 27.4 million and had negative cash flow from operations of approximately $ 25.2 million . 87 our primary uses of capital are , and we expect will continue to be , staff-related expenses , the cost of clinical trials and regulatory activities related to our product candidates , costs associated with contract manufacturing services and third-party clinical research and development services , payments due under license agreements and our merger agreement with microchips upon the successful achievement of milestones of our product candidates , legal expenses , other regulatory expenses and general overhead costs . our future funding requirements could also include significant costs related to commercialization of our product candidates , if approved , depending on the type and nature of commercial partnerships we establish .

growth in active diners , which increased from 14.5 million as of december 31 , 2017 to 17.7 million at the end of december 31 , 2018 , driving an increase in daily average grubs to 435,900 during the year ended december 31 , 2018 from 334,000 daily average grubs during 2017. we processed $ 5.1 billion in gross food sales in 2018 , a 34 % increase from the $ 3.8 billion in gross food sales processed in 2017. the growth in active diners and daily average grubs was due to increased product and brand awareness largely as a result of marketing efforts and word-of-mouth referrals , better restaurant choices for diners in our markets , technology and product improvements to drive more orders and the full year impact of the eat24 acquisition . in addition , revenue increased during the year ended december 31 , 2018 compared to the same period in 2017 due to an increase in our average commission rates , a higher average order size and the inclusion of results from our recent acquisitions ( see part ii , item 8 , note 4 , acquisitions ) . net income decreased by $ 20.5 million to $ 78.5 million during the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the decrease was driven by the one-time income tax benefit of $ 34.1 million recognized in the year ended december 31 , 2017 related to the tax act ( see part ii , item 8 , note 11 , income taxes ) . additionally , net income during the year ended december 31 , 2018 reflects the impact of increased costs due to the expansion of the company 's delivery services and increased advertising to generate organic growth as well as an increase in certain other expenses to support organic growth in the business and higher order volume and as a result of the impact of recent acquisitions . these costs primarily included compensation and benefits expenses , payment processing costs , as well as depreciation and amortization of recently acquired intangible assets and other general and administrative expenses of the acquired companies . on november 7 , 2018 , we acquired tapingo and on september 13 , 2018 , we acquired levelup . the aggregate purchase price for the acquisitions was $ 521.5 million , net of cash acquired and including non-cash consideration . additionally , on october 30 , 2018 , we completed the acquisition of substantially all of the restaurant and diner network assets of orderup , an online and mobile food-ordering company for $ 18.5 million . we previously acquired certain assets of orderup in september 2017 from groupon , inc. the acquisition of businesses and other intangible assets has simplified our integrations with restaurants ' systems , increased diner engagement , accelerated product development and expanded the breadth and depth of our network of diners and restaurants . during the year ended december 31 , 2018 , the company borrowed $ 222.0 million under its credit facility entered into in october 2017 to finance a portion of the purchase price and transaction costs in connection with the acquisitions of levelup and 28 tapingo . during the year ended december 31 , 2018 , we made principal payments of $ 53.9 million from cash on hand . as of december 31 , 2018 , outstanding borrowings under the credit facility were $ 342.3 million . the company entered into an amended and restated credit agreement on february 6 , 2019 which expanded the available facility by $ 200.0 million ( see part ii , item 8 , note 16 , subsequent events , for additional details ) . on april 25 , 2018 , we sold 2,820,464 shares of our common stock to yum restaurant services group , llc ( the “ investor ” ) , a wholly owned subsidiary of yum ! brands , inc. , for an aggregate purchase price of $ 200.0 million pursuant to the investment agreement , dated as of february 7 , 2018 , by and among the company and the investor . the company has used and expects to use proceeds for general corporate purposes including accelerating the expansion of delivery services , investing in the platform , repayment of borrowings under the credit facility and pursuing growth opportunities . concurrent with the investment agreement , we entered into a services agreement with yum ! brands , inc. to provide online ordering and delivery services to its u.s. restaurants . key business metrics to analyze our business performance , determine financial forecasts and help develop long-term strategic plans , we review key business metrics which include transactions placed on the platform where the company provides marketing services to generate orders . the platform excludes transactions where the company exclusively provides technology or fulfillment services . the following key business metrics are reviewed : active diners . we count active diners as the number of unique diner accounts from which an order has been placed in the past twelve months through our platform . diner accounts from which an order has been placed on one of our websites or one of our mobile applications are included in our active diner metrics . active diners is an important metric for us because the number of diners using our platform is a key revenue driver and a valuable measure of the size of our engaged diner community . some of our diners could have more than one account if they were to set up multiple accounts using a different e-mail address for each account . as a result , it is possible that our active diners metric may count certain diners more than once during any given period . daily average grubs . we count daily average grubs as the number of orders placed on our platform divided by the number of days for a given period . story_separator_special_tag the increase was primarily due to the one-time $ 34.1 million benefit recorded in the year ended december 31 , 2017 as a result of a decrease in the value of our deferred tax liabilities caused by the reduction in the u.s. corporate income tax rate from 35 % to 21 % resulting from the tax act enacted in december of 2017 , partially offset by the impact of the lower u.s. federal tax rate in 2018 , an $ 8.8 million increase in discrete excess tax benefits from stock based compensation as compared to 2017 and the decrease in income before provision for income taxes due to the factors described above . s ee part ii , item 8 , note 11 , income taxes , to the company 's consolidated financial statements in the annual report on form 10-k for further description of the tax act and the impact to the company . 2017 compared to 2016 income tax expense decreased by $ 43.6 million for the year ended december 31 , 2017 compared to 2016. the decrease was primarily due to the decrease in the effective income tax rate from 41 % to negative 10 % during the respective periods , partially offset by the increase in income before provision for income taxes due to the factors described above . the prior period effective tax rate was primarily affected by the tax act and the adoption of asu no . 2016-09 , “ compensation – stock compensation ( topic 718 ) , improvements to employee share-based payment accounting ” ( “ asu 2016-09 ” ) , during the first quarter of 2017. the tax act resulted in an income tax benefit of $ 34.1 million during the year ended december 31 , 2017 primarily as a result of the decrease in the corporate income tax rate from 35 % to 21 % ( see part ii , item 8 , note 11 , income taxes , to the company 's consolidated financial statements in the annual report on form 10-k for further description of the tax act and the impact to the company ) . additionally , during the year ended december 31 , 2017 , we recognized a discrete excess tax benefit from stock-based compensation of $ 7.1 million in accordance with asu 2016-09. non-gaap financial measure - adjusted ebitda adjusted ebitda is a financial measure that is not calculated in accordance with gaap . we define adjusted ebitda as net income adjusted to exclude acquisition and restructuring costs , non-recurring legal costs , income taxes , net interest ( income ) expense , depreciation and amortization and stock-based compensation expense . a reconciliation of adjusted ebitda to net income , the most directly comparable financial measure calculated and presented in accordance with gaap , is provided below . adjusted ebitda should not be considered as an alternative to net income or any other measure of financial performance calculated and presented in accordance with gaap . the company 's adjusted ebitda may not be comparable to similarly titled measures of other organizations because other organizations may not calculate adjusted ebitda in the same manner . we have included adjusted ebitda in this annual report on form 10-k because it is an important measure upon which management assesses the company 's operating performance . we use adjusted ebitda as a key performance measure because we believe it facilitates operating performance comparisons from period to period by excluding potential differences primarily caused by variations in capital structures , tax positions , the impact of acquisitions and restructuring , the impact of depreciation and amortization expense on the company 's fixed assets and the impact of stock-based compensation expense . because adjusted ebitda facilitates internal comparisons of our historical operating performance on a more consistent basis , we also use adjusted ebitda for business planning purposes , in evaluating business opportunities and determining incentive compensation for certain employees . in addition , management believes adjusted ebitda and similar measures are widely used by investors , securities analysts , ratings agencies and other parties in evaluating companies in the industry as a measure of financial performance and debt-service capabilities . our use of 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 : adjusted ebitda does not reflect our cash expenditures for capital equipment or other contractual commitments ; 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 capital expenditure requirements for such replacements ; 34 adjusted ebitda does not reflect changes in , or cash r equirements for , our working capital needs ; and other companies , including companies in the same industry , may calculate adjusted ebitda differently , which reduces its usefulness as a comparative measure . in evaluating adjusted ebitda , you should be aware that in the future the company will incur expenses similar to some of the adjustments in this presentation . the presentation of adjusted ebitda should not be construed as indicating that our future results will be unaffected by these expenses or by any unusual or non-recurring items . when evaluating our performance , you should consider adjusted ebitda alongside other financial performance measures , including net income and other gaap results . the following table sets forth adjusted ebitda and a reconciliation to net income for each of the periods presented below : replace_table_token_12_th ( a ) due to the insignificance of net interest income during the year ended december 31 , 2016 , the company 's calculation of adjusted ebitda excludes this adjustment . ( b ) acquisition and restructuring costs include transaction and integration-related costs , such as legal and accounting costs , associated with acquisition and restructuring initiatives . legal

cash flows provided by operating activities for the year ended december 31 , 2018 , net cash provided by operating activities was $ 225.5 million compared to $ 154.1 million for the same period in 2017. the increase in cash flows from operations was driven primarily by an increase in non-cash expenses , partially offset by a decrease in net income of $ 20.5 million . changes in non-cash expenses primarily related to increases in depreciation and amortization of $ 34.1 million , deferred taxes of $ 32.9 million primarily related to the tax act , and stock-based compensation of $ 22.5 million . additionally , during the years ended december 31 , 2018 and 2017 , significant changes in our operating assets and liabilities , net of effects of business acquisitions , resulted from the following : an increase in prepaid expenses and other assets of $ 16.3 million for the year ended december 31 , 2018 , primarily related to the deferral of contract acquisition costs under asc topic 606 ( see part ii , item 8 , note 3 , revenue , for additional details ) and an increase in prepaid advertising and software services compared to a decrease of $ 5.5 million for the year ended december 31 , 2017 ; an increase in accounts receivable of $ 6.1 million during the year ended december 31 , 2018 compared to an increase of $ 26.2 million for the year ended december 31 , 2017 primarily due to the timing of the receipt of processor payments at year-end ; an increase in accounts payable $ 11.2 million during the year ended december 31 , 2018 compared to a decrease of $ 4.2 million during the year ended december 31 , 2017 due to the timing of payments and an increase in bills payable to support growth of the business ; an increase in accrued expenses of $ 8.2 million during the year ended december 31 , 2018 , primarily related to an increase in accrued credit card processing fees and payroll costs , compared to an increase of $ 17.3 million during the

the project has received permits in accordance with the california environmental quality act ( `` ceqa `` ) which allow the capture and conservation of 2.5 million acre-feet of groundwater over 50 years under the terms of a groundwater management plan approved by san bernardino county , which is responsible for groundwater use at the project area . our 2017 working capital requirements relate largely to the final development activities associated with the water project and those activities consistent with the water project related to further development of our land and agricultural assets . while we continue to believe that the ultimate implementation of the water project will provide the primary source of our future cash flow , we also believe there is significant additional value in our underlying agricultural assets . demand for agricultural land with water rights is at an all-time high ; therefore , in addition to our water project proposal , we are engaged in agricultural joint ventures at the cadiz/fenner property that put some of the groundwater currently being lost to evaporation from the underlying aquifer system to immediate beneficial use . we have farmed portions of the cadiz/fenner property since the late 1980s relying on groundwater from the aquifer system for irrigation and have found the site is well suited for various permanent and seasonal crops . presently , the property has 2,100 acres leased to third parties for a variety of crops , including citrus , dried-on-the-vine raisins and seasonal vegetables . we also continue to explore additional uses of our land and water resource assets , including renewable energy development , the marketing of our approved desert tortoise land conservation bank , which is located on our properties outside the water project area , and other long-term legacy uses of our properties , such as habitat conservation and cultural development . w ater resource development the water project is designed to supply , capture and conserve billions of gallons of renewable native groundwater currently being lost annually to evaporation from the aquifer system underlying our cadiz/fenner property , and provide a new reliable water supply for approximately 400,000 people in southern california . the total quantity of groundwater to be recovered and conveyed to water project participants will not exceed a long-term annual average of 50,000 acre-feet per year for 50 years . the water project also offers participants the ability to carry-over their annual supply and store it in the groundwater basin from year to year . a second phase of the water project , phase ii , will offer up to one million acre-feet of storage capacity that can be used to hold imported water supplies at the water project area . 25 water project facilities required for phase i primarily include , among other things : · high-yield wells designed to efficiently recover available native groundwater from beneath the water project area ; · a water conveyance pipeline to deliver water from the well-field to the cra for further delivery to project participants ; and · an energy source to provide power to the well-field , pipeline and pumping facilities . if an imported water storage component of the project is ultimately implemented in phase ii , the following additional facilities would be required , among other things : · facilities to pump water through the conveyance pipeline from the cra to the water project well-field and or through the company 's pipeline from cadiz to barstow , ca ; and · spreading basins , which are shallow settling ponds that will be configured to efficiently percolate water from the ground surface down to the water table using subsurface storage capacity for the storage of water . in 2016 , the company focused on completing the remaining steps to implement the project , including clearance to use an existing railroad right-of-way for its conveyance pipeline and defending the water project 's ceqa permits in the california court of appeal . prior to construction , the water project must ( 1 ) complete efforts to secure its pipeline right-of-way , ( 2 ) finalize contracts with project participating agencies and secure transportation arrangements to deliver water into each participant 's service area , and ( 3 ) secure private construction financing . below is a discussion of present activities to advance these objectives . ( 1 ) water conveyance pipeline right-of-way pipeline from cadiz to cra in september 2008 , we secured a right-of-way for the water project 's water conveyance pipeline by entering into a lease agreement with the arizona & california railroad company ( `` arzc `` ) , which operated an active shortline railroad extending from cadiz to matthie , arizona . the agreement allows for the use of a portion of the railroad 's right-of-way to construct and operate a water conveyance pipeline for a period up to 99 years . the buried pipeline would be constructed parallel to the railroad tracks and be used to convey water between our cadiz valley property and the cra in freda , california . our lease agreement with the arzc also expressly requires that the project further several railroad purposes and , under the terms of the lease agreement , the arzc reserved water supplies from the project for its operational needs as well as access to project facilities , such as roads and power appurtenances , for the benefit of its railroad operation . in september 2013 , we also entered into a trackage rights agreement with the arzc that would enable the operation of steam-powered , passenger excursion trains on the line powered by water made available from the pipeline . story_separator_special_tag credits sold by the fenner bank will fund our permanent preservation of the land as well as research by outside entities , including san diego zoo global , into desert tortoise health and species protection . 31 other opportunities other opportunities in the water and agricultural or related infrastructure business complementary to our current objectives could provide new opportunities for our company . over the longer-term , we believe the population of southern california , nevada and arizona will continue to grow , and that , in time , the economics of commercial and residential development at our properties may become attractive . we remain committed to the sustainable use of our land and water assets , and will continue to explore all opportunities for environmentally responsible development of these assets . we can not predict with certainty which of these various opportunities will ultimately be utilized . results of operations ( a ) year ended december 31 , 2016 compared to year ended december 31 , 2015 we have not received significant revenues from our water resource and real estate development activity to date . our revenues have been limited to our agricultural operations . as a result , we have historically incurred a net loss from operations . we had revenues of $ 412 thousand for the year ended december 31 , 2016 , and $ 304 thousand for the year ended december 31 , 2015. the net loss totaled $ 26.3 million for the year ended december 31 , 2016 , compared with a net loss of $ 24.0 million for the year ended december 31 , 2015. the higher loss in 2016 was primarily related to a $ 2.25 million loss on extinguishment of debt . the higher 2016 loss was also related to higher interest expense on additional convertible debt issued and higher amortization expense , offset by a decrease in litigation costs related to the water project due to the timing of the appellate litigation . our primary expenses are our ongoing overhead costs associated with the development of the water project ( i.e . , general and administrative expense ) and our interest expense . we will continue to incur non-cash expense in connection with our management and director equity incentive compensation plans . revenues . revenue totaled $ 412 thousand during the year ended december 31 , 2016 , compared to $ 304 thousand during the year ended december 31 , 2015. the 2016 revenue is primarily related to rental income from the fvf lease ( see `` agricultural development `` , above ) . cost of sales . cost of sales were zero for the year ended december 31 , 2016 , compared with $ 334 thousand during the year ended december 31 , 2015 . 32 general and administrative expenses . general and administrative expenses during the year ended december 31 , 2016 , totaled $ 9.3 million compared with $ 13.7 million for the year ended december 31 , 2015. non-cash compensation costs related to stock and option awards are included in general and administrative expenses . general and administrative expenses , exclusive of stock-based compensation costs , totaled $ 8.0 million in the year ended december 31 , 2016 , compared with $ 12.6 million for the year ended december 31 , 2015. the decrease in general and administrative expense in 2016 was primarily due to lower litigation costs related to the water project due to the timing of the appellate litigation ( see item 1 . – `` business , ( a ) general development of business `` , above . ) compensation costs from stock and option awards for the year ended december 31 , 2016 , totaled $ 1.3 million compared with $ 1.1 million for the year ended december 31 , 2015. the higher 2016 expense was primarily due to higher stock-based non-cash compensation costs related to shares awarded to the brownstein law firm for certain legal and advisory services to the company . depreciation . depreciation expense totaled $ 292 thousand for the year ended december 31 , 2016 , and $ 270 thousand for the year ended december 31 , 2015. interest expense , net . net interest expense totaled $ 14.9 million during the year ended december 31 , 2016 , compared to $ 10.1 million during 2015. the following table summarizes the components of net interest expense for the two periods ( in thousands ) : replace_table_token_3_th the interest on outstanding debt increased from $ 8.2 million to $ 9.7 million due to the compounded interest on the debt facilities resulting in a higher principal balance . amortization of debt discount increased from $ 1.6 million to $ 5.0 million primarily due to the acceleration of unamortized debt discount related to the conversion of approximately $ 2.8 million in original principal amount of the 2020 notes that were issued in april 2016. see note 6 to the consolidated financial statements , `` long-term debt `` . story_separator_special_tag roman ' , times , serif ; font-variant : normal ; width : 9pt ; font-weight : bold ; font-style : italic ; display : inline-block `` > interest expense , net . net interest expense totaled $ 10.1 million during the year ended december 31 , 2015 , compared to $ 8.5 million during 2014. the following table summarizes the components of net interest expense for the two periods ( in thousands ) : replace_table_token_4_th the interest on outstanding debt increased from $ 7.7 million to $ 8.2 million due to the compounded interest on the debt facilities resulting in a higher principal balance . see note 6 to the consolidated financial statements , `` long-term debt `` . prior debt refinancings . in november 2015 , we entered into an agreement with our senior lenders which granted us the right to extend the maturity date of an original $ 30 million first tranche of our secured senior debt from march 2016

cash flows provided by operating activities for the year ended december 31 , 2018 , net cash provided by operating activities was $ 225.5 million compared to $ 154.1 million for the same period in 2017. the increase in cash flows from operations was driven primarily by an increase in non-cash expenses , partially offset by a decrease in net income of $ 20.5 million . changes in non-cash expenses primarily related to increases in depreciation and amortization of $ 34.1 million , deferred taxes of $ 32.9 million primarily related to the tax act , and stock-based compensation of $ 22.5 million . additionally , during the years ended december 31 , 2018 and 2017 , significant changes in our operating assets and liabilities , net of effects of business acquisitions , resulted from the following : an increase in prepaid expenses and other assets of $ 16.3 million for the year ended december 31 , 2018 , primarily related to the deferral of contract acquisition costs under asc topic 606 ( see part ii , item 8 , note 3 , revenue , for additional details ) and an increase in prepaid advertising and software services compared to a decrease of $ 5.5 million for the year ended december 31 , 2017 ; an increase in accounts receivable of $ 6.1 million during the year ended december 31 , 2018 compared to an increase of $ 26.2 million for the year ended december 31 , 2017 primarily due to the timing of the receipt of processor payments at year-end ; an increase in accounts payable $ 11.2 million during the year ended december 31 , 2018 compared to a decrease of $ 4.2 million during the year ended december 31 , 2017 due to the timing of payments and an increase in bills payable to support growth of the business ; an increase in accrued expenses of $ 8.2 million during the year ended december 31 , 2018 , primarily related to an increase in accrued credit card processing fees and payroll costs , compared to an increase of $ 17.3 million during the

the project has received permits in accordance with the california environmental quality act ( `` ceqa `` ) which allow the capture and conservation of 2.5 million acre-feet of groundwater over 50 years under the terms of a groundwater management plan approved by san bernardino county , which is responsible for groundwater use at the project area . our 2017 working capital requirements relate largely to the final development activities associated with the water project and those activities consistent with the water project related to further development of our land and agricultural assets . while we continue to believe that the ultimate implementation of the water project will provide the primary source of our future cash flow , we also believe there is significant additional value in our underlying agricultural assets . demand for agricultural land with water rights is at an all-time high ; therefore , in addition to our water project proposal , we are engaged in agricultural joint ventures at the cadiz/fenner property that put some of the groundwater currently being lost to evaporation from the underlying aquifer system to immediate beneficial use . we have farmed portions of the cadiz/fenner property since the late 1980s relying on groundwater from the aquifer system for irrigation and have found the site is well suited for various permanent and seasonal crops . presently , the property has 2,100 acres leased to third parties for a variety of crops , including citrus , dried-on-the-vine raisins and seasonal vegetables . we also continue to explore additional uses of our land and water resource assets , including renewable energy development , the marketing of our approved desert tortoise land conservation bank , which is located on our properties outside the water project area , and other long-term legacy uses of our properties , such as habitat conservation and cultural development . w ater resource development the water project is designed to supply , capture and conserve billions of gallons of renewable native groundwater currently being lost annually to evaporation from the aquifer system underlying our cadiz/fenner property , and provide a new reliable water supply for approximately 400,000 people in southern california . the total quantity of groundwater to be recovered and conveyed to water project participants will not exceed a long-term annual average of 50,000 acre-feet per year for 50 years . the water project also offers participants the ability to carry-over their annual supply and store it in the groundwater basin from year to year . a second phase of the water project , phase ii , will offer up to one million acre-feet of storage capacity that can be used to hold imported water supplies at the water project area . 25 water project facilities required for phase i primarily include , among other things : · high-yield wells designed to efficiently recover available native groundwater from beneath the water project area ; · a water conveyance pipeline to deliver water from the well-field to the cra for further delivery to project participants ; and · an energy source to provide power to the well-field , pipeline and pumping facilities . if an imported water storage component of the project is ultimately implemented in phase ii , the following additional facilities would be required , among other things : · facilities to pump water through the conveyance pipeline from the cra to the water project well-field and or through the company 's pipeline from cadiz to barstow , ca ; and · spreading basins , which are shallow settling ponds that will be configured to efficiently percolate water from the ground surface down to the water table using subsurface storage capacity for the storage of water . in 2016 , the company focused on completing the remaining steps to implement the project , including clearance to use an existing railroad right-of-way for its conveyance pipeline and defending the water project 's ceqa permits in the california court of appeal . prior to construction , the water project must ( 1 ) complete efforts to secure its pipeline right-of-way , ( 2 ) finalize contracts with project participating agencies and secure transportation arrangements to deliver water into each participant 's service area , and ( 3 ) secure private construction financing . below is a discussion of present activities to advance these objectives . ( 1 ) water conveyance pipeline right-of-way pipeline from cadiz to cra in september 2008 , we secured a right-of-way for the water project 's water conveyance pipeline by entering into a lease agreement with the arizona & california railroad company ( `` arzc `` ) , which operated an active shortline railroad extending from cadiz to matthie , arizona . the agreement allows for the use of a portion of the railroad 's right-of-way to construct and operate a water conveyance pipeline for a period up to 99 years . the buried pipeline would be constructed parallel to the railroad tracks and be used to convey water between our cadiz valley property and the cra in freda , california . our lease agreement with the arzc also expressly requires that the project further several railroad purposes and , under the terms of the lease agreement , the arzc reserved water supplies from the project for its operational needs as well as access to project facilities , such as roads and power appurtenances , for the benefit of its railroad operation . in september 2013 , we also entered into a trackage rights agreement with the arzc that would enable the operation of steam-powered , passenger excursion trains on the line powered by water made available from the pipeline . story_separator_special_tag credits sold by the fenner bank will fund our permanent preservation of the land as well as research by outside entities , including san diego zoo global , into desert tortoise health and species protection . 31 other opportunities other opportunities in the water and agricultural or related infrastructure business complementary to our current objectives could provide new opportunities for our company . over the longer-term , we believe the population of southern california , nevada and arizona will continue to grow , and that , in time , the economics of commercial and residential development at our properties may become attractive . we remain committed to the sustainable use of our land and water assets , and will continue to explore all opportunities for environmentally responsible development of these assets . we can not predict with certainty which of these various opportunities will ultimately be utilized . results of operations ( a ) year ended december 31 , 2016 compared to year ended december 31 , 2015 we have not received significant revenues from our water resource and real estate development activity to date . our revenues have been limited to our agricultural operations . as a result , we have historically incurred a net loss from operations . we had revenues of $ 412 thousand for the year ended december 31 , 2016 , and $ 304 thousand for the year ended december 31 , 2015. the net loss totaled $ 26.3 million for the year ended december 31 , 2016 , compared with a net loss of $ 24.0 million for the year ended december 31 , 2015. the higher loss in 2016 was primarily related to a $ 2.25 million loss on extinguishment of debt . the higher 2016 loss was also related to higher interest expense on additional convertible debt issued and higher amortization expense , offset by a decrease in litigation costs related to the water project due to the timing of the appellate litigation . our primary expenses are our ongoing overhead costs associated with the development of the water project ( i.e . , general and administrative expense ) and our interest expense . we will continue to incur non-cash expense in connection with our management and director equity incentive compensation plans . revenues . revenue totaled $ 412 thousand during the year ended december 31 , 2016 , compared to $ 304 thousand during the year ended december 31 , 2015. the 2016 revenue is primarily related to rental income from the fvf lease ( see `` agricultural development `` , above ) . cost of sales . cost of sales were zero for the year ended december 31 , 2016 , compared with $ 334 thousand during the year ended december 31 , 2015 . 32 general and administrative expenses . general and administrative expenses during the year ended december 31 , 2016 , totaled $ 9.3 million compared with $ 13.7 million for the year ended december 31 , 2015. non-cash compensation costs related to stock and option awards are included in general and administrative expenses . general and administrative expenses , exclusive of stock-based compensation costs , totaled $ 8.0 million in the year ended december 31 , 2016 , compared with $ 12.6 million for the year ended december 31 , 2015. the decrease in general and administrative expense in 2016 was primarily due to lower litigation costs related to the water project due to the timing of the appellate litigation ( see item 1 . – `` business , ( a ) general development of business `` , above . ) compensation costs from stock and option awards for the year ended december 31 , 2016 , totaled $ 1.3 million compared with $ 1.1 million for the year ended december 31 , 2015. the higher 2016 expense was primarily due to higher stock-based non-cash compensation costs related to shares awarded to the brownstein law firm for certain legal and advisory services to the company . depreciation . depreciation expense totaled $ 292 thousand for the year ended december 31 , 2016 , and $ 270 thousand for the year ended december 31 , 2015. interest expense , net . net interest expense totaled $ 14.9 million during the year ended december 31 , 2016 , compared to $ 10.1 million during 2015. the following table summarizes the components of net interest expense for the two periods ( in thousands ) : replace_table_token_3_th the interest on outstanding debt increased from $ 8.2 million to $ 9.7 million due to the compounded interest on the debt facilities resulting in a higher principal balance . amortization of debt discount increased from $ 1.6 million to $ 5.0 million primarily due to the acceleration of unamortized debt discount related to the conversion of approximately $ 2.8 million in original principal amount of the 2020 notes that were issued in april 2016. see note 6 to the consolidated financial statements , `` long-term debt `` . story_separator_special_tag roman ' , times , serif ; font-variant : normal ; width : 9pt ; font-weight : bold ; font-style : italic ; display : inline-block `` > interest expense , net . net interest expense totaled $ 10.1 million during the year ended december 31 , 2015 , compared to $ 8.5 million during 2014. the following table summarizes the components of net interest expense for the two periods ( in thousands ) : replace_table_token_4_th the interest on outstanding debt increased from $ 7.7 million to $ 8.2 million due to the compounded interest on the debt facilities resulting in a higher principal balance . see note 6 to the consolidated financial statements , `` long-term debt `` . prior debt refinancings . in november 2015 , we entered into an agreement with our senior lenders which granted us the right to extend the maturity date of an original $ 30 million first tranche of our secured senior debt from march 2016

debt refinancings . in april 2016 , we entered into a note purchase agreement with new and existing investors ( the `` investors '' ) . pursuant to the agreement , we issued approximately $ 10.0 million of our 7.00 % convertible senior notes due 2020 ( `` 2020 notes ) in aggregate principal and accrued interest . the proceeds from the issuance of the 2020 notes ( such 2020 notes , the `` new notes '' ) , are used for general working capital purposes . the 2020 notes accrue interest at 7.00 % per year , with no principal or interest payments due prior to maturity on march 5 , 2020. the 2020 notes , including original principal and accrued interest , are convertible at any time into the company 's common stock at a price of $ 6.75 per share , pursuant to the terms of the indenture dated as of december 10 , 2015 , by and between the company and us bank national association ( the `` indenture '' ) , under which the new notes were issued . as a result of this transaction , we recorded a debt discount in the amount of $ 2.0 million which is the difference between the proceeds from this transaction and the principal and accrued interest of new notes on the day of the issuance . in addition , based on the conversion rate of $ 6.75 per share , the fair value of the shares receivable on conversion exceed the $ 8.0 million in net proceeds ; therefore , a beneficial conversion feature was recorded in the amount of $ 1.48 million . this amount was recorded as additional debt discount with a corresponding amount recorded as additional paid-in capital .

net interest income for the year ended december 31 , 2013 was $ 174.0 million , a decrease of $ 9.3 million , or 5 % , compared to 2012 . the 2013 decrease was due to lower average yields on loans and investments , partially offset by lower average rates paid on the company 's deposits and borrowings and the increase in volume of the loan portfolio . ▪ assets under management and advisory ( “ aum ” ) increased 19 % during 2013 due to $ 3.7 billion of market appreciation and $ 0.2 billion of net flows . increases in aum were experienced in all three segments . 29 private banking the following table presents a summary of selected financial data for the private banking segment continuing operations for 2013 , 2012 , and 2011 . replace_table_token_8_th nm - not meaningful ( 1 ) loans presented in this table are loans from the private banking segment and do not include loans of non-banking affiliates or the holding company . loans presented in this table also do not include loans held for sale . ( 2 ) deposits presented in this table do not include intercompany eliminations related to deposits in the bank from non-banking affiliates or the holding company . deposits presented in this table also do not include deposits held for sale . the company 's private banking segment reported net income attributable to the company of $ 64.6 million in the year ended december 31 , 2013 , compared to net income attributable to the company of $ 51.2 million in 2012 and $ 40.1 million in 2011 . the 2013 increase in net income was due to the increased credit to the provision for loan losses , decreased operating expenses , the 2012 restructuring charge , and the gain on sale of the pacific northwest offices . these were partially offset by the decrease in net interest income . the 2012 increase was due to the credit to the provision for loan losses in 2012 and the decrease in operating and restructuring expenses , partially offset by decreased noninterest income . in may 2013 , the company sold the bank 's three offices in the pacific northwest region . this sale resulted in a gain on sale of $ 10.6 million . during 2012 , the bank implemented a senior executive restructuring of bank leadership in order to create a more streamlined organization and to refine the bank 's cost base . to implement the new structure the bank incurred severance charges of $ 2.9 million in the year ended december 31 , 2012 . aum increased $ 0.6 billion , or 16 % , to $ 4.6 billion at december 31 , 2013 from $ 3.9 billion at december 31 , 2012 , due to both investment performance and positive net flows . total loans at the bank increased $ 298.7 million , or 6 % , to $ 5.1 billion , or 82 % of total assets at the bank , at december 31 , 2013 from $ 4.8 billion , or 77 % of total assets at the bank , at december 31 , 2012. a discussion of the company 's loan portfolio can be found below in part ii . item 7 . “ management 's discussion and analysis of financial condition and results of operations - loan portfolio and credit quality . ” 30 deposits at the bank increased $ 198.2 million , or 4 % , to $ 5.2 billion in 2013 from $ 5.0 billion in 2012. a discussion of the company 's deposits can be found below in part ii . item 7 . “ management 's discussion and analysis of financial condition and results of operations - financial condition . ” investment management the following table presents a summary of selected financial data for the investment management segment continuing operations for 2013 , 2012 , and 2011 . replace_table_token_9_th the company 's investment management segment reported net income attributable to the company of $ 5.0 million in the year ended december 31 , 2013 , compared to net income attributable to the company of $ 3.6 million in 2012 and $ 4.2 million in 2011 . the $ 1.5 million , or 41 % , increase in 2013 was primarily due to an increase in investment management fees , partially offset by an increase in operating expenses . the increase in investment management fees was due to additional performance fees related to the increase in aum . aum increased $ 2.0 billion , or 23 % , to $ 10.4 billion at december 31 , 2013 from $ 8.4 billion at december 31 , 2012 . in 2013 , the increase in aum was primarily the result of market appreciation of $ 2.2 billion , partially offset by net outflows of $ 0.3 billion . wealth advisory the following table presents a summary of selected financial data for the wealth advisory segment continuing operations for 2013 , 2012 , and 2011 . replace_table_token_10_th the company 's wealth advisory segment reported net income attributable to the company of $ 6.2 million in the year ended december 31 , 2013 , compared to net income attributable to the company of $ 4.6 million in 2012 and $ 4.5 million 31 in 2011 . the $ 1.6 million , or 36 % , increase in 2013 was due to increased wealth advisory fee revenue offset by increased salaries and employee benefits expense and increased professional services expense . aum increased $ 1.3 billion , or 16 % , to $ 9.3 billion at december 31 , 2013 from $ 8.1 billion at december 31 , 2012 . in 2013 , the increase in aum was primarily the result of market appreciation of $ 1.0 billion and net inflows of $ 0.3 billion . story_separator_special_tag million , compared to net income of $ 48.8 million and $ 36.1 million in 2012 and 2011 , respectively . net income attributable to the company , which includes income from both continuing and discontinued operations , for the year ended december 31 , 2013 was $ 70.5 million , compared to income of $ 53.3 million and $ 39.1 million in 2012 and 2011 , respectively . the company recognized diluted earnings per share from continuing operations for the year ended december 31 , 2013 of $ 0.59 per share , compared to earnings of $ 0.52 per share and $ 0.39 per share in 2012 and 2011 , respectively . diluted earnings per share attributable to common shareholders , which includes both continuing and discontinued operations , for the year ended december 31 , 2013 was $ 0.68 per share , compared to earnings of $ 0.61 per share and $ 0.46 per share in 2012 and 2011 , respectively . net income from continuing operations in 2013 , 2012 and 2011 was offset by charges that reduce income available to common shareholders . see part ii . item 8 . “ financial statements and supplementary data—note 16 : earnings per share ” for further detail on the charges made to arrive at income attributable to the common shareholder . the company 's 2013 earnings were positively impacted by the credit to the provision for loan losses , the gain on sale of the pacific northwest banking offices , increases in investment management fees , private banking wealth management and trust fees , and wealth advisory fee revenues , and lower operating expenses . these changes were partially offset by lower net interest income . the company 's 2012 earnings were positively impacted by the credit to the provision for loan losses , an increase in wealth advisory fee revenue , and lower operating expenses . these changes were partially offset by lower net interest income and lower gains on sale of oreo . the company 's 2011 earnings were positively impacted by improving asset quality , as seen in the lower provision for loan losses , improved performance in the fee-based businesses , and improved holding company performance . these improvements were partially offset by restructuring expenses due to the merger of the bank and a decrease in net interest margin due to the interest rate environment . the following discussions are based on the company 's continuing operations , unless otherwise stated . 35 the following table presents selected financial highlights : replace_table_token_11_th nm - not meaningful net interest income and margin net interest income represents the difference between interest earned , primarily on loans and investments , and interest paid on funding sources , primarily deposits and borrowings . interest rate spread is the difference between the average rate earned on total interest-earning assets and the average rate paid on total interest-bearing liabilities . net interest margin ( “ nim ” ) is the amount of net interest income , on a fully taxable-equivalent ( “ fte ” ) basis , expressed as a percentage of average interest-earning assets . the average rate earned on earning assets is the amount of annualized taxable equivalent interest income expressed as a percentage of average earning assets . the average rate paid on interest-bearing liabilities is equal to annualized interest expense as a percentage of average interest-bearing liabilities . when credit quality declines and loans are placed on nonaccrual status , nim can decrease because the same assets are earning less income . loans that were graded substandard but were still accruing interest income of $ 42.0 million at december 31 , 2013 could be placed on nonaccrual status if their credit quality declines further . net interest income for the year ended december 31 , 2013 was $ 174.0 million , a decrease of $ 9.3 million , or 5 % , compared to 2012 , after an increase of $ 4.3 million , or 2 % , from 2011 to 2012 . the decrease for the year was due to lower average yields on loans and investments , partially offset by lower average rates paid on the company 's deposits and borrowings and a decrease in the average volume of borrowings . the nim was 3.05 % , 3.22 % , and 3.25 % for the year s ended december 31 , 2013 , 2012 , and 2011 , respectively . the following tables present the composition of the company 's nim on a fte basis for the year s ended december 31 , 2013 , 2012 , and 2011 ; however , the discussion following these tables reflects non-fte data . 36 replace_table_token_12_th ( 1 ) investments classified as available for sale are shown in the average balance sheet at amortized cost . ( 2 ) interest income on non-taxable investments and loans is presented on a fte basis using statutory rates . the discussion following these tables reflects non-fte data , except where noted . ( 3 ) includes loans held for sale and nonaccrual loans . ( 4 ) includes assets and liabilities of discontinued operations , if any . ( 5 ) includes deposits held for sale . 37 rate/volume analysis the following table describes the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the company 's interest income and interest expense during the periods indicated . information is provided in each category with respect to : ( i ) changes attributable to changes in volumes ( changes in average balance multiplied by prior year average rate ) and ( ii ) changes attributable to changes in rate ( change in average interest rate multiplied by prior year average balance ) , while ( iii ) changes attributable to the combined impact of volumes and rates have been allocated proportionately to separate volume and rate categories . changes in

debt refinancings . in april 2016 , we entered into a note purchase agreement with new and existing investors ( the `` investors '' ) . pursuant to the agreement , we issued approximately $ 10.0 million of our 7.00 % convertible senior notes due 2020 ( `` 2020 notes ) in aggregate principal and accrued interest . the proceeds from the issuance of the 2020 notes ( such 2020 notes , the `` new notes '' ) , are used for general working capital purposes . the 2020 notes accrue interest at 7.00 % per year , with no principal or interest payments due prior to maturity on march 5 , 2020. the 2020 notes , including original principal and accrued interest , are convertible at any time into the company 's common stock at a price of $ 6.75 per share , pursuant to the terms of the indenture dated as of december 10 , 2015 , by and between the company and us bank national association ( the `` indenture '' ) , under which the new notes were issued . as a result of this transaction , we recorded a debt discount in the amount of $ 2.0 million which is the difference between the proceeds from this transaction and the principal and accrued interest of new notes on the day of the issuance . in addition , based on the conversion rate of $ 6.75 per share , the fair value of the shares receivable on conversion exceed the $ 8.0 million in net proceeds ; therefore , a beneficial conversion feature was recorded in the amount of $ 1.48 million . this amount was recorded as additional debt discount with a corresponding amount recorded as additional paid-in capital .

net interest income for the year ended december 31 , 2013 was $ 174.0 million , a decrease of $ 9.3 million , or 5 % , compared to 2012 . the 2013 decrease was due to lower average yields on loans and investments , partially offset by lower average rates paid on the company 's deposits and borrowings and the increase in volume of the loan portfolio . ▪ assets under management and advisory ( “ aum ” ) increased 19 % during 2013 due to $ 3.7 billion of market appreciation and $ 0.2 billion of net flows . increases in aum were experienced in all three segments . 29 private banking the following table presents a summary of selected financial data for the private banking segment continuing operations for 2013 , 2012 , and 2011 . replace_table_token_8_th nm - not meaningful ( 1 ) loans presented in this table are loans from the private banking segment and do not include loans of non-banking affiliates or the holding company . loans presented in this table also do not include loans held for sale . ( 2 ) deposits presented in this table do not include intercompany eliminations related to deposits in the bank from non-banking affiliates or the holding company . deposits presented in this table also do not include deposits held for sale . the company 's private banking segment reported net income attributable to the company of $ 64.6 million in the year ended december 31 , 2013 , compared to net income attributable to the company of $ 51.2 million in 2012 and $ 40.1 million in 2011 . the 2013 increase in net income was due to the increased credit to the provision for loan losses , decreased operating expenses , the 2012 restructuring charge , and the gain on sale of the pacific northwest offices . these were partially offset by the decrease in net interest income . the 2012 increase was due to the credit to the provision for loan losses in 2012 and the decrease in operating and restructuring expenses , partially offset by decreased noninterest income . in may 2013 , the company sold the bank 's three offices in the pacific northwest region . this sale resulted in a gain on sale of $ 10.6 million . during 2012 , the bank implemented a senior executive restructuring of bank leadership in order to create a more streamlined organization and to refine the bank 's cost base . to implement the new structure the bank incurred severance charges of $ 2.9 million in the year ended december 31 , 2012 . aum increased $ 0.6 billion , or 16 % , to $ 4.6 billion at december 31 , 2013 from $ 3.9 billion at december 31 , 2012 , due to both investment performance and positive net flows . total loans at the bank increased $ 298.7 million , or 6 % , to $ 5.1 billion , or 82 % of total assets at the bank , at december 31 , 2013 from $ 4.8 billion , or 77 % of total assets at the bank , at december 31 , 2012. a discussion of the company 's loan portfolio can be found below in part ii . item 7 . “ management 's discussion and analysis of financial condition and results of operations - loan portfolio and credit quality . ” 30 deposits at the bank increased $ 198.2 million , or 4 % , to $ 5.2 billion in 2013 from $ 5.0 billion in 2012. a discussion of the company 's deposits can be found below in part ii . item 7 . “ management 's discussion and analysis of financial condition and results of operations - financial condition . ” investment management the following table presents a summary of selected financial data for the investment management segment continuing operations for 2013 , 2012 , and 2011 . replace_table_token_9_th the company 's investment management segment reported net income attributable to the company of $ 5.0 million in the year ended december 31 , 2013 , compared to net income attributable to the company of $ 3.6 million in 2012 and $ 4.2 million in 2011 . the $ 1.5 million , or 41 % , increase in 2013 was primarily due to an increase in investment management fees , partially offset by an increase in operating expenses . the increase in investment management fees was due to additional performance fees related to the increase in aum . aum increased $ 2.0 billion , or 23 % , to $ 10.4 billion at december 31 , 2013 from $ 8.4 billion at december 31 , 2012 . in 2013 , the increase in aum was primarily the result of market appreciation of $ 2.2 billion , partially offset by net outflows of $ 0.3 billion . wealth advisory the following table presents a summary of selected financial data for the wealth advisory segment continuing operations for 2013 , 2012 , and 2011 . replace_table_token_10_th the company 's wealth advisory segment reported net income attributable to the company of $ 6.2 million in the year ended december 31 , 2013 , compared to net income attributable to the company of $ 4.6 million in 2012 and $ 4.5 million 31 in 2011 . the $ 1.6 million , or 36 % , increase in 2013 was due to increased wealth advisory fee revenue offset by increased salaries and employee benefits expense and increased professional services expense . aum increased $ 1.3 billion , or 16 % , to $ 9.3 billion at december 31 , 2013 from $ 8.1 billion at december 31 , 2012 . in 2013 , the increase in aum was primarily the result of market appreciation of $ 1.0 billion and net inflows of $ 0.3 billion . story_separator_special_tag million , compared to net income of $ 48.8 million and $ 36.1 million in 2012 and 2011 , respectively . net income attributable to the company , which includes income from both continuing and discontinued operations , for the year ended december 31 , 2013 was $ 70.5 million , compared to income of $ 53.3 million and $ 39.1 million in 2012 and 2011 , respectively . the company recognized diluted earnings per share from continuing operations for the year ended december 31 , 2013 of $ 0.59 per share , compared to earnings of $ 0.52 per share and $ 0.39 per share in 2012 and 2011 , respectively . diluted earnings per share attributable to common shareholders , which includes both continuing and discontinued operations , for the year ended december 31 , 2013 was $ 0.68 per share , compared to earnings of $ 0.61 per share and $ 0.46 per share in 2012 and 2011 , respectively . net income from continuing operations in 2013 , 2012 and 2011 was offset by charges that reduce income available to common shareholders . see part ii . item 8 . “ financial statements and supplementary data—note 16 : earnings per share ” for further detail on the charges made to arrive at income attributable to the common shareholder . the company 's 2013 earnings were positively impacted by the credit to the provision for loan losses , the gain on sale of the pacific northwest banking offices , increases in investment management fees , private banking wealth management and trust fees , and wealth advisory fee revenues , and lower operating expenses . these changes were partially offset by lower net interest income . the company 's 2012 earnings were positively impacted by the credit to the provision for loan losses , an increase in wealth advisory fee revenue , and lower operating expenses . these changes were partially offset by lower net interest income and lower gains on sale of oreo . the company 's 2011 earnings were positively impacted by improving asset quality , as seen in the lower provision for loan losses , improved performance in the fee-based businesses , and improved holding company performance . these improvements were partially offset by restructuring expenses due to the merger of the bank and a decrease in net interest margin due to the interest rate environment . the following discussions are based on the company 's continuing operations , unless otherwise stated . 35 the following table presents selected financial highlights : replace_table_token_11_th nm - not meaningful net interest income and margin net interest income represents the difference between interest earned , primarily on loans and investments , and interest paid on funding sources , primarily deposits and borrowings . interest rate spread is the difference between the average rate earned on total interest-earning assets and the average rate paid on total interest-bearing liabilities . net interest margin ( “ nim ” ) is the amount of net interest income , on a fully taxable-equivalent ( “ fte ” ) basis , expressed as a percentage of average interest-earning assets . the average rate earned on earning assets is the amount of annualized taxable equivalent interest income expressed as a percentage of average earning assets . the average rate paid on interest-bearing liabilities is equal to annualized interest expense as a percentage of average interest-bearing liabilities . when credit quality declines and loans are placed on nonaccrual status , nim can decrease because the same assets are earning less income . loans that were graded substandard but were still accruing interest income of $ 42.0 million at december 31 , 2013 could be placed on nonaccrual status if their credit quality declines further . net interest income for the year ended december 31 , 2013 was $ 174.0 million , a decrease of $ 9.3 million , or 5 % , compared to 2012 , after an increase of $ 4.3 million , or 2 % , from 2011 to 2012 . the decrease for the year was due to lower average yields on loans and investments , partially offset by lower average rates paid on the company 's deposits and borrowings and a decrease in the average volume of borrowings . the nim was 3.05 % , 3.22 % , and 3.25 % for the year s ended december 31 , 2013 , 2012 , and 2011 , respectively . the following tables present the composition of the company 's nim on a fte basis for the year s ended december 31 , 2013 , 2012 , and 2011 ; however , the discussion following these tables reflects non-fte data . 36 replace_table_token_12_th ( 1 ) investments classified as available for sale are shown in the average balance sheet at amortized cost . ( 2 ) interest income on non-taxable investments and loans is presented on a fte basis using statutory rates . the discussion following these tables reflects non-fte data , except where noted . ( 3 ) includes loans held for sale and nonaccrual loans . ( 4 ) includes assets and liabilities of discontinued operations , if any . ( 5 ) includes deposits held for sale . 37 rate/volume analysis the following table describes the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the company 's interest income and interest expense during the periods indicated . information is provided in each category with respect to : ( i ) changes attributable to changes in volumes ( changes in average balance multiplied by prior year average rate ) and ( ii ) changes attributable to changes in rate ( change in average interest rate multiplied by prior year average balance ) , while ( iii ) changes attributable to the combined impact of volumes and rates have been allocated proportionately to separate volume and rate categories . changes in

bank liquidity . the bank has established various borrowing arrangements to provide additional sources of liquidity and funding . management believes that the bank currently has adequate liquidity available to respond to current demands . the bank is a member of the fhlb of boston , and as such , has access to short- and long-term borrowings from that institution . the fhlb can change the advance amounts that banks can utilize based on a bank 's current financial condition as obtained from publicly available data such as fdic call reports . decreases in the amount of fhlb borrowings available to the bank would lower its liquidity and possibly limit the bank 's ability to grow in the short-term . management believes that the bank has adequate liquidity to meet its commitments for the foreseeable future . in addition to the above liquidity , the bank has access to the federal reserve discount window facility , which can provide short-term liquidity as “ lender of last resort , ” brokered deposits , and federal funds lines . the use of non-core funding sources , including brokered deposits and borrowings , by the bank may be limited by regulatory agencies . generally , the regulatory agencies prefer that banks rely on core-funding sources for liquidity . from time to time , the bank purchases federal funds from the fhlb and other banking institutions to supplement its liquidity position . at december 31 , 2013 , the bank had unused federal fund lines of credit totaling $ 196.0 million with correspondent institutions to provide it with immediate access to overnight borrowings . at december 31 , 2013 and 2012 , the bank had no outstanding borrowings under these federal funds lines . the bank has also negotiated brokered deposit agreements with several institutions that have nationwide distribution capabilities . at december 31 , 2013 , the bank had $ 376.6 million of brokered deposits ( net of premiums paid ) outstanding under these agreements , compared to $ 374.3 million at december 31 , 2012 .

million . datarpm is a leader in cognitive predictive maintenance for the industrial iot ( `` iiot `` ) market . this acquisition is a key part of the company 's strategy to provide the best platform to build and deliver cognitive applications . on june 1 , 2017 , we acquired kinvey for an aggregate sum of $ 49.2 million . kinvey allows developers to set up , use , and operate a cloud backend for any native , hybrid , web , or iot app built using any development tools . this acquisition , in combination with our existing technologies , enables us to offer the premier , high productivity platform for building and delivering cognitive applications . we expect to continue to evaluate possible acquisitions and other strategic transactions designed to expand our business . as a result , our expected uses of cash could change , our cash position could be reduced and we may incur additional debt obligations to the extent we complete additional acquisitions . however , we believe that existing cash balances , together with funds generated from operations and amounts available under our credit facility , will be sufficient to finance our operations and meet our foreseeable cash requirements , including quarterly cash dividends and stock repurchases to progress stockholders , through at least the next twelve months . we derive a significant portion of our revenue from international operations , which are primarily conducted in foreign currencies . as a result , changes in the value of these foreign currencies relative to the u.s. dollar have significantly impacted our results of operations and may impact our future results of operations . for example , in fiscal year 2016 , the value of the u.s. dollar strengthened in comparison to certain foreign currencies , including in europe , brazil and australia . since approximately one-third of our revenue is denominated in foreign currency , our revenue results during those periods were negatively impacted . the impact of foreign exchange did not result in a material impact on revenue during fiscal years 2018 or 2017. we expect that future fluctuations in foreign currency exchange rates will impact our results . in september 2017 , we announced a new capital allocation strategy pursuant to which we are targeting to return approximately 75-80 % of our annual cash flows from operations to stockholders in the form of share repurchases and through dividends . to that end , our board of directors increased our total share repurchase authorization to $ 250.0 million . in fiscal year 2018 , we repurchased and retired 2.9 million shares of our common stock for $ 120.0 million . as of november 30 , 2018 , there was 21 $ 100.0 million remaining under this current authorization . we intend to repurchase $ 100 million in shares of our common stock in fiscal year 2019. however , the timing and amount of any shares repurchased will be determined by management based on its evaluation of market conditions and other factors , and we may choose to suspend , expand or discontinue the repurchase program at any time . on september 21 , 2018 , our board of directors approved an 11 % increase to our quarterly cash dividend from $ 0.14 to $ 0.155 per share of common stock . we began paying quarterly cash dividends of $ 0.125 per share of common stock to progress stockholders in december 2016 and increased the quarterly cash dividend to $ 0.14 per share in september 2017. we expect to continue paying quarterly cash dividends in subsequent quarters consistent with our capital allocation strategy . however , we may terminate or modify this program at any time . on january 8 , 2019 , our board of directors declared a quarterly dividend of $ 0.155 per share of common stock that will be paid on march 15 , 2019 to stockholders of record as of the close of business on march 1 , 2019. on december 22 , 2017 , the tax cuts and jobs act ( the `` act `` ) was signed into law . the act will impact the company 's operating results , cash flows , and financial condition beginning in the fiscal year ended november 30 , 2018 and the company has evaluated the extent of the impact . the act includes a number of provisions , including the reduction of the u.s. corporate tax rate from 35 % to 21 % , effective january 1 , 2018. the act also includes provisions that may partially offset the benefit of such rate reduction , including the repeal of the deduction for domestic production activities . as a result of the act , we realized a one-time tax benefit of $ 1.7 million for the remeasurement of deferred tax assets and liabilities . the act also provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits through december 31 , 2017. however , the company will not incur one-time transition tax due to the company 's foreign subsidiaries being in a net accumulated deficit position . other international provisions of the act , including the provisions for global intangible low-taxed income and foreign-derived intangible income , will not become effective for the company until fiscal 2019. results of operations fiscal year 2018 compared to fiscal year 2017 revenue fiscal year ended percentage change ( in thousands ) november 30 , 2018 november 30 , 2017 as reported constant currency revenue $ 397,165 $ 397,572 — % ( 1 ) % total revenue decreased slightly in fiscal year 2018 as compared to fiscal year 2017 primarily due to a decline in license and professional services revenue , partially offset by an increase in maintenance revenue and a favorable impact from foreign currency exchange rates as further described below . story_separator_special_tag cost of software licenses increased $ 0.3 million , or 5 % , in fiscal year 2017 as compared to fiscal year 2016 , and increased as a percentage of software license revenue from 4 % to 5 % . cost of software licenses as a percentage of software license revenue varies from period to period depending upon the relative product mix . cost of maintenance and services replace_table_token_18_th cost of maintenance and services consists primarily of costs of providing customer support , consulting and education . cost of maintenance and services decreased $ 1.5 million , or 3 % , in fiscal year 2017 as compared to fiscal year 2016 , and decreased as a percentage of maintenance and services revenue from 17 % to 16 % . the decrease in cost of maintenance and services is primarily due to lower compensation-related costs resulting from a decrease in headcount . amortization of acquired intangibles fiscal year ended ( in thousands ) november 30 , 2017 november 30 , 2016 percentage change amortization of acquired intangibles $ 20,108 $ 15,496 30 % as a percentage of total revenue 5 % 4 % amortization of acquired intangibles included in costs of revenue primarily represents the amortization of the value assigned to technology-related intangible assets obtained in business combinations . amortization of acquired intangibles increased $ 4.6 million , or 30 % , in fiscal year 2017 as compared to fiscal year 2016. the increase was primarily due to the addition of intangible assets associated with the technology obtained in connection with the acquisitions of datarpm in the second quarter of fiscal year 2017 and kinvey in the third quarter of fiscal year 2017 , partially offset by the impairment of intangible assets associated with the technology obtained in connection with the acquisition of modulus as well as the completion of amortization of certain intangible assets acquired in prior years . gross profit fiscal year ended ( in thousands ) november 30 , 2017 november 30 , 2016 percentage change gross profit $ 328,413 $ 339,629 ( 3 ) % as a percentage of total revenue 83 % 84 % our gross profit decreased $ 11.2 million , or 3 % , in fiscal year 2017 as compared to fiscal year 2016 , and our gross profit as a percentage of total revenue decreased from 84 % to 83 % compared to fiscal year 2016. the dollar decrease is primarily due to the decreases of license revenue and increases of amortization of acquired intangibles as described above . 31 sales and marketing fiscal year ended ( in thousands ) november 30 , 2017 november 30 , 2016 percentage change sales and marketing $ 96,345 $ 121,501 ( 21 ) % as a percentage of total revenue 24 % 30 % sales and marketing expenses decreased $ 25.2 million , or 21 % , in fiscal year 2017 as compared to fiscal year 2016 , and decreased as a percentage of total revenue from 30 % to 24 % . the decrease in sales expenses was primarily due to lower compensation-related and travel costs as a result of the headcount reduction actions which occurred in the first quarter of fiscal year 2017 , as well as a decrease in spending on marketing programs . product development fiscal year ended ( in thousands ) november 30 , 2017 november 30 , 2016 percentage change product development costs $ 76,988 $ 88,587 ( 13 ) % as a percentage of total revenue 19 % 22 % product development expenses decreased $ 11.6 million , or 13 % , in fiscal year 2017 as compared to fiscal year 2016 , and decreased as a percentage of revenue from 22 % to 19 % . the decrease in product development expense is primarily due to lower compensation-related costs as a result of the headcount reduction actions which occurred in the first quarter of fiscal year 2017. general and administrative fiscal year ended ( in thousands ) november 30 , 2017 november 30 , 2016 percentage change general and administrative $ 45,739 $ 46,532 ( 2 ) % as a percentage of total revenue 12 % 11 % general and administrative expenses include the costs of our finance , human resources , legal , information systems and administrative departments . general and administrative expenses decreased $ 0.8 million , or 2 % , in fiscal year 2017 as compared to fiscal year 2016 , and increased as a percentage of revenue from 11 % to 12 % . the dollar decrease was primarily due to lower compensation-related costs as a result of the headcount reduction actions which occurred in the first quarter of fiscal year 2017. impairment of goodwill fiscal year ended ( in thousands ) november 30 , 2017 november 30 , 2016 percentage change impairment of goodwill $ — $ 92,000 ( 100 ) % as a percentage of total revenue — % 23 % during fiscal year 2017 , we tested goodwill for impairment for each of our reporting units as of october 31 , 2017. our reporting units each had fair values which significantly exceeded their carrying values as of the annual impairment date . as a result , we did not recognize any goodwill impairment charges during fiscal year 2017. during fiscal year 2016 , we tested goodwill for impairment for each of our reporting units as of october 31 , 2016. our openedge and data connectivity and integration reporting units had fair values which significantly exceeded their carrying 32 values as of the annual impairment date . our application development and deployment reporting unit did not pass the first step of the impairment test . as a result , we recorded a $ 92.0 million goodwill impairment charge related to the application development and deployment reporting unit ( see note 6 to our consolidated financial statements in item 8 of this form 10-k for further information on the impairment charge ) .

bank liquidity . the bank has established various borrowing arrangements to provide additional sources of liquidity and funding . management believes that the bank currently has adequate liquidity available to respond to current demands . the bank is a member of the fhlb of boston , and as such , has access to short- and long-term borrowings from that institution . the fhlb can change the advance amounts that banks can utilize based on a bank 's current financial condition as obtained from publicly available data such as fdic call reports . decreases in the amount of fhlb borrowings available to the bank would lower its liquidity and possibly limit the bank 's ability to grow in the short-term . management believes that the bank has adequate liquidity to meet its commitments for the foreseeable future . in addition to the above liquidity , the bank has access to the federal reserve discount window facility , which can provide short-term liquidity as “ lender of last resort , ” brokered deposits , and federal funds lines . the use of non-core funding sources , including brokered deposits and borrowings , by the bank may be limited by regulatory agencies . generally , the regulatory agencies prefer that banks rely on core-funding sources for liquidity . from time to time , the bank purchases federal funds from the fhlb and other banking institutions to supplement its liquidity position . at december 31 , 2013 , the bank had unused federal fund lines of credit totaling $ 196.0 million with correspondent institutions to provide it with immediate access to overnight borrowings . at december 31 , 2013 and 2012 , the bank had no outstanding borrowings under these federal funds lines . the bank has also negotiated brokered deposit agreements with several institutions that have nationwide distribution capabilities . at december 31 , 2013 , the bank had $ 376.6 million of brokered deposits ( net of premiums paid ) outstanding under these agreements , compared to $ 374.3 million at december 31 , 2012 .

million . datarpm is a leader in cognitive predictive maintenance for the industrial iot ( `` iiot `` ) market . this acquisition is a key part of the company 's strategy to provide the best platform to build and deliver cognitive applications . on june 1 , 2017 , we acquired kinvey for an aggregate sum of $ 49.2 million . kinvey allows developers to set up , use , and operate a cloud backend for any native , hybrid , web , or iot app built using any development tools . this acquisition , in combination with our existing technologies , enables us to offer the premier , high productivity platform for building and delivering cognitive applications . we expect to continue to evaluate possible acquisitions and other strategic transactions designed to expand our business . as a result , our expected uses of cash could change , our cash position could be reduced and we may incur additional debt obligations to the extent we complete additional acquisitions . however , we believe that existing cash balances , together with funds generated from operations and amounts available under our credit facility , will be sufficient to finance our operations and meet our foreseeable cash requirements , including quarterly cash dividends and stock repurchases to progress stockholders , through at least the next twelve months . we derive a significant portion of our revenue from international operations , which are primarily conducted in foreign currencies . as a result , changes in the value of these foreign currencies relative to the u.s. dollar have significantly impacted our results of operations and may impact our future results of operations . for example , in fiscal year 2016 , the value of the u.s. dollar strengthened in comparison to certain foreign currencies , including in europe , brazil and australia . since approximately one-third of our revenue is denominated in foreign currency , our revenue results during those periods were negatively impacted . the impact of foreign exchange did not result in a material impact on revenue during fiscal years 2018 or 2017. we expect that future fluctuations in foreign currency exchange rates will impact our results . in september 2017 , we announced a new capital allocation strategy pursuant to which we are targeting to return approximately 75-80 % of our annual cash flows from operations to stockholders in the form of share repurchases and through dividends . to that end , our board of directors increased our total share repurchase authorization to $ 250.0 million . in fiscal year 2018 , we repurchased and retired 2.9 million shares of our common stock for $ 120.0 million . as of november 30 , 2018 , there was 21 $ 100.0 million remaining under this current authorization . we intend to repurchase $ 100 million in shares of our common stock in fiscal year 2019. however , the timing and amount of any shares repurchased will be determined by management based on its evaluation of market conditions and other factors , and we may choose to suspend , expand or discontinue the repurchase program at any time . on september 21 , 2018 , our board of directors approved an 11 % increase to our quarterly cash dividend from $ 0.14 to $ 0.155 per share of common stock . we began paying quarterly cash dividends of $ 0.125 per share of common stock to progress stockholders in december 2016 and increased the quarterly cash dividend to $ 0.14 per share in september 2017. we expect to continue paying quarterly cash dividends in subsequent quarters consistent with our capital allocation strategy . however , we may terminate or modify this program at any time . on january 8 , 2019 , our board of directors declared a quarterly dividend of $ 0.155 per share of common stock that will be paid on march 15 , 2019 to stockholders of record as of the close of business on march 1 , 2019. on december 22 , 2017 , the tax cuts and jobs act ( the `` act `` ) was signed into law . the act will impact the company 's operating results , cash flows , and financial condition beginning in the fiscal year ended november 30 , 2018 and the company has evaluated the extent of the impact . the act includes a number of provisions , including the reduction of the u.s. corporate tax rate from 35 % to 21 % , effective january 1 , 2018. the act also includes provisions that may partially offset the benefit of such rate reduction , including the repeal of the deduction for domestic production activities . as a result of the act , we realized a one-time tax benefit of $ 1.7 million for the remeasurement of deferred tax assets and liabilities . the act also provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits through december 31 , 2017. however , the company will not incur one-time transition tax due to the company 's foreign subsidiaries being in a net accumulated deficit position . other international provisions of the act , including the provisions for global intangible low-taxed income and foreign-derived intangible income , will not become effective for the company until fiscal 2019. results of operations fiscal year 2018 compared to fiscal year 2017 revenue fiscal year ended percentage change ( in thousands ) november 30 , 2018 november 30 , 2017 as reported constant currency revenue $ 397,165 $ 397,572 — % ( 1 ) % total revenue decreased slightly in fiscal year 2018 as compared to fiscal year 2017 primarily due to a decline in license and professional services revenue , partially offset by an increase in maintenance revenue and a favorable impact from foreign currency exchange rates as further described below . story_separator_special_tag cost of software licenses increased $ 0.3 million , or 5 % , in fiscal year 2017 as compared to fiscal year 2016 , and increased as a percentage of software license revenue from 4 % to 5 % . cost of software licenses as a percentage of software license revenue varies from period to period depending upon the relative product mix . cost of maintenance and services replace_table_token_18_th cost of maintenance and services consists primarily of costs of providing customer support , consulting and education . cost of maintenance and services decreased $ 1.5 million , or 3 % , in fiscal year 2017 as compared to fiscal year 2016 , and decreased as a percentage of maintenance and services revenue from 17 % to 16 % . the decrease in cost of maintenance and services is primarily due to lower compensation-related costs resulting from a decrease in headcount . amortization of acquired intangibles fiscal year ended ( in thousands ) november 30 , 2017 november 30 , 2016 percentage change amortization of acquired intangibles $ 20,108 $ 15,496 30 % as a percentage of total revenue 5 % 4 % amortization of acquired intangibles included in costs of revenue primarily represents the amortization of the value assigned to technology-related intangible assets obtained in business combinations . amortization of acquired intangibles increased $ 4.6 million , or 30 % , in fiscal year 2017 as compared to fiscal year 2016. the increase was primarily due to the addition of intangible assets associated with the technology obtained in connection with the acquisitions of datarpm in the second quarter of fiscal year 2017 and kinvey in the third quarter of fiscal year 2017 , partially offset by the impairment of intangible assets associated with the technology obtained in connection with the acquisition of modulus as well as the completion of amortization of certain intangible assets acquired in prior years . gross profit fiscal year ended ( in thousands ) november 30 , 2017 november 30 , 2016 percentage change gross profit $ 328,413 $ 339,629 ( 3 ) % as a percentage of total revenue 83 % 84 % our gross profit decreased $ 11.2 million , or 3 % , in fiscal year 2017 as compared to fiscal year 2016 , and our gross profit as a percentage of total revenue decreased from 84 % to 83 % compared to fiscal year 2016. the dollar decrease is primarily due to the decreases of license revenue and increases of amortization of acquired intangibles as described above . 31 sales and marketing fiscal year ended ( in thousands ) november 30 , 2017 november 30 , 2016 percentage change sales and marketing $ 96,345 $ 121,501 ( 21 ) % as a percentage of total revenue 24 % 30 % sales and marketing expenses decreased $ 25.2 million , or 21 % , in fiscal year 2017 as compared to fiscal year 2016 , and decreased as a percentage of total revenue from 30 % to 24 % . the decrease in sales expenses was primarily due to lower compensation-related and travel costs as a result of the headcount reduction actions which occurred in the first quarter of fiscal year 2017 , as well as a decrease in spending on marketing programs . product development fiscal year ended ( in thousands ) november 30 , 2017 november 30 , 2016 percentage change product development costs $ 76,988 $ 88,587 ( 13 ) % as a percentage of total revenue 19 % 22 % product development expenses decreased $ 11.6 million , or 13 % , in fiscal year 2017 as compared to fiscal year 2016 , and decreased as a percentage of revenue from 22 % to 19 % . the decrease in product development expense is primarily due to lower compensation-related costs as a result of the headcount reduction actions which occurred in the first quarter of fiscal year 2017. general and administrative fiscal year ended ( in thousands ) november 30 , 2017 november 30 , 2016 percentage change general and administrative $ 45,739 $ 46,532 ( 2 ) % as a percentage of total revenue 12 % 11 % general and administrative expenses include the costs of our finance , human resources , legal , information systems and administrative departments . general and administrative expenses decreased $ 0.8 million , or 2 % , in fiscal year 2017 as compared to fiscal year 2016 , and increased as a percentage of revenue from 11 % to 12 % . the dollar decrease was primarily due to lower compensation-related costs as a result of the headcount reduction actions which occurred in the first quarter of fiscal year 2017. impairment of goodwill fiscal year ended ( in thousands ) november 30 , 2017 november 30 , 2016 percentage change impairment of goodwill $ — $ 92,000 ( 100 ) % as a percentage of total revenue — % 23 % during fiscal year 2017 , we tested goodwill for impairment for each of our reporting units as of october 31 , 2017. our reporting units each had fair values which significantly exceeded their carrying values as of the annual impairment date . as a result , we did not recognize any goodwill impairment charges during fiscal year 2017. during fiscal year 2016 , we tested goodwill for impairment for each of our reporting units as of october 31 , 2016. our openedge and data connectivity and integration reporting units had fair values which significantly exceeded their carrying 32 values as of the annual impairment date . our application development and deployment reporting unit did not pass the first step of the impairment test . as a result , we recorded a $ 92.0 million goodwill impairment charge related to the application development and deployment reporting unit ( see note 6 to our consolidated financial statements in item 8 of this form 10-k for further information on the impairment charge ) .

liquidity and capital resources cash , cash equivalents and short-term investments replace_table_token_21_th 35 the decrease in cash , cash equivalents and short-term investments of $ 44.1 million from the end of fiscal year 2017 was due to repurchases of common stock of $ 120.0 million , dividend payments of $ 25.8 million , the effect of exchange rates on cash of $ 10.5 million , equity grant withholding payments of $ 4.0 million , payments of capital expenditures of $ 7.3 million , and payments of debt obligations in the amount of $ 6.2 million . these cash outflows were partially offset by cash inflows from operations of $ 121.4 million and $ 9.2 million in cash received from the issuance of common stock . except as described below , there are no limitations on our ability to access our cash , cash equivalents and short-term investments . cash , cash equivalents and short-term investments held by our foreign subsidiaries was $ 35.6 million and $ 36.5 million at november 30 , 2018 and 2017 , respectively . foreign cash includes unremitted foreign earnings , which are invested indefinitely outside of the u.s. as such , it is not available to fund our domestic operations . if we were to repatriate these earnings , we may be subject to income tax withholding in certain tax jurisdictions and a portion of the repatriated earnings may be subject to u.s. income tax .

we are a global business that generated approximately 61.0 % of our 2020 net revenue outside of the united states . as of december 31 , 2020 , we had an installed base of approximately 117.4 thousand protective packaging systems serving a diverse set of distributors and end-users . we generated net revenue of $ 298.2 million in 2020. additionally , we generated net revenue of $ 163.1 million in the successor period and $ 106.4 million in the 1h 2019 predecessor period . the ranpak business combination on june 3 , 2019 , we consummated the acquisition of all outstanding and issued equity interests of rack holdings , inc. ( “ rack holdings ” ) pursuant to a stock purchase agreement for consideration of $ 794.9 million , which reflects a post-closing adjustment of $ 0.7 million for net working capital and additional consideration , and 140.0 million ( $ 160.8 million ) in cash , ( i ) $ 341.5 million and 140.0 million of which , respectively , was used by the seller to repay outstanding indebtedness and unpaid transaction expenses as contemplated by the stock purchase agreement and ( ii ) the remainder of which was paid to rack holdings l.p. ( “ seller ” ) . the company ( then one madison corporation ) was deemed to be the accounting acquirer in the ranpak business combination , as a result of which the company allocated its purchase price to rack holdings ' assets and liabilities at fair value , which created a new basis of accounting . until the consummation of the ranpak business combination , rack holdings operated as a separate business holding all of the historical assets and liabilities related to our business . the ranpak business combination was financed , in part , with debt of approximately $ 534.6 million , which became ranpak 's direct obligation upon the consummation of the ranpak business combination . upon the consummation of the ranpak business combination on june 3 , 2019 , rack holdings ' then-existing debt , which amounted to approximately $ 487.6 million as of such date , was repaid in full . in december 2019 , the company closed a public offering of its class a common stock generating net proceeds of approximately $ 107.7 million that was used to pay down the first lien dollar term facility . following the ranpak business combination , we have hired , and expect to hire additional staff and implement procedures and processes to address regulatory and other customary requirements applicable to operating public companies . we have incurred additional annual expenses for , among other things , directors ' and officers ' liability insurance , director fees , and additional internal and external accounting , legal and administrative resources , including increased audit and legal fees . we estimated that these incremental costs on an annual basis would amount to approximately $ 2.0 million or more per year , resulting in higher operating expenses in future periods . the closing of the ranpak business combination also resulted in the elimination of certain non-recurring expenses incurred prior to the ranpak business combination , which amounted to $ 35.4 million for the year ended december 31 , 2019. factors affecting the comparability of our results of operations the following factors may have affected the comparability of ranpak 's results of operations between the periods presented in this report and may affect the comparability of its results of operations in future periods . effect of currency fluctuations . as a result of the geographic diversity of ranpak 's operations , it is exposed to the effects of currency translation . currency transaction exposure results when ranpak generates net revenue in one currency at one time and incurs expenses in another currency at another time , or when it realizes gain or loss on intercompany transfers . while ranpak seeks to limit its currency transaction exposure by matching the currencies in which it incurs sales and expenses , it may not always be able to do so . in addition , ranpak is subject to currency translation exposure because the operations of its subsidiaries are measured in their functional currency which is the currency of the primary economic environment in which the subsidiary operates . any currency balances that are denominated in currencies other than the functional currency of the subsidiary are re-measured into the functional currency , with the resulting gain or loss recorded in the foreign currency ( gains ) losses line-item in ranpak 's income statement . in turn , subsidiary income statement balances that are denominated in currencies other than the u.s. dollar are translated into u.s. dollars , ranpak 's functional currency , in consolidation using the average exchange rate in effect during each fiscal month during the period , with any related gain or loss recorded as foreign currency translation adjustments in other comprehensive income ( loss ) . the assets and liabilities of subsidiaries that use functional currencies other than the u.s. dollar are translated into u.s. dollars in consolidation using period end exchange rates , with the effects of foreign currency translation adjustments included in accumulated other comprehensive income ( loss ) . 34 ranpak does not currently hedge its foreign currency transaction or translation exposure . as a result , significant currency fluctuations could impact the comparability of its results between periods , while such fluctuations coupled with material mismatches in net revenue and expenses could also adversely impact its cash flows . see “ qualitative and quantitative disclosures about market risk . ” acquisitions . story_separator_special_tag net revenue in north america was $ 81.8 million in the successor period and $ 50.1 million in the 1h 2019 predecessor period for a combined $ 131.9 million in 2019. net revenue in north america decreased $ 4.5 million , or 3.4 % attributable to a decline in cushioning and void-fill volumes , partially offset by an increase in wrapping sales . pro forma net revenue in north america was $ 127.4 million for 2020 , a $ 5.0 million , or 3.8 % , decrease from pro forma net revenue in north america of $ 132.4 million for 2019 after purchase accounting adjustments . net revenue in europe/asia for 2020 totaled $ 170.8 million . net revenue in europe/asia was $ 81.3 million in the successor period and $ 56.3 million in the 1h 2019 predecessor period , for a combined $ 137.6 million in 2019. net revenue in europe/asia increased $ 33.2 million or 24.1 % driven primarily by growth in wrapping , void-fill , and cushioning sales . pro forma net revenue in europe/asia was $ 171.5 million for 2020 , a $ 26.5 million , or 18.3 % , increase from pro forma net revenue of $ 145.0 million for 2019 after purchase accounting adjustments and adjusting for constant currency . cost of goods sold cost of goods sold for 2020 totaled $ 175.6 million . cost of goods sold was $ 97.4 million in the successor period and $ 61.2 million in the 1h 2019 predecessor period , for a combined $ 158.6 million in 2019. cost of goods sold increased $ 17.0 million or 10.7 % due to increases in sales year over year and higher depreciation expense of $ 7.6 million due to the ranpak business combination fair value adjustments , an increase in non-recurring operating costs in automation , offset by a decrease in the price of paper . pro forma cost of goods sold increased by $ 17.3 million , or 10.9 % , to $ 175.9 million in 2020 from $ 158.6 million for 2019 after adjusting to a constant currency in both periods and purchase accounting adjustments of $ 2.1 million for 2019. as a result , on a pro forma basis , net revenue minus cost of goods sold as a percentage of net revenue decreased by 1.6 pp to 41.2 % in 2020 from 42.8 % for 2019. selling , general , and administrative expenses sg & a expenses for 2020 was $ 72.5 million . sg & a was $ 37.7 million in the successor period and $ 23.8 million in the 1h 2019 predecessor period , for a combined $ 61.5 million in 2019. sg & a expenses increased $ 11.0 million or 17.9 % due to severance costs , non-cash equity compensation costs , increased support of growth initiatives , and increased costs associated with being a public company . pro forma sg & a expenses increased by $ 17.3 million , or 31.1 % , to $ 72.9 million in 2020 from $ 55.6 million for 2019 after adjusting to a constant currency in both periods . as a percentage of pro forma net revenue , pro forma sg & a increased to 24.4 % in 2020 from 20.0 % in 2019 on a constant currency basis . 39 transaction costs we incurred transaction costs of $ 2.2 million associated with the warrant exchange and other transactions in 2020. we incurred approximately $ 0.3 million in the successor period and $ 7.4 million in the 1h 2019 predecessor period for a combined $ 7.7 million associated with the ranpak business combination . depreciation and amortization depreciation and amortization expenses for 2020 were $ 31.5 million . depreciation and amortization expenses were $ 17.2 million in the successor period and $ 17.7 million in the 1h 2019 predecessor period , for a combined $ 34.9 million in 2019. depreciation and amortization expenses decreased $ 3.4 million , or 9.7 % due to the ranpak business combination fair value adjustments , their related amortizable lives and changes in currency rates . pro forma depreciation and amortization expenses decreased by $ 3.1 million , or 8.9 % , to $ 31.7 million in 2020 from $ 34.8 million for 2019 on a constant currency basis . as a percentage of pro forma net revenue , pro forma depreciation and amortization expenses decreased to 10.6 % in 2020 from 12.5 % in 2019 on a constant currency basis . other operating expense , net other operating expense , net for 2020 was $ 4.7 million . other operating expense , net was $ 2.4 million in the successor period and $ 2.2 million in the 1h 2019 predecessor period , for a combined $ 4.6 million in 2019 , nearly flat to the current year . pro forma other operating expense , net , was $ 5.0 million in 2020 and 2019 on a constant currency basis . as a percentage of pro forma net revenue , pro forma other operating expense , net , decreased to 1.7 % in 2020 from 1.8 % in 2019 on a constant currency basis . interest expense interest expense for 2020 was $ 30.2 million . interest expense was $ 27.3 million in the successor period and $ 20.2 million in the 1h 2019 predecessor period , for a combined $ 47.5 million in 2019. interest expense decreased $ 17.3 million , or 36.4 % . interest expense decreased due to decreased debt levels and lower interest rates , as well as transaction-related expenses in june 2019 and december 2019 , which included a write-off of deferred financing fees and the termination of an interest rate swap . interest expense in 2020 also includes the $ 8.2 million exit payment ( defined herein , refer to “ liquidity and capital resources ” in item 7 for further information ) . pro forma interest expense decreased by $ 5.8 million

liquidity and capital resources cash , cash equivalents and short-term investments replace_table_token_21_th 35 the decrease in cash , cash equivalents and short-term investments of $ 44.1 million from the end of fiscal year 2017 was due to repurchases of common stock of $ 120.0 million , dividend payments of $ 25.8 million , the effect of exchange rates on cash of $ 10.5 million , equity grant withholding payments of $ 4.0 million , payments of capital expenditures of $ 7.3 million , and payments of debt obligations in the amount of $ 6.2 million . these cash outflows were partially offset by cash inflows from operations of $ 121.4 million and $ 9.2 million in cash received from the issuance of common stock . except as described below , there are no limitations on our ability to access our cash , cash equivalents and short-term investments . cash , cash equivalents and short-term investments held by our foreign subsidiaries was $ 35.6 million and $ 36.5 million at november 30 , 2018 and 2017 , respectively . foreign cash includes unremitted foreign earnings , which are invested indefinitely outside of the u.s. as such , it is not available to fund our domestic operations . if we were to repatriate these earnings , we may be subject to income tax withholding in certain tax jurisdictions and a portion of the repatriated earnings may be subject to u.s. income tax .

we are a global business that generated approximately 61.0 % of our 2020 net revenue outside of the united states . as of december 31 , 2020 , we had an installed base of approximately 117.4 thousand protective packaging systems serving a diverse set of distributors and end-users . we generated net revenue of $ 298.2 million in 2020. additionally , we generated net revenue of $ 163.1 million in the successor period and $ 106.4 million in the 1h 2019 predecessor period . the ranpak business combination on june 3 , 2019 , we consummated the acquisition of all outstanding and issued equity interests of rack holdings , inc. ( “ rack holdings ” ) pursuant to a stock purchase agreement for consideration of $ 794.9 million , which reflects a post-closing adjustment of $ 0.7 million for net working capital and additional consideration , and 140.0 million ( $ 160.8 million ) in cash , ( i ) $ 341.5 million and 140.0 million of which , respectively , was used by the seller to repay outstanding indebtedness and unpaid transaction expenses as contemplated by the stock purchase agreement and ( ii ) the remainder of which was paid to rack holdings l.p. ( “ seller ” ) . the company ( then one madison corporation ) was deemed to be the accounting acquirer in the ranpak business combination , as a result of which the company allocated its purchase price to rack holdings ' assets and liabilities at fair value , which created a new basis of accounting . until the consummation of the ranpak business combination , rack holdings operated as a separate business holding all of the historical assets and liabilities related to our business . the ranpak business combination was financed , in part , with debt of approximately $ 534.6 million , which became ranpak 's direct obligation upon the consummation of the ranpak business combination . upon the consummation of the ranpak business combination on june 3 , 2019 , rack holdings ' then-existing debt , which amounted to approximately $ 487.6 million as of such date , was repaid in full . in december 2019 , the company closed a public offering of its class a common stock generating net proceeds of approximately $ 107.7 million that was used to pay down the first lien dollar term facility . following the ranpak business combination , we have hired , and expect to hire additional staff and implement procedures and processes to address regulatory and other customary requirements applicable to operating public companies . we have incurred additional annual expenses for , among other things , directors ' and officers ' liability insurance , director fees , and additional internal and external accounting , legal and administrative resources , including increased audit and legal fees . we estimated that these incremental costs on an annual basis would amount to approximately $ 2.0 million or more per year , resulting in higher operating expenses in future periods . the closing of the ranpak business combination also resulted in the elimination of certain non-recurring expenses incurred prior to the ranpak business combination , which amounted to $ 35.4 million for the year ended december 31 , 2019. factors affecting the comparability of our results of operations the following factors may have affected the comparability of ranpak 's results of operations between the periods presented in this report and may affect the comparability of its results of operations in future periods . effect of currency fluctuations . as a result of the geographic diversity of ranpak 's operations , it is exposed to the effects of currency translation . currency transaction exposure results when ranpak generates net revenue in one currency at one time and incurs expenses in another currency at another time , or when it realizes gain or loss on intercompany transfers . while ranpak seeks to limit its currency transaction exposure by matching the currencies in which it incurs sales and expenses , it may not always be able to do so . in addition , ranpak is subject to currency translation exposure because the operations of its subsidiaries are measured in their functional currency which is the currency of the primary economic environment in which the subsidiary operates . any currency balances that are denominated in currencies other than the functional currency of the subsidiary are re-measured into the functional currency , with the resulting gain or loss recorded in the foreign currency ( gains ) losses line-item in ranpak 's income statement . in turn , subsidiary income statement balances that are denominated in currencies other than the u.s. dollar are translated into u.s. dollars , ranpak 's functional currency , in consolidation using the average exchange rate in effect during each fiscal month during the period , with any related gain or loss recorded as foreign currency translation adjustments in other comprehensive income ( loss ) . the assets and liabilities of subsidiaries that use functional currencies other than the u.s. dollar are translated into u.s. dollars in consolidation using period end exchange rates , with the effects of foreign currency translation adjustments included in accumulated other comprehensive income ( loss ) . 34 ranpak does not currently hedge its foreign currency transaction or translation exposure . as a result , significant currency fluctuations could impact the comparability of its results between periods , while such fluctuations coupled with material mismatches in net revenue and expenses could also adversely impact its cash flows . see “ qualitative and quantitative disclosures about market risk . ” acquisitions . story_separator_special_tag net revenue in north america was $ 81.8 million in the successor period and $ 50.1 million in the 1h 2019 predecessor period for a combined $ 131.9 million in 2019. net revenue in north america decreased $ 4.5 million , or 3.4 % attributable to a decline in cushioning and void-fill volumes , partially offset by an increase in wrapping sales . pro forma net revenue in north america was $ 127.4 million for 2020 , a $ 5.0 million , or 3.8 % , decrease from pro forma net revenue in north america of $ 132.4 million for 2019 after purchase accounting adjustments . net revenue in europe/asia for 2020 totaled $ 170.8 million . net revenue in europe/asia was $ 81.3 million in the successor period and $ 56.3 million in the 1h 2019 predecessor period , for a combined $ 137.6 million in 2019. net revenue in europe/asia increased $ 33.2 million or 24.1 % driven primarily by growth in wrapping , void-fill , and cushioning sales . pro forma net revenue in europe/asia was $ 171.5 million for 2020 , a $ 26.5 million , or 18.3 % , increase from pro forma net revenue of $ 145.0 million for 2019 after purchase accounting adjustments and adjusting for constant currency . cost of goods sold cost of goods sold for 2020 totaled $ 175.6 million . cost of goods sold was $ 97.4 million in the successor period and $ 61.2 million in the 1h 2019 predecessor period , for a combined $ 158.6 million in 2019. cost of goods sold increased $ 17.0 million or 10.7 % due to increases in sales year over year and higher depreciation expense of $ 7.6 million due to the ranpak business combination fair value adjustments , an increase in non-recurring operating costs in automation , offset by a decrease in the price of paper . pro forma cost of goods sold increased by $ 17.3 million , or 10.9 % , to $ 175.9 million in 2020 from $ 158.6 million for 2019 after adjusting to a constant currency in both periods and purchase accounting adjustments of $ 2.1 million for 2019. as a result , on a pro forma basis , net revenue minus cost of goods sold as a percentage of net revenue decreased by 1.6 pp to 41.2 % in 2020 from 42.8 % for 2019. selling , general , and administrative expenses sg & a expenses for 2020 was $ 72.5 million . sg & a was $ 37.7 million in the successor period and $ 23.8 million in the 1h 2019 predecessor period , for a combined $ 61.5 million in 2019. sg & a expenses increased $ 11.0 million or 17.9 % due to severance costs , non-cash equity compensation costs , increased support of growth initiatives , and increased costs associated with being a public company . pro forma sg & a expenses increased by $ 17.3 million , or 31.1 % , to $ 72.9 million in 2020 from $ 55.6 million for 2019 after adjusting to a constant currency in both periods . as a percentage of pro forma net revenue , pro forma sg & a increased to 24.4 % in 2020 from 20.0 % in 2019 on a constant currency basis . 39 transaction costs we incurred transaction costs of $ 2.2 million associated with the warrant exchange and other transactions in 2020. we incurred approximately $ 0.3 million in the successor period and $ 7.4 million in the 1h 2019 predecessor period for a combined $ 7.7 million associated with the ranpak business combination . depreciation and amortization depreciation and amortization expenses for 2020 were $ 31.5 million . depreciation and amortization expenses were $ 17.2 million in the successor period and $ 17.7 million in the 1h 2019 predecessor period , for a combined $ 34.9 million in 2019. depreciation and amortization expenses decreased $ 3.4 million , or 9.7 % due to the ranpak business combination fair value adjustments , their related amortizable lives and changes in currency rates . pro forma depreciation and amortization expenses decreased by $ 3.1 million , or 8.9 % , to $ 31.7 million in 2020 from $ 34.8 million for 2019 on a constant currency basis . as a percentage of pro forma net revenue , pro forma depreciation and amortization expenses decreased to 10.6 % in 2020 from 12.5 % in 2019 on a constant currency basis . other operating expense , net other operating expense , net for 2020 was $ 4.7 million . other operating expense , net was $ 2.4 million in the successor period and $ 2.2 million in the 1h 2019 predecessor period , for a combined $ 4.6 million in 2019 , nearly flat to the current year . pro forma other operating expense , net , was $ 5.0 million in 2020 and 2019 on a constant currency basis . as a percentage of pro forma net revenue , pro forma other operating expense , net , decreased to 1.7 % in 2020 from 1.8 % in 2019 on a constant currency basis . interest expense interest expense for 2020 was $ 30.2 million . interest expense was $ 27.3 million in the successor period and $ 20.2 million in the 1h 2019 predecessor period , for a combined $ 47.5 million in 2019. interest expense decreased $ 17.3 million , or 36.4 % . interest expense decreased due to decreased debt levels and lower interest rates , as well as transaction-related expenses in june 2019 and december 2019 , which included a write-off of deferred financing fees and the termination of an interest rate swap . interest expense in 2020 also includes the $ 8.2 million exit payment ( defined herein , refer to “ liquidity and capital resources ” in item 7 for further information ) . pro forma interest expense decreased by $ 5.8 million

debt before the ranpak business combination prior to the ranpak business combination , the company had two first lien credit facilities , a united states dollar tranche ( “ us $ tranche ” ) and a euro tranche ( “ euro tranche ” ) , a revolving credit facility and a second lien credit facility . the first lien credit facilities included : ( i ) a seven-year term loan ( us $ tranche ) facility in the amount of $ 233.4 million , ( ii ) a seven-year term loan ( euro tranche ) facility in the amount of 157.0 million , and ( iii ) a five-year $ 30.0 million revolving credit facility , of which the equivalent of $ 13.0 million may be denominated in euros ( collectively , the “ old credit facilities ” ) . in march 2017 , ranpak raised $ 45 million of incremental first lien ( us $ tranche ) debt and used the proceeds to pay down a portion of the second lien ( us $ tranche ) , the results of which saved ranpak 400 basis points on the applicable interest rate on $ 45 million of its outstanding debt . borrowings under the us $ tranche bore interest in an amount based on either the adjusted eurodollar rate ( the greater of 1.00 % or libor ) plus 3.25 % or a base rate plus 2.75 % ( the higher of the federal funds effective rate plus ½ of 1 % , prime , or the adjusted eurodollar rate plus 1 % ) . borrowings under the euro tranche bore interest in an amount based on the adjusted euribor rate ( the 44 greater of 1.00 % or euribor ) plus 3.25 % . interest on libor and euribor rate loans were payable at the end of the applicable interest periods . borrowings under the revolving credit facility bore interest in an amount based on either the base rate or adjusted eurodollar rate plus a variable margin that is dependent on the first lien net leverage ratio . the first lien credit facilities were secured by a first priority security interest in substantially all of the company 's assets .

general the following discussion is based upon our consolidated results of operations for the years ended december 31 , 2011 , 2010 and 2009 ( percentages in the discussion , except for returns on average net cash balances , are rounded to the closest full percentage point ) and should be read in conjunction with our consolidated financial statements included elsewhere in this annual report on form 10-k. we design , develop , market and support open standards-based hardware and software security systems that manage and secure access to information assets . we also design , develop , market and support patented strong user authentication products and services for e-business and e-commerce . our products enable secure financial transactions to be made over private enterprise networks and public networks , such as the internet . our 33 strong user authentication is delivered via our hardware and software digipass security products ( collectively “digipasses” ) , many of which incorporate an electronic and digital signature capability , which further protects the integrity of electronic transactions and data transmissions . some of our digipasses are compliant with the europay mastercard visa ( “emv” ) standard and are compatible with mastercard 's and visa 's chip authentication program ( “cap” ) . some of our digipasses comply with the initiative for open authentication ( “oath” ) . as evidenced by our current customer base , most of our products are purchased by companies and , depending on the business application , are distributed to either their employees or their customers . those customers may be other businesses or , as an example in the case of internet banking , our customer banks ' corporate and retail customers . in future years , we expect that our customers will increasingly use our cloud-based service offering , digipass as a service ( “dps” ) as described below . we offer our products either through a product sales and licensing model or through our dps product offering , which was first made available in the fourth quarter of 2010. dps is our cloud-based authentication platform . by using our authentication platform , customers can deploy two-factor authentication more quickly , incur less upfront costs and be able to use strong authentication when logging onto a larger number of internet sites and applications . we expect those applications to include b2b applications , b2e applications ( e.g . , employees of companies logging into third party applications operated in the cloud ) , and b2c applications . while there were minimal revenues generated from this product in 2011 , and we expect that the contribution of dps will still be limited in 2012 , we believe that dps has the potential for significant future growth as it will make two-factor authentication more affordable and readily available to users and application markets . our target market is any business process that uses some form of electronic interface , particularly the internet , where the owner of that process is at risk if unauthorized users can gain access to its process and either obtain proprietary information or execute transactions that are not authorized . our products can not only increase the security associated with accessing the business process , thereby reducing the losses from unauthorized access , but also , in many cases , can reduce the cost of the process itself by automating activities that were previously performed manually . in january 2011 , we acquired an internet trusted certificate authority/provider , in a two step process . in the first step , we acquired all of the intellectual property of diginotar holding b.v. and its subsidiaries . in the second step we acquired 100 % of the stock of diginotar b.v. and diginotar notariaat b.v. ( collectively , “diginotar” ) . in july 2011 , diginotar b.v. detected an intrusion into its certificate authority ( ca ) infrastructure , which resulted in the fraudulent issuance of public key certificate requests for a number of domains . on september 14 , 2011 , the dutch independent post and telecommunications authority ( opta ) commission terminated the registration of diginotar b.v. as a certification service provider that issues qualified certificates . as a result of the termination of its registration as a certification service provider , diginotar b.v. filed for bankruptcy and the haarlem district court , the netherlands declared diginotar b.v. bankrupt on september 20 , 2011. following the bankruptcy of diginotar b.v. , we do not plan to continue the certificate authority business , which was diginotar b.v. 's core product . we do expect , however , that we will be able to use the intellectual property acquired from diginotar to create our own pki-secured applications , such as document signing , registration and storage solutions , which we expect will strengthen our core authentication product line and expand opportunities for us on our dps platform . in april 2011 , we acquired alfa & ariss , an authority in the field of developing open identity and access management solutions . alfa & ariss brought additional important know-how and engineering capabilities in the fields of linking applications in the cloud . we believe that the acquisition of alfa & ariss will support the long-term growth strategy of our services and enterprise and application security businesses . industry growth : we do not believe that there are any accurate measurements of the total industry 's size or the industry 's growth rate . we believe , however , that the industry will grow at a significant rate as the use 34 of the internet increases and the awareness of the risks of using the internet become more prevalent among applications owners and consumers . we expect that growth will be driven by new government regulations , growing awareness of the impact of identity theft , and the growth in commerce that is transacted electronically . story_separator_special_tag the breakdown of revenue in each of our major geographic areas was as follows : replace_table_token_4_th 2011 compared to 2010 total revenue in 2011 increased $ 60,119 or 56 % from 2010. the increase in total revenue was primarily attributable to an increase in products sold to the banking market , both hardware and non-hardware , an increase in non-hardware products sold to the enterprise and application security market and the weakening of the u.s. dollar as compared to the euro , as noted above , partially offset by a decrease in hardware products sold to the enterprise and application security market . please see the discussion below under “revenue by target market” for additional information regarding the changes in revenue from the banking market and the enterprise and application security market . revenue generated in emea for the full-year 2011 was $ 38,881 or 53 % higher in 2011 than in 2010. the increase reflected an increase of approximately 67 % in revenue from the banking market and an increase of 13 % in revenue from the enterprise and application security markets . we estimate that the change in currency rates increased revenues in emea by $ 4,776 compared to 2010. had currency exchange rates in 2011 remained unchanged from 2010 , revenues in emea would have been approximately 47 % higher than in full-year 2010. revenue generated in united states for the full-year 2011 was $ 6,113 or 62 % higher in 2011 than in 2010. revenue was approximately 155 % higher in the banking market and 1 % lower in the enterprise and application security markets than in full-year 2010. the u.s. market continues to defer the adoption of two factor authentication for retail internet banking applications . the results in the u.s. also reflect strong competition from our competitors , especially in the enterprise and application security market . revenue generated in asia pacific for the full-year 2011 was $ 3,878 or 36 % higher in 2011 than in 2010. revenue was approximately 29 % higher in the banking market and 78 % higher in the enterprise and application security markets than in full-year 2010. we believe the region offers substantial opportunities for future growth as our sales offices in japan and beijing mature and the two-factor authentication market expands . revenue generated in other countries for the full-year 2011 was $ 11,247 or 78 % higher in 2011 than in 2010. revenue in other countries was approximately 97 % higher in the banking market and 27 % lower in the enterprise and application security markets . as noted above , the average exchange rate for the u.s. dollar was approximately 13 % weaker than the australian dollar in 2011 compared to 2010 and we estimate that the change in currency rates increased revenues in other countries by $ 555 compared to 2010. we expect that revenue from other countries will be more volatile than our other regions given the earlier stage of development of the authentication market in those countries . vasco , however , plans to continue to invest in new markets based on our estimates of the market 's demand for strong user authentication . 39 given the relatively small size of the revenue in regions other than emea , the results may vary substantially year-to-year on both an absolute and on a percentage basis depending upon the timing of the receipt and delivery of a large new order or the completion of a large rollout . we believe that the variability in results will lessen as we develop a larger base of banking customers and further develop our distribution channel and direct touch sales model for the enterprise and application security market . 2010 compared to 2009 total revenue in 2010 increased $ 6,268 or 6 % from 2009. the increase in total revenue was primarily attributable to an increase in products sold to the banking market , both hardware and non-hardware , a decline in hardware products sold to the enterprise and application security market and the strengthening of the u.s. dollar as compared to the euro , as noted above , partially offset by an increase in non-hardware products sold to the enterprise and application security market . revenue generated in emea for the full-year 2010 was $ 139 or less than 1 % lower in 2010 than in 2009. the decrease was primarily attributable to a decline of approximately 1 % in the banking market , partially offset by a 2 % increase in revenue from the enterprise and application security markets . we estimate that the change in currency rates reduced revenues in emea by $ 2,282 compared to 2009. had currency exchange rates in 2010 remained unchanged from 2009 , revenues in emea would have been approximately 3 % higher than in full-year 2009. revenue generated in united states for the full-year 2010 was $ 2,536 or 34 % higher in 2010 than in 2009. revenue was approximately 42 % higher in the banking market and 30 % higher in the enterprise and application security markets than in full-year 2009. revenue generated in asia pacific for the full-year 2010 was $ 1,368 or 14 % higher in 2010 than in 2009. revenue was approximately 25 % higher in the banking market and 26 % lower in the enterprise and application security markets than in full-year 2009. revenue generated in other countries for the full-year 2010 was $ 2,503 or 21 % higher in 2010 than in 2009. revenue in other countries was approximately 23 % higher in the banking market and 12 % higher in the enterprise and application security markets . the average exchange rate for the u.s. dollar was approximately 16 % weaker than the australian dollar in 2010 compared to 2009 and we estimate that the change in currency rates increased revenues in other countries by $ 591 in 2010 compared to 2009 . 40 revenue by target market : revenue is generated currently

debt before the ranpak business combination prior to the ranpak business combination , the company had two first lien credit facilities , a united states dollar tranche ( “ us $ tranche ” ) and a euro tranche ( “ euro tranche ” ) , a revolving credit facility and a second lien credit facility . the first lien credit facilities included : ( i ) a seven-year term loan ( us $ tranche ) facility in the amount of $ 233.4 million , ( ii ) a seven-year term loan ( euro tranche ) facility in the amount of 157.0 million , and ( iii ) a five-year $ 30.0 million revolving credit facility , of which the equivalent of $ 13.0 million may be denominated in euros ( collectively , the “ old credit facilities ” ) . in march 2017 , ranpak raised $ 45 million of incremental first lien ( us $ tranche ) debt and used the proceeds to pay down a portion of the second lien ( us $ tranche ) , the results of which saved ranpak 400 basis points on the applicable interest rate on $ 45 million of its outstanding debt . borrowings under the us $ tranche bore interest in an amount based on either the adjusted eurodollar rate ( the greater of 1.00 % or libor ) plus 3.25 % or a base rate plus 2.75 % ( the higher of the federal funds effective rate plus ½ of 1 % , prime , or the adjusted eurodollar rate plus 1 % ) . borrowings under the euro tranche bore interest in an amount based on the adjusted euribor rate ( the 44 greater of 1.00 % or euribor ) plus 3.25 % . interest on libor and euribor rate loans were payable at the end of the applicable interest periods . borrowings under the revolving credit facility bore interest in an amount based on either the base rate or adjusted eurodollar rate plus a variable margin that is dependent on the first lien net leverage ratio . the first lien credit facilities were secured by a first priority security interest in substantially all of the company 's assets .

general the following discussion is based upon our consolidated results of operations for the years ended december 31 , 2011 , 2010 and 2009 ( percentages in the discussion , except for returns on average net cash balances , are rounded to the closest full percentage point ) and should be read in conjunction with our consolidated financial statements included elsewhere in this annual report on form 10-k. we design , develop , market and support open standards-based hardware and software security systems that manage and secure access to information assets . we also design , develop , market and support patented strong user authentication products and services for e-business and e-commerce . our products enable secure financial transactions to be made over private enterprise networks and public networks , such as the internet . our 33 strong user authentication is delivered via our hardware and software digipass security products ( collectively “digipasses” ) , many of which incorporate an electronic and digital signature capability , which further protects the integrity of electronic transactions and data transmissions . some of our digipasses are compliant with the europay mastercard visa ( “emv” ) standard and are compatible with mastercard 's and visa 's chip authentication program ( “cap” ) . some of our digipasses comply with the initiative for open authentication ( “oath” ) . as evidenced by our current customer base , most of our products are purchased by companies and , depending on the business application , are distributed to either their employees or their customers . those customers may be other businesses or , as an example in the case of internet banking , our customer banks ' corporate and retail customers . in future years , we expect that our customers will increasingly use our cloud-based service offering , digipass as a service ( “dps” ) as described below . we offer our products either through a product sales and licensing model or through our dps product offering , which was first made available in the fourth quarter of 2010. dps is our cloud-based authentication platform . by using our authentication platform , customers can deploy two-factor authentication more quickly , incur less upfront costs and be able to use strong authentication when logging onto a larger number of internet sites and applications . we expect those applications to include b2b applications , b2e applications ( e.g . , employees of companies logging into third party applications operated in the cloud ) , and b2c applications . while there were minimal revenues generated from this product in 2011 , and we expect that the contribution of dps will still be limited in 2012 , we believe that dps has the potential for significant future growth as it will make two-factor authentication more affordable and readily available to users and application markets . our target market is any business process that uses some form of electronic interface , particularly the internet , where the owner of that process is at risk if unauthorized users can gain access to its process and either obtain proprietary information or execute transactions that are not authorized . our products can not only increase the security associated with accessing the business process , thereby reducing the losses from unauthorized access , but also , in many cases , can reduce the cost of the process itself by automating activities that were previously performed manually . in january 2011 , we acquired an internet trusted certificate authority/provider , in a two step process . in the first step , we acquired all of the intellectual property of diginotar holding b.v. and its subsidiaries . in the second step we acquired 100 % of the stock of diginotar b.v. and diginotar notariaat b.v. ( collectively , “diginotar” ) . in july 2011 , diginotar b.v. detected an intrusion into its certificate authority ( ca ) infrastructure , which resulted in the fraudulent issuance of public key certificate requests for a number of domains . on september 14 , 2011 , the dutch independent post and telecommunications authority ( opta ) commission terminated the registration of diginotar b.v. as a certification service provider that issues qualified certificates . as a result of the termination of its registration as a certification service provider , diginotar b.v. filed for bankruptcy and the haarlem district court , the netherlands declared diginotar b.v. bankrupt on september 20 , 2011. following the bankruptcy of diginotar b.v. , we do not plan to continue the certificate authority business , which was diginotar b.v. 's core product . we do expect , however , that we will be able to use the intellectual property acquired from diginotar to create our own pki-secured applications , such as document signing , registration and storage solutions , which we expect will strengthen our core authentication product line and expand opportunities for us on our dps platform . in april 2011 , we acquired alfa & ariss , an authority in the field of developing open identity and access management solutions . alfa & ariss brought additional important know-how and engineering capabilities in the fields of linking applications in the cloud . we believe that the acquisition of alfa & ariss will support the long-term growth strategy of our services and enterprise and application security businesses . industry growth : we do not believe that there are any accurate measurements of the total industry 's size or the industry 's growth rate . we believe , however , that the industry will grow at a significant rate as the use 34 of the internet increases and the awareness of the risks of using the internet become more prevalent among applications owners and consumers . we expect that growth will be driven by new government regulations , growing awareness of the impact of identity theft , and the growth in commerce that is transacted electronically . story_separator_special_tag the breakdown of revenue in each of our major geographic areas was as follows : replace_table_token_4_th 2011 compared to 2010 total revenue in 2011 increased $ 60,119 or 56 % from 2010. the increase in total revenue was primarily attributable to an increase in products sold to the banking market , both hardware and non-hardware , an increase in non-hardware products sold to the enterprise and application security market and the weakening of the u.s. dollar as compared to the euro , as noted above , partially offset by a decrease in hardware products sold to the enterprise and application security market . please see the discussion below under “revenue by target market” for additional information regarding the changes in revenue from the banking market and the enterprise and application security market . revenue generated in emea for the full-year 2011 was $ 38,881 or 53 % higher in 2011 than in 2010. the increase reflected an increase of approximately 67 % in revenue from the banking market and an increase of 13 % in revenue from the enterprise and application security markets . we estimate that the change in currency rates increased revenues in emea by $ 4,776 compared to 2010. had currency exchange rates in 2011 remained unchanged from 2010 , revenues in emea would have been approximately 47 % higher than in full-year 2010. revenue generated in united states for the full-year 2011 was $ 6,113 or 62 % higher in 2011 than in 2010. revenue was approximately 155 % higher in the banking market and 1 % lower in the enterprise and application security markets than in full-year 2010. the u.s. market continues to defer the adoption of two factor authentication for retail internet banking applications . the results in the u.s. also reflect strong competition from our competitors , especially in the enterprise and application security market . revenue generated in asia pacific for the full-year 2011 was $ 3,878 or 36 % higher in 2011 than in 2010. revenue was approximately 29 % higher in the banking market and 78 % higher in the enterprise and application security markets than in full-year 2010. we believe the region offers substantial opportunities for future growth as our sales offices in japan and beijing mature and the two-factor authentication market expands . revenue generated in other countries for the full-year 2011 was $ 11,247 or 78 % higher in 2011 than in 2010. revenue in other countries was approximately 97 % higher in the banking market and 27 % lower in the enterprise and application security markets . as noted above , the average exchange rate for the u.s. dollar was approximately 13 % weaker than the australian dollar in 2011 compared to 2010 and we estimate that the change in currency rates increased revenues in other countries by $ 555 compared to 2010. we expect that revenue from other countries will be more volatile than our other regions given the earlier stage of development of the authentication market in those countries . vasco , however , plans to continue to invest in new markets based on our estimates of the market 's demand for strong user authentication . 39 given the relatively small size of the revenue in regions other than emea , the results may vary substantially year-to-year on both an absolute and on a percentage basis depending upon the timing of the receipt and delivery of a large new order or the completion of a large rollout . we believe that the variability in results will lessen as we develop a larger base of banking customers and further develop our distribution channel and direct touch sales model for the enterprise and application security market . 2010 compared to 2009 total revenue in 2010 increased $ 6,268 or 6 % from 2009. the increase in total revenue was primarily attributable to an increase in products sold to the banking market , both hardware and non-hardware , a decline in hardware products sold to the enterprise and application security market and the strengthening of the u.s. dollar as compared to the euro , as noted above , partially offset by an increase in non-hardware products sold to the enterprise and application security market . revenue generated in emea for the full-year 2010 was $ 139 or less than 1 % lower in 2010 than in 2009. the decrease was primarily attributable to a decline of approximately 1 % in the banking market , partially offset by a 2 % increase in revenue from the enterprise and application security markets . we estimate that the change in currency rates reduced revenues in emea by $ 2,282 compared to 2009. had currency exchange rates in 2010 remained unchanged from 2009 , revenues in emea would have been approximately 3 % higher than in full-year 2009. revenue generated in united states for the full-year 2010 was $ 2,536 or 34 % higher in 2010 than in 2009. revenue was approximately 42 % higher in the banking market and 30 % higher in the enterprise and application security markets than in full-year 2009. revenue generated in asia pacific for the full-year 2010 was $ 1,368 or 14 % higher in 2010 than in 2009. revenue was approximately 25 % higher in the banking market and 26 % lower in the enterprise and application security markets than in full-year 2009. revenue generated in other countries for the full-year 2010 was $ 2,503 or 21 % higher in 2010 than in 2009. revenue in other countries was approximately 23 % higher in the banking market and 12 % higher in the enterprise and application security markets . the average exchange rate for the u.s. dollar was approximately 16 % weaker than the australian dollar in 2010 compared to 2009 and we estimate that the change in currency rates increased revenues in other countries by $ 591 in 2010 compared to 2009 . 40 revenue by target market : revenue is generated currently

liquidity and capital resources at december 31 , 2011 , we had net cash balances ( total cash , cash equivalents and restricted cash less bank borrowings ) , totaling $ 84,497. we had no outstanding debt or restricted cash at december 31 , 2011 . 50 at december 31 , 2011 , we held $ 68,935 of cash in banks outside of the united states . of that amount , $ 67,941 is not subject to significant repatriation restrictions , but may be subject to taxes upon repatriation . we have not provided for taxes on our unremitted foreign earnings as we consider them to be permanently invested . cash provided by operating activities was $ 17,918 during the year ended december 31 , 2011. during 2011 , we used $ 9,784 for investing activities , primarily for the acquisition of the intellectual property of diginotar , the acquisition of the stock of alfa & ariss and additions to property and equipment , and provided $ 153 from financing activities , primarily consisting of proceeds from the exercise of stock options . capital expenditures were $ 1,132 for the year ended december 31 , 2011. cash provided by operating activities was $ 21,083 during the year ended december 31 , 2010. during 2010 , we used $ 1,772 for investing activities , primarily for additions to property and equipment , and provided $ 3 in financing activities from the exercise of stock options .

favorable loss reserve development associated with delinquency notices received in prior years was $ 167 million and $ 231 million , in 2018 and 2017 , respectively , due to a lower estimated claim rate in each year compared to the prior year-end . during 2018 , mgic paid $ 220 million in dividends to our holding company . during 2018 , we repurchased approximately 16.0 million shares of our common stock for approximately $ 175 million . business environment economic conditions current u.s. economic conditions continue to support favorable housing fundamentals , such as low unemployment , strong consumer confidence , increasing household formations , and appreciating home values . we benefit from favorable housing fundamentals that increase home purchase activity and provide borrowers reliable , or increasing , financial resources . as a result of the current and expected economic conditions , mortgage interest rates have been higher on average in 2018 compared to 2017. the increase in mortgage interest rates did not materially impact home purchasing activity in 2018. despite the impact of rising rates on housing affordability , the homeownership rate continued to edge up in 2018. in particular , the homeownership rate of those 35 and younger ( which likely includes many first time homebuyers that require mortgage insurance ) is indicated to be at levels last seen in 2013. the increase in purchase mortgage originations , and first-time homebuyer activity , resulted in a modest increase in our niw in 2018 when compared to 2017. the level of unemployment , interest rates , and home prices may change in the future . for the possible effects of such changes , see our risk factors titled `` if the volume of low down payment home mortgage originations declines , the amount of insurance that we write could decline , ” “ downturns in the domestic economy or declines in the value of borrowers ' homes from their value at the time their loans closed may result in more homeowners defaulting and our losses increasing , with a corresponding decrease in our returns , ” and “ changes in interest rates , house prices or mortgage insurance cancellation requirements may change the length of time that our policies remain in force . `` mortgage lending these recent years of favorable housing fundamentals and in our view , favorable risk characteristics of insured loans , has provided a favorable credit backdrop for the business we have written in recent years . in that regard , we have experienced a declining delinquent inventory , and lower losses incurred and claims paid . our most recent book years continue to experience a low level of losses . although we generally view the risk characteristics of 2018 insured loans to be favorable , lending standards did ease in 2018. the percentage of our niw with dti ratios over 45 % increased significantly in 2018 compared to recent years . the increase was primarily driven by adjustments to gse underwriting guidelines for loans with dti ratios over 45 % . the rising cost of homeownership and a decrease in the percentage of our niw from refinance transactions also resulted in an increasing percentage of our niw with ltv ratios over 95 % . refer to `` mortgage insurance portfolio `` for additional discussion of changes in our niw mix during 2018 and our efforts to mitigate our risk from the increase in niw with dti ratios over 45 % . competition pmi . the private mortgage insurance industry is highly competitive and is expected to remain so . we believe that we currently compete with other private mortgage insurers based on premium rates , underwriting requirements , financial strength ( including based on credit or financial strength ratings ) , customer relationships , name recognition , reputation , the strength of our management team and field organization , the ancillary products and services provided to lenders and the effective use of technology and innovation in the delivery and servicing of our mortgage insurance products . mgic investment corporation 2018 form 10-k | 45 mgic investment corporation and subsidiaries management 's discussion and analysis | glossary of terms and acronyms pricing practices much of the competition in the industry in the last few years has centered on pricing practices which have included : ( i ) reductions in standard filed rates for borrower-paid mortgage insurance policies ( `` bpmi `` ) ; ( ii ) use by competitors of a spectrum of filed rates to allow for formulaic , risk-based pricing that may be adjusted more frequently within certain parameters ( referred to as `` loan level pricing systems `` ) ; and ( iii ) use of customized rates ( discounted from standard rates ) that are made available to lenders that meet certain criteria . in response to industry competition , and changing customer preferences , the delivery of premium rates has continued to migrate from standard rate cards , to use of loan level pricing systems ; and use of customized rates ( discounted from standard rates ) that are made available to lenders that meet certain criteria . loan level pricing systems incorporate more loan attributes than standard rate cards . they are considered more dynamic pricing models that can react faster to changing market conditions , including those conditions that increase or decrease risk , and they assist in managing risk and shaping the insured portfolio . we expect the adoption of mortgage insurers ' loan level pricing systems by lenders to continue to increase . our pricing approach continues to evolve with the industry . in the first quarter of 2019 we introduced miq , our loan level pricing system . we expect adoption of miq to increase during 2019 and the pace of adoption will be driven primarily by customer demand . story_separator_special_tag from 2008 through 2012 , we were notified of modifications that cured delinquencies that , had they become paid claims , would have resulted in a material increase in our incurred losses . nearly all of the reported loan modifications were for loans insured in 2009 and prior . we can not determine the total benefit we may derive from loan modification programs , particularly given the uncertainty around the re-default rates for defaulted loans that have been modified . our loss reserves do not account for potential re-defaults of current loans . the following table shows the percentage of our primary rif that has been modified as of december 31 , 2018 . replace_table_token_13_th ( 1 ) includes proprietary programs that are substantially the same as harp . approximately 12.6 % of our total primary rif has been modified as of december 31 , 2018 . based on loan count at december 31 , 2018 , the loans associated with 97.6 % of all harp modifications and 79.6 % of hamp and other modifications were current . factors affecting our results our results of operations are affected by : premiums written and earned premiums written and earned in a year are influenced by : niw , which increases iif . many factors affect niw , including the volume of low down payment home mortgage originations and competition to provide credit enhancement on those mortgages from the fha , the va , other mortgage insurers , gse programs that may reduce or eliminate the demand for mortgage insurance and other alternatives to mortgage insurance . niw does not include loans previously insured by us that are modified , such as loans modified under harp . cancellations , which reduce iif . cancellations due to refinancings are affected by the level of current mortgage interest rates compared to the mortgage coupon rates throughout the in force book , current home values compared to values when the loans in the in force book were insured and the terms on which mortgage credit is available . home price appreciation can give homeowners the right to cancel mortgage insurance on their loans if sufficient home equity is achieved . cancellations also result from policy rescissions , which require us to return any premiums received on the rescinded policies , and claim payments , which require us to return any premium received on the related policies from the date of default on the insured loans . mgic investment corporation 2018 form 10-k | 49 mgic investment corporation and subsidiaries management 's discussion and analysis | glossary of terms and acronyms cancellations of single premium policies , which are generally non-refundable , result in immediate recognition of any remaining unearned premium . premium rates , which are affected by product type , competitive pressures , the risk characteristics of the insured loans and the percentage of coverage on the insured loans . the substantial majority of our monthly and annual mortgage insurance premiums are under premium plans for which , for the first ten years of the policy , the amount of premium is determined by multiplying the initial premium rate by the original loan balance ; thereafter , the premium rate resets to a lower rate used for the remaining life of the policy . however , for loans that have utilized harp , the initial ten-year period resets as of the date of the harp transaction . the remainder of our monthly and annual premiums are under premium plans for which premiums are determined by a fixed percentage of the loan 's amortizing balance over the life of the policy . premiums ceded , net of a profit commission , under our quota share reinsurance transactions , and premiums ceded under our excess of loss reinsurance transaction . see note 9 – “ reinsurance ” to our consolidated financial statements for a discussion of our reinsurance transactions . premiums earned are generated by the insurance that is in force during all or a portion of the period . a change in the average iif in the current period compared to an earlier period is a factor that will increase ( when the average in force is higher ) or reduce ( when it is lower ) premiums earned in the current period , although this effect may be enhanced ( or mitigated ) by differences in the average premium rates between the two periods , as well as by premiums that are returned or expected to be returned in connection with claim payments and rescissions , and premiums ceded under reinsurance transactions . also , niw and cancellations during a period will generally have a greater effect on premiums earned in subsequent periods than in the period in which these events occur . investment income our investment portfolio is composed principally of investment grade fixed income securities . the principal factors that influence investment income are the size of the portfolio and its yield . as measured by amortized cost ( which excludes changes in fair value , such as from changes in interest rates ) , the size of the investment portfolio is mainly a function of cash generated from ( or used in ) operations , such as npw , investment income , net claim payments and expenses , and cash provided by ( or used for ) non-operating activities , such as debt or stock issuances or repurchases . losses incurred losses incurred are the current expense that reflects estimated payments that will ultimately be made as a result of delinquencies on insured loans . as explained under “ critical accounting policies ” below , we recognize an estimate of this expense only for delinquent loans . the level of new delinquencies has historically followed a seasonal pattern , with new delinquencies in the first part of the year lower than new delinquencies in the latter part of the year , though this pattern can be affected by the state of

liquidity and capital resources at december 31 , 2011 , we had net cash balances ( total cash , cash equivalents and restricted cash less bank borrowings ) , totaling $ 84,497. we had no outstanding debt or restricted cash at december 31 , 2011 . 50 at december 31 , 2011 , we held $ 68,935 of cash in banks outside of the united states . of that amount , $ 67,941 is not subject to significant repatriation restrictions , but may be subject to taxes upon repatriation . we have not provided for taxes on our unremitted foreign earnings as we consider them to be permanently invested . cash provided by operating activities was $ 17,918 during the year ended december 31 , 2011. during 2011 , we used $ 9,784 for investing activities , primarily for the acquisition of the intellectual property of diginotar , the acquisition of the stock of alfa & ariss and additions to property and equipment , and provided $ 153 from financing activities , primarily consisting of proceeds from the exercise of stock options . capital expenditures were $ 1,132 for the year ended december 31 , 2011. cash provided by operating activities was $ 21,083 during the year ended december 31 , 2010. during 2010 , we used $ 1,772 for investing activities , primarily for additions to property and equipment , and provided $ 3 in financing activities from the exercise of stock options .

favorable loss reserve development associated with delinquency notices received in prior years was $ 167 million and $ 231 million , in 2018 and 2017 , respectively , due to a lower estimated claim rate in each year compared to the prior year-end . during 2018 , mgic paid $ 220 million in dividends to our holding company . during 2018 , we repurchased approximately 16.0 million shares of our common stock for approximately $ 175 million . business environment economic conditions current u.s. economic conditions continue to support favorable housing fundamentals , such as low unemployment , strong consumer confidence , increasing household formations , and appreciating home values . we benefit from favorable housing fundamentals that increase home purchase activity and provide borrowers reliable , or increasing , financial resources . as a result of the current and expected economic conditions , mortgage interest rates have been higher on average in 2018 compared to 2017. the increase in mortgage interest rates did not materially impact home purchasing activity in 2018. despite the impact of rising rates on housing affordability , the homeownership rate continued to edge up in 2018. in particular , the homeownership rate of those 35 and younger ( which likely includes many first time homebuyers that require mortgage insurance ) is indicated to be at levels last seen in 2013. the increase in purchase mortgage originations , and first-time homebuyer activity , resulted in a modest increase in our niw in 2018 when compared to 2017. the level of unemployment , interest rates , and home prices may change in the future . for the possible effects of such changes , see our risk factors titled `` if the volume of low down payment home mortgage originations declines , the amount of insurance that we write could decline , ” “ downturns in the domestic economy or declines in the value of borrowers ' homes from their value at the time their loans closed may result in more homeowners defaulting and our losses increasing , with a corresponding decrease in our returns , ” and “ changes in interest rates , house prices or mortgage insurance cancellation requirements may change the length of time that our policies remain in force . `` mortgage lending these recent years of favorable housing fundamentals and in our view , favorable risk characteristics of insured loans , has provided a favorable credit backdrop for the business we have written in recent years . in that regard , we have experienced a declining delinquent inventory , and lower losses incurred and claims paid . our most recent book years continue to experience a low level of losses . although we generally view the risk characteristics of 2018 insured loans to be favorable , lending standards did ease in 2018. the percentage of our niw with dti ratios over 45 % increased significantly in 2018 compared to recent years . the increase was primarily driven by adjustments to gse underwriting guidelines for loans with dti ratios over 45 % . the rising cost of homeownership and a decrease in the percentage of our niw from refinance transactions also resulted in an increasing percentage of our niw with ltv ratios over 95 % . refer to `` mortgage insurance portfolio `` for additional discussion of changes in our niw mix during 2018 and our efforts to mitigate our risk from the increase in niw with dti ratios over 45 % . competition pmi . the private mortgage insurance industry is highly competitive and is expected to remain so . we believe that we currently compete with other private mortgage insurers based on premium rates , underwriting requirements , financial strength ( including based on credit or financial strength ratings ) , customer relationships , name recognition , reputation , the strength of our management team and field organization , the ancillary products and services provided to lenders and the effective use of technology and innovation in the delivery and servicing of our mortgage insurance products . mgic investment corporation 2018 form 10-k | 45 mgic investment corporation and subsidiaries management 's discussion and analysis | glossary of terms and acronyms pricing practices much of the competition in the industry in the last few years has centered on pricing practices which have included : ( i ) reductions in standard filed rates for borrower-paid mortgage insurance policies ( `` bpmi `` ) ; ( ii ) use by competitors of a spectrum of filed rates to allow for formulaic , risk-based pricing that may be adjusted more frequently within certain parameters ( referred to as `` loan level pricing systems `` ) ; and ( iii ) use of customized rates ( discounted from standard rates ) that are made available to lenders that meet certain criteria . in response to industry competition , and changing customer preferences , the delivery of premium rates has continued to migrate from standard rate cards , to use of loan level pricing systems ; and use of customized rates ( discounted from standard rates ) that are made available to lenders that meet certain criteria . loan level pricing systems incorporate more loan attributes than standard rate cards . they are considered more dynamic pricing models that can react faster to changing market conditions , including those conditions that increase or decrease risk , and they assist in managing risk and shaping the insured portfolio . we expect the adoption of mortgage insurers ' loan level pricing systems by lenders to continue to increase . our pricing approach continues to evolve with the industry . in the first quarter of 2019 we introduced miq , our loan level pricing system . we expect adoption of miq to increase during 2019 and the pace of adoption will be driven primarily by customer demand . story_separator_special_tag from 2008 through 2012 , we were notified of modifications that cured delinquencies that , had they become paid claims , would have resulted in a material increase in our incurred losses . nearly all of the reported loan modifications were for loans insured in 2009 and prior . we can not determine the total benefit we may derive from loan modification programs , particularly given the uncertainty around the re-default rates for defaulted loans that have been modified . our loss reserves do not account for potential re-defaults of current loans . the following table shows the percentage of our primary rif that has been modified as of december 31 , 2018 . replace_table_token_13_th ( 1 ) includes proprietary programs that are substantially the same as harp . approximately 12.6 % of our total primary rif has been modified as of december 31 , 2018 . based on loan count at december 31 , 2018 , the loans associated with 97.6 % of all harp modifications and 79.6 % of hamp and other modifications were current . factors affecting our results our results of operations are affected by : premiums written and earned premiums written and earned in a year are influenced by : niw , which increases iif . many factors affect niw , including the volume of low down payment home mortgage originations and competition to provide credit enhancement on those mortgages from the fha , the va , other mortgage insurers , gse programs that may reduce or eliminate the demand for mortgage insurance and other alternatives to mortgage insurance . niw does not include loans previously insured by us that are modified , such as loans modified under harp . cancellations , which reduce iif . cancellations due to refinancings are affected by the level of current mortgage interest rates compared to the mortgage coupon rates throughout the in force book , current home values compared to values when the loans in the in force book were insured and the terms on which mortgage credit is available . home price appreciation can give homeowners the right to cancel mortgage insurance on their loans if sufficient home equity is achieved . cancellations also result from policy rescissions , which require us to return any premiums received on the rescinded policies , and claim payments , which require us to return any premium received on the related policies from the date of default on the insured loans . mgic investment corporation 2018 form 10-k | 49 mgic investment corporation and subsidiaries management 's discussion and analysis | glossary of terms and acronyms cancellations of single premium policies , which are generally non-refundable , result in immediate recognition of any remaining unearned premium . premium rates , which are affected by product type , competitive pressures , the risk characteristics of the insured loans and the percentage of coverage on the insured loans . the substantial majority of our monthly and annual mortgage insurance premiums are under premium plans for which , for the first ten years of the policy , the amount of premium is determined by multiplying the initial premium rate by the original loan balance ; thereafter , the premium rate resets to a lower rate used for the remaining life of the policy . however , for loans that have utilized harp , the initial ten-year period resets as of the date of the harp transaction . the remainder of our monthly and annual premiums are under premium plans for which premiums are determined by a fixed percentage of the loan 's amortizing balance over the life of the policy . premiums ceded , net of a profit commission , under our quota share reinsurance transactions , and premiums ceded under our excess of loss reinsurance transaction . see note 9 – “ reinsurance ” to our consolidated financial statements for a discussion of our reinsurance transactions . premiums earned are generated by the insurance that is in force during all or a portion of the period . a change in the average iif in the current period compared to an earlier period is a factor that will increase ( when the average in force is higher ) or reduce ( when it is lower ) premiums earned in the current period , although this effect may be enhanced ( or mitigated ) by differences in the average premium rates between the two periods , as well as by premiums that are returned or expected to be returned in connection with claim payments and rescissions , and premiums ceded under reinsurance transactions . also , niw and cancellations during a period will generally have a greater effect on premiums earned in subsequent periods than in the period in which these events occur . investment income our investment portfolio is composed principally of investment grade fixed income securities . the principal factors that influence investment income are the size of the portfolio and its yield . as measured by amortized cost ( which excludes changes in fair value , such as from changes in interest rates ) , the size of the investment portfolio is mainly a function of cash generated from ( or used in ) operations , such as npw , investment income , net claim payments and expenses , and cash provided by ( or used for ) non-operating activities , such as debt or stock issuances or repurchases . losses incurred losses incurred are the current expense that reflects estimated payments that will ultimately be made as a result of delinquencies on insured loans . as explained under “ critical accounting policies ” below , we recognize an estimate of this expense only for delinquent loans . the level of new delinquencies has historically followed a seasonal pattern , with new delinquencies in the first part of the year lower than new delinquencies in the latter part of the year , though this pattern can be affected by the state of

. cash inflows included $ 220 million of dividends received from mgic and $ 35 million of other inflows , which included intercompany activity . cash outflows included $ 163 million used to repurchase shares of our common stock and $ 60 million of interest payments , of which approximately $ 12 million was paid to mgic for the portion of our 9 % debentures owned by mgic . the net unrealized losses on our holding company investment portfolio were approximately $ 2.2 million at december 31 , 2018 and the portfolio had a modified duration of approximately 1.4 years . scheduled debt maturities beyond the next twelve months include $ 425 million of our 5.75 % notes in 2023 and $ 389.5 million of our 9 % debentures in 2063 , of which mgic owns $ 132.7 million . the principal amount of the 9 % debentures is currently convertible , at the holder 's option , at an initial conversion rate , which is subject to adjustment , of 74.0741 common shares per $ 1,000 principal amount of debentures . this represents an initial conversion price of approximately $ 13.50 per share . we may redeem the 9 % debentures in whole or in part from time to time , at our option , at a redemption price equal to 100 % of the principal amount of the 9 % debentures being redeemed , plus any accrued and unpaid interest , if the closing sale price of our common stock exceeds $ 17.55 for at least 20 of the 30 trading days preceding notice of the redemption .

these differentiators may be as small as how a transaction operates or information provided on a report or as large as the entire automation of a workflow that would otherwise be completed manually . we intend to continue our focus on differentiating our products , and we carefully assess our investments regularly as we strive to assure those investments provide the solutions most valuable to our customers . deliver our solutions to new markets . areas of healthcare where work is done manually may benefit from our existing solutions . these areas include hospitals that continue to utilize manual operations , healthcare segments of the us market outside hospitals , and markets outside the us . we weigh the cost of entering these new markets against the expected benefits and focus on the markets that we believe are most likely to adopt our products . expansion of our solutions through acquisitions and partnerships . our acquisitions have generally been focused on automation of manual workflows or data analytics , which is the enhancement of data for our customers ' decision- 35 making processes . we believe that expansion of our product lines through acquisition and partnerships to meet our customers changing and evolving expectations is a key aspect to our historical and future success . since the sales cycle for many of our products can be as long as two years , and the installation cycle can be up to another year , the results of operations in 2013 were heavily influenced by our investment decisions that were made several years ago . we believe those investments are directly attributable to our revenue growth of 21 % and our net income growth of 48 % in 2013 as compared to 2012. our investments have been consistent with the strategies outlined above . to differentiate our solutions from others available in the market , we began shipping a refresh of our product line in 2011 which we market as g4 . the g4 refresh included multiple new products and an upgrade product that allowed existing customers to augment their installations to obtain the most current technology that we provide . the g4 product refresh has been a key contributor to our growth , with 37.0 % of our acute care installed base ordering upgrades to their existing systems since the announcement of g4 . in addition to enhanced capabilities , we have focused on attaining the highest quality and service measurements for g4 in the industry , while marketing the solution to new and existing customers . our research and development efforts today are designed to bring new products to market beyond the g4 product line that we believe will meet customer needs in years to come . consistent with our strategy to enter new markets , we have made investments in our sales , general , and administrative expenses to expand our sales team and market to new customers . our international efforts have focused primarily on three markets : china , where we made a mandarin version of our automated dispensing systems available in 2011 , the middle eastern countries of the arabian peninsula where new healthcare facility construction is taking place , and in the united kingdom where , in the third quarter of 2012 , we purchased 15 % of our united kingdom distributor 's outstanding equity for approximately $ 0.9 million in cash to accelerate the adoption of medication and supply automation . in connection with the investment , we have the right , under certain circumstances , to appoint a member to this company 's board of directors as well as certain other voting rights and , therefore , we believe we have the ability to exert significant influence over this distributor 's operations . our proportionate equity share of the income of this distributor recognized in our financial statements for the year ended december 31 , 2013 was immaterial . we have also expanded our sales efforts to non-acute care customers in the united states which has allowed us to sell our automated dispensing solutions and other products to this market . expansion of our solutions through acquisitions and partnerships include our acquisition of mts in 2012 and a recently announced , but not completed , potential acquisition of surgichem limited from bupa care homes ( cfg ) plc . surgichem is a provider of medication adherence products in the united kingdom . if completed , the combination of surgichem with omnicell is expected to enable both entities to sell their lines of proven multi- and single-dose products across a broader medication adherence packaging market in the united kingdom . we have also developed relationships with major providers of hospital information management systems with the goal of enhancing the interoperability of our products with their systems . we believe that enhanced interoperability will help reduce implementation costs , time , and maintenance for shared clients , while providing new clinical workflows designed to enhance efficiency and patient safety . we believe that the success of our three leg strategy of differentiated products , expansion into new markets , and acquisition and partnership in future periods will be based on , among other factors : our expectation that the overall market demand for healthcare services will increase as the population grows , life expectancies continue to increase , the quality and availability of healthcare services increases ; our expectation that the environment of increased patient safety awareness , increased regulatory control and increased need for workflow efficiency through the adoption of technology in the healthcare industry will make our solutions a priority in the capital budgets of healthcare facilities ; and our belief that healthcare customers will continue to value a consultative customer experience from their suppliers . among other financial measures , we utilize product bookings and product backlog to assess the current success of our strategies . story_separator_special_tag under the market approach , we estimated the fair values of our reporting units based on financial information on companies that we deemed were comparable to our business . we made judgments about the comparability of publicly traded companies engaged in similar businesses . we based our judgments on factors such as size , growth rates , profitability , and risk . based on publicly available information , we calculated the comparable companies ' market multiples of earnings before interest , taxes , depreciation and amortization , and stock option expense and factored in a control premium . the estimated fair values of our reporting units determined under the market approach exceeded their carrying values . finally , we compared the estimated fair values of our reporting units to our september 30 , 2013 total public market capitalization and assessed implied control premiums . based on the aforementioned , we concluded that the estimated fair value determined for both our reporting units was reasonable . in each case , the estimated fair values of our reporting units exceeded their respective carrying values and , as such , we concluded that goodwill assigned to our acute care and non-acute care segments was not impaired . in addition , we did not note any indications of goodwill impairment as of december 31 , 2013 . 39 in 2012 , we opted to perform a qualitative assessment of factors to determine if goodwill had been impaired as of december 31 , 2012. for both the acute care and non-acute care segments , we considered the following qualitative factors : macroeconomic conditions such as general economic conditions , limitations on accessing capital , fluctuations in foreign exchange rates or other developments in equity and credit markets ; industry and market considerations such as changes in the environment in which we operate , an increased competitive environment , a decline in market-dependent multiples or metrics ( consider in both absolute terms and relative to peers ) , a change in the market for our products or services , or a regulatory or political development ; cost factors such as increases in raw materials , labor , or other costs that have a negative effect on earnings and cash flows ; overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods ; other relevant entity-specific events such as changes in management , key personnel , strategy , or customers ; contemplation of bankruptcy or litigation ; and events affecting a reporting unit such as a change in the composition or carrying amount of its net assets , a more-likely-than-not expectation of selling or disposing all , or a portion , of a reporting unit , the testing for recoverability of a significant asset group within a reporting unit or recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit . upon completion of our qualitative assessment conducted in the fourth quarter of 2012 , we concluded that it was more likely than not that the fair values of both the acute care and non-acute care segments exceeded their carrying values including the respective amounts of goodwill . in addition , management did not note any other indicators of goodwill impairment as of december 31 , 2012. we continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable . we review long-lived assets and certain purchased intangibles for impairment whenever events or changes in circumstances indicate that we will not be able to recover the asset 's carrying amount . recoverability of an asset is measured by comparing its carrying amount to the expected future undiscounted cash flows expected to result from the use and eventual disposition of that asset , excluding future interest costs that would be recognized as an expense when incurred . any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair market value . significant management judgment is required in : identifying a triggering event that arises from a change in circumstances ; forecasting future operating results ; and estimating the proceeds from the disposition of long-lived or intangible assets . in future periods , material impairment charges could be necessary should different conditions prevail or different judgments be made . significant management judgment is also required for initial recognition and measurement of goodwill and other intangibles assets resulting from business combinations pursuant asc 805 , business combinations . management must assess the extent to which identified other intangibles assets are properly includable ( and with the appropriate fair value ) or properly excludable , by applying the recognition criteria . this judgment affects not only the other intangible assets but the remainder calculation of goodwill . the assessment of useful life for each acquired intangible asset impacts future financial position and operating performance through amortization expense . inventory . inventories are stated at the lower of cost ( utilizing standard costs ) , applying the first-in , first-out method , or market . we routinely assess our on-hand inventory for timely identification and measurement of obsolete , slow-moving or otherwise impaired inventory . we write down inventory for estimated obsolescence , excess or unmarketable quantities equal to the difference between the cost of the inventory and its estimated market value based on assumptions about future demand and market conditions . if actual future demand or market conditions are less favorable than we projected , additional inventory write-downs may be required . valuation of share-based awards . we account for share-based compensation in accordance with asc 718 , stock compensation . we estimate the fair value of our employee stock awards at the date of grant using certain subjective assumptions , such as expected volatility , which is based on a combination

. cash inflows included $ 220 million of dividends received from mgic and $ 35 million of other inflows , which included intercompany activity . cash outflows included $ 163 million used to repurchase shares of our common stock and $ 60 million of interest payments , of which approximately $ 12 million was paid to mgic for the portion of our 9 % debentures owned by mgic . the net unrealized losses on our holding company investment portfolio were approximately $ 2.2 million at december 31 , 2018 and the portfolio had a modified duration of approximately 1.4 years . scheduled debt maturities beyond the next twelve months include $ 425 million of our 5.75 % notes in 2023 and $ 389.5 million of our 9 % debentures in 2063 , of which mgic owns $ 132.7 million . the principal amount of the 9 % debentures is currently convertible , at the holder 's option , at an initial conversion rate , which is subject to adjustment , of 74.0741 common shares per $ 1,000 principal amount of debentures . this represents an initial conversion price of approximately $ 13.50 per share . we may redeem the 9 % debentures in whole or in part from time to time , at our option , at a redemption price equal to 100 % of the principal amount of the 9 % debentures being redeemed , plus any accrued and unpaid interest , if the closing sale price of our common stock exceeds $ 17.55 for at least 20 of the 30 trading days preceding notice of the redemption .

these differentiators may be as small as how a transaction operates or information provided on a report or as large as the entire automation of a workflow that would otherwise be completed manually . we intend to continue our focus on differentiating our products , and we carefully assess our investments regularly as we strive to assure those investments provide the solutions most valuable to our customers . deliver our solutions to new markets . areas of healthcare where work is done manually may benefit from our existing solutions . these areas include hospitals that continue to utilize manual operations , healthcare segments of the us market outside hospitals , and markets outside the us . we weigh the cost of entering these new markets against the expected benefits and focus on the markets that we believe are most likely to adopt our products . expansion of our solutions through acquisitions and partnerships . our acquisitions have generally been focused on automation of manual workflows or data analytics , which is the enhancement of data for our customers ' decision- 35 making processes . we believe that expansion of our product lines through acquisition and partnerships to meet our customers changing and evolving expectations is a key aspect to our historical and future success . since the sales cycle for many of our products can be as long as two years , and the installation cycle can be up to another year , the results of operations in 2013 were heavily influenced by our investment decisions that were made several years ago . we believe those investments are directly attributable to our revenue growth of 21 % and our net income growth of 48 % in 2013 as compared to 2012. our investments have been consistent with the strategies outlined above . to differentiate our solutions from others available in the market , we began shipping a refresh of our product line in 2011 which we market as g4 . the g4 refresh included multiple new products and an upgrade product that allowed existing customers to augment their installations to obtain the most current technology that we provide . the g4 product refresh has been a key contributor to our growth , with 37.0 % of our acute care installed base ordering upgrades to their existing systems since the announcement of g4 . in addition to enhanced capabilities , we have focused on attaining the highest quality and service measurements for g4 in the industry , while marketing the solution to new and existing customers . our research and development efforts today are designed to bring new products to market beyond the g4 product line that we believe will meet customer needs in years to come . consistent with our strategy to enter new markets , we have made investments in our sales , general , and administrative expenses to expand our sales team and market to new customers . our international efforts have focused primarily on three markets : china , where we made a mandarin version of our automated dispensing systems available in 2011 , the middle eastern countries of the arabian peninsula where new healthcare facility construction is taking place , and in the united kingdom where , in the third quarter of 2012 , we purchased 15 % of our united kingdom distributor 's outstanding equity for approximately $ 0.9 million in cash to accelerate the adoption of medication and supply automation . in connection with the investment , we have the right , under certain circumstances , to appoint a member to this company 's board of directors as well as certain other voting rights and , therefore , we believe we have the ability to exert significant influence over this distributor 's operations . our proportionate equity share of the income of this distributor recognized in our financial statements for the year ended december 31 , 2013 was immaterial . we have also expanded our sales efforts to non-acute care customers in the united states which has allowed us to sell our automated dispensing solutions and other products to this market . expansion of our solutions through acquisitions and partnerships include our acquisition of mts in 2012 and a recently announced , but not completed , potential acquisition of surgichem limited from bupa care homes ( cfg ) plc . surgichem is a provider of medication adherence products in the united kingdom . if completed , the combination of surgichem with omnicell is expected to enable both entities to sell their lines of proven multi- and single-dose products across a broader medication adherence packaging market in the united kingdom . we have also developed relationships with major providers of hospital information management systems with the goal of enhancing the interoperability of our products with their systems . we believe that enhanced interoperability will help reduce implementation costs , time , and maintenance for shared clients , while providing new clinical workflows designed to enhance efficiency and patient safety . we believe that the success of our three leg strategy of differentiated products , expansion into new markets , and acquisition and partnership in future periods will be based on , among other factors : our expectation that the overall market demand for healthcare services will increase as the population grows , life expectancies continue to increase , the quality and availability of healthcare services increases ; our expectation that the environment of increased patient safety awareness , increased regulatory control and increased need for workflow efficiency through the adoption of technology in the healthcare industry will make our solutions a priority in the capital budgets of healthcare facilities ; and our belief that healthcare customers will continue to value a consultative customer experience from their suppliers . among other financial measures , we utilize product bookings and product backlog to assess the current success of our strategies . story_separator_special_tag under the market approach , we estimated the fair values of our reporting units based on financial information on companies that we deemed were comparable to our business . we made judgments about the comparability of publicly traded companies engaged in similar businesses . we based our judgments on factors such as size , growth rates , profitability , and risk . based on publicly available information , we calculated the comparable companies ' market multiples of earnings before interest , taxes , depreciation and amortization , and stock option expense and factored in a control premium . the estimated fair values of our reporting units determined under the market approach exceeded their carrying values . finally , we compared the estimated fair values of our reporting units to our september 30 , 2013 total public market capitalization and assessed implied control premiums . based on the aforementioned , we concluded that the estimated fair value determined for both our reporting units was reasonable . in each case , the estimated fair values of our reporting units exceeded their respective carrying values and , as such , we concluded that goodwill assigned to our acute care and non-acute care segments was not impaired . in addition , we did not note any indications of goodwill impairment as of december 31 , 2013 . 39 in 2012 , we opted to perform a qualitative assessment of factors to determine if goodwill had been impaired as of december 31 , 2012. for both the acute care and non-acute care segments , we considered the following qualitative factors : macroeconomic conditions such as general economic conditions , limitations on accessing capital , fluctuations in foreign exchange rates or other developments in equity and credit markets ; industry and market considerations such as changes in the environment in which we operate , an increased competitive environment , a decline in market-dependent multiples or metrics ( consider in both absolute terms and relative to peers ) , a change in the market for our products or services , or a regulatory or political development ; cost factors such as increases in raw materials , labor , or other costs that have a negative effect on earnings and cash flows ; overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods ; other relevant entity-specific events such as changes in management , key personnel , strategy , or customers ; contemplation of bankruptcy or litigation ; and events affecting a reporting unit such as a change in the composition or carrying amount of its net assets , a more-likely-than-not expectation of selling or disposing all , or a portion , of a reporting unit , the testing for recoverability of a significant asset group within a reporting unit or recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit . upon completion of our qualitative assessment conducted in the fourth quarter of 2012 , we concluded that it was more likely than not that the fair values of both the acute care and non-acute care segments exceeded their carrying values including the respective amounts of goodwill . in addition , management did not note any other indicators of goodwill impairment as of december 31 , 2012. we continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable . we review long-lived assets and certain purchased intangibles for impairment whenever events or changes in circumstances indicate that we will not be able to recover the asset 's carrying amount . recoverability of an asset is measured by comparing its carrying amount to the expected future undiscounted cash flows expected to result from the use and eventual disposition of that asset , excluding future interest costs that would be recognized as an expense when incurred . any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair market value . significant management judgment is required in : identifying a triggering event that arises from a change in circumstances ; forecasting future operating results ; and estimating the proceeds from the disposition of long-lived or intangible assets . in future periods , material impairment charges could be necessary should different conditions prevail or different judgments be made . significant management judgment is also required for initial recognition and measurement of goodwill and other intangibles assets resulting from business combinations pursuant asc 805 , business combinations . management must assess the extent to which identified other intangibles assets are properly includable ( and with the appropriate fair value ) or properly excludable , by applying the recognition criteria . this judgment affects not only the other intangible assets but the remainder calculation of goodwill . the assessment of useful life for each acquired intangible asset impacts future financial position and operating performance through amortization expense . inventory . inventories are stated at the lower of cost ( utilizing standard costs ) , applying the first-in , first-out method , or market . we routinely assess our on-hand inventory for timely identification and measurement of obsolete , slow-moving or otherwise impaired inventory . we write down inventory for estimated obsolescence , excess or unmarketable quantities equal to the difference between the cost of the inventory and its estimated market value based on assumptions about future demand and market conditions . if actual future demand or market conditions are less favorable than we projected , additional inventory write-downs may be required . valuation of share-based awards . we account for share-based compensation in accordance with asc 718 , stock compensation . we estimate the fair value of our employee stock awards at the date of grant using certain subjective assumptions , such as expected volatility , which is based on a combination

cash flows the table below shows our cash flows for the years ended december 31 , 2013 , 2012 and 2011 : replace_table_token_15_th 46 2013 compared to 2012 net cash provided by operating activities . net cash provided by operating activities increased by $ 15.8 million in 2013 as compared to 2012. the major drivers increasing operating cash flow were an increase of $ 7.8 million in net income , a decrease of $ 5.9 million in sales-type leases , a decrease of $ 5.7 million in accounts receivable as a result of collection efforts , an increase of $ 5.0 million in non-cash expenses for depreciation and amortization primarily due to our new corporate headquarters and manufacturing site , and a decrease of $ 4.5 million in other assets . partially offsetting these increases in sources of operating cash flows were an increase of $ 7.9 million in inventories , and a decrease of $ 7.4 million in deferred gross profit . net cash used in investing activities . net cash used in investing activities decreased by $ 148.3 million in 2013 as compared to 2012 , primarily due to a decrease in acquisition activity in 2013. net cash provided by financing activities . net cash provided by financing activities represented an increase in cash of $ 7.6 million in 2013 as compared to 2012. the increase was primarily driven by an increase of $ 15.7 million in cash provided from shares issued under employee stock option exercises and stock purchase plans which was partially offset by an increase of $ 8.6 million cash used in stock repurchases . 2012 compared to 2011 net cash provided by operating activities . net cash provided by operating activities increased by $ 8.2 million in 2012 to $ 39.5 million from $ 31.2 million in 2011. the major drivers increasing operating cash flow were $ 5.8 million higher net income and a reduction of inventory of $ 12.0 million , as well as increases in accrued compensation of $ 4.7 million , deferred gross profit of $ 4.1 million and accounts payable of $ 4.0 million , between 2012 and 2011.

earnings for 2015 , as compared to 2014 , benefited from price increases in all three segments and continuing initiatives to reduce our cost structure , primarily within our sales , marketing and fulfillment organizations . these increases in earnings were partially offset by volume reductions for both personal and business checks , due primarily to the continuing decline in check usage , as well as increased investments in revenue growth opportunities . our strategies a discussion of our business strategies can be found under the caption `` business segments `` appearing in item 1 of this report . cost reduction initiatives for several years , we have been pursuing cost reduction and business simplification initiatives , including : reducing shared services infrastructure costs ; streamlining our call center and fulfillment activities ; eliminating system and work stream 24 redundancies ; and strengthening our ability to quickly develop new products and services and bring them to market . we have also standardized products and services and improved the sourcing of third-party goods and services . as a result of all of these efforts , we realized net cost savings of approximately $ 50 million during 2015 , as compared to our 2014 results of operations , generated primarily by our sales , marketing and fulfillment organizations . approximately 60 % of these savings impacted selling , general and administrative ( sg & a ) expense , with the remaining 40 % affecting total cost of revenue . we anticipate that we will realize additional net cost reductions of approximately $ 50 million in 2016 , as compared to our 2015 results of operations , which will also be generated primarily by our sales , marketing and fulfillment organizations . in sales and marketing , we plan to focus on sales channel optimization , platform and tool consolidation , and leveraging sales and marketing efficiencies , including integrating recent acquisitions . in fulfillment , we expect to continue our lean , direct and indirect spend reductions , further consolidate our manufacturing technology platforms , drive delivery technology and process efficiencies , reduce spoilage , further enhance our strategic supplier sourcing arrangements , and continue with other supply chain improvements and efficiencies . we also expect to continue to reduce information technology , finance and real estate costs . approximately 65 % of our 2016 savings are expected to impact sg & a expense , with the remaining 35 % affecting cost of revenue . outlook for 2016 we anticipate that consolidated revenue will be between $ 1.835 billion and $ 1.875 billion for 2016 , compared to $ 1.773 billion for 2015 . in small business services , we expect revenue to increase between 4 % and 7 % compared to 2015 revenue of $ 1.152 billion . volume declines in core business products are expected to be more than offset by benefits from our e-commerce investments , price increases and growth in our distributor , dealer and major accounts channels and in our marketing solutions and other services offerings . in financial services , we expect revenue to increase between 6 % and 8 % compared to 2015 revenue of $ 455.4 million . we expect continued growth in marketing solutions and other services , including incremental revenue from the acquisitions of datamyx in october 2015 and fisc solutions in december 2015 , as well as growth in deluxe rewards and wausau financial systems revenue . we expect these revenue increases to be partially offset by year-over-year secular check order declines between 6 % and 7 % , as well as the impact of expected contract renewal allowances . in direct checks , we expect revenue to decline between 7 % and 8 % compared to 2015 revenue of $ 165.5 million , driven primarily by secular check order volume declines resulting from reduced check usage . we expect that 2016 diluted earnings per share will be between $ 4.75 and $ 4.95 , compared to $ 4.36 for 2015 , which included total charges of $ 0.23 per share related to the loss on early debt extinguishment in the first quarter of 2015 , as well as restructuring costs and transaction costs related to acquisitions . we expect that the benefits of additional cost reduction activities will be partially offset by a continued sluggish economy and increases in medical expenses , material costs and delivery rates , as well as continued investments in revenue growth opportunities , including brand awareness , marketing solutions and other services offers , and enhanced e-commerce capabilities . we estimate that our annual effective tax rate for 2016 will be approximately 33.8 % , compared to 33.3 % for 2015 . a number of discrete credits to income tax expense in 2015 collectively reduced our 2015 tax rate by 0.3 points . we anticipate that net cash provided by operating activities will be between $ 315 million and $ 330 million in 2016 , compared to $ 308 million in 2015 , driven by stronger operating performance and lower interest payments , partially offset by higher income tax and employee medical payments . we anticipate contract acquisition payments of approximately $ 15 million in 2016 , and we estimate that capital spending will be approximately $ 43 million in 2016 as we continue to invest in key revenue growth initiatives and order fulfillment and information technology infrastructure . we believe that cash generated by operating activities , along with availability under our credit facility , will be sufficient to support our operations in 2016 , including dividend payments , capital expenditures , required interest payments , and periodic share repurchases , as well as possible small-to-medium-sized acquisitions . we expect to maintain a disciplined approach to capital deployment that focuses on our need to continue investing in initiatives to drive revenue growth , including small-to-medium-sized acquisitions and continued expansion of our distributor channel . story_separator_special_tag results for this segment were as follows : replace_table_token_14_th the increase in total revenue for 2015 , as compared to 2014 , was due primarily to growth in marketing solutions and other services revenue of $ 32 million , including incremental revenue from businesses acquired in 2015 and 2014. further information regarding our acquisitions can be found under the caption `` note 5 : acquisitions `` of the notes to consolidated financial statements appearing in item 8 of this report . the increases in marketing solutions and other services revenue were partially offset by lower search engine marketing/optimization revenue resulting from our decision in the third quarter of 2014 to reduce the revenue base of this business . in addition , revenue benefited from price increases and investments to expand our distributor channel contributed revenue growth in other product categories of approximately $ 11 million . these increases in revenue were partially offset by a decrease in volume for certain core business products sold through our direct sales channel , including checks , accessories and forms , as well as an unfavorable currency exchange rate impact of $ 11 million . the increase in operating income and operating margin for 2015 , as compared to 2014 , was primarily due to price increases and benefits of our cost reduction initiatives . additionally , 2014 results included an asset impairment charge of $ 6.5 million , which reduced operating margin for 2014 by 0.6 points , and restructuring costs were $ 1.5 million lower in 2015. further information regarding the asset impairment charge can be found under consolidated results of operations and further information regarding the restructuring costs can be found under restructuring costs . partially offsetting these increases in operating income and operating margin were increased investments in revenue growth opportunities , including investments to expand our distributor channel and planned brand awareness initiatives . in addition , commission expense increased due to increased sales volume for our distributor channel , as well as higher commission rates , and delivery rates and material costs also increased in 2015. the increase in total revenue for 2014 , as compared to 2013 , was due primarily to growth in marketing solutions and other services revenue of $ 48 million , including incremental revenue from business acquired in 2014 and 2013. in addition , investments to expand our distributor channel contributed revenue growth in other product categories of approximately $ 18 million and revenue also benefited from the impact of price increases . these increases in revenue were partially offset by a decrease in volume for certain core business products sold through our direct sales channel , including checks and deposit tickets , and an unfavorable currency exchange rate impact of $ 4 million . the increase in operating income for 2014 , as compared to 2013 , was primarily due to price increases and benefits of our cost reduction initiatives . partially offsetting these increases in operating income was the shift in our revenue mix to lower margin services and outsourced products and an increase in investments in revenue growth opportunities , including investments to expand our distributor channel . in addition , commission expense increased due primarily to increased financial institution commission rates , delivery rates and material costs increased in 2014 , and performance-based compensation increased approximately $ 4 million in 2014. additionally , we recorded pre-tax asset impairment charges of $ 6.5 million during 2014 and $ 5.0 million during 2013 related to small business services intangible assets . further information regarding these impairment charges can be found in consolidated results of operations . operating margin was flat in 2014 , as compared to 2013 , as the improvements in operating income from price increases and the benefits of our cost reduction initiatives were offset by the shift in our revenue mix to lower margin services and 30 outsourced products , an increase in investments in revenue growth opportunities and increases in commission rates , delivery rates and material costs in 2014. financial services financial services ' products and services are sold primarily through a direct sales force , which executes product and service supply contracts with our financial institution clients nationwide , including banks , credit unions and financial services companies . in the case of check supply contracts , once the financial institution relationship is established , consumers may submit their check orders through their financial institution or over the phone or internet . results for this segment were as follows : replace_table_token_15_th the increase in revenue for 2015 , as compared to 2014 , was due to growth in marketing solutions and other services of $ 73 million , including incremental revenue of $ 68 million from the acquisitions of datamyx llc and fisc solutions in 2015 and wausau financial systems , inc. ( wausau ) in october 2014 , as well as increased revenue from our deluxe rewards and deluxe strategic sourcing product and service offerings . further information regarding our acquisitions can be found under the caption `` note 5 : acquisitions `` of the notes to consolidated financial statements appearing in item 8 of this report . additionally , revenue benefited from price increases . partially offsetting these revenue increases was lower check order volume due to the continued decline in check usage , as well as the impact of contract renewal allowances . operating income increased for 2015 , as compared to 2014 , primarily due to price increases , the benefit of our continuing cost reduction initiatives and positive operating income generated by the wausau acquisition . in addition , restructuring costs were $ 1.6 million lower in 2015. further information regarding the restructuring costs can be found under restructuring costs . partially offsetting these increases in operating income was the impact of lower check order volume , contract renewal allowances and increased delivery and material costs in 2015. operating margin decreased for 2015 , as compared to 2014 , primarily

cash flows the table below shows our cash flows for the years ended december 31 , 2013 , 2012 and 2011 : replace_table_token_15_th 46 2013 compared to 2012 net cash provided by operating activities . net cash provided by operating activities increased by $ 15.8 million in 2013 as compared to 2012. the major drivers increasing operating cash flow were an increase of $ 7.8 million in net income , a decrease of $ 5.9 million in sales-type leases , a decrease of $ 5.7 million in accounts receivable as a result of collection efforts , an increase of $ 5.0 million in non-cash expenses for depreciation and amortization primarily due to our new corporate headquarters and manufacturing site , and a decrease of $ 4.5 million in other assets . partially offsetting these increases in sources of operating cash flows were an increase of $ 7.9 million in inventories , and a decrease of $ 7.4 million in deferred gross profit . net cash used in investing activities . net cash used in investing activities decreased by $ 148.3 million in 2013 as compared to 2012 , primarily due to a decrease in acquisition activity in 2013. net cash provided by financing activities . net cash provided by financing activities represented an increase in cash of $ 7.6 million in 2013 as compared to 2012. the increase was primarily driven by an increase of $ 15.7 million in cash provided from shares issued under employee stock option exercises and stock purchase plans which was partially offset by an increase of $ 8.6 million cash used in stock repurchases . 2012 compared to 2011 net cash provided by operating activities . net cash provided by operating activities increased by $ 8.2 million in 2012 to $ 39.5 million from $ 31.2 million in 2011. the major drivers increasing operating cash flow were $ 5.8 million higher net income and a reduction of inventory of $ 12.0 million , as well as increases in accrued compensation of $ 4.7 million , deferred gross profit of $ 4.1 million and accounts payable of $ 4.0 million , between 2012 and 2011.

earnings for 2015 , as compared to 2014 , benefited from price increases in all three segments and continuing initiatives to reduce our cost structure , primarily within our sales , marketing and fulfillment organizations . these increases in earnings were partially offset by volume reductions for both personal and business checks , due primarily to the continuing decline in check usage , as well as increased investments in revenue growth opportunities . our strategies a discussion of our business strategies can be found under the caption `` business segments `` appearing in item 1 of this report . cost reduction initiatives for several years , we have been pursuing cost reduction and business simplification initiatives , including : reducing shared services infrastructure costs ; streamlining our call center and fulfillment activities ; eliminating system and work stream 24 redundancies ; and strengthening our ability to quickly develop new products and services and bring them to market . we have also standardized products and services and improved the sourcing of third-party goods and services . as a result of all of these efforts , we realized net cost savings of approximately $ 50 million during 2015 , as compared to our 2014 results of operations , generated primarily by our sales , marketing and fulfillment organizations . approximately 60 % of these savings impacted selling , general and administrative ( sg & a ) expense , with the remaining 40 % affecting total cost of revenue . we anticipate that we will realize additional net cost reductions of approximately $ 50 million in 2016 , as compared to our 2015 results of operations , which will also be generated primarily by our sales , marketing and fulfillment organizations . in sales and marketing , we plan to focus on sales channel optimization , platform and tool consolidation , and leveraging sales and marketing efficiencies , including integrating recent acquisitions . in fulfillment , we expect to continue our lean , direct and indirect spend reductions , further consolidate our manufacturing technology platforms , drive delivery technology and process efficiencies , reduce spoilage , further enhance our strategic supplier sourcing arrangements , and continue with other supply chain improvements and efficiencies . we also expect to continue to reduce information technology , finance and real estate costs . approximately 65 % of our 2016 savings are expected to impact sg & a expense , with the remaining 35 % affecting cost of revenue . outlook for 2016 we anticipate that consolidated revenue will be between $ 1.835 billion and $ 1.875 billion for 2016 , compared to $ 1.773 billion for 2015 . in small business services , we expect revenue to increase between 4 % and 7 % compared to 2015 revenue of $ 1.152 billion . volume declines in core business products are expected to be more than offset by benefits from our e-commerce investments , price increases and growth in our distributor , dealer and major accounts channels and in our marketing solutions and other services offerings . in financial services , we expect revenue to increase between 6 % and 8 % compared to 2015 revenue of $ 455.4 million . we expect continued growth in marketing solutions and other services , including incremental revenue from the acquisitions of datamyx in october 2015 and fisc solutions in december 2015 , as well as growth in deluxe rewards and wausau financial systems revenue . we expect these revenue increases to be partially offset by year-over-year secular check order declines between 6 % and 7 % , as well as the impact of expected contract renewal allowances . in direct checks , we expect revenue to decline between 7 % and 8 % compared to 2015 revenue of $ 165.5 million , driven primarily by secular check order volume declines resulting from reduced check usage . we expect that 2016 diluted earnings per share will be between $ 4.75 and $ 4.95 , compared to $ 4.36 for 2015 , which included total charges of $ 0.23 per share related to the loss on early debt extinguishment in the first quarter of 2015 , as well as restructuring costs and transaction costs related to acquisitions . we expect that the benefits of additional cost reduction activities will be partially offset by a continued sluggish economy and increases in medical expenses , material costs and delivery rates , as well as continued investments in revenue growth opportunities , including brand awareness , marketing solutions and other services offers , and enhanced e-commerce capabilities . we estimate that our annual effective tax rate for 2016 will be approximately 33.8 % , compared to 33.3 % for 2015 . a number of discrete credits to income tax expense in 2015 collectively reduced our 2015 tax rate by 0.3 points . we anticipate that net cash provided by operating activities will be between $ 315 million and $ 330 million in 2016 , compared to $ 308 million in 2015 , driven by stronger operating performance and lower interest payments , partially offset by higher income tax and employee medical payments . we anticipate contract acquisition payments of approximately $ 15 million in 2016 , and we estimate that capital spending will be approximately $ 43 million in 2016 as we continue to invest in key revenue growth initiatives and order fulfillment and information technology infrastructure . we believe that cash generated by operating activities , along with availability under our credit facility , will be sufficient to support our operations in 2016 , including dividend payments , capital expenditures , required interest payments , and periodic share repurchases , as well as possible small-to-medium-sized acquisitions . we expect to maintain a disciplined approach to capital deployment that focuses on our need to continue investing in initiatives to drive revenue growth , including small-to-medium-sized acquisitions and continued expansion of our distributor channel . story_separator_special_tag results for this segment were as follows : replace_table_token_14_th the increase in total revenue for 2015 , as compared to 2014 , was due primarily to growth in marketing solutions and other services revenue of $ 32 million , including incremental revenue from businesses acquired in 2015 and 2014. further information regarding our acquisitions can be found under the caption `` note 5 : acquisitions `` of the notes to consolidated financial statements appearing in item 8 of this report . the increases in marketing solutions and other services revenue were partially offset by lower search engine marketing/optimization revenue resulting from our decision in the third quarter of 2014 to reduce the revenue base of this business . in addition , revenue benefited from price increases and investments to expand our distributor channel contributed revenue growth in other product categories of approximately $ 11 million . these increases in revenue were partially offset by a decrease in volume for certain core business products sold through our direct sales channel , including checks , accessories and forms , as well as an unfavorable currency exchange rate impact of $ 11 million . the increase in operating income and operating margin for 2015 , as compared to 2014 , was primarily due to price increases and benefits of our cost reduction initiatives . additionally , 2014 results included an asset impairment charge of $ 6.5 million , which reduced operating margin for 2014 by 0.6 points , and restructuring costs were $ 1.5 million lower in 2015. further information regarding the asset impairment charge can be found under consolidated results of operations and further information regarding the restructuring costs can be found under restructuring costs . partially offsetting these increases in operating income and operating margin were increased investments in revenue growth opportunities , including investments to expand our distributor channel and planned brand awareness initiatives . in addition , commission expense increased due to increased sales volume for our distributor channel , as well as higher commission rates , and delivery rates and material costs also increased in 2015. the increase in total revenue for 2014 , as compared to 2013 , was due primarily to growth in marketing solutions and other services revenue of $ 48 million , including incremental revenue from business acquired in 2014 and 2013. in addition , investments to expand our distributor channel contributed revenue growth in other product categories of approximately $ 18 million and revenue also benefited from the impact of price increases . these increases in revenue were partially offset by a decrease in volume for certain core business products sold through our direct sales channel , including checks and deposit tickets , and an unfavorable currency exchange rate impact of $ 4 million . the increase in operating income for 2014 , as compared to 2013 , was primarily due to price increases and benefits of our cost reduction initiatives . partially offsetting these increases in operating income was the shift in our revenue mix to lower margin services and outsourced products and an increase in investments in revenue growth opportunities , including investments to expand our distributor channel . in addition , commission expense increased due primarily to increased financial institution commission rates , delivery rates and material costs increased in 2014 , and performance-based compensation increased approximately $ 4 million in 2014. additionally , we recorded pre-tax asset impairment charges of $ 6.5 million during 2014 and $ 5.0 million during 2013 related to small business services intangible assets . further information regarding these impairment charges can be found in consolidated results of operations . operating margin was flat in 2014 , as compared to 2013 , as the improvements in operating income from price increases and the benefits of our cost reduction initiatives were offset by the shift in our revenue mix to lower margin services and 30 outsourced products , an increase in investments in revenue growth opportunities and increases in commission rates , delivery rates and material costs in 2014. financial services financial services ' products and services are sold primarily through a direct sales force , which executes product and service supply contracts with our financial institution clients nationwide , including banks , credit unions and financial services companies . in the case of check supply contracts , once the financial institution relationship is established , consumers may submit their check orders through their financial institution or over the phone or internet . results for this segment were as follows : replace_table_token_15_th the increase in revenue for 2015 , as compared to 2014 , was due to growth in marketing solutions and other services of $ 73 million , including incremental revenue of $ 68 million from the acquisitions of datamyx llc and fisc solutions in 2015 and wausau financial systems , inc. ( wausau ) in october 2014 , as well as increased revenue from our deluxe rewards and deluxe strategic sourcing product and service offerings . further information regarding our acquisitions can be found under the caption `` note 5 : acquisitions `` of the notes to consolidated financial statements appearing in item 8 of this report . additionally , revenue benefited from price increases . partially offsetting these revenue increases was lower check order volume due to the continued decline in check usage , as well as the impact of contract renewal allowances . operating income increased for 2015 , as compared to 2014 , primarily due to price increases , the benefit of our continuing cost reduction initiatives and positive operating income generated by the wausau acquisition . in addition , restructuring costs were $ 1.6 million lower in 2015. further information regarding the restructuring costs can be found under restructuring costs . partially offsetting these increases in operating income was the impact of lower check order volume , contract renewal allowances and increased delivery and material costs in 2015. operating margin decreased for 2015 , as compared to 2014 , primarily

capital resources our total debt was $ 631.3 million as of december 31 , 2015 , an increase of $ 77.0 million from december 31 , 2014 . we have entered into interest rate swaps to hedge against changes in the fair value of our long-term debt . as of december 31 , 2015 , interest rate swaps with a notional amount of $ 200.0 million were designated as fair value hedges . the carrying amount of long-term debt as of december 31 , 2015 included a $ 4.8 million decrease related to adjusting the hedged debt for changes in its fair value . as of december 31 , 2014 , this fair value adjustment was a decrease of $ 8.1 million . further information concerning the interest rate swaps and our outstanding debt can be found under the captions “ note 6 : derivative financial instruments ” and “ note 13 : debt and lease obligations ” of the notes to consolidated financial statements appearing in item 8 of this report . information regarding our debt service obligations can be found under off-balance sheet arrangements , guarantees and contractual obligations . our capital structure for each period was as follows : replace_table_token_21_th 34 we have an outstanding authorization from our board of directors to purchase up to 10 million shares of our common stock . this authorization has no expiration date , and 1.0 million shares remained available for purchase under this authorization as of december 31 , 2015 . during 2015 , we purchased 1.0 million shares for $ 60.0 million . information regarding changes in shareholders ' equity can be found in the consolidated statements of shareholders ' equity appearing in item 8 of this report . in march 2015 , we redeemed all $ 200.0 million of our 7.0 % senior notes due in march 2019 , utilizing our credit facility and a $ 75.0 million short-term bank loan that we have since repaid . we may , from time to time , consider retiring additional outstanding debt through open market purchases , privately negotiated transactions or other means .

the company raised significant funds in 2015 , consisting of : · $ 0.8 million in short-term notes ( in the first quarter of 2015 , $ 0.3 million of demand notes held by an entity controlled by our chief executive officer were settled as partial payment for a 2015 convertible note , and in the second quarter of 2015 , $ 0.2 million of notes from a related party were repaid in cash ) ; · $ 1.5 million through the issuance of convertible notes ; · $ 12.1 million in net proceeds from its ipo as discussed further below ; and · $ 6.0 million in net proceeds from the issuances of common stock and a senior secured promissory note to merck ghi . on may 8 , 2015 , opgen completed its ipo pursuant to which it offered and sold 2,850,000 units , each unit consisting of one share of common stock and a detachable stock purchase warrant to purchase an additional share of common stock , at an initial offering price of $ 6.00 per unit . of the total gross proceeds of $ 17.1 million , approximately $ 2.1 million was used to satisfy outstanding demand notes by exchanging such notes for 350,000 units in the ipo . after considering the demand notes , underwriting discounts and commissions and offering expenses , the total net cash proceeds were $ 12.1 million . on the ipo closing date , the underwriters exercised their over-allotment option to acquire an additional 422,500 stock purchase warrants . in connection with the ipo , all of opgen 's outstanding series a preferred stock , 2014 convertible notes and 2015 convertible notes were converted into 7,374,852 shares of common stock . on july 14 , 2015 , the company completed the strategic acquisition of advandx . pursuant to the merger agreement , a newly formed merger sub merged with and into advandx , with advandx surviving as a wholly owned subsidiary of the company in accordance with the general corporation law of the state of delaware . under the terms of the merger agreement , the merger consideration consisted of an aggregate 681,818 shares of the company 's common stock with a value of $ 2.6 million ( based on the closing sales price of our common stock of $ 3.79 per share on july 13 , 2015 ) . 49 in july 2015 , the company raised $ 6.0 million by issuing 1,136,364 shares of common stock at $ 4.40 per share and a $ 1.0 million senior secured promissory note to merck ghi . also in july 2015 , the company entered into a registration rights agreement with merck ghi and the advandx stockholders who received merger consideration in the merger , which will require the company to register such shares of company common stock for resale by such holders in the future . under the purchase agreement , merck ghi has the right to participate in future securities offerings made by the company . there is no assurance that merck ghi will exercise such participation rights in the future . the company 's current operating assumptions , which include management 's best estimate of future revenue and operating expenses , indicate that current cash on hand will be sufficient to fund operations into the second quarter of 2016. in the event the company is unable to successfully raise additional capital in 2016 , the company will not have sufficient cash flows and liquidity to finance its business operations as currently contemplated . accordingly , in such circumstances the company would be compelled to reduce general and administrative expenses and delay research and development projects , including the purchase of scientific equipment and supplies , until it is able to obtain sufficient financing , or pursue other strategic alternatives which may include licensing and or partnering arrangements or mergers and acquisitions . the consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the company be unable to continue in existence . results of operations for the years ended december 31 , 2015 and 2014 revenues and gross profit replace_table_token_1_th our total revenue for the year ended december 31 , 2015 decreased 23 % , to $ 3.2 million from $ 4.1 million , when compared to the same period in 2014. this decrease is primarily attributable to : · product sales : an increase in revenue of 118 % in 2015 as compared to 2014 is attributable to the inclusion of advandx products sales subsequent to the merger , offset in part by a reduction in the sale of our argus products , as we transition from our legacy mapping products to the introduction of acuitas mdro products ; · laboratory services : a decrease in revenue of 75 % in 2015 as compared to 2014 as a result of a reduction in sales of mapping products , as we transition from our legacy mapping products to the introduction of acuitas mdro products ; and · collaboration revenue : a decrease in revenue generated under a collaboration arrangement with hitachi of 86 % in 2015 as compared to 2014 as a result of the completion of our technology development agreement with hitachi . the company expects an increase in product sales in 2016 due to the inclusion of a full year of quickfish and pna fish product sales . this increase is expected to be partially offset by a decrease in the sale of argus products . the company expects a decline in mapping products and an increase in acuitas and lighthouse products . story_separator_special_tag the guidance requires an entity to review contracts in five steps : 1 ) identify the contract , 2 ) identify performance obligations , 3 ) determine the transaction price , 4 ) allocate the transaction price , and 5 ) recognize revenue . the new standard will result in enhanced disclosures regarding the nature , amount , timing and uncertainty of revenue arising from contracts with customers . the standard is effective for the company 's reporting year beginning january 1 , 2018 and early adoption is permitted starting january 1 , 2017. the company is currently evaluating the impact , if any , that this new accounting pronouncement will have on its consolidated financial statements . in august 2014 , the fasb issued guidance requiring management to evaluate on a regular basis whether any conditions or events have arisen that could raise substantial doubt about the entity 's ability to continue as a going concern . the guidance 1 ) provides a definition for the term ‘ ‘ substantial doubt , `` 2 ) requires an evaluation every reporting period , interim periods included , 3 ) provides principles for considering the mitigating effect of management 's plans to alleviate the substantial doubt , 4 ) requires certain disclosures if the substantial doubt is alleviated as a result of management 's plans , 5 ) requires an express statement , as well as other disclosures , if the substantial doubt is not alleviated , and 6 ) requires an assessment period of one year from the date the financial statements are issued . the standard is effective for the company 's reporting year beginning january 1 , 2017 and early adoption is permitted . the company is currently evaluating the impact , if any , that this new accounting pronouncement will have on its consolidated financial statements . in april 2015 , the fasb issued accounting guidance requiring that debt issuance costs related to a recognized liability be presented on the balance sheet as a direct reduction from the carrying amount of that debt liability , consistent with debt discounts . the recognition and measurement guidance for debt issuance costs are not affected . the standard is effective for reporting periods beginning after december 15 , 2015. the company is currently evaluating the impact , if any , that this new accounting pronouncement will have on its consolidated financial statements . in july 2015 , the fasb issued accounting guidance for inventory . under the guidance , an entity should measure inventory within the scope of this guidance at the lower of cost and net realizable value , except when inventory is measured using lifo or the retail inventory method . net realizable value is the estimated selling price in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . in addition , the fasb has amended some of the other inventory guidance to more clearly articulate the requirements for the measurement and disclosure of inventory . the standard is effective for reporting periods beginning after december 15 , 2016. the amendments in this pronouncement should be applied prospectively , with earlier application permitted . the company is currently evaluating the impact , if any , that this new accounting pronouncement will have on its consolidated financial statements . in september 2015 , the fasb issued accounting guidance to simplify the accounting for measurement period adjustments resulting from business combinations . under the guidance , an acquirer will be required to recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustments are determined . the guidance requires an entity to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment had been recognized as of the acquisition date . the company adopted this guidance in the fourth quarter of 2016 ; see note 4 to the consolidated financial statements for a discussion of the impact of such adoption . in february 2016 , the fasb issued accounting guidance which will require most leases ( with the exception of leases with terms of less than one year ) to be recognized on the balance sheet as an asset and a lease liability . leases will be classified as an operating lease or a financing lease . operating leases are expensed using the straight-line method whereas financing leases will be treated similarly to a capital lease under the current standard . the new standard will be effective for annual and interim periods , within those fiscal years , beginning after december 15 , 2018 but early adoption is permitted . the new standard must be presented using the modified retrospective method beginning with the earliest comparative period presented . the company is currently evaluating the effect of the new standard on its consolidated financial statements and related disclosures . 55 off-balance sheet arrangements a s of each of december 31 , 2015 and 2014 , we did not have any off-balance sheet arrangements , as defined in item 303 ( a ) ( 4 ) ( ii ) of regulation s-k promulgated by the sec . jobs act on april 5 , 2012 , the jobs act was enacted . section 107 of the jobs act provides that an “ emerging growth company ” can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act , for complying with new or revised accounting standards . in other words , an “ emerging growth company ” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to use the extended transition period for complying with new or revised

capital resources our total debt was $ 631.3 million as of december 31 , 2015 , an increase of $ 77.0 million from december 31 , 2014 . we have entered into interest rate swaps to hedge against changes in the fair value of our long-term debt . as of december 31 , 2015 , interest rate swaps with a notional amount of $ 200.0 million were designated as fair value hedges . the carrying amount of long-term debt as of december 31 , 2015 included a $ 4.8 million decrease related to adjusting the hedged debt for changes in its fair value . as of december 31 , 2014 , this fair value adjustment was a decrease of $ 8.1 million . further information concerning the interest rate swaps and our outstanding debt can be found under the captions “ note 6 : derivative financial instruments ” and “ note 13 : debt and lease obligations ” of the notes to consolidated financial statements appearing in item 8 of this report . information regarding our debt service obligations can be found under off-balance sheet arrangements , guarantees and contractual obligations . our capital structure for each period was as follows : replace_table_token_21_th 34 we have an outstanding authorization from our board of directors to purchase up to 10 million shares of our common stock . this authorization has no expiration date , and 1.0 million shares remained available for purchase under this authorization as of december 31 , 2015 . during 2015 , we purchased 1.0 million shares for $ 60.0 million . information regarding changes in shareholders ' equity can be found in the consolidated statements of shareholders ' equity appearing in item 8 of this report . in march 2015 , we redeemed all $ 200.0 million of our 7.0 % senior notes due in march 2019 , utilizing our credit facility and a $ 75.0 million short-term bank loan that we have since repaid . we may , from time to time , consider retiring additional outstanding debt through open market purchases , privately negotiated transactions or other means .

the company raised significant funds in 2015 , consisting of : · $ 0.8 million in short-term notes ( in the first quarter of 2015 , $ 0.3 million of demand notes held by an entity controlled by our chief executive officer were settled as partial payment for a 2015 convertible note , and in the second quarter of 2015 , $ 0.2 million of notes from a related party were repaid in cash ) ; · $ 1.5 million through the issuance of convertible notes ; · $ 12.1 million in net proceeds from its ipo as discussed further below ; and · $ 6.0 million in net proceeds from the issuances of common stock and a senior secured promissory note to merck ghi . on may 8 , 2015 , opgen completed its ipo pursuant to which it offered and sold 2,850,000 units , each unit consisting of one share of common stock and a detachable stock purchase warrant to purchase an additional share of common stock , at an initial offering price of $ 6.00 per unit . of the total gross proceeds of $ 17.1 million , approximately $ 2.1 million was used to satisfy outstanding demand notes by exchanging such notes for 350,000 units in the ipo . after considering the demand notes , underwriting discounts and commissions and offering expenses , the total net cash proceeds were $ 12.1 million . on the ipo closing date , the underwriters exercised their over-allotment option to acquire an additional 422,500 stock purchase warrants . in connection with the ipo , all of opgen 's outstanding series a preferred stock , 2014 convertible notes and 2015 convertible notes were converted into 7,374,852 shares of common stock . on july 14 , 2015 , the company completed the strategic acquisition of advandx . pursuant to the merger agreement , a newly formed merger sub merged with and into advandx , with advandx surviving as a wholly owned subsidiary of the company in accordance with the general corporation law of the state of delaware . under the terms of the merger agreement , the merger consideration consisted of an aggregate 681,818 shares of the company 's common stock with a value of $ 2.6 million ( based on the closing sales price of our common stock of $ 3.79 per share on july 13 , 2015 ) . 49 in july 2015 , the company raised $ 6.0 million by issuing 1,136,364 shares of common stock at $ 4.40 per share and a $ 1.0 million senior secured promissory note to merck ghi . also in july 2015 , the company entered into a registration rights agreement with merck ghi and the advandx stockholders who received merger consideration in the merger , which will require the company to register such shares of company common stock for resale by such holders in the future . under the purchase agreement , merck ghi has the right to participate in future securities offerings made by the company . there is no assurance that merck ghi will exercise such participation rights in the future . the company 's current operating assumptions , which include management 's best estimate of future revenue and operating expenses , indicate that current cash on hand will be sufficient to fund operations into the second quarter of 2016. in the event the company is unable to successfully raise additional capital in 2016 , the company will not have sufficient cash flows and liquidity to finance its business operations as currently contemplated . accordingly , in such circumstances the company would be compelled to reduce general and administrative expenses and delay research and development projects , including the purchase of scientific equipment and supplies , until it is able to obtain sufficient financing , or pursue other strategic alternatives which may include licensing and or partnering arrangements or mergers and acquisitions . the consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the company be unable to continue in existence . results of operations for the years ended december 31 , 2015 and 2014 revenues and gross profit replace_table_token_1_th our total revenue for the year ended december 31 , 2015 decreased 23 % , to $ 3.2 million from $ 4.1 million , when compared to the same period in 2014. this decrease is primarily attributable to : · product sales : an increase in revenue of 118 % in 2015 as compared to 2014 is attributable to the inclusion of advandx products sales subsequent to the merger , offset in part by a reduction in the sale of our argus products , as we transition from our legacy mapping products to the introduction of acuitas mdro products ; · laboratory services : a decrease in revenue of 75 % in 2015 as compared to 2014 as a result of a reduction in sales of mapping products , as we transition from our legacy mapping products to the introduction of acuitas mdro products ; and · collaboration revenue : a decrease in revenue generated under a collaboration arrangement with hitachi of 86 % in 2015 as compared to 2014 as a result of the completion of our technology development agreement with hitachi . the company expects an increase in product sales in 2016 due to the inclusion of a full year of quickfish and pna fish product sales . this increase is expected to be partially offset by a decrease in the sale of argus products . the company expects a decline in mapping products and an increase in acuitas and lighthouse products . story_separator_special_tag the guidance requires an entity to review contracts in five steps : 1 ) identify the contract , 2 ) identify performance obligations , 3 ) determine the transaction price , 4 ) allocate the transaction price , and 5 ) recognize revenue . the new standard will result in enhanced disclosures regarding the nature , amount , timing and uncertainty of revenue arising from contracts with customers . the standard is effective for the company 's reporting year beginning january 1 , 2018 and early adoption is permitted starting january 1 , 2017. the company is currently evaluating the impact , if any , that this new accounting pronouncement will have on its consolidated financial statements . in august 2014 , the fasb issued guidance requiring management to evaluate on a regular basis whether any conditions or events have arisen that could raise substantial doubt about the entity 's ability to continue as a going concern . the guidance 1 ) provides a definition for the term ‘ ‘ substantial doubt , `` 2 ) requires an evaluation every reporting period , interim periods included , 3 ) provides principles for considering the mitigating effect of management 's plans to alleviate the substantial doubt , 4 ) requires certain disclosures if the substantial doubt is alleviated as a result of management 's plans , 5 ) requires an express statement , as well as other disclosures , if the substantial doubt is not alleviated , and 6 ) requires an assessment period of one year from the date the financial statements are issued . the standard is effective for the company 's reporting year beginning january 1 , 2017 and early adoption is permitted . the company is currently evaluating the impact , if any , that this new accounting pronouncement will have on its consolidated financial statements . in april 2015 , the fasb issued accounting guidance requiring that debt issuance costs related to a recognized liability be presented on the balance sheet as a direct reduction from the carrying amount of that debt liability , consistent with debt discounts . the recognition and measurement guidance for debt issuance costs are not affected . the standard is effective for reporting periods beginning after december 15 , 2015. the company is currently evaluating the impact , if any , that this new accounting pronouncement will have on its consolidated financial statements . in july 2015 , the fasb issued accounting guidance for inventory . under the guidance , an entity should measure inventory within the scope of this guidance at the lower of cost and net realizable value , except when inventory is measured using lifo or the retail inventory method . net realizable value is the estimated selling price in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . in addition , the fasb has amended some of the other inventory guidance to more clearly articulate the requirements for the measurement and disclosure of inventory . the standard is effective for reporting periods beginning after december 15 , 2016. the amendments in this pronouncement should be applied prospectively , with earlier application permitted . the company is currently evaluating the impact , if any , that this new accounting pronouncement will have on its consolidated financial statements . in september 2015 , the fasb issued accounting guidance to simplify the accounting for measurement period adjustments resulting from business combinations . under the guidance , an acquirer will be required to recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustments are determined . the guidance requires an entity to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment had been recognized as of the acquisition date . the company adopted this guidance in the fourth quarter of 2016 ; see note 4 to the consolidated financial statements for a discussion of the impact of such adoption . in february 2016 , the fasb issued accounting guidance which will require most leases ( with the exception of leases with terms of less than one year ) to be recognized on the balance sheet as an asset and a lease liability . leases will be classified as an operating lease or a financing lease . operating leases are expensed using the straight-line method whereas financing leases will be treated similarly to a capital lease under the current standard . the new standard will be effective for annual and interim periods , within those fiscal years , beginning after december 15 , 2018 but early adoption is permitted . the new standard must be presented using the modified retrospective method beginning with the earliest comparative period presented . the company is currently evaluating the effect of the new standard on its consolidated financial statements and related disclosures . 55 off-balance sheet arrangements a s of each of december 31 , 2015 and 2014 , we did not have any off-balance sheet arrangements , as defined in item 303 ( a ) ( 4 ) ( ii ) of regulation s-k promulgated by the sec . jobs act on april 5 , 2012 , the jobs act was enacted . section 107 of the jobs act provides that an “ emerging growth company ” can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act , for complying with new or revised accounting standards . in other words , an “ emerging growth company ” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to use the extended transition period for complying with new or revised

liquidity and capital resources at december 31 , 2015 , the company had cash and cash equivalents of $ 7.8 million , compared to $ 0.7 million at december 31 , 2014. the company raised significant funds in the first nine months of 2015 , consisting of : · $ 0.8 million in short-term notes ( in the first quarter of 2015 , $ 0.3 million of demand notes held by an entity controlled by our chief executive officer were settled as partial payment for a 2015 convertible note , and in the second quarter of 2015 , $ 0.2 million of notes from a related party were repaid in cash ) ; · $ 1.5 million through the issuance of convertible notes ; · $ 12.1 million in net proceeds from its ipo , as discussed further below ; and · $ 6.0 million in net proceeds from the issuances of common stock and senior secured promissory note tomerck ghi . on may 8 , 2015 the company completed its ipo pursuant to which the company offered and sold 2,850,000 units , each unit consisting of one share of common stock and a detachable stock purchase warrant to purchase an additional share of common stock , at an initial offering price of $ 6.00 per unit . of the total gross proceeds of $ 17.1 million , approximately $ 2.1 million was used to satisfy outstanding demand notes by exchanging such notes for 350,000 units in the ipo . after considering the demand notes , underwriting discounts and commissions and offering expenses , the total net cash proceeds to the company were $ 12.1 million .

the target date for the fda to complete its review of the nda for lumacaftor in combination with ivacaftor under the prescription drug user fee act , or pdufa , is july 5 , 2015. accordingly , we expect to begin recognizing net product revenues from lumacaftor in combination with ivacaftor in the united states in mid-2015 . we do not expect significant net product revenues from lumacaftor in combination with ivacaftor from ex-u.s. markets in 2015 due to the reimbursement discussions that will be required in these markets following the potential approval of the combination in the fourth quarter of 2015. we believe that there are approximately 22,000 patients with cf twelve years of age and older who are homozygous for the f508del mutation in north america , europe and australia , including approximately 8,500 in the united states and approximately 12,000 in europe . 49 vx-661 in combination with ivacaftor in 2015 , we initiated a phase 3 development program for vx-661 in combination with ivacaftor in patients with cf twelve years of age and older , including patients who are homozygous for the f508del mutation in their cftr gene and patients who have one copy of the f508del mutation in their cftr gene ( heterozygous ) . next-generation cftr corrector compounds we also are seeking to identify and develop next-generation cftr corrector compounds that could be evaluated in future dual- and or triple-combination treatment regimens with the potential to provide additional benefits to patients with cf . we have multiple next-generation correctors in the lead-optimization stage of research and expect to begin clinical development of a next-generation corrector in 2015. 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 and neurology . we plan to continue investing in our research programs and fostering scientific innovation in order to identify and develop transformative medicines with a focus on cf and other genetic diseases , oncology and neurology . 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 . hcv infection in 2012 and 2013 , we recognized significant net product revenues based on sales of incivek ( telaprevir ) , a product for the treatment of genotype 1 hcv infection that we marketed in north america . in october 2013 , in response to declining sales of incivek and increased competition , we reduced our focus on marketing incivek and eliminated the u.s. field-based sales force that had been promoting incivek . we have withdrawn incivek from the market in the united states , and we expect to wind-down any remaining activities relating to the field of hcv infection in 2015. in addition , we incurred an intangible asset impairment charge of $ 412.9 million in the first quarter of 2013 related to vx-222 a drug candidate for the treatment of hcv infection . in the fourth quarter of 2014 , we provided notice of termination of our collaboration with alios biopharma , inc. , or alios , related to the development of hcv nucleotide analogues . our financial statements reflect the activities related to alios as discontinued operations . 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 50 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 . story_separator_special_tag we do not expect significant net product revenues from lumacaftor in combination with ivacaftor in 2015 from ex-u.s. markets due to the reimbursement discussions that will be required in these markets following the potential approval of the combination in the fourth quarter of 2015. we can not make a meaningful estimate when , if ever , our other clinical development programs will generate revenues and cash flows . 56 research expenses replace_table_token_10_th over the past three years we have maintained a substantial investment in research activities resulting in a 10 % increase in research expenses in 2014 as compared to 2013 and a 9 % increase in research expenses in 2013 as compared to 2012 . we expect to continue to invest in our research programs with a focus on identifying drug candidates for specialty markets . development expenses replace_table_token_11_th our development expenses decreased by $ 50.4 million , or 8 % , in 2014 as compared to 2013 and increased by $ 96.1 million , or 17 % , in 2013 as compared to 2012 . the decrease in 2014 compared to 2013 was principally due to decreased outsourced services expenses and drug supply costs , partially offset by increased stock-based compensation expense . the significant decrease in outsourced services expenses in 2014 was largely attributable to decreased clinical trial expenses resulting from the completion of the traffic and transport clinical trials in the first half of 2014. we expect our development expenses for outsourced activities to increase in 2015 as compared to 2014 due to activities related to clinical trials , including the phase 3 clinical development program for vx-661 in combination with ivacaftor . the increased development expenses in 2013 in comparison to 2012 were principally due to the expansion of clinical development programs in cf , including the conduct of the phase 3 program for the combination of lumacaftor and ivacaftor , and increased drug supply costs primarily related to lumacaftor . 57 sales , general and administrative expenses replace_table_token_12_th sales , general and administrative expenses decreased by 14 % in 2014 compared to 2013 , primarily due to decreased headcount following our october 2013 restructuring activities . sales , general and administrative expenses decreased by 18 % 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 . restructuring expense in 2014 , 2013 and 2012 , we recorded restructuring expenses of $ 50.9 million , $ 40.5 million and $ 1.8 million , respectively . our restructuring expenses in 2014 primarily related to the relocation of our corporate headquarters in massachusetts to boston from cambridge . our restructuring expenses in 2013 primarily related to our october 2013 reduction in headcount . as of december 31 , 2014 , our accrued restructuring liability related to our lease obligations in cambridge was $ 45.0 million . these lease obligations primarily expire on december 31 , 2015 and april 30 , 2018. intangible asset impairment charges in 2013 , we recorded a $ 412.9 million impairment charge related to vx-222 , a non-nucleoside hcv polymerase inhibitor . in connection with this impairment charge , we recorded a credit of $ 127.6 million in our provision for income taxes , resulting in a net effect on net loss attributable to vertex related to this impairment charge of $ 285.3 million in 2013. there were no corresponding intangible asset impairment charges recorded related to continuing operations in 2014 or 2012. in 2013 , we recorded a $ 250.6 million impairment charge related to the alios hcv nucleotide analogue program and a benefit for income taxes of $ 102.1 million that is included in loss from discontinued operations attributable to noncontrolling interest for 2013. other items , net interest expense , net in 2014 , 2013 and 2012 , interest expense , net was $ 72.9 million , $ 22.9 million and $ 15.0 million , respectively . the increase in interest expense in 2014 compared to 2013 was primarily due to interest expense of $ 60.2 million associated with the leases for our corporate headquarters and interest expense of $ 10.4 million related to the $ 300.0 million we borrowed in july 2014 pursuant to our credit agreement . the increase in interest expense , net in 2013 compared to 2012 was primarily due to interest expense associated with the leases for our corporate headquarters commencing in the fourth quarter of 2013. other income ( expense ) , net in 2014 , net other income was $ 30.4 million primarily due to a credit of $ 36.7 million related to a one-time cash payment we received in 2014 from our landlord pursuant to leases for our corporate headquarters . in 2013 , we recorded net other income of $ 6.9 million primarily related to foreign exchange gains . in 2012 , our net other income was not significant . income taxes in 2014 , we recorded a provision for income taxes of $ 7.0 million . in 2013 , we recorded a benefit from income taxes of $ 122.4 million . this benefit from income taxes was primarily due to a benefit of $ 127.6 million related to our impairment charge for the vx-222 intangible asset . in 2012 , our benefit from income taxes was not significant . 58 discontinued operations as of september 30 , 2014 , we concluded that we no longer had significant continuing involvement with alios , a variable interest entity that we consolidated from june 2011 through december 2013. as a result , the effect of the alios collaboration is presented as discontinued operations in our consolidated statements of operations . in 2014 , we recorded a loss from discontinued operations attributable to vertex of $ 0.9 million . in 2013 , we recorded income from discontinued operations of $ 58.6 million and in 2012 we recorded a loss from discontinued operations of $ 139.3 million

liquidity and capital resources at december 31 , 2015 , the company had cash and cash equivalents of $ 7.8 million , compared to $ 0.7 million at december 31 , 2014. the company raised significant funds in the first nine months of 2015 , consisting of : · $ 0.8 million in short-term notes ( in the first quarter of 2015 , $ 0.3 million of demand notes held by an entity controlled by our chief executive officer were settled as partial payment for a 2015 convertible note , and in the second quarter of 2015 , $ 0.2 million of notes from a related party were repaid in cash ) ; · $ 1.5 million through the issuance of convertible notes ; · $ 12.1 million in net proceeds from its ipo , as discussed further below ; and · $ 6.0 million in net proceeds from the issuances of common stock and senior secured promissory note tomerck ghi . on may 8 , 2015 the company completed its ipo pursuant to which the company offered and sold 2,850,000 units , each unit consisting of one share of common stock and a detachable stock purchase warrant to purchase an additional share of common stock , at an initial offering price of $ 6.00 per unit . of the total gross proceeds of $ 17.1 million , approximately $ 2.1 million was used to satisfy outstanding demand notes by exchanging such notes for 350,000 units in the ipo . after considering the demand notes , underwriting discounts and commissions and offering expenses , the total net cash proceeds to the company were $ 12.1 million .

the target date for the fda to complete its review of the nda for lumacaftor in combination with ivacaftor under the prescription drug user fee act , or pdufa , is july 5 , 2015. accordingly , we expect to begin recognizing net product revenues from lumacaftor in combination with ivacaftor in the united states in mid-2015 . we do not expect significant net product revenues from lumacaftor in combination with ivacaftor from ex-u.s. markets in 2015 due to the reimbursement discussions that will be required in these markets following the potential approval of the combination in the fourth quarter of 2015. we believe that there are approximately 22,000 patients with cf twelve years of age and older who are homozygous for the f508del mutation in north america , europe and australia , including approximately 8,500 in the united states and approximately 12,000 in europe . 49 vx-661 in combination with ivacaftor in 2015 , we initiated a phase 3 development program for vx-661 in combination with ivacaftor in patients with cf twelve years of age and older , including patients who are homozygous for the f508del mutation in their cftr gene and patients who have one copy of the f508del mutation in their cftr gene ( heterozygous ) . next-generation cftr corrector compounds we also are seeking to identify and develop next-generation cftr corrector compounds that could be evaluated in future dual- and or triple-combination treatment regimens with the potential to provide additional benefits to patients with cf . we have multiple next-generation correctors in the lead-optimization stage of research and expect to begin clinical development of a next-generation corrector in 2015. 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 and neurology . we plan to continue investing in our research programs and fostering scientific innovation in order to identify and develop transformative medicines with a focus on cf and other genetic diseases , oncology and neurology . 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 . hcv infection in 2012 and 2013 , we recognized significant net product revenues based on sales of incivek ( telaprevir ) , a product for the treatment of genotype 1 hcv infection that we marketed in north america . in october 2013 , in response to declining sales of incivek and increased competition , we reduced our focus on marketing incivek and eliminated the u.s. field-based sales force that had been promoting incivek . we have withdrawn incivek from the market in the united states , and we expect to wind-down any remaining activities relating to the field of hcv infection in 2015. in addition , we incurred an intangible asset impairment charge of $ 412.9 million in the first quarter of 2013 related to vx-222 a drug candidate for the treatment of hcv infection . in the fourth quarter of 2014 , we provided notice of termination of our collaboration with alios biopharma , inc. , or alios , related to the development of hcv nucleotide analogues . our financial statements reflect the activities related to alios as discontinued operations . 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 50 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 . story_separator_special_tag we do not expect significant net product revenues from lumacaftor in combination with ivacaftor in 2015 from ex-u.s. markets due to the reimbursement discussions that will be required in these markets following the potential approval of the combination in the fourth quarter of 2015. we can not make a meaningful estimate when , if ever , our other clinical development programs will generate revenues and cash flows . 56 research expenses replace_table_token_10_th over the past three years we have maintained a substantial investment in research activities resulting in a 10 % increase in research expenses in 2014 as compared to 2013 and a 9 % increase in research expenses in 2013 as compared to 2012 . we expect to continue to invest in our research programs with a focus on identifying drug candidates for specialty markets . development expenses replace_table_token_11_th our development expenses decreased by $ 50.4 million , or 8 % , in 2014 as compared to 2013 and increased by $ 96.1 million , or 17 % , in 2013 as compared to 2012 . the decrease in 2014 compared to 2013 was principally due to decreased outsourced services expenses and drug supply costs , partially offset by increased stock-based compensation expense . the significant decrease in outsourced services expenses in 2014 was largely attributable to decreased clinical trial expenses resulting from the completion of the traffic and transport clinical trials in the first half of 2014. we expect our development expenses for outsourced activities to increase in 2015 as compared to 2014 due to activities related to clinical trials , including the phase 3 clinical development program for vx-661 in combination with ivacaftor . the increased development expenses in 2013 in comparison to 2012 were principally due to the expansion of clinical development programs in cf , including the conduct of the phase 3 program for the combination of lumacaftor and ivacaftor , and increased drug supply costs primarily related to lumacaftor . 57 sales , general and administrative expenses replace_table_token_12_th sales , general and administrative expenses decreased by 14 % in 2014 compared to 2013 , primarily due to decreased headcount following our october 2013 restructuring activities . sales , general and administrative expenses decreased by 18 % 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 . restructuring expense in 2014 , 2013 and 2012 , we recorded restructuring expenses of $ 50.9 million , $ 40.5 million and $ 1.8 million , respectively . our restructuring expenses in 2014 primarily related to the relocation of our corporate headquarters in massachusetts to boston from cambridge . our restructuring expenses in 2013 primarily related to our october 2013 reduction in headcount . as of december 31 , 2014 , our accrued restructuring liability related to our lease obligations in cambridge was $ 45.0 million . these lease obligations primarily expire on december 31 , 2015 and april 30 , 2018. intangible asset impairment charges in 2013 , we recorded a $ 412.9 million impairment charge related to vx-222 , a non-nucleoside hcv polymerase inhibitor . in connection with this impairment charge , we recorded a credit of $ 127.6 million in our provision for income taxes , resulting in a net effect on net loss attributable to vertex related to this impairment charge of $ 285.3 million in 2013. there were no corresponding intangible asset impairment charges recorded related to continuing operations in 2014 or 2012. in 2013 , we recorded a $ 250.6 million impairment charge related to the alios hcv nucleotide analogue program and a benefit for income taxes of $ 102.1 million that is included in loss from discontinued operations attributable to noncontrolling interest for 2013. other items , net interest expense , net in 2014 , 2013 and 2012 , interest expense , net was $ 72.9 million , $ 22.9 million and $ 15.0 million , respectively . the increase in interest expense in 2014 compared to 2013 was primarily due to interest expense of $ 60.2 million associated with the leases for our corporate headquarters and interest expense of $ 10.4 million related to the $ 300.0 million we borrowed in july 2014 pursuant to our credit agreement . the increase in interest expense , net in 2013 compared to 2012 was primarily due to interest expense associated with the leases for our corporate headquarters commencing in the fourth quarter of 2013. other income ( expense ) , net in 2014 , net other income was $ 30.4 million primarily due to a credit of $ 36.7 million related to a one-time cash payment we received in 2014 from our landlord pursuant to leases for our corporate headquarters . in 2013 , we recorded net other income of $ 6.9 million primarily related to foreign exchange gains . in 2012 , our net other income was not significant . income taxes in 2014 , we recorded a provision for income taxes of $ 7.0 million . in 2013 , we recorded a benefit from income taxes of $ 122.4 million . this benefit from income taxes was primarily due to a benefit of $ 127.6 million related to our impairment charge for the vx-222 intangible asset . in 2012 , our benefit from income taxes was not significant . 58 discontinued operations as of september 30 , 2014 , we concluded that we no longer had significant continuing involvement with alios , a variable interest entity that we consolidated from june 2011 through december 2013. as a result , the effect of the alios collaboration is presented as discontinued operations in our consolidated statements of operations . in 2014 , we recorded a loss from discontinued operations attributable to vertex of $ 0.9 million . in 2013 , we recorded income from discontinued operations of $ 58.6 million and in 2012 we recorded a loss from discontinued operations of $ 139.3 million

liquidity and capital resources as of december 31 , 2014 , we had cash , cash equivalents and marketable securities of approximately $ 1.39 billion , which represented a decrease of $ 78.0 million from approximately $ 1.47 billion as of december 31 , 2013 . this decrease was due to cash expenditures we made during 2014 related to , among other things , research and development expenses and sales , general and administrative expenses and $ 132.9 million for capital expenditures , largely offset by cash receipts from product sales , $ 300.0 million we borrowed pursuant to a credit agreement we entered into in the third quarter of 2014 , $ 274.6 million in cash we received from issuances of common stock pursuant to employee benefit plans , the payments of $ 35.0 million that we received from janssen inc. and a one-time cash payment of $ 36.7 million from our landlord pursuant to the terms of the leases for our corporate headquarters . we expect to continue to incur losses on a quarterly basis until we can substantially increase revenues as a result of potential future regulatory approvals , the timing of which are uncertain . sources of liquidity we intend to rely on our existing cash , cash equivalents and marketable securities together with cash flows from product sales as our primary source of liquidity . our cash flows from product sales have decreased on an annual basis during each of the past two years . in the near-term , we expect cash flows from sales of kalydeco to increase as we continue to increase the number of patients that are treated with kalydeco . if we obtain approval on a timely basis , we expect to begin recognizing net product revenues from lumacaftor in combination with ivacaftor in the united states in mid-2015 .

results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 summary our consolidated net loss for the year ended december 31 , 2017 was $ 853 , or $ 0.01 per share , compared with our consolidated net loss of $ 3,426 , or $ 0.07 per share , for the same period in 2016. for the year ended december 31 , 2017 , the decrease in consolidated net loss was primarily the result of a decrease in corporate administration expenses of $ 1,423 , a decrease in impairment charges of $ 407 , a decrease in our reclamation obligation of $ 225 and the gain on the revaluation of the option liability of $ 209. exploration and evaluation exploration and evaluation costs were $ 138 for the year ended december 31 , 2017 and approximating $ 394 for the same period in 2016. during 2016 , we suspended the majority of permitting activities while continuing the work necessary to maintain our assets at the bear lodge ree project . 47 corporate administration corporate administration costs decreased to $ 1,183 for year ended december 31 , 2017 , compared with $ 2,606 for the same period in 2016 , a decrease of $ 1,423. during the year ended december 31 , 2016 , corporate administration costs included one-time expenses of $ 950 incurred in placing the bear lodge ree project on care-and-maintenance and severing all but one of our full-time employees . reclamation obligation revision during the year ended december 31 , 2017 , we reduced our reclamation obligation by $ 225 based on a revision of our previous estimate . the wyoming department of environmental quality concurred that the completed reclamation work was in compliance with its standards and the estimated amount for the remainder of the reclamation activities was $ 132. there were no such reductions during the year ended december 31 , 2016. impairment charges on october 20 , 2016 , we executed an asset purchase agreement whereby the company agreed to sell its section 16 real property to a private party , retaining a five-year repurchase option . we evaluated the carrying value of the section 16 real property based on the sale price of $ 600. as a result , we reduced the carrying value of the land by $ 380 to $ 600 in the third quarter of 2016. on october 26 , 2016 , the parties closed the asset sale , and the company received net proceeds of approximately $ 595. additionally , as the bear lodge property is on care-and-maintenance , we have recorded an impairment charge of $ 27 for the year ended december 31 , 2016 to reduce the capitalized acquisition costs to zero . there were no impairment charges in 2017. gain on revaluation of option liability gain on the revaluation of the option liability was $ 209 for the year ended december 31 , 2017. this gain is directly related to the valuation of the option agreement with synchron ( see “financial position , liquidity and capital resources - strategic investment” discussion below ) . as the option agreement is considered a derivative liability , we revalue the option liability at the end of each reporting period , until the option is exercised or expired . any gains or losses from the revaluation are recorded to the consolidated statements of operations . there were no similar transactions in 2016. amortization of intellectual property income during the year ended december 31 , 2017 , we amortized $ 64 of deferred intellectual property income . we incurred deferred intellectual property income due to the intellectual property rights agreement with synchron ( see “financial position , liquidity and capital resources - strategic investment” discussion below ) . as synchron will obtain exclusive rights to the intellectual property if it exercises the option agreement , the value of the intellectual property rights agreement is considered deferred income . we will amortize the deferred income using the straight-line method over a period of four years ( the term of the option agreement ) . there were no similar transactions in 2016. financial position , liquidity and capital resources operating activities net cash used in operating activities was $ 1,273 for the year ended december 31 , 2017 , as compared with $ 3,637 for the same period in 2016. the decrease in cash used of $ 2,364 from the prior period was primarily the result of decreased spending on corporate administration expenses , the reduction of our reclamation obligation , the gain on revaluation of the option agreement , the amortization of the intellectual property deferred income . investing activities net cash provided by investing activities was $ 88 for the year ended december 31 , 2016 , as compared with net cash used of nil for the same period in 2017. the cash received in the 2016 period was related to the sale of small equipment and office furniture . 48 financing activities net cash provided by financing activities was $ 4,706 for the year ended december 31 , 2017 , and net cash provided by financing activities was $ 595 for the year ended december 31 , 2016. the cash received in the 2017 period was related to the transaction with synchron discussed in “financial position , liquidity and capital resources—strategic investment” , net of costs to complete . the cash received in 2016 was the result of closing the sale on october 26 , 2016 of approximately 640 acres on non-core real property located in crook county , wyoming ( section 16 real property ) . story_separator_special_tag name= `` _toc509922498 `` > critical accounting estimates exploration and development costs exploration costs are expensed as incurred . story_separator_special_tag when it is determined that a mining deposit can be economically and legally extracted or produced based on established proven and probable reserves under sec industry guide 7 , development costs related to such reserves and incurred after such determination will be considered for capitalization . the establishment of proven and probable reserves is based on results of feasibility studies . upon commencement of commercial production , capitalized costs will be amortized over their estimated useful lives or units of production , whichever is a more reliable measure . capitalized amounts relating to a property that is abandoned or otherwise considered uneconomic for the foreseeable future will be written off . 50 stock-based compensation we account for stock-based compensation under the provisions of financial accounting standards board ( “fasb” ) accounting standards certification ( “asc” ) 718 , “compensation – stock compensation.” under the fair value recognition provisions , stock-based compensation expense is measured at the grant date for all stock-based awards granted to employees and directors . we account for stock-based compensation arrangements with non-employees in accordance with asc 718 and asc 505-15 , “equity , ” which require that such equity instruments are recorded at their fair value on the on the grant date of such awards and marked to market at each reporting period until the grant vests . the fair value of all share-based compensation awards is calculated using the black-scholes option valuation model , and the amount is recorded as an expense with a corresponding increase in additional paid-in-capital . all stock-based compensation charges are amortized over the vesting period on a straight-line basis . reclamation obligations our mining and exploration activities are subject to various laws and regulations , including legal and contractual obligations to reclaim , remediate , or otherwise restore properties at the time the property is removed from service . reclamation obligations are recognized when incurred and recorded as liabilities at fair value . the reclamation obligation is based on when spending for an existing disturbance will occur . we reclaim the disturbance from our exploration programs on an ongoing basis and , therefore , the portion of our reclamation obligation corresponding to our exploration programs will be settled in the near term and is classified as a current liability . the remaining reclamation associated with environmental monitoring programs is classified as a long-term liability ; however , because we have not declared proven and probable reserves as defined by sec industry guide 7 , the timing of these reclamation activities is uncertain as the reclamation areas will be utilized once the project is operating . for exploration stage properties that do not qualify for asset capitalization , the costs associated with the obligation are charged to operations . for development and production stage properties , the costs are added to the capitalized costs of the property and amortized using the units-of-production method . we review , on a quarterly basis , unless otherwise deemed necessary , the reclamation obligation in connection with the bear lodge property . reclamation obligations are secured by surety bonds held for the benefit of the state of wyoming in amounts determined by applicable federal and state regulatory agencies . recent accounting pronouncements revenue recognition the fasb issued accounting standards update ( “asu” ) asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) . asu no . 2014-09 , as subsequently amended , supersedes the revenue recognition requirements in revenue recognition ( topic 605 ) , and most industry-specific guidance throughout the industry topics of the codification . additionally , asu no . 2014-09 supersedes some cost guidance included in revenue recognition-construction-type and production-type contracts ( subtopic 605-35 ) . under asu no . 2014-09 , an entity should recognize revenue when it transfers 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 . asu no . 2014-09 also requires additional disclosure about the nature , amount , timing , and uncertainty of revenue and cash flows arising from customer contracts . this includes significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract . the new guidance is effective for interim and annual periods beginning after december 15 , 2017. as the company 's current polices are substantially compliant with asu no . 2014-09 , we do not expect a material impact to our financial statements upon adoption . stock-based compensation the fasb issued asu 2017-09 , compensation — stock compensation — scope of modification accounting ( “asu 2017-09” ) , which provides guidance about the types of changes to terms or conditions of a share-based payment award that would require an entity to apply modification accounting . the new guidance is effective for fiscal years beginning after december 15 , 2017 , including interim periods within those fiscal years . early adoption is permitted . the amendments in this update should be applied prospectively to an award 51 modified on or after the adoption date . the company will adopt this standard as of the effective date and does not expect a material impact to our financial statements upon adoption . the fasb issued asu 2016-09 , compensation – stock compensation ( topic 718 ) : improvements to employee share-based payment accounting ( “asu 2016-09” ) , which is intended to improve the accounting for employee share-based payments and which affects all organizations that issue share-based payment awards to their employees . several aspects of the accounting for share-based payment award transactions are simplified , including : ( a ) income tax consequences ; ( b ) classification of awards as either equity or liabilities ; and ( c ) classification on the statement of cash flows . for public companies , the amendments are effective for annual periods beginning after december 15 , 2016 , and interim periods within those annual

liquidity and capital resources as of december 31 , 2014 , we had cash , cash equivalents and marketable securities of approximately $ 1.39 billion , which represented a decrease of $ 78.0 million from approximately $ 1.47 billion as of december 31 , 2013 . this decrease was due to cash expenditures we made during 2014 related to , among other things , research and development expenses and sales , general and administrative expenses and $ 132.9 million for capital expenditures , largely offset by cash receipts from product sales , $ 300.0 million we borrowed pursuant to a credit agreement we entered into in the third quarter of 2014 , $ 274.6 million in cash we received from issuances of common stock pursuant to employee benefit plans , the payments of $ 35.0 million that we received from janssen inc. and a one-time cash payment of $ 36.7 million from our landlord pursuant to the terms of the leases for our corporate headquarters . we expect to continue to incur losses on a quarterly basis until we can substantially increase revenues as a result of potential future regulatory approvals , the timing of which are uncertain . sources of liquidity we intend to rely on our existing cash , cash equivalents and marketable securities together with cash flows from product sales as our primary source of liquidity . our cash flows from product sales have decreased on an annual basis during each of the past two years . in the near-term , we expect cash flows from sales of kalydeco to increase as we continue to increase the number of patients that are treated with kalydeco . if we obtain approval on a timely basis , we expect to begin recognizing net product revenues from lumacaftor in combination with ivacaftor in the united states in mid-2015 .

results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 summary our consolidated net loss for the year ended december 31 , 2017 was $ 853 , or $ 0.01 per share , compared with our consolidated net loss of $ 3,426 , or $ 0.07 per share , for the same period in 2016. for the year ended december 31 , 2017 , the decrease in consolidated net loss was primarily the result of a decrease in corporate administration expenses of $ 1,423 , a decrease in impairment charges of $ 407 , a decrease in our reclamation obligation of $ 225 and the gain on the revaluation of the option liability of $ 209. exploration and evaluation exploration and evaluation costs were $ 138 for the year ended december 31 , 2017 and approximating $ 394 for the same period in 2016. during 2016 , we suspended the majority of permitting activities while continuing the work necessary to maintain our assets at the bear lodge ree project . 47 corporate administration corporate administration costs decreased to $ 1,183 for year ended december 31 , 2017 , compared with $ 2,606 for the same period in 2016 , a decrease of $ 1,423. during the year ended december 31 , 2016 , corporate administration costs included one-time expenses of $ 950 incurred in placing the bear lodge ree project on care-and-maintenance and severing all but one of our full-time employees . reclamation obligation revision during the year ended december 31 , 2017 , we reduced our reclamation obligation by $ 225 based on a revision of our previous estimate . the wyoming department of environmental quality concurred that the completed reclamation work was in compliance with its standards and the estimated amount for the remainder of the reclamation activities was $ 132. there were no such reductions during the year ended december 31 , 2016. impairment charges on october 20 , 2016 , we executed an asset purchase agreement whereby the company agreed to sell its section 16 real property to a private party , retaining a five-year repurchase option . we evaluated the carrying value of the section 16 real property based on the sale price of $ 600. as a result , we reduced the carrying value of the land by $ 380 to $ 600 in the third quarter of 2016. on october 26 , 2016 , the parties closed the asset sale , and the company received net proceeds of approximately $ 595. additionally , as the bear lodge property is on care-and-maintenance , we have recorded an impairment charge of $ 27 for the year ended december 31 , 2016 to reduce the capitalized acquisition costs to zero . there were no impairment charges in 2017. gain on revaluation of option liability gain on the revaluation of the option liability was $ 209 for the year ended december 31 , 2017. this gain is directly related to the valuation of the option agreement with synchron ( see “financial position , liquidity and capital resources - strategic investment” discussion below ) . as the option agreement is considered a derivative liability , we revalue the option liability at the end of each reporting period , until the option is exercised or expired . any gains or losses from the revaluation are recorded to the consolidated statements of operations . there were no similar transactions in 2016. amortization of intellectual property income during the year ended december 31 , 2017 , we amortized $ 64 of deferred intellectual property income . we incurred deferred intellectual property income due to the intellectual property rights agreement with synchron ( see “financial position , liquidity and capital resources - strategic investment” discussion below ) . as synchron will obtain exclusive rights to the intellectual property if it exercises the option agreement , the value of the intellectual property rights agreement is considered deferred income . we will amortize the deferred income using the straight-line method over a period of four years ( the term of the option agreement ) . there were no similar transactions in 2016. financial position , liquidity and capital resources operating activities net cash used in operating activities was $ 1,273 for the year ended december 31 , 2017 , as compared with $ 3,637 for the same period in 2016. the decrease in cash used of $ 2,364 from the prior period was primarily the result of decreased spending on corporate administration expenses , the reduction of our reclamation obligation , the gain on revaluation of the option agreement , the amortization of the intellectual property deferred income . investing activities net cash provided by investing activities was $ 88 for the year ended december 31 , 2016 , as compared with net cash used of nil for the same period in 2017. the cash received in the 2016 period was related to the sale of small equipment and office furniture . 48 financing activities net cash provided by financing activities was $ 4,706 for the year ended december 31 , 2017 , and net cash provided by financing activities was $ 595 for the year ended december 31 , 2016. the cash received in the 2017 period was related to the transaction with synchron discussed in “financial position , liquidity and capital resources—strategic investment” , net of costs to complete . the cash received in 2016 was the result of closing the sale on october 26 , 2016 of approximately 640 acres on non-core real property located in crook county , wyoming ( section 16 real property ) . story_separator_special_tag name= `` _toc509922498 `` > critical accounting estimates exploration and development costs exploration costs are expensed as incurred . story_separator_special_tag when it is determined that a mining deposit can be economically and legally extracted or produced based on established proven and probable reserves under sec industry guide 7 , development costs related to such reserves and incurred after such determination will be considered for capitalization . the establishment of proven and probable reserves is based on results of feasibility studies . upon commencement of commercial production , capitalized costs will be amortized over their estimated useful lives or units of production , whichever is a more reliable measure . capitalized amounts relating to a property that is abandoned or otherwise considered uneconomic for the foreseeable future will be written off . 50 stock-based compensation we account for stock-based compensation under the provisions of financial accounting standards board ( “fasb” ) accounting standards certification ( “asc” ) 718 , “compensation – stock compensation.” under the fair value recognition provisions , stock-based compensation expense is measured at the grant date for all stock-based awards granted to employees and directors . we account for stock-based compensation arrangements with non-employees in accordance with asc 718 and asc 505-15 , “equity , ” which require that such equity instruments are recorded at their fair value on the on the grant date of such awards and marked to market at each reporting period until the grant vests . the fair value of all share-based compensation awards is calculated using the black-scholes option valuation model , and the amount is recorded as an expense with a corresponding increase in additional paid-in-capital . all stock-based compensation charges are amortized over the vesting period on a straight-line basis . reclamation obligations our mining and exploration activities are subject to various laws and regulations , including legal and contractual obligations to reclaim , remediate , or otherwise restore properties at the time the property is removed from service . reclamation obligations are recognized when incurred and recorded as liabilities at fair value . the reclamation obligation is based on when spending for an existing disturbance will occur . we reclaim the disturbance from our exploration programs on an ongoing basis and , therefore , the portion of our reclamation obligation corresponding to our exploration programs will be settled in the near term and is classified as a current liability . the remaining reclamation associated with environmental monitoring programs is classified as a long-term liability ; however , because we have not declared proven and probable reserves as defined by sec industry guide 7 , the timing of these reclamation activities is uncertain as the reclamation areas will be utilized once the project is operating . for exploration stage properties that do not qualify for asset capitalization , the costs associated with the obligation are charged to operations . for development and production stage properties , the costs are added to the capitalized costs of the property and amortized using the units-of-production method . we review , on a quarterly basis , unless otherwise deemed necessary , the reclamation obligation in connection with the bear lodge property . reclamation obligations are secured by surety bonds held for the benefit of the state of wyoming in amounts determined by applicable federal and state regulatory agencies . recent accounting pronouncements revenue recognition the fasb issued accounting standards update ( “asu” ) asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) . asu no . 2014-09 , as subsequently amended , supersedes the revenue recognition requirements in revenue recognition ( topic 605 ) , and most industry-specific guidance throughout the industry topics of the codification . additionally , asu no . 2014-09 supersedes some cost guidance included in revenue recognition-construction-type and production-type contracts ( subtopic 605-35 ) . under asu no . 2014-09 , an entity should recognize revenue when it transfers 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 . asu no . 2014-09 also requires additional disclosure about the nature , amount , timing , and uncertainty of revenue and cash flows arising from customer contracts . this includes significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract . the new guidance is effective for interim and annual periods beginning after december 15 , 2017. as the company 's current polices are substantially compliant with asu no . 2014-09 , we do not expect a material impact to our financial statements upon adoption . stock-based compensation the fasb issued asu 2017-09 , compensation — stock compensation — scope of modification accounting ( “asu 2017-09” ) , which provides guidance about the types of changes to terms or conditions of a share-based payment award that would require an entity to apply modification accounting . the new guidance is effective for fiscal years beginning after december 15 , 2017 , including interim periods within those fiscal years . early adoption is permitted . the amendments in this update should be applied prospectively to an award 51 modified on or after the adoption date . the company will adopt this standard as of the effective date and does not expect a material impact to our financial statements upon adoption . the fasb issued asu 2016-09 , compensation – stock compensation ( topic 718 ) : improvements to employee share-based payment accounting ( “asu 2016-09” ) , which is intended to improve the accounting for employee share-based payments and which affects all organizations that issue share-based payment awards to their employees . several aspects of the accounting for share-based payment award transactions are simplified , including : ( a ) income tax consequences ; ( b ) classification of awards as either equity or liabilities ; and ( c ) classification on the statement of cash flows . for public companies , the amendments are effective for annual periods beginning after december 15 , 2016 , and interim periods within those annual

liquidity and capital resources at december 31 , 2017 , our total current assets were $ 4,401 , as compared with $ 1,008 at december 31 , 2016 , which is an increase of $ 3,393. the increase in total current assets is primarily due to an increase in the combination of cash and cash equivalents in the amount of $ 3,433 due to the transaction with synchron , discussed below , partially offset by funding operations and a decrease in prepaid expenses . our working capital as at december 31 , 2017 was $ 4,349 , as compared with $ 791 at december 31 , 2016. the increase in working capital is primarily due to the strategic investment , discussed below , partially offset by funding our operations and by the non-cash reclamation obligation revision , discussed above . we had previously placed the bear lodge ree project under care-and-maintenance , and all permitting activities had been suspended . additionally , corporate cost containment measures were implemented to preserve remaining cash balances as we pursued additional financings , asset sales and or strategic alternatives , including joint ventures and the potential sale of all , or a portion of , the bear lodge ree project and or the sundance gold project . as a result of the closing of the transaction with synchron on october 2 , 2017 , the company is considering an updated work plan to ( i ) further progress and enhance our proprietary technology for rare earth processing and separation through pilot plant testing , ( ii ) progress engineering work to optimize our mine plan , , and ( iii ) determine the timing for the resumption of permitting efforts . notwithstanding the transaction with synchron in october 2017 , we do not have sufficient funds to fully complete feasibility studies , permitting , development and construction of the bear lodge ree project . therefore , the achievement of these activities will be dependent upon future financings , off-take agreements , joint ventures , strategic transactions , or sales of various assets . there is no assurance , however , that we will be successful in completing such a financing or transaction .

as a result , we do not include in our financial statements the results of operations of these dealerships prior to the date we acquired them , which may impact the comparability of the financial information presented . also , as a result of the effects of our acquisitions , dispositions , and other potential factors in the future , our historical financial information is not necessarily indicative of our results of operations and financial position in the future or the results of operations and financial position that would have resulted had such transactions occurred at the beginning of the periods presented . our operating results reflect the combined performance of each of our interrelated business activities , which include the sale of new vehicles , used vehicles , finance and insurance products , and parts , as well as service and collision repair services . historically , each of these activities has been directly or indirectly impacted by a variety of supply/demand factors , including vehicle inventories , consumer confidence , consumer discretionary spending , availability and affordability of consumer credit , manufacturer incentives , weather patterns , fuel prices , and interest rates . for example , during periods of sustained economic downturn or significant supply/demand imbalances , new vehicle sales may be negatively impacted as consumers tend to shift their purchases to used vehicles . some consumers may even delay their purchasing decisions altogether , electing instead to repair their existing vehicles . in such cases , however , we believe the new vehicle sales impact on our overall business is mitigated by our ability to offer other products and services , such as used vehicles and parts , service and collision repair services , as well as our ability to reduce our costs in response to lower sales . our results of operations depend substantially on general economic conditions and spending habits in those regions of the u.s. where we maintain most of our operations . with the recent decline in commodity prices , which have led to significant declines in the price of gasoline , we may experience increased sales in regions not directly affected by the oil and gas economy . 36 in the u.s. , we generally experience higher volumes of vehicle sales and service in the second and third calendar quarters of each year . this seasonality is generally attributable to consumer buying trends and the timing of manufacturer new vehicle model introductions . in addition , in some regions of the u.s. , vehicle purchases decline during the winter months due to inclement weather . as a result , our u.s. revenues and operating income are typically lower in the first and fourth quarters and higher in the second and third quarters . for the u.k. , the first and third calendar quarters tend to be stronger , driven by plate change months of march and september . for brazil , we expect higher volumes in the third and fourth calendar quarters ; however , the first quarter is the weakest , driven by heavy vacations and activities associated with carnival . other factors unrelated to seasonality , such as changes in economic condition and manufacturer incentive programs , may exaggerate seasonal or cause counter-seasonal fluctuations in our revenues and operating income . according to u.s. industry experts , the annual new light vehicle unit sales for 2014 increased 918 thousand units , or 5.9 % , to 16.5 million units , compared to 15.6 million units in 2013 . the u.k. economy represents the sixth largest economy in the world . the u.k. remained the second largest market in the eu , surpassing the region 's 5.7 % average growth . light vehicle registrations in the u.k. increased 9.3 % to 2.5 million during 2014 as compared to the same period a year ago . brazil represents the seventh largest economy in the world and the fourth largest car market . recently , the brazilian economy has been one of the fastest growing economies in the world . however , the brazilian economy is facing many challenges and is not demonstrating significant growth at the moment . light vehicle industry unit sales in brazil declined 7.6 % during 2014 to 3.3 million as compared to the same period a year ago . and in 2014 , the brazilian economy experienced a rise in inflation and interest rates and a decrease in the value of the brazilian real compared to the u.s. dollar . on a consolidated basis for the year ended december 31 , 2014 , our total revenues increased 11.4 % from 2013 to $ 9.9 billion and gross profit improved 12.0 % to $ 1.4 billion . for the years ended december 31 , 2013 and 2012 , total revenues were $ 8.9 billion and $ 7.5 billion , respectively . for the years ended december 31 , 2013 and 2012 , gross profits were $ 1,292.5 million and $ 1,117.3 million , respectively . we generated net income of $ 93.0 million , or $ 3.60 per diluted common share for the year ended december 31 , 2014 , compared to $ 114.0 million , or $ 4.32 per diluted share for the year ended december 31 , 2013 and $ 100.2 million , or $ 4.19 per diluted share for the year ended december 31 , 2012. in addition to the matters described above , the following factors impacted our financial condition and results of operations in 2014 , 2013 , and 2012 : year ended december 31 , 2014 : extinguishment of long-term debt : during the year , our 2014 results were negatively impacted by the extinguishment of our 2.25 % notes and 3.00 % notes . the aggregate loss for 2014 was $ 46.4 million . story_separator_special_tag recent accounting pronouncements refer to note 2 of our consolidated financial statements , “ summary of significant accounting polices and estimates , ” for a discussion of those most recent pronouncements that impact us . critical accounting policies and accounting estimates the preparation of our financial statements in conformity with accounting principles generally accepted in the united states ( “ gaap ” ) principles requires management to make certain estimates and assumptions . these estimates and assumptions 41 affect the reported amounts of assets and liabilities , the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period . we analyze our estimates based on our historical experience and various other assumptions that we believe to be reasonable under the circumstances . however , actual results could differ from such estimates . the following is a discussion of our critical accounting estimates and policies . we have identified below what we believe to be the most pervasive accounting policies and estimates that are of particular importance to the portrayal of our financial position , results of operations and cash flows . see note 2 to our consolidated financial statements , “ summary of significant accounting policies and estimates , ” for further discussion of all our significant accounting policies and estimates . revenue recognition . revenues from vehicle sales , parts sales , and vehicle service are recognized upon completion of the sale or service and delivery to the customer . conditions to completing a sale include having an agreement with the customer , including pricing , and the sales price must be reasonably expected to be collected . we include revenues from our collision center operations in parts and services sales . we record the profit we receive for arranging vehicle fleet transactions net in other finance and insurance revenues . since all sales of new vehicles must occur through franchised new vehicle dealerships , the dealerships effectively act as agents for the automobile manufacturers in completing sales of vehicles to fleet customers . as these customers typically order the vehicles , we have no significant general inventory risk . additionally , fleet customers generally receive special purchase incentives from the automobile manufacturers and we receive only a nominal fee for facilitating the transactions . taxes collected from customers and remitted to governmental agencies are not included in total revenues . we arrange financing for customers through various institutions and receive financing fees based on the difference between the loan rates charged to customers and wholesale financing rates set by the financing institution . in addition , we receive fees from the sale of insurance and vehicle service contracts to customers . further , through agreements with certain vehicle service contract administrators , we earn volume incentive rebates and interest income on reserves , as well as participate in the underwriting profits of the products . we may be charged back for unearned financing , insurance contract or vehicle service contract fees in the event of early termination of the contracts by customers . revenues from these fees are recorded at the time of the sale of the vehicles and a reserve for future amounts which might be charged back is established based on our historical chargeback results and the termination provisions of the applicable contracts . while chargeback results vary depending on the type of contract sold , a 10 % increase in the historical chargeback results used in determining estimates of future amounts which might be charged back would have increased the reserve at december 31 , 2014 , by $ 2.9 million . inventories . new , used and demonstrator vehicle inventories are carried at the lower of specific cost or market and are removed from inventory using the specific identification method in the consolidated balance sheets . parts and accessories inventories are valued at lower of cost ( determined on a first-in , first-out basis ) or market in the consolidated balance sheets . vehicle inventory cost consists of the amount paid to acquire the inventory , plus the cost of reconditioning , cost of equipment added and transportation cost . additionally , we receive interest assistance from some of our automobile manufacturers . this assistance is accounted for as a vehicle purchase price discount and is reflected as a reduction to the inventory cost on our consolidated balance sheets and as a reduction to cost of sales in our statements of operations as the vehicles are sold . at december 31 , 2014 and 2013 , inventory cost had been reduced by $ 8.8 million and $ 9.0 million , respectively , for interest assistance received from manufacturers . new vehicle cost of sales was reduced by $ 45.1 million , $ 38.5 million , and $ 33.9 million for interest assistance received related to vehicles sold for the years ended december 31 , 2014 , 2013 , and 2012 , respectively . the assistance over the past three years has ranged from approximately 87.3 % of our quarterly floorplan interest expense in the first quarter of 2013 to 117.7 % for the fourth quarter of 2014. as the market value of inventory typically declines over time , we establish new and used vehicle reserves based on our historical loss experience and considerations of current market trends . these reserves are charged to cost of sales and reduce the carrying value of inventory on hand . used vehicles are complex to value as there is no standardized source for determining exact values and each vehicle and each market in which we operate is unique . as a result , the value of each used vehicle taken at trade-in , or purchased at auction , is determined based on industry data , primarily accessed via our used vehicle management software and the industry expertise of the responsible used vehicle manager . valuation risk is partially mitigated , by the speed at which

liquidity and capital resources at december 31 , 2017 , our total current assets were $ 4,401 , as compared with $ 1,008 at december 31 , 2016 , which is an increase of $ 3,393. the increase in total current assets is primarily due to an increase in the combination of cash and cash equivalents in the amount of $ 3,433 due to the transaction with synchron , discussed below , partially offset by funding operations and a decrease in prepaid expenses . our working capital as at december 31 , 2017 was $ 4,349 , as compared with $ 791 at december 31 , 2016. the increase in working capital is primarily due to the strategic investment , discussed below , partially offset by funding our operations and by the non-cash reclamation obligation revision , discussed above . we had previously placed the bear lodge ree project under care-and-maintenance , and all permitting activities had been suspended . additionally , corporate cost containment measures were implemented to preserve remaining cash balances as we pursued additional financings , asset sales and or strategic alternatives , including joint ventures and the potential sale of all , or a portion of , the bear lodge ree project and or the sundance gold project . as a result of the closing of the transaction with synchron on october 2 , 2017 , the company is considering an updated work plan to ( i ) further progress and enhance our proprietary technology for rare earth processing and separation through pilot plant testing , ( ii ) progress engineering work to optimize our mine plan , , and ( iii ) determine the timing for the resumption of permitting efforts . notwithstanding the transaction with synchron in october 2017 , we do not have sufficient funds to fully complete feasibility studies , permitting , development and construction of the bear lodge ree project . therefore , the achievement of these activities will be dependent upon future financings , off-take agreements , joint ventures , strategic transactions , or sales of various assets . there is no assurance , however , that we will be successful in completing such a financing or transaction .

as a result , we do not include in our financial statements the results of operations of these dealerships prior to the date we acquired them , which may impact the comparability of the financial information presented . also , as a result of the effects of our acquisitions , dispositions , and other potential factors in the future , our historical financial information is not necessarily indicative of our results of operations and financial position in the future or the results of operations and financial position that would have resulted had such transactions occurred at the beginning of the periods presented . our operating results reflect the combined performance of each of our interrelated business activities , which include the sale of new vehicles , used vehicles , finance and insurance products , and parts , as well as service and collision repair services . historically , each of these activities has been directly or indirectly impacted by a variety of supply/demand factors , including vehicle inventories , consumer confidence , consumer discretionary spending , availability and affordability of consumer credit , manufacturer incentives , weather patterns , fuel prices , and interest rates . for example , during periods of sustained economic downturn or significant supply/demand imbalances , new vehicle sales may be negatively impacted as consumers tend to shift their purchases to used vehicles . some consumers may even delay their purchasing decisions altogether , electing instead to repair their existing vehicles . in such cases , however , we believe the new vehicle sales impact on our overall business is mitigated by our ability to offer other products and services , such as used vehicles and parts , service and collision repair services , as well as our ability to reduce our costs in response to lower sales . our results of operations depend substantially on general economic conditions and spending habits in those regions of the u.s. where we maintain most of our operations . with the recent decline in commodity prices , which have led to significant declines in the price of gasoline , we may experience increased sales in regions not directly affected by the oil and gas economy . 36 in the u.s. , we generally experience higher volumes of vehicle sales and service in the second and third calendar quarters of each year . this seasonality is generally attributable to consumer buying trends and the timing of manufacturer new vehicle model introductions . in addition , in some regions of the u.s. , vehicle purchases decline during the winter months due to inclement weather . as a result , our u.s. revenues and operating income are typically lower in the first and fourth quarters and higher in the second and third quarters . for the u.k. , the first and third calendar quarters tend to be stronger , driven by plate change months of march and september . for brazil , we expect higher volumes in the third and fourth calendar quarters ; however , the first quarter is the weakest , driven by heavy vacations and activities associated with carnival . other factors unrelated to seasonality , such as changes in economic condition and manufacturer incentive programs , may exaggerate seasonal or cause counter-seasonal fluctuations in our revenues and operating income . according to u.s. industry experts , the annual new light vehicle unit sales for 2014 increased 918 thousand units , or 5.9 % , to 16.5 million units , compared to 15.6 million units in 2013 . the u.k. economy represents the sixth largest economy in the world . the u.k. remained the second largest market in the eu , surpassing the region 's 5.7 % average growth . light vehicle registrations in the u.k. increased 9.3 % to 2.5 million during 2014 as compared to the same period a year ago . brazil represents the seventh largest economy in the world and the fourth largest car market . recently , the brazilian economy has been one of the fastest growing economies in the world . however , the brazilian economy is facing many challenges and is not demonstrating significant growth at the moment . light vehicle industry unit sales in brazil declined 7.6 % during 2014 to 3.3 million as compared to the same period a year ago . and in 2014 , the brazilian economy experienced a rise in inflation and interest rates and a decrease in the value of the brazilian real compared to the u.s. dollar . on a consolidated basis for the year ended december 31 , 2014 , our total revenues increased 11.4 % from 2013 to $ 9.9 billion and gross profit improved 12.0 % to $ 1.4 billion . for the years ended december 31 , 2013 and 2012 , total revenues were $ 8.9 billion and $ 7.5 billion , respectively . for the years ended december 31 , 2013 and 2012 , gross profits were $ 1,292.5 million and $ 1,117.3 million , respectively . we generated net income of $ 93.0 million , or $ 3.60 per diluted common share for the year ended december 31 , 2014 , compared to $ 114.0 million , or $ 4.32 per diluted share for the year ended december 31 , 2013 and $ 100.2 million , or $ 4.19 per diluted share for the year ended december 31 , 2012. in addition to the matters described above , the following factors impacted our financial condition and results of operations in 2014 , 2013 , and 2012 : year ended december 31 , 2014 : extinguishment of long-term debt : during the year , our 2014 results were negatively impacted by the extinguishment of our 2.25 % notes and 3.00 % notes . the aggregate loss for 2014 was $ 46.4 million . story_separator_special_tag recent accounting pronouncements refer to note 2 of our consolidated financial statements , “ summary of significant accounting polices and estimates , ” for a discussion of those most recent pronouncements that impact us . critical accounting policies and accounting estimates the preparation of our financial statements in conformity with accounting principles generally accepted in the united states ( “ gaap ” ) principles requires management to make certain estimates and assumptions . these estimates and assumptions 41 affect the reported amounts of assets and liabilities , the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period . we analyze our estimates based on our historical experience and various other assumptions that we believe to be reasonable under the circumstances . however , actual results could differ from such estimates . the following is a discussion of our critical accounting estimates and policies . we have identified below what we believe to be the most pervasive accounting policies and estimates that are of particular importance to the portrayal of our financial position , results of operations and cash flows . see note 2 to our consolidated financial statements , “ summary of significant accounting policies and estimates , ” for further discussion of all our significant accounting policies and estimates . revenue recognition . revenues from vehicle sales , parts sales , and vehicle service are recognized upon completion of the sale or service and delivery to the customer . conditions to completing a sale include having an agreement with the customer , including pricing , and the sales price must be reasonably expected to be collected . we include revenues from our collision center operations in parts and services sales . we record the profit we receive for arranging vehicle fleet transactions net in other finance and insurance revenues . since all sales of new vehicles must occur through franchised new vehicle dealerships , the dealerships effectively act as agents for the automobile manufacturers in completing sales of vehicles to fleet customers . as these customers typically order the vehicles , we have no significant general inventory risk . additionally , fleet customers generally receive special purchase incentives from the automobile manufacturers and we receive only a nominal fee for facilitating the transactions . taxes collected from customers and remitted to governmental agencies are not included in total revenues . we arrange financing for customers through various institutions and receive financing fees based on the difference between the loan rates charged to customers and wholesale financing rates set by the financing institution . in addition , we receive fees from the sale of insurance and vehicle service contracts to customers . further , through agreements with certain vehicle service contract administrators , we earn volume incentive rebates and interest income on reserves , as well as participate in the underwriting profits of the products . we may be charged back for unearned financing , insurance contract or vehicle service contract fees in the event of early termination of the contracts by customers . revenues from these fees are recorded at the time of the sale of the vehicles and a reserve for future amounts which might be charged back is established based on our historical chargeback results and the termination provisions of the applicable contracts . while chargeback results vary depending on the type of contract sold , a 10 % increase in the historical chargeback results used in determining estimates of future amounts which might be charged back would have increased the reserve at december 31 , 2014 , by $ 2.9 million . inventories . new , used and demonstrator vehicle inventories are carried at the lower of specific cost or market and are removed from inventory using the specific identification method in the consolidated balance sheets . parts and accessories inventories are valued at lower of cost ( determined on a first-in , first-out basis ) or market in the consolidated balance sheets . vehicle inventory cost consists of the amount paid to acquire the inventory , plus the cost of reconditioning , cost of equipment added and transportation cost . additionally , we receive interest assistance from some of our automobile manufacturers . this assistance is accounted for as a vehicle purchase price discount and is reflected as a reduction to the inventory cost on our consolidated balance sheets and as a reduction to cost of sales in our statements of operations as the vehicles are sold . at december 31 , 2014 and 2013 , inventory cost had been reduced by $ 8.8 million and $ 9.0 million , respectively , for interest assistance received from manufacturers . new vehicle cost of sales was reduced by $ 45.1 million , $ 38.5 million , and $ 33.9 million for interest assistance received related to vehicles sold for the years ended december 31 , 2014 , 2013 , and 2012 , respectively . the assistance over the past three years has ranged from approximately 87.3 % of our quarterly floorplan interest expense in the first quarter of 2013 to 117.7 % for the fourth quarter of 2014. as the market value of inventory typically declines over time , we establish new and used vehicle reserves based on our historical loss experience and considerations of current market trends . these reserves are charged to cost of sales and reduce the carrying value of inventory on hand . used vehicles are complex to value as there is no standardized source for determining exact values and each vehicle and each market in which we operate is unique . as a result , the value of each used vehicle taken at trade-in , or purchased at auction , is determined based on industry data , primarily accessed via our used vehicle management software and the industry expertise of the responsible used vehicle manager . valuation risk is partially mitigated , by the speed at which

cash on hand . as of december 31 , 2014 , our total cash on hand was $ 41.0 million . the balance of cash on hand excludes $ 62.1 million of immediately available funds used to pay down our floorplan lines as of december 31 , 2014. we use the pay down of our floorplan lines as a channel for the short-term investment of excess cash . cash flows . with respect to all new vehicle floorplan borrowings in the normal course of business , the manufacturers of the vehicles draft our credit facilities directly with no cash flow to or from us . with respect to borrowings for used vehicle financing , we finance up to 80 % of the value of our used vehicle inventory in the u.s. , and the funds flow directly to us from the lender . all borrowings from , and repayments to , lenders affiliated with our vehicle manufacturers ( excluding the cash flows from or to manufacturer-affiliated lenders participating in our syndicated lending group ) are presented within cash flows from operating activities on the consolidated statements of cash flows in conformity with u.s. gaap . all borrowings from , and repayments to , the revolving credit facility ( defined below ) ( including the cash flows from or to manufacturer-affiliated lenders participating in the facility ) and other credit facilities in brazil unaffiliated with our manufacturer partners , are presented within cash flows from financing activities in conformity with u.s. gaap . however , the incurrence of all floorplan notes payable represents an activity necessary to acquire inventory for resale , resulting in a trade payable . our decision to utilize our revolving credit facility does not substantially alter the process by which our vehicle inventory is financed , nor does it significantly impact the economics of our vehicle procurement activities . therefore , we believe that all floorplan financing of inventory purchases in the normal course of business should correspond with the related inventory activity and be classified as an operating activity .

to support the commercial launch of prosigna , we added a team of experienced oncology sales , marketing , market access and medical affairs professionals , resulting in increased operating expenses . in february 2015 , we combined our two separate sales teams into a single organization selling our entire suite of products , targeted primarily toward major academic medical centers and biopharmaceutical companies . we expect prosigna sales growth to be dependent on the installation of more systems , inclusion of prosigna in important breast cancer treatment guidelines and reimbursement by third-party payors becoming more broadly available . we use third-party contract manufacturers to produce the two instruments comprising the ncounter analysis system . we manufacture consumables at our seattle , washington facility . this operating model is designed to be capital efficient and to scale efficiently as our product volumes grow . we focus a substantial portion of our resources on developing new technologies , products and solutions . we invested $ 21.4 million , $ 15.0 million and $ 11.6 million in 2014 , 2013 and 2012 , respectively , in research and development and intend to continue to make significant investments in research and development . in march 2014 , we entered into a collaboration agreement with celgene corporation pursuant to which we are working collaboratively with celgene to develop , seek regulatory approval for , and commercialize a companion diagnostic assay for use in screening patients with diffuse large b-cell lymphoma . we received an upfront payment of $ 5.8 million in june 2014 upon our delivery of certain information to celgene . we also achieved and were paid for certain development-related milestones totaling $ 6.0 million during 2014 and recognized the related revenue according to the proportional performance model . we are eligible to receive up to $ 11.0 million in additional success-based payments related to regulatory milestones . we will retain all commercial rights to the diagnostic test developed under this collaboration and , assuming success in the clinical trial process , and subject to regulatory approval , expect to generate revenues from the sale of the resulting in vitro diagnostic kits . our total revenue increased to $ 47.6 million in 2014 from $ 31.4 million in 2013 and $ 23.0 million in 2012 , which was driven primarily by the sale of additional ncounter analysis systems and consumables for use on our growing installed base of instruments . historically , we have generated a substantial majority of our revenue from sales to customers in north america ; however , recently , sales revenue has been growing more rapidly outside north america and we believe this trend may continue . we have never been profitable and had net losses of $ 50.0 million , $ 29.3 million , and $ 17.7 million in 2014 , 2013 and 2012 , respectively . as of december 31 , 2014 , our accumulated deficit was $ 176.9 million . key financial metrics we are organized as , and operate in , one reportable segment , which is the development , manufacture and commercialization of instruments , consumables and services for efficiently profiling the activity of hundreds of genes simultaneously from a single tissue sample . our chief operating decision maker is the chief executive officer , who manages our operations and evaluates our financial performance on a total company basis . our principal operations and decision-making functions are located at our corporate headquarters in the united states . until the fourth quarter of 2013 , we operated in two reportable segments , our life sciences business and our diagnostics business . in november 2013 , our ncounter dx analysis system with flex configuration was launched , enabling customers to perform both research and diagnostic testing on the same instrument . we have one sales force that now sells these systems to both research and clinical testing labs , and we launched our first product that can be used for both research and diagnostic testing , ncounter elements reagents . as a result of these fundamental changes to our business , we began operating the company as a single reportable segment during the fourth quarter of 2013 . -55- revenue we generate revenue from the sale of our products and related services . for a description of our revenue recognition policies , see the section of this report captioned “—critical accounting policies and significant estimates—revenue recognition.” product revenue our products consist of our ncounter analysis system and related consumables , including prosigna in vitro diagnostic kits . our ncounter analysis system typically consists of one ncounter digital analyzer and one ncounter prep station . the u.s. list price of one research use only ncounter analysis system flex is $ 265,000. outside the united states , depending on the country , the list price is generally higher . the u.s. list price of one ncounter dx analysis system is $ 285,000. systems are sold to distributors at a discount to list price . our customer base is primarily composed of academic institutions , government laboratories , biopharmaceutical companies and clinical laboratories that perform analyses or testing using our ncounter analysis system and purchase related consumables , potentially including prosigna kits . for our research customers , related consumables include ( 1 ) custom codesets , which we manufacture to the specific requirements of an individual researcher , ( 2 ) panels , which are standard pre-manufactured codesets , ( 3 ) ncounter elements reagents , and ( 4 ) master kits , which are ancillary reagents , cartridges , tips and reagent plates required to setup and process samples in our instruments . product revenue also includes payments for instrument installation . since 2010 , our average consumables revenue per installed system has exceeded $ 100,000 per year . for our clinical laboratory customers , related consumables include prosigna in vitro diagnostic kits and ncounter elements reagents . story_separator_special_tag the average 2014 sales price for direct sales was approximately 6 % greater than the average sales price to distributors in the same period . the increase in consumables revenue was primarily driven by growth in our installed base of instruments as the annualized pull-through remained over $ 100,000 per installed system in 2014 and 2013. the increase in service revenue was primarily related to an increase in the number of instruments covered by service contracts . cost of product and service revenue ; gross profit ; and gross margin replace_table_token_7_th the increase in cost of product and service revenue for 2014 was related to the increased volume of instruments , consumables , in vitro diagnostic kits and services sold . product and service gross margin was -61- approximately the same for both periods . although gross margin for instrument revenues in 2014 improved slightly by 1.7 percentage points over 2013 , this was largely offset by a 1.0 percentage point reduction in gross margin for consumables , in vitro diagnostic kits and service . research and development expense replace_table_token_8_th the increases in research and development expense in 2014 reflected a $ 4.1 million increase in personnel-related expenses primarily to support the advancement of our ncounter technology . in addition , there was a $ 1.5 million increase in engineering costs for development of the next generation of our ncounter system and an increase in costs to support the celgene collaboration agreement . partially offsetting the increase was a reduction of $ 0.4 million in clinical study costs . the remaining $ 1.2 million change was due to various other operating expense fluctuations that were individually immaterial . selling , general and administrative expense replace_table_token_9_th the increases in selling , general and administration expense in 2014 were primarily attributable to a $ 17.3 million increase in staffing and personnel-related costs to support sales and marketing and administration ; and increased external marketing and other consulting costs of $ 3.2 million . partially offsetting the increase was a reduction of $ 1.8 million in external legal costs . the remaining $ 3.0 million change was due to various other operating expense fluctuations that were individually immaterial . other income ( expense ) replace_table_token_10_th the increase in interest expense in 2014 was related to the costs incurred to pay off our former credit facility in april 2014 and an overall increase in borrowing . in 2014 , we incurred and recorded $ 1.4 million of interest expense related to the repayment of our former credit facility , including a loss on extinguishment of debt of $ 0.6 million . long-term debt outstanding increased to $ 30.9 million as of december 31 , 2014 as compared to $ 18.3 million as of december 31 , 2013. the average net debt balance was $ 22.5 million in 2014 compared to $ 16.7 million in 2013. the revaluation of the preferred stock warrant liability in 2013 resulted from a re-measurement of the fair value of preferred stock warrants using the black-scholes option pricing model , which was primarily impacted -62- by a decrease in the valuation of the underlying stock . upon closing of our initial public offering in july 2013 , all outstanding warrants to purchase preferred stock converted into warrants to purchase common stock . as a result , the preferred stock warrant liability was reclassified to stockholders ' equity . comparison of years ended december 31 , 2013 and 2012 revenue replace_table_token_11_th instrument revenue increased significantly for the year ended december 31 , 2013 due to an increase in the number of instruments sold , including from the launch of our ncounter dx analysis system . this increase was partially offset by a reduction in average selling price attributable to increased sales to distributors , which are priced lower than direct sales , and increased customer incentives . the increase in consumables revenue was driven by growth in our installed base of instruments . the increase in service revenue was primarily related to an increase in the number of instruments covered by service contracts . cost of product and service revenue ; gross profit ; and gross margin replace_table_token_12_th the increase in cost of revenue in 2013 was related to the increased volume of both instruments and consumables sold . gross margin improved due to cost efficiencies associated with increased consumables production volume and several large custom consumable orders with unusually low per unit manufacturing costs . these improvements were partially offset by a shift in product mix toward instruments . research and development expense replace_table_token_13_th the increase reflected a $ 2.9 million increase in personnel-related expenses to support the advancement of our ncounter technology and clinical development of prosigna and a $ 1.5 million increase in engineering costs for the development of the next generation of our ncounter system . decreases in prosigna clinical study costs of $ 1.0 million , after completion of the abcsg8 study in late 2012 , partially offset the increases . -63- selling , general and administrative expense replace_table_token_14_th the increase in 2013 was primarily attributable to $ 6.8 million of increased staffing and personnel-related costs to support sales and marketing and administration ; $ 2.8 million of increased external marketing and other consulting costs related to the commercial launch of prosigna ; $ 2.5 million of increased legal costs , $ 0.5 million of increased facility-related costs , and $ 1.1 million of increased corporate professional fees and other public company costs . other income ( expense ) replace_table_token_15_th the increase in interest expense in 2013 was driven by increased borrowing under our credit facility during 2012 and 2013 , from $ 1.5 million as of december 31 , 2011 to $ 13.0 million as of december 31 , 2012 and to $ 18.0 million as of december 31 , 2013. the increase in other income from the revaluation of the preferred stock warrant liability resulted from a re-measurement of the fair value of preferred

cash on hand . as of december 31 , 2014 , our total cash on hand was $ 41.0 million . the balance of cash on hand excludes $ 62.1 million of immediately available funds used to pay down our floorplan lines as of december 31 , 2014. we use the pay down of our floorplan lines as a channel for the short-term investment of excess cash . cash flows . with respect to all new vehicle floorplan borrowings in the normal course of business , the manufacturers of the vehicles draft our credit facilities directly with no cash flow to or from us . with respect to borrowings for used vehicle financing , we finance up to 80 % of the value of our used vehicle inventory in the u.s. , and the funds flow directly to us from the lender . all borrowings from , and repayments to , lenders affiliated with our vehicle manufacturers ( excluding the cash flows from or to manufacturer-affiliated lenders participating in our syndicated lending group ) are presented within cash flows from operating activities on the consolidated statements of cash flows in conformity with u.s. gaap . all borrowings from , and repayments to , the revolving credit facility ( defined below ) ( including the cash flows from or to manufacturer-affiliated lenders participating in the facility ) and other credit facilities in brazil unaffiliated with our manufacturer partners , are presented within cash flows from financing activities in conformity with u.s. gaap . however , the incurrence of all floorplan notes payable represents an activity necessary to acquire inventory for resale , resulting in a trade payable . our decision to utilize our revolving credit facility does not substantially alter the process by which our vehicle inventory is financed , nor does it significantly impact the economics of our vehicle procurement activities . therefore , we believe that all floorplan financing of inventory purchases in the normal course of business should correspond with the related inventory activity and be classified as an operating activity .

to support the commercial launch of prosigna , we added a team of experienced oncology sales , marketing , market access and medical affairs professionals , resulting in increased operating expenses . in february 2015 , we combined our two separate sales teams into a single organization selling our entire suite of products , targeted primarily toward major academic medical centers and biopharmaceutical companies . we expect prosigna sales growth to be dependent on the installation of more systems , inclusion of prosigna in important breast cancer treatment guidelines and reimbursement by third-party payors becoming more broadly available . we use third-party contract manufacturers to produce the two instruments comprising the ncounter analysis system . we manufacture consumables at our seattle , washington facility . this operating model is designed to be capital efficient and to scale efficiently as our product volumes grow . we focus a substantial portion of our resources on developing new technologies , products and solutions . we invested $ 21.4 million , $ 15.0 million and $ 11.6 million in 2014 , 2013 and 2012 , respectively , in research and development and intend to continue to make significant investments in research and development . in march 2014 , we entered into a collaboration agreement with celgene corporation pursuant to which we are working collaboratively with celgene to develop , seek regulatory approval for , and commercialize a companion diagnostic assay for use in screening patients with diffuse large b-cell lymphoma . we received an upfront payment of $ 5.8 million in june 2014 upon our delivery of certain information to celgene . we also achieved and were paid for certain development-related milestones totaling $ 6.0 million during 2014 and recognized the related revenue according to the proportional performance model . we are eligible to receive up to $ 11.0 million in additional success-based payments related to regulatory milestones . we will retain all commercial rights to the diagnostic test developed under this collaboration and , assuming success in the clinical trial process , and subject to regulatory approval , expect to generate revenues from the sale of the resulting in vitro diagnostic kits . our total revenue increased to $ 47.6 million in 2014 from $ 31.4 million in 2013 and $ 23.0 million in 2012 , which was driven primarily by the sale of additional ncounter analysis systems and consumables for use on our growing installed base of instruments . historically , we have generated a substantial majority of our revenue from sales to customers in north america ; however , recently , sales revenue has been growing more rapidly outside north america and we believe this trend may continue . we have never been profitable and had net losses of $ 50.0 million , $ 29.3 million , and $ 17.7 million in 2014 , 2013 and 2012 , respectively . as of december 31 , 2014 , our accumulated deficit was $ 176.9 million . key financial metrics we are organized as , and operate in , one reportable segment , which is the development , manufacture and commercialization of instruments , consumables and services for efficiently profiling the activity of hundreds of genes simultaneously from a single tissue sample . our chief operating decision maker is the chief executive officer , who manages our operations and evaluates our financial performance on a total company basis . our principal operations and decision-making functions are located at our corporate headquarters in the united states . until the fourth quarter of 2013 , we operated in two reportable segments , our life sciences business and our diagnostics business . in november 2013 , our ncounter dx analysis system with flex configuration was launched , enabling customers to perform both research and diagnostic testing on the same instrument . we have one sales force that now sells these systems to both research and clinical testing labs , and we launched our first product that can be used for both research and diagnostic testing , ncounter elements reagents . as a result of these fundamental changes to our business , we began operating the company as a single reportable segment during the fourth quarter of 2013 . -55- revenue we generate revenue from the sale of our products and related services . for a description of our revenue recognition policies , see the section of this report captioned “—critical accounting policies and significant estimates—revenue recognition.” product revenue our products consist of our ncounter analysis system and related consumables , including prosigna in vitro diagnostic kits . our ncounter analysis system typically consists of one ncounter digital analyzer and one ncounter prep station . the u.s. list price of one research use only ncounter analysis system flex is $ 265,000. outside the united states , depending on the country , the list price is generally higher . the u.s. list price of one ncounter dx analysis system is $ 285,000. systems are sold to distributors at a discount to list price . our customer base is primarily composed of academic institutions , government laboratories , biopharmaceutical companies and clinical laboratories that perform analyses or testing using our ncounter analysis system and purchase related consumables , potentially including prosigna kits . for our research customers , related consumables include ( 1 ) custom codesets , which we manufacture to the specific requirements of an individual researcher , ( 2 ) panels , which are standard pre-manufactured codesets , ( 3 ) ncounter elements reagents , and ( 4 ) master kits , which are ancillary reagents , cartridges , tips and reagent plates required to setup and process samples in our instruments . product revenue also includes payments for instrument installation . since 2010 , our average consumables revenue per installed system has exceeded $ 100,000 per year . for our clinical laboratory customers , related consumables include prosigna in vitro diagnostic kits and ncounter elements reagents . story_separator_special_tag the average 2014 sales price for direct sales was approximately 6 % greater than the average sales price to distributors in the same period . the increase in consumables revenue was primarily driven by growth in our installed base of instruments as the annualized pull-through remained over $ 100,000 per installed system in 2014 and 2013. the increase in service revenue was primarily related to an increase in the number of instruments covered by service contracts . cost of product and service revenue ; gross profit ; and gross margin replace_table_token_7_th the increase in cost of product and service revenue for 2014 was related to the increased volume of instruments , consumables , in vitro diagnostic kits and services sold . product and service gross margin was -61- approximately the same for both periods . although gross margin for instrument revenues in 2014 improved slightly by 1.7 percentage points over 2013 , this was largely offset by a 1.0 percentage point reduction in gross margin for consumables , in vitro diagnostic kits and service . research and development expense replace_table_token_8_th the increases in research and development expense in 2014 reflected a $ 4.1 million increase in personnel-related expenses primarily to support the advancement of our ncounter technology . in addition , there was a $ 1.5 million increase in engineering costs for development of the next generation of our ncounter system and an increase in costs to support the celgene collaboration agreement . partially offsetting the increase was a reduction of $ 0.4 million in clinical study costs . the remaining $ 1.2 million change was due to various other operating expense fluctuations that were individually immaterial . selling , general and administrative expense replace_table_token_9_th the increases in selling , general and administration expense in 2014 were primarily attributable to a $ 17.3 million increase in staffing and personnel-related costs to support sales and marketing and administration ; and increased external marketing and other consulting costs of $ 3.2 million . partially offsetting the increase was a reduction of $ 1.8 million in external legal costs . the remaining $ 3.0 million change was due to various other operating expense fluctuations that were individually immaterial . other income ( expense ) replace_table_token_10_th the increase in interest expense in 2014 was related to the costs incurred to pay off our former credit facility in april 2014 and an overall increase in borrowing . in 2014 , we incurred and recorded $ 1.4 million of interest expense related to the repayment of our former credit facility , including a loss on extinguishment of debt of $ 0.6 million . long-term debt outstanding increased to $ 30.9 million as of december 31 , 2014 as compared to $ 18.3 million as of december 31 , 2013. the average net debt balance was $ 22.5 million in 2014 compared to $ 16.7 million in 2013. the revaluation of the preferred stock warrant liability in 2013 resulted from a re-measurement of the fair value of preferred stock warrants using the black-scholes option pricing model , which was primarily impacted -62- by a decrease in the valuation of the underlying stock . upon closing of our initial public offering in july 2013 , all outstanding warrants to purchase preferred stock converted into warrants to purchase common stock . as a result , the preferred stock warrant liability was reclassified to stockholders ' equity . comparison of years ended december 31 , 2013 and 2012 revenue replace_table_token_11_th instrument revenue increased significantly for the year ended december 31 , 2013 due to an increase in the number of instruments sold , including from the launch of our ncounter dx analysis system . this increase was partially offset by a reduction in average selling price attributable to increased sales to distributors , which are priced lower than direct sales , and increased customer incentives . the increase in consumables revenue was driven by growth in our installed base of instruments . the increase in service revenue was primarily related to an increase in the number of instruments covered by service contracts . cost of product and service revenue ; gross profit ; and gross margin replace_table_token_12_th the increase in cost of revenue in 2013 was related to the increased volume of both instruments and consumables sold . gross margin improved due to cost efficiencies associated with increased consumables production volume and several large custom consumable orders with unusually low per unit manufacturing costs . these improvements were partially offset by a shift in product mix toward instruments . research and development expense replace_table_token_13_th the increase reflected a $ 2.9 million increase in personnel-related expenses to support the advancement of our ncounter technology and clinical development of prosigna and a $ 1.5 million increase in engineering costs for the development of the next generation of our ncounter system . decreases in prosigna clinical study costs of $ 1.0 million , after completion of the abcsg8 study in late 2012 , partially offset the increases . -63- selling , general and administrative expense replace_table_token_14_th the increase in 2013 was primarily attributable to $ 6.8 million of increased staffing and personnel-related costs to support sales and marketing and administration ; $ 2.8 million of increased external marketing and other consulting costs related to the commercial launch of prosigna ; $ 2.5 million of increased legal costs , $ 0.5 million of increased facility-related costs , and $ 1.1 million of increased corporate professional fees and other public company costs . other income ( expense ) replace_table_token_15_th the increase in interest expense in 2013 was driven by increased borrowing under our credit facility during 2012 and 2013 , from $ 1.5 million as of december 31 , 2011 to $ 13.0 million as of december 31 , 2012 and to $ 18.0 million as of december 31 , 2013. the increase in other income from the revaluation of the preferred stock warrant liability resulted from a re-measurement of the fair value of preferred

liquidity and capital resources as of december 31 , 2014 , we had cash , cash equivalents and short-term investments of $ 72.2 million , compared to $ 42.7 million as of december 31 , 2013. we believe our existing cash , cash equivalents and short-term investments will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months . however , we may need to raise additional capital to expand the commercialization of our products , fund our operations and further our research and development activities . our future funding requirements will depend on many factors , including : market acceptance of our products ; the cost and timing of establishing additional sales , marketing and distribution capabilities ; the cost of our research and development activities ; the cost and timing of regulatory clearances or approvals ; the effect of competing technological and market developments ; the nature and timing of any additional companion diagnostic development collaborations we may establish ; and the extent to which we acquire or invest in businesses , products and technologies , although we currently have no commitments or agreements relating to any of these types of transactions . if we require additional funds in the future , we may not be able to obtain such funds on acceptable terms , or at all . if we raise additional funds by issuing equity or equity-linked securities , our stockholders may experience dilution . debt financing , if available , may involve covenants restricting our operations or our ability to incur additional debt . any debt or additional equity financing that we raise may contain terms that are not favorable to us or our stockholders . if we raise additional funds through collaboration and licensing arrangements with third -64- parties , it may be necessary to relinquish some rights to our technologies or our products , or grant licenses on terms that are not favorable to us . if we are unable to raise adequate funds , we may have to liquidate some or all of our assets , or delay , reduce the scope of or eliminate some or all of our development programs .

we also believe that having beds immediately available to our partners provides us with a distinct competitive advantage when bidding on new contracts . while we have been successful in winning contract awards to provide management services for facilities we do not own , and will continue to pursue such management contracts selectively , we believe the most significant opportunities for growth are in providing our government partners with available beds within facilities we currently own or that we develop . we also believe that owning the facilities in which we provide management services enables us to more rapidly replace business lost compared with managed-only facilities , since we can offer the same beds to new and existing customers and , with customer consent , may have more flexibility in moving our existing inmate populations to facilities with available capacity . our management contracts generally provide our customers with the right to terminate our management contracts at any time without cause . we have staff throughout the organization actively engaged in marketing our available capacity to existing and prospective customers . historically , we have been successful in substantially filling our inventory of available beds and the beds that we have constructed . filling these available beds would provide substantial growth in revenues , cash flow , and earnings per share . however , we can provide no assurance that we will be able to fill our available beds . the demand for capacity in the short-term has been affected by the budget challenges many of our government partners currently face . as a result , certain government partners have reduced the number of inmates housed in our facilities by consolidating inmate populations within their jail system , placing inmates on early parole , and or modifying criminal laws and sentencing practices . at the same time , these challenges impede our customers ' ability to construct new prison beds of their own or update older facilities , which we believe could result in further need for private sector capacity solutions in the long-term . we intend to continue to pursue build-to-suit opportunities like our 2,552-bed trousdale turner correctional center under construction in trousdale county , tennessee , and alternative solutions like the recently announced 2,400-bed south texas family residential center whereby we identified a site and lessor to provide residential housing and administrative buildings for the u.s. immigration and customs enforcement , or ice . in the long-term , however , we would like to see continued and meaningful utilization of our available capacity and better visibility from our customers before we add any additional capacity on a speculative basis . we also remain steadfast in our efforts to contain costs . approximately 62 % of our operating expenses consist of salaries and benefits . the turnover rate for correctional officers for our company , and for the corrections industry in general , remains high . we remain focused on workers ' compensation and medical benefits costs for our employees due to continued rising healthcare costs throughout the country and the uncertainty of the impact of the patient 49 protection and affordable care act on future healthcare costs . reducing these staffing costs requires a long-term strategy to control such costs , and we continue to dedicate resources to enhance our benefits , provide training and career development opportunities to our staff and attract and retain quality personnel . through ongoing company-wide initiatives , we continue to focus on efforts to contain costs and improve operating efficiencies , ensuring continuous delivery of quality services over the long-term . through the combination of our initiatives to increase our revenues by taking advantage of our available beds as well as delivering new bed capacity through new facility construction and expansion opportunities , and our strategies to contain our operating expenses , we believe we will be able to maintain our competitive advantage and continue to improve the quality services we provide to our customers at an economical price , thereby producing value to our stockholders . critical accounting policies the consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states . as such , we are required to make certain estimates , judgments and assumptions that we believe are reasonable based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . a summary of our significant accounting policies is described in note 2 to our audited financial statements . the significant accounting policies and estimates which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following : asset impairments . the primary risk we face for asset impairment charges , excluding goodwill , is associated with correctional facilities we own . as of december 31 , 2014 , we had $ 2.7 billion in property and equipment , including $ 119.3 million in long-lived assets , excluding equipment , at five idled core correctional facilities . we consider our core facilities to be those that were designed for adult secure correctional purposes . the impairment analyses we performed for each of these facilities excluded the net book value of equipment , as a substantial portion of the equipment is easily transferrable to other company-owned facilities without significant cost . story_separator_special_tag the following table reflects the components of revenue for the years ended december 31 , 2014 and 2013 ( in millions ) : replace_table_token_6_th 56 the $ 75.1 million , or 4.4 % , reduction in revenue associated with the operation and management of correctional and detention facilities consisted of a decrease in revenue of approximately $ 136.2 million caused by a decrease in the average daily compensated population during 2014 , partially offset by an increase of 4.9 % in average revenue per compensated man-day . the reduction in revenue was also a result of a contract adjustment by one of our federal partners , as previously disclosed in the fourth quarter of 2013 and as further described hereafter . the reduction in revenue from the operation and management of correctional and detention facilities was partially offset by an increase in lease revenue at our california city facility , as further described hereafter under “other facility related activity” . average daily compensated population decreased 6,162 , or 8.1 % , from 2013 to 2014. the decline in average compensated population primarily resulted from the expiration of our contracts at the bay correctional facility , graceville correctional facility , and moore haven correctional facility , collectively referred to herein as the “three florida facilities” , after the florida department of management services , or dms , awarded the management of these contracts to another operator effective january 31 , 2014. the decline in average compensated population also resulted from the expiration of our contract at the idaho correctional center after the state of idaho assumed management of the facility effective july 1 , 2014 , and from our decision to terminate a contract at the north georgia detention center effective in the first quarter of 2014. combined , these five facilities contributed to a decrease in revenue of $ 76.9 million and generated net operating losses , or the operating losses from operations before interest , taxes , asset impairments , and depreciation and amortization , of $ 2.4 million during the time they were active in 2014 , and net operating income of $ 0.6 million during the year ended december 31 , 2013. business from our federal customers , including primarily the federal bureau of prisons , or bop , the united states marshals service , or usms , and ice , continues to be a significant component of our business . our federal customers generated approximately 44 % of our total revenue for both of the years ended december 31 , 2014 and 2013 , but decreased $ 11.7 million from 2013 to 2014. the reduction in federal revenues primarily resulted from the transition of our california city facility , which housed usms and ice offenders during the majority of 2013 , to a lease with the state of california , as further described under “other facility related activity” hereafter . partially offsetting the reduction in federal revenues was an increase in revenues that resulted from our acquisition of cai in the third quarter of 2013 and the activation of the south texas family residential center in the fourth quarter of 2014 , as further described hereafter . the reduction in federal revenues also resulted from a contract adjustment by one of our federal partners previously disclosed in the fourth quarter of 2013. the contract adjustment resulted in an accrual of $ 13.0 million of revenue and an equal accrual of operating expenses during the fourth quarter of 2013 , both of which were revised to $ 9.0 million during the first quarter of 2014. because of the distorted impact these amounts would have on the per compensated man-day statistics presented in the previous table , the revenue and expenses related to these adjustments were not included in the calculations of the per compensated man-day statistics . state revenues from facilities that we manage decreased 7.8 % from 2013 to 2014 primarily as a result of the expiration of our contracts at the idaho correctional center effective july 1 , 2014 and at the three florida facilities effective january 31 , 2014 , and due to the idling of our mineral wells and marion adjustment center facilities in the third quarter of 2013. operating expenses operating expenses totaled $ 1,156.1 million and $ 1,220.4 million for the years ended december 31 , 2014 and 2013 , respectively . operating expenses consist of those expenses incurred in the operation and management of correctional and detention facilities , as well as at facilities we lease to third-party operators , and for our inmate transportation subsidiary . 57 expenses incurred in connection with the operation and management of correctional and detention facilities decreased $ 67.3 million , or 5.6 % , during 2014 compared with 2013. similar to our reduction in revenues , operating expenses decreased most notably as a result of the expiration of our contracts at the idaho correctional center effective july 1 , 2014 and at the three florida facilities effective january 31 , 2014 , and due to the idling of our mineral wells and marion adjustment center facilities in the third quarter of 2013 . the reduction in operating expenses was also a result of the aforementioned contract adjustment by one of our federal partners , also as previously disclosed in the fourth quarter of 2013. these reductions in operating expenses were partially offset by an increase in expenses related to the activation of our south texas family residential center in the fourth quarter of 2014 , as further described hereafter . fixed expenses per compensated man-day increased to $ 33.06 during the year ended december 31 , 2014 from $ 32.48 during the year ended december 31 , 2013 primarily as a result of an increase in salaries and benefits per compensated man-day of $ 0.46. the increase in salaries and benefits per compensated man-day resulted primarily from wage adjustments implemented during 2014 and a higher average rate at our newly activated south texas

liquidity and capital resources as of december 31 , 2014 , we had cash , cash equivalents and short-term investments of $ 72.2 million , compared to $ 42.7 million as of december 31 , 2013. we believe our existing cash , cash equivalents and short-term investments will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months . however , we may need to raise additional capital to expand the commercialization of our products , fund our operations and further our research and development activities . our future funding requirements will depend on many factors , including : market acceptance of our products ; the cost and timing of establishing additional sales , marketing and distribution capabilities ; the cost of our research and development activities ; the cost and timing of regulatory clearances or approvals ; the effect of competing technological and market developments ; the nature and timing of any additional companion diagnostic development collaborations we may establish ; and the extent to which we acquire or invest in businesses , products and technologies , although we currently have no commitments or agreements relating to any of these types of transactions . if we require additional funds in the future , we may not be able to obtain such funds on acceptable terms , or at all . if we raise additional funds by issuing equity or equity-linked securities , our stockholders may experience dilution . debt financing , if available , may involve covenants restricting our operations or our ability to incur additional debt . any debt or additional equity financing that we raise may contain terms that are not favorable to us or our stockholders . if we raise additional funds through collaboration and licensing arrangements with third -64- parties , it may be necessary to relinquish some rights to our technologies or our products , or grant licenses on terms that are not favorable to us . if we are unable to raise adequate funds , we may have to liquidate some or all of our assets , or delay , reduce the scope of or eliminate some or all of our development programs .

we also believe that having beds immediately available to our partners provides us with a distinct competitive advantage when bidding on new contracts . while we have been successful in winning contract awards to provide management services for facilities we do not own , and will continue to pursue such management contracts selectively , we believe the most significant opportunities for growth are in providing our government partners with available beds within facilities we currently own or that we develop . we also believe that owning the facilities in which we provide management services enables us to more rapidly replace business lost compared with managed-only facilities , since we can offer the same beds to new and existing customers and , with customer consent , may have more flexibility in moving our existing inmate populations to facilities with available capacity . our management contracts generally provide our customers with the right to terminate our management contracts at any time without cause . we have staff throughout the organization actively engaged in marketing our available capacity to existing and prospective customers . historically , we have been successful in substantially filling our inventory of available beds and the beds that we have constructed . filling these available beds would provide substantial growth in revenues , cash flow , and earnings per share . however , we can provide no assurance that we will be able to fill our available beds . the demand for capacity in the short-term has been affected by the budget challenges many of our government partners currently face . as a result , certain government partners have reduced the number of inmates housed in our facilities by consolidating inmate populations within their jail system , placing inmates on early parole , and or modifying criminal laws and sentencing practices . at the same time , these challenges impede our customers ' ability to construct new prison beds of their own or update older facilities , which we believe could result in further need for private sector capacity solutions in the long-term . we intend to continue to pursue build-to-suit opportunities like our 2,552-bed trousdale turner correctional center under construction in trousdale county , tennessee , and alternative solutions like the recently announced 2,400-bed south texas family residential center whereby we identified a site and lessor to provide residential housing and administrative buildings for the u.s. immigration and customs enforcement , or ice . in the long-term , however , we would like to see continued and meaningful utilization of our available capacity and better visibility from our customers before we add any additional capacity on a speculative basis . we also remain steadfast in our efforts to contain costs . approximately 62 % of our operating expenses consist of salaries and benefits . the turnover rate for correctional officers for our company , and for the corrections industry in general , remains high . we remain focused on workers ' compensation and medical benefits costs for our employees due to continued rising healthcare costs throughout the country and the uncertainty of the impact of the patient 49 protection and affordable care act on future healthcare costs . reducing these staffing costs requires a long-term strategy to control such costs , and we continue to dedicate resources to enhance our benefits , provide training and career development opportunities to our staff and attract and retain quality personnel . through ongoing company-wide initiatives , we continue to focus on efforts to contain costs and improve operating efficiencies , ensuring continuous delivery of quality services over the long-term . through the combination of our initiatives to increase our revenues by taking advantage of our available beds as well as delivering new bed capacity through new facility construction and expansion opportunities , and our strategies to contain our operating expenses , we believe we will be able to maintain our competitive advantage and continue to improve the quality services we provide to our customers at an economical price , thereby producing value to our stockholders . critical accounting policies the consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states . as such , we are required to make certain estimates , judgments and assumptions that we believe are reasonable based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . a summary of our significant accounting policies is described in note 2 to our audited financial statements . the significant accounting policies and estimates which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following : asset impairments . the primary risk we face for asset impairment charges , excluding goodwill , is associated with correctional facilities we own . as of december 31 , 2014 , we had $ 2.7 billion in property and equipment , including $ 119.3 million in long-lived assets , excluding equipment , at five idled core correctional facilities . we consider our core facilities to be those that were designed for adult secure correctional purposes . the impairment analyses we performed for each of these facilities excluded the net book value of equipment , as a substantial portion of the equipment is easily transferrable to other company-owned facilities without significant cost . story_separator_special_tag the following table reflects the components of revenue for the years ended december 31 , 2014 and 2013 ( in millions ) : replace_table_token_6_th 56 the $ 75.1 million , or 4.4 % , reduction in revenue associated with the operation and management of correctional and detention facilities consisted of a decrease in revenue of approximately $ 136.2 million caused by a decrease in the average daily compensated population during 2014 , partially offset by an increase of 4.9 % in average revenue per compensated man-day . the reduction in revenue was also a result of a contract adjustment by one of our federal partners , as previously disclosed in the fourth quarter of 2013 and as further described hereafter . the reduction in revenue from the operation and management of correctional and detention facilities was partially offset by an increase in lease revenue at our california city facility , as further described hereafter under “other facility related activity” . average daily compensated population decreased 6,162 , or 8.1 % , from 2013 to 2014. the decline in average compensated population primarily resulted from the expiration of our contracts at the bay correctional facility , graceville correctional facility , and moore haven correctional facility , collectively referred to herein as the “three florida facilities” , after the florida department of management services , or dms , awarded the management of these contracts to another operator effective january 31 , 2014. the decline in average compensated population also resulted from the expiration of our contract at the idaho correctional center after the state of idaho assumed management of the facility effective july 1 , 2014 , and from our decision to terminate a contract at the north georgia detention center effective in the first quarter of 2014. combined , these five facilities contributed to a decrease in revenue of $ 76.9 million and generated net operating losses , or the operating losses from operations before interest , taxes , asset impairments , and depreciation and amortization , of $ 2.4 million during the time they were active in 2014 , and net operating income of $ 0.6 million during the year ended december 31 , 2013. business from our federal customers , including primarily the federal bureau of prisons , or bop , the united states marshals service , or usms , and ice , continues to be a significant component of our business . our federal customers generated approximately 44 % of our total revenue for both of the years ended december 31 , 2014 and 2013 , but decreased $ 11.7 million from 2013 to 2014. the reduction in federal revenues primarily resulted from the transition of our california city facility , which housed usms and ice offenders during the majority of 2013 , to a lease with the state of california , as further described under “other facility related activity” hereafter . partially offsetting the reduction in federal revenues was an increase in revenues that resulted from our acquisition of cai in the third quarter of 2013 and the activation of the south texas family residential center in the fourth quarter of 2014 , as further described hereafter . the reduction in federal revenues also resulted from a contract adjustment by one of our federal partners previously disclosed in the fourth quarter of 2013. the contract adjustment resulted in an accrual of $ 13.0 million of revenue and an equal accrual of operating expenses during the fourth quarter of 2013 , both of which were revised to $ 9.0 million during the first quarter of 2014. because of the distorted impact these amounts would have on the per compensated man-day statistics presented in the previous table , the revenue and expenses related to these adjustments were not included in the calculations of the per compensated man-day statistics . state revenues from facilities that we manage decreased 7.8 % from 2013 to 2014 primarily as a result of the expiration of our contracts at the idaho correctional center effective july 1 , 2014 and at the three florida facilities effective january 31 , 2014 , and due to the idling of our mineral wells and marion adjustment center facilities in the third quarter of 2013. operating expenses operating expenses totaled $ 1,156.1 million and $ 1,220.4 million for the years ended december 31 , 2014 and 2013 , respectively . operating expenses consist of those expenses incurred in the operation and management of correctional and detention facilities , as well as at facilities we lease to third-party operators , and for our inmate transportation subsidiary . 57 expenses incurred in connection with the operation and management of correctional and detention facilities decreased $ 67.3 million , or 5.6 % , during 2014 compared with 2013. similar to our reduction in revenues , operating expenses decreased most notably as a result of the expiration of our contracts at the idaho correctional center effective july 1 , 2014 and at the three florida facilities effective january 31 , 2014 , and due to the idling of our mineral wells and marion adjustment center facilities in the third quarter of 2013 . the reduction in operating expenses was also a result of the aforementioned contract adjustment by one of our federal partners , also as previously disclosed in the fourth quarter of 2013. these reductions in operating expenses were partially offset by an increase in expenses related to the activation of our south texas family residential center in the fourth quarter of 2014 , as further described hereafter . fixed expenses per compensated man-day increased to $ 33.06 during the year ended december 31 , 2014 from $ 32.48 during the year ended december 31 , 2013 primarily as a result of an increase in salaries and benefits per compensated man-day of $ 0.46. the increase in salaries and benefits per compensated man-day resulted primarily from wage adjustments implemented during 2014 and a higher average rate at our newly activated south texas

debt as of december 31 , 2014 , we had $ 350.0 million principal amount of unsecured notes outstanding with a fixed stated interest rate of 4.625 % , $ 325.0 million principal amount of unsecured notes outstanding with a fixed stated interest rate of 4.125 % , and $ 525.0 million outstanding under our revolving credit facility with a variable weighted average interest rate of 1.9 % . at december 31 , 2014 , our total weighted average effective interest rate was 3.6 % while our total weighted average maturity was 5.2 years . we also have the flexibility to issue debt or equity securities from time to time when we determine that market conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable . on march 21 , 2013 , standard & poor 's ratings services raised our corporate credit rating to “bb+” from “bb” and also assigned a “bb+” rating to our unsecured notes . additionally , on april 5 , 2013 , standard & poor 's ratings services assigned a rating of “bbb” to our $ 900.0 million revolving credit facility . on february 7 , 2012 , fitch ratings assigned a rating of “bbb-” to our revolving credit facility and “bb+” ratings to our unsecured debt and corporate credit . on january 31 , 2013 , fitch ratings affirmed these ratings in connection with our intention to convert to a reit and reaffirmed them on january 26 , 2015. on june 3 , 2011 , moody 's raised our senior unsecured debt rating to “ba1” from “ba2” and revised the outlook on our debt rating from positive to stable . on march 21 , 2013 , moody 's revised the rating outlook to positive from stable , and affirmed the senior unsecured rating at “ba1” . facility development and capital expenditures in order to retain federal inmate populations we currently manage in the 1,154-bed san diego correctional facility , we are constructing the 1,492-bed otay mesa detention center at a site in san diego .

alport syndrome affects both children and adults and , in patients with the most severe forms of the disease , approximately 50 % progress to dialysis by age of 25 , 90 % by age 40 , and nearly 100 % by age 60. in the phase 2 portion of cardinal , bard demonstrated a statistically significant increase from baseline in mean egfr after 48 weeks of treatment in 25 patients . available historical data for 22 of these patients showed an average annual decline in egfr of 4.2 ml/min/1.73 m 2 in the three-year period prior to study entry . bard also demonstrated a statistically significant increase from baseline in mean egfr at week 52 after withdrawal of drug for four weeks . this retained egfr benefit is important because it provides compelling evidence that drug treatment will delay or prevent the need for dialysis or transplant . the fda has provided us with written guidance that , in patients with ckd caused by alport syndrome , an analysis of retained egfr demonstrating an improvement versus placebo after one year of bard treatment may support accelerated approval , and an improvement versus placebo after two years of treatment may support full approval . the phase 3 portion of cardinal is an international , multi-center , randomized , double-blind , placebo-controlled trial studying the safety and efficacy of bard in 157 alport syndrome patients randomized one-to-one to active drug or placebo . we have fully enrolled the phase 3 portion of cardinal , and we expect to have one year top-line results available in the second half of 2019. if the trial results are positive , we believe the results , together with other data from our development program , will be sufficient to form the basis of an nda submission to the fda seeking approval of bard for the treatment of ckd caused by alport syndrome . 94 we are currently initiating a phase 3 trial studying bard in patients with adpkd called falcon . adpkd is a rare and serious hereditary form of ckd caused by a genetic defect in genes called pkd1 or pkd2 and is characterized by the formation of fluid-filled cysts in the kidneys . adpkd is the most common single-gene disorder of the kidneys , and there are an estimated 400,000 patients in the united states , with approximately 140,000 patients diagnosed with the disease . during 2018 , we completed a phase 2 clinical trial studying bard in patients with adpkd . in the phase 2 study , bard demonstrated a statistically significant increase from baseline in mean egfr after 12 weeks of treatment in 31 patients . available historical data for 29 of these patients showed an average annual decline in egfr of 4.8 ml/min/1.73 m 2 in the three-year period prior to study entry . the fda has provided us with written guidance that , in patients with adpkd , an analysis of retained egfr demonstrating an improvement versus placebo after one year of bard treatment may support accelerated approval , and an improvement versus placebo after two years of treatment may support full approval . falcon is an international , multi-center , randomized , double-blind , placebo-controlled trial studying the safety and efficacy of bard in approximately 300 adpkd patients randomized one-to-one to active drug or placebo . we plan to enroll the first adpkd patient in falcon in mid-2019 . we collected phase 2 data studying bard in each of iga nephropathy ( igan ) , type 1 diabetic ckd ( t1d ckd ) , and focal segmental glomerulosclerosis ( fsgs ) . in each of these phase 2 studies , bard demonstrated a statistically significant increase from baseline in mean egfr after 12 weeks of treatment in patients whose available historical data showed annual declines in egfr in the three-year period prior to study entry . we plan to pursue each of these rare and serious forms of ckd as commercial indications . in addition to our ckd development programs , we are conducting a registrational phase 2 clinical trial , part 2 of moxie , studying our second nrf2 activator , omav , in patients with fa . fa is a rare , inherited , debilitating , and degenerative neuromuscular disorder caused by mutations in the gene for frataxin , a mitochondrial protein . patients with fa are typically dependent on wheelchair use 10 to 15 years after disease onset , and their median age of death is in the mid-30s . there are no currently approved therapies for the treatment of fa . in part 1 of moxie , at the optimal dose level , omav demonstrated a statistically significant improvement in modified friedreich 's ataxia rating scale ( mfars ) scores of 3.8 points ( p=0.0001 ) versus baseline and a placebo-corrected improvement in mfars scores of 2.3 points ( p=0.06 ) . part 2 of moxie is an international , multi-center , randomized , double-blind , placebo-controlled trial studying the safety and efficacy of omav in 103 fa patients randomized one-to-one to active drug or placebo . the fda has provided us with written guidance that the mfars score is acceptable as the primary endpoint for part 2 of moxie and that it may consider either accelerated or full approval based on the overall results of the trial and strength of the data . we have fully enrolled the trial , and we expect to have top-line data from the trial in the second half of 2019. if the trial results are positive , we believe the trial results , together with other data from our development program , will be sufficient to form the basis of an nda submission to the fda seeking approval of omav for the treatment of fa . we are also conducting a phase 3 trial studying bard in patients with ctd-pah called catalyst . story_separator_special_tag research and development expenses increased by 81 % during 2017 compared to 2016. the increase was primarily due to $ 23.9 million in expanded clinical and manufacturing activities , primarily for cardinal , catalyst , the extension trial for catalyst and lariat patients , part 2 of moxie , part 1 of motor , reveal , and phoenix , $ 2.9 million in increased preclinical and manufacturing activities in our rta 1701 , $ 4.0 million in personnel and equity compensation expenses to support growth in our development activities , and $ 0.8 million in increased medical affairs activities . research and development expenses , as a percentage of total expenses , was 75 % , 75 % , and 70 % , for 2018 , 2017 , and 2016 , respectively . the increase of 5 % during 2017 compared to 2016 was primarily due to increased clinical and manufacturing activity related to our registrational trials . general and administrative expenses general and administrative expenses increased by 41 % during 2018 compared to 2017. the increase was primarily due to $ 4.3 million in personnel , consulting , and equity compensation expenses to support growth in our development activities , $ 3.6 million sublicense fees and other expenses from the achievement of the khk milestone , and $ 2.2 million in commercial research activities . general and administrative expenses increased by 40 % during 2017 compared to 2016. the increase was primarily due to $ 4.7 million in personnel , consulting , and equity compensation expenses to support growth in our development activities , $ 0.9 million in commercial research activities , and $ 0.6 million in intellectual property costs due to additional validation of patents , new applications , national stage filings , and license fees . general and administrative expenses , as a percentage of total expenses , was 25 % , 24 % , and 29 % , for 2018 , 2017 , and 2016 , respectively . the decrease of 5 % during 2017 compared to 2016 was primarily due to the increase in research and development expenses for clinical and manufacturing activity related to our registrational trials . investment income the year-over-year increases in investment income during 2018 , 2017 , and 2016 were due to investment and interest income earned on cash equivalents . interest expense the year-over-year increases in interest expense during 2018 , 2017 , and 2016 were attributable to borrowing activities under our restated loan agreement entered in june 2018 and our loan agreement entered in march 2017. provision ( benefit ) for taxes the year-over-year changes in provision ( benefit ) for taxes during 2018 , 2017 , and 2016 were due to differences in income generated and changes in the valuation allowance . 101 liquidity and capital resources since our inception , we have funded our operations primarily through collaboration and license agreements , the sale of preferred and common stock , and secured loans . to date , we have raised gross cash proceeds of $ 476.6 million through the sale of convertible preferred stock and $ 780.0 million from payments under license and collaboration agreements . we also obtained $ 402.3 million in net proceeds from our ipo and follow-on offerings of our class a common stock and $ 77.2 million in net proceeds from our restated loan agreement . we have not generated any revenue from the sale of any products . as of december 31 , 2018 , we had available cash and cash equivalents of approximately $ 337.8 million . our cash and cash equivalents are invested in accordance with our investment policy , primarily with a view to liquidity and capital preservation . story_separator_special_tag $ 232.9 million , after deducting underwriting discounts and commissions and offering expenses . our longer term liquidity requirements will require us to raise additional capital , such as through additional equity or debt financings . our future capital requirements will depend on many factors , including the receipt of milestones under our current collaboration agreements and the timing of our expenditures related to clinical trials . we believe our existing cash and cash equivalents , combined with available future debt , will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into 2021. however , we anticipate opportunistically raising additional capital before that time through equity offerings , collaboration or license agreements , or additional debt in order to maintain adequate capital reserves . in addition , we may choose to raise additional capital at any time for the further development of our existing product candidates and may also need to raise additional funds sooner to pursue other development activities related to additional product candidates . decisions about the timing or nature of any financing will be based on , among other things , our perception of our liquidity and of the market opportunity to raise equity or debt . additional securities may include common stock , preferred stock , or debt securities . we may explore strategic collaborations or license arrangements for certain of our earlier stage assets , including rta 901 and rta 1701. if we do explore any arrangements , there can be no assurance that any agreement will be reached , and we may determine to cease exploring a potential transaction for any or all of the assets at any time . if an agreement is reached , there can be no assurance that any such transaction would provide us with a material amount of additional capital resources . 103 until we can generate a sufficient amount of revenue from our product candidates , if ever , we expect to finance future cash needs through public or private equity or debt offerings , commercial loans , and collaboration or license transactions . additional capital may not be available on reasonable terms , if at all . if we are unable to raise additional capital in sufficient amounts or

debt as of december 31 , 2014 , we had $ 350.0 million principal amount of unsecured notes outstanding with a fixed stated interest rate of 4.625 % , $ 325.0 million principal amount of unsecured notes outstanding with a fixed stated interest rate of 4.125 % , and $ 525.0 million outstanding under our revolving credit facility with a variable weighted average interest rate of 1.9 % . at december 31 , 2014 , our total weighted average effective interest rate was 3.6 % while our total weighted average maturity was 5.2 years . we also have the flexibility to issue debt or equity securities from time to time when we determine that market conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable . on march 21 , 2013 , standard & poor 's ratings services raised our corporate credit rating to “bb+” from “bb” and also assigned a “bb+” rating to our unsecured notes . additionally , on april 5 , 2013 , standard & poor 's ratings services assigned a rating of “bbb” to our $ 900.0 million revolving credit facility . on february 7 , 2012 , fitch ratings assigned a rating of “bbb-” to our revolving credit facility and “bb+” ratings to our unsecured debt and corporate credit . on january 31 , 2013 , fitch ratings affirmed these ratings in connection with our intention to convert to a reit and reaffirmed them on january 26 , 2015. on june 3 , 2011 , moody 's raised our senior unsecured debt rating to “ba1” from “ba2” and revised the outlook on our debt rating from positive to stable . on march 21 , 2013 , moody 's revised the rating outlook to positive from stable , and affirmed the senior unsecured rating at “ba1” . facility development and capital expenditures in order to retain federal inmate populations we currently manage in the 1,154-bed san diego correctional facility , we are constructing the 1,492-bed otay mesa detention center at a site in san diego .

alport syndrome affects both children and adults and , in patients with the most severe forms of the disease , approximately 50 % progress to dialysis by age of 25 , 90 % by age 40 , and nearly 100 % by age 60. in the phase 2 portion of cardinal , bard demonstrated a statistically significant increase from baseline in mean egfr after 48 weeks of treatment in 25 patients . available historical data for 22 of these patients showed an average annual decline in egfr of 4.2 ml/min/1.73 m 2 in the three-year period prior to study entry . bard also demonstrated a statistically significant increase from baseline in mean egfr at week 52 after withdrawal of drug for four weeks . this retained egfr benefit is important because it provides compelling evidence that drug treatment will delay or prevent the need for dialysis or transplant . the fda has provided us with written guidance that , in patients with ckd caused by alport syndrome , an analysis of retained egfr demonstrating an improvement versus placebo after one year of bard treatment may support accelerated approval , and an improvement versus placebo after two years of treatment may support full approval . the phase 3 portion of cardinal is an international , multi-center , randomized , double-blind , placebo-controlled trial studying the safety and efficacy of bard in 157 alport syndrome patients randomized one-to-one to active drug or placebo . we have fully enrolled the phase 3 portion of cardinal , and we expect to have one year top-line results available in the second half of 2019. if the trial results are positive , we believe the results , together with other data from our development program , will be sufficient to form the basis of an nda submission to the fda seeking approval of bard for the treatment of ckd caused by alport syndrome . 94 we are currently initiating a phase 3 trial studying bard in patients with adpkd called falcon . adpkd is a rare and serious hereditary form of ckd caused by a genetic defect in genes called pkd1 or pkd2 and is characterized by the formation of fluid-filled cysts in the kidneys . adpkd is the most common single-gene disorder of the kidneys , and there are an estimated 400,000 patients in the united states , with approximately 140,000 patients diagnosed with the disease . during 2018 , we completed a phase 2 clinical trial studying bard in patients with adpkd . in the phase 2 study , bard demonstrated a statistically significant increase from baseline in mean egfr after 12 weeks of treatment in 31 patients . available historical data for 29 of these patients showed an average annual decline in egfr of 4.8 ml/min/1.73 m 2 in the three-year period prior to study entry . the fda has provided us with written guidance that , in patients with adpkd , an analysis of retained egfr demonstrating an improvement versus placebo after one year of bard treatment may support accelerated approval , and an improvement versus placebo after two years of treatment may support full approval . falcon is an international , multi-center , randomized , double-blind , placebo-controlled trial studying the safety and efficacy of bard in approximately 300 adpkd patients randomized one-to-one to active drug or placebo . we plan to enroll the first adpkd patient in falcon in mid-2019 . we collected phase 2 data studying bard in each of iga nephropathy ( igan ) , type 1 diabetic ckd ( t1d ckd ) , and focal segmental glomerulosclerosis ( fsgs ) . in each of these phase 2 studies , bard demonstrated a statistically significant increase from baseline in mean egfr after 12 weeks of treatment in patients whose available historical data showed annual declines in egfr in the three-year period prior to study entry . we plan to pursue each of these rare and serious forms of ckd as commercial indications . in addition to our ckd development programs , we are conducting a registrational phase 2 clinical trial , part 2 of moxie , studying our second nrf2 activator , omav , in patients with fa . fa is a rare , inherited , debilitating , and degenerative neuromuscular disorder caused by mutations in the gene for frataxin , a mitochondrial protein . patients with fa are typically dependent on wheelchair use 10 to 15 years after disease onset , and their median age of death is in the mid-30s . there are no currently approved therapies for the treatment of fa . in part 1 of moxie , at the optimal dose level , omav demonstrated a statistically significant improvement in modified friedreich 's ataxia rating scale ( mfars ) scores of 3.8 points ( p=0.0001 ) versus baseline and a placebo-corrected improvement in mfars scores of 2.3 points ( p=0.06 ) . part 2 of moxie is an international , multi-center , randomized , double-blind , placebo-controlled trial studying the safety and efficacy of omav in 103 fa patients randomized one-to-one to active drug or placebo . the fda has provided us with written guidance that the mfars score is acceptable as the primary endpoint for part 2 of moxie and that it may consider either accelerated or full approval based on the overall results of the trial and strength of the data . we have fully enrolled the trial , and we expect to have top-line data from the trial in the second half of 2019. if the trial results are positive , we believe the trial results , together with other data from our development program , will be sufficient to form the basis of an nda submission to the fda seeking approval of omav for the treatment of fa . we are also conducting a phase 3 trial studying bard in patients with ctd-pah called catalyst . story_separator_special_tag research and development expenses increased by 81 % during 2017 compared to 2016. the increase was primarily due to $ 23.9 million in expanded clinical and manufacturing activities , primarily for cardinal , catalyst , the extension trial for catalyst and lariat patients , part 2 of moxie , part 1 of motor , reveal , and phoenix , $ 2.9 million in increased preclinical and manufacturing activities in our rta 1701 , $ 4.0 million in personnel and equity compensation expenses to support growth in our development activities , and $ 0.8 million in increased medical affairs activities . research and development expenses , as a percentage of total expenses , was 75 % , 75 % , and 70 % , for 2018 , 2017 , and 2016 , respectively . the increase of 5 % during 2017 compared to 2016 was primarily due to increased clinical and manufacturing activity related to our registrational trials . general and administrative expenses general and administrative expenses increased by 41 % during 2018 compared to 2017. the increase was primarily due to $ 4.3 million in personnel , consulting , and equity compensation expenses to support growth in our development activities , $ 3.6 million sublicense fees and other expenses from the achievement of the khk milestone , and $ 2.2 million in commercial research activities . general and administrative expenses increased by 40 % during 2017 compared to 2016. the increase was primarily due to $ 4.7 million in personnel , consulting , and equity compensation expenses to support growth in our development activities , $ 0.9 million in commercial research activities , and $ 0.6 million in intellectual property costs due to additional validation of patents , new applications , national stage filings , and license fees . general and administrative expenses , as a percentage of total expenses , was 25 % , 24 % , and 29 % , for 2018 , 2017 , and 2016 , respectively . the decrease of 5 % during 2017 compared to 2016 was primarily due to the increase in research and development expenses for clinical and manufacturing activity related to our registrational trials . investment income the year-over-year increases in investment income during 2018 , 2017 , and 2016 were due to investment and interest income earned on cash equivalents . interest expense the year-over-year increases in interest expense during 2018 , 2017 , and 2016 were attributable to borrowing activities under our restated loan agreement entered in june 2018 and our loan agreement entered in march 2017. provision ( benefit ) for taxes the year-over-year changes in provision ( benefit ) for taxes during 2018 , 2017 , and 2016 were due to differences in income generated and changes in the valuation allowance . 101 liquidity and capital resources since our inception , we have funded our operations primarily through collaboration and license agreements , the sale of preferred and common stock , and secured loans . to date , we have raised gross cash proceeds of $ 476.6 million through the sale of convertible preferred stock and $ 780.0 million from payments under license and collaboration agreements . we also obtained $ 402.3 million in net proceeds from our ipo and follow-on offerings of our class a common stock and $ 77.2 million in net proceeds from our restated loan agreement . we have not generated any revenue from the sale of any products . as of december 31 , 2018 , we had available cash and cash equivalents of approximately $ 337.8 million . our cash and cash equivalents are invested in accordance with our investment policy , primarily with a view to liquidity and capital preservation . story_separator_special_tag $ 232.9 million , after deducting underwriting discounts and commissions and offering expenses . our longer term liquidity requirements will require us to raise additional capital , such as through additional equity or debt financings . our future capital requirements will depend on many factors , including the receipt of milestones under our current collaboration agreements and the timing of our expenditures related to clinical trials . we believe our existing cash and cash equivalents , combined with available future debt , will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into 2021. however , we anticipate opportunistically raising additional capital before that time through equity offerings , collaboration or license agreements , or additional debt in order to maintain adequate capital reserves . in addition , we may choose to raise additional capital at any time for the further development of our existing product candidates and may also need to raise additional funds sooner to pursue other development activities related to additional product candidates . decisions about the timing or nature of any financing will be based on , among other things , our perception of our liquidity and of the market opportunity to raise equity or debt . additional securities may include common stock , preferred stock , or debt securities . we may explore strategic collaborations or license arrangements for certain of our earlier stage assets , including rta 901 and rta 1701. if we do explore any arrangements , there can be no assurance that any agreement will be reached , and we may determine to cease exploring a potential transaction for any or all of the assets at any time . if an agreement is reached , there can be no assurance that any such transaction would provide us with a material amount of additional capital resources . 103 until we can generate a sufficient amount of revenue from our product candidates , if ever , we expect to finance future cash needs through public or private equity or debt offerings , commercial loans , and collaboration or license transactions . additional capital may not be available on reasonable terms , if at all . if we are unable to raise additional capital in sufficient amounts or

cash flows the following table sets forth the primary sources and uses of cash for the years ended december 31 : replace_table_token_12_th operating activities net cash used in operating activities was $ 83.8 million for the year ended december 31 , 2018 , consisting primarily of net loss of $ 80.5 million adjusted for non-cash items including stock-based compensation expense of $ 10.6 million , depreciation and amortization expense of $ 1.2 million , loss on extinguishment of debt of $ 1.0 million , and a net decrease in operating assets and liabilities of $ 16.1 million . the significant items in the change in operating assets and liabilities include an increase of prepaid expenses and other current assets of $ 1.1 million due to prepayments on trial and other operating expenses and reimbursements due from khk , an increase in accrued direct research and other current liabilities of $ 4.4 million due to clinical and manufacturing activities , an increase in accounts payable of $ 2.0 million due to timing of vendor payment , and a decrease in deferred revenue of $ 21.4 million . the decrease in deferred revenue relates to the ratable recognition of revenue over the expected term of the performance obligations under our collaboration agreements with abbvie and khk , which resulted in recognition of $ 51.4 million of license and milestone revenue , offset by the achievement of regulatory milestone of $ 30.0 million related to the khk agreement , which was recognized as deferred revenue . net cash used in operating activities was $ 83.3 million for the year ended december 31 , 2017 , consisting primarily of net loss of $ 47.7 million adjusted for non-cash items including stock-based compensation expense of $ 6.5 million , depreciation and amortization expense of $ 0.6 million , and a net decrease in operating assets and liabilities of $ 42.7 million .

· income from continuing operations increased $ 44.1 million , or 88.6 % , primarily as the result of higher sales volumes and gross margin as described above combined with the additional sales and margin related to the december 2014 bti acquisition , net of the corresponding increase in bti operating expenses , including acquisition related amortization . in addition , operating expenses were higher in fiscal 2016 because of increased profit sharing and management incentive partially offset by lower professional and acquisition related expenses . interest expense was higher in fiscal 2016 as a result of the costs associated with retiring our 5.875 % senior notes in exchange for a lower cost term loan , as described below . 31 · on june 15 , 2015 , we entered into a new credit agreement , or the credit agreement , which provides for a $ 175.0 million revolving line and a $ 105.0 million term loan , which both mature on june 15 , 2020. we used the proceeds from the term loan to redeem the entire $ 100.0 million outstanding principal balance of our 5.875 % senior notes , plus accrued and unpaid interest at the redemption date . on june 18 , 2015 , we entered into an interest rate swap agreement , which expires on june 15 , 2020 , covering $ 105.0 million of floating rate debt under the term loan . on july 6 , 2015 , we executed an interest rate swap pursuant to such agreement , which requires us to pay int erest at a defined rate of 1.56 % while receiving interest at a defined variable rate of one-month libor ( 0.188 % at july 31 , 2015 ) . the notional amount of the interest rate swap was $ 105.0 million and had an aggregate fair value of $ 1.3 million as of april 30 , 2016. this swap , when combined with the applicable margin based on our consolidated leverage ratio as of january 31 , 2016 , effectively fixed our interest rate on the term loan , subject to change based on changes in our consolidated leverage ratio . as o f april 30 , 2016 , our interest rate on the term loan was 3.06 % . our business we are one of the world 's leading manufacturers of firearms and a provider of quality accessory products for the shooting , hunting , and rugged outdoor enthusiast . we manufacture a wide array of handguns ( including revolvers and pistols ) , long guns ( including modern sporting rifles , bolt action rifles , and single shot rifles ) , handcuffs , and firearm-related products and accessories for sale to a wide variety of customers , including gun enthusiasts , collectors , hunters , sportsmen , competitive shooters , individuals desiring home and personal protection , law enforcement and security agencies and officers , and military agencies in the united states and throughout the world . we are one of the largest manufacturers of handguns , modern sporting rifles , and handcuffs in the united states and an active participant in the hunting rifle market . we are also a leading provider of shooting , hunting , and outdoor accessories , including reloading , gunsmithing , gun cleaning supplies , tree saws , and vault accessories . we sell our products under the smith & wesson , m & p , thompson/center arms , caldwell shooting supplies , wheeler engineering , tipton gun cleaning supplies , frankford arsenal reloading tools , lockdown vault accessories , hooyman premium tree saws , bog-pod , and golden rod moisture control brands . we manufacture our firearm products at our facilities in springfield , massachusetts ; houlton , maine ; and deep river , connecticut ; and we develop and market our accessories products at our facility in columbia , missouri . we plan to continue to capitalize on the goodwill developed through our historic 164 year old “ smith & wesson ” brand as well as our other well-known brands by expanding consumer awareness of the products we produce . key performance indicators we evaluate the performance of our business based upon operating profit , which includes net sales , cost of sales , selling and administrative expenses , and certain components of other income and expense . we also track our return on invested capital , and we use adjusted ebitdas ( earnings before interest , taxes , depreciation , amortization , and stock-based compensation expense , excluding certain non-operational items ) , which is a non-gaap financial metric , as a supplemental measure of our performance in order to provide investors with an improved understanding of underlying performance trends . we evaluate our various firearm products by such measurements as gross margin per unit produced , units produced per day , revenue by trade channel , and incoming orders per day . we evaluate our various accessories products by such measurements as incoming orders per day , sales by customer , and gross margin by product line . key industry data firearms have been subject to legislative actions in the past , and the market has reacted to these actions . there was a substantial increase in sales in the early 1990s during the period leading up to and shortly after the enactment of the brady bill . in the period from 1992 through 1994 , u.s. handgun sales increased by over 50 % , as consumers purchased handguns because of the fear of prohibition of handgun ownership . sales levels then returned to pre-1992 levels and grew at normal industry growth rates until late in calendar 2008 , when sales increased in what appears to be fears surrounding crime and terrorism , an economic downturn , and a change in the white house administration . story_separator_special_tag rate swap agreement . the additional expense for the call premium and debt issuance write off costs was offset by lower interest rate debt subsequent to the credit facility restructure . interest expense decreased for fiscal 2015 compared with the prior fiscal year primarily as a result of $ 4.3 million of bond premium and $ 795,000 of debt issuance write off costs incurred to retire the then-outstanding 9.5 % senior notes due 2016 , or the 9.5 % senior notes , during fiscal 2014. interest expense for fiscal 2015 also included the additional interest expense to service our $ 75.0 million of 5.000 % senior notes that were not outstanding during fiscal 2014 as well as amortization of debt issuance costs . income tax expense the following table sets forth certain information regarding income tax expense for the fiscal years ended april 30 , 2016 , 2015 , and 2014 ( dollars in thousands ) : 2016 2015 $ change % change 2014 income tax expense $ 51,135 $ 28,905 $ 22,230 76.9 % $ 48,095 our income tax expense for fiscal 2016 increased $ 22.2 million over the prior fiscal year because of higher operating profit partially offset by a decrease in effective tax rate . our effective tax rate for the fiscal year ended april 30 , 2016 was 35.24 % , which was a decrease of 1.47 % from the effective tax rate of 36.71 % for the fiscal year ended april 30 , 2015 due to a proportionately larger increase in permanent book versus tax differences as well as a reduction in state taxes . income from continuing operations the following table sets forth certain information regarding income from continuing operations and the related per share data for the fiscal years ended april 30 , 2016 , 2015 , and 2014 ( dollars in thousands , except per share data ) : replace_table_token_11_th fiscal 2016 income from continuing operations compared with fiscal 2015 income from continuing operations of $ 94.0 million for fiscal 2016 was $ 44.1 million higher than the $ 49.8 million for the prior fiscal year , primarily because of higher revenue and gross margin as described above combined with a full year of operating results for bti . in addition , operating expenses were higher in the current fiscal year because of increased profit sharing and management incentive , partially offset by lower professional and acquisition related expenses . interest expense was higher in the current fiscal year as a result of retiring our 5.875 % senior notes in exchange for a lower cost term loan . the increased call premium and debt issuance write off costs as a result of retiring our 5.875 % senior notes as well as additional intangible amortization expense recorded as a result of the bti acquisition negatively impacted net income per diluted share by $ 0.17 per share , when combined . fiscal 2015 income from continuing operations compared with fiscal 2014 income from continuing operations of $ 49.8 million for fiscal 2015 was $ 38.8 million lower than the $ 88.6 million for the prior fiscal year , primarily because of lower sales volumes , a corresponding decrease in gross profit , unfavorable manufacturing spending , additional advertising and promotional expense , additional depreciation expense from increased capital expenditures , and acquisition-related costs . income per share from continuing operations for fiscal 2015 was favorably impacted by $ 0.02 from our open market purchases of our common stock that occurred during fiscal 2015 under our stock repurchase program . there was also a favorable impact to income per share from continuing operations of $ 0.04 per share as a result of the drp acquisition . income per share from continuing operations for fiscal 2015 was negatively impacted by $ 0.12 per share as a result of increased cost of goods sold from the fair value inventory step-up , acquisition-related costs , and additional intangible amortization expense as a result of the drp and bti acquisitions completed during fiscal 2015. excluding the expenses for inventory step-up and amortization of intangible assets , the fiscal 2015 acquisitions had a favorable impact on income per share from continuing operations . 38 story_separator_special_tag for a $ 175.0 million revolving line and a $ 105.0 million term loan , which both mature on june 15 , 2020. we had no borrowings on our revolving line and $ 100.3 million outstanding on our term loan as of april 30 , 2016. we used the proceeds from the term loan to redeem the entire $ 100.0 million outstanding principal balance of our then outstanding 5.875 % senior notes , plus accrued and unpaid interest to the redemption date , in june 2015. see note 6 – notes payable and financing arrangements in the notes to the consolidated financial statements for additional information regarding our credit facility . additional proceeds under the credit facility are expected to be used for general corporate purposes . on june 18 , 2015 , we entered into an interest rate swap agreement , which expires on june 15 , 2020 , covering $ 105.0 million of floating rate debt under the term loan . on july 6 , 2015 , we executed an interest rate swap pursuant to such agreement , which requires us to pay interest at a defined rate of 1.56 % while receiving interest at a defined variable rate of one-month libor ( 0.188 % at july 31 , 2015 ) . the notional amount of the interest rate swap was $ 105.0 million and had an aggregate fair value of $ 1.3 million as of april 30 , 2016. this swap , when combined with the applicable margin based on our consolidated leverage ratio as of january 31 , 2016 , effectively fixed our interest rate on the term loan , subject to change based on changes in our consolidated leverage ratio . as of april 30 , 2016 , our interest

cash flows the following table sets forth the primary sources and uses of cash for the years ended december 31 : replace_table_token_12_th operating activities net cash used in operating activities was $ 83.8 million for the year ended december 31 , 2018 , consisting primarily of net loss of $ 80.5 million adjusted for non-cash items including stock-based compensation expense of $ 10.6 million , depreciation and amortization expense of $ 1.2 million , loss on extinguishment of debt of $ 1.0 million , and a net decrease in operating assets and liabilities of $ 16.1 million . the significant items in the change in operating assets and liabilities include an increase of prepaid expenses and other current assets of $ 1.1 million due to prepayments on trial and other operating expenses and reimbursements due from khk , an increase in accrued direct research and other current liabilities of $ 4.4 million due to clinical and manufacturing activities , an increase in accounts payable of $ 2.0 million due to timing of vendor payment , and a decrease in deferred revenue of $ 21.4 million . the decrease in deferred revenue relates to the ratable recognition of revenue over the expected term of the performance obligations under our collaboration agreements with abbvie and khk , which resulted in recognition of $ 51.4 million of license and milestone revenue , offset by the achievement of regulatory milestone of $ 30.0 million related to the khk agreement , which was recognized as deferred revenue . net cash used in operating activities was $ 83.3 million for the year ended december 31 , 2017 , consisting primarily of net loss of $ 47.7 million adjusted for non-cash items including stock-based compensation expense of $ 6.5 million , depreciation and amortization expense of $ 0.6 million , and a net decrease in operating assets and liabilities of $ 42.7 million .

· income from continuing operations increased $ 44.1 million , or 88.6 % , primarily as the result of higher sales volumes and gross margin as described above combined with the additional sales and margin related to the december 2014 bti acquisition , net of the corresponding increase in bti operating expenses , including acquisition related amortization . in addition , operating expenses were higher in fiscal 2016 because of increased profit sharing and management incentive partially offset by lower professional and acquisition related expenses . interest expense was higher in fiscal 2016 as a result of the costs associated with retiring our 5.875 % senior notes in exchange for a lower cost term loan , as described below . 31 · on june 15 , 2015 , we entered into a new credit agreement , or the credit agreement , which provides for a $ 175.0 million revolving line and a $ 105.0 million term loan , which both mature on june 15 , 2020. we used the proceeds from the term loan to redeem the entire $ 100.0 million outstanding principal balance of our 5.875 % senior notes , plus accrued and unpaid interest at the redemption date . on june 18 , 2015 , we entered into an interest rate swap agreement , which expires on june 15 , 2020 , covering $ 105.0 million of floating rate debt under the term loan . on july 6 , 2015 , we executed an interest rate swap pursuant to such agreement , which requires us to pay int erest at a defined rate of 1.56 % while receiving interest at a defined variable rate of one-month libor ( 0.188 % at july 31 , 2015 ) . the notional amount of the interest rate swap was $ 105.0 million and had an aggregate fair value of $ 1.3 million as of april 30 , 2016. this swap , when combined with the applicable margin based on our consolidated leverage ratio as of january 31 , 2016 , effectively fixed our interest rate on the term loan , subject to change based on changes in our consolidated leverage ratio . as o f april 30 , 2016 , our interest rate on the term loan was 3.06 % . our business we are one of the world 's leading manufacturers of firearms and a provider of quality accessory products for the shooting , hunting , and rugged outdoor enthusiast . we manufacture a wide array of handguns ( including revolvers and pistols ) , long guns ( including modern sporting rifles , bolt action rifles , and single shot rifles ) , handcuffs , and firearm-related products and accessories for sale to a wide variety of customers , including gun enthusiasts , collectors , hunters , sportsmen , competitive shooters , individuals desiring home and personal protection , law enforcement and security agencies and officers , and military agencies in the united states and throughout the world . we are one of the largest manufacturers of handguns , modern sporting rifles , and handcuffs in the united states and an active participant in the hunting rifle market . we are also a leading provider of shooting , hunting , and outdoor accessories , including reloading , gunsmithing , gun cleaning supplies , tree saws , and vault accessories . we sell our products under the smith & wesson , m & p , thompson/center arms , caldwell shooting supplies , wheeler engineering , tipton gun cleaning supplies , frankford arsenal reloading tools , lockdown vault accessories , hooyman premium tree saws , bog-pod , and golden rod moisture control brands . we manufacture our firearm products at our facilities in springfield , massachusetts ; houlton , maine ; and deep river , connecticut ; and we develop and market our accessories products at our facility in columbia , missouri . we plan to continue to capitalize on the goodwill developed through our historic 164 year old “ smith & wesson ” brand as well as our other well-known brands by expanding consumer awareness of the products we produce . key performance indicators we evaluate the performance of our business based upon operating profit , which includes net sales , cost of sales , selling and administrative expenses , and certain components of other income and expense . we also track our return on invested capital , and we use adjusted ebitdas ( earnings before interest , taxes , depreciation , amortization , and stock-based compensation expense , excluding certain non-operational items ) , which is a non-gaap financial metric , as a supplemental measure of our performance in order to provide investors with an improved understanding of underlying performance trends . we evaluate our various firearm products by such measurements as gross margin per unit produced , units produced per day , revenue by trade channel , and incoming orders per day . we evaluate our various accessories products by such measurements as incoming orders per day , sales by customer , and gross margin by product line . key industry data firearms have been subject to legislative actions in the past , and the market has reacted to these actions . there was a substantial increase in sales in the early 1990s during the period leading up to and shortly after the enactment of the brady bill . in the period from 1992 through 1994 , u.s. handgun sales increased by over 50 % , as consumers purchased handguns because of the fear of prohibition of handgun ownership . sales levels then returned to pre-1992 levels and grew at normal industry growth rates until late in calendar 2008 , when sales increased in what appears to be fears surrounding crime and terrorism , an economic downturn , and a change in the white house administration . story_separator_special_tag rate swap agreement . the additional expense for the call premium and debt issuance write off costs was offset by lower interest rate debt subsequent to the credit facility restructure . interest expense decreased for fiscal 2015 compared with the prior fiscal year primarily as a result of $ 4.3 million of bond premium and $ 795,000 of debt issuance write off costs incurred to retire the then-outstanding 9.5 % senior notes due 2016 , or the 9.5 % senior notes , during fiscal 2014. interest expense for fiscal 2015 also included the additional interest expense to service our $ 75.0 million of 5.000 % senior notes that were not outstanding during fiscal 2014 as well as amortization of debt issuance costs . income tax expense the following table sets forth certain information regarding income tax expense for the fiscal years ended april 30 , 2016 , 2015 , and 2014 ( dollars in thousands ) : 2016 2015 $ change % change 2014 income tax expense $ 51,135 $ 28,905 $ 22,230 76.9 % $ 48,095 our income tax expense for fiscal 2016 increased $ 22.2 million over the prior fiscal year because of higher operating profit partially offset by a decrease in effective tax rate . our effective tax rate for the fiscal year ended april 30 , 2016 was 35.24 % , which was a decrease of 1.47 % from the effective tax rate of 36.71 % for the fiscal year ended april 30 , 2015 due to a proportionately larger increase in permanent book versus tax differences as well as a reduction in state taxes . income from continuing operations the following table sets forth certain information regarding income from continuing operations and the related per share data for the fiscal years ended april 30 , 2016 , 2015 , and 2014 ( dollars in thousands , except per share data ) : replace_table_token_11_th fiscal 2016 income from continuing operations compared with fiscal 2015 income from continuing operations of $ 94.0 million for fiscal 2016 was $ 44.1 million higher than the $ 49.8 million for the prior fiscal year , primarily because of higher revenue and gross margin as described above combined with a full year of operating results for bti . in addition , operating expenses were higher in the current fiscal year because of increased profit sharing and management incentive , partially offset by lower professional and acquisition related expenses . interest expense was higher in the current fiscal year as a result of retiring our 5.875 % senior notes in exchange for a lower cost term loan . the increased call premium and debt issuance write off costs as a result of retiring our 5.875 % senior notes as well as additional intangible amortization expense recorded as a result of the bti acquisition negatively impacted net income per diluted share by $ 0.17 per share , when combined . fiscal 2015 income from continuing operations compared with fiscal 2014 income from continuing operations of $ 49.8 million for fiscal 2015 was $ 38.8 million lower than the $ 88.6 million for the prior fiscal year , primarily because of lower sales volumes , a corresponding decrease in gross profit , unfavorable manufacturing spending , additional advertising and promotional expense , additional depreciation expense from increased capital expenditures , and acquisition-related costs . income per share from continuing operations for fiscal 2015 was favorably impacted by $ 0.02 from our open market purchases of our common stock that occurred during fiscal 2015 under our stock repurchase program . there was also a favorable impact to income per share from continuing operations of $ 0.04 per share as a result of the drp acquisition . income per share from continuing operations for fiscal 2015 was negatively impacted by $ 0.12 per share as a result of increased cost of goods sold from the fair value inventory step-up , acquisition-related costs , and additional intangible amortization expense as a result of the drp and bti acquisitions completed during fiscal 2015. excluding the expenses for inventory step-up and amortization of intangible assets , the fiscal 2015 acquisitions had a favorable impact on income per share from continuing operations . 38 story_separator_special_tag for a $ 175.0 million revolving line and a $ 105.0 million term loan , which both mature on june 15 , 2020. we had no borrowings on our revolving line and $ 100.3 million outstanding on our term loan as of april 30 , 2016. we used the proceeds from the term loan to redeem the entire $ 100.0 million outstanding principal balance of our then outstanding 5.875 % senior notes , plus accrued and unpaid interest to the redemption date , in june 2015. see note 6 – notes payable and financing arrangements in the notes to the consolidated financial statements for additional information regarding our credit facility . additional proceeds under the credit facility are expected to be used for general corporate purposes . on june 18 , 2015 , we entered into an interest rate swap agreement , which expires on june 15 , 2020 , covering $ 105.0 million of floating rate debt under the term loan . on july 6 , 2015 , we executed an interest rate swap pursuant to such agreement , which requires us to pay interest at a defined rate of 1.56 % while receiving interest at a defined variable rate of one-month libor ( 0.188 % at july 31 , 2015 ) . the notional amount of the interest rate swap was $ 105.0 million and had an aggregate fair value of $ 1.3 million as of april 30 , 2016. this swap , when combined with the applicable margin based on our consolidated leverage ratio as of january 31 , 2016 , effectively fixed our interest rate on the term loan , subject to change based on changes in our consolidated leverage ratio . as of april 30 , 2016 , our interest

liquidity and capital resources our principal cash requirements are to finance the growth of our operations , including capital expenditures and any potential acquisitions , and to service our existing debt . capital expenditures for enhancements to manufacturing flexibility , tooling for new product offerings , and various information technology projects represent important cash needs . the following table sets forth certain cash flow information for the fiscal years ended april 30 , 2016 , 2015 , and 2014 ( dollars in thousands ) : replace_table_token_12_th operating activities operating activities represent the principal source of our cash flow . cash flows from operating activities in fiscal 2016 were $ 168.6 million , or $ 53.8 million higher than for the prior fiscal year . cash generated by operating activities for fiscal 2016 was favorably impacted by increased net income of $ 54.7 million before depreciation and amortization , $ 13.0 million of increased accounts payable resulting from an effort by procurement to negotiate longer terms with suppliers as well as timing of inventory purchases , $ 11.2 million of higher payroll accruals because of increased management incentive accruals , and $ 5.3 million of higher profit sharing accruals because of higher operating profit , partially offset by $ 2.3 million of increased accounts receivable related to the timing of firearms sales . cash flows from operating activities in fiscal 2015 were $ 114.8 million , or $ 24.6 million higher than for the prior fiscal year , primarily as a result of the following : a $ 25.7 million decrease in inventory levels as a result of an initiative to reduce finished parts inventory as well as reduced manufacturing volumes ; a decrease in accounts receivable of $ 11.0 million due to the timing of customer payments and lower sales volumes ; a $ 9.2 million increase in amortization and depreciation expense from increased capital spending and as a result of our acquisitions ; and lower income tax payments from lower taxable income .

the c financial acquisition resulted in an additional $ 19.0 million of federal home loan bank advances at acquisition , of which , approximately $ 7.4 million matured during 2015 and $ 11.6 million remained at december 31 , 2015. additional details related to the change are discussed within the “ deposits and borrowings ” section of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. the corporation was able to maintain all regulatory capital ratios in excess of the regulatory definition of “ well-capitalized ” as discussed in the “ capital ” section of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. results of operations – 2014 net income available to stockholders was $ 60.2 million , or $ 1.65 per fully diluted common share , an increase of $ 18.0 million compared to $ 42.2 million , or $ 1.41 per fully diluted common share in 2013. on november 12 , 2013 , the corporation acquired cfs bancorp , inc. ( `` cfs `` ) , and on november 7 , 2014 , the corporation acquired community bancshares , inc. ( `` community `` ) . as of december 31 , 2014 , total assets equaled $ 5.8 billion , an increase of $ 386.9 million from december 31 , 2013. loans and investments , the corporation 's primary earning assets , totaled $ 5.1 billion , an increase of $ 379.4 million from the prior year 's total of $ 4.7 billion . investments increased $ 85.1 million and total loans increased $ 294.3 million . the corporation acquired $ 145.1 million in loans as a result of the community acquisition . 30 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations the corporation 's allowance for loan losses totaled $ 64.0 million as of december 31 , 2014. the allowance provides 131.1 percent coverage of all non-accrual loans and 1.63 percent of total loans . details of the allowance for loan losses and non-performing loans are discussed within the “ loan quality ” and “ provision and allowance for loan losses ” sections of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. the corporation recognized increases in goodwill and core deposit intangible of $ 13.8 million and $ 4.7 million , respectively , as a result of the community acquisition . at december 31 , 2014 , other real estate owned totaled $ 19.3 million , a decrease of $ 2.9 million from the december 31 , 2013 balance of $ 22.2 million . included in the december 31 , 2014 balance was $ 6.7 million acquired in the community acquisition . taxes , both current and deferred , decreased in 2014 by $ 14.7 million . details related to the change in taxes are discussed within the “ income taxes ” section of the management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k and in note 22. income tax of the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. other assets of $ 20.8 million at december 31 , 2014 , decreased $ 8.2 million from december 31 , 2013. included in the decrease was an $ 11.1 million decrease in prepaid pension expense . additional details related to the prepaid pension expense are discussed in note 21. pension and other post retirement benefit plans , of the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. deposits increased $ 409.2 million from december 31 , 2013 , while borrowings decreased $ 111.3 million during the same period . as part of the community acquisition , the bank acquired deposits of $ 228.4 million . as part of the community acquisition , the corporation issued approximately 1.6 million shares of common stock valued at $ 35.0 million . additional details of this transaction are discussed in note 16. stockholders ' equity of the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. the corporation was able to maintain all regulatory capital ratios in excess of the regulatory definition of “ well-capitalized ” as discussed in the “ capital ” section of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. 31 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations net interest income net interest income is the primary source of the corporation 's earnings . net interest margin is a function of net interest income and the level of average earning assets . the following table presents the corporation 's interest income , interest expense , and net interest income as a percent of average earning assets for the three-year period ending in 2015 . replace_table_token_26_th ( 1 ) average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value adjustment . ( 2 ) tax-exempt securities and loans are presented on a fully taxable equivalent basis , using a marginal tax rate of 35 percent for 2015 , 2014 and 2013. these totals equal $ 10,975 , $ 7,921 and $ 6,043 , respectively . ( 3 ) non-accruing loans have been included in the average balances . 32 part ii : item 7. and item 7a . story_separator_special_tag an allowance of $ 1,842,000 was recorded for the remaining balance of these impaired loans totaling $ 6,552,000 and is included in the corporation 's allowance for loan losses . at december 31 , 2015 , non-performing assets , which includes non-accrual loans , renegotiated loans , and other real estate owned , plus loans 90-days delinquent , totaled $ 51,476,000 ; a decrease of $ 23,261,000 from december 31 , 2014 as noted in the table below . replace_table_token_31_th 37 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations the composition of non-performing assets and 90-day delinquent loans is reflected in the following table . replace_table_token_32_th although the corporation believes its underwriting and loan review procedures are appropriate for the various kinds of loans it makes , its results of operations and financial condition could be adversely affected in the event the quality of its loan portfolio declines . deterioration in the economic environment including residential and commercial real estate values may result in increased levels of loan delinquencies and credit losses . commercial construction and land development loans were $ 366,704,000 at december 31 , 2015 , an increase of $ 159,483,000 from december 31 , 2014. at december 31 , 2015 , construction and land development loans represent 7.8 percent of loans compared to 5.3 percent at december 31 , 2014. management continues to closely monitor this segment of the portfolio , as well as being selective with additional exposure to this industry . in 2015 , total net charge offs were $ 1,928,000 , a decrease of $ 4,538,000 from 2014 and $ 6,216,000 from 2013. the corporation incurred two commercial loan charge offs over $ 500,000 in 2015 totaling $ 1,635,000. two recoveries over $ 500,000 , totaling $ 1,640,000 , were recognized during the year . residential real estate accounted for $ 1,298,000 , or 67.3 percent of total net charge offs , compared to $ 633,000 , or 9.8 percent , in 2014. the table below represents loan loss experience for the years indicated . replace_table_token_33_th the distribution of the net charge offs for the years indicated is provided in the following table . replace_table_token_34_th 38 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations provision and allowance for loan losses the allowance for loan losses is maintained through the provision for loan losses , which is a charge against earnings . the provision for loan losses in 2015 , 2014 and 2013 were $ 417,000 , $ 2,560,000 and $ 6,648,000 , respectively , showing significant year-over-year declines . based on management 's judgment as to the appropriate level of the allowance for loan losses , the amount provided in any period may be greater or less than net loan losses for the same period . the determination of the provision amount and the adequacy of the allowance in any period is based on management 's continuing review and evaluation of the loan portfolio , including an internally administered loan `` watch `` list and an independent review . the evaluation takes into consideration identified credit problems , management 's judgment as to the impact of current economic conditions on the portfolio and the possibility of losses inherent in the loan portfolio that are not specifically identified . additional details are discussed in note 1. nature of operations and summary of significant accounting policies , in the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. management believes that the allowance for loan losses is adequate to cover probable incurred losses inherent in the loan portfolio at december 31 , 2015. the process for determining the adequacy of the allowance for loan losses is critical to the corporation 's financial results . it requires management to make difficult , subjective and complex judgments to estimate the effect of uncertain matters . the allowance for loan losses considers current factors , including economic conditions and ongoing internal and external examination processes and will increase or decrease as deemed necessary to ensure the allowance remains adequate . in addition , the allowance as a percentage of charge offs and nonperforming loans will change at different points in time based on credit performance , portfolio mix and collateral values . management continually evaluates the commercial loan portfolio by including consideration of specific borrower cash flow analysis and estimated collateral values , types and amounts on non-performing loans , past and anticipated loan loss experience , changes in the composition of the loan portfolio , and the current condition and amount of loans outstanding . in conformance with asc 805 and asc 820 , loans purchased after december 31 , 2008 are recorded at the acquisition date fair value . such loans are included in the allowance to the extent a specific impairment is identified that exceeds the fair value adjustment on an impaired loan . an allowance may also be necessary if the historical loss and environmental factor analysis indicates losses inherent in a purchased portfolio exceed the fair value adjustment on the portion of the purchased portfolio not deemed impaired . at december 31 , 2015 , the allowance for loan losses was $ 62,453,000 , a decrease of $ 1,511,000 from december 31 , 2014. as a percent of loans , the allowance decreased to 1.3 percent at december 31 , 2015 from 1.6 percent at december 31 , 2014. the decrease in the ratio of allowance to loans was due in part to a $ 430,289,000 net increase in loans , net of fair value adjustments , resulting from the acquisition of ameriana and c financial . during 2015 , the specific reserves against impaired loans decreased by $ 927,000 , and the allowance for loans not deemed impaired decreased by $ 584,000. not included in the allowance for loan losses

liquidity and capital resources our principal cash requirements are to finance the growth of our operations , including capital expenditures and any potential acquisitions , and to service our existing debt . capital expenditures for enhancements to manufacturing flexibility , tooling for new product offerings , and various information technology projects represent important cash needs . the following table sets forth certain cash flow information for the fiscal years ended april 30 , 2016 , 2015 , and 2014 ( dollars in thousands ) : replace_table_token_12_th operating activities operating activities represent the principal source of our cash flow . cash flows from operating activities in fiscal 2016 were $ 168.6 million , or $ 53.8 million higher than for the prior fiscal year . cash generated by operating activities for fiscal 2016 was favorably impacted by increased net income of $ 54.7 million before depreciation and amortization , $ 13.0 million of increased accounts payable resulting from an effort by procurement to negotiate longer terms with suppliers as well as timing of inventory purchases , $ 11.2 million of higher payroll accruals because of increased management incentive accruals , and $ 5.3 million of higher profit sharing accruals because of higher operating profit , partially offset by $ 2.3 million of increased accounts receivable related to the timing of firearms sales . cash flows from operating activities in fiscal 2015 were $ 114.8 million , or $ 24.6 million higher than for the prior fiscal year , primarily as a result of the following : a $ 25.7 million decrease in inventory levels as a result of an initiative to reduce finished parts inventory as well as reduced manufacturing volumes ; a decrease in accounts receivable of $ 11.0 million due to the timing of customer payments and lower sales volumes ; a $ 9.2 million increase in amortization and depreciation expense from increased capital spending and as a result of our acquisitions ; and lower income tax payments from lower taxable income .

the c financial acquisition resulted in an additional $ 19.0 million of federal home loan bank advances at acquisition , of which , approximately $ 7.4 million matured during 2015 and $ 11.6 million remained at december 31 , 2015. additional details related to the change are discussed within the “ deposits and borrowings ” section of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. the corporation was able to maintain all regulatory capital ratios in excess of the regulatory definition of “ well-capitalized ” as discussed in the “ capital ” section of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. results of operations – 2014 net income available to stockholders was $ 60.2 million , or $ 1.65 per fully diluted common share , an increase of $ 18.0 million compared to $ 42.2 million , or $ 1.41 per fully diluted common share in 2013. on november 12 , 2013 , the corporation acquired cfs bancorp , inc. ( `` cfs `` ) , and on november 7 , 2014 , the corporation acquired community bancshares , inc. ( `` community `` ) . as of december 31 , 2014 , total assets equaled $ 5.8 billion , an increase of $ 386.9 million from december 31 , 2013. loans and investments , the corporation 's primary earning assets , totaled $ 5.1 billion , an increase of $ 379.4 million from the prior year 's total of $ 4.7 billion . investments increased $ 85.1 million and total loans increased $ 294.3 million . the corporation acquired $ 145.1 million in loans as a result of the community acquisition . 30 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations the corporation 's allowance for loan losses totaled $ 64.0 million as of december 31 , 2014. the allowance provides 131.1 percent coverage of all non-accrual loans and 1.63 percent of total loans . details of the allowance for loan losses and non-performing loans are discussed within the “ loan quality ” and “ provision and allowance for loan losses ” sections of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. the corporation recognized increases in goodwill and core deposit intangible of $ 13.8 million and $ 4.7 million , respectively , as a result of the community acquisition . at december 31 , 2014 , other real estate owned totaled $ 19.3 million , a decrease of $ 2.9 million from the december 31 , 2013 balance of $ 22.2 million . included in the december 31 , 2014 balance was $ 6.7 million acquired in the community acquisition . taxes , both current and deferred , decreased in 2014 by $ 14.7 million . details related to the change in taxes are discussed within the “ income taxes ” section of the management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k and in note 22. income tax of the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. other assets of $ 20.8 million at december 31 , 2014 , decreased $ 8.2 million from december 31 , 2013. included in the decrease was an $ 11.1 million decrease in prepaid pension expense . additional details related to the prepaid pension expense are discussed in note 21. pension and other post retirement benefit plans , of the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. deposits increased $ 409.2 million from december 31 , 2013 , while borrowings decreased $ 111.3 million during the same period . as part of the community acquisition , the bank acquired deposits of $ 228.4 million . as part of the community acquisition , the corporation issued approximately 1.6 million shares of common stock valued at $ 35.0 million . additional details of this transaction are discussed in note 16. stockholders ' equity of the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. the corporation was able to maintain all regulatory capital ratios in excess of the regulatory definition of “ well-capitalized ” as discussed in the “ capital ” section of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. 31 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations net interest income net interest income is the primary source of the corporation 's earnings . net interest margin is a function of net interest income and the level of average earning assets . the following table presents the corporation 's interest income , interest expense , and net interest income as a percent of average earning assets for the three-year period ending in 2015 . replace_table_token_26_th ( 1 ) average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value adjustment . ( 2 ) tax-exempt securities and loans are presented on a fully taxable equivalent basis , using a marginal tax rate of 35 percent for 2015 , 2014 and 2013. these totals equal $ 10,975 , $ 7,921 and $ 6,043 , respectively . ( 3 ) non-accruing loans have been included in the average balances . 32 part ii : item 7. and item 7a . story_separator_special_tag an allowance of $ 1,842,000 was recorded for the remaining balance of these impaired loans totaling $ 6,552,000 and is included in the corporation 's allowance for loan losses . at december 31 , 2015 , non-performing assets , which includes non-accrual loans , renegotiated loans , and other real estate owned , plus loans 90-days delinquent , totaled $ 51,476,000 ; a decrease of $ 23,261,000 from december 31 , 2014 as noted in the table below . replace_table_token_31_th 37 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations the composition of non-performing assets and 90-day delinquent loans is reflected in the following table . replace_table_token_32_th although the corporation believes its underwriting and loan review procedures are appropriate for the various kinds of loans it makes , its results of operations and financial condition could be adversely affected in the event the quality of its loan portfolio declines . deterioration in the economic environment including residential and commercial real estate values may result in increased levels of loan delinquencies and credit losses . commercial construction and land development loans were $ 366,704,000 at december 31 , 2015 , an increase of $ 159,483,000 from december 31 , 2014. at december 31 , 2015 , construction and land development loans represent 7.8 percent of loans compared to 5.3 percent at december 31 , 2014. management continues to closely monitor this segment of the portfolio , as well as being selective with additional exposure to this industry . in 2015 , total net charge offs were $ 1,928,000 , a decrease of $ 4,538,000 from 2014 and $ 6,216,000 from 2013. the corporation incurred two commercial loan charge offs over $ 500,000 in 2015 totaling $ 1,635,000. two recoveries over $ 500,000 , totaling $ 1,640,000 , were recognized during the year . residential real estate accounted for $ 1,298,000 , or 67.3 percent of total net charge offs , compared to $ 633,000 , or 9.8 percent , in 2014. the table below represents loan loss experience for the years indicated . replace_table_token_33_th the distribution of the net charge offs for the years indicated is provided in the following table . replace_table_token_34_th 38 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations provision and allowance for loan losses the allowance for loan losses is maintained through the provision for loan losses , which is a charge against earnings . the provision for loan losses in 2015 , 2014 and 2013 were $ 417,000 , $ 2,560,000 and $ 6,648,000 , respectively , showing significant year-over-year declines . based on management 's judgment as to the appropriate level of the allowance for loan losses , the amount provided in any period may be greater or less than net loan losses for the same period . the determination of the provision amount and the adequacy of the allowance in any period is based on management 's continuing review and evaluation of the loan portfolio , including an internally administered loan `` watch `` list and an independent review . the evaluation takes into consideration identified credit problems , management 's judgment as to the impact of current economic conditions on the portfolio and the possibility of losses inherent in the loan portfolio that are not specifically identified . additional details are discussed in note 1. nature of operations and summary of significant accounting policies , in the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. management believes that the allowance for loan losses is adequate to cover probable incurred losses inherent in the loan portfolio at december 31 , 2015. the process for determining the adequacy of the allowance for loan losses is critical to the corporation 's financial results . it requires management to make difficult , subjective and complex judgments to estimate the effect of uncertain matters . the allowance for loan losses considers current factors , including economic conditions and ongoing internal and external examination processes and will increase or decrease as deemed necessary to ensure the allowance remains adequate . in addition , the allowance as a percentage of charge offs and nonperforming loans will change at different points in time based on credit performance , portfolio mix and collateral values . management continually evaluates the commercial loan portfolio by including consideration of specific borrower cash flow analysis and estimated collateral values , types and amounts on non-performing loans , past and anticipated loan loss experience , changes in the composition of the loan portfolio , and the current condition and amount of loans outstanding . in conformance with asc 805 and asc 820 , loans purchased after december 31 , 2008 are recorded at the acquisition date fair value . such loans are included in the allowance to the extent a specific impairment is identified that exceeds the fair value adjustment on an impaired loan . an allowance may also be necessary if the historical loss and environmental factor analysis indicates losses inherent in a purchased portfolio exceed the fair value adjustment on the portion of the purchased portfolio not deemed impaired . at december 31 , 2015 , the allowance for loan losses was $ 62,453,000 , a decrease of $ 1,511,000 from december 31 , 2014. as a percent of loans , the allowance decreased to 1.3 percent at december 31 , 2015 from 1.6 percent at december 31 , 2014. the decrease in the ratio of allowance to loans was due in part to a $ 430,289,000 net increase in loans , net of fair value adjustments , resulting from the acquisition of ameriana and c financial . during 2015 , the specific reserves against impaired loans decreased by $ 927,000 , and the allowance for loans not deemed impaired decreased by $ 584,000. not included in the allowance for loan losses

liquidity liquidity management is the process by which the corporation ensures that adequate liquid funds are available for the holding company and its subsidiaries . these funds are necessary in order to meet financial commitments on a timely basis . these commitments include withdrawals by depositors , funding credit obligations to borrowers , paying dividends to stockholders , paying operating expenses , funding capital expenditures , and maintaining deposit reserve requirements . liquidity is monitored and closely managed by the asset/liability committee . the corporation 's liquidity is dependent upon the receipt of dividends from the bank , which are subject to certain regulatory limitations and access to other funding sources . liquidity of the bank is derived primarily from core deposit growth , principal payments received on loans , the sale and maturity of investment securities , net cash provided by operating activities , and access to other funding sources . the principal source of asset-funded liquidity is investment securities classified as available for sale , the market values of which totaled $ 658,400,000 at december 31 , 2015 , an increase of $ 108,857,000 , or 19.8 percent , from december 31 , 2014 . securities classified as held to maturity that are maturing within a short period of time can also be a source of liquidity . securities classified as held to maturity and that are maturing in one year or less totaled $ 4,144,000 at december 31 , 2015 . in addition , other types of assets such as cash and interest-bearing deposits with other banks , federal funds sold and loans maturing within one year are sources of liquidity . the most stable source of liability-funded liquidity for both the long-term and short-term is deposit growth and retention in the core deposit base .

under this agreement , we may develop these jak inhibitors for the treatment of alopecia areata , or aa , and other dermatological conditions . we paid rigel an upfront nonrefundable payment of $ 8.0 million in 2015 and $ 4.0 million upon the achievement of a specified development milestone in 2019. in addition , we have agreed to make remaining aggregate payments of up to $ 76.0 million upon the achievement of specified development milestones , such as clinical trials and regulatory approvals . further , we have agreed to pay up to an additional $ 10.5 million to rigel upon the achievement of a second set of development milestones . in addition , in connection with the amendment of the agreement in october 2019 , we agreed to pay rigel an amendment fee of $ 1.5 million in three installments of $ 0.5 million in january 2020 , april 2020 and july 2020 , which is included in accrued expenses on our consolidated balance sheet . with respect to any products we commercialize under the rigel license agreement , we will pay rigel quarterly tiered royalties on our annual net sales of each product at a high single digit percentage of annual net sales , subject to specified reductions until the date that all of the patent rights for that product have expired , as determined on a country-by-country and product-by- 61 product basis or , in specified countries under specified circumstances , 10 years from the first commercial sale of such product . the rigel license agreement terminates on the date of expiration of all royalty obligations unless earlier terminated by either party for a material breach . we may also terminate the rigel license agreement without cause at any time upon advance written notice to rigel . rigel , after consultation with us , will be responsible for maintaining and prosecuting the patent rights , and we will have final decision-making authority regarding such patent rights for a product in the united states and the european union . to the extent that we jointly develop intellectual property , we will confer and decide which party will be responsible for filing , prosecuting and maintaining those patent rights . the rigel license agreement also establishes a joint steering committee composed of an equal number of representatives for each party , which will monitor progress in the development of products . stock purchase agreement with vixen pharmaceuticals , inc. and license agreement with columbia university in march 2016 , we entered into a stock purchase agreement , or the vixen agreement , with vixen pharmaceuticals , inc. , or vixen , and jak1 , llc , jak2 , llc and jak3 , llc , or together , the selling stockholders , and shareholder representative services llc as the representative of the selling stockholders . pursuant to the vixen agreement , we acquired all shares of vixen 's capital stock from the selling stockholders , or the vixen acquisition . following the vixen acquisition , vixen became our wholly-owned subsidiary . pursuant to the vixen agreement , we paid $ 0.6 million upfront and issued an aggregate of 159,420 shares of our common stock to the selling stockholders . we are obligated to make annual payments of $ 0.1 million through march 2022 , with such amounts being creditable against specified future payments that may be paid under the vixen agreement . under the vixen agreement we are obligated to make aggregate payments of up to $ 18.0 million to the selling stockholders upon the achievement of specified pre-commercialization milestones for three products covered by the vixen patent rights in the united states , the european union and japan , and aggregate payments of up to $ 22.5 million upon the achievement of specified commercial milestones for products covered by the vixen patent rights . with respect to any covered products that we commercialize under the vixen agreement , we are obligated to pay low single-digit royalties on net sales , subject to specified reductions , limitations and other adjustments , until the date that all of the patent rights for that product have expired , as determined on a country-by-country and product-by-product basis or , in specified circumstances , ten years from the first commercial sale of such product . if we sublicense any of vixen 's patent rights and know-how acquired pursuant to the vixen agreement , we will be obligated to pay a portion of any consideration we receive from such sublicenses in specified circumstances . as a result of the vixen acquisition , we became party to the exclusive license agreement , by and between vixen and the trustees of columbia university in the city of new york , or columbia , dated as of december 31 , 2015 , or , as amended , the columbia license agreement . under the columbia license agreement , we are obligated to pay columbia an annual license fee of $ 10,000 subject to specified adjustments for patent expenses incurred by columbia and creditable against any royalties that may be paid under the columbia license agreement . we are also obligated to pay up to an aggregate of $ 11.6 million upon the achievement of specified commercial milestones , including specified levels of net sales of products covered by columbia patent rights and or know-how , and royalties at a sub-single-digit percentage of annual net sales of products covered by columbia patent rights and or know-how , subject to specified adjustments . if we sublicense any of columbia 's patent rights and know-how acquired pursuant to the columbia license agreement , we will be obligated to pay columbia a portion of any consideration received from such sublicenses in specified circumstances . story_separator_special_tag we recognize revenue when collection of the consideration we are entitled to under a contract with a customer is probable . at contract inception , we assess the goods or services promised within a contract with a customer to identify the performance obligations , and to determine if they are distinct . we recognize revenue that is allocated to each distinct performance obligation when ( or as ) that performance obligation is satisfied . we only recognize revenue when collection of the consideration we are entitled to under a contract with a customer is probable . product sales , net we recognized revenue from product sales at the point the customer obtained control , which generally occurred upon delivery . we also included estimates of variable consideration in the same period revenue was recognized . components of variable consideration included trade discounts and allowances , product returns , government rebates , discounts and rebates , other incentives such as patient co-pay assistance , and other fee for service amounts . variable consideration was recorded on the consolidated balance sheet as either a reduction of accounts receivable , if payable to a customer , or as a current liability , if payable to a third-party other than a customer . we considered all relevant information when estimating variable consideration such as contractual and statutory requirements , specific known market events and trends , industry data and forecasted customer buying and payment patterns . the amount of net revenue that can be recognized is constrained by estimates of variable consideration which are included in the transaction price . payment terms with customers did not exceed one year and , therefore , we did not account for a financing component in our arrangements . we expensed incremental costs of obtaining a contract with a customer , including sales commissions , when incurred as the period of benefit was less than one year . trade discounts and allowances - we provided customers with trade discounts , rebates , allowances and or other incentives . we recorded estimates for these items as a reduction of revenue in the same period the revenue was recognized . government and payor rebates – we contracted with , or were subject to arrangements with , certain third-party payors , including pharmacy benefit managers and government agencies , for the payment of rebates with respect to utilization of our commercial products . we also entered into agreements with gpos that provided for administrative fees and discounted pricing in the form of volume-based rebates . we were also subject to discount and rebate obligations under state medicaid programs and medicare . we recorded estimates for these discounts and rebates as a reduction of revenue in the same period the revenue was recognized . 67 other incentives – we maintained a co-pay assistance program which was intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by third-party payors . we estimated and recorded accruals for these incentives as a reduction of revenue in the period the revenue was recognized . our estimated amounts for co-pay assistance were based upon the number of claims and the cost per claim that we expected to receive associated with product that had been sold to customers but remained in the distribution channel at the end of each reporting period . product returns - consistent with industry practice , we have a product returns policy for rhofade which may provide customers a right of return for product purchased within a specified period prior to and subsequent to the product 's expiration date . the right of return lapses upon shipment of the product to a patient . we recorded an estimate for the amount of product which may be returned as a reduction of revenue in the period the related revenue was recognized . our estimates for product returns were based upon available industry data and our own sales information , including visibility into the inventory remaining in the distribution channel . there is no return liability associated with sales of eskata as we had a no returns policy for eskata when we commercialized it . contract research revenue related to laboratory services is generally recognized as the laboratory services are performed , based upon the rates specified in the contracts . under asc topic 606 , we elected to apply the “ right to invoice ” practical expedient when recognizing contract research revenue . we recognize contract research revenue in the amount to which we have the right to invoice . we recognize revenue related to grants as amounts become reimbursable under each grant , which is generally when research is performed , and the related costs are incurred . other revenue licenses of intellectual property – we recognize revenue received from non-refundable , upfront fees related to the licensing of intellectual property when the intellectual property is determined to be distinct from the other performance obligations identified in the arrangement , the license has been transferred to the customer , and the customer is able to use and benefit from the license . milestone payments – at the inception of each arrangement that includes milestone payments , we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method . if it is probable that a significant revenue reversal would not occur , the associated milestone value is included in the amount allocated to the license of intellectual property . milestone payments that are not within our control or the control of the customer , such as regulatory approvals , are not considered probable of being achieved until those approvals are received . inventory inventory included the third-party cost of manufacturing and assembly of the finished product forms of eskata and rhofade , quality control and other overhead costs . inventory is stated at the lower of cost or net realizable value . inventory

liquidity liquidity management is the process by which the corporation ensures that adequate liquid funds are available for the holding company and its subsidiaries . these funds are necessary in order to meet financial commitments on a timely basis . these commitments include withdrawals by depositors , funding credit obligations to borrowers , paying dividends to stockholders , paying operating expenses , funding capital expenditures , and maintaining deposit reserve requirements . liquidity is monitored and closely managed by the asset/liability committee . the corporation 's liquidity is dependent upon the receipt of dividends from the bank , which are subject to certain regulatory limitations and access to other funding sources . liquidity of the bank is derived primarily from core deposit growth , principal payments received on loans , the sale and maturity of investment securities , net cash provided by operating activities , and access to other funding sources . the principal source of asset-funded liquidity is investment securities classified as available for sale , the market values of which totaled $ 658,400,000 at december 31 , 2015 , an increase of $ 108,857,000 , or 19.8 percent , from december 31 , 2014 . securities classified as held to maturity that are maturing within a short period of time can also be a source of liquidity . securities classified as held to maturity and that are maturing in one year or less totaled $ 4,144,000 at december 31 , 2015 . in addition , other types of assets such as cash and interest-bearing deposits with other banks , federal funds sold and loans maturing within one year are sources of liquidity . the most stable source of liability-funded liquidity for both the long-term and short-term is deposit growth and retention in the core deposit base .

under this agreement , we may develop these jak inhibitors for the treatment of alopecia areata , or aa , and other dermatological conditions . we paid rigel an upfront nonrefundable payment of $ 8.0 million in 2015 and $ 4.0 million upon the achievement of a specified development milestone in 2019. in addition , we have agreed to make remaining aggregate payments of up to $ 76.0 million upon the achievement of specified development milestones , such as clinical trials and regulatory approvals . further , we have agreed to pay up to an additional $ 10.5 million to rigel upon the achievement of a second set of development milestones . in addition , in connection with the amendment of the agreement in october 2019 , we agreed to pay rigel an amendment fee of $ 1.5 million in three installments of $ 0.5 million in january 2020 , april 2020 and july 2020 , which is included in accrued expenses on our consolidated balance sheet . with respect to any products we commercialize under the rigel license agreement , we will pay rigel quarterly tiered royalties on our annual net sales of each product at a high single digit percentage of annual net sales , subject to specified reductions until the date that all of the patent rights for that product have expired , as determined on a country-by-country and product-by- 61 product basis or , in specified countries under specified circumstances , 10 years from the first commercial sale of such product . the rigel license agreement terminates on the date of expiration of all royalty obligations unless earlier terminated by either party for a material breach . we may also terminate the rigel license agreement without cause at any time upon advance written notice to rigel . rigel , after consultation with us , will be responsible for maintaining and prosecuting the patent rights , and we will have final decision-making authority regarding such patent rights for a product in the united states and the european union . to the extent that we jointly develop intellectual property , we will confer and decide which party will be responsible for filing , prosecuting and maintaining those patent rights . the rigel license agreement also establishes a joint steering committee composed of an equal number of representatives for each party , which will monitor progress in the development of products . stock purchase agreement with vixen pharmaceuticals , inc. and license agreement with columbia university in march 2016 , we entered into a stock purchase agreement , or the vixen agreement , with vixen pharmaceuticals , inc. , or vixen , and jak1 , llc , jak2 , llc and jak3 , llc , or together , the selling stockholders , and shareholder representative services llc as the representative of the selling stockholders . pursuant to the vixen agreement , we acquired all shares of vixen 's capital stock from the selling stockholders , or the vixen acquisition . following the vixen acquisition , vixen became our wholly-owned subsidiary . pursuant to the vixen agreement , we paid $ 0.6 million upfront and issued an aggregate of 159,420 shares of our common stock to the selling stockholders . we are obligated to make annual payments of $ 0.1 million through march 2022 , with such amounts being creditable against specified future payments that may be paid under the vixen agreement . under the vixen agreement we are obligated to make aggregate payments of up to $ 18.0 million to the selling stockholders upon the achievement of specified pre-commercialization milestones for three products covered by the vixen patent rights in the united states , the european union and japan , and aggregate payments of up to $ 22.5 million upon the achievement of specified commercial milestones for products covered by the vixen patent rights . with respect to any covered products that we commercialize under the vixen agreement , we are obligated to pay low single-digit royalties on net sales , subject to specified reductions , limitations and other adjustments , until the date that all of the patent rights for that product have expired , as determined on a country-by-country and product-by-product basis or , in specified circumstances , ten years from the first commercial sale of such product . if we sublicense any of vixen 's patent rights and know-how acquired pursuant to the vixen agreement , we will be obligated to pay a portion of any consideration we receive from such sublicenses in specified circumstances . as a result of the vixen acquisition , we became party to the exclusive license agreement , by and between vixen and the trustees of columbia university in the city of new york , or columbia , dated as of december 31 , 2015 , or , as amended , the columbia license agreement . under the columbia license agreement , we are obligated to pay columbia an annual license fee of $ 10,000 subject to specified adjustments for patent expenses incurred by columbia and creditable against any royalties that may be paid under the columbia license agreement . we are also obligated to pay up to an aggregate of $ 11.6 million upon the achievement of specified commercial milestones , including specified levels of net sales of products covered by columbia patent rights and or know-how , and royalties at a sub-single-digit percentage of annual net sales of products covered by columbia patent rights and or know-how , subject to specified adjustments . if we sublicense any of columbia 's patent rights and know-how acquired pursuant to the columbia license agreement , we will be obligated to pay columbia a portion of any consideration received from such sublicenses in specified circumstances . story_separator_special_tag we recognize revenue when collection of the consideration we are entitled to under a contract with a customer is probable . at contract inception , we assess the goods or services promised within a contract with a customer to identify the performance obligations , and to determine if they are distinct . we recognize revenue that is allocated to each distinct performance obligation when ( or as ) that performance obligation is satisfied . we only recognize revenue when collection of the consideration we are entitled to under a contract with a customer is probable . product sales , net we recognized revenue from product sales at the point the customer obtained control , which generally occurred upon delivery . we also included estimates of variable consideration in the same period revenue was recognized . components of variable consideration included trade discounts and allowances , product returns , government rebates , discounts and rebates , other incentives such as patient co-pay assistance , and other fee for service amounts . variable consideration was recorded on the consolidated balance sheet as either a reduction of accounts receivable , if payable to a customer , or as a current liability , if payable to a third-party other than a customer . we considered all relevant information when estimating variable consideration such as contractual and statutory requirements , specific known market events and trends , industry data and forecasted customer buying and payment patterns . the amount of net revenue that can be recognized is constrained by estimates of variable consideration which are included in the transaction price . payment terms with customers did not exceed one year and , therefore , we did not account for a financing component in our arrangements . we expensed incremental costs of obtaining a contract with a customer , including sales commissions , when incurred as the period of benefit was less than one year . trade discounts and allowances - we provided customers with trade discounts , rebates , allowances and or other incentives . we recorded estimates for these items as a reduction of revenue in the same period the revenue was recognized . government and payor rebates – we contracted with , or were subject to arrangements with , certain third-party payors , including pharmacy benefit managers and government agencies , for the payment of rebates with respect to utilization of our commercial products . we also entered into agreements with gpos that provided for administrative fees and discounted pricing in the form of volume-based rebates . we were also subject to discount and rebate obligations under state medicaid programs and medicare . we recorded estimates for these discounts and rebates as a reduction of revenue in the same period the revenue was recognized . 67 other incentives – we maintained a co-pay assistance program which was intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by third-party payors . we estimated and recorded accruals for these incentives as a reduction of revenue in the period the revenue was recognized . our estimated amounts for co-pay assistance were based upon the number of claims and the cost per claim that we expected to receive associated with product that had been sold to customers but remained in the distribution channel at the end of each reporting period . product returns - consistent with industry practice , we have a product returns policy for rhofade which may provide customers a right of return for product purchased within a specified period prior to and subsequent to the product 's expiration date . the right of return lapses upon shipment of the product to a patient . we recorded an estimate for the amount of product which may be returned as a reduction of revenue in the period the related revenue was recognized . our estimates for product returns were based upon available industry data and our own sales information , including visibility into the inventory remaining in the distribution channel . there is no return liability associated with sales of eskata as we had a no returns policy for eskata when we commercialized it . contract research revenue related to laboratory services is generally recognized as the laboratory services are performed , based upon the rates specified in the contracts . under asc topic 606 , we elected to apply the “ right to invoice ” practical expedient when recognizing contract research revenue . we recognize contract research revenue in the amount to which we have the right to invoice . we recognize revenue related to grants as amounts become reimbursable under each grant , which is generally when research is performed , and the related costs are incurred . other revenue licenses of intellectual property – we recognize revenue received from non-refundable , upfront fees related to the licensing of intellectual property when the intellectual property is determined to be distinct from the other performance obligations identified in the arrangement , the license has been transferred to the customer , and the customer is able to use and benefit from the license . milestone payments – at the inception of each arrangement that includes milestone payments , we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method . if it is probable that a significant revenue reversal would not occur , the associated milestone value is included in the amount allocated to the license of intellectual property . milestone payments that are not within our control or the control of the customer , such as regulatory approvals , are not considered probable of being achieved until those approvals are received . inventory inventory included the third-party cost of manufacturing and assembly of the finished product forms of eskata and rhofade , quality control and other overhead costs . inventory is stated at the lower of cost or net realizable value . inventory

cash flows the following table summarizes our cash flows for each of the periods presented : replace_table_token_8_th operating activities during the year ended december 31 , 2019 , operating activities used $ 96.4 million of cash primarily resulting from our net loss of $ 161.4 million , partially offset by non-cash adjustments of $ 67.6 million . net cash used by changes in our operating assets and liabilities during the year ended december 31 , 2019 consisted of a $ 5.1 million decrease in accounts payable and accrued expenses and a $ 0.8 million increase in accounts receivable , which were partially offset by a $ 3.7 million decrease in prepaid expenses and other assets . the decrease in accounts payable and accrued expenses was primarily driven by lower levels of expenses , including sales discounts and allowances , as the result of the disposition of rhofade , and lower research and development expenses as a result of the completion of our two pivotal phase 3 clinical trials for a-101 45 % topical solution , as well as the timing of vendor invoicing and payments . the decrease in prepaid expenses and other assets was due to research and development activities primarily related to preclinical development activities for ati-450 and ati-502 , which concluded during the year ended december 31 , 2019 , and the elimination of sales and marketing activities as a result of the disposition of rhofade in october 2019. the increase in accounts receivable was primarily the result of the timing of cash receipts from our contract research customers . non-cash expenses of $ 67.6 million were composed of an intangible asset impairment charge of $ 27.6 million , a goodwill impairment charge of $ 18.5 million , stock-based compensation expense of $ 16.2 million , a charge of $ 0.7 million related to the change in the fair value of contingent consideration and depreciation and amortization expense of $ 6.4 million , partially offset by a gain of $ 1.9 million recognized on the disposition of rhofade .

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

cash flows the following table summarizes our cash flows for each of the periods presented : replace_table_token_8_th operating activities during the year ended december 31 , 2019 , operating activities used $ 96.4 million of cash primarily resulting from our net loss of $ 161.4 million , partially offset by non-cash adjustments of $ 67.6 million . net cash used by changes in our operating assets and liabilities during the year ended december 31 , 2019 consisted of a $ 5.1 million decrease in accounts payable and accrued expenses and a $ 0.8 million increase in accounts receivable , which were partially offset by a $ 3.7 million decrease in prepaid expenses and other assets . the decrease in accounts payable and accrued expenses was primarily driven by lower levels of expenses , including sales discounts and allowances , as the result of the disposition of rhofade , and lower research and development expenses as a result of the completion of our two pivotal phase 3 clinical trials for a-101 45 % topical solution , as well as the timing of vendor invoicing and payments . the decrease in prepaid expenses and other assets was due to research and development activities primarily related to preclinical development activities for ati-450 and ati-502 , which concluded during the year ended december 31 , 2019 , and the elimination of sales and marketing activities as a result of the disposition of rhofade in october 2019. the increase in accounts receivable was primarily the result of the timing of cash receipts from our contract research customers . non-cash expenses of $ 67.6 million were composed of an intangible asset impairment charge of $ 27.6 million , a goodwill impairment charge of $ 18.5 million , stock-based compensation expense of $ 16.2 million , a charge of $ 0.7 million related to the change in the fair value of contingent consideration and depreciation and amortization expense of $ 6.4 million , partially offset by a gain of $ 1.9 million recognized on the disposition of rhofade .

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

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

while fiscal 2020 brought a net loss of $ 2,103,000 , we had approximately $ 1,000,000 of expense from non-cash inventory scrap as we continued to purge inventory from previous acquisitions . we also spent approximately $ 216,000 on pandemic expenses and $ 286,000 for the recruitment and training of key management positions . our bottom lines have suffered in recent years as we have tried to streamline our operations by addressing prior year acquisitions that have not served us well in poor market conditions . we expect to have access to capital as needed throughout fiscal 2021 through the sale of inventory and from the use our line of credit . on november 30 , 2020 we had $ 2,640,470 available on our line of credit . in 2020 , we were able to obtain $ 1,242,900 of funding from the small business administration 's paycheck protection program . these funds were fully forgiven in november 2020 and helped offset losses during the pandemic as we continued to employ our workforce in full . we also received three economic injury disaster loans for a total of $ 450,000. these loans have a 30 year payback period . despite the continued losses , our banking relationship has remained positive through transparency and continued communication . our ability to not overuse our line of credit in times of losses has provided us with the confidence that we can manage our cash use until market conditions improve and our product offering and dealer network grow . our working capital remained strong at approximately $ 4,137,000 in fiscal 2020 with a current ratio of 1.67. we also continue to maintain a debt to equity ratio below 1. we continue to put emphasis on reducing our inventory to more manageable levels to decrease carrying costs , implementing lean manufacturing practices , improving our inventory turnover , focusing our product offering , increasing our dealer network reach , and improving customer service . we do not foresee liquidity issues within the next twelve months . impact of covid-19 while the covid-19 pandemic had very little impact on our results of operations for the first quarter of fiscal 2020 , it did impact our results of operations for the rest of fiscal 2020 and we believe that it may continue to do so for the foreseeable future . from march 23 , 2020 until may 18 , 2020 the majority of our office staff in all three segments worked remotely with the exception of key operations support . at the height of the initial outbreak our workforce was down approximately 17 % due to self-quarantine . by the end of may 2020 our entire workforce had returned and operations have continued as normal with additional safety precautions in place . as covid-19 cases began to rise in november 2020 , we allowed employees that could perform their job functions remotely do so at their discretion . at this time approximately 75 % of our office staff is working remote at least part-time and this has had minimal effect on how we operate as a business . we expect that by the end of february 2021 remote employees will return full time to the office . future outbreaks could have a material effect on our operations and we are taking precautions to mitigate the spread of covid-19 . in our agricultural products segment , we did not experience any order cancellations ; however , calls for new whole goods slowed significantly in the second quarter of fiscal 2020 and many dealers held off on the shipping or pickup of their completed units . our sales levels were comparatively steady to the last few years in the third and fourth quarters of fiscal 2020 and we ultimately ended the year down 3.1 % on sales . prior to the initial lockdowns in march 2020 , we were anticipating an uptick in sales from recent years . we believe 2021 will bring better economic conditions for farmers because of stimulus payments received in 2020. we also believe that farmers were conservative in 2020 , using excess funds to pay down debt , and will be ready to spend in 2021 . 11 our modular buildings segment started fiscal 2020 with a more diverse backlog than we had at the beginning of fiscal 2019 ; however , we had some setbacks on site work as subcontractors were forced to quarantine after testing positive for covid-19 . our workers have been hesitant to travel during the pandemic and , as a result , we have had some challenges completing site work in the third and fourth quarters of fiscal 2020. because of covid-19 , many companies were hesitant to enter into long-term contracts in fiscal year 2020. as a result , our modular building rental fleet remained largely unused in fiscal 2020 which is evidenced by our decrease in lease revenue . our sales outlook for fiscal 2021 reflects a continued decrease in demand , but sales activity saw a moderate increase near the end of fiscal 2020. in our tools segment , oil prices dropped significantly at the start of the pandemic , which caused our sales to drop significantly in the second quarter of fiscal 2020. the diversification of our business with our new oem customer helped us get through the oil and gas industry lows during that time ; however , since oil and gas prices have not yet reached their pre-pandemic levels , we have not seen our sales levels from these customers return . story_separator_special_tag our core product offering going forward includes products that we feel have strong demand , favorable margins and flow through our facility efficiently . we believe the gross margin improvements are a strong indicator of our ability to succeed as agricultural conditions continue to improve . our agricultural products segment 's operating expenses for the 2020 fiscal year were $ 4,483,000 compared to $ 3,796,000 for the 2019 fiscal year , an increase of $ 687,000 , or 18.1 % . approximately $ 115,000 of this increase is due to the hiring of a new territory development manager to increase sales and strengthen our dealer network . we also incurred $ 116,000 of additional recruitment expense in fiscal 2020 when compared to fiscal 2019 related to hiring a new ceo , supply chain manager and product manager . we incurred approximately $ 73,000 of expense paying dual salaries as we transitioned these new roles . we also incurred approximately $ 148,000 of pandemic expense as we increased employee incentives for working during the pandemic , conducted sitewide covid-19 testing and provided supplies to help keep our employees safe . we also incurred approximately $ 300,000 of additional bonus expense in fiscal 2020 recruiting new management talent , rewarding retiring management , and accruing bonuses for operational improvements during this agricultural downturn . this segment 's operating expenses for the 2020 fiscal year were 34.3 % of sales compared to 28.1 % of sales for the 2019 fiscal year . total loss from operations for our agricultural products segment during the 2020 fiscal year was $ ( 2,318,000 ) compared to an operating loss of $ ( 1,599,000 ) for the 2019 fiscal year , an increase in loss of $ 719,000. modular buildings . our modular buildings segment 's net sales for the 2020 fiscal year were $ 6,993,000 compared to $ 7,260,000 for the 2019 fiscal year , a decrease of $ 267,000 , or 3.7 % . the decrease in sales was attributable to decreased operating lease activity in fiscal 2020 and a large construction project nearing completion . gross profit for the 2020 fiscal year was ( 3.7 ) % compared to 16.1 % during the 2019 fiscal year . the decreased gross profit was due to margin deterioration on a large construction contract for expenses that were unforeseen . operating expenses for the 2020 fiscal year were 14.8 % of sales compared to 13.3 % for the 2019 fiscal year . the increase in operating expenses was due to $ 35,000 of pandemic expense related to employee incentives during covid-19 lockdowns and supplies needed to mitigate the spread of covid-19 . total loss from operations from our modular buildings segment during the 2020 fiscal year was $ ( 1,295,000 ) compared to an operating income of $ 208,000 in the 2019 fiscal year , an increase in loss of $ 1,503,000. our expected profits on a large construction project eroded in fiscal 2020 , but we look forward to a fresh start in fiscal 2021. tools . our tools segment 's net sales for the 2020 fiscal year were $ 2,330,000 compared to $ 2,121,000 for the 2019 fiscal year , an increase of $ 209,000 , or 9.9 % . the increase is primarily due to the addition of a large oem customer in the fourth quarter of fiscal 2019. we had projected larger revenue increases ; however , the covid-19 pandemic had a negative effect on our existing customer base , mainly the oil and gas industries . these sales have not fully recovered to date and we have relied heavily on our oem customer in recent months . we are focused on expanding our portfolio of customers to help us diversify our business as different industries experience booms and busts . gross profit for the 2020 fiscal year was 21.3 % compared to 26.4 % for the 2019 fiscal year . our decreased gross margin for the twelve months is attributable to the hiring of a floor supervisor to help us manage the higher volumes of sales we were expecting with the addition of our oem customer . this position is a necessary one to manage increased volumes through our shop floor and we are continuing to find ways to increase volumes to cover the expenses of this position . operating expenses were $ 792,000 for the 2020 fiscal year compared to $ 666,000 for the 2019 fiscal year , an increase of $ 126,000 , or 18.9 % . this increase in operating expenses is due primarily to approximately $ 79,000 of additional costs related to implementation of our oem line and $ 33,000 of pandemic expense related to the retention of employees during the pandemic and supply costs associated with mitigating the spread of covid-19 . 15 trends and uncertainties we are subject to a number of trends and uncertainties that may affect our short-term or long-term liquidity , sales revenues , and operations . similar to other farm equipment manufacturers , we are affected by items unique to the farm industry , including fluctuations in farm income resulting from the change in commodity prices , crop damage caused by weather and insects , government farm programs , interest rate fluctuations , and other unpredictable variables . other uncertainties include our oem customers and the decisions they make regarding their current supply chain structure , inventory levels , and overall business conditions . management believes that our business is dependent on the farming industry for the bulk of our sales revenues . as such , our business tends to reap the benefits of increases in farm net income , as farmers tend to purchase equipment in lucrative times and forgo purchases in less profitable years . direct government payments have been increasing in the past two years and costs of agricultural production are increasing ; therefore , we anticipate that further increases in the value of production will benefit our business

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

while fiscal 2020 brought a net loss of $ 2,103,000 , we had approximately $ 1,000,000 of expense from non-cash inventory scrap as we continued to purge inventory from previous acquisitions . we also spent approximately $ 216,000 on pandemic expenses and $ 286,000 for the recruitment and training of key management positions . our bottom lines have suffered in recent years as we have tried to streamline our operations by addressing prior year acquisitions that have not served us well in poor market conditions . we expect to have access to capital as needed throughout fiscal 2021 through the sale of inventory and from the use our line of credit . on november 30 , 2020 we had $ 2,640,470 available on our line of credit . in 2020 , we were able to obtain $ 1,242,900 of funding from the small business administration 's paycheck protection program . these funds were fully forgiven in november 2020 and helped offset losses during the pandemic as we continued to employ our workforce in full . we also received three economic injury disaster loans for a total of $ 450,000. these loans have a 30 year payback period . despite the continued losses , our banking relationship has remained positive through transparency and continued communication . our ability to not overuse our line of credit in times of losses has provided us with the confidence that we can manage our cash use until market conditions improve and our product offering and dealer network grow . our working capital remained strong at approximately $ 4,137,000 in fiscal 2020 with a current ratio of 1.67. we also continue to maintain a debt to equity ratio below 1. we continue to put emphasis on reducing our inventory to more manageable levels to decrease carrying costs , implementing lean manufacturing practices , improving our inventory turnover , focusing our product offering , increasing our dealer network reach , and improving customer service . we do not foresee liquidity issues within the next twelve months . impact of covid-19 while the covid-19 pandemic had very little impact on our results of operations for the first quarter of fiscal 2020 , it did impact our results of operations for the rest of fiscal 2020 and we believe that it may continue to do so for the foreseeable future . from march 23 , 2020 until may 18 , 2020 the majority of our office staff in all three segments worked remotely with the exception of key operations support . at the height of the initial outbreak our workforce was down approximately 17 % due to self-quarantine . by the end of may 2020 our entire workforce had returned and operations have continued as normal with additional safety precautions in place . as covid-19 cases began to rise in november 2020 , we allowed employees that could perform their job functions remotely do so at their discretion . at this time approximately 75 % of our office staff is working remote at least part-time and this has had minimal effect on how we operate as a business . we expect that by the end of february 2021 remote employees will return full time to the office . future outbreaks could have a material effect on our operations and we are taking precautions to mitigate the spread of covid-19 . in our agricultural products segment , we did not experience any order cancellations ; however , calls for new whole goods slowed significantly in the second quarter of fiscal 2020 and many dealers held off on the shipping or pickup of their completed units . our sales levels were comparatively steady to the last few years in the third and fourth quarters of fiscal 2020 and we ultimately ended the year down 3.1 % on sales . prior to the initial lockdowns in march 2020 , we were anticipating an uptick in sales from recent years . we believe 2021 will bring better economic conditions for farmers because of stimulus payments received in 2020. we also believe that farmers were conservative in 2020 , using excess funds to pay down debt , and will be ready to spend in 2021 . 11 our modular buildings segment started fiscal 2020 with a more diverse backlog than we had at the beginning of fiscal 2019 ; however , we had some setbacks on site work as subcontractors were forced to quarantine after testing positive for covid-19 . our workers have been hesitant to travel during the pandemic and , as a result , we have had some challenges completing site work in the third and fourth quarters of fiscal 2020. because of covid-19 , many companies were hesitant to enter into long-term contracts in fiscal year 2020. as a result , our modular building rental fleet remained largely unused in fiscal 2020 which is evidenced by our decrease in lease revenue . our sales outlook for fiscal 2021 reflects a continued decrease in demand , but sales activity saw a moderate increase near the end of fiscal 2020. in our tools segment , oil prices dropped significantly at the start of the pandemic , which caused our sales to drop significantly in the second quarter of fiscal 2020. the diversification of our business with our new oem customer helped us get through the oil and gas industry lows during that time ; however , since oil and gas prices have not yet reached their pre-pandemic levels , we have not seen our sales levels from these customers return . story_separator_special_tag our core product offering going forward includes products that we feel have strong demand , favorable margins and flow through our facility efficiently . we believe the gross margin improvements are a strong indicator of our ability to succeed as agricultural conditions continue to improve . our agricultural products segment 's operating expenses for the 2020 fiscal year were $ 4,483,000 compared to $ 3,796,000 for the 2019 fiscal year , an increase of $ 687,000 , or 18.1 % . approximately $ 115,000 of this increase is due to the hiring of a new territory development manager to increase sales and strengthen our dealer network . we also incurred $ 116,000 of additional recruitment expense in fiscal 2020 when compared to fiscal 2019 related to hiring a new ceo , supply chain manager and product manager . we incurred approximately $ 73,000 of expense paying dual salaries as we transitioned these new roles . we also incurred approximately $ 148,000 of pandemic expense as we increased employee incentives for working during the pandemic , conducted sitewide covid-19 testing and provided supplies to help keep our employees safe . we also incurred approximately $ 300,000 of additional bonus expense in fiscal 2020 recruiting new management talent , rewarding retiring management , and accruing bonuses for operational improvements during this agricultural downturn . this segment 's operating expenses for the 2020 fiscal year were 34.3 % of sales compared to 28.1 % of sales for the 2019 fiscal year . total loss from operations for our agricultural products segment during the 2020 fiscal year was $ ( 2,318,000 ) compared to an operating loss of $ ( 1,599,000 ) for the 2019 fiscal year , an increase in loss of $ 719,000. modular buildings . our modular buildings segment 's net sales for the 2020 fiscal year were $ 6,993,000 compared to $ 7,260,000 for the 2019 fiscal year , a decrease of $ 267,000 , or 3.7 % . the decrease in sales was attributable to decreased operating lease activity in fiscal 2020 and a large construction project nearing completion . gross profit for the 2020 fiscal year was ( 3.7 ) % compared to 16.1 % during the 2019 fiscal year . the decreased gross profit was due to margin deterioration on a large construction contract for expenses that were unforeseen . operating expenses for the 2020 fiscal year were 14.8 % of sales compared to 13.3 % for the 2019 fiscal year . the increase in operating expenses was due to $ 35,000 of pandemic expense related to employee incentives during covid-19 lockdowns and supplies needed to mitigate the spread of covid-19 . total loss from operations from our modular buildings segment during the 2020 fiscal year was $ ( 1,295,000 ) compared to an operating income of $ 208,000 in the 2019 fiscal year , an increase in loss of $ 1,503,000. our expected profits on a large construction project eroded in fiscal 2020 , but we look forward to a fresh start in fiscal 2021. tools . our tools segment 's net sales for the 2020 fiscal year were $ 2,330,000 compared to $ 2,121,000 for the 2019 fiscal year , an increase of $ 209,000 , or 9.9 % . the increase is primarily due to the addition of a large oem customer in the fourth quarter of fiscal 2019. we had projected larger revenue increases ; however , the covid-19 pandemic had a negative effect on our existing customer base , mainly the oil and gas industries . these sales have not fully recovered to date and we have relied heavily on our oem customer in recent months . we are focused on expanding our portfolio of customers to help us diversify our business as different industries experience booms and busts . gross profit for the 2020 fiscal year was 21.3 % compared to 26.4 % for the 2019 fiscal year . our decreased gross margin for the twelve months is attributable to the hiring of a floor supervisor to help us manage the higher volumes of sales we were expecting with the addition of our oem customer . this position is a necessary one to manage increased volumes through our shop floor and we are continuing to find ways to increase volumes to cover the expenses of this position . operating expenses were $ 792,000 for the 2020 fiscal year compared to $ 666,000 for the 2019 fiscal year , an increase of $ 126,000 , or 18.9 % . this increase in operating expenses is due primarily to approximately $ 79,000 of additional costs related to implementation of our oem line and $ 33,000 of pandemic expense related to the retention of employees during the pandemic and supply costs associated with mitigating the spread of covid-19 . 15 trends and uncertainties we are subject to a number of trends and uncertainties that may affect our short-term or long-term liquidity , sales revenues , and operations . similar to other farm equipment manufacturers , we are affected by items unique to the farm industry , including fluctuations in farm income resulting from the change in commodity prices , crop damage caused by weather and insects , government farm programs , interest rate fluctuations , and other unpredictable variables . other uncertainties include our oem customers and the decisions they make regarding their current supply chain structure , inventory levels , and overall business conditions . management believes that our business is dependent on the farming industry for the bulk of our sales revenues . as such , our business tends to reap the benefits of increases in farm net income , as farmers tend to purchase equipment in lucrative times and forgo purchases in less profitable years . direct government payments have been increasing in the past two years and costs of agricultural production are increasing ; therefore , we anticipate that further increases in the value of production will benefit our business

liquidity and capital resources our main source of funds during the 2020 fiscal year was cash generated by financing activities . we received $ 1,242,900 of funding and forgiveness via a paycheck protection program loan and also $ 450,000 of funding from the economic injury disaster loan program in fiscal 2020. we did use approximately $ 856,000 of cash in operations in fiscal 2020 which was largely from costs of production for the agricultural products and modular building segments . we used approximately $ 693,000 of cash to update facilities and equipment which includes software and hardware related to information technology advances , office space updates , and manufacturing equipment improvements that enhance our efficiency . we have a bank midwest credit facility consisting of a $ 5,000,000 revolving line of credit , pursuant to which we had borrowed $ 2,359,530 , with $ 2,640,470 remaining , as of november 30 , 2020 , and one term loan , which had an outstanding principal balance of $ 2,350,593 as of november 30 , 2020. the revolving line of credit is being used for working capital purposes . we also have three economic injury disaster loans provided by the u.s. small business administration with an aggregate principal balance of $ 450,000 as of november 30 , 2020. our loans require us to comply with various covenants , including maintaining certain financial ratios and obtaining prior written consent from bank midwest forany investment in , acquisition of , or guaranty relating to another business or entity .

we also supply private label products within the school products sector . our calendar products are sold through all the same channels where we sell office or school products , as well as directly to consumers both on-line and through direct mail . our customers are primarily large global and regional resellers of our products including traditional office supply resellers , wholesalers and other retailers , including on-line retailers . mass merchandisers and retail channels primarily sell to individual 23 consumers but also to small businesses . we also sell to commercial contract dealers , wholesalers , distributors and independent dealers who primarily serve business end-users . over half of our product sales by our customers are to business end-users , who generally seek premium products that have added value or ease-of-use features and a reputation for reliability , performance and professional appearance . some of our binding and laminating equipment products are sold directly to high-volume end-users and commercial reprographic centers . we also sell calendar and computer products directly to consumers . computer products group our computer products group designs , sources , distributes , markets and sells accessories for laptop and desktop computers and tablets . these accessories primarily include security products , input devices such as presenters , mice and trackballs , ergonomic aids such as foot and wrist rests , docking stations , and other pc and tablet accessories . we sell these products mostly under the kensington ® , microsaver ® and clicksafe ® brand names , with the majority of revenue coming from the u.s. and northern europe . our computer products are manufactured by third-party suppliers , principally in asia , and are distributed from our regional facilities . our computer products are sold primarily to consumer electronics retailers , information technology value-added resellers , original equipment manufacturers , and office products retailers , as well as directly to consumers on-line . in 2014 we repositioned the computer products group by shifting our focus away from certain commoditized low margin tablet accessories . this decision has continued to impact 2015 resulting in lower sales . overview of 2015 company performance to appreciate the overall company performance for 2015 it is important to focus upon four factors : the impact of foreign exchange , as approximately 40 % of our net sales for the fiscal year ended december 31 , 2015 are from foreign operations . our major foreign currencies have declined between 7 % and 28 % relative to the u.s. dollar in 2015 ; the decline in sales in the international segment due to foreign currency translation and lower sales in brazil where the economy is in a deep recession ; the decline in sales in the north america segment related to the consolidation of office depot and office max ; and the significant cash flow generated in 2015. as a result , we reduced our debt by $ 70.1 million and used $ 65.9 million to repurchase our common stock and for payments related to tax withholding for share-based compensation . foreign currency foreign exchange rate averages for 2015 deteriorated against the u.s. dollar in comparison to 2014 average rates . this materially impacted our reported sales , earnings , cash flow and comparative balance sheet . the weakening of currencies relative to the u.s. dollar has negatively impacted our 2015 results from both a translation and transaction perspective reducing the foreign currency denominated portion of our sales to approximately 40 % in comparison to 2014 when approximately 45 % of our consolidated sales were denominated in currencies other than the u.s. dollar . additionally , approximately half of the products we sell are sourced from china and other far eastern countries . the prices for these sourced products are denominated in u.s. dollars . accordingly , movements in the value of local currencies relative to the u.s. dollar affect the cost of goods sold by our non-u.s. business when they source products from asia . a weaker dollar decreases costs of goods sold and a stronger dollar increases costs of goods sold relative to the local selling price . in response to the strengthening of the u.s. dollar , we typically seek to raise prices in our foreign markets in an effort to recover lost gross margin . due to competitive pressures and the timing of these price increases relative to the changes in currency exchange rates , it is often difficult to increase prices fast enough to fully offset the cumulative impact of the foreign-exchange-related inflation on our cost of goods sold in these markets . further , our international operations sell in their local currencies and are exposed to their domestic currency movements against the u.s. dollar . additionally , where possible , we seek to hedge our exposure to provide more time to raise prices , but this is not always possible where our competitors are not similarly affected . in response to the strengthening of the u.s. dollar we raised prices during 2015 in our foreign markets in an effort to recover our lost gross margin , but were unable to fully offset the cumulative impact of the foreign-exchange-related increases in our cost of products sold . we have made additional price increases in january 2016 in certain markets . 24 when 2015 annual average foreign exchange rates are compared to 2014 , they have declined for all of our major currencies relative to the u.s. dollar as follows : replace_table_token_8_th the strong u.s. dollar decreased our 2015 reported sales by $ 123.9 million , or 7 % , and adversely impacted our profitability . operating income decreased by $ 10.1 million to $ 163.5 million . foreign currency translation reduced operating income by $ 17.2 million , or 10 % . the underlying increase was due to lower restructuring charges . story_separator_special_tag restructuring charges restructuring charges were $ 5.5 million compared to $ 30.1 million in the prior-year period , as there were fewer restructuring initiatives in 2014. operating income operating income increased $ 27.8 million , or 19 % , to $ 173.6 million , from $ 145.8 million in the prior-year period . foreign currency translation reduced operating income by $ 4.9 million . the underlying improvement was primarily due to lower restructuring charges and sg & a expenses offset by lower gross profit . interest expense and other expense , net interest expense decreased by $ 9.5 million , or 16 % , to $ 49.5 million from $ 59.0 million in the prior-year period . the decrease was primarily due to lower interest rates resulting from the refinancing of our debt in the second quarter of 2013 and lower debt outstanding compared to the prior year . other expense , net of other income decreased by $ 6.8 million to $ 0.8 million from $ 7.6 million in the prior-year period . the reduction was due to the absence of a $ 9.4 million write-off of debt origination costs related to the 2013 debt refinancing and a $ 2.0 million gain related to a bargain purchase on an acquisition completed in 2013. income taxes income tax expense from continuing operations was $ 45.4 million on income from continuing operations before taxes of $ 137.0 million , with an effective tax rate of 33.1 % . for the prior-year period , we reported income tax expense from continuing operations of $ 14.4 million on income from continuing operations before taxes of $ 91.7 million , with an effective tax rate of 15.7 % . the low effective tax rate in the prior year was primarily due to the release of valuation allowances for certain foreign jurisdictions in the amount of $ 11.6 million . 30 segment discussion replace_table_token_12_th ( a ) segment operating income excludes corporate costs ; interest expense ; interest income ; equity in earnings of joint ventures and other expense , net . see `` note 15. information on business segments `` to the consolidated financial statements contained in item 8. of this report for a reconciliation of total `` segment operating income `` to `` income from continuing operations before income tax . `` acco brands north america acco brands north america net sales decreased $ 35.4 million , or 3 % , to $ 1,006.0 million from $ 1,041.4 million in the prior-year period . foreign currency translation reduced sales by $ 9.8 million , or 1 % . the underlying sales decline was primarily with office depot , where 2014 sales declined $ 40 million globally , the vast majority of which impacted north america . the decline with office depot was largely related to their merger with officemax , which has adversely impacted our sales through inventory reductions ( including , the effects of supply chain rationalization and store closures ) , losses of product placement and a change to a consignment sales model for certain calendar products . north america sales also declined with wholesaler customers who reduced inventory , partially offset by a strong back-to-school season in the mass merchandiser channel . acco brands north america operating income increased $ 42.5 million , or 43 % , to $ 140.7 million from $ 98.2 million in the prior-year period , and operating income margin increased to 14.0 % from 9.4 % . the improvement was primarily due to a reduction in restructuring charges of $ 17.6 million as well as cost savings from restructuring initiatives , other productivity improvements and lower pension expenses . also contributing to the improvement was the absence of $ 4.2 million of mead c & op information technology integration charges and $ 1.8 million of costs associated with our u.s. and corporate headquarters relocation , which were included in the prior year . the improvements were partially offset by lower sales volume and higher management incentives expenses . acco brands international acco brands international net sales decreased $ 19.7 million , or 3 % , to $ 546.9 million from $ 566.6 million in the prior-year period . foreign currency translation reduced sales by $ 24.1 million , or 4 % . the underlying sales improvement was primarily driven by price increases taken to offset the negative effect of inflation and the adverse impact of foreign exchange on our cost of goods . sales gains in latin america and asia-pacific were offset by lower sales primarily in europe and australia . brazil started the year strongly , with underlying sales 13 % higher in the first six months ; however , sales growth moderated significantly in the second half as the brazilian economy weakened . brazilian sales for the year increased 7 % , principally due to price increases on flat volume . acco brands international operating income decreased $ 3.6 million , or 5 % , to $ 62.9 million from $ 66.5 million in the 31 prior-year period , and operating income margin decreased to 11.5 % from 11.7 % . foreign currency translation reduced operating income by $ 3.8 million , or 6 % . the benefit of $ 5.4 million in lower restructuring charges and lower pension expenses was offset by investment in sales and marketing and the absence of a $ 2.5 million gain on the sale of a building in 2013. computer products group computer products group net sales decreased $ 20.8 million , or 13 % , to $ 136.3 million from $ 157.1 million in the prior-year period . the decline was due to reduced volume and pricing of tablet accessories resulting from our strategic decision to shift focus away from commoditized tablet accessories . sales of our security and laptop accessory products ( over 80 % of sales ) were up slightly from the prior year as a result of stabilization in demand for personal computers

liquidity and capital resources our main source of funds during the 2020 fiscal year was cash generated by financing activities . we received $ 1,242,900 of funding and forgiveness via a paycheck protection program loan and also $ 450,000 of funding from the economic injury disaster loan program in fiscal 2020. we did use approximately $ 856,000 of cash in operations in fiscal 2020 which was largely from costs of production for the agricultural products and modular building segments . we used approximately $ 693,000 of cash to update facilities and equipment which includes software and hardware related to information technology advances , office space updates , and manufacturing equipment improvements that enhance our efficiency . we have a bank midwest credit facility consisting of a $ 5,000,000 revolving line of credit , pursuant to which we had borrowed $ 2,359,530 , with $ 2,640,470 remaining , as of november 30 , 2020 , and one term loan , which had an outstanding principal balance of $ 2,350,593 as of november 30 , 2020. the revolving line of credit is being used for working capital purposes . we also have three economic injury disaster loans provided by the u.s. small business administration with an aggregate principal balance of $ 450,000 as of november 30 , 2020. our loans require us to comply with various covenants , including maintaining certain financial ratios and obtaining prior written consent from bank midwest forany investment in , acquisition of , or guaranty relating to another business or entity .

we also supply private label products within the school products sector . our calendar products are sold through all the same channels where we sell office or school products , as well as directly to consumers both on-line and through direct mail . our customers are primarily large global and regional resellers of our products including traditional office supply resellers , wholesalers and other retailers , including on-line retailers . mass merchandisers and retail channels primarily sell to individual 23 consumers but also to small businesses . we also sell to commercial contract dealers , wholesalers , distributors and independent dealers who primarily serve business end-users . over half of our product sales by our customers are to business end-users , who generally seek premium products that have added value or ease-of-use features and a reputation for reliability , performance and professional appearance . some of our binding and laminating equipment products are sold directly to high-volume end-users and commercial reprographic centers . we also sell calendar and computer products directly to consumers . computer products group our computer products group designs , sources , distributes , markets and sells accessories for laptop and desktop computers and tablets . these accessories primarily include security products , input devices such as presenters , mice and trackballs , ergonomic aids such as foot and wrist rests , docking stations , and other pc and tablet accessories . we sell these products mostly under the kensington ® , microsaver ® and clicksafe ® brand names , with the majority of revenue coming from the u.s. and northern europe . our computer products are manufactured by third-party suppliers , principally in asia , and are distributed from our regional facilities . our computer products are sold primarily to consumer electronics retailers , information technology value-added resellers , original equipment manufacturers , and office products retailers , as well as directly to consumers on-line . in 2014 we repositioned the computer products group by shifting our focus away from certain commoditized low margin tablet accessories . this decision has continued to impact 2015 resulting in lower sales . overview of 2015 company performance to appreciate the overall company performance for 2015 it is important to focus upon four factors : the impact of foreign exchange , as approximately 40 % of our net sales for the fiscal year ended december 31 , 2015 are from foreign operations . our major foreign currencies have declined between 7 % and 28 % relative to the u.s. dollar in 2015 ; the decline in sales in the international segment due to foreign currency translation and lower sales in brazil where the economy is in a deep recession ; the decline in sales in the north america segment related to the consolidation of office depot and office max ; and the significant cash flow generated in 2015. as a result , we reduced our debt by $ 70.1 million and used $ 65.9 million to repurchase our common stock and for payments related to tax withholding for share-based compensation . foreign currency foreign exchange rate averages for 2015 deteriorated against the u.s. dollar in comparison to 2014 average rates . this materially impacted our reported sales , earnings , cash flow and comparative balance sheet . the weakening of currencies relative to the u.s. dollar has negatively impacted our 2015 results from both a translation and transaction perspective reducing the foreign currency denominated portion of our sales to approximately 40 % in comparison to 2014 when approximately 45 % of our consolidated sales were denominated in currencies other than the u.s. dollar . additionally , approximately half of the products we sell are sourced from china and other far eastern countries . the prices for these sourced products are denominated in u.s. dollars . accordingly , movements in the value of local currencies relative to the u.s. dollar affect the cost of goods sold by our non-u.s. business when they source products from asia . a weaker dollar decreases costs of goods sold and a stronger dollar increases costs of goods sold relative to the local selling price . in response to the strengthening of the u.s. dollar , we typically seek to raise prices in our foreign markets in an effort to recover lost gross margin . due to competitive pressures and the timing of these price increases relative to the changes in currency exchange rates , it is often difficult to increase prices fast enough to fully offset the cumulative impact of the foreign-exchange-related inflation on our cost of goods sold in these markets . further , our international operations sell in their local currencies and are exposed to their domestic currency movements against the u.s. dollar . additionally , where possible , we seek to hedge our exposure to provide more time to raise prices , but this is not always possible where our competitors are not similarly affected . in response to the strengthening of the u.s. dollar we raised prices during 2015 in our foreign markets in an effort to recover our lost gross margin , but were unable to fully offset the cumulative impact of the foreign-exchange-related increases in our cost of products sold . we have made additional price increases in january 2016 in certain markets . 24 when 2015 annual average foreign exchange rates are compared to 2014 , they have declined for all of our major currencies relative to the u.s. dollar as follows : replace_table_token_8_th the strong u.s. dollar decreased our 2015 reported sales by $ 123.9 million , or 7 % , and adversely impacted our profitability . operating income decreased by $ 10.1 million to $ 163.5 million . foreign currency translation reduced operating income by $ 17.2 million , or 10 % . the underlying increase was due to lower restructuring charges . story_separator_special_tag restructuring charges restructuring charges were $ 5.5 million compared to $ 30.1 million in the prior-year period , as there were fewer restructuring initiatives in 2014. operating income operating income increased $ 27.8 million , or 19 % , to $ 173.6 million , from $ 145.8 million in the prior-year period . foreign currency translation reduced operating income by $ 4.9 million . the underlying improvement was primarily due to lower restructuring charges and sg & a expenses offset by lower gross profit . interest expense and other expense , net interest expense decreased by $ 9.5 million , or 16 % , to $ 49.5 million from $ 59.0 million in the prior-year period . the decrease was primarily due to lower interest rates resulting from the refinancing of our debt in the second quarter of 2013 and lower debt outstanding compared to the prior year . other expense , net of other income decreased by $ 6.8 million to $ 0.8 million from $ 7.6 million in the prior-year period . the reduction was due to the absence of a $ 9.4 million write-off of debt origination costs related to the 2013 debt refinancing and a $ 2.0 million gain related to a bargain purchase on an acquisition completed in 2013. income taxes income tax expense from continuing operations was $ 45.4 million on income from continuing operations before taxes of $ 137.0 million , with an effective tax rate of 33.1 % . for the prior-year period , we reported income tax expense from continuing operations of $ 14.4 million on income from continuing operations before taxes of $ 91.7 million , with an effective tax rate of 15.7 % . the low effective tax rate in the prior year was primarily due to the release of valuation allowances for certain foreign jurisdictions in the amount of $ 11.6 million . 30 segment discussion replace_table_token_12_th ( a ) segment operating income excludes corporate costs ; interest expense ; interest income ; equity in earnings of joint ventures and other expense , net . see `` note 15. information on business segments `` to the consolidated financial statements contained in item 8. of this report for a reconciliation of total `` segment operating income `` to `` income from continuing operations before income tax . `` acco brands north america acco brands north america net sales decreased $ 35.4 million , or 3 % , to $ 1,006.0 million from $ 1,041.4 million in the prior-year period . foreign currency translation reduced sales by $ 9.8 million , or 1 % . the underlying sales decline was primarily with office depot , where 2014 sales declined $ 40 million globally , the vast majority of which impacted north america . the decline with office depot was largely related to their merger with officemax , which has adversely impacted our sales through inventory reductions ( including , the effects of supply chain rationalization and store closures ) , losses of product placement and a change to a consignment sales model for certain calendar products . north america sales also declined with wholesaler customers who reduced inventory , partially offset by a strong back-to-school season in the mass merchandiser channel . acco brands north america operating income increased $ 42.5 million , or 43 % , to $ 140.7 million from $ 98.2 million in the prior-year period , and operating income margin increased to 14.0 % from 9.4 % . the improvement was primarily due to a reduction in restructuring charges of $ 17.6 million as well as cost savings from restructuring initiatives , other productivity improvements and lower pension expenses . also contributing to the improvement was the absence of $ 4.2 million of mead c & op information technology integration charges and $ 1.8 million of costs associated with our u.s. and corporate headquarters relocation , which were included in the prior year . the improvements were partially offset by lower sales volume and higher management incentives expenses . acco brands international acco brands international net sales decreased $ 19.7 million , or 3 % , to $ 546.9 million from $ 566.6 million in the prior-year period . foreign currency translation reduced sales by $ 24.1 million , or 4 % . the underlying sales improvement was primarily driven by price increases taken to offset the negative effect of inflation and the adverse impact of foreign exchange on our cost of goods . sales gains in latin america and asia-pacific were offset by lower sales primarily in europe and australia . brazil started the year strongly , with underlying sales 13 % higher in the first six months ; however , sales growth moderated significantly in the second half as the brazilian economy weakened . brazilian sales for the year increased 7 % , principally due to price increases on flat volume . acco brands international operating income decreased $ 3.6 million , or 5 % , to $ 62.9 million from $ 66.5 million in the 31 prior-year period , and operating income margin decreased to 11.5 % from 11.7 % . foreign currency translation reduced operating income by $ 3.8 million , or 6 % . the benefit of $ 5.4 million in lower restructuring charges and lower pension expenses was offset by investment in sales and marketing and the absence of a $ 2.5 million gain on the sale of a building in 2013. computer products group computer products group net sales decreased $ 20.8 million , or 13 % , to $ 136.3 million from $ 157.1 million in the prior-year period . the decline was due to reduced volume and pricing of tablet accessories resulting from our strategic decision to shift focus away from commoditized tablet accessories . sales of our security and laptop accessory products ( over 80 % of sales ) were up slightly from the prior year as a result of stabilization in demand for personal computers

cash flow from operating activities for the year ended december 31 , 2015 , cash provided by operating activities was $ 171.2 million , compared to the cash provided by the prior-year period of $ 171.7 million . net income for 2015 was $ 85.9 million , compared to $ 91.6 million in 2014 . the net cash inflow for the 2015 year of $ 171.2 million was primarily generated by operating profits , and was only slightly less than the prior year 2014 despite lower earnings in our international business . while severe economic conditions in brazil put pressure on working capital efficiency , improved working capital management in the u.s. and europe overcame this effect . the net cash inflow from working capital ( accounts receivable , inventories and accounts payable ) was $ 3.3 million . of this , cash sourced from inventory of $ 9.8 million reflects improved supply chain management in the u.s. and europe and reduced fourth quarter inventory purchases . cash used by accounts payable of $ 2.6 million reflects the lower inventory purchases , partially offset by extended payment terms . accounts receivable used $ 3.9 million , down $ 24.3 million from the prior year , due to timing of year-end collections and the adverse effect of foreign exchange . cash settlements of customer rebate program liabilities , although significant , were lower than the prior year due to lower sales and the effects of foreign exchange . other significant cash outflow reductions in 2015 helped offset the effects of lower earnings and reduced contribution from working capital , including : cash restructuring payments in 2015 which were $ 6.7 million and lower than the $ 16.9 million in the prior-year period ( as we complete payments associated with restructuring actions taken in prior years ) , income tax payments of $ 16.9 million which were lower than the $ 28.9 million paid in 2014 due to certain one-off payments in the u.s. , cash contributions to the company 's post-retirement plans that were $ 7.1 million in 2015 , compared to $ 12.4 million in 2014 due to reduced u.s.

while there exists encouraging signs for continued recovery due to the aforementioned vaccine development as well as a commitment by the new u.s. administration to prioritize economic relief efforts , the relative success of such efforts is difficult to predict with respect to timing and the resulting economic impact . accordingly , the combined effect of the global and domestic factors discussed herein is anticipated to continue to contribute to overall volatility within the industry generally and to our operations specifically . the combined effect of covid-19 and the continuing energy industry instability has led to significant volatility in nymex wti crude oil prices throughout 2020 and into 2021. in the beginning of january 2020 , prices were approximately $ 62 per barrel and ended the year at approximately $ 48 per barrel for a decrease of approximately 23 percent . prices have continued to rise and since the beginning of 2021 have ranged from approximately $ 47 to $ 66 per barrel through march 5 , 2021. despite this recovery , overall crude oil pricing will remain subject to significant volatility consistent with the global and domestic factors discussed above . 41 during 2020 , we initiated several actions to mitigate the anticipated adverse economic conditions for the immediate future and to support our financial position and liquidity . the more significant actions that we took during that time included : ( i ) temporarily suspending our drilling program from april through september 30 , 2020 , ( ii ) curtailing production through selected well shut-ins for a period of several weeks in april and may , ( iii ) securing additional crude oil storage capacity , ( iv ) substantially expanding the scope and range of our commodity derivatives portfolio , ( v ) utilizing certain provisions of the coronavirus aid , relief and economic security act , or cares act , and related regulations , the most significant of which resulted in the receipt in june 2020 of an accelerated refund of our remaining refundable alternative minimum tax , or amt , credit carryforwards in the amount of $ 2.5 million and ( vi ) eliminating annual cost-of-living and similar adjustments to our salaries and wages for 2020 , and a limited rif during the third quarter of 2020. these actions are described in greater detail in the discussions for key developments that follow as well as notes 2 , 6 , 10 and 14 to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data . ” capital expenditures and development progress we temporarily suspended our drilling program from april through september 2020. during that period , we selectively completed and turned our remaining eight gross ( 7.6 net ) wells to sales that were drilled prior to the program suspension . as a result of a modest improvement in commodity prices relative to the first half of 2020 , we resumed a limited drilling program in october 2020 with one rig and expanded to two rigs later in november 2020 continuing into 2021. during 2020 , we incurred capital expenditures of approximately $ 130.6 million with 96 percent directed to drilling and completion projects through which a total of 23 gross ( 20.6 net ) wells were drilled , completed and turned to sales . sequential quarterly analysis the following summarizes our key operating and financial highlights for the three months ended december 31 , 2020 with comparison to the three months ended september 30 , 2020 as presented in the table that follows . the year-over-year highlights for 2020 and 2019 are addressed in further detail in the discussions for financial condition and results of operations that follow . daily sales volume decreased approximately 12 percent to 21,502 boepd , from 24,295 boepd due primarily to the effect of natural well declines in the absence of an active drilling program that did not resume until october of 2020 as well as the impact of turning only two gross ( 2.0 net ) wells to sales during the fourth quarter of 2020 as compared to five gross ( 4.8 net ) wells during the third quarter of 2020. total sales volume declined approximately 12 percent to 1,978 mboe from 2,235 mboe due to the aforementioned natural well declines and drilling program timing . while overall sales volume declined , the percentage of crude oil volume sold increased to 78 percent from 76 percent during the fourth quarter of 2020. product revenues decreased three percent to $ 66.5 million from $ 68.6 million due primarily to nine percent lower crude oil volume , or $ 5.7 million , partially offset by six percent higher crude oil prices , or $ 3.5 million . ngl revenues declined six percent due to 19 percent lower volume , or $ 0.6 million , partially offset by 16 percent higher prices , or $ 0.4 million . natural gas revenues increased 10 percent due to a 36 percent increase in pricing , or $ 0.8 million , partially offset by a 19 percent decrease in volume , or $ 0.5 million . production and lifting costs ( consisting of loe and gpt ) increased on an absolute and per unit basis to $ 14.8 million and $ 7.49 per boe from $ 14.0 million and $ 6.28 per boe due primarily to higher preventive and other previously deferred maintenance and workover costs , higher environmental compliance costs as well as higher crude oil storage costs partially offset by lower volumetric and variable-based costs attributable to the overall lower sales volume . production and ad valorem taxes decreased on an absolute and per unit basis to $ 3.5 million and $ 1.75 per boe from $ 4.4 million and $ 1.95 per boe , respectively , due primarily to the effect of substantially lower estimated valuations for ad valorem tax assessments as well as the effect of overall lower product revenues . story_separator_special_tag all of these factors have been negatively impacted by the continuing covid-19 pandemic and the related instability in the global energy markets . in order to mitigate this volatility , we entered into derivative contracts with a number of financial institutions , all of which are participants in the credit facility , hedging a portion of our estimated future crude oil and natural gas production through the end of 2023. the level of our hedging activity and duration of the financial instruments employed depend on our desired cash flow protection , available hedge prices , the magnitude of our capital program and our operating strategy . capital resources under our 2021 capital program , we anticipate capital expenditures , excluding acquisitions , of up to $ 240 million with approximately 98 percent of capital being directed to drilling and completions . we plan to fund our 2021 capital program and our operations for the next twelve months primarily with cash on hand , cash from operating activities , including net receipts from derivative settlements and , to the extent necessary , supplemental borrowings under the credit facility . based upon current price and production expectations for 2021 , we believe that our cash from operating activities and borrowings under our credit facility , as necessary , will be sufficient to fund our capital spending and operations for at least the next twelve months ; however , future cash flows are subject to a number of variables and the length and magnitude of the current global economic slowdown associated with the covid-19 pandemic and related instability in the global energy markets . for a detailed analysis of our historical capital expenditures , see the “ cash flows ” discussion that follows . cash on hand and cash from operating activities . for additional information and an analysis of our historical cash flows from operating activities , see the “ cash flows ” discussion that follows . credit facility borrowings . during 2020 , we repaid $ 48 million , net of borrowings , under the credit facility , including repayments of $ 10 million during the quarter ended december 31 , 2020. we also repaid $ 80.5 million in january 2021 concurrent with the ninth amendment and an additional $ 5 million in february 2021. for additional information regarding the terms and covenants under the credit facility , see the “ capitalization ” discussion that follows . the following table summarizes our borrowing activity under the credit facility for the periods presented : replace_table_token_11_th proceeds from sales of assets . we continually evaluate potential sales of assets , including certain non-strategic oil and gas properties and undeveloped acreage , among others . for additional information and an analysis of our historical proceeds from sales of assets , see the “ cash flows ” discussion that follows . capital markets transactions . from time-to-time and under market conditions that we believe are favorable to us , we may consider capital market transactions , including the offering of debt and equity securities . we maintain an effective shelf registration statement to allow for optionality . as more fully described in part i , item 1 . “ business , ” the discussion of key developments previously and note 2 to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data , ” the juniper transaction resulted in the issuance of series a preferred stock and the common units in january 2021 . 47 cash flows the following table summarizes our cash flows for the periods presented : replace_table_token_12_th cash flows from operating activities . the decrease of $ 98.4 million in net cash from operating activities for 2020 compared to 2019 was primarily attributable to the substantial decline in commodity prices resulting from the adverse impact of covid-19 on the global economy and general instability in the global energy markets as well as the effect of 12 percent lower total sales volume , each of which substantially decreased our realized product revenues . in addition , in 2020 we incurred and paid costs for organizational restructuring activities , including severance benefits . these adverse impacts on cash provided by operating activities were partially offset by : ( i ) substantially higher receipts from our crude oil derivatives settlements , net of premiums during 2020 , ( ii ) lower interest payments , net of interest rate swap settlements , due to substantially lower weighted-average variable rates despite higher outstanding borrowings in 2020 , ( iii ) lower strategic transaction costs paid in 2020 as compared to similar costs paid in 2019 , ( v ) the beneficial impact in 2020 of cost containment efforts in both our operations and administrative functions including lower discretionary maintenance , lower contract labor and cost deferrals consistent with lower levels of business activity , the elimination of cost-of-living and similar adjustments to our salaries and wages and reduced employee headcount and ( vi ) improved working capital management . cash flows from investing activities . as illustrated in the tables below , our cash payments for capital expenditures were significantly lower during 2020 as compared to 2019 , due primarily to the suspension of the drilling program for a substantial portion of 2020 , partially offset by prepayments of $ 13.6 million in december 2020 for certain tubular and well materials and drilling and completion materials and services to lock in prices and secure discounts in advance of the program for the first quarter of 2021. the cash payments for capital expenditures for 2019 also reflect refunds of $ 3.8 million received for sales and use taxes that were applicable to capital expenditures in prior years . in 2019 , we paid our joint working interest partners $ 6.5 million for the acquisition of working interests in certain properties for which we are the operator . in addition , we received insignificant proceeds from the sale of scrap tubular

cash flow from operating activities for the year ended december 31 , 2015 , cash provided by operating activities was $ 171.2 million , compared to the cash provided by the prior-year period of $ 171.7 million . net income for 2015 was $ 85.9 million , compared to $ 91.6 million in 2014 . the net cash inflow for the 2015 year of $ 171.2 million was primarily generated by operating profits , and was only slightly less than the prior year 2014 despite lower earnings in our international business . while severe economic conditions in brazil put pressure on working capital efficiency , improved working capital management in the u.s. and europe overcame this effect . the net cash inflow from working capital ( accounts receivable , inventories and accounts payable ) was $ 3.3 million . of this , cash sourced from inventory of $ 9.8 million reflects improved supply chain management in the u.s. and europe and reduced fourth quarter inventory purchases . cash used by accounts payable of $ 2.6 million reflects the lower inventory purchases , partially offset by extended payment terms . accounts receivable used $ 3.9 million , down $ 24.3 million from the prior year , due to timing of year-end collections and the adverse effect of foreign exchange . cash settlements of customer rebate program liabilities , although significant , were lower than the prior year due to lower sales and the effects of foreign exchange . other significant cash outflow reductions in 2015 helped offset the effects of lower earnings and reduced contribution from working capital , including : cash restructuring payments in 2015 which were $ 6.7 million and lower than the $ 16.9 million in the prior-year period ( as we complete payments associated with restructuring actions taken in prior years ) , income tax payments of $ 16.9 million which were lower than the $ 28.9 million paid in 2014 due to certain one-off payments in the u.s. , cash contributions to the company 's post-retirement plans that were $ 7.1 million in 2015 , compared to $ 12.4 million in 2014 due to reduced u.s.

while there exists encouraging signs for continued recovery due to the aforementioned vaccine development as well as a commitment by the new u.s. administration to prioritize economic relief efforts , the relative success of such efforts is difficult to predict with respect to timing and the resulting economic impact . accordingly , the combined effect of the global and domestic factors discussed herein is anticipated to continue to contribute to overall volatility within the industry generally and to our operations specifically . the combined effect of covid-19 and the continuing energy industry instability has led to significant volatility in nymex wti crude oil prices throughout 2020 and into 2021. in the beginning of january 2020 , prices were approximately $ 62 per barrel and ended the year at approximately $ 48 per barrel for a decrease of approximately 23 percent . prices have continued to rise and since the beginning of 2021 have ranged from approximately $ 47 to $ 66 per barrel through march 5 , 2021. despite this recovery , overall crude oil pricing will remain subject to significant volatility consistent with the global and domestic factors discussed above . 41 during 2020 , we initiated several actions to mitigate the anticipated adverse economic conditions for the immediate future and to support our financial position and liquidity . the more significant actions that we took during that time included : ( i ) temporarily suspending our drilling program from april through september 30 , 2020 , ( ii ) curtailing production through selected well shut-ins for a period of several weeks in april and may , ( iii ) securing additional crude oil storage capacity , ( iv ) substantially expanding the scope and range of our commodity derivatives portfolio , ( v ) utilizing certain provisions of the coronavirus aid , relief and economic security act , or cares act , and related regulations , the most significant of which resulted in the receipt in june 2020 of an accelerated refund of our remaining refundable alternative minimum tax , or amt , credit carryforwards in the amount of $ 2.5 million and ( vi ) eliminating annual cost-of-living and similar adjustments to our salaries and wages for 2020 , and a limited rif during the third quarter of 2020. these actions are described in greater detail in the discussions for key developments that follow as well as notes 2 , 6 , 10 and 14 to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data . ” capital expenditures and development progress we temporarily suspended our drilling program from april through september 2020. during that period , we selectively completed and turned our remaining eight gross ( 7.6 net ) wells to sales that were drilled prior to the program suspension . as a result of a modest improvement in commodity prices relative to the first half of 2020 , we resumed a limited drilling program in october 2020 with one rig and expanded to two rigs later in november 2020 continuing into 2021. during 2020 , we incurred capital expenditures of approximately $ 130.6 million with 96 percent directed to drilling and completion projects through which a total of 23 gross ( 20.6 net ) wells were drilled , completed and turned to sales . sequential quarterly analysis the following summarizes our key operating and financial highlights for the three months ended december 31 , 2020 with comparison to the three months ended september 30 , 2020 as presented in the table that follows . the year-over-year highlights for 2020 and 2019 are addressed in further detail in the discussions for financial condition and results of operations that follow . daily sales volume decreased approximately 12 percent to 21,502 boepd , from 24,295 boepd due primarily to the effect of natural well declines in the absence of an active drilling program that did not resume until october of 2020 as well as the impact of turning only two gross ( 2.0 net ) wells to sales during the fourth quarter of 2020 as compared to five gross ( 4.8 net ) wells during the third quarter of 2020. total sales volume declined approximately 12 percent to 1,978 mboe from 2,235 mboe due to the aforementioned natural well declines and drilling program timing . while overall sales volume declined , the percentage of crude oil volume sold increased to 78 percent from 76 percent during the fourth quarter of 2020. product revenues decreased three percent to $ 66.5 million from $ 68.6 million due primarily to nine percent lower crude oil volume , or $ 5.7 million , partially offset by six percent higher crude oil prices , or $ 3.5 million . ngl revenues declined six percent due to 19 percent lower volume , or $ 0.6 million , partially offset by 16 percent higher prices , or $ 0.4 million . natural gas revenues increased 10 percent due to a 36 percent increase in pricing , or $ 0.8 million , partially offset by a 19 percent decrease in volume , or $ 0.5 million . production and lifting costs ( consisting of loe and gpt ) increased on an absolute and per unit basis to $ 14.8 million and $ 7.49 per boe from $ 14.0 million and $ 6.28 per boe due primarily to higher preventive and other previously deferred maintenance and workover costs , higher environmental compliance costs as well as higher crude oil storage costs partially offset by lower volumetric and variable-based costs attributable to the overall lower sales volume . production and ad valorem taxes decreased on an absolute and per unit basis to $ 3.5 million and $ 1.75 per boe from $ 4.4 million and $ 1.95 per boe , respectively , due primarily to the effect of substantially lower estimated valuations for ad valorem tax assessments as well as the effect of overall lower product revenues . story_separator_special_tag all of these factors have been negatively impacted by the continuing covid-19 pandemic and the related instability in the global energy markets . in order to mitigate this volatility , we entered into derivative contracts with a number of financial institutions , all of which are participants in the credit facility , hedging a portion of our estimated future crude oil and natural gas production through the end of 2023. the level of our hedging activity and duration of the financial instruments employed depend on our desired cash flow protection , available hedge prices , the magnitude of our capital program and our operating strategy . capital resources under our 2021 capital program , we anticipate capital expenditures , excluding acquisitions , of up to $ 240 million with approximately 98 percent of capital being directed to drilling and completions . we plan to fund our 2021 capital program and our operations for the next twelve months primarily with cash on hand , cash from operating activities , including net receipts from derivative settlements and , to the extent necessary , supplemental borrowings under the credit facility . based upon current price and production expectations for 2021 , we believe that our cash from operating activities and borrowings under our credit facility , as necessary , will be sufficient to fund our capital spending and operations for at least the next twelve months ; however , future cash flows are subject to a number of variables and the length and magnitude of the current global economic slowdown associated with the covid-19 pandemic and related instability in the global energy markets . for a detailed analysis of our historical capital expenditures , see the “ cash flows ” discussion that follows . cash on hand and cash from operating activities . for additional information and an analysis of our historical cash flows from operating activities , see the “ cash flows ” discussion that follows . credit facility borrowings . during 2020 , we repaid $ 48 million , net of borrowings , under the credit facility , including repayments of $ 10 million during the quarter ended december 31 , 2020. we also repaid $ 80.5 million in january 2021 concurrent with the ninth amendment and an additional $ 5 million in february 2021. for additional information regarding the terms and covenants under the credit facility , see the “ capitalization ” discussion that follows . the following table summarizes our borrowing activity under the credit facility for the periods presented : replace_table_token_11_th proceeds from sales of assets . we continually evaluate potential sales of assets , including certain non-strategic oil and gas properties and undeveloped acreage , among others . for additional information and an analysis of our historical proceeds from sales of assets , see the “ cash flows ” discussion that follows . capital markets transactions . from time-to-time and under market conditions that we believe are favorable to us , we may consider capital market transactions , including the offering of debt and equity securities . we maintain an effective shelf registration statement to allow for optionality . as more fully described in part i , item 1 . “ business , ” the discussion of key developments previously and note 2 to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data , ” the juniper transaction resulted in the issuance of series a preferred stock and the common units in january 2021 . 47 cash flows the following table summarizes our cash flows for the periods presented : replace_table_token_12_th cash flows from operating activities . the decrease of $ 98.4 million in net cash from operating activities for 2020 compared to 2019 was primarily attributable to the substantial decline in commodity prices resulting from the adverse impact of covid-19 on the global economy and general instability in the global energy markets as well as the effect of 12 percent lower total sales volume , each of which substantially decreased our realized product revenues . in addition , in 2020 we incurred and paid costs for organizational restructuring activities , including severance benefits . these adverse impacts on cash provided by operating activities were partially offset by : ( i ) substantially higher receipts from our crude oil derivatives settlements , net of premiums during 2020 , ( ii ) lower interest payments , net of interest rate swap settlements , due to substantially lower weighted-average variable rates despite higher outstanding borrowings in 2020 , ( iii ) lower strategic transaction costs paid in 2020 as compared to similar costs paid in 2019 , ( v ) the beneficial impact in 2020 of cost containment efforts in both our operations and administrative functions including lower discretionary maintenance , lower contract labor and cost deferrals consistent with lower levels of business activity , the elimination of cost-of-living and similar adjustments to our salaries and wages and reduced employee headcount and ( vi ) improved working capital management . cash flows from investing activities . as illustrated in the tables below , our cash payments for capital expenditures were significantly lower during 2020 as compared to 2019 , due primarily to the suspension of the drilling program for a substantial portion of 2020 , partially offset by prepayments of $ 13.6 million in december 2020 for certain tubular and well materials and drilling and completion materials and services to lock in prices and secure discounts in advance of the program for the first quarter of 2021. the cash payments for capital expenditures for 2019 also reflect refunds of $ 3.8 million received for sales and use taxes that were applicable to capital expenditures in prior years . in 2019 , we paid our joint working interest partners $ 6.5 million for the acquisition of working interests in certain properties for which we are the operator . in addition , we received insignificant proceeds from the sale of scrap tubular

cash flows from financing activities . during 2020 , we had borrowings of $ 51.0 million and made repayments of $ 99.0 million under the credit facility while 2019 included borrowings of $ 76.4 million and repayments of $ 35.0 million . the borrowings were utilized to fund a portion of our capital program in both years as well as the aforementioned acquisition of working interests in 2019. we also paid $ 0.1 million and $ 2.6 million of debt issue costs in 2020 and 2019 , respectively , in connection with amendments to the credit facility . capitalization the following table summarizes our total capitalization as of the dates presented : replace_table_token_15_th credit facility . the credit facility provides for a $ 1.0 billion revolving commitment and a $ 375 million borrowing base including a $ 25 million sublimit for the issuance of letters of credit . availability under the credit facility may not exceed the lesser of the aggregate commitments or the borrowing base ; however , outstanding borrowings under the credit facility are limited to a maximum of $ 350 million until at least the next redetermination of the borrowing base . the borrowing base under the credit facility is redetermined semi-annually , generally in the spring and fall of each year . additionally , we and the credit facility lenders may , upon request , initiate a redetermination at any time during the six-month period between scheduled redeterminations . certain minimum hedging and other conditions included in the ninth amendment were initially satisfied in february 2021 which allow for a borrowing base holiday until fall 2021 assuming we continue to satisfy the conditions . the credit facility is available to us for general corporate purposes , including working capital . the credit facility is scheduled to mature in may 2024. we had $ 0.4 million in letters of credit outstanding as of december 31 , 2020 and 2019 .

the “lifeboat distribution” segment distributes technical software to corporate resellers , value added resellers ( vars ) , consultants and systems integrators worldwide . the “techxtend” segment is a value-added reseller of software , hardware and services for corporations , government organizations and academic institutions in the usa and canada . we offer an extensive line of products from leading publishers of software and tools for virtualization/cloud computing , security , networking , storage and infrastructure management , application lifecycle management and other technically sophisticated domains as well as computer hardware . we market these products through direct sales , the internet , our catalogs , direct mail programs , advertisements in trade magazines and e-mail promotions . forward-looking statements this report includes “forward-looking statements” within the meaning of section 21e of the exchange act . statements in this report regarding future events or conditions , including but not limited to statements regarding industry prospects and the company 's expected financial position , business and financing plans , are forward-looking statements . although the company believes that the expectations reflected in such forward-looking statements are reasonable , it can give no assurance that such expectations will prove to have been correct . we strongly urge current and prospective investors to carefully consider the cautionary statements and risks contained in this report , particularly the risks described under “item 1a . risk factors” above . such risks include , but are not limited to , the continued acceptance of the company 's distribution channel by vendors and customers , the timely availability and acceptance of new products , contribution of key vendor relationships and support programs , as well as factors that affect the software industry generally . the company operates in a rapidly changing business , and new risk factors emerge from time to time . management can not predict every risk factor , nor can it assess the impact , if any , of all such risk factors on the company 's business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those projected in any forward-looking statements . accordingly , forward-looking statements should not be relied upon as a prediction of actual results and readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of their dates . the company undertakes no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . 14 the statements concerning future sales , future gross profit margin and future selling and administrative expenses are forward looking statements involving certain risks and uncertainties such as availability of products , product mix , pricing pressures , market conditions and other factors , which could result in a fluctuation of sales below recent experience . stock volatility . the technology sector of the united states stock markets has experienced substantial volatility in recent periods . numerous conditions which impact the technology sector or the stock market in general or the company in particular , whether or not such events relate to or reflect upon the company 's operating performance , could adversely affect the market price of the company 's common stock . furthermore , fluctuations in the company 's operating results , announcements regarding litigation , the loss of a significant vendor or customer , increased competition , reduced vendor incentives and trade credit , higher postage and operating expenses , and other developments , could have a significant impact on the market price of the company 's common stock . financial overview net sales totaled $ 382.0 million in 2015 as compared to $ 340.8 million in 2014 , representing a 12 % increase . gross profit increased by $ 1.8 million or 7 % in 2015 as compared to 2014. selling , general and administrative ( “sg & a” ) expenses increased by $ 1.6 million in 2015 as compared to 2014. income from operations amounted to $ 8.5 million in 2015 from $ 8.3 million in 2014 , representing an increase of $ 0.2 million or 3 % as compared to 2014. the increase in income from operations resulted from an increase in gross profit offset by the increase in sg & a expenses . our income before provision for income taxes increased by $ 0.1 million to $ 8.9 million in 2015 compared to $ 8.8 million in 2014. we reported net income of $ 5.8 million for both 2015 and 2014. the company 's sales , gross profit and results of operations have fluctuated and are expected to continue to fluctuate on a quarterly basis as a result of a number of factors , including but not limited to : the condition of the software industry in general , shifts in demand for software products , pricing , level of extended payment terms sales transactions , industry shipments of new software products or upgrades , fluctuations in merchandise returns , adverse weather conditions that affect response , distribution or shipping , shifts in the timing of holidays and changes in the company 's product offerings . the company 's operating expenditures are based on sales forecasts . if sales do not meet expectations in any given quarter , operating results may be materially adversely affected . results of operations the following table sets forth for the years indicated the percentage of net sales represented by selected items reflected in the company 's consolidated statements of earnings . story_separator_special_tag the current year effective tax rate was 34.2 % compared to 32.1 % in 2013. the current year effective tax rates are higher primarily due to the fact that the prior year included an adjustment to reflect a change in state apportionment rules . as of december 31 , 2014 , the company had a u.s. deferred tax asset of approximately $ 0.4 million . for the year ended december 31 , 2013 , the company recorded a provision for income taxes of $ 3.0 million which consists of a provision of $ 2.9 million for u.s. federal income taxes , as well as a $ 0.1 million provision for foreign taxes , and a deferred tax expense of $ 0.1 million as of december 31 , 2013 , the company had a u.s. deferred tax asset of approximately $ 0.4 18 recently issued accounting pronouncements in may 2014 , the fasb issued guidance for revenue recognition for contracts , superseding the previous revenue recognition requirements , along with most existing industry-specific guidance . the guidance requires an entity to review contracts in five steps : 1 ) identify the contract , 2 ) identify performance obligations , 3 ) determine the transaction price , 4 ) allocate the transaction price , and 5 ) recognize revenue . the new standard will result in enhanced disclosures regarding the nature , amount , timing and uncertainty of revenue arising from contracts with customers . in august 2015 , the fasb issued asu no . 2015-14 which deferred the effective date of the new standard by one year . along with the deferral of the effective date , asu no . 2015-14 allows early application as of the original effective date . entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect as of the beginning of the period of adoption . the standard and related amendments will be effective for the company for its annual reporting period beginning january 1 , 2018 , including interim periods within that reporting period . the company is currently evaluating the newly issued guidance , including which transition approach will be applied and the estimated impact it will have on our consolidated financial statements in july 2015 , the fasb issued accounting standards update no . 2015-11 , “simplifying the measurement of inventory ( topic 330 ) ” , ( “asu 2015-11” ) . topic 330 , inventory , currently requires an entity to measure inventory at the lower of cost or market , with market value represented by replacement cost , net realizable value or net realizable value less a normal profit margin . the amendments in asu 2015-11 require an entity to measure inventory at the lower of cost or net realizable value . asu 2015-11 is effective for reporting periods beginning after december 15 , 2016. we do not expect the adoption of this new accounting pronouncement , will have a significant impact on our consolidated financial statements . in november 2015 , the fasb issued accounting standards update 2015-17 ( “asu 2015-17” ) to simplify the presentation of deferred taxes . this amendment requires that all deferred tax assets and liabilities , along with any related valuation allowances , be classified as noncurrent on the balance sheet . adoption of this standard is required for annual periods beginning after december 15 , 2016. we do not expect the adoption of asu 2015-17 will have a significant impact on our consolidated financial statements and related disclosures . story_separator_special_tag payments . as of december 31 , 2015 , the company is not committed by lines of credit or standby letters of credit , and has no standby repurchase obligations or other commercial commitments ( see note 5 credit facility in the notes to our consolidated financial statements ) . foreign exchange the company 's canadian business is subject to changes in demand or pricing resulting from fluctuations in currency exchange rates or other factors . we are subject to fluctuations primarily in the canadian dollar-to-u.s. dollar exchange rate . off-balance sheet arrangements as of december 31 , 2015 , we did not have any off-balance sheet arrangements , as defined in item 303 ( a ) ( 4 ) ( ii ) of sec regulation s-k. critical accounting policies and estimates management 's discussion and analysis of the company 's financial condition and results of operations are based upon the company 's consolidated financial statements that have been prepared in accordance with us gaap . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . the company recognizes revenue from the sale of software and hardware for microcomputers , servers and networks on a gross revenue recognition basis upon shipment or upon electronic delivery of the product . on an on-going basis , the company evaluates its estimates , including those related to product returns , bad debts , inventories , investments , intangible assets , income taxes , stock-based compensation , contingencies and litigation . the company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . the company believes the following critical accounting policies used in the preparation of its consolidated financial statements affect its more significant judgments and estimates . the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . if the financial condition of the company 's customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances

cash flows from financing activities . during 2020 , we had borrowings of $ 51.0 million and made repayments of $ 99.0 million under the credit facility while 2019 included borrowings of $ 76.4 million and repayments of $ 35.0 million . the borrowings were utilized to fund a portion of our capital program in both years as well as the aforementioned acquisition of working interests in 2019. we also paid $ 0.1 million and $ 2.6 million of debt issue costs in 2020 and 2019 , respectively , in connection with amendments to the credit facility . capitalization the following table summarizes our total capitalization as of the dates presented : replace_table_token_15_th credit facility . the credit facility provides for a $ 1.0 billion revolving commitment and a $ 375 million borrowing base including a $ 25 million sublimit for the issuance of letters of credit . availability under the credit facility may not exceed the lesser of the aggregate commitments or the borrowing base ; however , outstanding borrowings under the credit facility are limited to a maximum of $ 350 million until at least the next redetermination of the borrowing base . the borrowing base under the credit facility is redetermined semi-annually , generally in the spring and fall of each year . additionally , we and the credit facility lenders may , upon request , initiate a redetermination at any time during the six-month period between scheduled redeterminations . certain minimum hedging and other conditions included in the ninth amendment were initially satisfied in february 2021 which allow for a borrowing base holiday until fall 2021 assuming we continue to satisfy the conditions . the credit facility is available to us for general corporate purposes , including working capital . the credit facility is scheduled to mature in may 2024. we had $ 0.4 million in letters of credit outstanding as of december 31 , 2020 and 2019 .

the “lifeboat distribution” segment distributes technical software to corporate resellers , value added resellers ( vars ) , consultants and systems integrators worldwide . the “techxtend” segment is a value-added reseller of software , hardware and services for corporations , government organizations and academic institutions in the usa and canada . we offer an extensive line of products from leading publishers of software and tools for virtualization/cloud computing , security , networking , storage and infrastructure management , application lifecycle management and other technically sophisticated domains as well as computer hardware . we market these products through direct sales , the internet , our catalogs , direct mail programs , advertisements in trade magazines and e-mail promotions . forward-looking statements this report includes “forward-looking statements” within the meaning of section 21e of the exchange act . statements in this report regarding future events or conditions , including but not limited to statements regarding industry prospects and the company 's expected financial position , business and financing plans , are forward-looking statements . although the company believes that the expectations reflected in such forward-looking statements are reasonable , it can give no assurance that such expectations will prove to have been correct . we strongly urge current and prospective investors to carefully consider the cautionary statements and risks contained in this report , particularly the risks described under “item 1a . risk factors” above . such risks include , but are not limited to , the continued acceptance of the company 's distribution channel by vendors and customers , the timely availability and acceptance of new products , contribution of key vendor relationships and support programs , as well as factors that affect the software industry generally . the company operates in a rapidly changing business , and new risk factors emerge from time to time . management can not predict every risk factor , nor can it assess the impact , if any , of all such risk factors on the company 's business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those projected in any forward-looking statements . accordingly , forward-looking statements should not be relied upon as a prediction of actual results and readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of their dates . the company undertakes no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . 14 the statements concerning future sales , future gross profit margin and future selling and administrative expenses are forward looking statements involving certain risks and uncertainties such as availability of products , product mix , pricing pressures , market conditions and other factors , which could result in a fluctuation of sales below recent experience . stock volatility . the technology sector of the united states stock markets has experienced substantial volatility in recent periods . numerous conditions which impact the technology sector or the stock market in general or the company in particular , whether or not such events relate to or reflect upon the company 's operating performance , could adversely affect the market price of the company 's common stock . furthermore , fluctuations in the company 's operating results , announcements regarding litigation , the loss of a significant vendor or customer , increased competition , reduced vendor incentives and trade credit , higher postage and operating expenses , and other developments , could have a significant impact on the market price of the company 's common stock . financial overview net sales totaled $ 382.0 million in 2015 as compared to $ 340.8 million in 2014 , representing a 12 % increase . gross profit increased by $ 1.8 million or 7 % in 2015 as compared to 2014. selling , general and administrative ( “sg & a” ) expenses increased by $ 1.6 million in 2015 as compared to 2014. income from operations amounted to $ 8.5 million in 2015 from $ 8.3 million in 2014 , representing an increase of $ 0.2 million or 3 % as compared to 2014. the increase in income from operations resulted from an increase in gross profit offset by the increase in sg & a expenses . our income before provision for income taxes increased by $ 0.1 million to $ 8.9 million in 2015 compared to $ 8.8 million in 2014. we reported net income of $ 5.8 million for both 2015 and 2014. the company 's sales , gross profit and results of operations have fluctuated and are expected to continue to fluctuate on a quarterly basis as a result of a number of factors , including but not limited to : the condition of the software industry in general , shifts in demand for software products , pricing , level of extended payment terms sales transactions , industry shipments of new software products or upgrades , fluctuations in merchandise returns , adverse weather conditions that affect response , distribution or shipping , shifts in the timing of holidays and changes in the company 's product offerings . the company 's operating expenditures are based on sales forecasts . if sales do not meet expectations in any given quarter , operating results may be materially adversely affected . results of operations the following table sets forth for the years indicated the percentage of net sales represented by selected items reflected in the company 's consolidated statements of earnings . story_separator_special_tag the current year effective tax rate was 34.2 % compared to 32.1 % in 2013. the current year effective tax rates are higher primarily due to the fact that the prior year included an adjustment to reflect a change in state apportionment rules . as of december 31 , 2014 , the company had a u.s. deferred tax asset of approximately $ 0.4 million . for the year ended december 31 , 2013 , the company recorded a provision for income taxes of $ 3.0 million which consists of a provision of $ 2.9 million for u.s. federal income taxes , as well as a $ 0.1 million provision for foreign taxes , and a deferred tax expense of $ 0.1 million as of december 31 , 2013 , the company had a u.s. deferred tax asset of approximately $ 0.4 18 recently issued accounting pronouncements in may 2014 , the fasb issued guidance for revenue recognition for contracts , superseding the previous revenue recognition requirements , along with most existing industry-specific guidance . the guidance requires an entity to review contracts in five steps : 1 ) identify the contract , 2 ) identify performance obligations , 3 ) determine the transaction price , 4 ) allocate the transaction price , and 5 ) recognize revenue . the new standard will result in enhanced disclosures regarding the nature , amount , timing and uncertainty of revenue arising from contracts with customers . in august 2015 , the fasb issued asu no . 2015-14 which deferred the effective date of the new standard by one year . along with the deferral of the effective date , asu no . 2015-14 allows early application as of the original effective date . entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect as of the beginning of the period of adoption . the standard and related amendments will be effective for the company for its annual reporting period beginning january 1 , 2018 , including interim periods within that reporting period . the company is currently evaluating the newly issued guidance , including which transition approach will be applied and the estimated impact it will have on our consolidated financial statements in july 2015 , the fasb issued accounting standards update no . 2015-11 , “simplifying the measurement of inventory ( topic 330 ) ” , ( “asu 2015-11” ) . topic 330 , inventory , currently requires an entity to measure inventory at the lower of cost or market , with market value represented by replacement cost , net realizable value or net realizable value less a normal profit margin . the amendments in asu 2015-11 require an entity to measure inventory at the lower of cost or net realizable value . asu 2015-11 is effective for reporting periods beginning after december 15 , 2016. we do not expect the adoption of this new accounting pronouncement , will have a significant impact on our consolidated financial statements . in november 2015 , the fasb issued accounting standards update 2015-17 ( “asu 2015-17” ) to simplify the presentation of deferred taxes . this amendment requires that all deferred tax assets and liabilities , along with any related valuation allowances , be classified as noncurrent on the balance sheet . adoption of this standard is required for annual periods beginning after december 15 , 2016. we do not expect the adoption of asu 2015-17 will have a significant impact on our consolidated financial statements and related disclosures . story_separator_special_tag payments . as of december 31 , 2015 , the company is not committed by lines of credit or standby letters of credit , and has no standby repurchase obligations or other commercial commitments ( see note 5 credit facility in the notes to our consolidated financial statements ) . foreign exchange the company 's canadian business is subject to changes in demand or pricing resulting from fluctuations in currency exchange rates or other factors . we are subject to fluctuations primarily in the canadian dollar-to-u.s. dollar exchange rate . off-balance sheet arrangements as of december 31 , 2015 , we did not have any off-balance sheet arrangements , as defined in item 303 ( a ) ( 4 ) ( ii ) of sec regulation s-k. critical accounting policies and estimates management 's discussion and analysis of the company 's financial condition and results of operations are based upon the company 's consolidated financial statements that have been prepared in accordance with us gaap . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . the company recognizes revenue from the sale of software and hardware for microcomputers , servers and networks on a gross revenue recognition basis upon shipment or upon electronic delivery of the product . on an on-going basis , the company evaluates its estimates , including those related to product returns , bad debts , inventories , investments , intangible assets , income taxes , stock-based compensation , contingencies and litigation . the company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . the company believes the following critical accounting policies used in the preparation of its consolidated financial statements affect its more significant judgments and estimates . the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . if the financial condition of the company 's customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances

liquidity and capital resources our cash and cash equivalents increased by $ 0.7 million to $ 23.8 million at december 31 , 2015 from $ 23.1 million at december 31 , 2014. net cash provided by operating activities amounted to $ 8.2 million , net cash used in investing activities amounted to $ 0.2 million , and net cash used in financing activities amounted to $ 7.1 million . net cash provided by operating activities in 2015 was $ 8.2 million . in 2015 , cash was mainly provided by $ 7.3 million from net income including non-cash charges , a $ 1.1 million decrease in accounts receivable , and a $ 0.3 million decrease in accounts payable and accrued expenses prepaid , offset in part by an increase in inventory of $ 0.5 million . in 2015 , net cash used in investing activities was $ 0.2 million . this resulted primarily from $ 0.2 million for the purchase of equipment and leasehold improvements . net cash used in financing activities in 2015 of $ 7.1 million consisted of $ 3.2 million of dividend payments on our common stock and $ 4.6 million for the purchases of treasury shares of our common 19 stock offset by the tax benefit from share based compensation of $ 0.2 million and the exercise of stock options of $ 0.6 million . in 2014 the board of directors authorized the purchase of 500,000 shares of our common stock . in 2008 , the board of directors authorized the purchase of 500,000 shares of our common stock . in 2002 , the board of directors authorized the purchase of 1,490,000 shares of our common stock .

the company operates through two reportable segments : ( i ) information services and ( ii ) performance marketing . for additional information relating to our segments , see note 16 , “ segment information , ” in our notes to consolidated financial statements . information services —leveraging leading-edge technology , proprietary algorithms , and massive datasets , and through intuitive and powerful analytical applications , we provide solutions to organizations within the risk management and consumer marketing industries . core is our next generation data fusion platform , providing mission-critical information about individuals , businesses and assets to a variety of markets and industries . through machine learning and advanced analytics , our information services segment uses the power of data fusion to ingest and analyze data at a massive scale . the derived information from the data fusion process ultimately serves to generate unique solutions for banking and financial services companies , insurance companies , healthcare companies , law enforcement and government , the collection industry , law firms , retail , telecommunications companies , corporate security and investigative firms . in addition , our data acquisition solutions enable clients to rapidly grow their customer databases by using self-declared consumer insights to identify , connect with , and acquire first-party consumer data and multi-channel marketing consent at massive scale . built in a secure payment card industry ( pci ) compliant environment , our cloud-based next generation technology delivers greater than four 9s of service uptime . by leveraging our proprietary infrastructure design within the cloud , we currently operate in six datacenters spread geographically across the u.s. and are able to dynamically and seamlessly scale as needed . using our intelligent 31 framework and leveraging a micro services architecture where appropriate , we reduce operational cost and complexity , thus delivering sup erior performance at greatly reduced costs compared to traditional datacenter architectures . since the release of our core platform in may 2016 , we have added billions of data records and continue to add approximately over a billion records per month on av erage . our average query response time for a comprehensive profile is less than 250 milliseconds versus competitive platforms that measure comprehensive profile response times in seconds . performance marketing —our agile audience engine drives our performance marketing segment , which provides solutions to help brands , advertisers and marketers find the right customers in every major business-to-consumer ( b2c ) vertical , including internet and telecommunications , financial services , health and wellness , consumer packaged goods , careers and education , and retail and entertainment . we deterministically target consumers across various marketing channels and devices , through the user- supplied acquisition of personally identifiable information on behalf of our clients , such as email addresses , other identifying information and responses to dynamically-populated survey questions . additionally , 80 % of our consumer interaction comes from mobile , a highly-differentiated characteristic compared to our competitors whose platforms are not mobile-first . we own hundreds of media properties , through which we engage millions of consumers everyday with interactive content , such as job postings , cost savings , surveys , promotions and sweepstakes that generate over 800,000 registrations and over 7.5 million compiled survey responses a day . our owned media properties alone have created a database of approximately 130 million u.s. adults with detailed profiles , including 224 million unique email addresses , across over 75 million households . with meaningful , people-based interaction that focuses on consumer behavior and declared first-party data , leveraged on a mobile-centric platform that provides seamless omni-channel capabilities , we have the ability to target and develop comprehensive consumer profiles that redefine the way advertisers view their most valuable customers . previously , we provided advertising services in the out-of-home advertising industry in china under the name tiger media , inc. ( “ tiger media ” ) . on march 21 , 2015 , tiger media completed the acquisition of the best one , inc. ( “ tbo ” ) . in the transaction , tbo became a wholly owned subsidiary of tiger media , with tbo changing its name to idi holdings , llc and tiger media changing its name to idi , inc , now known as cogint , inc. tbo was a holding company engaged in the acquisition of operating businesses and the acquisition and development of technology assets across various industries . previously , on october 2 , 2014 , tbo acquired 100 % of the membership interests of interactive data , llc ( “ interactive data ” ) . historically , interactive data provided data solutions and services to the accounts receivable management industry , consisting primarily of collection agencies , collection law firms , and debt buyers , for location and identity verification , legislative compliance and debt recovery . interactive data now serves the entirety of the risk management industry . through leading-edge , proprietary technology , advanced systems architecture , and a massive data repository , interactive data addresses the rapidly growing need for actionable intelligence . on december 9 , 2015 , we completed the acquisition of fluent , llc ( “ fluent ” ) with certain transactions effective december 8 , 2015 ( the “ fluent acquisition ” ) . fluent , founded in 2010 , is a leader in people-based digital marketing and customer acquisition , serving over 500 leading consumer brands and direct marketers . fluent 's proprietary audience data and robust ad-serving technology enables marketers to acquire their best customers , with precision , at a massive scale . leveraging compelling content , unique first-party data assets , and real-time survey interaction with customers , fluent has helped marketers acquire millions of new prospective customers since its inception . story_separator_special_tag as a result , compensation expense recorded in the period that achievement is deemed probable could include a substantial amount of previously unrecorded compensation expense related to the prior periods . if ultimat ely performance goals are not met , for any share-based awards where vesting was previously deemed probable , previously recognized compensation cost will be reversed . recently issued accounting standards see item 8 of part ii , “ financial statements and supplementary data – note 2. summary of significant accounting policies - ( t ) recently issued accounting standards . ” fourth quarter financial highlights for the three months ended december 31 , 2016 , as compared to the three months ended december 31 , 2015 : total revenue increased to $ 54.2 million from $ 10.8 million . information service revenue increased to $ 16.2 million from $ 3.1 million . performance marketing revenue increased to $ 38.0 million from $ 7.7 million . gross profit margin increased to 33 % from 21 % . net loss improved to $ 5.4 million from a net loss of $ 32.6 million . adjusted ebitda improved to $ 6.3 million from a loss of $ 2.3 million . for the three months ended december 31 , 2016 , as compared to the three months ended september 30 , 2016 : total revenue increased to $ 54.2 million from $ 52.2 million . information service revenue increased to $ 16.2 million from $ 14.8 million . performance marketing revenue increased to $ 38.0 million from $ 37.4 million . gross profit margin increased to 33 % from 24 % . net loss improved to $ 5.4 million from a net loss of $ 9.7 million . adjusted ebitda increased to $ 6.3 million from $ 3.2 million . full year financial highlights for the year ended december 31 , 2016 , as compared to the year ended december 31 , 2015 : total revenue increased to $ 186.8 million from $ 14.1 million . information service revenue increased to $ 55.4 million from $ 6.4 million . performance marketing revenue increased to $ 131.4 million from $ 7.7 million . gross profit margin increased to 28 % from 27 % . net loss improved to $ 29.1 million from $ 84.5 million . net cash provided by operating activities improved to $ 2.1 million from net cash used in operating activities of $ 10.7 million . adjusted ebitda improved to $ 15.0 million from a loss of $ 6.6 million . 36 recent business high lights within our information services segment : leveraging our agile audience engine , we now interact with over 800,000 consumers daily , generating more than 7 million consumer insights per day and 225 million insights monthly . comprehensive database includes holistic views of greater than 95 % of u.s. population , including unique data assets comprising 130 million self-reported consumer profiles up from 120 million , 224 million unique email addresses up from 150 million , across 75 million households , up from 63 million households . increased demand for our targeted acquisition solutions , leveraging our unique ability to build custom audiences in real-time and deliver specific insights that support stronger roi for our customers ' digital marketing executions . idicore continues to expand in the marketplace , landing key customer wins with head-to-head data tests against our competitors , and winning on speed , accuracy and price . added thousands of users currently utilizing idicore in their daily workflow ; these users represent a variety of industries within the risk management space , including financial services , law firms , collections , government and investigative companies . within our performance marketing segment : increased profitability resulting from the maturing of strategic growth verticals , mobile apps and career & education , optimization of media spend , and activation of new media channels utilizing our rapidly growing first-party data asset . powered by our agile audience engine 's targeting capabilities , mobile apps generated revenue of $ 7.1 million in the fourth quarter 2016 , a greater than 50 % increase over third quarter 2016. career & education vertical , focused on the “ gig economy ” and providing performance marketing and recruitment solutions to some of the world 's fastest growing brands in ride sharing , food and beverage delivery and home and personal care , grew revenue to $ 3.3 million in the fourth quarter 2016 , a greater than 25 % increase over third quarter 2016. increased activity on emerging mediums , delivering strong results for our clients by activating our data on new channels , including social , search and programmatic , email , push notifications , sms and call-based platforms . successful launch of our new pay per call ad format , receiving positive customer feedback and indication of adoption across a range of verticals . use and reconciliation of non-gaap financial measures management evaluates the financial performance of our business on a variety of key indicators , including adjusted ebitda . adjusted ebitda is a non-gaap financial measure equal to net loss , the most directly comparable financial measure based on us gaap , adding back net loss from discontinued operations , interest expense , income tax benefit , depreciation and amortization , share-based payments , and other adjustments , as noted in the tables below . replace_table_token_6_th 37 replace_table_token_7_th we present adjusted ebitda as a supplemental measure of our operating performance because we believe it provides useful information to our investors as it eliminates the impact of certain items that we do not consider indicative of our cash operations and ongoing operating performance . in addition , we use it as an integral part of our internal reporting to measure the performance of our reportable segments , evaluate the performance of our senior management and measure the operating strength of our business . adjusted ebitda is a measure frequently used by securities analysts , investors and

liquidity and capital resources our cash and cash equivalents increased by $ 0.7 million to $ 23.8 million at december 31 , 2015 from $ 23.1 million at december 31 , 2014. net cash provided by operating activities amounted to $ 8.2 million , net cash used in investing activities amounted to $ 0.2 million , and net cash used in financing activities amounted to $ 7.1 million . net cash provided by operating activities in 2015 was $ 8.2 million . in 2015 , cash was mainly provided by $ 7.3 million from net income including non-cash charges , a $ 1.1 million decrease in accounts receivable , and a $ 0.3 million decrease in accounts payable and accrued expenses prepaid , offset in part by an increase in inventory of $ 0.5 million . in 2015 , net cash used in investing activities was $ 0.2 million . this resulted primarily from $ 0.2 million for the purchase of equipment and leasehold improvements . net cash used in financing activities in 2015 of $ 7.1 million consisted of $ 3.2 million of dividend payments on our common stock and $ 4.6 million for the purchases of treasury shares of our common 19 stock offset by the tax benefit from share based compensation of $ 0.2 million and the exercise of stock options of $ 0.6 million . in 2014 the board of directors authorized the purchase of 500,000 shares of our common stock . in 2008 , the board of directors authorized the purchase of 500,000 shares of our common stock . in 2002 , the board of directors authorized the purchase of 1,490,000 shares of our common stock .

the company operates through two reportable segments : ( i ) information services and ( ii ) performance marketing . for additional information relating to our segments , see note 16 , “ segment information , ” in our notes to consolidated financial statements . information services —leveraging leading-edge technology , proprietary algorithms , and massive datasets , and through intuitive and powerful analytical applications , we provide solutions to organizations within the risk management and consumer marketing industries . core is our next generation data fusion platform , providing mission-critical information about individuals , businesses and assets to a variety of markets and industries . through machine learning and advanced analytics , our information services segment uses the power of data fusion to ingest and analyze data at a massive scale . the derived information from the data fusion process ultimately serves to generate unique solutions for banking and financial services companies , insurance companies , healthcare companies , law enforcement and government , the collection industry , law firms , retail , telecommunications companies , corporate security and investigative firms . in addition , our data acquisition solutions enable clients to rapidly grow their customer databases by using self-declared consumer insights to identify , connect with , and acquire first-party consumer data and multi-channel marketing consent at massive scale . built in a secure payment card industry ( pci ) compliant environment , our cloud-based next generation technology delivers greater than four 9s of service uptime . by leveraging our proprietary infrastructure design within the cloud , we currently operate in six datacenters spread geographically across the u.s. and are able to dynamically and seamlessly scale as needed . using our intelligent 31 framework and leveraging a micro services architecture where appropriate , we reduce operational cost and complexity , thus delivering sup erior performance at greatly reduced costs compared to traditional datacenter architectures . since the release of our core platform in may 2016 , we have added billions of data records and continue to add approximately over a billion records per month on av erage . our average query response time for a comprehensive profile is less than 250 milliseconds versus competitive platforms that measure comprehensive profile response times in seconds . performance marketing —our agile audience engine drives our performance marketing segment , which provides solutions to help brands , advertisers and marketers find the right customers in every major business-to-consumer ( b2c ) vertical , including internet and telecommunications , financial services , health and wellness , consumer packaged goods , careers and education , and retail and entertainment . we deterministically target consumers across various marketing channels and devices , through the user- supplied acquisition of personally identifiable information on behalf of our clients , such as email addresses , other identifying information and responses to dynamically-populated survey questions . additionally , 80 % of our consumer interaction comes from mobile , a highly-differentiated characteristic compared to our competitors whose platforms are not mobile-first . we own hundreds of media properties , through which we engage millions of consumers everyday with interactive content , such as job postings , cost savings , surveys , promotions and sweepstakes that generate over 800,000 registrations and over 7.5 million compiled survey responses a day . our owned media properties alone have created a database of approximately 130 million u.s. adults with detailed profiles , including 224 million unique email addresses , across over 75 million households . with meaningful , people-based interaction that focuses on consumer behavior and declared first-party data , leveraged on a mobile-centric platform that provides seamless omni-channel capabilities , we have the ability to target and develop comprehensive consumer profiles that redefine the way advertisers view their most valuable customers . previously , we provided advertising services in the out-of-home advertising industry in china under the name tiger media , inc. ( “ tiger media ” ) . on march 21 , 2015 , tiger media completed the acquisition of the best one , inc. ( “ tbo ” ) . in the transaction , tbo became a wholly owned subsidiary of tiger media , with tbo changing its name to idi holdings , llc and tiger media changing its name to idi , inc , now known as cogint , inc. tbo was a holding company engaged in the acquisition of operating businesses and the acquisition and development of technology assets across various industries . previously , on october 2 , 2014 , tbo acquired 100 % of the membership interests of interactive data , llc ( “ interactive data ” ) . historically , interactive data provided data solutions and services to the accounts receivable management industry , consisting primarily of collection agencies , collection law firms , and debt buyers , for location and identity verification , legislative compliance and debt recovery . interactive data now serves the entirety of the risk management industry . through leading-edge , proprietary technology , advanced systems architecture , and a massive data repository , interactive data addresses the rapidly growing need for actionable intelligence . on december 9 , 2015 , we completed the acquisition of fluent , llc ( “ fluent ” ) with certain transactions effective december 8 , 2015 ( the “ fluent acquisition ” ) . fluent , founded in 2010 , is a leader in people-based digital marketing and customer acquisition , serving over 500 leading consumer brands and direct marketers . fluent 's proprietary audience data and robust ad-serving technology enables marketers to acquire their best customers , with precision , at a massive scale . leveraging compelling content , unique first-party data assets , and real-time survey interaction with customers , fluent has helped marketers acquire millions of new prospective customers since its inception . story_separator_special_tag as a result , compensation expense recorded in the period that achievement is deemed probable could include a substantial amount of previously unrecorded compensation expense related to the prior periods . if ultimat ely performance goals are not met , for any share-based awards where vesting was previously deemed probable , previously recognized compensation cost will be reversed . recently issued accounting standards see item 8 of part ii , “ financial statements and supplementary data – note 2. summary of significant accounting policies - ( t ) recently issued accounting standards . ” fourth quarter financial highlights for the three months ended december 31 , 2016 , as compared to the three months ended december 31 , 2015 : total revenue increased to $ 54.2 million from $ 10.8 million . information service revenue increased to $ 16.2 million from $ 3.1 million . performance marketing revenue increased to $ 38.0 million from $ 7.7 million . gross profit margin increased to 33 % from 21 % . net loss improved to $ 5.4 million from a net loss of $ 32.6 million . adjusted ebitda improved to $ 6.3 million from a loss of $ 2.3 million . for the three months ended december 31 , 2016 , as compared to the three months ended september 30 , 2016 : total revenue increased to $ 54.2 million from $ 52.2 million . information service revenue increased to $ 16.2 million from $ 14.8 million . performance marketing revenue increased to $ 38.0 million from $ 37.4 million . gross profit margin increased to 33 % from 24 % . net loss improved to $ 5.4 million from a net loss of $ 9.7 million . adjusted ebitda increased to $ 6.3 million from $ 3.2 million . full year financial highlights for the year ended december 31 , 2016 , as compared to the year ended december 31 , 2015 : total revenue increased to $ 186.8 million from $ 14.1 million . information service revenue increased to $ 55.4 million from $ 6.4 million . performance marketing revenue increased to $ 131.4 million from $ 7.7 million . gross profit margin increased to 28 % from 27 % . net loss improved to $ 29.1 million from $ 84.5 million . net cash provided by operating activities improved to $ 2.1 million from net cash used in operating activities of $ 10.7 million . adjusted ebitda improved to $ 15.0 million from a loss of $ 6.6 million . 36 recent business high lights within our information services segment : leveraging our agile audience engine , we now interact with over 800,000 consumers daily , generating more than 7 million consumer insights per day and 225 million insights monthly . comprehensive database includes holistic views of greater than 95 % of u.s. population , including unique data assets comprising 130 million self-reported consumer profiles up from 120 million , 224 million unique email addresses up from 150 million , across 75 million households , up from 63 million households . increased demand for our targeted acquisition solutions , leveraging our unique ability to build custom audiences in real-time and deliver specific insights that support stronger roi for our customers ' digital marketing executions . idicore continues to expand in the marketplace , landing key customer wins with head-to-head data tests against our competitors , and winning on speed , accuracy and price . added thousands of users currently utilizing idicore in their daily workflow ; these users represent a variety of industries within the risk management space , including financial services , law firms , collections , government and investigative companies . within our performance marketing segment : increased profitability resulting from the maturing of strategic growth verticals , mobile apps and career & education , optimization of media spend , and activation of new media channels utilizing our rapidly growing first-party data asset . powered by our agile audience engine 's targeting capabilities , mobile apps generated revenue of $ 7.1 million in the fourth quarter 2016 , a greater than 50 % increase over third quarter 2016. career & education vertical , focused on the “ gig economy ” and providing performance marketing and recruitment solutions to some of the world 's fastest growing brands in ride sharing , food and beverage delivery and home and personal care , grew revenue to $ 3.3 million in the fourth quarter 2016 , a greater than 25 % increase over third quarter 2016. increased activity on emerging mediums , delivering strong results for our clients by activating our data on new channels , including social , search and programmatic , email , push notifications , sms and call-based platforms . successful launch of our new pay per call ad format , receiving positive customer feedback and indication of adoption across a range of verticals . use and reconciliation of non-gaap financial measures management evaluates the financial performance of our business on a variety of key indicators , including adjusted ebitda . adjusted ebitda is a non-gaap financial measure equal to net loss , the most directly comparable financial measure based on us gaap , adding back net loss from discontinued operations , interest expense , income tax benefit , depreciation and amortization , share-based payments , and other adjustments , as noted in the tables below . replace_table_token_6_th 37 replace_table_token_7_th we present adjusted ebitda as a supplemental measure of our operating performance because we believe it provides useful information to our investors as it eliminates the impact of certain items that we do not consider indicative of our cash operations and ongoing operating performance . in addition , we use it as an integral part of our internal reporting to measure the performance of our reportable segments , evaluate the performance of our senior management and measure the operating strength of our business . adjusted ebitda is a measure frequently used by securities analysts , investors and

cash flows used in investing activities . net cash used in investing activities for the year ended december 31 , 2016 was $ 12.0 million , which was mainly due to an aggregate of $ 10.2 million of software developed for internal use and capitalized litigation costs . net cash used in investing activities for the year ended december 31 , 2015 of $ 93.8 million was mainly due to the cash paid for the fluent acquisition of $ 93.3 million and an aggregate of $ 3.1 million of software developed for internal use and capitalized litigation costs , which were offset by the cash proceeds of $ 3.6 million as a result of the reverse acquisition of tiger media on march 21 , 2015. cash flows provided by financing activities . net cash provided by financing activities for the year ended december 31 , 2016 was $ 6.6 million , which was mainly due to the net proceeds from the registered direct offerings of $ 10.1 million , which was offset by the repayments of long-term debt of $ 2.3 million . net cash provided by financing activities for the year ended december 31 , 2015 of $ 111.9 million was the result of the following financing arrangements : ( 1 ) a registered direct offering of $ 10.0 million to an institutional investor in july 2015 ; ( 2 ) sales of series b preferred shares ( “ series b preferred ” ) and warrants to certain investors , including frost gamma investment trust , for an aggregate of $ 50.0 million in november 2015 ; ( 3 ) the term loan of $ 45.0 million 41 from three financial institutions p ursuant to a credit agreement on december 8 , 2015 ; and ( 4 ) an aggregate of $ 10.0 million promissory notes from certain investors in december 2015. as of december 31 , 2016 , the company had non-cancellable operating lease commitments of $ 3.7 million , and material commitments under non-cancellable data licensing agreements of $ 16.7 million .

the enterprise products employing our technology would allow users in field-based professions such as service repair or sales to view and share information such as schematics for equipment repair and sales data and orders within crm applications on a larger , more user-friendly interface . we also see potential for embedding the picop laser display engine in industrial products where our displays could be used for 3d measuring and digital signage , enhancing the overall user experience of these applications . we currently market and sell our showwx line of accessory pico projectors , which use our picop display engine through a network of global distributors . we continue to enter into a limited number of development agreements with commercial and u.s. government customers to develop advanced prototypes and demonstration units based on our light scanning technologies . we have incurred substantial losses since inception and expect to incur a substantial loss during the fiscal year ending december 31 , 2012. key accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent liabilities . we evaluate our estimates on an on-going basis . we base our estimates on historical experience , terms of existing contracts , our evaluation of trends in the display and image capture industries , information provided by our current and prospective customers and strategic partners , information available from other outside sources , and on various other assumptions we believe to be reasonable under the circumstances . the results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following key accounting policies require more significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition . our product sales generally include acceptance provisions . we recognize product revenue upon acceptance of the product by the customer or expiration of the contractual acceptance period , after which there are no rights of return . we have entered into agreements with resellers and distributors , as well as selling directly to the public . sales made to resellers and distributors are recognized using either the sell-through method or upon expiration of the contractually agreed-upon acceptance period , depending on our ability to reasonably estimate returns . some of the agreements with resellers and distributors contain price-protection clauses , and revenue is recognized net of these 17 amounts . sales made directly to the public are recognized either upon expiration of the contractual acceptance period after which there are no rights of return , or net of estimated returns and allowances . provisions are made for warranties at the time revenue is recorded . our quarterly revenue may vary substantially due to the timing of product orders from customers , production constraints and availability of components and raw materials . we recognize contract revenue as work progresses on long-term , cost plus fixed fee , and fixed price contracts using the percentage-of-completion method , which relies on estimates of total expected contract revenue and costs . we have developed processes that allow us to make reasonable estimates of the cost to complete a contract . when we begin work on the contract and at the end of each accounting period , we estimate the labor , material and other costs required to complete the contract using information provided by our technical team , project managers , vendors , outside consultants and others and compare these to costs incurred to date . since our contracts generally require some level of technology development to complete , the actual cost required to complete a contract can vary from our estimates . recognized revenues are subject to revisions as actual cost becomes certain . revisions in revenue estimates are reflected in the period in which the facts that give rise to the revision become known . historically , we have made only immaterial revisions in the estimates to complete the contract at each reporting period . in the future , revisions in these estimates could significantly impact recognized revenue in any one reporting period . if the u.s. government cancels a contract , we would receive payment for work performed and costs committed to prior to the cancellation . we recognize contract revenue on the sale of prototype units and evaluation kits upon acceptance of the deliverables by the customer or expiration of the contractual acceptance period , after which there are no rights of return . cost of revenue . cost of revenue includes both the direct and allocated indirect costs of performing on development contracts and producing prototype units , evaluation kits , showwx and rov units . direct costs include labor , materials and other costs incurred directly in performing on a contract or producing prototype units , evaluation kits , and accessory pico projector products . indirect costs include labor and other costs associated with operating our research and development department and building our manufacturing and technical capabilities and capacity . our overhead , which includes the costs of procuring , inspecting and storing material , and facility and depreciation costs , is allocated to inventory , cost of product revenue , cost of contract revenue , and research and development expense based on the proportion of direct material purchased for the respective activity . story_separator_special_tag replace_table_token_10_th pico projector revenue includes the sales of showwx which was launched in september 2009 and the showwx+ which was launched in november 2010. bar code revenue includes the sales of rov bar code scanners . the decrease in bar code revenue for the year ended december 31 , 2010 compared to the same period in 2009 was due to our decreased investment in our bar code product during 2009. the backlog of product orders at december 31 , 2010 was approximately $ 12.7 million , compared to $ 3.8 million at december 31 , 2009. contract revenue . replace_table_token_11_th we earn contract revenue from performance on development contracts with the u.s. government and commercial customers and from the sale of prototype units and evaluation kits based on our picop display engine . our contract revenue in a particular period is dependent upon when we enter into a contract , the value of the contracts we have entered into , and the availability of technical resources to perform work on the contracts . contract revenue from government and commercial contracts was substantially lower during 2010 than in 2009 due to reduced contract activity and lower beginning backlog in 2010 compared to the previous year . our backlog of development contracts , including orders for prototype units and evaluation kits , at december 31 , 2010 was $ 868,000 in government contracts and $ 81,000 in commercial contracts compared to $ 70,000 in government contracts and $ 30,000 in commercial contracts at december 31 , 2009. the increase in backlog from 2009 is primarily attributed to two contracts with the us government entered into in late 2010 . 23 cost of product revenue . replace_table_token_12_th our costs to produce accessory pico projector units during 2010 were substantially higher than product revenue . during the early phase of showwx production , our design and manufacturing processes were not sufficiently mature to support commercial production . we classified overhead cost allocated to the showwx as research and development expense until february 2010 , when we determined that the showwx design and production processes were mature enough to reach a level to support commercial production and since february 2010 , all manufacturing costs have been included in cost of revenue . cost of product revenue for 2010 and 2009 , included a write down of $ 9.6 million and $ 1.3 million , respectively , for inventory in stock at the end of the year . the write downs included lower of cost or market adjustments primarily comprised of adjustments to our inventory value to reflect the then current estimated selling price for our inventory , as well as a reserve adjustment for materials which we expect would become obsolete as we introduced new products . the increase in cost of product revenue for 2010 , compared to 2009 , was primarily attributed to increased material costs associated with higher volumes of product shipments and increased inventory write downs compared to the prior year . the increase in the cost of product revenue as a percentage of product revenue in 2010 compared to the same period in 2009 was due to an increase in inventory write downs and a higher cost structure for the showwx product . cost of contract revenue . replace_table_token_13_th the cost of contract revenue was lower in 2010 than in 2009 as a result of the decreased activity on development contracts as we continue to focus our resources on commercialization of products based on the picop display engine . the cost of contract revenue as a percentage of revenue was lower in 2010 than in 2009 as a result of difference in the cost mix of the contracts during those periods . research and development expense . 2010 2009 $ change % change ( in thousands ) research and development $ 21,600 $ 24,577 $ ( 2,977 ) ( 12.1 ) the decrease in cost during 2010 , compared to the same period in 2009 , is primarily attributable to less direct material purchased for development programs and a decrease in overhead allocated to research and development . sales , marketing , general and administrative expense . 2010 2009 $ change % change ( in thousands ) sales , marketing , general and administrative $ 15,252 $ 14,540 $ 712 4.9 24 the increase in cost during 2010 compared to the same period in 2009 is primarily due to increased sales and marketing expense related to promoting our accessory pico projector products . interest income and expense . replace_table_token_14_th replace_table_token_15_th the decrease in interest income in 2010 from 2009 results primarily from lower average cash , investments securities balances , and interest rates . realized loss on sale of investment securities at december 31 , 2009 , we held $ 3.0 million par value student loan auction-rate securities ( slars ) , fair valued at $ 2.7 million . in march and december 2010 , one of the issuers redeemed a total of $ 200,000 of our slars at par value through a voluntary lottery redemption program . in december 2010 , we sold our remaining slars for proceeds of approximately $ 2.4 million and recorded a loss of $ 127,000 which is included in `` realized loss on sale of investment securities `` on the consolidated statement of operations . gain ( loss ) on derivative instruments , net . replace_table_token_16_th the change in `` gain ( loss ) on derivative instruments , net `` is primarily driven by the change in value of warrants we issued in 2005 to purchase 2,302,000 shares of common stock in connection with certain notes . the warrants met the definition of derivative instruments that must be accounted for as liabilities because we could not engage in certain corporate transactions affecting the common stock unless we made a cash payment to the holders of the warrants . we recorded changes in the fair values of the warrants in the statement of operations each

cash flows used in investing activities . net cash used in investing activities for the year ended december 31 , 2016 was $ 12.0 million , which was mainly due to an aggregate of $ 10.2 million of software developed for internal use and capitalized litigation costs . net cash used in investing activities for the year ended december 31 , 2015 of $ 93.8 million was mainly due to the cash paid for the fluent acquisition of $ 93.3 million and an aggregate of $ 3.1 million of software developed for internal use and capitalized litigation costs , which were offset by the cash proceeds of $ 3.6 million as a result of the reverse acquisition of tiger media on march 21 , 2015. cash flows provided by financing activities . net cash provided by financing activities for the year ended december 31 , 2016 was $ 6.6 million , which was mainly due to the net proceeds from the registered direct offerings of $ 10.1 million , which was offset by the repayments of long-term debt of $ 2.3 million . net cash provided by financing activities for the year ended december 31 , 2015 of $ 111.9 million was the result of the following financing arrangements : ( 1 ) a registered direct offering of $ 10.0 million to an institutional investor in july 2015 ; ( 2 ) sales of series b preferred shares ( “ series b preferred ” ) and warrants to certain investors , including frost gamma investment trust , for an aggregate of $ 50.0 million in november 2015 ; ( 3 ) the term loan of $ 45.0 million 41 from three financial institutions p ursuant to a credit agreement on december 8 , 2015 ; and ( 4 ) an aggregate of $ 10.0 million promissory notes from certain investors in december 2015. as of december 31 , 2016 , the company had non-cancellable operating lease commitments of $ 3.7 million , and material commitments under non-cancellable data licensing agreements of $ 16.7 million .

the enterprise products employing our technology would allow users in field-based professions such as service repair or sales to view and share information such as schematics for equipment repair and sales data and orders within crm applications on a larger , more user-friendly interface . we also see potential for embedding the picop laser display engine in industrial products where our displays could be used for 3d measuring and digital signage , enhancing the overall user experience of these applications . we currently market and sell our showwx line of accessory pico projectors , which use our picop display engine through a network of global distributors . we continue to enter into a limited number of development agreements with commercial and u.s. government customers to develop advanced prototypes and demonstration units based on our light scanning technologies . we have incurred substantial losses since inception and expect to incur a substantial loss during the fiscal year ending december 31 , 2012. key accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent liabilities . we evaluate our estimates on an on-going basis . we base our estimates on historical experience , terms of existing contracts , our evaluation of trends in the display and image capture industries , information provided by our current and prospective customers and strategic partners , information available from other outside sources , and on various other assumptions we believe to be reasonable under the circumstances . the results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following key accounting policies require more significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition . our product sales generally include acceptance provisions . we recognize product revenue upon acceptance of the product by the customer or expiration of the contractual acceptance period , after which there are no rights of return . we have entered into agreements with resellers and distributors , as well as selling directly to the public . sales made to resellers and distributors are recognized using either the sell-through method or upon expiration of the contractually agreed-upon acceptance period , depending on our ability to reasonably estimate returns . some of the agreements with resellers and distributors contain price-protection clauses , and revenue is recognized net of these 17 amounts . sales made directly to the public are recognized either upon expiration of the contractual acceptance period after which there are no rights of return , or net of estimated returns and allowances . provisions are made for warranties at the time revenue is recorded . our quarterly revenue may vary substantially due to the timing of product orders from customers , production constraints and availability of components and raw materials . we recognize contract revenue as work progresses on long-term , cost plus fixed fee , and fixed price contracts using the percentage-of-completion method , which relies on estimates of total expected contract revenue and costs . we have developed processes that allow us to make reasonable estimates of the cost to complete a contract . when we begin work on the contract and at the end of each accounting period , we estimate the labor , material and other costs required to complete the contract using information provided by our technical team , project managers , vendors , outside consultants and others and compare these to costs incurred to date . since our contracts generally require some level of technology development to complete , the actual cost required to complete a contract can vary from our estimates . recognized revenues are subject to revisions as actual cost becomes certain . revisions in revenue estimates are reflected in the period in which the facts that give rise to the revision become known . historically , we have made only immaterial revisions in the estimates to complete the contract at each reporting period . in the future , revisions in these estimates could significantly impact recognized revenue in any one reporting period . if the u.s. government cancels a contract , we would receive payment for work performed and costs committed to prior to the cancellation . we recognize contract revenue on the sale of prototype units and evaluation kits upon acceptance of the deliverables by the customer or expiration of the contractual acceptance period , after which there are no rights of return . cost of revenue . cost of revenue includes both the direct and allocated indirect costs of performing on development contracts and producing prototype units , evaluation kits , showwx and rov units . direct costs include labor , materials and other costs incurred directly in performing on a contract or producing prototype units , evaluation kits , and accessory pico projector products . indirect costs include labor and other costs associated with operating our research and development department and building our manufacturing and technical capabilities and capacity . our overhead , which includes the costs of procuring , inspecting and storing material , and facility and depreciation costs , is allocated to inventory , cost of product revenue , cost of contract revenue , and research and development expense based on the proportion of direct material purchased for the respective activity . story_separator_special_tag replace_table_token_10_th pico projector revenue includes the sales of showwx which was launched in september 2009 and the showwx+ which was launched in november 2010. bar code revenue includes the sales of rov bar code scanners . the decrease in bar code revenue for the year ended december 31 , 2010 compared to the same period in 2009 was due to our decreased investment in our bar code product during 2009. the backlog of product orders at december 31 , 2010 was approximately $ 12.7 million , compared to $ 3.8 million at december 31 , 2009. contract revenue . replace_table_token_11_th we earn contract revenue from performance on development contracts with the u.s. government and commercial customers and from the sale of prototype units and evaluation kits based on our picop display engine . our contract revenue in a particular period is dependent upon when we enter into a contract , the value of the contracts we have entered into , and the availability of technical resources to perform work on the contracts . contract revenue from government and commercial contracts was substantially lower during 2010 than in 2009 due to reduced contract activity and lower beginning backlog in 2010 compared to the previous year . our backlog of development contracts , including orders for prototype units and evaluation kits , at december 31 , 2010 was $ 868,000 in government contracts and $ 81,000 in commercial contracts compared to $ 70,000 in government contracts and $ 30,000 in commercial contracts at december 31 , 2009. the increase in backlog from 2009 is primarily attributed to two contracts with the us government entered into in late 2010 . 23 cost of product revenue . replace_table_token_12_th our costs to produce accessory pico projector units during 2010 were substantially higher than product revenue . during the early phase of showwx production , our design and manufacturing processes were not sufficiently mature to support commercial production . we classified overhead cost allocated to the showwx as research and development expense until february 2010 , when we determined that the showwx design and production processes were mature enough to reach a level to support commercial production and since february 2010 , all manufacturing costs have been included in cost of revenue . cost of product revenue for 2010 and 2009 , included a write down of $ 9.6 million and $ 1.3 million , respectively , for inventory in stock at the end of the year . the write downs included lower of cost or market adjustments primarily comprised of adjustments to our inventory value to reflect the then current estimated selling price for our inventory , as well as a reserve adjustment for materials which we expect would become obsolete as we introduced new products . the increase in cost of product revenue for 2010 , compared to 2009 , was primarily attributed to increased material costs associated with higher volumes of product shipments and increased inventory write downs compared to the prior year . the increase in the cost of product revenue as a percentage of product revenue in 2010 compared to the same period in 2009 was due to an increase in inventory write downs and a higher cost structure for the showwx product . cost of contract revenue . replace_table_token_13_th the cost of contract revenue was lower in 2010 than in 2009 as a result of the decreased activity on development contracts as we continue to focus our resources on commercialization of products based on the picop display engine . the cost of contract revenue as a percentage of revenue was lower in 2010 than in 2009 as a result of difference in the cost mix of the contracts during those periods . research and development expense . 2010 2009 $ change % change ( in thousands ) research and development $ 21,600 $ 24,577 $ ( 2,977 ) ( 12.1 ) the decrease in cost during 2010 , compared to the same period in 2009 , is primarily attributable to less direct material purchased for development programs and a decrease in overhead allocated to research and development . sales , marketing , general and administrative expense . 2010 2009 $ change % change ( in thousands ) sales , marketing , general and administrative $ 15,252 $ 14,540 $ 712 4.9 24 the increase in cost during 2010 compared to the same period in 2009 is primarily due to increased sales and marketing expense related to promoting our accessory pico projector products . interest income and expense . replace_table_token_14_th replace_table_token_15_th the decrease in interest income in 2010 from 2009 results primarily from lower average cash , investments securities balances , and interest rates . realized loss on sale of investment securities at december 31 , 2009 , we held $ 3.0 million par value student loan auction-rate securities ( slars ) , fair valued at $ 2.7 million . in march and december 2010 , one of the issuers redeemed a total of $ 200,000 of our slars at par value through a voluntary lottery redemption program . in december 2010 , we sold our remaining slars for proceeds of approximately $ 2.4 million and recorded a loss of $ 127,000 which is included in `` realized loss on sale of investment securities `` on the consolidated statement of operations . gain ( loss ) on derivative instruments , net . replace_table_token_16_th the change in `` gain ( loss ) on derivative instruments , net `` is primarily driven by the change in value of warrants we issued in 2005 to purchase 2,302,000 shares of common stock in connection with certain notes . the warrants met the definition of derivative instruments that must be accounted for as liabilities because we could not engage in certain corporate transactions affecting the common stock unless we made a cash payment to the holders of the warrants . we recorded changes in the fair values of the warrants in the statement of operations each

liquidity and capital resources we have incurred significant losses since inception . we have funded operations to date primarily through the sale of common stock , convertible preferred stock , warrants , the issuance of convertible debt and , to a lesser extent , from development contract revenues and product sales . at december 31 , 2011 , we had $ 13.1 million in cash , cash equivalents , and investment securities , available-for-sale . during 2011 , we lowered our cash used in operations significantly , through a combination of : sharing development and commercialization costs of the next-generation picop technology based on direct green lasers with our development partners ; limiting our investment into advancement of the current-generation picop technology based on synthetic green lasers ; moving product development to original design manufacturers lowering our working capital requirements through a restructuring of inventory cycles with major suppliers ; 25 reducing our operating costs through a 20 % workforce reduction completed in january 2011 , in addition to other measures . based on our current operating plan , we anticipate that we have sufficient cash and cash equivalents to fund our operations through june 2012. we will require additional cash to fund our operating plan past that time . we are introducing new products into an emerging market which creates significant uncertainty about our ability to accurately project revenue , costs and cash flows . if the level of sales anticipated by our financial plan is not achieved or our working capital requirements are higher than planned , we will need to raise additional cash sooner or take actions to reduce operating expenses . we plan to obtain additional cash through the issuance of equity or debt securities . there can be no assurance that additional cash will be available or that , if available , it will be available on terms acceptable to us on a timely basis . if adequate funds are not available on a timely basis we may be required to limit our operations substantially .

( 3 ) the bonus represents paid sign-on amounts . ( 4 ) includes $ 139,753 in incremental expense associated story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report . all amounts and percentages are approximate due to rounding . when we cross-reference to a “ note , ” we are referring to our “ notes to consolidated financial statements , ” unless the context indicates otherwise . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . the actual results may differ materially from those anticipated in 25 these forward-looking statements as a result of certain factors , including , but not limited to , those which are not within our control . our strategy our strategy is evolving with the establishment of our commercial footprint . we seek to continue to build a well-balanced , diversified , high-growth specialty pharmaceutical company focused on delivering innovative therapies for individuals living with serious and debilitating chronic conditions . through our industry-leading commercialization infrastructure , we are executing the commercialization of our existing products . as part of our corporate growth strategy , we have licensed , and will continue to explore opportunities to acquire or license , additional products that meet the needs of patients living with debilitating chronic conditions . as we gain access to these drugs and technologies , we will employ our commercialization experience to bring them to the marketplace . with a strong commitment to patient access and a focused business-development approach for transformative acquisitions or licensing opportunities , we will leverage our experience and apply it to developing new partnerships that enable us to commercialize novel products that can change the lives of people suffering from debilitating chronic conditions . our commercial strategy for belbuca is to further drive continued adoption in the large long-acting opioid market based on its unique profile coupled with growing physician interest , policy tailwinds , and expanding payer access . we aim to leverage the specialized commercial infrastructure we established for belbuca as a vehicle to enable commercial growth in symproic , which we view as a complementary asset . recent highlights on september 11 , 2020 , we announced the presentation of five scientific posters highlighting data regarding belbuca at the 14th annual painweek 2020 national conference on pain management which took place virtually september 11-13 , 2020. on november 4 , 2020 , we announced that our board of directors had appointed jeff bailey as permanent chief executive officer , or ceo , effective november 4 , 2020. mr. bailey had previously been appointed as interim ceo in may 2020 while continuing to serve on the board of directors . on november 4 , 2020 , we announced that our board of directors had authorized the repurchase of up to $ 25 million of our company 's shares of common stock . in january 2021 , we announced that we presented three scientific posters regarding belbuca at the 2021 north american neuromodulation society meeting ( nans ) , which took place virtually . on february 11 , 2021 , we announced that we had promoted our chief financial officer , terry coelho , to executive vice president and chief financial officer . critical accounting policies and estimates estimates the preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period . actual results could differ from those estimates . we review all significant estimates affecting the consolidated financial statements on a recurring basis and records the effect of any necessary adjustments prior to their issuance . significant estimates include : revenue recognition , sales allowances such as returns of product sold , government program rebates , customer coupon redemptions , wholesaler/pharmacy discounts , product service fees , rebates and chargebacks , sales bonuses , stock-based compensation , inventory , fixed assets , determination of fair values of assets and liabilities relating to business combinations , and deferred income taxes . impairment testing in accordance with generally accepted accounting principles , or gaap , goodwill impairment testing is performed at the reporting unit level annually , or more frequently if indicated by events or conditions . we performed an evaluation and determined that there is only one reporting unit . in performing a goodwill impairment test , gaap allows for either a qualitative or a quantitative assessment to be performed . if a qualitative evaluation determines that no impairment exists , then no further analysis is performed . if a qualitative evaluation is unable to determine whether impairment has occurred , a quantitative evaluation is performed . the quantitative impairment test first identifies potential impairments by comparing the fair value of the reporting unit with its carrying value . if the carrying value exceeds the fair value , an impairment charge is recorded based 26 on that difference . the determination of goodwill impairment is highly subjective . it considers many factors both internal and external and is subject to significant changes from period to period . no goodwill impairment charges have resulted from this analysis for 2020 , 2019 or 2018. an impairment of a long-lived asset other than goodwill is recognized under gaap if the carrying value of the asset ( or the group of assets of which it is a part ) exceeds ( i ) the future estimatedundiscounted cash flow from the use of the asset ( or group of assets ) and ( ii ) the fair value of the asset ( or asset group ) . story_separator_special_tag the one-time expenses related to the payoff of the crg loan consisted of $ 5.2 million in unamortized deferred loan fees , $ 3.9 million in unamortized warrant discount costs and $ 2.8 million in loan prepayment fees and realized losses , for a cumulative total of $ 11.9 million in one-time costs . during the year ended december 31 , 2019 , we also had interest income of $ 0.9 million . information pertaining to fiscal year 2018 was included in the company 's annual report on form 10-k for the year ended december 31 , 2019 on page 32 under part ii , item 7 , “ management 's discussion and analysis of financial position and results of operations , ” which was filed with the sec on march 12 , 2020. refer to note 9 , “ net sales by product ” for more information related to ( i ) net product sales for belbuca , symproic and bunavail , and ( ii ) the percentages related to each product . non-gaap financial information : we report our consolidated financial results in accordance with gaap ; however , we believe that earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) and other non-gaap results should not be considered in isolation of or as an alternative for , earnings measures prepared in accordance with gaap . management uses these non-gaap measures internally to measure the ongoing operating performance of our company along with other metrics , and for planning and forecasting purposes . in addition , when evaluating non-gaap results , we exclude certain items that are considered to be non-cash and if applicable , non-recurring , in nature . ebitda and non-gaap income/ ( loss ) : we have presented ebitda because it is a key measure used by our management and board of directors to understand and evaluate our operating performance and to develop operational goals for managing our business . we believe this financial measure helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude . in particular , we believe that the exclusion of the expenses eliminated in calculating ebitda can provide a useful measure for period-to-period comparisons of our core operating performance . accordingly , we believe that ebitda provides useful information to investors and others in understanding and evaluating our operating results , enhancing the overall understanding of our past performance and future prospects , and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making . ebitda is not prepared in accordance with gaap , and should not be considered in isolation of , or as an alternative to , measures prepared in accordance with gaap . there are a number of limitations related to the use of adjusted ebitda rather than net income/ ( loss ) , which is the nearest gaap equivalent . some of these limitations are : ebitda excludes depreciation and amortization and , although these are non-cash expenses , the assets being depreciated or amortized may have to be replaced in the future , the cash requirements for which are not reflected in ebitda ; ebitda does not reflect provision for ( benefit from ) income taxes or the cash requirements to pay taxes ; and ebitda excludes net interest , including both interest expense and interest income . non-gaap net income/ ( loss ) is an alternative view of our performance that we are providing because management believes this information enhances investors ' understanding of our results as it permits investors to better understand the ongoing operations of the business , the impact of any non-recurring one-time events , the cash results of the organization and is an additional measure used by management to assess performance . 29 non-gaap net income/ ( loss ) is not prepared in accordance with gaap , and should not be considered in isolation of , or as an alternative to , measures prepared in accordance with gaap . there are a number of limitations related to the use of non-gaap net income/ ( loss ) rather than net income/ ( loss ) , which is the nearest gaap equivalent . some of these limitations are : non-gaap income/ ( loss ) excludes certain one-time items because of the nature of the items and the impact that those have on the analysis of underlying business performance and trends . specifically , in the presentation of non-gaap income/ ( loss ) for the year ended december 31 , 2019 , we have excluded the financial impact of our debt refinancing which closed in may 2019 , as it is non-recurring . this excluded item is a significant component in understanding and assessing ongoing financial performance . the one-time expenses related to the payoff of the crg loan consisted of $ 5.2 million in unamortized deferred loan fees , $ 3.9 million in unamortized warrant discount costs and $ 2.8 million in loan prepayment fees and realized losses , for a cumulative total of $ 11.9 million in one-time costs . also , we have excluded the non-recurring financial impact of the bunavail discontinuation , for a cumulative total of $ 0.3 million in 2020 and $ 3.8 million in 2019 , and we have excluded the cash portion of the non-recurring financial impact of the ceo transition , for a cumulative total of $ 1.7 million in 2020 ; the expenses and other items that we exclude in our calculation of non-gaap net income/ ( loss ) may differ from the expenses and other items , if any , that other companies may exclude from non-gaap net income/ ( loss ) when they report their operating results since non-gaap income/ ( loss ) is not a measure determined in accordance with gaap , and it has no standardized meaning prescribed by gaap ; we exclude

liquidity and capital resources we have incurred significant losses since inception . we have funded operations to date primarily through the sale of common stock , convertible preferred stock , warrants , the issuance of convertible debt and , to a lesser extent , from development contract revenues and product sales . at december 31 , 2011 , we had $ 13.1 million in cash , cash equivalents , and investment securities , available-for-sale . during 2011 , we lowered our cash used in operations significantly , through a combination of : sharing development and commercialization costs of the next-generation picop technology based on direct green lasers with our development partners ; limiting our investment into advancement of the current-generation picop technology based on synthetic green lasers ; moving product development to original design manufacturers lowering our working capital requirements through a restructuring of inventory cycles with major suppliers ; 25 reducing our operating costs through a 20 % workforce reduction completed in january 2011 , in addition to other measures . based on our current operating plan , we anticipate that we have sufficient cash and cash equivalents to fund our operations through june 2012. we will require additional cash to fund our operating plan past that time . we are introducing new products into an emerging market which creates significant uncertainty about our ability to accurately project revenue , costs and cash flows . if the level of sales anticipated by our financial plan is not achieved or our working capital requirements are higher than planned , we will need to raise additional cash sooner or take actions to reduce operating expenses . we plan to obtain additional cash through the issuance of equity or debt securities . there can be no assurance that additional cash will be available or that , if available , it will be available on terms acceptable to us on a timely basis . if adequate funds are not available on a timely basis we may be required to limit our operations substantially .

( 3 ) the bonus represents paid sign-on amounts . ( 4 ) includes $ 139,753 in incremental expense associated story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report . all amounts and percentages are approximate due to rounding . when we cross-reference to a “ note , ” we are referring to our “ notes to consolidated financial statements , ” unless the context indicates otherwise . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . the actual results may differ materially from those anticipated in 25 these forward-looking statements as a result of certain factors , including , but not limited to , those which are not within our control . our strategy our strategy is evolving with the establishment of our commercial footprint . we seek to continue to build a well-balanced , diversified , high-growth specialty pharmaceutical company focused on delivering innovative therapies for individuals living with serious and debilitating chronic conditions . through our industry-leading commercialization infrastructure , we are executing the commercialization of our existing products . as part of our corporate growth strategy , we have licensed , and will continue to explore opportunities to acquire or license , additional products that meet the needs of patients living with debilitating chronic conditions . as we gain access to these drugs and technologies , we will employ our commercialization experience to bring them to the marketplace . with a strong commitment to patient access and a focused business-development approach for transformative acquisitions or licensing opportunities , we will leverage our experience and apply it to developing new partnerships that enable us to commercialize novel products that can change the lives of people suffering from debilitating chronic conditions . our commercial strategy for belbuca is to further drive continued adoption in the large long-acting opioid market based on its unique profile coupled with growing physician interest , policy tailwinds , and expanding payer access . we aim to leverage the specialized commercial infrastructure we established for belbuca as a vehicle to enable commercial growth in symproic , which we view as a complementary asset . recent highlights on september 11 , 2020 , we announced the presentation of five scientific posters highlighting data regarding belbuca at the 14th annual painweek 2020 national conference on pain management which took place virtually september 11-13 , 2020. on november 4 , 2020 , we announced that our board of directors had appointed jeff bailey as permanent chief executive officer , or ceo , effective november 4 , 2020. mr. bailey had previously been appointed as interim ceo in may 2020 while continuing to serve on the board of directors . on november 4 , 2020 , we announced that our board of directors had authorized the repurchase of up to $ 25 million of our company 's shares of common stock . in january 2021 , we announced that we presented three scientific posters regarding belbuca at the 2021 north american neuromodulation society meeting ( nans ) , which took place virtually . on february 11 , 2021 , we announced that we had promoted our chief financial officer , terry coelho , to executive vice president and chief financial officer . critical accounting policies and estimates estimates the preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period . actual results could differ from those estimates . we review all significant estimates affecting the consolidated financial statements on a recurring basis and records the effect of any necessary adjustments prior to their issuance . significant estimates include : revenue recognition , sales allowances such as returns of product sold , government program rebates , customer coupon redemptions , wholesaler/pharmacy discounts , product service fees , rebates and chargebacks , sales bonuses , stock-based compensation , inventory , fixed assets , determination of fair values of assets and liabilities relating to business combinations , and deferred income taxes . impairment testing in accordance with generally accepted accounting principles , or gaap , goodwill impairment testing is performed at the reporting unit level annually , or more frequently if indicated by events or conditions . we performed an evaluation and determined that there is only one reporting unit . in performing a goodwill impairment test , gaap allows for either a qualitative or a quantitative assessment to be performed . if a qualitative evaluation determines that no impairment exists , then no further analysis is performed . if a qualitative evaluation is unable to determine whether impairment has occurred , a quantitative evaluation is performed . the quantitative impairment test first identifies potential impairments by comparing the fair value of the reporting unit with its carrying value . if the carrying value exceeds the fair value , an impairment charge is recorded based 26 on that difference . the determination of goodwill impairment is highly subjective . it considers many factors both internal and external and is subject to significant changes from period to period . no goodwill impairment charges have resulted from this analysis for 2020 , 2019 or 2018. an impairment of a long-lived asset other than goodwill is recognized under gaap if the carrying value of the asset ( or the group of assets of which it is a part ) exceeds ( i ) the future estimatedundiscounted cash flow from the use of the asset ( or group of assets ) and ( ii ) the fair value of the asset ( or asset group ) . story_separator_special_tag the one-time expenses related to the payoff of the crg loan consisted of $ 5.2 million in unamortized deferred loan fees , $ 3.9 million in unamortized warrant discount costs and $ 2.8 million in loan prepayment fees and realized losses , for a cumulative total of $ 11.9 million in one-time costs . during the year ended december 31 , 2019 , we also had interest income of $ 0.9 million . information pertaining to fiscal year 2018 was included in the company 's annual report on form 10-k for the year ended december 31 , 2019 on page 32 under part ii , item 7 , “ management 's discussion and analysis of financial position and results of operations , ” which was filed with the sec on march 12 , 2020. refer to note 9 , “ net sales by product ” for more information related to ( i ) net product sales for belbuca , symproic and bunavail , and ( ii ) the percentages related to each product . non-gaap financial information : we report our consolidated financial results in accordance with gaap ; however , we believe that earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) and other non-gaap results should not be considered in isolation of or as an alternative for , earnings measures prepared in accordance with gaap . management uses these non-gaap measures internally to measure the ongoing operating performance of our company along with other metrics , and for planning and forecasting purposes . in addition , when evaluating non-gaap results , we exclude certain items that are considered to be non-cash and if applicable , non-recurring , in nature . ebitda and non-gaap income/ ( loss ) : we have presented ebitda because it is a key measure used by our management and board of directors to understand and evaluate our operating performance and to develop operational goals for managing our business . we believe this financial measure helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude . in particular , we believe that the exclusion of the expenses eliminated in calculating ebitda can provide a useful measure for period-to-period comparisons of our core operating performance . accordingly , we believe that ebitda provides useful information to investors and others in understanding and evaluating our operating results , enhancing the overall understanding of our past performance and future prospects , and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making . ebitda is not prepared in accordance with gaap , and should not be considered in isolation of , or as an alternative to , measures prepared in accordance with gaap . there are a number of limitations related to the use of adjusted ebitda rather than net income/ ( loss ) , which is the nearest gaap equivalent . some of these limitations are : ebitda excludes depreciation and amortization and , although these are non-cash expenses , the assets being depreciated or amortized may have to be replaced in the future , the cash requirements for which are not reflected in ebitda ; ebitda does not reflect provision for ( benefit from ) income taxes or the cash requirements to pay taxes ; and ebitda excludes net interest , including both interest expense and interest income . non-gaap net income/ ( loss ) is an alternative view of our performance that we are providing because management believes this information enhances investors ' understanding of our results as it permits investors to better understand the ongoing operations of the business , the impact of any non-recurring one-time events , the cash results of the organization and is an additional measure used by management to assess performance . 29 non-gaap net income/ ( loss ) is not prepared in accordance with gaap , and should not be considered in isolation of , or as an alternative to , measures prepared in accordance with gaap . there are a number of limitations related to the use of non-gaap net income/ ( loss ) rather than net income/ ( loss ) , which is the nearest gaap equivalent . some of these limitations are : non-gaap income/ ( loss ) excludes certain one-time items because of the nature of the items and the impact that those have on the analysis of underlying business performance and trends . specifically , in the presentation of non-gaap income/ ( loss ) for the year ended december 31 , 2019 , we have excluded the financial impact of our debt refinancing which closed in may 2019 , as it is non-recurring . this excluded item is a significant component in understanding and assessing ongoing financial performance . the one-time expenses related to the payoff of the crg loan consisted of $ 5.2 million in unamortized deferred loan fees , $ 3.9 million in unamortized warrant discount costs and $ 2.8 million in loan prepayment fees and realized losses , for a cumulative total of $ 11.9 million in one-time costs . also , we have excluded the non-recurring financial impact of the bunavail discontinuation , for a cumulative total of $ 0.3 million in 2020 and $ 3.8 million in 2019 , and we have excluded the cash portion of the non-recurring financial impact of the ceo transition , for a cumulative total of $ 1.7 million in 2020 ; the expenses and other items that we exclude in our calculation of non-gaap net income/ ( loss ) may differ from the expenses and other items , if any , that other companies may exclude from non-gaap net income/ ( loss ) when they report their operating results since non-gaap income/ ( loss ) is not a measure determined in accordance with gaap , and it has no standardized meaning prescribed by gaap ; we exclude

liquidity and capital resources since inception , we have financed our operations principally from the sale of equity securities , proceeds from borrowings , convertible notes , and notes payable , funded research arrangements , revenue generated as a result of our worldwide license and development agreements and the commercialization of our belbuca , symproic and bunavail products . we intend to finance our commercialization and working capital needs from existing cash , earnings from the commercialization of belbuca and symproic , royalty revenue , new sources of debt and equity financing , existing and new licensing and commercial partnership agreements and , potentially , through the exercise of outstanding common stock options and warrants to purchase common stock . at december 31 , 2020 , we had cash of approximately $ 111.6 million . we generated $ 25.0 million of cash in operations during the year ended december 31 , 2020 and had stockholders ' equity of $ 108.2 million , versus stockholders ' equity of $ 69.8 million at december 31 , 2019. we believe that we have sufficient current cash , along with expected proceeds from sales , to manage the business as currently planned . additional capital may be required to support the continued commercialization of our belbuca and symproic products , or other products which may be acquired orlicensed by us , and for general working capital requirements .

under the bipartisan budget act of 2015 , the obama administration will receive $ 33.0 billion of the $ 38.0 billion national defense spending increase it sought in fy 2016. in summary the budget agreement : extends the bca out to 2025 ; suspends the u.s. debt limit/ceiling until march 2017 ; increased spending caps for fy 2016 and fy 2017 , by $ 80.0 billion , including $ 50.0 billion in fy 2016 and $ 30.0 billion in fy 2017 , split evenly between defense and domestic priorities ; and includes a fy 2016 dod base budget of $ 548.0 billion ; and includes a fy 2016 overseas contingency operation budget of $ 59.0 billion . current reporting segments the company operates in three reportable segments . the kgs reportable segment is comprised of an aggregation of kgs operating segments , including our microwave electronic products , satellite communications , modular systems and rocket support operating segments . the us reportable segment consists of our unmanned aerial system and unmanned ground and seaborne system businesses . the pss reportable segment provides independent integrated solutions for advanced homeland security , public safety , critical infrastructure , and security and surveillance systems for government and commercial applications . we organize our business segments based primarily on the nature of the products , solutions and services offered . for additional information regarding our reportable segments , see note 13 of the notes to consolidated financial statements . from a customer and solutions perspective , we view our business as an integrated whole , leveraging skills and assets wherever possible . discontinued operations on august 21 , 2015 , the company completed the sale of the u.s. and u.k. operations of its electronic products division to ultra and the buyer in the transaction . pursuant to the terms of the purchase agreement , the company sold to the buyer all of the issued and outstanding capital stock of its wholly owned subsidiary herley and the herley entities , for $ 260.0 million and $ 5.0 million for taxes incurred as part of the transaction , less a $ 2.0 million escrow to satisfy any purchase price adjustments and a working capital adjustment of approximately $ 8.3 million . in november 2015 , the company and ultra settled the working capital adjustment at $ 8.1 million , and the net cash position at closing , resulting in a net payment to the company of $ 2.7 million . this represents the payment from escrow to the company of $ 2.0 million , as well as the payment from ultra of $ 0.7 million , reflecting the difference in the estimated working capital and actual working capital and the net cash position at the close of the transaction . in december 2015 , the company submitted to ultra for reimbursement the maximum $ 5.0 million for taxes incurred as part of the transaction , which was reimbursed in january 2016 . 33 the company 's december 27 , 2015 consolidated financial statements have been recast for all periods presented to reflect the disposition of the herley entities which are reported in discontinued operations . the company 's comparison of results and liquidity and capital resources in its management 's discussion and analysis of financial condition and results of operations for the years ended december 29 , 2013 , december 28 , 2014 and december 27 , 2015 also reflect the recast . see note 8 of the notes to consolidated financial statements for a further discussion of our discontinued operations . key financial statement concepts as of december 27 , 2015 , we consider the following factors to be important in understanding our financial statements . kgs ' and us ' business with the u.s. government and prime contractors is generally performed under fixed-price , cost reimbursable , or time and materials contracts . cost reimbursable contracts for the u.s. government provide for reimbursement of costs plus the payment of a fee . some cost reimbursable contracts include incentive fees that are awarded based on performance on the contract . under time and materials contracts , we are reimbursed for labor hours at negotiated hourly billing rates and reimbursed for travel and other direct expenses at actual costs plus applied general and administrative expenses . in accounting for our long-term contracts for production of products and services provided to the u.s. government and provided to our pss segment customers under fixed-price contracts , we utilize both cost-to-cost and units delivered measures under the percentage-of-completion method of accounting in accordance with the provisions of financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 605 , revenue recognition . under the units delivered measure of the percentage-of-completion method of accounting , sales are recognized as the units are accepted by the customer generally using sales values for units in accordance with the contract terms . we estimate profit as the difference between total estimated revenue and total estimated cost of a contract and recognize that profit over the life of the contract based on deliveries or as computed on the basis of the estimated final average unit costs plus profit . we classify contract revenues as product sales or service revenues depending upon the predominant attributes of the relevant underlying contracts . we consider the following factors when determining if collection of a receivable is reasonably assured : comprehensive collection history ; results of our communications with customers ; the current financial position of the customer ; and the relevant economic conditions in the customer 's country . if we have had no prior experience with the customer , we may review reports from various credit organizations to ensure that the customer has a history of paying its creditors in a reliable and effective manner . story_separator_special_tag as a percentage of total revenue , product revenues were 47.4 % for the year ended december 29 , 2013 as compared to 48.8 % for the year ended december 28 , 2014. service revenues decreased by $ 52.8 million from $ 443.6 million for the year ended december 29 , 2013 to $ 390.8 million for the year ended december 28 , 2014. the decrease was primarily related to reductions in the legacy government service revenues and other service contracts in the kgs segment , which reductions were being experienced industry wide as a result of declining dod budgets , changes in certain dod procurement rules and other factors , as well as due to the expected completion of two sizable satellite communications projects . as described in our “ critical accounting principles and estimates ” below and in the notes to consolidated financial statements contained within this annual report , we utilize both the cost-to-cost and units delivered measures under the percentage-of-completion method of accounting for recognizing revenue as provided for in topic 605 . when revenue is calculated using the percentage-of-completion method , total costs incurred to date are compared to total estimated costs to complete the contract . these estimates are reviewed monthly on a contract-by-contract basis , and are revised periodically throughout the life of the contract such that adjustments to profit resulting from revisions are made cumulative to the date of the revision . significant management judgments and estimates , including the estimated costs to complete projects , which determine the project 's percentage of completion , must be made and used in connection with the revenue recognized in any accounting period . material differences may result in the amount and timing of our revenue for any period if management makes different judgments or utilizes different estimates . during the reporting periods contained herein , we did experience revenue and margin adjustments on certain projects based on the aforementioned factors , but the effect of such adjustments , both positive and negative , when evaluated in total were determined to be immaterial to our consolidated financial statements contained within this annual report . cost of revenues . cost of revenues decreased from $ 639.6 million for the year ended december 29 , 2013 to $ 583.6 million for the year ended december 28 , 2014. the $ 56.0 million decrease in cost of revenues was primarily a result of decreased revenue discussed above . gross margin percentage declined from 24.2 % for the year ended december 29 , 2013 compared to 23.5 % for the year ended december 28 , 2014. margins on services decreased from 24.4 % for the year ended december 29 , 2013 to 22.1 % for the year ended december 28 , 2014 , due primarily to an unfavorable mix of revenues and decreased margins in our pss segment . margins on product sales increased for the year ended december 29 , 2013 as compared to december 28 , 2014 from 24.0 % to 25.0 % , respectively , primarily as a result of a change in mix of products sold . margins in the kgs segment increased from 24.7 % for the year ended december 29 , 2013 to 25.3 % for the year ended december 28 , 2014 , primarily as a result of change in the mix of products sold . margins in the us segment increased from 19.4 % for the year ended december 29 , 2013 to 23.2 % for the year ended december 28 , 2014 , primarily as a result of increased costs recorded of approximately $ 5.5 million on certain aerial target contracts to reflect retrofits necessary to address design changes recorded in the year ended december 29 , 2013 , compared to net increased costs recorded of $ 3.1 million for similar retrofit related matters and a contract conversion adjustment on certain of our unmanned aerial platforms recorded in the year ended december 28 , 2014. margins in the pss segment decreased from 25.8 % for the year ended december 29 , 2013 to 19.3 % for the year ended december 28 , 2014 as a result of decreased service margins and due to costs incurred on two sizable projects , which were completed in 2014 or were near-completion , under which we were in the process of submitting or had submitted change orders to customers to reimburse us for the work we performed at our customers ' request , but for which we had not completed negotiations for such change orders , and therefore had not reflected the estimated value of these change orders in our revenues . selling , general and administrative expenses . sg & a decreased $ 19.2 million from $ 172.8 million for the year ended december 29 , 2013 to $ 153.6 million for the year ended december 28 , 2014. the decrease was primarily the result of a $ 13.7 million reduction of amortization of intangibles in 2014 , as a result of certain intangible assets being fully amortized , as well as cost reduction actions taken by the company . as a percentage of revenues , sg & a decreased from 20.5 % for fiscal 2013 to 20.1 % for fiscal 2014. excluding amortization of intangibles of $ 32.8 million for the year ended december 29 , 2013 and amortization of intangibles of $ 19.1 million for the year ended december 28 , 2014 , sg & a increased as a percentage of revenues from 16.6 % to 17.6 % for the year ended december 29 , 2013 and december 28 , 2014 , respectively , primarily as a result of the decline in revenues discussed previously , and increased compliance costs including internal cyber security costs 38 incurred to protect the company 's assets , and sarbanes oxley act of 2002 and audit compliance costs including internal audit and external audit costs . merger and acquisition related items . merger and acquisition

liquidity and capital resources since inception , we have financed our operations principally from the sale of equity securities , proceeds from borrowings , convertible notes , and notes payable , funded research arrangements , revenue generated as a result of our worldwide license and development agreements and the commercialization of our belbuca , symproic and bunavail products . we intend to finance our commercialization and working capital needs from existing cash , earnings from the commercialization of belbuca and symproic , royalty revenue , new sources of debt and equity financing , existing and new licensing and commercial partnership agreements and , potentially , through the exercise of outstanding common stock options and warrants to purchase common stock . at december 31 , 2020 , we had cash of approximately $ 111.6 million . we generated $ 25.0 million of cash in operations during the year ended december 31 , 2020 and had stockholders ' equity of $ 108.2 million , versus stockholders ' equity of $ 69.8 million at december 31 , 2019. we believe that we have sufficient current cash , along with expected proceeds from sales , to manage the business as currently planned . additional capital may be required to support the continued commercialization of our belbuca and symproic products , or other products which may be acquired orlicensed by us , and for general working capital requirements .

under the bipartisan budget act of 2015 , the obama administration will receive $ 33.0 billion of the $ 38.0 billion national defense spending increase it sought in fy 2016. in summary the budget agreement : extends the bca out to 2025 ; suspends the u.s. debt limit/ceiling until march 2017 ; increased spending caps for fy 2016 and fy 2017 , by $ 80.0 billion , including $ 50.0 billion in fy 2016 and $ 30.0 billion in fy 2017 , split evenly between defense and domestic priorities ; and includes a fy 2016 dod base budget of $ 548.0 billion ; and includes a fy 2016 overseas contingency operation budget of $ 59.0 billion . current reporting segments the company operates in three reportable segments . the kgs reportable segment is comprised of an aggregation of kgs operating segments , including our microwave electronic products , satellite communications , modular systems and rocket support operating segments . the us reportable segment consists of our unmanned aerial system and unmanned ground and seaborne system businesses . the pss reportable segment provides independent integrated solutions for advanced homeland security , public safety , critical infrastructure , and security and surveillance systems for government and commercial applications . we organize our business segments based primarily on the nature of the products , solutions and services offered . for additional information regarding our reportable segments , see note 13 of the notes to consolidated financial statements . from a customer and solutions perspective , we view our business as an integrated whole , leveraging skills and assets wherever possible . discontinued operations on august 21 , 2015 , the company completed the sale of the u.s. and u.k. operations of its electronic products division to ultra and the buyer in the transaction . pursuant to the terms of the purchase agreement , the company sold to the buyer all of the issued and outstanding capital stock of its wholly owned subsidiary herley and the herley entities , for $ 260.0 million and $ 5.0 million for taxes incurred as part of the transaction , less a $ 2.0 million escrow to satisfy any purchase price adjustments and a working capital adjustment of approximately $ 8.3 million . in november 2015 , the company and ultra settled the working capital adjustment at $ 8.1 million , and the net cash position at closing , resulting in a net payment to the company of $ 2.7 million . this represents the payment from escrow to the company of $ 2.0 million , as well as the payment from ultra of $ 0.7 million , reflecting the difference in the estimated working capital and actual working capital and the net cash position at the close of the transaction . in december 2015 , the company submitted to ultra for reimbursement the maximum $ 5.0 million for taxes incurred as part of the transaction , which was reimbursed in january 2016 . 33 the company 's december 27 , 2015 consolidated financial statements have been recast for all periods presented to reflect the disposition of the herley entities which are reported in discontinued operations . the company 's comparison of results and liquidity and capital resources in its management 's discussion and analysis of financial condition and results of operations for the years ended december 29 , 2013 , december 28 , 2014 and december 27 , 2015 also reflect the recast . see note 8 of the notes to consolidated financial statements for a further discussion of our discontinued operations . key financial statement concepts as of december 27 , 2015 , we consider the following factors to be important in understanding our financial statements . kgs ' and us ' business with the u.s. government and prime contractors is generally performed under fixed-price , cost reimbursable , or time and materials contracts . cost reimbursable contracts for the u.s. government provide for reimbursement of costs plus the payment of a fee . some cost reimbursable contracts include incentive fees that are awarded based on performance on the contract . under time and materials contracts , we are reimbursed for labor hours at negotiated hourly billing rates and reimbursed for travel and other direct expenses at actual costs plus applied general and administrative expenses . in accounting for our long-term contracts for production of products and services provided to the u.s. government and provided to our pss segment customers under fixed-price contracts , we utilize both cost-to-cost and units delivered measures under the percentage-of-completion method of accounting in accordance with the provisions of financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 605 , revenue recognition . under the units delivered measure of the percentage-of-completion method of accounting , sales are recognized as the units are accepted by the customer generally using sales values for units in accordance with the contract terms . we estimate profit as the difference between total estimated revenue and total estimated cost of a contract and recognize that profit over the life of the contract based on deliveries or as computed on the basis of the estimated final average unit costs plus profit . we classify contract revenues as product sales or service revenues depending upon the predominant attributes of the relevant underlying contracts . we consider the following factors when determining if collection of a receivable is reasonably assured : comprehensive collection history ; results of our communications with customers ; the current financial position of the customer ; and the relevant economic conditions in the customer 's country . if we have had no prior experience with the customer , we may review reports from various credit organizations to ensure that the customer has a history of paying its creditors in a reliable and effective manner . story_separator_special_tag as a percentage of total revenue , product revenues were 47.4 % for the year ended december 29 , 2013 as compared to 48.8 % for the year ended december 28 , 2014. service revenues decreased by $ 52.8 million from $ 443.6 million for the year ended december 29 , 2013 to $ 390.8 million for the year ended december 28 , 2014. the decrease was primarily related to reductions in the legacy government service revenues and other service contracts in the kgs segment , which reductions were being experienced industry wide as a result of declining dod budgets , changes in certain dod procurement rules and other factors , as well as due to the expected completion of two sizable satellite communications projects . as described in our “ critical accounting principles and estimates ” below and in the notes to consolidated financial statements contained within this annual report , we utilize both the cost-to-cost and units delivered measures under the percentage-of-completion method of accounting for recognizing revenue as provided for in topic 605 . when revenue is calculated using the percentage-of-completion method , total costs incurred to date are compared to total estimated costs to complete the contract . these estimates are reviewed monthly on a contract-by-contract basis , and are revised periodically throughout the life of the contract such that adjustments to profit resulting from revisions are made cumulative to the date of the revision . significant management judgments and estimates , including the estimated costs to complete projects , which determine the project 's percentage of completion , must be made and used in connection with the revenue recognized in any accounting period . material differences may result in the amount and timing of our revenue for any period if management makes different judgments or utilizes different estimates . during the reporting periods contained herein , we did experience revenue and margin adjustments on certain projects based on the aforementioned factors , but the effect of such adjustments , both positive and negative , when evaluated in total were determined to be immaterial to our consolidated financial statements contained within this annual report . cost of revenues . cost of revenues decreased from $ 639.6 million for the year ended december 29 , 2013 to $ 583.6 million for the year ended december 28 , 2014. the $ 56.0 million decrease in cost of revenues was primarily a result of decreased revenue discussed above . gross margin percentage declined from 24.2 % for the year ended december 29 , 2013 compared to 23.5 % for the year ended december 28 , 2014. margins on services decreased from 24.4 % for the year ended december 29 , 2013 to 22.1 % for the year ended december 28 , 2014 , due primarily to an unfavorable mix of revenues and decreased margins in our pss segment . margins on product sales increased for the year ended december 29 , 2013 as compared to december 28 , 2014 from 24.0 % to 25.0 % , respectively , primarily as a result of a change in mix of products sold . margins in the kgs segment increased from 24.7 % for the year ended december 29 , 2013 to 25.3 % for the year ended december 28 , 2014 , primarily as a result of change in the mix of products sold . margins in the us segment increased from 19.4 % for the year ended december 29 , 2013 to 23.2 % for the year ended december 28 , 2014 , primarily as a result of increased costs recorded of approximately $ 5.5 million on certain aerial target contracts to reflect retrofits necessary to address design changes recorded in the year ended december 29 , 2013 , compared to net increased costs recorded of $ 3.1 million for similar retrofit related matters and a contract conversion adjustment on certain of our unmanned aerial platforms recorded in the year ended december 28 , 2014. margins in the pss segment decreased from 25.8 % for the year ended december 29 , 2013 to 19.3 % for the year ended december 28 , 2014 as a result of decreased service margins and due to costs incurred on two sizable projects , which were completed in 2014 or were near-completion , under which we were in the process of submitting or had submitted change orders to customers to reimburse us for the work we performed at our customers ' request , but for which we had not completed negotiations for such change orders , and therefore had not reflected the estimated value of these change orders in our revenues . selling , general and administrative expenses . sg & a decreased $ 19.2 million from $ 172.8 million for the year ended december 29 , 2013 to $ 153.6 million for the year ended december 28 , 2014. the decrease was primarily the result of a $ 13.7 million reduction of amortization of intangibles in 2014 , as a result of certain intangible assets being fully amortized , as well as cost reduction actions taken by the company . as a percentage of revenues , sg & a decreased from 20.5 % for fiscal 2013 to 20.1 % for fiscal 2014. excluding amortization of intangibles of $ 32.8 million for the year ended december 29 , 2013 and amortization of intangibles of $ 19.1 million for the year ended december 28 , 2014 , sg & a increased as a percentage of revenues from 16.6 % to 17.6 % for the year ended december 29 , 2013 and december 28 , 2014 , respectively , primarily as a result of the decline in revenues discussed previously , and increased compliance costs including internal cyber security costs 38 incurred to protect the company 's assets , and sarbanes oxley act of 2002 and audit compliance costs including internal audit and external audit costs . merger and acquisition related items . merger and acquisition

debt acquired in acquisition of herley we assumed a $ 10.0 million ten-year term loan with a bank in israel that herley entered into on september 16 , 2008 in connection with the acquisition of one of its wholly owned subsidiaries . the balance as of december 27 , 2015 was $ 2.7 million , and the loan is payable in quarterly installments of $ 0.3 million plus interest at libor plus a margin of 1.5 % . the loan agreement contains various covenants including a minimum net equity covenant as defined in the loan agreement . we were in compliance with the financial covenants of the loan agreement as of december 27 , 2015 . off balance sheet arrangements we have no off-balance sheet arrangements as defined in regulation s-k , item 303 ( a ) ( 4 ) ( ii ) . 44 contractual obligations and commitments the following table summarizes our contractual obligations and other commitments at december 27 , 2015 , and the effect such obligations could have on our liquidity and cash flow in future periods ( in millions ) : replace_table_token_10_th ( 1 ) the notes in the aggregate outstanding principal amount of $ 450.0 million are due may 15 , 2019. see note 4 in the notes to consolidated financial statements contained within this annual report for further details . ( 2 ) includes interest payments based on current interest rates for variable rate debt and the notes . see note 4 in the notes to consolidated financial statements contained within in this annual report for further details . ( 3 ) purchase orders include commitments in which a written purchase order has been issued to a vendor , but the goods have not been received or services have not been performed . ( 4 ) we have entered into or acquired various non-cancelable operating lease agreements that expire on various dates through 2025. the amounts include $ 5.5 million in excess facility costs and exclude expected sublease income . see note 5 in the notes to consolidated financial statements contained within this annual report for further details .

goodwill was $ 5.0 million at december 31 , 2018 and 2017. during the fourth quarter of 2018 , the market value of our stock price dropped below our tangible book value . we engaged a third party to assist the company in determining the fair value of the company as a single reporting unit pursuant to step 1 of the 33 financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 350-20-35 ( the “ step 1 analysis ” ) as of december 31 , 2018. the step 1 analysis included an income and market approaches . the income approach used as discounted cash flow method . this method estimates value by forecasting income for a forecast period and estimates the terminal value . these amounts were then discounted back to december 31 , 2018. the market approach used the market value of equity to tangible book value multiple of similar publicly traded commercial banks ( e.g . tota l tangible assets , pre-tax return on average assets , located in the midwest ) . the market approach also includes the acquisition price/tangible book value multiple on similar sized banks in the midwest occurring after january 1 , 2017. more weighting was p laced on the income method . through the step 1 analysis it was determined there was no impairment charge to goodwill in the year ended december 31 , 2018. goodwill is included on the consolidated balance sheets . the future value of goodwill could be im pacted by the company 's future earnings , largely related to unanticipated losses from the company 's loan portfolio . allowance for loan losses the allowance for loan losses is established through a provision for loan losses charged to expense , which affects our earnings directly . loans are charged against the allowance for loan losses when management believes that the collectability of all or some of the principal is unlikely . subsequent recoveries are added to the allowance . the allowance is an amount that reflects management 's estimate of the level of probable incurred losses in the loan portfolio . factors considered by management in determining the adequacy of the allowance include , but are not limited to , detailed reviews of individual loans , historical and current trends in loan charge-offs for the various portfolio segments evaluated , the level of the allowance in relation to total loans and to historical loss levels , levels and trends in non-performing and past due loans , volume of and migratory direction of adversely graded loans , external factors including regulatory requirements , reputation , and competition , and management 's assessment of economic conditions . our board of directors reviews the recommendations of management regarding the appropriate level for the allowance for loan losses based upon these factors . the provision for loan losses is the charge to operating earnings necessary to maintain an adequate allowance for loan losses . we have developed policies and procedures for evaluating the overall quality of our loan portfolio and the timely identification of problem credits . management continuously reviews these policies and procedures and makes further improvements as needed . the adequacy of our allowance for loan losses and the effectiveness of our internal policies and procedures are also reviewed periodically by our regulators and our auditors and external loan review personnel . our regulators may advise us to recognize additions to the allowance based upon their judgments about information available to them at the time of their examination . such regulatory guidance is taken under consideration by management , and we may recognize additions to the allowance as a result . we continually refine our methodology for determining the allowance for loan losses by comparing historical loss ratios utilized to actual experience and by classifying loans for analysis based on similar risk characteristics . cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreements ; however , cash receipts on impaired and nonaccrual loans for which the accrual of interest has been discontinued are applied to principal and interest income depending upon the overall risk of principal loss to us . other real estate owned assets acquired through or in lieu of loan foreclosure are initially recorded at lower of cost or fair value less estimated costs to sell , establishing a new cost basis . subsequent to foreclosure , independent valuations are performed annually and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell . revenue and expenses from operations and changes in the valuation allowance are included in other non-interest expense . costs related to the development and improvement of other real estate owned is capitalized . fair value of financial instruments a significant portion of the company 's assets are financial instruments carried at fair value . this includes securities available for sale and certain impaired loans . the majority of assets carried at fair value are based on either quoted market prices or market prices for similar instruments . for additional disclosures regarding the fair value of financial instruments , see note 20 . “ fair value measurements ” to our consolidated financial statements . jobs act transition period the jumpstart our business startups ( jobs ) act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards . thus , as an emerging growth company , the company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to avail ourselves of this extended transition period . 34 comparison of financ ial condition at december 31 , 2018 and 2017 total assets . story_separator_special_tag the average cost of funds for the year ended december 31 , 2018 was 1.82 % , which was 47 basis points higher than the year ended december 31 , 2017. the increase interest expenses represented a 57.9 % increase related to rate variances as the result of the increase in the target federal funds rate , and a 42.1 % increase related to volume variances . income . net interest income for the year ended december 31 , 2018 increased $ 3.1 million , or 7.9 % , to $ 42.0 million compared to the year ended december 31 , 2017. our average interest-earning assets increased by $ 188.0 million , or 15.0 % , to $ 1.4 billion for the year ended december 31 , 2018 compared to the same period of 2017. our net interest rate spread decreased to 2.64 % for the year ended december 31 , 2018 from 2.89 % for the year ended december 31 , 2017. our net interest margin decreased to 2.91 % for the year ended december 31 , 2018 from 3.11 % for the year ended december 31 , 2017. the decreases in our interest rate spread and net interest margin reflect rates of interest bearing deposits increasing in response to target federal funds interest rate increases quicker than yields on interest-earning assets . provision for loan losses . based on our analysis of the components of the allowance for loan losses described in “ allowance for loan losses ” below , we recorded a provision for loan losses of $ 3.2 million for the year ended december 31 , 2018 , as the result of continued growth in the loan portfolio and charge-offs taken during 2018 compared to a provision for loan losses of $ 2.3 million for the year ended december 31 , 2017. for the year ended december 31 , 2018 , we charged-off $ 1.3 million in loans , compared to $ 1.9 million the year ended december 31 , 2017 , and recovered previously charged-off loans of $ 1.3 million and $ 0.2 million for the same periods , respectively . of the $ 1.3 million in loan recoveries for the year ended december 31 , 2018 , $ 1.2 million was from a single customer . the total allowance for loan losses was $ 16.5 million , or 1.37 % of total loans , and $ 13.2 million , or 1.15 % of total loans , at december 31 , 2018 and 2017 , respectively . total non-performing loans , excluding performing troubled debt restructurings , were $ 23.0 million and $ 11.6 million at december 31 , 2018 and 2017 , respectively . this $ 11.4 million increase was the result of the strained agricultural economy and the four-year sustained low prices of class iii milk . the allowance for loan losses reflects the estimate we believe to be appropriate to cover probable incurred losses inherent in the loan portfolio at december 31 , 2018. non-interest income . non-interest income increased by $ 1.1 million , or 15.4 % , to $ 8.8 million for the year ended december 31 , 2018 compared to $ 7.7 million for the same period of 2017. the primary factor contributing to the annual fluctuation in non-interest income is the bank 's volume and activity in loan servicing fees and loan servicing rights income . for the year ended december 31 , 2018 , loan servicing fees increased to $ 6.1 million from $ 5.5 million for the year ended december 31 , 2017 . 40 non-interest expense . non-interest expense increased $ 2.3 million , or 8.8 % , to $ 28.3 million for the year ended december 31 , 2018 , compared $ 26.0 million for the same period of 2017 , primarily as the result of an increase in employee compensation and benefits of $ 1.3 million in connection with the addition of eight full-time equivale nt employees , or 5.6 % , to 152 for the year-ended december 31 , 2018. also during 2018 , there was a $ 0.4 million increase in occupancy expenses related to the relocation of our company headquarters during the third quarter of 2018 , and a $ 0.5 million increa se in information processing expenses related to technology investments and implementations made throughout the year , which were included in other expenses . income taxes . income tax expense for the year ended december 31 , 2018 was $ 5.1 million compared to $ 7.8 million for the year ended december 31 , 2017. the effective tax rates as a percent of pre-tax income were approximately 26 % and 43 % for the years ended december 31 , 2018 and 2017 , respectively . the decrease in income tax expense and the effective tax rate for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 was due to the reduction of the federal corporate income tax rate from 35 % to 21 % as a result of the tax act that was enacted late in the 4 th quarter of 2017 , as well as , the 2017 revaluation of our net deferred tax asset which resulted in $ 1.0 million of additional income tax expense . analysis of net interest income net interest income represents the difference between income we earn on our interest-earning assets and the expense we pay on interest-bearing liabilities . net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned on such assets and paid on such liabilities . average balances and yields . the following table sets forth average balance sheets , average yields and rates , income and expenses , and certain other information for the periods indicated . all average balances are daily average balances . nonaccrual loans were included in the computation of average balances , but have been reflected in the table

debt acquired in acquisition of herley we assumed a $ 10.0 million ten-year term loan with a bank in israel that herley entered into on september 16 , 2008 in connection with the acquisition of one of its wholly owned subsidiaries . the balance as of december 27 , 2015 was $ 2.7 million , and the loan is payable in quarterly installments of $ 0.3 million plus interest at libor plus a margin of 1.5 % . the loan agreement contains various covenants including a minimum net equity covenant as defined in the loan agreement . we were in compliance with the financial covenants of the loan agreement as of december 27 , 2015 . off balance sheet arrangements we have no off-balance sheet arrangements as defined in regulation s-k , item 303 ( a ) ( 4 ) ( ii ) . 44 contractual obligations and commitments the following table summarizes our contractual obligations and other commitments at december 27 , 2015 , and the effect such obligations could have on our liquidity and cash flow in future periods ( in millions ) : replace_table_token_10_th ( 1 ) the notes in the aggregate outstanding principal amount of $ 450.0 million are due may 15 , 2019. see note 4 in the notes to consolidated financial statements contained within this annual report for further details . ( 2 ) includes interest payments based on current interest rates for variable rate debt and the notes . see note 4 in the notes to consolidated financial statements contained within in this annual report for further details . ( 3 ) purchase orders include commitments in which a written purchase order has been issued to a vendor , but the goods have not been received or services have not been performed . ( 4 ) we have entered into or acquired various non-cancelable operating lease agreements that expire on various dates through 2025. the amounts include $ 5.5 million in excess facility costs and exclude expected sublease income . see note 5 in the notes to consolidated financial statements contained within this annual report for further details .

goodwill was $ 5.0 million at december 31 , 2018 and 2017. during the fourth quarter of 2018 , the market value of our stock price dropped below our tangible book value . we engaged a third party to assist the company in determining the fair value of the company as a single reporting unit pursuant to step 1 of the 33 financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 350-20-35 ( the “ step 1 analysis ” ) as of december 31 , 2018. the step 1 analysis included an income and market approaches . the income approach used as discounted cash flow method . this method estimates value by forecasting income for a forecast period and estimates the terminal value . these amounts were then discounted back to december 31 , 2018. the market approach used the market value of equity to tangible book value multiple of similar publicly traded commercial banks ( e.g . tota l tangible assets , pre-tax return on average assets , located in the midwest ) . the market approach also includes the acquisition price/tangible book value multiple on similar sized banks in the midwest occurring after january 1 , 2017. more weighting was p laced on the income method . through the step 1 analysis it was determined there was no impairment charge to goodwill in the year ended december 31 , 2018. goodwill is included on the consolidated balance sheets . the future value of goodwill could be im pacted by the company 's future earnings , largely related to unanticipated losses from the company 's loan portfolio . allowance for loan losses the allowance for loan losses is established through a provision for loan losses charged to expense , which affects our earnings directly . loans are charged against the allowance for loan losses when management believes that the collectability of all or some of the principal is unlikely . subsequent recoveries are added to the allowance . the allowance is an amount that reflects management 's estimate of the level of probable incurred losses in the loan portfolio . factors considered by management in determining the adequacy of the allowance include , but are not limited to , detailed reviews of individual loans , historical and current trends in loan charge-offs for the various portfolio segments evaluated , the level of the allowance in relation to total loans and to historical loss levels , levels and trends in non-performing and past due loans , volume of and migratory direction of adversely graded loans , external factors including regulatory requirements , reputation , and competition , and management 's assessment of economic conditions . our board of directors reviews the recommendations of management regarding the appropriate level for the allowance for loan losses based upon these factors . the provision for loan losses is the charge to operating earnings necessary to maintain an adequate allowance for loan losses . we have developed policies and procedures for evaluating the overall quality of our loan portfolio and the timely identification of problem credits . management continuously reviews these policies and procedures and makes further improvements as needed . the adequacy of our allowance for loan losses and the effectiveness of our internal policies and procedures are also reviewed periodically by our regulators and our auditors and external loan review personnel . our regulators may advise us to recognize additions to the allowance based upon their judgments about information available to them at the time of their examination . such regulatory guidance is taken under consideration by management , and we may recognize additions to the allowance as a result . we continually refine our methodology for determining the allowance for loan losses by comparing historical loss ratios utilized to actual experience and by classifying loans for analysis based on similar risk characteristics . cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreements ; however , cash receipts on impaired and nonaccrual loans for which the accrual of interest has been discontinued are applied to principal and interest income depending upon the overall risk of principal loss to us . other real estate owned assets acquired through or in lieu of loan foreclosure are initially recorded at lower of cost or fair value less estimated costs to sell , establishing a new cost basis . subsequent to foreclosure , independent valuations are performed annually and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell . revenue and expenses from operations and changes in the valuation allowance are included in other non-interest expense . costs related to the development and improvement of other real estate owned is capitalized . fair value of financial instruments a significant portion of the company 's assets are financial instruments carried at fair value . this includes securities available for sale and certain impaired loans . the majority of assets carried at fair value are based on either quoted market prices or market prices for similar instruments . for additional disclosures regarding the fair value of financial instruments , see note 20 . “ fair value measurements ” to our consolidated financial statements . jobs act transition period the jumpstart our business startups ( jobs ) act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards . thus , as an emerging growth company , the company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to avail ourselves of this extended transition period . 34 comparison of financ ial condition at december 31 , 2018 and 2017 total assets . story_separator_special_tag the average cost of funds for the year ended december 31 , 2018 was 1.82 % , which was 47 basis points higher than the year ended december 31 , 2017. the increase interest expenses represented a 57.9 % increase related to rate variances as the result of the increase in the target federal funds rate , and a 42.1 % increase related to volume variances . income . net interest income for the year ended december 31 , 2018 increased $ 3.1 million , or 7.9 % , to $ 42.0 million compared to the year ended december 31 , 2017. our average interest-earning assets increased by $ 188.0 million , or 15.0 % , to $ 1.4 billion for the year ended december 31 , 2018 compared to the same period of 2017. our net interest rate spread decreased to 2.64 % for the year ended december 31 , 2018 from 2.89 % for the year ended december 31 , 2017. our net interest margin decreased to 2.91 % for the year ended december 31 , 2018 from 3.11 % for the year ended december 31 , 2017. the decreases in our interest rate spread and net interest margin reflect rates of interest bearing deposits increasing in response to target federal funds interest rate increases quicker than yields on interest-earning assets . provision for loan losses . based on our analysis of the components of the allowance for loan losses described in “ allowance for loan losses ” below , we recorded a provision for loan losses of $ 3.2 million for the year ended december 31 , 2018 , as the result of continued growth in the loan portfolio and charge-offs taken during 2018 compared to a provision for loan losses of $ 2.3 million for the year ended december 31 , 2017. for the year ended december 31 , 2018 , we charged-off $ 1.3 million in loans , compared to $ 1.9 million the year ended december 31 , 2017 , and recovered previously charged-off loans of $ 1.3 million and $ 0.2 million for the same periods , respectively . of the $ 1.3 million in loan recoveries for the year ended december 31 , 2018 , $ 1.2 million was from a single customer . the total allowance for loan losses was $ 16.5 million , or 1.37 % of total loans , and $ 13.2 million , or 1.15 % of total loans , at december 31 , 2018 and 2017 , respectively . total non-performing loans , excluding performing troubled debt restructurings , were $ 23.0 million and $ 11.6 million at december 31 , 2018 and 2017 , respectively . this $ 11.4 million increase was the result of the strained agricultural economy and the four-year sustained low prices of class iii milk . the allowance for loan losses reflects the estimate we believe to be appropriate to cover probable incurred losses inherent in the loan portfolio at december 31 , 2018. non-interest income . non-interest income increased by $ 1.1 million , or 15.4 % , to $ 8.8 million for the year ended december 31 , 2018 compared to $ 7.7 million for the same period of 2017. the primary factor contributing to the annual fluctuation in non-interest income is the bank 's volume and activity in loan servicing fees and loan servicing rights income . for the year ended december 31 , 2018 , loan servicing fees increased to $ 6.1 million from $ 5.5 million for the year ended december 31 , 2017 . 40 non-interest expense . non-interest expense increased $ 2.3 million , or 8.8 % , to $ 28.3 million for the year ended december 31 , 2018 , compared $ 26.0 million for the same period of 2017 , primarily as the result of an increase in employee compensation and benefits of $ 1.3 million in connection with the addition of eight full-time equivale nt employees , or 5.6 % , to 152 for the year-ended december 31 , 2018. also during 2018 , there was a $ 0.4 million increase in occupancy expenses related to the relocation of our company headquarters during the third quarter of 2018 , and a $ 0.5 million increa se in information processing expenses related to technology investments and implementations made throughout the year , which were included in other expenses . income taxes . income tax expense for the year ended december 31 , 2018 was $ 5.1 million compared to $ 7.8 million for the year ended december 31 , 2017. the effective tax rates as a percent of pre-tax income were approximately 26 % and 43 % for the years ended december 31 , 2018 and 2017 , respectively . the decrease in income tax expense and the effective tax rate for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 was due to the reduction of the federal corporate income tax rate from 35 % to 21 % as a result of the tax act that was enacted late in the 4 th quarter of 2017 , as well as , the 2017 revaluation of our net deferred tax asset which resulted in $ 1.0 million of additional income tax expense . analysis of net interest income net interest income represents the difference between income we earn on our interest-earning assets and the expense we pay on interest-bearing liabilities . net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned on such assets and paid on such liabilities . average balances and yields . the following table sets forth average balance sheets , average yields and rates , income and expenses , and certain other information for the periods indicated . all average balances are daily average balances . nonaccrual loans were included in the computation of average balances , but have been reflected in the table

liquidity management and capital resources liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature . our primary sources of funds consist of deposit inflows , loan repayments , maturities and sales of securities and borrowings from the fhlb . while maturities and scheduled amortization of loans and securities are predictable sources of funds , deposit flows , calls of investment securities and borrowed funds and prepayments on loans are greatly influenced by general interest rates , economic conditions and competition . at december 31 , 2018 , the bank had fixed rate advances outstanding with fhlb of $ 89.4 million and no borrowings outstanding at the federal reserve bank of chicago . the bank had unused collateral of $ 90.8 million with fhlb , a $ 143.4 million line-of-credit available with the federal reserve bank of chicago , and a $ 15.0 million line-of-credit with u.s. bank at december 31 , 2018. management adjusts our 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 , ( 4 ) the objectives of our interest-rate risk and investment policies and ( 5 ) the risk tolerance of management and our board of directors . our cash flows are composed of three primary classifications : cash flows from operating activities , investing activities , and financing activities . net cash provided by operating activities was $ 26.2 million and $ 11.3 million , for the years ended december 31 , 2018 and 2017 , respectively . net cash used in investing activities , which consists primarily of purchases of and proceeds from the sale , maturities/calls , and principal repayments of securities available for sale , as well as loan purchases , sales and originations , net of repayments was $ 139.8 million and $ 131.5 million , for the years ended december 31 , 2018 and 2017 , respectively .

our estimates therefore may prove inaccurate , and the actual value of end customer contracts delivered to us in a given period to differ from our estimate of opportunity under management . these business and economic uncertainties and contingencies include : the extent to which clients deliver a greater or lesser value of end customer contracts than may be required or otherwise expected ; changes in the pricing or terms of service contracts offered by our clients ; increases or decreases in the end customer base of our clients ; 25 the extent to which the renewal rates we achieve on behalf of a client early in an engagement affect the amount of opportunity that the client makes available to us later in the engagement ; client cancellations of their contracts with us ; and changes in our clients ' businesses , sales organizations , management , sales processes or priorities ; as well as other factors discussed in `` item 1.a . entitled risk factors `` of this annual report on form 10-k. our revenue also depends on our booking rates , commissions , and other fees . our bookings represent the total amount of opportunity under management that we renew on behalf of our clients or sell under our inside sales solution . our commission rate is an agreed-upon percentage of the renewal value of end customer contracts or net new sales that we sell on behalf of our clients . our booking rate is impacted principally by our ability to successfully renew contracts on behalf of our clients or sell net new bookings . other factors impacting our booking rate include : the manner in which our clients price their service contracts for sale to their end customers ; the stage of life-cycle associated with the products and underlying technologies covered by the contracts offered to the end customer ; the extent to which our clients or their competitors introduce new products or underlying technologies ; the nature , size and age of the contracts ; and the extent to which we have managed the renewals process or net new sales for similar products and underlying technologies in the past . in determining commission rates for an individual engagement , various factors , including our booking rate , as described above , are evaluated . these factors include : historical , industry specific and client specific renewal rates for similar service contracts ; the magnitude of the opportunity under management in a particular engagement ; the number of end customers associated with these opportunities ; and the opportunity to receive additional performance commissions when we exceed certain renewal levels . we endeavor to set our commission rates at levels commensurate with these factors and other factors that may be relevant to a particular engagement . accordingly , our commission rates vary , often significantly , from engagement to engagement . in addition , we sometimes agree to lower commission rates for engagements with significant opportunity under management . number of engagements . we track the number of engagements we have with our clients . we often have multiple engagements with a single client , particularly where we manage the sales of renewals relating to different product lines , technologies , types of contracts or geographies for the client and where we deliver multiple of our solutions . when the set of renewals we manage on behalf of a client is associated with a separate client contract or a distinct product set , type of end customer contract or geography and therefore requires us to assign a service sales team to manage the renewals , we designate the set of renewals and associated revenues and costs as a unique engagement . for example , we may have one engagement consisting of a service sales team selling maintenance contract renewals of a particular product for a client in the u.s. and another engagement consisting of a sales team selling warranty contract renewals of a different product for the same client in europe . these would count as two engagements . when we deliver multiple solutions with separate and distinct teams , such as renewals and inside sales , we may manage these as separate engagements . we had 168 , 154 and 191 engagements as of december 31 , 2017 , 2016 and 2015 , respectively . factors affecting our performance sales cycle . we sell our integrated solution through our sales organization . at the beginning of the sales process , our quota-carrying sales representatives contact prospective clients and educate them about our offerings . educating prospective clients about the benefits of our solutions can take time , as many of these prospects have not historically relied upon integrated solutions like ours for service revenue management , nor have they typically put out a formal request for proposal or otherwise made a decision to focus on this area . as part of our sales process , our solutions design team performs a service performance analysis of our prospect 's service revenue . this includes an analysis of best practices , and benchmarks the prospect 's service revenue against industry peers . through this process , which typically takes several weeks , we are able to assess the characteristics and size of the prospect 's service revenue , identify potential areas of performance improvement , and formulate our proposal for managing the prospect 's service revenue . the length of our sales cycle for a new client , inclusive of the service performance analysis process and measured from our first formal discussion with the client until execution of a new client contract , is typically longer than six months and has increased in recent periods . implementation cycle . after entering into an engagement with a new client , and to a lesser extent after adding an engagement with an existing client , we incur sales and marketing expenses related to the commissions owed to our sales personnel . story_separator_special_tag cost of revenue decreased $ 1.4 million , or 1 % , for the year ended december 31 , 2017 compared to the same period in 2016 , primarily due to the following : $ 2.8 million decrease in employee costs related to operational improvements in our business that resulted in a reduction in headcount and increased productivity from our revenue generating employees , and shifting headcount to lower cost locations , all of which are part of our continuous efforts to better align employee costs with revenue ; $ 2.0 million decrease in temporary labor and consulting costs ; $ 1.7 million decrease in information technology costs ; and $ 0.8 million decrease in recruitment services ; partially offset by $ 3.5 million increase in depreciation and amortization expense ; and $ 2.6 million increase in net overhead allocations from other departments . gross profit decreased $ 12.4 million , or 14 % , for the year ended december 31 , 2017 compared to the same period in 2016 , which is in line with the decrease in revenue . 30 operating expenses replace_table_token_8_th sales and marketing sales and marketing expense decreased $ 9.0 million , or 21 % , for the year ended december 31 , 2017 compared to the same period in 2016 , primarily due to the following : $ 6.2 million decrease in employee compensation costs due to lower headcount resulting from our efforts to better align our cost structure ; $ 1.7 million decrease in travel costs ; $ 0.3 million decrease in net overhead allocations from other departments ; $ 0.2 million decrease in in temporary labor and consulting costs ; and $ 0.3 million decrease in information technology costs , recruitment services and marketing costs . research and development research and development expense decreased $ 2.6 million , or 31 % , for the year ended december 31 , 2017 compared to the same period in 2016 , primarily due to our efforts to reduce research and development spend as follows : $ 2.0 million decrease in employee related costs associated with a decrease in headcount ; and $ 0.4 million decrease in in temporary labor and consulting costs . internal-use software development capitalization decreased $ 0.5 million for the year ended december 31 , 2017 compared to the same period in 2016 , primarily due to the migration from our renew ondemand platform to prism . we expect to continue to invest in our technology platforms to support our services offering and thus capitalizing internal-use software costs in the future . however , the amount capitalized will depend on the future level of expenditures on our technology platforms . 31 general and administrative general and administrative expense increased $ 0.1 million , or 0 % , for the year ended december 31 , 2017 compared to the same period in 2016 , primarily due to the following : $ 3.0 million increase in depreciation and amortization expense ; $ 1.3 million increase in information technology spend ; $ 1.2 million increase in recruitment services ; and $ 1.1 million increase in employee compensation costs related to performance-based restricted stock awards issued during 2016 and 2017 , offset by decreases due to shifting headcount to lower cost locations . these net increases were partially offset by $ 2.2 million net reduction in overhead allocations to other departments ; $ 1.6 million decrease in temporary labor and consulting costs ; $ 1.5 million decrease due to a non-recurring legal reserve recorded during 2016 ; $ 0.9 million decrease in travel costs ; and $ 0.5 million decrease in rent and facilities costs . restructuring and other restructuring and other expense increased $ 7.3 million , or 100 % , for the year ended december 31 , 2017 compared to the same period in 2016 due to our effort to better align our cost structure with current revenue levels during 2017 . interest expense and other , net , impairment loss on cost basis equity investment , and gain on sale of cost basis equity investment replace_table_token_9_th interest expense increased $ 0.7 million , or 6 % , for the year ended december 31 , 2017 compared to the same period in 2016 due to the accretion of the debt discount related to our convertible notes issued in august 2013. other , net decreased $ 0.5 million , or 23 % , for the year ended december 31 , 2017 compared to the same period in 2016 primarily due to foreign currency fluctuations . during the year ended december 31 , 2016 , we fully impaired our 2013 cost basis equity investment due to an unfavorable declining financial performance , growth trends and future liquidity needs of the investment and recorded a $ 4.5 million impairment . during the year ended december 31 , 2017 , we sold our equity investment that we fully impaired in 2016 for proceeds of $ 2.1 million and recorded the proceeds as a gain . 32 income tax provision replace_table_token_10_th * not considered meaningful . for the year ended december 31 , 2017 , we recorded a tax benefit of $ 1.6 million . this primarily represents a $ 2.0 million income tax benefit related to the remeasurement of our indefinite-lived intangible deferred tax liability and release of our valuation allowance for certain net operating loss provisions as enacted under the tax cuts and jobs act ( h.r.1 ) during december 2017. historically , we recorded a deferred income tax expense for indefinite lived deferred tax liabilities , as the company did not have any indefinite lived deferred tax assets . h.r.1 changed the carryover period for federal net operating losses to indefinite , allowing us to utilize future indefinite lived deferred tax assets in the scheduling of valuation allowance . our net u.s. deferred tax liability decreased from $ 2.2 million as of december 31 , 2016 to $ 0.2 million as of december 31 , 2017.

liquidity management and capital resources liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature . our primary sources of funds consist of deposit inflows , loan repayments , maturities and sales of securities and borrowings from the fhlb . while maturities and scheduled amortization of loans and securities are predictable sources of funds , deposit flows , calls of investment securities and borrowed funds and prepayments on loans are greatly influenced by general interest rates , economic conditions and competition . at december 31 , 2018 , the bank had fixed rate advances outstanding with fhlb of $ 89.4 million and no borrowings outstanding at the federal reserve bank of chicago . the bank had unused collateral of $ 90.8 million with fhlb , a $ 143.4 million line-of-credit available with the federal reserve bank of chicago , and a $ 15.0 million line-of-credit with u.s. bank at december 31 , 2018. management adjusts our 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 , ( 4 ) the objectives of our interest-rate risk and investment policies and ( 5 ) the risk tolerance of management and our board of directors . our cash flows are composed of three primary classifications : cash flows from operating activities , investing activities , and financing activities . net cash provided by operating activities was $ 26.2 million and $ 11.3 million , for the years ended december 31 , 2018 and 2017 , respectively . net cash used in investing activities , which consists primarily of purchases of and proceeds from the sale , maturities/calls , and principal repayments of securities available for sale , as well as loan purchases , sales and originations , net of repayments was $ 139.8 million and $ 131.5 million , for the years ended december 31 , 2018 and 2017 , respectively .

our estimates therefore may prove inaccurate , and the actual value of end customer contracts delivered to us in a given period to differ from our estimate of opportunity under management . these business and economic uncertainties and contingencies include : the extent to which clients deliver a greater or lesser value of end customer contracts than may be required or otherwise expected ; changes in the pricing or terms of service contracts offered by our clients ; increases or decreases in the end customer base of our clients ; 25 the extent to which the renewal rates we achieve on behalf of a client early in an engagement affect the amount of opportunity that the client makes available to us later in the engagement ; client cancellations of their contracts with us ; and changes in our clients ' businesses , sales organizations , management , sales processes or priorities ; as well as other factors discussed in `` item 1.a . entitled risk factors `` of this annual report on form 10-k. our revenue also depends on our booking rates , commissions , and other fees . our bookings represent the total amount of opportunity under management that we renew on behalf of our clients or sell under our inside sales solution . our commission rate is an agreed-upon percentage of the renewal value of end customer contracts or net new sales that we sell on behalf of our clients . our booking rate is impacted principally by our ability to successfully renew contracts on behalf of our clients or sell net new bookings . other factors impacting our booking rate include : the manner in which our clients price their service contracts for sale to their end customers ; the stage of life-cycle associated with the products and underlying technologies covered by the contracts offered to the end customer ; the extent to which our clients or their competitors introduce new products or underlying technologies ; the nature , size and age of the contracts ; and the extent to which we have managed the renewals process or net new sales for similar products and underlying technologies in the past . in determining commission rates for an individual engagement , various factors , including our booking rate , as described above , are evaluated . these factors include : historical , industry specific and client specific renewal rates for similar service contracts ; the magnitude of the opportunity under management in a particular engagement ; the number of end customers associated with these opportunities ; and the opportunity to receive additional performance commissions when we exceed certain renewal levels . we endeavor to set our commission rates at levels commensurate with these factors and other factors that may be relevant to a particular engagement . accordingly , our commission rates vary , often significantly , from engagement to engagement . in addition , we sometimes agree to lower commission rates for engagements with significant opportunity under management . number of engagements . we track the number of engagements we have with our clients . we often have multiple engagements with a single client , particularly where we manage the sales of renewals relating to different product lines , technologies , types of contracts or geographies for the client and where we deliver multiple of our solutions . when the set of renewals we manage on behalf of a client is associated with a separate client contract or a distinct product set , type of end customer contract or geography and therefore requires us to assign a service sales team to manage the renewals , we designate the set of renewals and associated revenues and costs as a unique engagement . for example , we may have one engagement consisting of a service sales team selling maintenance contract renewals of a particular product for a client in the u.s. and another engagement consisting of a sales team selling warranty contract renewals of a different product for the same client in europe . these would count as two engagements . when we deliver multiple solutions with separate and distinct teams , such as renewals and inside sales , we may manage these as separate engagements . we had 168 , 154 and 191 engagements as of december 31 , 2017 , 2016 and 2015 , respectively . factors affecting our performance sales cycle . we sell our integrated solution through our sales organization . at the beginning of the sales process , our quota-carrying sales representatives contact prospective clients and educate them about our offerings . educating prospective clients about the benefits of our solutions can take time , as many of these prospects have not historically relied upon integrated solutions like ours for service revenue management , nor have they typically put out a formal request for proposal or otherwise made a decision to focus on this area . as part of our sales process , our solutions design team performs a service performance analysis of our prospect 's service revenue . this includes an analysis of best practices , and benchmarks the prospect 's service revenue against industry peers . through this process , which typically takes several weeks , we are able to assess the characteristics and size of the prospect 's service revenue , identify potential areas of performance improvement , and formulate our proposal for managing the prospect 's service revenue . the length of our sales cycle for a new client , inclusive of the service performance analysis process and measured from our first formal discussion with the client until execution of a new client contract , is typically longer than six months and has increased in recent periods . implementation cycle . after entering into an engagement with a new client , and to a lesser extent after adding an engagement with an existing client , we incur sales and marketing expenses related to the commissions owed to our sales personnel . story_separator_special_tag cost of revenue decreased $ 1.4 million , or 1 % , for the year ended december 31 , 2017 compared to the same period in 2016 , primarily due to the following : $ 2.8 million decrease in employee costs related to operational improvements in our business that resulted in a reduction in headcount and increased productivity from our revenue generating employees , and shifting headcount to lower cost locations , all of which are part of our continuous efforts to better align employee costs with revenue ; $ 2.0 million decrease in temporary labor and consulting costs ; $ 1.7 million decrease in information technology costs ; and $ 0.8 million decrease in recruitment services ; partially offset by $ 3.5 million increase in depreciation and amortization expense ; and $ 2.6 million increase in net overhead allocations from other departments . gross profit decreased $ 12.4 million , or 14 % , for the year ended december 31 , 2017 compared to the same period in 2016 , which is in line with the decrease in revenue . 30 operating expenses replace_table_token_8_th sales and marketing sales and marketing expense decreased $ 9.0 million , or 21 % , for the year ended december 31 , 2017 compared to the same period in 2016 , primarily due to the following : $ 6.2 million decrease in employee compensation costs due to lower headcount resulting from our efforts to better align our cost structure ; $ 1.7 million decrease in travel costs ; $ 0.3 million decrease in net overhead allocations from other departments ; $ 0.2 million decrease in in temporary labor and consulting costs ; and $ 0.3 million decrease in information technology costs , recruitment services and marketing costs . research and development research and development expense decreased $ 2.6 million , or 31 % , for the year ended december 31 , 2017 compared to the same period in 2016 , primarily due to our efforts to reduce research and development spend as follows : $ 2.0 million decrease in employee related costs associated with a decrease in headcount ; and $ 0.4 million decrease in in temporary labor and consulting costs . internal-use software development capitalization decreased $ 0.5 million for the year ended december 31 , 2017 compared to the same period in 2016 , primarily due to the migration from our renew ondemand platform to prism . we expect to continue to invest in our technology platforms to support our services offering and thus capitalizing internal-use software costs in the future . however , the amount capitalized will depend on the future level of expenditures on our technology platforms . 31 general and administrative general and administrative expense increased $ 0.1 million , or 0 % , for the year ended december 31 , 2017 compared to the same period in 2016 , primarily due to the following : $ 3.0 million increase in depreciation and amortization expense ; $ 1.3 million increase in information technology spend ; $ 1.2 million increase in recruitment services ; and $ 1.1 million increase in employee compensation costs related to performance-based restricted stock awards issued during 2016 and 2017 , offset by decreases due to shifting headcount to lower cost locations . these net increases were partially offset by $ 2.2 million net reduction in overhead allocations to other departments ; $ 1.6 million decrease in temporary labor and consulting costs ; $ 1.5 million decrease due to a non-recurring legal reserve recorded during 2016 ; $ 0.9 million decrease in travel costs ; and $ 0.5 million decrease in rent and facilities costs . restructuring and other restructuring and other expense increased $ 7.3 million , or 100 % , for the year ended december 31 , 2017 compared to the same period in 2016 due to our effort to better align our cost structure with current revenue levels during 2017 . interest expense and other , net , impairment loss on cost basis equity investment , and gain on sale of cost basis equity investment replace_table_token_9_th interest expense increased $ 0.7 million , or 6 % , for the year ended december 31 , 2017 compared to the same period in 2016 due to the accretion of the debt discount related to our convertible notes issued in august 2013. other , net decreased $ 0.5 million , or 23 % , for the year ended december 31 , 2017 compared to the same period in 2016 primarily due to foreign currency fluctuations . during the year ended december 31 , 2016 , we fully impaired our 2013 cost basis equity investment due to an unfavorable declining financial performance , growth trends and future liquidity needs of the investment and recorded a $ 4.5 million impairment . during the year ended december 31 , 2017 , we sold our equity investment that we fully impaired in 2016 for proceeds of $ 2.1 million and recorded the proceeds as a gain . 32 income tax provision replace_table_token_10_th * not considered meaningful . for the year ended december 31 , 2017 , we recorded a tax benefit of $ 1.6 million . this primarily represents a $ 2.0 million income tax benefit related to the remeasurement of our indefinite-lived intangible deferred tax liability and release of our valuation allowance for certain net operating loss provisions as enacted under the tax cuts and jobs act ( h.r.1 ) during december 2017. historically , we recorded a deferred income tax expense for indefinite lived deferred tax liabilities , as the company did not have any indefinite lived deferred tax assets . h.r.1 changed the carryover period for federal net operating losses to indefinite , allowing us to utilize future indefinite lived deferred tax assets in the scheduling of valuation allowance . our net u.s. deferred tax liability decreased from $ 2.2 million as of december 31 , 2016 to $ 0.2 million as of december 31 , 2017.

letter of credit and restricted cash in connection with one of our leased facilities , the company is required to maintain a $ 1.2 million letter of credit . the letter of credit is secured by $ 1.2 million of cash in a money market account , which is classified as an `` other assets '' in our consolidated balance sheets . cash flows the following table presents a summary of our cash flows : replace_table_token_15_th 36 our total depreciation and amortization expense was comprised of the following : replace_table_token_16_th operating activities for the year ended december 31 , 2017 , net cash provided by operating activities was $ 19.8 million . our net loss was $ 29.8 million , which was impacted by non-cash charges of $ 22.6 million for depreciation and amortization , $ 9.4 million of amortization of debt discount and issuance costs , $ 13.7 million of stock-based compensation , $ 2.1 million related to proceeds received from the sale of our cost basis equity investment and $ 3.1 million for restructuring and other costs . cash provided by operations from changes in our working capital include a $ 9.1 million decrease in accounts receivable , net , a $ 2.5 million increase in accounts payable and a $ 1.7 million decrease in prepaid expenses and other current assets , offset by cash used in operations from a $ 5.5 million decrease in accrued expenses and other liabilities and a $ 2.9 million decrease in deferred revenue . net cash provided by operating activities was $ 4.5 million for the year ended december 31 , 2016 .

on july 2 , 2013 , laclede gas and other parties to the case filed a unanimous stipulation and agreement with the mopsc that authorized laclede gas to complete the acquisition of mge , subject to certain conditions , including restrictions relative to the timing of filing for general rate increases and reporting requirements . this unanimous stipulation and agreement was approved by the mopsc on july 17 , 2013. effective september 1 , 2013 , laclede gas closed on the purchase of mge assets and liabilities . gas utility - alagasco on august 31 , 2014 , the company purchased from energen 100 % of the outstanding common stock of alagasco , with the purchase price for the alagasco acquisition remaining subject to certain customary post-closing adjustments , which at this time are not expected to be material . alagasco is the largest natural gas distribution utility in the state of alabama . 27 alagasco purchases natural gas through interstate and intrastate suppliers and distributes the purchased gas through its distribution facilities for sale to residential , commercial , and industrial customers and other end-users of natural gas . alagasco also provides transportation services to large industrial and commercial customers located on its distribution system . these transportation customers , using alagasco as their agent or acting on their own , purchase gas directly from marketers or suppliers and arrange for delivery of the gas into the alagasco distribution system . alagasco charges a fee to transport such customer-owned gas through its distribution system to the customers ' facilities . alagasco 's service territory is located in central and north alabama and includes 186 cities and communities in 32 counties . the aggregate population of the counties served by alagasco is estimated to be 3.0 million . among the cities served by alagasco are birmingham , the center of the largest metropolitan area in alabama , and montgomery , the state capital . during 2014 , alagasco served an average of 391,840 residential customers and 31,236 commercial , industrial and transportation customers . the alagasco distribution system includes approximately 23,000 miles of main , service lines , odorization regulation facilities , and customer meters . gas marketing laclede energy resources , inc. is engaged in the marketing of natural gas and related activities on a non-regulated basis and is reported in the gas marketing segment . ler markets natural gas to both on-system utility transportation customers and customers outside of laclede gas ' traditional service territory , including large retail and wholesale customers . ler 's operations and customer base are more subject to fluctuations in market conditions than the utilities . ler entered into a new 10 year contract for 1 bcf of natural gas storage effective august 1 , 2013 and has an additional 1 bcf storage contracted through january 2016. business evaluation factors based on the nature of the business of the company and its subsidiaries , as well as current economic conditions , management focuses on the following key variables in evaluating the financial condition and results of operations and managing the business : gas utility segment : the utilities ' ability to recover the costs of purchasing and distributing natural gas from their customers ; the impact of weather and other factors , such as customer conservation , on revenues and expenses ; changes in the regulatory environment at the federal , state , and local levels , as well as decisions by regulators , that impact the utilities ' ability to earn its authorized rate of return in all service territories they serve ; the utilities ' ability to access credit markets and maintain working capital sufficient to meet operating requirements ; the effect of natural gas price volatility on the business ; and the ability to integrate the operations of all acquisitions . gas marketing segment : the risks of competition ; fluctuations in natural gas prices ; new national pipeline infrastructure projects ; the ability to procure firm transportation and storage services at reasonable rates ; credit and or capital market access ; counterparty risks ; and the effect of natural gas price volatility on the business . further information regarding how management seeks to manage these key variables is discussed below . gas utility the utilities provide reliable natural gas services at a reasonable cost , while maintaining and building secure and dependable infrastructures . the utilities ' strategies focus on improving both performance and the ability to recover their authorized distribution costs and rates of return . the utilities ' distribution costs are the essential , primarily fixed , expenditures it must incur to operate and maintain more than 53,000 miles of mains and services comprising the natural gas distribution systems and related storage facilities for laclede gas and alagasco . 28 the utilities ' distribution costs include wages and employee benefit costs , depreciation and maintenance expenses , and other regulated utility operating expenses , excluding natural and propane gas expense . distribution costs are considered in the rate-making process , and recovery of these types of costs is included in revenues generated through the utilities ' tariff rates . laclede gas ' tariff rates are approved by the mopsc , whereas alagasco 's tariff rates are approved by the apsc . laclede gas also has an off-system sales and capacity release income stream that is regulated by tariff . laclede gas ' income from off-system sales and capacity release remains subject to fluctuations in market conditions . laclede gas is allowed to retain the following annual income ( shown by legacy business ) : replace_table_token_9_th some of the factors impacting the level of off-system sales include the availability and cost of laclede gas ' natural gas supply , the weather in its service area , and the weather in other markets . story_separator_special_tag the remaining increase in other operating expenses was due to the impact of colder weather reflected in the higher provision for uncollectible accounts , and higher maintenance and employee-related expenses . the remaining increase in depreciation and amortization was associated with capital spending in fiscal 2014. gas utility operating revenues - gas utility operating revenues for fiscal year 2014 increased $ 610.0 , compared to fiscal year 2013 , was primarily attributable to the following factors : replace_table_token_12_th temperatures experienced in laclede gas ' service area during 2014 were 13.3 % colder than the same period last year , and 11.4 % colder than normal . total system therms sold and transported were 1,876.6 million for fiscal year 2014 compared with 889.7 million for fiscal year 2013 . total off-system therms sold and transported outside of laclede gas ' service area were 125.8 million for fiscal year 2014 compared with 229.4 million for fiscal year 2013 . this decrease was due to colder temperatures and increased heating demand in our services areas , reducing the gas supply resources available for off-system sales or capacity release . operating margin - gas utility operating margin was $ 570.8 for fiscal year 2014 , a $ 222.3 increase over the same period last year . the increase was attributable to the following factors : ( $ millions ) operating margin from mge $ 186.5 operating margin from alagasco 14.8 cold weather impact - higher therms sold and transported 11.9 propane utility sales 6.1 gross receipts tax 3.0 total variation $ 222.3 the increase was primarily attributable to the acquisitions of mge and alagasco totaling $ 186.5 and $ 14.8 respectively . the higher system sales volume driven by the 13.3 % colder weather in the laclede gas service area contributed to $ 11.9 of the increase . $ 6.1 of the increase was the result of propane utility sales , with the remaining $ 3.0 the result of all other minor variations . operating expenses - gas utility other operating expenses in fiscal year 2014 increased $ 124.9 from fiscal year 2013 . of the $ 124.9 increase , $ 103.5 is attributable to the mge acquisition and $ 14.2 is the result of the alagasco acquisition . the remaining increase in other operating expenses was due to the impact of colder weather reflected in the higher provision for uncollectible accounts , higher maintenance costs and employee-related expenses . excluding the acquisition impact of $ 29.9 , depreciation and amortization expense increased $ 4.2 primarily due to additional depreciable property . 35 gas marketing operating revenues - gas marketing operating revenue for the twelve months ended september 30 , 2014 increased $ 57.2 from the same period last year due to higher volumes sold and higher per unit gas sales prices . higher gas sales prices were driven by the colder weather that resulted in a constrained pipeline infrastructure creating higher market volatility between differing regions . operating margin - gas marketing operating margin was $ 26.0 for fiscal year 2014 , an $ 8.3 increase compared to the same period last year . the increase in operating margin was primarily attributable to higher price volatility and basis differentials ( pricing differences between supply regions ) that stemmed from unusually cold winter . these higher weather-related margins offset lower run-rate margins versus the prior year , reflecting the expiration of two favorable gas supply contracts during 2013 and early 2014. other operating revenue and operating expenses - other operating revenue decreased $ 2.4 primarily due to the prior year having a one-time sale of propane inventory by laclede pipeline totaling $ 1.7. other operating expenses decreased $ 0.1 primarily due to the alagasco acquisition-related expenses discussed above being lower than the mge acquisition related expenses incurred in the comparative prior year period . interest charges interest charges during fiscal year 2014 increased $ 17.6 from fiscal year 2013 . the increase was primarily due to the december 2012 , march 2013 , august 2013 and august 2014 issuances of additional long-term debt of $ 25.0 , $ 100.0 , $ 450.0 and $ 625.0 , respectively , the june 2014 issuance of equity units totaling $ 143.8 , offset by the early bond redemption of $ 80.0 , 6.35 % first mortgage bonds on january 6 , 2014 , and the october 2012 maturity of $ 25.0 , 6.5 % first mortgage bonds . the assumption of alagasco debt contributed $ 1.3 to the increase in interest expense . average short-term interest rates were 0.5 % and 0.3 % for fiscal years 2014 and 2013 , respectively . average short-term borrowings were $ 82.3 and $ 34.2 for fiscal years 2014 and 2013 , respectively . income taxes income tax expense increased $ 14.7 in fiscal year 2014 from fiscal year 2013 primarily due to higher taxable income , slightly higher effective tax rates , and other minor variations . 2013 vs. 2012 consolidated laclede group 's net income was $ 52.8 in fiscal year 2013 , including net income of $ 1.8 related to mge , compared with $ 62.6 in fiscal year 2012 . basic and diluted earnings per share were $ 2.03 and $ 2.02 respectively for fiscal year 2013 compared with basic and diluted earnings per share of $ 2.80 and $ 2.79 respectively for fiscal year 2012 . net economic earnings were $ 65.0 in fiscal year 2013 , compared with $ 62.6 in fiscal year 2012 . net economic earnings per share were $ 2.87 in fiscal year 2013 , compared with $ 2.79 for fiscal year 2012 . earnings decreased in fiscal year 2013 compared to fiscal year 2012 primarily due to acquisition costs incurred during the period recorded in other partially offset by higher income reported by gas utility . additionally , earnings were impacted by decreased income from the gas marketing segment . the increase is primarily attributed to acquisition related items that are

letter of credit and restricted cash in connection with one of our leased facilities , the company is required to maintain a $ 1.2 million letter of credit . the letter of credit is secured by $ 1.2 million of cash in a money market account , which is classified as an `` other assets '' in our consolidated balance sheets . cash flows the following table presents a summary of our cash flows : replace_table_token_15_th 36 our total depreciation and amortization expense was comprised of the following : replace_table_token_16_th operating activities for the year ended december 31 , 2017 , net cash provided by operating activities was $ 19.8 million . our net loss was $ 29.8 million , which was impacted by non-cash charges of $ 22.6 million for depreciation and amortization , $ 9.4 million of amortization of debt discount and issuance costs , $ 13.7 million of stock-based compensation , $ 2.1 million related to proceeds received from the sale of our cost basis equity investment and $ 3.1 million for restructuring and other costs . cash provided by operations from changes in our working capital include a $ 9.1 million decrease in accounts receivable , net , a $ 2.5 million increase in accounts payable and a $ 1.7 million decrease in prepaid expenses and other current assets , offset by cash used in operations from a $ 5.5 million decrease in accrued expenses and other liabilities and a $ 2.9 million decrease in deferred revenue . net cash provided by operating activities was $ 4.5 million for the year ended december 31 , 2016 .

on july 2 , 2013 , laclede gas and other parties to the case filed a unanimous stipulation and agreement with the mopsc that authorized laclede gas to complete the acquisition of mge , subject to certain conditions , including restrictions relative to the timing of filing for general rate increases and reporting requirements . this unanimous stipulation and agreement was approved by the mopsc on july 17 , 2013. effective september 1 , 2013 , laclede gas closed on the purchase of mge assets and liabilities . gas utility - alagasco on august 31 , 2014 , the company purchased from energen 100 % of the outstanding common stock of alagasco , with the purchase price for the alagasco acquisition remaining subject to certain customary post-closing adjustments , which at this time are not expected to be material . alagasco is the largest natural gas distribution utility in the state of alabama . 27 alagasco purchases natural gas through interstate and intrastate suppliers and distributes the purchased gas through its distribution facilities for sale to residential , commercial , and industrial customers and other end-users of natural gas . alagasco also provides transportation services to large industrial and commercial customers located on its distribution system . these transportation customers , using alagasco as their agent or acting on their own , purchase gas directly from marketers or suppliers and arrange for delivery of the gas into the alagasco distribution system . alagasco charges a fee to transport such customer-owned gas through its distribution system to the customers ' facilities . alagasco 's service territory is located in central and north alabama and includes 186 cities and communities in 32 counties . the aggregate population of the counties served by alagasco is estimated to be 3.0 million . among the cities served by alagasco are birmingham , the center of the largest metropolitan area in alabama , and montgomery , the state capital . during 2014 , alagasco served an average of 391,840 residential customers and 31,236 commercial , industrial and transportation customers . the alagasco distribution system includes approximately 23,000 miles of main , service lines , odorization regulation facilities , and customer meters . gas marketing laclede energy resources , inc. is engaged in the marketing of natural gas and related activities on a non-regulated basis and is reported in the gas marketing segment . ler markets natural gas to both on-system utility transportation customers and customers outside of laclede gas ' traditional service territory , including large retail and wholesale customers . ler 's operations and customer base are more subject to fluctuations in market conditions than the utilities . ler entered into a new 10 year contract for 1 bcf of natural gas storage effective august 1 , 2013 and has an additional 1 bcf storage contracted through january 2016. business evaluation factors based on the nature of the business of the company and its subsidiaries , as well as current economic conditions , management focuses on the following key variables in evaluating the financial condition and results of operations and managing the business : gas utility segment : the utilities ' ability to recover the costs of purchasing and distributing natural gas from their customers ; the impact of weather and other factors , such as customer conservation , on revenues and expenses ; changes in the regulatory environment at the federal , state , and local levels , as well as decisions by regulators , that impact the utilities ' ability to earn its authorized rate of return in all service territories they serve ; the utilities ' ability to access credit markets and maintain working capital sufficient to meet operating requirements ; the effect of natural gas price volatility on the business ; and the ability to integrate the operations of all acquisitions . gas marketing segment : the risks of competition ; fluctuations in natural gas prices ; new national pipeline infrastructure projects ; the ability to procure firm transportation and storage services at reasonable rates ; credit and or capital market access ; counterparty risks ; and the effect of natural gas price volatility on the business . further information regarding how management seeks to manage these key variables is discussed below . gas utility the utilities provide reliable natural gas services at a reasonable cost , while maintaining and building secure and dependable infrastructures . the utilities ' strategies focus on improving both performance and the ability to recover their authorized distribution costs and rates of return . the utilities ' distribution costs are the essential , primarily fixed , expenditures it must incur to operate and maintain more than 53,000 miles of mains and services comprising the natural gas distribution systems and related storage facilities for laclede gas and alagasco . 28 the utilities ' distribution costs include wages and employee benefit costs , depreciation and maintenance expenses , and other regulated utility operating expenses , excluding natural and propane gas expense . distribution costs are considered in the rate-making process , and recovery of these types of costs is included in revenues generated through the utilities ' tariff rates . laclede gas ' tariff rates are approved by the mopsc , whereas alagasco 's tariff rates are approved by the apsc . laclede gas also has an off-system sales and capacity release income stream that is regulated by tariff . laclede gas ' income from off-system sales and capacity release remains subject to fluctuations in market conditions . laclede gas is allowed to retain the following annual income ( shown by legacy business ) : replace_table_token_9_th some of the factors impacting the level of off-system sales include the availability and cost of laclede gas ' natural gas supply , the weather in its service area , and the weather in other markets . story_separator_special_tag the remaining increase in other operating expenses was due to the impact of colder weather reflected in the higher provision for uncollectible accounts , and higher maintenance and employee-related expenses . the remaining increase in depreciation and amortization was associated with capital spending in fiscal 2014. gas utility operating revenues - gas utility operating revenues for fiscal year 2014 increased $ 610.0 , compared to fiscal year 2013 , was primarily attributable to the following factors : replace_table_token_12_th temperatures experienced in laclede gas ' service area during 2014 were 13.3 % colder than the same period last year , and 11.4 % colder than normal . total system therms sold and transported were 1,876.6 million for fiscal year 2014 compared with 889.7 million for fiscal year 2013 . total off-system therms sold and transported outside of laclede gas ' service area were 125.8 million for fiscal year 2014 compared with 229.4 million for fiscal year 2013 . this decrease was due to colder temperatures and increased heating demand in our services areas , reducing the gas supply resources available for off-system sales or capacity release . operating margin - gas utility operating margin was $ 570.8 for fiscal year 2014 , a $ 222.3 increase over the same period last year . the increase was attributable to the following factors : ( $ millions ) operating margin from mge $ 186.5 operating margin from alagasco 14.8 cold weather impact - higher therms sold and transported 11.9 propane utility sales 6.1 gross receipts tax 3.0 total variation $ 222.3 the increase was primarily attributable to the acquisitions of mge and alagasco totaling $ 186.5 and $ 14.8 respectively . the higher system sales volume driven by the 13.3 % colder weather in the laclede gas service area contributed to $ 11.9 of the increase . $ 6.1 of the increase was the result of propane utility sales , with the remaining $ 3.0 the result of all other minor variations . operating expenses - gas utility other operating expenses in fiscal year 2014 increased $ 124.9 from fiscal year 2013 . of the $ 124.9 increase , $ 103.5 is attributable to the mge acquisition and $ 14.2 is the result of the alagasco acquisition . the remaining increase in other operating expenses was due to the impact of colder weather reflected in the higher provision for uncollectible accounts , higher maintenance costs and employee-related expenses . excluding the acquisition impact of $ 29.9 , depreciation and amortization expense increased $ 4.2 primarily due to additional depreciable property . 35 gas marketing operating revenues - gas marketing operating revenue for the twelve months ended september 30 , 2014 increased $ 57.2 from the same period last year due to higher volumes sold and higher per unit gas sales prices . higher gas sales prices were driven by the colder weather that resulted in a constrained pipeline infrastructure creating higher market volatility between differing regions . operating margin - gas marketing operating margin was $ 26.0 for fiscal year 2014 , an $ 8.3 increase compared to the same period last year . the increase in operating margin was primarily attributable to higher price volatility and basis differentials ( pricing differences between supply regions ) that stemmed from unusually cold winter . these higher weather-related margins offset lower run-rate margins versus the prior year , reflecting the expiration of two favorable gas supply contracts during 2013 and early 2014. other operating revenue and operating expenses - other operating revenue decreased $ 2.4 primarily due to the prior year having a one-time sale of propane inventory by laclede pipeline totaling $ 1.7. other operating expenses decreased $ 0.1 primarily due to the alagasco acquisition-related expenses discussed above being lower than the mge acquisition related expenses incurred in the comparative prior year period . interest charges interest charges during fiscal year 2014 increased $ 17.6 from fiscal year 2013 . the increase was primarily due to the december 2012 , march 2013 , august 2013 and august 2014 issuances of additional long-term debt of $ 25.0 , $ 100.0 , $ 450.0 and $ 625.0 , respectively , the june 2014 issuance of equity units totaling $ 143.8 , offset by the early bond redemption of $ 80.0 , 6.35 % first mortgage bonds on january 6 , 2014 , and the october 2012 maturity of $ 25.0 , 6.5 % first mortgage bonds . the assumption of alagasco debt contributed $ 1.3 to the increase in interest expense . average short-term interest rates were 0.5 % and 0.3 % for fiscal years 2014 and 2013 , respectively . average short-term borrowings were $ 82.3 and $ 34.2 for fiscal years 2014 and 2013 , respectively . income taxes income tax expense increased $ 14.7 in fiscal year 2014 from fiscal year 2013 primarily due to higher taxable income , slightly higher effective tax rates , and other minor variations . 2013 vs. 2012 consolidated laclede group 's net income was $ 52.8 in fiscal year 2013 , including net income of $ 1.8 related to mge , compared with $ 62.6 in fiscal year 2012 . basic and diluted earnings per share were $ 2.03 and $ 2.02 respectively for fiscal year 2013 compared with basic and diluted earnings per share of $ 2.80 and $ 2.79 respectively for fiscal year 2012 . net economic earnings were $ 65.0 in fiscal year 2013 , compared with $ 62.6 in fiscal year 2012 . net economic earnings per share were $ 2.87 in fiscal year 2013 , compared with $ 2.79 for fiscal year 2012 . earnings decreased in fiscal year 2013 compared to fiscal year 2012 primarily due to acquisition costs incurred during the period recorded in other partially offset by higher income reported by gas utility . additionally , earnings were impacted by decreased income from the gas marketing segment . the increase is primarily attributed to acquisition related items that are

cash and cash equivalents laclede group had no temporary cash investments as of september 30 , 2014 . during fiscal year 2014 , short-term investments were diversified among highly-rated money market funds , interest-bearing deposits , commercial paper issues and us government or agency securities . the money market funds were accessible by the company on demand . these investments were used to support the working capital needs of the company 's subsidiaries and as a store of liquidity in advance of the alagasco acquisition . the balance of short-term investments ranged between $ 0.0 and $ 983.5 during fiscal year 2014 and ranged between $ 0.0 and $ 969.4 during fiscal year 2013 . due to lower yields available to laclede group on its short-term investments , laclede group elected to provide a portion of laclede gas ' short-term funding through intercompany lending during fiscal years 2014 and 2013 . short-term debt the company 's and the utilities ' short-term borrowing requirements typically peak during the colder months . these short-term cash requirements can be met through the sale of commercial paper supported by lines of credit with banks or through direct use of the lines of credit . at september 30 , 2014 , laclede gas had a syndicated line of credit in place of $ 450.0 from nine banks . the largest portion provided by a single bank under the line is 15.6 % .

our gross margin continued to be impacted by higher product input costs , including materials and labor , which more than offset the positive impacts of higher product selling prices , the growth of our direct to consumer business and benefits from ongoing product cost reduction initiatives . for fiscal 2012 , the growth of our net income was negatively affected by a year-over-year increase in our effective tax rate . however , diluted earnings per share grew at a higher rate than net income due to a 3 % decrease in the weighted average number of diluted common shares outstanding , driven by share repurchases during fiscal 2012 and 2011. as part of our long-term growth strategy , we continually evaluate our existing portfolio of businesses to ensure the company is investing in those businesses that are accretive to the nike brand , and with the largest growth potential and highest returns . on may 31 , 2012 , we announced our intention to divest of the cole haan and umbro businesses , which will allow us to focus our resources on driving growth in the nike , jordan , converse and hurley brands . for additional details , refer to our “other businesses” section below . while we will continue to face headwinds from higher input costs and foreign exchange volatility in fiscal 2013 , we continue to see opportunities to drive future growth and remain committed to effectively managing our business to achieve our financial goals over the long-term , by executing against the operational strategies outlined above . results of operations replace_table_token_5_th 16 consolidated operating results revenues replace_table_token_6_th ( 1 ) results have been restated using actual exchange rates in use during the comparative period to enhance the visibility of the underlying business trends by excluding the impact of translation arising from foreign currency exchange rate fluctuations . ( 2 ) corporate revenues primarily consist of intercompany revenue eliminations and foreign currency revenue-related hedge gains and losses generated by entities within the nike brand geographic operating segments and certain other businesses through our centrally managed foreign exchange risk management program . ( 3 ) references to nike brand wholesale equivalent revenues are intended to provide context as to the overall current nike brand market footprint on a wholesale revenue basis . nike brand wholesale equivalent revenues consist of 1 ) sales to external wholesale customers and 2 ) internal sales from our wholesale operations to our direct to consumer operations at prices that are comparable to prices charged to external wholesale customers . nike brand wholesale equivalent revenues do not include the estimation of sales made by nike brand licensees as the amounts are not material . ( 4 ) others include all other categories and certain adjustments that are not allocated at the category level . 17 fiscal 2012 compared to fiscal 2011 on a currency neutral basis , revenues for nike , inc. grew 14 % for fiscal 2012 , driven by increases in revenues for both the nike brand and our other businesses . excluding the effects of changes in currency exchange rates , revenues for the nike brand increased 15 % , as every nike brand geography delivered higher revenues for fiscal 2012. north america contributed approximately 7 percentage points to the nike brand revenue increase , while the emerging markets and greater china geographies contributed approximately 4 and 2 percentage points to the nike brand revenue growth , respectively . revenues for our other businesses grew 11 % during fiscal 2012 , contributing 1 percentage point of our consolidated revenue growth . excluding the effects of changes in currency exchange rates , nike brand footwear and apparel revenue increased 15 % and 13 % , respectively , while nike brand equipment revenues increased 16 % during fiscal 2012. continuing to fuel the growth of our nike brand footwear business was the increased demand for performance products , including the nike lunar and free technologies . the increase in nike brand footwear revenue for fiscal 2012 was attributable to double-digit percentage growth in unit sales along with a low-single-digit percentage increase in average selling price per pair , primarily reflecting the favorable impact from product price increases , partially offset by higher discounts on close-out sales . the overall increase in footwear sales was driven by growth across all key categories , notably running , sportswear and basketball . for nike brand apparel , the increase in revenue for fiscal 2012 was driven by mid-single-digit percentage increases in both unit sales and average selling prices . the increase in average selling prices was primarily driven by product price increases , partially offset by a higher mix of close-out sales . the overall increase in apparel sales was reflective of increased demand across most key categories . while wholesale revenues remain the largest component of overall nike brand revenues , we continue to see growth in revenue through our direct to consumer channels . our nike brand direct to consumer operations include nike owned in-line and factory stores , as well as online sales through nike owned websites . for fiscal 2012 , direct to consumer channels represented approximately 17 % of our total nike brand revenues compared to 16 % in fiscal 2011. on a currency neutral basis , direct to consumer revenues grew 21 % for fiscal 2012 , as comparable store sales grew 13 % and we continue to expand our store network and e-commerce business . comparable store sales include revenues from nike owned in-line and factory stores for which all three of the following requirements have been met : the store has been open at least one year , square footage has not changed by more than 15 % within the past year , and the store has not been permanently repositioned within the past year . story_separator_special_tag for fiscal 2011 , the increase in north america 's ebit was primarily the result of revenue growth and leverage on selling and administrative expense , which more than offset a lower gross margin percentage . the decline in gross margin percentage was due primarily to increased air freight and product input costs , which more than offset the favorable impact from the growth of our direct to consumer business and fewer close-out sales . western europe replace_table_token_15_th fiscal 2012 compared to fiscal 2011 on a currency neutral basis , revenues for western europe increased 4 % for fiscal 2012 , as most territories reported revenue growth , which more than offset revenue declines in the u.k. & ireland and italy . revenues for the u.k. & ireland , the largest market in western europe , declined 3 % for the fiscal 2012 period . western europe 's direct to consumer revenues grew 18 % for fiscal 2012 , including 8 % growth in comparable store sales . excluding changes in currency exchange rates , footwear revenue in western europe increased 5 % for fiscal 2012 , primarily driven by a low-single-digit percentage growth in both unit sales and average selling price per pair , primarily reflective of product price increases , partially offset by higher discounts on in-line and close-out sales . the overall increase in footwear sales was driven by growth in running , basketball and football ( soccer ) , which more than offset a decline in action sports . excluding changes in currency exchange rates , apparel revenue in western europe increased 2 % for fiscal 2012. the year-over-year change was primarily driven by a mid-single-digit percentage increase in average selling price per unit , reflective of higher product prices . partially offsetting the increase in average selling price per unit was a mid-single-digit percentage decline in unit sales . the overall increase in apparel sales was driven by growth in football ( soccer ) and running , which more than offset a decline in sportswear . on a reported basis , revenues for western europe increased 7 % for fiscal 2012. however , ebit fell 18 % , primarily driven by a 350 basis point decline in gross margin and higher selling and administrative expense as a percentage of revenues . the decline in gross margin was driven by higher product input costs and the negative impact from changes in standard currency rates , which more than offset the favorable impact of product price increases and the growth of our direct to consumer business . the increase in selling and administrative expense as a percentage of revenues was mainly driven by an increased level of demand creation spending around the european football championships and london summer olympics . also reflected in western europe 's fiscal 2012 results was a $ 24 million charge relating to the restructuring of its operations . 22 fiscal 2011 compared to fiscal 2010 on a currency neutral basis , revenues for western europe increased 6 % for fiscal 2011 , attributable to growth in most territories . revenues for the u.k. & ireland , the largest market in western europe , grew 5 % for fiscal 2011. western europe 's direct to consumer revenues grew 10 % , which contributed approximately 1 percentage point to western europe 's revenue increase . the growth in the direct to consumer business was fueled by 6 % growth in comparable store sales . excluding changes in currency exchange rates , footwear revenue in western europe increased 8 % , driven by double-digit percentage growth in running , football ( soccer ) and action sports , which more than offset a slight revenue decline in sportswear . on a currency neutral basis , apparel revenue in western europe increased 4 % , primarily driven by double-digit percentage growth in football ( soccer ) and running , which more than offset a mid-single-digit revenue decline in sportswear . for fiscal 2011 , the decrease in western europe 's ebit was driven by unfavorable foreign currency translation and a lower gross margin percentage , all of which more than offset the increase in revenues and improved leverage on selling and administrative expense . the decline in the gross margin percentage was significantly impacted by the unfavorable year-over-year standard currency rates . also contributing to the decrease in the gross margin percentage was higher product input and air freight costs , higher royalty expenses related to sales of endorsed team products and higher full price discounts . these factors more than offset the favorable impact of fewer close-out sales . central & eastern europe replace_table_token_16_th fiscal 2012 compared to fiscal 2011 excluding the changes in currency exchange rates , revenues for central & eastern europe increased 17 % for fiscal 2012 , driven by growth across most territories , including double-digit growth in russia and turkey , which more than offset lower revenues in greece . excluding changes in currency exchange rates , central & eastern europe 's footwear revenue grew 13 % , primarily driven by double-digit percentage growth in unit sales and a low-single-digit percentage increase in average selling price per pair . the increase in average selling price per pair was reflective of product price increases which more than offset the negative impact of higher discounts on in-line and close-out sales . the overall increase in footwear sales was driven by growth across all key categories , most notably running , sportswear and football ( soccer ) . excluding changes in currency exchange rates , central & eastern europe 's apparel revenues grew 24 % , mainly driven by double-digit percentage growth in unit sales , offset by a slight decrease in average price per unit , mainly due to less favorable product mix and higher discounts on in-line sales , which more than offset the impact from product price increases . the overall increase in apparel sales was primarily driven by growth in

cash and cash equivalents laclede group had no temporary cash investments as of september 30 , 2014 . during fiscal year 2014 , short-term investments were diversified among highly-rated money market funds , interest-bearing deposits , commercial paper issues and us government or agency securities . the money market funds were accessible by the company on demand . these investments were used to support the working capital needs of the company 's subsidiaries and as a store of liquidity in advance of the alagasco acquisition . the balance of short-term investments ranged between $ 0.0 and $ 983.5 during fiscal year 2014 and ranged between $ 0.0 and $ 969.4 during fiscal year 2013 . due to lower yields available to laclede group on its short-term investments , laclede group elected to provide a portion of laclede gas ' short-term funding through intercompany lending during fiscal years 2014 and 2013 . short-term debt the company 's and the utilities ' short-term borrowing requirements typically peak during the colder months . these short-term cash requirements can be met through the sale of commercial paper supported by lines of credit with banks or through direct use of the lines of credit . at september 30 , 2014 , laclede gas had a syndicated line of credit in place of $ 450.0 from nine banks . the largest portion provided by a single bank under the line is 15.6 % .

our gross margin continued to be impacted by higher product input costs , including materials and labor , which more than offset the positive impacts of higher product selling prices , the growth of our direct to consumer business and benefits from ongoing product cost reduction initiatives . for fiscal 2012 , the growth of our net income was negatively affected by a year-over-year increase in our effective tax rate . however , diluted earnings per share grew at a higher rate than net income due to a 3 % decrease in the weighted average number of diluted common shares outstanding , driven by share repurchases during fiscal 2012 and 2011. as part of our long-term growth strategy , we continually evaluate our existing portfolio of businesses to ensure the company is investing in those businesses that are accretive to the nike brand , and with the largest growth potential and highest returns . on may 31 , 2012 , we announced our intention to divest of the cole haan and umbro businesses , which will allow us to focus our resources on driving growth in the nike , jordan , converse and hurley brands . for additional details , refer to our “other businesses” section below . while we will continue to face headwinds from higher input costs and foreign exchange volatility in fiscal 2013 , we continue to see opportunities to drive future growth and remain committed to effectively managing our business to achieve our financial goals over the long-term , by executing against the operational strategies outlined above . results of operations replace_table_token_5_th 16 consolidated operating results revenues replace_table_token_6_th ( 1 ) results have been restated using actual exchange rates in use during the comparative period to enhance the visibility of the underlying business trends by excluding the impact of translation arising from foreign currency exchange rate fluctuations . ( 2 ) corporate revenues primarily consist of intercompany revenue eliminations and foreign currency revenue-related hedge gains and losses generated by entities within the nike brand geographic operating segments and certain other businesses through our centrally managed foreign exchange risk management program . ( 3 ) references to nike brand wholesale equivalent revenues are intended to provide context as to the overall current nike brand market footprint on a wholesale revenue basis . nike brand wholesale equivalent revenues consist of 1 ) sales to external wholesale customers and 2 ) internal sales from our wholesale operations to our direct to consumer operations at prices that are comparable to prices charged to external wholesale customers . nike brand wholesale equivalent revenues do not include the estimation of sales made by nike brand licensees as the amounts are not material . ( 4 ) others include all other categories and certain adjustments that are not allocated at the category level . 17 fiscal 2012 compared to fiscal 2011 on a currency neutral basis , revenues for nike , inc. grew 14 % for fiscal 2012 , driven by increases in revenues for both the nike brand and our other businesses . excluding the effects of changes in currency exchange rates , revenues for the nike brand increased 15 % , as every nike brand geography delivered higher revenues for fiscal 2012. north america contributed approximately 7 percentage points to the nike brand revenue increase , while the emerging markets and greater china geographies contributed approximately 4 and 2 percentage points to the nike brand revenue growth , respectively . revenues for our other businesses grew 11 % during fiscal 2012 , contributing 1 percentage point of our consolidated revenue growth . excluding the effects of changes in currency exchange rates , nike brand footwear and apparel revenue increased 15 % and 13 % , respectively , while nike brand equipment revenues increased 16 % during fiscal 2012. continuing to fuel the growth of our nike brand footwear business was the increased demand for performance products , including the nike lunar and free technologies . the increase in nike brand footwear revenue for fiscal 2012 was attributable to double-digit percentage growth in unit sales along with a low-single-digit percentage increase in average selling price per pair , primarily reflecting the favorable impact from product price increases , partially offset by higher discounts on close-out sales . the overall increase in footwear sales was driven by growth across all key categories , notably running , sportswear and basketball . for nike brand apparel , the increase in revenue for fiscal 2012 was driven by mid-single-digit percentage increases in both unit sales and average selling prices . the increase in average selling prices was primarily driven by product price increases , partially offset by a higher mix of close-out sales . the overall increase in apparel sales was reflective of increased demand across most key categories . while wholesale revenues remain the largest component of overall nike brand revenues , we continue to see growth in revenue through our direct to consumer channels . our nike brand direct to consumer operations include nike owned in-line and factory stores , as well as online sales through nike owned websites . for fiscal 2012 , direct to consumer channels represented approximately 17 % of our total nike brand revenues compared to 16 % in fiscal 2011. on a currency neutral basis , direct to consumer revenues grew 21 % for fiscal 2012 , as comparable store sales grew 13 % and we continue to expand our store network and e-commerce business . comparable store sales include revenues from nike owned in-line and factory stores for which all three of the following requirements have been met : the store has been open at least one year , square footage has not changed by more than 15 % within the past year , and the store has not been permanently repositioned within the past year . story_separator_special_tag for fiscal 2011 , the increase in north america 's ebit was primarily the result of revenue growth and leverage on selling and administrative expense , which more than offset a lower gross margin percentage . the decline in gross margin percentage was due primarily to increased air freight and product input costs , which more than offset the favorable impact from the growth of our direct to consumer business and fewer close-out sales . western europe replace_table_token_15_th fiscal 2012 compared to fiscal 2011 on a currency neutral basis , revenues for western europe increased 4 % for fiscal 2012 , as most territories reported revenue growth , which more than offset revenue declines in the u.k. & ireland and italy . revenues for the u.k. & ireland , the largest market in western europe , declined 3 % for the fiscal 2012 period . western europe 's direct to consumer revenues grew 18 % for fiscal 2012 , including 8 % growth in comparable store sales . excluding changes in currency exchange rates , footwear revenue in western europe increased 5 % for fiscal 2012 , primarily driven by a low-single-digit percentage growth in both unit sales and average selling price per pair , primarily reflective of product price increases , partially offset by higher discounts on in-line and close-out sales . the overall increase in footwear sales was driven by growth in running , basketball and football ( soccer ) , which more than offset a decline in action sports . excluding changes in currency exchange rates , apparel revenue in western europe increased 2 % for fiscal 2012. the year-over-year change was primarily driven by a mid-single-digit percentage increase in average selling price per unit , reflective of higher product prices . partially offsetting the increase in average selling price per unit was a mid-single-digit percentage decline in unit sales . the overall increase in apparel sales was driven by growth in football ( soccer ) and running , which more than offset a decline in sportswear . on a reported basis , revenues for western europe increased 7 % for fiscal 2012. however , ebit fell 18 % , primarily driven by a 350 basis point decline in gross margin and higher selling and administrative expense as a percentage of revenues . the decline in gross margin was driven by higher product input costs and the negative impact from changes in standard currency rates , which more than offset the favorable impact of product price increases and the growth of our direct to consumer business . the increase in selling and administrative expense as a percentage of revenues was mainly driven by an increased level of demand creation spending around the european football championships and london summer olympics . also reflected in western europe 's fiscal 2012 results was a $ 24 million charge relating to the restructuring of its operations . 22 fiscal 2011 compared to fiscal 2010 on a currency neutral basis , revenues for western europe increased 6 % for fiscal 2011 , attributable to growth in most territories . revenues for the u.k. & ireland , the largest market in western europe , grew 5 % for fiscal 2011. western europe 's direct to consumer revenues grew 10 % , which contributed approximately 1 percentage point to western europe 's revenue increase . the growth in the direct to consumer business was fueled by 6 % growth in comparable store sales . excluding changes in currency exchange rates , footwear revenue in western europe increased 8 % , driven by double-digit percentage growth in running , football ( soccer ) and action sports , which more than offset a slight revenue decline in sportswear . on a currency neutral basis , apparel revenue in western europe increased 4 % , primarily driven by double-digit percentage growth in football ( soccer ) and running , which more than offset a mid-single-digit revenue decline in sportswear . for fiscal 2011 , the decrease in western europe 's ebit was driven by unfavorable foreign currency translation and a lower gross margin percentage , all of which more than offset the increase in revenues and improved leverage on selling and administrative expense . the decline in the gross margin percentage was significantly impacted by the unfavorable year-over-year standard currency rates . also contributing to the decrease in the gross margin percentage was higher product input and air freight costs , higher royalty expenses related to sales of endorsed team products and higher full price discounts . these factors more than offset the favorable impact of fewer close-out sales . central & eastern europe replace_table_token_16_th fiscal 2012 compared to fiscal 2011 excluding the changes in currency exchange rates , revenues for central & eastern europe increased 17 % for fiscal 2012 , driven by growth across most territories , including double-digit growth in russia and turkey , which more than offset lower revenues in greece . excluding changes in currency exchange rates , central & eastern europe 's footwear revenue grew 13 % , primarily driven by double-digit percentage growth in unit sales and a low-single-digit percentage increase in average selling price per pair . the increase in average selling price per pair was reflective of product price increases which more than offset the negative impact of higher discounts on in-line and close-out sales . the overall increase in footwear sales was driven by growth across all key categories , most notably running , sportswear and football ( soccer ) . excluding changes in currency exchange rates , central & eastern europe 's apparel revenues grew 24 % , mainly driven by double-digit percentage growth in unit sales , offset by a slight decrease in average price per unit , mainly due to less favorable product mix and higher discounts on in-line sales , which more than offset the impact from product price increases . the overall increase in apparel sales was primarily driven by growth in

cash flow activity cash provided by operations was $ 1.9 billion for fiscal 2012 compared to $ 1.8 billion for fiscal 2011. our primary source of operating cash flow for fiscal 2012 was net income of $ 2.2 billion . our working capital was a net cash outflow of $ 799 million for fiscal 2012 as compared to a net cash outflow of $ 708 million for fiscal 2011. our investments in working capital increased primarily due to an increase in inventory and prepaid expenses . inventory at the end of fiscal 2012 increased 23 % compared to fiscal 2011 , primarily due to higher product input costs as well as changes in product mix , which more than offset the favorable impact of changes in currency exchange rates . inventory units for the nike brand grew 10 % compared to the prior year , driven by growth in futures orders and improved factory deliveries . the increase in prepaid expenses was primarily driven by higher prepaid demand creation expenses around the european football championships and london summer olympics . cash provided by investing activities was $ 514 million during fiscal 2012 , compared to a use of cash of $ 1,021 million for fiscal 2011. the year-over-year increase was primarily due to higher net sales and maturities of short-term investments of $ 1,124 million ( net of purchases ) in fiscal 2012 , compared to net purchases of $ 537 million ( net of sales and maturities ) during fiscal 2011. cash used by financing activities was $ 2.1 billion for fiscal 2012 compared to $ 2.0 billion for fiscal 2011. the increase in cash used by financing activities was primarily due to higher payments of long-term debt , notes payable , and dividends , which was partially offset by an increase in the proceeds from the exercise of stock options . in fiscal 2012 , we purchased 20.0 million shares of nike 's class b common stock for $ 1.8 billion .

that transload and store refined petroleum products , crude oil , condensate , and bulk products , including coal , petroleum coke , cement , alumina , salt and other bulk chemicals and ( ii ) the ownership and operation of our jones act tankers ; products pipelines—the ownership and operation of refined petroleum products and crude oil and condensate pipelines that deliver refined petroleum products ( gasoline , diesel fuel and jet fuel ) , ngl , crude oil , condensate and bio-fuels to various markets , plus the ownership and or operation of associated product terminals and petroleum pipeline transmix facilities ; 39 kinder morgan canada—the ownership and operation of the trans mountain pipeline system that transports crude oil and refined petroleum products from edmonton , alberta , canada to marketing terminals and refineries in british columbia , canada and the state of washington , plus the jet fuel aviation turbine fuel pipeline that serves the vancouver ( canada ) international airport ; and other—primarily includes other miscellaneous assets and liabilities purchased in our 2012 ep acquisition including ( i ) our corporate headquarters in houston , texas ; ( ii ) several physical natural gas contracts with power plants associated with ep 's legacy trading activities ; and ( iii ) other miscellaneous ep assets and liabilities . as an energy infrastructure owner and operator in multiple facets of the various u.s. and canadian energy industries and markets , we examine a number of variables and factors on a routine basis to evaluate our current performance and our prospects for the future . with respect to our interstate natural gas pipelines and related storage facilities , the revenues from these assets are primarily received under contracts with terms that are fixed for various and extended periods of time . to the extent practicable and economically feasible in light of our strategic plans and other factors , we generally attempt to mitigate risk of reduced volumes and prices by negotiating contracts with longer terms , with higher per-unit pricing and for a greater percentage of our available capacity . these long-term contracts are typically structured with a fixed-fee reserving the right to transport natural gas and specify that we receive the majority of our fee for making the capacity available , whether or not the customer actually chooses to utilize the capacity . similarly , the texas intrastate natural gas group , currently derives approximately 75 % of its sales and transport margins from long-term transport and sales contracts that include requirements with minimum volume payment obligations . as contracts expire , we have additional exposure to the longer term trends in supply and demand for natural gas . as of december 31 , 2014 , the remaining average contract life of our natural gas transportation contracts ( including intrastate pipelines ' purchase and sales contracts ) was approximately six years . our midstream group , which is within our natural gas pipelines segment , provides gathering and processing services primarily through our ( i ) ep midstream asset operations , which we acquired 50 % from kkr effective june 1 , 2012 , and 50 % from the may 25 , 2012 ep acquisition , ( ii ) our copano operations , which included the remaining 50 % ownership interest in eagle ford gathering llc ( eagle ford ) that we did not already own and which was acquired effective may 1 , 2013 and ( iii ) our kinderhawk operation , which gathers and treats natural gas in the haynesville and bossier shale gas formations located in northwest louisiana . these substantially fee-based gathering , processing and fractionation assets , along with our financial strength and extensive pipeline transportation and storage assets , provide an excellent platform to further grow our midstream group services footprint . the revenues and earnings we realize from gathering natural gas , processing natural gas in order to remove ngl from the natural gas stream , and fractionating ngl into their base components , are also affected by the volumes of natural gas made available to our systems , which are primarily driven by levels of natural gas drilling activity . our midstream group services are provided pursuant to a variety of arrangements , generally categorized ( by the nature of the commodity price risk ) as fee-based , percent-of-proceeds , percent-of-index and keep-whole . contracts may rely solely on a single type of arrangement , but more often they combine elements of two or more of the above , which helps us and our counterparties manage the extent to which each shares in the potential risks and benefits of changing commodity prices . in february 2015 , we acquired hiland partners ( hiland ) for a total purchase price of approximately $ 3 billion ( including assumption of debt ) . hiland 's assets consist of crude oil gathering and transportation pipelines and gas gathering and processing systems , primarily serving production from the bakken formation in north dakota and montana . most of hiland 's operations will be included in our midstream group within our natural gas pipelines segment . the co 2 source and transportation business primarily has third-party contracts with minimum volume requirements , which as of december 31 , 2014 , had a remaining average contract life of approximately ten years . co 2 sales contracts vary from customer to customer and have evolved over time as supply and demand conditions have changed . our recent contracts have generally provided for a delivered price tied to the price of crude oil , but with a floor price . on a volume-weighted basis , for third-party contracts making deliveries in 2015 , and utilizing the average oil price per barrel contained in our 2015 budget , approximately 86 % of our revenue is based on a fixed fee or floor price , and 14 % fluctuates with the price of oil . story_separator_special_tag furthermore , our analysis as of that date did not reflect any reporting units at risk , and subsequent to that date , no event has occurred indicating that the implied fair value of each of our reporting units is less than the carrying value of its net assets . for more information on our goodwill , see notes 2 “ summary of significant accounting policies ” and 7 “ goodwill and other intangibles ” to our consolidated financial statements . excluding goodwill , our other intangible assets include customer contracts , relationships and agreements , lease value , and technology-based assets . these intangible assets have definite lives , are being amortized in a systematic and rational manner over their estimated useful lives , and are reported separately as “ other intangibles , net ” in our accompanying consolidated balance sheets . for more information on our amortizable intangibles , see note 7 “ goodwill and other intangibles ” to our consolidated financial statements . estimated net recoverable quantities of oil and gas we use the successful efforts method of accounting for our oil and gas producing activities . the successful efforts method inherently relies on the estimation of proved reserves , both developed and undeveloped . the existence and the estimated amount of proved reserves affect , among other things , whether certain costs are capitalized or expensed , the amount and timing of costs depleted or amortized into income , and the presentation of supplemental information on oil and gas producing 43 activities . the expected future cash flows to be generated by oil and gas producing properties used in testing for impairment of such properties also rely in part on estimates of net recoverable quantities of oil and gas . proved reserves are the estimated quantities of oil and gas that geologic and engineering data demonstrates with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions . estimates of proved reserves may change , either positively or negatively , as additional information becomes available and as contractual , economic and political conditions change . for more information on our ownership interests in the net quantities of proved oil and gas reserves and our measures of discounted future net cash flows from oil and gas reserves , please see “ supplemental information on oil and gas producing activities ( unaudited ) ” . the quantities of our proved oil and gas reserves and the measures of discounted future net cash flows from those oil and gas reserves as of december 31 , 2014 are based on the 12 month unweighted average of the first day of the month price realized in 2014. commodity prices fell substantially toward the end of 2014 and therefore , unless commodity prices recover in the next 12 months , the amount of our proved oil and gas reserves and the measures of discounted future net cash flows from those oil and gas reserves could be negatively impacted in 2015. any resulting reductions in our proved oil and gas reserves due to lower commodity pricing may increase our dd & a expense . sustained lower commodity prices may also negatively impact forward curve pricing that is used in testing for impairment , estimated total proved and risk-adjusted probable and possible oil and gas reserves , and related expected future cash flows , which may result in impairment of our oil producing interests . hedging activities we engage in a hedging program that utilizes derivative contracts to mitigate ( offset ) our exposure to fluctuations in energy commodity prices and to balance our exposure to fixed and variable interest rates , and we believe that these hedges are generally effective in realizing these objectives . according to the provisions of gaap , to be considered effective , changes in the value of a derivative contract or its resulting cash flows must substantially offset changes in the value or cash flows of the item being hedged , and any ineffective portion of the hedge gain or loss and any component excluded from the computation of the effectiveness of the derivative contract must be reported in earnings immediately . we may or may not apply hedge accounting to our derivative contracts depending on the circumstances . all of our derivative contracts are recorded at estimated fair value . since it is not always possible for us to engage in a hedging transaction that completely mitigates our exposure to unfavorable changes in commodity prices-a perfectly effective hedge-we often enter into hedges that are not completely effective in those instances where we believe to do so would be better than not hedging at all . but because the part of such hedging transactions that is not effective in offsetting undesired changes in commodity prices ( the ineffective portion ) is required to be recognized currently in earnings , our financial statements may reflect a gain or loss arising from an exposure to commodity prices for which we are unable to enter into a completely effective hedge . for example , when we purchase a commodity at one location and sell it at another , we may be unable to hedge completely our exposure to a differential in the price of the product between these two locations ; accordingly , our financial statements may reflect some volatility due to these hedges . for more information on our hedging activities , see note 13 “ risk management ” to our consolidated financial statements . employee benefit plans we reflect an asset or liability for our pension and other postretirement benefit plans based on their overfunded or underfunded status . as of december 31 , 2014 , our pension plans were underfunded by $ 427 million and our other postretirement benefits plans were underfunded by $ 235 million . our pension and other postretirement benefit obligations and net benefit costs are primarily based on actuarial calculations . we use various assumptions in performing

cash flow activity cash provided by operations was $ 1.9 billion for fiscal 2012 compared to $ 1.8 billion for fiscal 2011. our primary source of operating cash flow for fiscal 2012 was net income of $ 2.2 billion . our working capital was a net cash outflow of $ 799 million for fiscal 2012 as compared to a net cash outflow of $ 708 million for fiscal 2011. our investments in working capital increased primarily due to an increase in inventory and prepaid expenses . inventory at the end of fiscal 2012 increased 23 % compared to fiscal 2011 , primarily due to higher product input costs as well as changes in product mix , which more than offset the favorable impact of changes in currency exchange rates . inventory units for the nike brand grew 10 % compared to the prior year , driven by growth in futures orders and improved factory deliveries . the increase in prepaid expenses was primarily driven by higher prepaid demand creation expenses around the european football championships and london summer olympics . cash provided by investing activities was $ 514 million during fiscal 2012 , compared to a use of cash of $ 1,021 million for fiscal 2011. the year-over-year increase was primarily due to higher net sales and maturities of short-term investments of $ 1,124 million ( net of purchases ) in fiscal 2012 , compared to net purchases of $ 537 million ( net of sales and maturities ) during fiscal 2011. cash used by financing activities was $ 2.1 billion for fiscal 2012 compared to $ 2.0 billion for fiscal 2011. the increase in cash used by financing activities was primarily due to higher payments of long-term debt , notes payable , and dividends , which was partially offset by an increase in the proceeds from the exercise of stock options . in fiscal 2012 , we purchased 20.0 million shares of nike 's class b common stock for $ 1.8 billion .

that transload and store refined petroleum products , crude oil , condensate , and bulk products , including coal , petroleum coke , cement , alumina , salt and other bulk chemicals and ( ii ) the ownership and operation of our jones act tankers ; products pipelines—the ownership and operation of refined petroleum products and crude oil and condensate pipelines that deliver refined petroleum products ( gasoline , diesel fuel and jet fuel ) , ngl , crude oil , condensate and bio-fuels to various markets , plus the ownership and or operation of associated product terminals and petroleum pipeline transmix facilities ; 39 kinder morgan canada—the ownership and operation of the trans mountain pipeline system that transports crude oil and refined petroleum products from edmonton , alberta , canada to marketing terminals and refineries in british columbia , canada and the state of washington , plus the jet fuel aviation turbine fuel pipeline that serves the vancouver ( canada ) international airport ; and other—primarily includes other miscellaneous assets and liabilities purchased in our 2012 ep acquisition including ( i ) our corporate headquarters in houston , texas ; ( ii ) several physical natural gas contracts with power plants associated with ep 's legacy trading activities ; and ( iii ) other miscellaneous ep assets and liabilities . as an energy infrastructure owner and operator in multiple facets of the various u.s. and canadian energy industries and markets , we examine a number of variables and factors on a routine basis to evaluate our current performance and our prospects for the future . with respect to our interstate natural gas pipelines and related storage facilities , the revenues from these assets are primarily received under contracts with terms that are fixed for various and extended periods of time . to the extent practicable and economically feasible in light of our strategic plans and other factors , we generally attempt to mitigate risk of reduced volumes and prices by negotiating contracts with longer terms , with higher per-unit pricing and for a greater percentage of our available capacity . these long-term contracts are typically structured with a fixed-fee reserving the right to transport natural gas and specify that we receive the majority of our fee for making the capacity available , whether or not the customer actually chooses to utilize the capacity . similarly , the texas intrastate natural gas group , currently derives approximately 75 % of its sales and transport margins from long-term transport and sales contracts that include requirements with minimum volume payment obligations . as contracts expire , we have additional exposure to the longer term trends in supply and demand for natural gas . as of december 31 , 2014 , the remaining average contract life of our natural gas transportation contracts ( including intrastate pipelines ' purchase and sales contracts ) was approximately six years . our midstream group , which is within our natural gas pipelines segment , provides gathering and processing services primarily through our ( i ) ep midstream asset operations , which we acquired 50 % from kkr effective june 1 , 2012 , and 50 % from the may 25 , 2012 ep acquisition , ( ii ) our copano operations , which included the remaining 50 % ownership interest in eagle ford gathering llc ( eagle ford ) that we did not already own and which was acquired effective may 1 , 2013 and ( iii ) our kinderhawk operation , which gathers and treats natural gas in the haynesville and bossier shale gas formations located in northwest louisiana . these substantially fee-based gathering , processing and fractionation assets , along with our financial strength and extensive pipeline transportation and storage assets , provide an excellent platform to further grow our midstream group services footprint . the revenues and earnings we realize from gathering natural gas , processing natural gas in order to remove ngl from the natural gas stream , and fractionating ngl into their base components , are also affected by the volumes of natural gas made available to our systems , which are primarily driven by levels of natural gas drilling activity . our midstream group services are provided pursuant to a variety of arrangements , generally categorized ( by the nature of the commodity price risk ) as fee-based , percent-of-proceeds , percent-of-index and keep-whole . contracts may rely solely on a single type of arrangement , but more often they combine elements of two or more of the above , which helps us and our counterparties manage the extent to which each shares in the potential risks and benefits of changing commodity prices . in february 2015 , we acquired hiland partners ( hiland ) for a total purchase price of approximately $ 3 billion ( including assumption of debt ) . hiland 's assets consist of crude oil gathering and transportation pipelines and gas gathering and processing systems , primarily serving production from the bakken formation in north dakota and montana . most of hiland 's operations will be included in our midstream group within our natural gas pipelines segment . the co 2 source and transportation business primarily has third-party contracts with minimum volume requirements , which as of december 31 , 2014 , had a remaining average contract life of approximately ten years . co 2 sales contracts vary from customer to customer and have evolved over time as supply and demand conditions have changed . our recent contracts have generally provided for a delivered price tied to the price of crude oil , but with a floor price . on a volume-weighted basis , for third-party contracts making deliveries in 2015 , and utilizing the average oil price per barrel contained in our 2015 budget , approximately 86 % of our revenue is based on a fixed fee or floor price , and 14 % fluctuates with the price of oil . story_separator_special_tag furthermore , our analysis as of that date did not reflect any reporting units at risk , and subsequent to that date , no event has occurred indicating that the implied fair value of each of our reporting units is less than the carrying value of its net assets . for more information on our goodwill , see notes 2 “ summary of significant accounting policies ” and 7 “ goodwill and other intangibles ” to our consolidated financial statements . excluding goodwill , our other intangible assets include customer contracts , relationships and agreements , lease value , and technology-based assets . these intangible assets have definite lives , are being amortized in a systematic and rational manner over their estimated useful lives , and are reported separately as “ other intangibles , net ” in our accompanying consolidated balance sheets . for more information on our amortizable intangibles , see note 7 “ goodwill and other intangibles ” to our consolidated financial statements . estimated net recoverable quantities of oil and gas we use the successful efforts method of accounting for our oil and gas producing activities . the successful efforts method inherently relies on the estimation of proved reserves , both developed and undeveloped . the existence and the estimated amount of proved reserves affect , among other things , whether certain costs are capitalized or expensed , the amount and timing of costs depleted or amortized into income , and the presentation of supplemental information on oil and gas producing 43 activities . the expected future cash flows to be generated by oil and gas producing properties used in testing for impairment of such properties also rely in part on estimates of net recoverable quantities of oil and gas . proved reserves are the estimated quantities of oil and gas that geologic and engineering data demonstrates with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions . estimates of proved reserves may change , either positively or negatively , as additional information becomes available and as contractual , economic and political conditions change . for more information on our ownership interests in the net quantities of proved oil and gas reserves and our measures of discounted future net cash flows from oil and gas reserves , please see “ supplemental information on oil and gas producing activities ( unaudited ) ” . the quantities of our proved oil and gas reserves and the measures of discounted future net cash flows from those oil and gas reserves as of december 31 , 2014 are based on the 12 month unweighted average of the first day of the month price realized in 2014. commodity prices fell substantially toward the end of 2014 and therefore , unless commodity prices recover in the next 12 months , the amount of our proved oil and gas reserves and the measures of discounted future net cash flows from those oil and gas reserves could be negatively impacted in 2015. any resulting reductions in our proved oil and gas reserves due to lower commodity pricing may increase our dd & a expense . sustained lower commodity prices may also negatively impact forward curve pricing that is used in testing for impairment , estimated total proved and risk-adjusted probable and possible oil and gas reserves , and related expected future cash flows , which may result in impairment of our oil producing interests . hedging activities we engage in a hedging program that utilizes derivative contracts to mitigate ( offset ) our exposure to fluctuations in energy commodity prices and to balance our exposure to fixed and variable interest rates , and we believe that these hedges are generally effective in realizing these objectives . according to the provisions of gaap , to be considered effective , changes in the value of a derivative contract or its resulting cash flows must substantially offset changes in the value or cash flows of the item being hedged , and any ineffective portion of the hedge gain or loss and any component excluded from the computation of the effectiveness of the derivative contract must be reported in earnings immediately . we may or may not apply hedge accounting to our derivative contracts depending on the circumstances . all of our derivative contracts are recorded at estimated fair value . since it is not always possible for us to engage in a hedging transaction that completely mitigates our exposure to unfavorable changes in commodity prices-a perfectly effective hedge-we often enter into hedges that are not completely effective in those instances where we believe to do so would be better than not hedging at all . but because the part of such hedging transactions that is not effective in offsetting undesired changes in commodity prices ( the ineffective portion ) is required to be recognized currently in earnings , our financial statements may reflect a gain or loss arising from an exposure to commodity prices for which we are unable to enter into a completely effective hedge . for example , when we purchase a commodity at one location and sell it at another , we may be unable to hedge completely our exposure to a differential in the price of the product between these two locations ; accordingly , our financial statements may reflect some volatility due to these hedges . for more information on our hedging activities , see note 13 “ risk management ” to our consolidated financial statements . employee benefit plans we reflect an asset or liability for our pension and other postretirement benefit plans based on their overfunded or underfunded status . as of december 31 , 2014 , our pension plans were underfunded by $ 427 million and our other postretirement benefits plans were underfunded by $ 235 million . our pension and other postretirement benefit obligations and net benefit costs are primarily based on actuarial calculations . we use various assumptions in performing

credit ratings and capital market liquidity based on our historical record , we believe that our capital structure will continue to allow us to achieve our business objectives . we expect that our short-term liquidity needs will be met primarily through short-term borrowings . we are subject , however , to conditions in the equity and debt markets and there can be no assurance we will be able or willing to access the public or private markets for equity and or long-term senior notes in the future . if we were unable or unwilling to access the capital markets , we would be required to either restrict expansion capital expenditures and or potential future acquisitions or pursue debt financing alternatives , some of which could involve higher costs or negatively affect our and or our subsidiaries ' credit ratings . our short-term corporate debt rating is a-3 , prime-3 and f3 at standard and poor 's , moody 's investor services and fitch ratings , inc. , respectively . the following table represents kmi 's and kmp 's senior unsecured debt ratings as of december 31 , 2014. rating agency senior debt rating date of last change outlook standard and poor 's bbb- november 20 , 2014 stable moody 's investor services baa3 november 21 , 2014 stable fitch ratings , inc. bbb- november 20 , 2014 stable _ short-term liquidity as of december 31 , 2014 our principal sources of short-term liquidity are ( i ) our $ 4.0 billion revolving credit facility and associated $ 4.0 billion commercial paper program ( discussed following ) ; and ( ii ) cash from operations . the loan commitments under our revolving credit facility can be used to fund borrowings for working capital and other general corporate purposes and also serve as a backup for our commercial paper program . we provide for liquidity by maintaining a sizable amount of excess borrowing capacity under our credit facility and have consistently generated strong cash flow from operations , providing a source of funds of $ 4,467 million and $ 4,122 million in 2014 and 2013 , respectively ( the year-to-year increase is discussed below in “ cash flows—operating activities ” ) .

in addition , in january 2021 , we entered into an exclusive development and commercialization agreement with turning point for tpx-0022 , its met , src and csf1r inhibitor , in greater china . turning point received a $ 25.0 million upfront payment , and will receive with up to approximately $ 336.0 million in potential development , regulatory and sales-based milestone payments . turning point will also be eligible to receive mid-teen- to low-twenty-percent royalties based on annual net sales of tpx-0022 in the licensed territories . basis of presentation our consolidated statement of operations data for the years ended december 31 , 2018 , 2019 and 2020 and our consolidated statement of financial position data as of december 31 , 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this annual report . our consolidated financial statements appearing elsewhere in this annual report have been prepared in accordance with u.s. gaap . factors affecting our results of operations innovation platform research and development expenses we believe our ability to successfully develop product candidates will be the primary factor affecting our long-term competitiveness , as well as our future growth and development . developing high quality product candidates requires a significant investment of resources over a prolonged period of time , and a core part of our strategy is to continue making sustained investments in this area . as a result of this commitment , our pipeline of product candidates has been steadily advancing and expanding , with eleven late-stage clinical product candidates being investigated . for more information on the nature of the efforts and steps necessary to develop our product candidates , see “ business ” and “ government regulation . ” to date , we have financed our activities primarily through private placements , our initial public offering in september 2017 , multiple follow-on offerings and a secondary listing on the stock exchange of hong kong . through december 31 , 2020 , we have raised approximately $ 164.6 million in private equity financing and approximately $ 1,644.6 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us in our initial public offering , our subsequent follow-on offerings , and our secondary listing . our operations have consumed substantial amounts of cash since inception . the net cash used in our operating activities was $ 97.5 million , $ 191.0 million and $ 216.1 million , for the years ended december 31 , 2018 , 2019 and 2020 , respectively . we expect our expenditures to increase significantly in connection with our ongoing activities , particularly as we advance the clinical development of our eleven late-stage clinical product candidates and continue research and development of our pre-clinical-stage product candidates and initiate additional clinical trials of , and seek regulatory approval for , these and other future product candidates . these expenditures include : expenses incurred for payments to cros , investigators and clinical trial sites that conduct our clinical studies ; employee compensation related expenses , including salaries , benefits and equity compensation expense ; expenses for licensors ; the cost of acquiring , developing and manufacturing clinical study materials ; facilities , depreciation and other expenses , which include office leases and other overhead expenses ; costs associated with pre-clinical activities and regulatory operations ; -137- expenses associated with the construction and maintenance of our manufacturing facilities ; and costs associated with operating as a public company . for more information on the research and development expenses incurred for the development of our product candidates , see “ key components of results of operations—research and development expenses . ” selling , general and administrative expenses our selling , general and administrative expenses consist primarily of personnel compensation and related costs , including share-based compensation for commercial and administrative personnel . other selling , general and administrative expenses include product distribution and promotion costs , professional service fees for legal , intellectual property , consulting , auditing and tax services as well as other direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies used in selling , general and administrative activities . we anticipate that our selling , general and administrative expenses will increase in future periods to support increases in our commercial and research and development activities and as we continue to commercialize , develop , and manufacture our products and assets . these increases will likely include increased headcount , increased share compensation charges , increased product distribution and promotion costs , expanded infrastructure and increased costs for insurance . we also incur increased legal , compliance , accounting and investor and public relations expenses associated with being a public company . our ability to commercialize our product candidates all of our product candidates are still in development in china ( including , with respect to zejula , for indications not yet approved in china ) . as of december 31 , 2020 , ten of our product candidates are in clinical development and various others are in pre-clinical development in china . our ability to generate revenue from our product candidates is dependent on their receipt of regulatory approval for and successful commercialization of such products , which may never occur . certain of our product candidates may require additional pre-clinical and or clinical development , regulatory approval in multiple jurisdictions , manufacturing supply , substantial investment and significant marketing efforts before we generate any revenue from product sales . our license arrangements our results of operations have been , and we expect them to continue to be , affected by our licensing , collaboration and development agreements . story_separator_special_tag in china , we sell the products to distributors , who ultimately sell the products to health care providers . based on the nature of the arrangements , the performance obligations are satisfied upon the products delivery to distributors . rebates are offered to distributors , consistent with pharmaceutical industry practices . the estimated amount of unpaid or unbilled rebates is recorded as a reduction of revenue if any . estimated rebates are determined based on contracted rates , sales volumes and distributor inventories . we regularly review the information related to these estimates and adjust the amount accordingly . in hong kong , we sell the products to customers , which are typically healthcare providers such as oncology centers . we utilize a third party for warehousing services . based on the nature of the arrangement , we have determined that we are a principal in the transaction since we are primarily responsible for fulfilling the promise to provide the products to the customers , maintain inventory risk until delivery to the customers and have latitude in establishing the price . revenue is recognized at the amount to which we expect to be entitled in exchange for the sale of the products , which is the sales price agreed with the customers . consideration paid to the third party is recognized in operating expenses . we did not recognize any contract assets and contract liabilities as of december 31 , 2019 and 2020. share-based compensation we grant share options and non-vested restricted shares to eligible employees , management and directors and accounts for these share based awards in accordance with asc 718 , compensation-stock compensation . -145- employees ' share-based awards are measured at the grant date fair value of the awards and recognized as expenses ( 1 ) immediately at grant date if no vesting conditions are required ; or ( 2 ) using graded vesting method over the requisite service period , which is the vesting period . to the extent the required vesting conditions are not met resulting in the forfeiture of the share-based awards , previously recognized compensation expense relating to those awards are reversed . we determined the fair value of the stock options granted to employees using the black-scholes option valuation model . we grant share options to eligible non-employees and accounts for these share based awards in accordance with asc 718 , compensation-stock compensation . non-employees ' share-based awards are measured at the grant date fair value of the awards and recognized as expenses ( 1 ) immediately at grant date if no vesting conditions are required ; or ( 2 ) using graded vesting method over the requisite service period , which is the vesting period . all transactions in which goods or services are received in exchange for equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued , whichever is more reliably measurable . to the extent the required vesting conditions are not met resulting in the forfeiture of the share-based awards , previously recognized compensation expense relating to those awards are reversed . we determined the fair value of the stock options granted to non-employees using the black-scholes option valuation model . income taxes current income taxes are provided on the basis of net income for financial reporting purposes , adjusted for income and expense items which are not assessable or deductible for income tax purposes , in accordance with the regulations of the relevant tax jurisdictions . we follow the liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are determined based on the temporary differences between the financial statements carrying amounts and tax bases of assets and liabilities by applying enacted statutory tax rates that will be in effect in the period in which the temporary differences are expected to reverse . we record a valuation allowance to offset deferred tax assets if based on the weight of available evidence , it is more likely than not that some portion , or all , of the deferred tax assets will not be realized . the effect on deferred taxes of a change in tax rate is recognized in our consolidated financial statements in the period of change . in accordance with the provisions of asc 740 , income taxes , we recognize in our financial statements the benefit of a tax position if the tax position is “ more likely than not ” to prevail based on the facts and technical merits of the position . tax positions that meet the “ more likely than not ” recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement . we estimate our liability for unrecognized tax benefits which are periodically assessed and may be affected by changing interpretations of laws , rulings by tax authorities , changes and or developments with respect to tax audits , and expiration of the statute of limitations . the ultimate outcome for a particular tax position may not be determined with certainty prior to the conclusion of a tax audit and , in some cases , appeal or litigation process . we consider positive and negative evidence when determining whether some portion or all of our deferred tax assets will not be realized . this assessment considers , among other matters , the nature , frequency and severity of current and cumulative losses , forecasts of future profitability , the duration of statutory carry-forward periods , our historical results of operations , and our tax planning strategies . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . based upon the level of our historical taxable income and projections for future taxable income over the periods in which the

credit ratings and capital market liquidity based on our historical record , we believe that our capital structure will continue to allow us to achieve our business objectives . we expect that our short-term liquidity needs will be met primarily through short-term borrowings . we are subject , however , to conditions in the equity and debt markets and there can be no assurance we will be able or willing to access the public or private markets for equity and or long-term senior notes in the future . if we were unable or unwilling to access the capital markets , we would be required to either restrict expansion capital expenditures and or potential future acquisitions or pursue debt financing alternatives , some of which could involve higher costs or negatively affect our and or our subsidiaries ' credit ratings . our short-term corporate debt rating is a-3 , prime-3 and f3 at standard and poor 's , moody 's investor services and fitch ratings , inc. , respectively . the following table represents kmi 's and kmp 's senior unsecured debt ratings as of december 31 , 2014. rating agency senior debt rating date of last change outlook standard and poor 's bbb- november 20 , 2014 stable moody 's investor services baa3 november 21 , 2014 stable fitch ratings , inc. bbb- november 20 , 2014 stable _ short-term liquidity as of december 31 , 2014 our principal sources of short-term liquidity are ( i ) our $ 4.0 billion revolving credit facility and associated $ 4.0 billion commercial paper program ( discussed following ) ; and ( ii ) cash from operations . the loan commitments under our revolving credit facility can be used to fund borrowings for working capital and other general corporate purposes and also serve as a backup for our commercial paper program . we provide for liquidity by maintaining a sizable amount of excess borrowing capacity under our credit facility and have consistently generated strong cash flow from operations , providing a source of funds of $ 4,467 million and $ 4,122 million in 2014 and 2013 , respectively ( the year-to-year increase is discussed below in “ cash flows—operating activities ” ) .

in addition , in january 2021 , we entered into an exclusive development and commercialization agreement with turning point for tpx-0022 , its met , src and csf1r inhibitor , in greater china . turning point received a $ 25.0 million upfront payment , and will receive with up to approximately $ 336.0 million in potential development , regulatory and sales-based milestone payments . turning point will also be eligible to receive mid-teen- to low-twenty-percent royalties based on annual net sales of tpx-0022 in the licensed territories . basis of presentation our consolidated statement of operations data for the years ended december 31 , 2018 , 2019 and 2020 and our consolidated statement of financial position data as of december 31 , 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this annual report . our consolidated financial statements appearing elsewhere in this annual report have been prepared in accordance with u.s. gaap . factors affecting our results of operations innovation platform research and development expenses we believe our ability to successfully develop product candidates will be the primary factor affecting our long-term competitiveness , as well as our future growth and development . developing high quality product candidates requires a significant investment of resources over a prolonged period of time , and a core part of our strategy is to continue making sustained investments in this area . as a result of this commitment , our pipeline of product candidates has been steadily advancing and expanding , with eleven late-stage clinical product candidates being investigated . for more information on the nature of the efforts and steps necessary to develop our product candidates , see “ business ” and “ government regulation . ” to date , we have financed our activities primarily through private placements , our initial public offering in september 2017 , multiple follow-on offerings and a secondary listing on the stock exchange of hong kong . through december 31 , 2020 , we have raised approximately $ 164.6 million in private equity financing and approximately $ 1,644.6 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us in our initial public offering , our subsequent follow-on offerings , and our secondary listing . our operations have consumed substantial amounts of cash since inception . the net cash used in our operating activities was $ 97.5 million , $ 191.0 million and $ 216.1 million , for the years ended december 31 , 2018 , 2019 and 2020 , respectively . we expect our expenditures to increase significantly in connection with our ongoing activities , particularly as we advance the clinical development of our eleven late-stage clinical product candidates and continue research and development of our pre-clinical-stage product candidates and initiate additional clinical trials of , and seek regulatory approval for , these and other future product candidates . these expenditures include : expenses incurred for payments to cros , investigators and clinical trial sites that conduct our clinical studies ; employee compensation related expenses , including salaries , benefits and equity compensation expense ; expenses for licensors ; the cost of acquiring , developing and manufacturing clinical study materials ; facilities , depreciation and other expenses , which include office leases and other overhead expenses ; costs associated with pre-clinical activities and regulatory operations ; -137- expenses associated with the construction and maintenance of our manufacturing facilities ; and costs associated with operating as a public company . for more information on the research and development expenses incurred for the development of our product candidates , see “ key components of results of operations—research and development expenses . ” selling , general and administrative expenses our selling , general and administrative expenses consist primarily of personnel compensation and related costs , including share-based compensation for commercial and administrative personnel . other selling , general and administrative expenses include product distribution and promotion costs , professional service fees for legal , intellectual property , consulting , auditing and tax services as well as other direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies used in selling , general and administrative activities . we anticipate that our selling , general and administrative expenses will increase in future periods to support increases in our commercial and research and development activities and as we continue to commercialize , develop , and manufacture our products and assets . these increases will likely include increased headcount , increased share compensation charges , increased product distribution and promotion costs , expanded infrastructure and increased costs for insurance . we also incur increased legal , compliance , accounting and investor and public relations expenses associated with being a public company . our ability to commercialize our product candidates all of our product candidates are still in development in china ( including , with respect to zejula , for indications not yet approved in china ) . as of december 31 , 2020 , ten of our product candidates are in clinical development and various others are in pre-clinical development in china . our ability to generate revenue from our product candidates is dependent on their receipt of regulatory approval for and successful commercialization of such products , which may never occur . certain of our product candidates may require additional pre-clinical and or clinical development , regulatory approval in multiple jurisdictions , manufacturing supply , substantial investment and significant marketing efforts before we generate any revenue from product sales . our license arrangements our results of operations have been , and we expect them to continue to be , affected by our licensing , collaboration and development agreements . story_separator_special_tag in china , we sell the products to distributors , who ultimately sell the products to health care providers . based on the nature of the arrangements , the performance obligations are satisfied upon the products delivery to distributors . rebates are offered to distributors , consistent with pharmaceutical industry practices . the estimated amount of unpaid or unbilled rebates is recorded as a reduction of revenue if any . estimated rebates are determined based on contracted rates , sales volumes and distributor inventories . we regularly review the information related to these estimates and adjust the amount accordingly . in hong kong , we sell the products to customers , which are typically healthcare providers such as oncology centers . we utilize a third party for warehousing services . based on the nature of the arrangement , we have determined that we are a principal in the transaction since we are primarily responsible for fulfilling the promise to provide the products to the customers , maintain inventory risk until delivery to the customers and have latitude in establishing the price . revenue is recognized at the amount to which we expect to be entitled in exchange for the sale of the products , which is the sales price agreed with the customers . consideration paid to the third party is recognized in operating expenses . we did not recognize any contract assets and contract liabilities as of december 31 , 2019 and 2020. share-based compensation we grant share options and non-vested restricted shares to eligible employees , management and directors and accounts for these share based awards in accordance with asc 718 , compensation-stock compensation . -145- employees ' share-based awards are measured at the grant date fair value of the awards and recognized as expenses ( 1 ) immediately at grant date if no vesting conditions are required ; or ( 2 ) using graded vesting method over the requisite service period , which is the vesting period . to the extent the required vesting conditions are not met resulting in the forfeiture of the share-based awards , previously recognized compensation expense relating to those awards are reversed . we determined the fair value of the stock options granted to employees using the black-scholes option valuation model . we grant share options to eligible non-employees and accounts for these share based awards in accordance with asc 718 , compensation-stock compensation . non-employees ' share-based awards are measured at the grant date fair value of the awards and recognized as expenses ( 1 ) immediately at grant date if no vesting conditions are required ; or ( 2 ) using graded vesting method over the requisite service period , which is the vesting period . all transactions in which goods or services are received in exchange for equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued , whichever is more reliably measurable . to the extent the required vesting conditions are not met resulting in the forfeiture of the share-based awards , previously recognized compensation expense relating to those awards are reversed . we determined the fair value of the stock options granted to non-employees using the black-scholes option valuation model . income taxes current income taxes are provided on the basis of net income for financial reporting purposes , adjusted for income and expense items which are not assessable or deductible for income tax purposes , in accordance with the regulations of the relevant tax jurisdictions . we follow the liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are determined based on the temporary differences between the financial statements carrying amounts and tax bases of assets and liabilities by applying enacted statutory tax rates that will be in effect in the period in which the temporary differences are expected to reverse . we record a valuation allowance to offset deferred tax assets if based on the weight of available evidence , it is more likely than not that some portion , or all , of the deferred tax assets will not be realized . the effect on deferred taxes of a change in tax rate is recognized in our consolidated financial statements in the period of change . in accordance with the provisions of asc 740 , income taxes , we recognize in our financial statements the benefit of a tax position if the tax position is “ more likely than not ” to prevail based on the facts and technical merits of the position . tax positions that meet the “ more likely than not ” recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement . we estimate our liability for unrecognized tax benefits which are periodically assessed and may be affected by changing interpretations of laws , rulings by tax authorities , changes and or developments with respect to tax audits , and expiration of the statute of limitations . the ultimate outcome for a particular tax position may not be determined with certainty prior to the conclusion of a tax audit and , in some cases , appeal or litigation process . we consider positive and negative evidence when determining whether some portion or all of our deferred tax assets will not be realized . this assessment considers , among other matters , the nature , frequency and severity of current and cumulative losses , forecasts of future profitability , the duration of statutory carry-forward periods , our historical results of operations , and our tax planning strategies . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . based upon the level of our historical taxable income and projections for future taxable income over the periods in which the

net cash used in operating activities during the year ended december 31 , 2020 , our operating activities used $ 216.1 million of cash , which resulted principally from our net loss of $ 268.9 million , adjusted for non-cash charges of $ 34.6 million , and by cash provided in our operating assets and liabilities of $ 18.2 million . our net non-cash charges during the year ended december 31 , 2020 primarily consisted of $ 4.6 million depreciation expense , $ 24.8 million share-based compensation expense and $ 4.3 million noncash lease expense . during the year ended december 31 , 2019 , our operating activities used $ 191.0 million of cash , which resulted principally from our net loss of $ 195.1 million , adjusted for non-cash charges of $ 27.3 million , and by cash used in our operating assets and liabilities of $ 23.2 million . our net non-cash charges during the year ended december 31 , 2019 primarily consisted of $ 3.8 million depreciation expense , $ 20.3 million share-based compensation expense and $ 2.8 million noncash lease expense . -147- during the year ended december 31 , 2018 , our operating activities used $ 97.5 million of cash , which resulted principally from our net loss of $ 139.1 million , adjusted for non-cash charges of $ 14.2 million , and by cash provided by our operating assets and liabilities of $ 27.4 million .

management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions and conditions . our business we create and distribute products which we believe are entertaining , educational and beneficial to the well-being of infants and young children under our brands . we create , market and sell children 's videos , music , books and other . we license the use of our intellectual property , both domestically and internationally , to others to manufacture , market and sell products based on our characters and brand . we own , control , distribute and seek to build animated content and brands aimed at kids , and then license the brands and characters onto various products , including toys , publishing video games , music , apparel and soft goods . in most cases , we create our own original content . in other cases , we partner with existing rights holders to develop an idea or an existing brand . on november 15 , 2013 , we entered into an agreement and plan of reorganization ( the “ merger agreement ” ) with a squared entertainment llc , a delaware limited liability company ( “ a squared ” ) , a squared holdings llc , a california limited liability company and sole member of a squared ( the “ parent member ” ) and a2e acquisition llc , our newly formed , wholly-owned delaware subsidiary ( “ acquisition sub ” ) . upon closing of the transactions contemplated under the merger agreement ( the “ merger ” ) , which occurred concurrently with entering into the merger agreement , our acquisition sub merged with and into a squared , and a squared , as the surviving entity , became a wholly-owned subsidiary of the company . as a result of the merger , the company acquired the business and operations of a squared . a squared is a children 's entertainment production company that produces original content for children and families that provide entertaining and educational media experiences . a squared also creates comprehensive consumer product programs in the forms of toys , books and electronics . a squared works with broadcasters , digital and online distributors and retailers worldwide as well as major toy companies , video game companies and top licensees in the kids and family arena . on april 2 , 2014 , we filed a certificate of amendment to our articles of incorporation to affect a reverse split of our issued and outstanding common stock on a one-for-one hundred basis . the reverse stock split was effective with finra ( financial industry regulatory authority ) on april 7 , 2014. all common stock share and per share information in this annual report , including the accompanying consolidated financial statements and notes thereto , has been adjusted to reflect retrospective application of the reverse split , unless otherwise indicated . in november 2009 , a squared entertainment llc ( “ a squared ” ) formed a joint venture , stan lee comics , llc , with pow entertainment inc. ( “ pow ” ) , a california corporation , and archie comic publications , inc. ( “ archie ” ) , a new york corporation , to create , distribute , and exploit comic books and other intellectual property based on exclusive properties created by stan lee and owned by pow entertainment , inc. each of a squared , pow , and archie own one-third of stan lee comics , llc . upon formation , the parties agreed that pow would contribute certain properties to stan lee comics , llc as consideration for its ownership interest . similarly , a squared would contribute certain creative development functions and be entitled to the exercise of all audio-visual development , production and distribution rights in all media , as well as all merchandising rights , in and to the contributed properties as consideration for its ownership interest . finally , archie would be entitled to all comic book publication and distribution rights in and to the contributed properties as consideration for its ownership interest . each party would be entitled to one-third of any net proceeds derived from the contributed properties or their derivative works after recoupment of production cost and fees . stan lee comics , llc is the owner of the stan lee and the mighty 7 property . upon closing of the merger , the company assumed the rights to stan lee comics , llc held by a squared entertainment , llc . 13 results of operations fiscal year ended december 31 , 2013 compared to december 31 , 2012 our summary results are presented below : replace_table_token_1_th 14 revenues . revenues by product segment and for the company as a whole were as follows : replace_table_token_2_th product sales represent physical products in which the company holds intellectual property rights such as trademarks and copyrights , whether registered or unregistered , to the characters and which are manufactured and sold by the company either directly at wholesale to retail stores or direct to consumers through daily deal sites and our website . product sales decreased by $ 4,594,883 due in part to a general decline in market demand for cds and dvds . tv & home entertainment revenue totaled $ 505,552 during the twelve months ended 2013 , with no comparable amounts in 2012 due to the merger . story_separator_special_tag on august 30 , 2013 , the company issued 12 % convertible notes to several parties with a maturity date of october 21 , 2013 for an aggregate of $ 530,000 ( “ bridge notes ” ) . the bridge notes have a stated conversion rate of $ 1.212 and can be voluntarily converted at any time by the holder and mandatorily by the company upon certain conditions . cash was received in the aggregate of $ 309,000 from certain non-related parties . four officers and directors of the company , related parties , converted outstanding salaries payable to the new notes in the aggregate of $ 221,000. at issuance , a debt discount of $ 530,000 was recorded . costs related to the issuance of the bridge notes were recognized in 2013 totaling $ 30,715. on november 15 , 2013 , the company issued an aggregate of 448,613 shares of common stock to both non-related and related party holders of the company 's 12 % convertible promissory notes in aggregate principal amount of $ 530,000 and accrued , but unpaid , interest of $ 13,719 in connection with the automatic conversion of the bridge notes upon consummation of the merger . additional expense related to the issuance costs associated with the bridge notes was recognized in 2013 totaling $ 30,715. during 2013 , total accretion of the debt discount was $ 530,000 resulting in a debt discount balance of $ 0. during 2013 , interest expense associated with the related-party holders of these notes totaled $ 5,720. on february 1 , 2008 , isabel moeller , sister of our former chief executive officer , klaus moeller , loaned $ 310,000 to the company at an interest rate equal to 8 % per annum . the funds were borrowed from ms. moeller in order to reduce outstanding obligations due to genius products , inc. at that time . subsequent agreements extended the maturity date to january 15 , 2015 and reduced the stated interest rate to six ( 6 % ) percent per annum . repayments on the principle balance were made in the aggregate of $ 24,000 during february and april 2011. on april 1 , 2011 , ms. moeller agreed to convert $ 200,000 of the outstanding balance to shares of common stock of the company . on march 31 2012 , ms. moeller agreed to convert the remaining balance of outstanding principal and interest , in the amount of $ 173,385 , to shares of common stock of the company . interest expense for the twelve months ended december 31 , 2013 and 2012 was $ 0 and $ 2,562 , respectively , as the note was paid in full in 2012 . 17 story_separator_special_tag text-indent : 0.5in `` > the company reviews all intangible assets periodically to determine if the value has been impaired following the guidance of asc 350-20 – goodwill and asc 350-30 – general intangibles other than goodwill . capitalized production cost - the company capitalizes production costs for episodic series produced in accordance with asc 926-20 , entertainment-films - other assets - film costs . accordingly , production costs are capitalized at actual cost and then charged against revenue based on the initial market revenue evidenced by a firm commitment over the period of commitment . the company expenses all capitalized costs that exceed the initial market firm commitment revenue in the period of delivery of the episodes . the company capitalizes production costs for films produced in accordance with asc 926-20 , entertainment-films - other assets - film costs . accordingly , production costs are capitalized at actual cost and then charged against revenue quarterly as a cost of production based on the relative fair value of the film ( s ) delivered and recognized as revenue . the company evaluates their capitalized production costs annually and limits recorded amounts by their ability to recover such costs through expected future sales . the company also develops new videos , music , books and digital applications in addition to adding content , improved animation and bonus songs/features to its existing product catalog . in accordance with asc 350 - intangible assets and asc 730 - research and development , the costs of new product development and significant improvement to existing products are capitalized while routine and periodic alterations to existing products are expensed as incurred . revenue recognition - the company recognized revenue related to product sales when ( i ) the seller 's price is substantially fixed , ( ii ) shipment has occurred causing the buyer to be obligated to pay for product , ( iii ) the buyer has economic substance apart from the seller , and ( iv ) there is no significant obligation for future performance to directly bring about the resale of the product by the buyer as required by asc 605 - revenue recognition . revenues associated with the sale of products , are recorded when shipped to customers pursuant to approved customer purchase orders resulting in the transfer of title and risk of loss . cost of sales , rebates and discounts are recorded at the time of revenue recognition or at each financial reporting date . the company recognizes revenue in accordance with asc topic 926-605 , entertainment-films - revenue recognition . accordingly , the company recognizes revenue when ( i ) persuasive evidence of a sale with customer exists , ( ii ) the film is complete and has been delivered or is available for delivery , ( iii ) the license period of the arrangement has begun and the customer can begin its exploitation , exhibition , or sale , ( iv ) the arrangement fee is fixed or determinable , and ( v ) collection of the arrangement fee is reasonably assured . for its distribution , tv , and home entertainment income the company generally enters in to flat fee arrangements to deliver multiple films or episodes . the

net cash used in operating activities during the year ended december 31 , 2020 , our operating activities used $ 216.1 million of cash , which resulted principally from our net loss of $ 268.9 million , adjusted for non-cash charges of $ 34.6 million , and by cash provided in our operating assets and liabilities of $ 18.2 million . our net non-cash charges during the year ended december 31 , 2020 primarily consisted of $ 4.6 million depreciation expense , $ 24.8 million share-based compensation expense and $ 4.3 million noncash lease expense . during the year ended december 31 , 2019 , our operating activities used $ 191.0 million of cash , which resulted principally from our net loss of $ 195.1 million , adjusted for non-cash charges of $ 27.3 million , and by cash used in our operating assets and liabilities of $ 23.2 million . our net non-cash charges during the year ended december 31 , 2019 primarily consisted of $ 3.8 million depreciation expense , $ 20.3 million share-based compensation expense and $ 2.8 million noncash lease expense . -147- during the year ended december 31 , 2018 , our operating activities used $ 97.5 million of cash , which resulted principally from our net loss of $ 139.1 million , adjusted for non-cash charges of $ 14.2 million , and by cash provided by our operating assets and liabilities of $ 27.4 million .

management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions and conditions . our business we create and distribute products which we believe are entertaining , educational and beneficial to the well-being of infants and young children under our brands . we create , market and sell children 's videos , music , books and other . we license the use of our intellectual property , both domestically and internationally , to others to manufacture , market and sell products based on our characters and brand . we own , control , distribute and seek to build animated content and brands aimed at kids , and then license the brands and characters onto various products , including toys , publishing video games , music , apparel and soft goods . in most cases , we create our own original content . in other cases , we partner with existing rights holders to develop an idea or an existing brand . on november 15 , 2013 , we entered into an agreement and plan of reorganization ( the “ merger agreement ” ) with a squared entertainment llc , a delaware limited liability company ( “ a squared ” ) , a squared holdings llc , a california limited liability company and sole member of a squared ( the “ parent member ” ) and a2e acquisition llc , our newly formed , wholly-owned delaware subsidiary ( “ acquisition sub ” ) . upon closing of the transactions contemplated under the merger agreement ( the “ merger ” ) , which occurred concurrently with entering into the merger agreement , our acquisition sub merged with and into a squared , and a squared , as the surviving entity , became a wholly-owned subsidiary of the company . as a result of the merger , the company acquired the business and operations of a squared . a squared is a children 's entertainment production company that produces original content for children and families that provide entertaining and educational media experiences . a squared also creates comprehensive consumer product programs in the forms of toys , books and electronics . a squared works with broadcasters , digital and online distributors and retailers worldwide as well as major toy companies , video game companies and top licensees in the kids and family arena . on april 2 , 2014 , we filed a certificate of amendment to our articles of incorporation to affect a reverse split of our issued and outstanding common stock on a one-for-one hundred basis . the reverse stock split was effective with finra ( financial industry regulatory authority ) on april 7 , 2014. all common stock share and per share information in this annual report , including the accompanying consolidated financial statements and notes thereto , has been adjusted to reflect retrospective application of the reverse split , unless otherwise indicated . in november 2009 , a squared entertainment llc ( “ a squared ” ) formed a joint venture , stan lee comics , llc , with pow entertainment inc. ( “ pow ” ) , a california corporation , and archie comic publications , inc. ( “ archie ” ) , a new york corporation , to create , distribute , and exploit comic books and other intellectual property based on exclusive properties created by stan lee and owned by pow entertainment , inc. each of a squared , pow , and archie own one-third of stan lee comics , llc . upon formation , the parties agreed that pow would contribute certain properties to stan lee comics , llc as consideration for its ownership interest . similarly , a squared would contribute certain creative development functions and be entitled to the exercise of all audio-visual development , production and distribution rights in all media , as well as all merchandising rights , in and to the contributed properties as consideration for its ownership interest . finally , archie would be entitled to all comic book publication and distribution rights in and to the contributed properties as consideration for its ownership interest . each party would be entitled to one-third of any net proceeds derived from the contributed properties or their derivative works after recoupment of production cost and fees . stan lee comics , llc is the owner of the stan lee and the mighty 7 property . upon closing of the merger , the company assumed the rights to stan lee comics , llc held by a squared entertainment , llc . 13 results of operations fiscal year ended december 31 , 2013 compared to december 31 , 2012 our summary results are presented below : replace_table_token_1_th 14 revenues . revenues by product segment and for the company as a whole were as follows : replace_table_token_2_th product sales represent physical products in which the company holds intellectual property rights such as trademarks and copyrights , whether registered or unregistered , to the characters and which are manufactured and sold by the company either directly at wholesale to retail stores or direct to consumers through daily deal sites and our website . product sales decreased by $ 4,594,883 due in part to a general decline in market demand for cds and dvds . tv & home entertainment revenue totaled $ 505,552 during the twelve months ended 2013 , with no comparable amounts in 2012 due to the merger . story_separator_special_tag on august 30 , 2013 , the company issued 12 % convertible notes to several parties with a maturity date of october 21 , 2013 for an aggregate of $ 530,000 ( “ bridge notes ” ) . the bridge notes have a stated conversion rate of $ 1.212 and can be voluntarily converted at any time by the holder and mandatorily by the company upon certain conditions . cash was received in the aggregate of $ 309,000 from certain non-related parties . four officers and directors of the company , related parties , converted outstanding salaries payable to the new notes in the aggregate of $ 221,000. at issuance , a debt discount of $ 530,000 was recorded . costs related to the issuance of the bridge notes were recognized in 2013 totaling $ 30,715. on november 15 , 2013 , the company issued an aggregate of 448,613 shares of common stock to both non-related and related party holders of the company 's 12 % convertible promissory notes in aggregate principal amount of $ 530,000 and accrued , but unpaid , interest of $ 13,719 in connection with the automatic conversion of the bridge notes upon consummation of the merger . additional expense related to the issuance costs associated with the bridge notes was recognized in 2013 totaling $ 30,715. during 2013 , total accretion of the debt discount was $ 530,000 resulting in a debt discount balance of $ 0. during 2013 , interest expense associated with the related-party holders of these notes totaled $ 5,720. on february 1 , 2008 , isabel moeller , sister of our former chief executive officer , klaus moeller , loaned $ 310,000 to the company at an interest rate equal to 8 % per annum . the funds were borrowed from ms. moeller in order to reduce outstanding obligations due to genius products , inc. at that time . subsequent agreements extended the maturity date to january 15 , 2015 and reduced the stated interest rate to six ( 6 % ) percent per annum . repayments on the principle balance were made in the aggregate of $ 24,000 during february and april 2011. on april 1 , 2011 , ms. moeller agreed to convert $ 200,000 of the outstanding balance to shares of common stock of the company . on march 31 2012 , ms. moeller agreed to convert the remaining balance of outstanding principal and interest , in the amount of $ 173,385 , to shares of common stock of the company . interest expense for the twelve months ended december 31 , 2013 and 2012 was $ 0 and $ 2,562 , respectively , as the note was paid in full in 2012 . 17 story_separator_special_tag text-indent : 0.5in `` > the company reviews all intangible assets periodically to determine if the value has been impaired following the guidance of asc 350-20 – goodwill and asc 350-30 – general intangibles other than goodwill . capitalized production cost - the company capitalizes production costs for episodic series produced in accordance with asc 926-20 , entertainment-films - other assets - film costs . accordingly , production costs are capitalized at actual cost and then charged against revenue based on the initial market revenue evidenced by a firm commitment over the period of commitment . the company expenses all capitalized costs that exceed the initial market firm commitment revenue in the period of delivery of the episodes . the company capitalizes production costs for films produced in accordance with asc 926-20 , entertainment-films - other assets - film costs . accordingly , production costs are capitalized at actual cost and then charged against revenue quarterly as a cost of production based on the relative fair value of the film ( s ) delivered and recognized as revenue . the company evaluates their capitalized production costs annually and limits recorded amounts by their ability to recover such costs through expected future sales . the company also develops new videos , music , books and digital applications in addition to adding content , improved animation and bonus songs/features to its existing product catalog . in accordance with asc 350 - intangible assets and asc 730 - research and development , the costs of new product development and significant improvement to existing products are capitalized while routine and periodic alterations to existing products are expensed as incurred . revenue recognition - the company recognized revenue related to product sales when ( i ) the seller 's price is substantially fixed , ( ii ) shipment has occurred causing the buyer to be obligated to pay for product , ( iii ) the buyer has economic substance apart from the seller , and ( iv ) there is no significant obligation for future performance to directly bring about the resale of the product by the buyer as required by asc 605 - revenue recognition . revenues associated with the sale of products , are recorded when shipped to customers pursuant to approved customer purchase orders resulting in the transfer of title and risk of loss . cost of sales , rebates and discounts are recorded at the time of revenue recognition or at each financial reporting date . the company recognizes revenue in accordance with asc topic 926-605 , entertainment-films - revenue recognition . accordingly , the company recognizes revenue when ( i ) persuasive evidence of a sale with customer exists , ( ii ) the film is complete and has been delivered or is available for delivery , ( iii ) the license period of the arrangement has begun and the customer can begin its exploitation , exhibition , or sale , ( iv ) the arrangement fee is fixed or determinable , and ( v ) collection of the arrangement fee is reasonably assured . for its distribution , tv , and home entertainment income the company generally enters in to flat fee arrangements to deliver multiple films or episodes . the

liquidity fiscal year ended december 31 , 2013 compared to december 31 , 2012 cash totaled $ 527,110 and $ 447,548 at december 31 , 2013 and 2012 , respectively . the change in cash is as follows : replace_table_token_6_th during our fiscal years ended december 31 , 2013 and 2012 , our primary sources of cash were from investing and financing activities . during 2013 , our investing activities related primarily to cash provided by and assumed in the merger . during the comparable period in 2012 , our investing activities related to investment in intangible assets and purchases of other fixed assets . during 2013 , our financing activities related primarily to the sale of common stock as well as the issuance of short term debt . during the comparable period in 2012 , our financing activities related to the sale of common stock as well as the issuance of a certain debenture . during both periods , these funds were primarily used to fund operations . operating activities cash used by operations in the twelve months ended december 31 , 2013 was $ 1,120,317 as compared to a use of $ 935,323 during the same period of 2012 , representing an increase in cash used in operations of $ 184,994 based on the operating results discussed above . investing activities cash provided by investing activities for the twelve months ended december 31 , 2013 of $ 212,913 as compared to a use of funds of $ 59,637 for the comparable period in 2012 is the result of the assumption of $ 283,199 in cash from the merger .

million of cash and cash equivalents and $ 182.8 million of total assets as of september 30 , 2014 as compared to $ 19.1 million and $ 37.3 million as of september 30 , 2013 , respectively . 46 critical accounting policies and estimates management makes certain judgments and uses certain estimates and assumptions when applying accounting principles generally accepted in the united states in the preparation of our consolidated financial statements . we evaluate our estimates and judgments on an ongoing basis and base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances . our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results . we believe the following accounting policies are the most critical to us , in that they are important to the portrayal of our consolidated financial statements and require our most difficult , subjective or complex judgments in the preparation of our consolidated financial statements . for further information , see note 1 , organization and significant accounting policies , to our consolidated financial statements , which outlines our application of significant accounting policies and new accounting standards . revenue recognition revenue from product sales are recorded when persuasive evidence of an arrangement exists , title has passed and delivery has occurred , a price is fixed and determinable , and collection is reasonably assured . we may generate revenue from technology licenses , collaborative research and development arrangements , research grants and product sales . revenue under technology licenses and collaborative agreements typically consists of nonrefundable and or guaranteed technology license fees , collaborative research funding , and various milestone and future product royalty or profit-sharing payments . revenue associated with research and development funding payments under collaborative agreements is recognized ratably over the relevant periods specified in the agreement , generally the research and development period . revenue from up-front license fees , milestones and product royalties are recognized as earned based on the completion of the milestones and product sales , as defined in the respective agreements . payments received in advance of recognition as revenue are recorded as deferred revenue . business combinations in october 2011 , we acquired all of the outstanding common stock of roche madison , inc. and certain related intellectual property assets in exchange for a $ 50,000 promissory note , 1,288,158 shares of arrowhead common stock and certain contingent consideration , altogether an estimated value of $ 5.1 million on the date of the acquisition . we assigned the value of the consideration to the tangible assets and identifiable intangible assets and the liabilities assumed on the basis of their fair values on the date of acquisition . the excess of net assets over the consideration was recorded as a non-operating gain . in april 2012 , we acquired all of the outstanding common stock of alvos therapeutics , inc. in exchange for the issuance of 315,457 shares of arrowhead common stock , valued at $ 2.0 million at the time of acquisition . the consideration was assigned to its tangible and intangible assets , and liabilities based on estimated fair values at the time of acquisition . the allocation of value to certain items , including property and equipment , intangible assets and certain liabilities require management judgment , and is based upon the information available at the time of acquisition . impairment of long-lived assets we review long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable or that our assumptions about the useful lives of these assets are no longer appropriate . if impairment is indicated , recoverability is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future cash flows , an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset . impairment of intangible assets intangible assets consist of in-process research and development and license agreements acquired in conjunction with a business acquisition . intangible assets are monitored for potential impairment whenever events or circumstances indicate that the carrying amount may not be recoverable , and are also reviewed annually to determine whether any impairment is necessary . based on asu 2012-02 , the annual review of intangible assets is performed via a two-step process . first , a qualitative assessment is performed to determine if it is more likely than not that the intangible asset is impaired . if required , a quantitative assessment is performed and , if necessary , impairment is recorded . 47 stock-based compensation we recognize stock-based compensation expense for stock options based on the grant date fair value using the black-scholes options pricing model , which requires us to make assumptions regarding certain variables including the risk-free interest rate , expected stock price volatility , assumed forfeitures , and the expected life of the award . the grant date fair value of restricted stock units granted is based upon the quoted closing market price per share on the date of grant , adjusted for assumed forfeitures . expense for stock options and restricted stock units is recognized over the requisite service period . the assumptions used in calculating stock-based compensation expense represent management 's best estimates , but these estimates involve inherent uncertainties , and if factors change or the company used different assumptions , its stock-based compensation expense could be materially different in the future . story_separator_special_tag the decrease in expense is primarily due to a $ 1.0 million write down of a note receivable related to the sale of our former subsidiary , unidym , in 2013 , which was not repeated in the current year . additionally , the company received increased interest income during 2014 as it has invested its excess cash balances in short and long-term corporate bonds . the largest component of this line item is related to the change in the value of derivative liabilities related to certain warrants with a price adjustment feature , which requires derivative accounting . the change in value of derivative liabilities was approximately $ 6.0 million in 2014 and $ 5.3 million in 2013. results of operations comparison for 2013 and 2012 the company had a net loss of $ 31.7 million for the year ended september 30 , 201 3 , compared to a net loss of $ 22.1 million for the year ended september 30 , 201 2 , an increase of $ 9.6 million . the increase in the net loss was the result of a number of factors . from an operating standpoint , the main factor was higher r & d expenses of $ 3.3 million for preclinical glp toxicology studies and cgmp drug manufacturing in preparation of the clinical trial for arc-520 , as well as costs for the phase 1 clinical trial of arc-520 . general and administrative expenses were lower in 2013 by $ 2.9 million . this change was primarily due to the prior year write down of certain receivables from minority interest companies . salaries and payroll related expenses increased nominally in 2013 , primarily due to headcount increases and general salary adjustments . in 2013 , the company recorded a noncash impairment expense of $ 1.3 million to write off certain patents as a result of a termination of a license agreement . other expense was higher in 2013 by $ 6.1 million primarily due to noncash losses from the change in value of derivatives , as well as the write down of a note receivable obtained as part of our disposition of unidym in 2011. details of the results of operations are presented below . 52 revenues total revenue was $ 290,000 for the year ended september 30 , 2013 and $ 147,000 for the year ended september 30 , 2012. revenue is primarily composed of amortization of up-front patent license fee payments . in addition , the company had collaboration revenue of $ 115,000 during the year ended september 30 , 2013. operating expenses the analysis below details the operating expenses and discusses the expenditures of the company within the major expense categories . certain reclassifications have been made to prior period operating expense categories to conform to the current period presentation . for purposes of comparison , the amounts for the years ended september 30 , 201 3 and 201 2 are shown in the tables below . research and development expenses r & d expenses are related to the company 's on-going research and development efforts , primarily related to its laboratory research facility in madison , wisconsin , and also include outsourced r & d services . the following table provides details of research and development expense for the periods indicated below : ( in thousands ) replace_table_token_10_th laboratory supplies and services expense was $ 1,058,000 during the year ended september 30 , 2013 , compared to $ 794,000 in the comparable prior period . this increase in expense is associated with research and development efforts related to pre-clinical programs including sirna synthesis for the identification and screening of new liver and extra-hepatic targets , subcutaneous formulations to be utilized in therapeutic areas where chronic dosing may be required and assessing the interaction of arc-520 with other hepatitis therapeutics . in vivo studies expense was $ 303,00 0 during the year ended september 30 , 201 3 , compared to 232 ,000 in the comparable prior period . the current period expense relates to preclinical animal studies at our madison research facility , as the company tests formulations of new potential clinical candidates . outside lab and contract services expense was $ 533,000 during the year ended september 30 , 201 3 , compared to $ 496,000 in the comparable prior period . the increase was primarily related to oligonucleotide synthesis related to development of new clinical candidates . as arc-520 and other clinical candidates progress through clinical trials , outside lab and contract service expense is expected to increase . toxicology and efficacy studies expense was $ 1,588,000 during the year ended september 30 , 2013 , compared to $ 43,000 in the comparable prior period . the increase is primarily due to glp toxicology studies related to arc-520 , our hepatitis b clinical candidate in preparation for a phase 1 clinical trial . additionally , we initiated long-term toxicology studies to support a phase 2b , multi-dose clinical study for arc-520 . outside toxicology work fluctuates depending on the number of clinical candidates the company is developing and on the specific needs of each development candidate . 53 drug manufacturing expense was $ 2.6 million during the year ended september 30 , 201 3 , compared to $ 1.6 million in the comparable prior period . drug manufacturing expense for fiscal 2013 was related to the manufacturing campaign to produce materials for the arc-520 glp toxicology studies and the phase 1 clinical trial . the company utilized outside manufactures to produce these components . in the prior year , approximately half of the drug manufacturing expense was related to the production of polymer components for rondel . further development of rondel and calaa-01 was suspended as the company focused on its dpc delivery platform . clinical trial expense was $ 1,093,000 during the year ended september 30 , 2013 , compared to $ 599,000 in the comparable prior period . expenses relating to clinical trials increased as

liquidity fiscal year ended december 31 , 2013 compared to december 31 , 2012 cash totaled $ 527,110 and $ 447,548 at december 31 , 2013 and 2012 , respectively . the change in cash is as follows : replace_table_token_6_th during our fiscal years ended december 31 , 2013 and 2012 , our primary sources of cash were from investing and financing activities . during 2013 , our investing activities related primarily to cash provided by and assumed in the merger . during the comparable period in 2012 , our investing activities related to investment in intangible assets and purchases of other fixed assets . during 2013 , our financing activities related primarily to the sale of common stock as well as the issuance of short term debt . during the comparable period in 2012 , our financing activities related to the sale of common stock as well as the issuance of a certain debenture . during both periods , these funds were primarily used to fund operations . operating activities cash used by operations in the twelve months ended december 31 , 2013 was $ 1,120,317 as compared to a use of $ 935,323 during the same period of 2012 , representing an increase in cash used in operations of $ 184,994 based on the operating results discussed above . investing activities cash provided by investing activities for the twelve months ended december 31 , 2013 of $ 212,913 as compared to a use of funds of $ 59,637 for the comparable period in 2012 is the result of the assumption of $ 283,199 in cash from the merger .

million of cash and cash equivalents and $ 182.8 million of total assets as of september 30 , 2014 as compared to $ 19.1 million and $ 37.3 million as of september 30 , 2013 , respectively . 46 critical accounting policies and estimates management makes certain judgments and uses certain estimates and assumptions when applying accounting principles generally accepted in the united states in the preparation of our consolidated financial statements . we evaluate our estimates and judgments on an ongoing basis and base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances . our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results . we believe the following accounting policies are the most critical to us , in that they are important to the portrayal of our consolidated financial statements and require our most difficult , subjective or complex judgments in the preparation of our consolidated financial statements . for further information , see note 1 , organization and significant accounting policies , to our consolidated financial statements , which outlines our application of significant accounting policies and new accounting standards . revenue recognition revenue from product sales are recorded when persuasive evidence of an arrangement exists , title has passed and delivery has occurred , a price is fixed and determinable , and collection is reasonably assured . we may generate revenue from technology licenses , collaborative research and development arrangements , research grants and product sales . revenue under technology licenses and collaborative agreements typically consists of nonrefundable and or guaranteed technology license fees , collaborative research funding , and various milestone and future product royalty or profit-sharing payments . revenue associated with research and development funding payments under collaborative agreements is recognized ratably over the relevant periods specified in the agreement , generally the research and development period . revenue from up-front license fees , milestones and product royalties are recognized as earned based on the completion of the milestones and product sales , as defined in the respective agreements . payments received in advance of recognition as revenue are recorded as deferred revenue . business combinations in october 2011 , we acquired all of the outstanding common stock of roche madison , inc. and certain related intellectual property assets in exchange for a $ 50,000 promissory note , 1,288,158 shares of arrowhead common stock and certain contingent consideration , altogether an estimated value of $ 5.1 million on the date of the acquisition . we assigned the value of the consideration to the tangible assets and identifiable intangible assets and the liabilities assumed on the basis of their fair values on the date of acquisition . the excess of net assets over the consideration was recorded as a non-operating gain . in april 2012 , we acquired all of the outstanding common stock of alvos therapeutics , inc. in exchange for the issuance of 315,457 shares of arrowhead common stock , valued at $ 2.0 million at the time of acquisition . the consideration was assigned to its tangible and intangible assets , and liabilities based on estimated fair values at the time of acquisition . the allocation of value to certain items , including property and equipment , intangible assets and certain liabilities require management judgment , and is based upon the information available at the time of acquisition . impairment of long-lived assets we review long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable or that our assumptions about the useful lives of these assets are no longer appropriate . if impairment is indicated , recoverability is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future cash flows , an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset . impairment of intangible assets intangible assets consist of in-process research and development and license agreements acquired in conjunction with a business acquisition . intangible assets are monitored for potential impairment whenever events or circumstances indicate that the carrying amount may not be recoverable , and are also reviewed annually to determine whether any impairment is necessary . based on asu 2012-02 , the annual review of intangible assets is performed via a two-step process . first , a qualitative assessment is performed to determine if it is more likely than not that the intangible asset is impaired . if required , a quantitative assessment is performed and , if necessary , impairment is recorded . 47 stock-based compensation we recognize stock-based compensation expense for stock options based on the grant date fair value using the black-scholes options pricing model , which requires us to make assumptions regarding certain variables including the risk-free interest rate , expected stock price volatility , assumed forfeitures , and the expected life of the award . the grant date fair value of restricted stock units granted is based upon the quoted closing market price per share on the date of grant , adjusted for assumed forfeitures . expense for stock options and restricted stock units is recognized over the requisite service period . the assumptions used in calculating stock-based compensation expense represent management 's best estimates , but these estimates involve inherent uncertainties , and if factors change or the company used different assumptions , its stock-based compensation expense could be materially different in the future . story_separator_special_tag the decrease in expense is primarily due to a $ 1.0 million write down of a note receivable related to the sale of our former subsidiary , unidym , in 2013 , which was not repeated in the current year . additionally , the company received increased interest income during 2014 as it has invested its excess cash balances in short and long-term corporate bonds . the largest component of this line item is related to the change in the value of derivative liabilities related to certain warrants with a price adjustment feature , which requires derivative accounting . the change in value of derivative liabilities was approximately $ 6.0 million in 2014 and $ 5.3 million in 2013. results of operations comparison for 2013 and 2012 the company had a net loss of $ 31.7 million for the year ended september 30 , 201 3 , compared to a net loss of $ 22.1 million for the year ended september 30 , 201 2 , an increase of $ 9.6 million . the increase in the net loss was the result of a number of factors . from an operating standpoint , the main factor was higher r & d expenses of $ 3.3 million for preclinical glp toxicology studies and cgmp drug manufacturing in preparation of the clinical trial for arc-520 , as well as costs for the phase 1 clinical trial of arc-520 . general and administrative expenses were lower in 2013 by $ 2.9 million . this change was primarily due to the prior year write down of certain receivables from minority interest companies . salaries and payroll related expenses increased nominally in 2013 , primarily due to headcount increases and general salary adjustments . in 2013 , the company recorded a noncash impairment expense of $ 1.3 million to write off certain patents as a result of a termination of a license agreement . other expense was higher in 2013 by $ 6.1 million primarily due to noncash losses from the change in value of derivatives , as well as the write down of a note receivable obtained as part of our disposition of unidym in 2011. details of the results of operations are presented below . 52 revenues total revenue was $ 290,000 for the year ended september 30 , 2013 and $ 147,000 for the year ended september 30 , 2012. revenue is primarily composed of amortization of up-front patent license fee payments . in addition , the company had collaboration revenue of $ 115,000 during the year ended september 30 , 2013. operating expenses the analysis below details the operating expenses and discusses the expenditures of the company within the major expense categories . certain reclassifications have been made to prior period operating expense categories to conform to the current period presentation . for purposes of comparison , the amounts for the years ended september 30 , 201 3 and 201 2 are shown in the tables below . research and development expenses r & d expenses are related to the company 's on-going research and development efforts , primarily related to its laboratory research facility in madison , wisconsin , and also include outsourced r & d services . the following table provides details of research and development expense for the periods indicated below : ( in thousands ) replace_table_token_10_th laboratory supplies and services expense was $ 1,058,000 during the year ended september 30 , 2013 , compared to $ 794,000 in the comparable prior period . this increase in expense is associated with research and development efforts related to pre-clinical programs including sirna synthesis for the identification and screening of new liver and extra-hepatic targets , subcutaneous formulations to be utilized in therapeutic areas where chronic dosing may be required and assessing the interaction of arc-520 with other hepatitis therapeutics . in vivo studies expense was $ 303,00 0 during the year ended september 30 , 201 3 , compared to 232 ,000 in the comparable prior period . the current period expense relates to preclinical animal studies at our madison research facility , as the company tests formulations of new potential clinical candidates . outside lab and contract services expense was $ 533,000 during the year ended september 30 , 201 3 , compared to $ 496,000 in the comparable prior period . the increase was primarily related to oligonucleotide synthesis related to development of new clinical candidates . as arc-520 and other clinical candidates progress through clinical trials , outside lab and contract service expense is expected to increase . toxicology and efficacy studies expense was $ 1,588,000 during the year ended september 30 , 2013 , compared to $ 43,000 in the comparable prior period . the increase is primarily due to glp toxicology studies related to arc-520 , our hepatitis b clinical candidate in preparation for a phase 1 clinical trial . additionally , we initiated long-term toxicology studies to support a phase 2b , multi-dose clinical study for arc-520 . outside toxicology work fluctuates depending on the number of clinical candidates the company is developing and on the specific needs of each development candidate . 53 drug manufacturing expense was $ 2.6 million during the year ended september 30 , 201 3 , compared to $ 1.6 million in the comparable prior period . drug manufacturing expense for fiscal 2013 was related to the manufacturing campaign to produce materials for the arc-520 glp toxicology studies and the phase 1 clinical trial . the company utilized outside manufactures to produce these components . in the prior year , approximately half of the drug manufacturing expense was related to the production of polymer components for rondel . further development of rondel and calaa-01 was suspended as the company focused on its dpc delivery platform . clinical trial expense was $ 1,093,000 during the year ended september 30 , 2013 , compared to $ 599,000 in the comparable prior period . expenses relating to clinical trials increased as

liquidity and cash resources arrowhead has historically financed its operations through the sale of securities of arrowhead and its subsidiaries . research and development activities have required significant capital investment since the company 's inception , and are expected to continue to require significant cash investment in fiscal 201 5 , and beyond . at september 30 , 201 4 , the company had cash on hand of approximately $ 132.5 million as compared to $ 19.1 million at september 30 , 2013. excess cash invested in fixed income securities was $ 44.7 million at september 30 , 2014 , compared to $ 10.7 million at september 30 , 2013. the company believes its current financial resources are sufficient to fund its operations through at least the next twelve months . a summary of cash flows for the years ended september 30 , 2014 , 2013 , and 2012 is as follows : replace_table_token_13_th 56 during 2014 , the company used $ 35.4 million in cash from operating activities , which represents the on-going expenses of its research and development programs and corporate overhead . cash outlays were primarily composed of the following : research and development costs were $ 21.7 million , salary and payroll-related expenses were $ 9.1 million , and general and administrative costs were $ 4.6 million . cash used by investing activities was $ 36.5 million , primarily related to net cash investments in fixed income securities of $ 34.8 million . capital expenditures were $ 1.7 million .

immediately following the closing of the cwi 1 and cwi 2 proposed merger : ( i ) the advisory agreements with each of cwi 1 and cwi 2 will terminate ; ( ii ) the operating partnerships of each of cwi 1 and cwi 2 will redeem the special general partnership interests that we currently hold , for which we will receive approximately $ 97 million in consideration , comprised of $ 65 million in shares of cwi 2 preferred stock and 2,840,549 shares in cwi 2 common stock valued at approximately $ 32 million ; ( iii ) cwi 2 will internalize the management services currently provided by us ; and ( iv ) we will provide certain transition services at cost to cwi 2 for periods generally up to 12 months from closing of the proposed merger . please see our current report on form 8-k dated october 22 , 2019 for additional information . amended credit facility on february 20 , 2020 , we amended and restated our senior unsecured credit facility . we increased the capacity of our unsecured line of credit under our amended credit facility to $ 2.1 billion , which is comprised of a $ 1.8 billion revolving line of credit , a £150.0 million term loan , and a $ 105.0 million delayed draw term loan , all maturing in five years . the delayed draw term loan may be drawn within one year and allows for borrowings in u.s. dollars , euros , or british pounds sterling . the aggregate principal amount ( of revolving and term loans ) available under the amended credit facility may be increased up to an amount not to exceed the u.s. dollar equivalent of $ 2.75 billion , subject to the conditions to increase provided in the related credit agreement . we will incur interest at libor , or a libor equivalent , plus 0.85 % on the revolving line of credit , and libor , or a libor equivalent , plus 0.95 % on the term loan and delayed draw term loan ( note 20 ) . w. p. carey 2019 10-k – 26 financial highlights during the year ended december 31 , 2019 , we completed the following ( as further described in the consolidated financial statements ) : real estate investments we acquired 23 investments totaling $ 737.5 million ( note 5 ) we completed seven construction projects at a cost totaling $ 122.5 million . construction projects include build-to-suit and expansion projects ( note 5 ) . we committed to purchase a warehouse and distribution facility in knoxville , tennessee , for approximately $ 68.0 million upon completion of construction of the property , which is expected to take place during the second quarter of 2020 ( note 5 ) . we committed to purchase two warehouse facilities in hillerød and hammelev , denmark , for approximately $ 19.9 million ( based on the exchange rate of the danish krone at december 31 , 2019 ) upon completion of construction of the properties . one property was completed in january 2020 ( note 20 ) and the second property is expected to be completed during the first quarter of 2020 ( note 5 ) . we committed to fund an aggregate of $ 8.3 million ( based on the exchange rate of the euro at december 31 , 2019 ) for a warehouse expansion project for an existing tenant at an industrial and office facility in marktheidenfeld , germany . we currently expect to complete the project in the second quarter of 2020 ( note 5 ) . we committed to fund an aggregate of $ 3.0 million for an expansion project for an existing tenant at a warehouse facility in wichita , kansas . we currently expect to complete in the third quarter of 2020 ( note 5 ) . we committed to fund an aggregate of $ 56.2 million ( based on the exchange rate of the euro at december 31 , 2019 ) for a build-to-suit project for a headquarters and industrial facility in langen , germany , which we currently expect to be completed in the first quarter of 2021 ( note 5 ) . we committed to fund an aggregate of $ 70.0 million for a renovation project at a warehouse facility in bowling green , kentucky , which we currently expect to be completed in the fourth quarter of 2021 ( note 5 ) . dispositions as part of our active capital recycling program , we disposed of 22 properties for total proceeds of $ 382.4 million , net of selling costs ( note 17 ) . in january 2020 , we sold one of our two hotel operating properties for gross proceeds of $ 120.0 million ( inclusive of $ 5.5 million attributable to a noncontrolling interest ) ( note 20 ) . leasing transactions we entered into net lease agreements for certain self-storage properties previously classified as operating properties . as a result , in june 2019 and august 2019 , we reclassified 22 and five consolidated self-storage properties , respectively , with an aggregate carrying value of $ 287.7 million from land , buildings and improvements attributable to operating properties to land , buildings and improvements subject to operating leases . effective as of those times , we began recognizing lease revenues from these properties , whereas previously we recognized operating property revenues and expenses from these properties ( note 5 ) . we restructured the leases with a tenant on a portfolio of grocery store and warehouse properties in croatia . for 19 properties , we reached agreements on new rents , reducing contractual rents , but increasing total contractual minimum annualized base rent ( “ abr ” ) from $ 10.2 million to $ 15.4 million . we extended the lease terms on these properties by a weighted average of three years . story_separator_special_tag w. p. carey 2019 10-k – 37 property level contribution is a non-gaap measure that we believe to be a useful supplemental measure for management and investors in evaluating and analyzing the financial results of our net-leased and operating properties included in our real estate segment over time . property level contribution presents our lease and operating property revenues , less property expenses , reimbursable tenant costs , and depreciation and amortization . reimbursable tenant costs ( within real estate revenues ) are now included within lease revenues in the consolidated statements of income ( note 2 ) . we believe that property level contribution allows for meaningful comparison between periods of the direct costs of owning and operating our net-leased assets and operating properties . while we believe that property level contribution is a useful supplemental measure , it should not be considered as an alternative to net income from real estate attributable to w. p. carey as an indication of our operating performance . existing net-leased properties existing net-leased properties are those that we acquired or placed into service prior to january 1 , 2017 and that were not sold or held for sale during the periods presented . for the periods presented , there were 787 existing net-leased properties . 2019 vs. 2018 — for the year ended december 31 , 2019 as compared to 2018 , lease revenues from existing net-leased properties increased by $ 9.2 million due to new leases , $ 8.2 million related to scheduled rent increases , $ 4.4 million related to completed construction projects on existing properties , and $ 3.1 million primarily due to accelerated amortization of an above-market rent lease intangible during the prior year in connection with a lease restructuring . these increases were partially offset by decreases of $ 10.1 million as a result of the weakening of foreign currencies ( primarily the euro ) in relation to the u.s. dollar between the years and $ 7.3 million due to lease expirations or early termination options . reimbursable tenant costs from existing net-leased properties increased primarily due to land lease payments for several properties recorded during the current year following the adoption of accounting standards update 2016-02 , leases ( topic 842 ) as of january 1 , 2019 ( note 2 ) , as a result of which we began recording such payments on a gross basis , as well as higher real estate taxes related to a domestic property . depreciation and amortization expense from existing net-leased properties decreased primarily due to accelerated amortization of two in-place lease intangibles during the prior year in connection with lease terminations , as well as the weakening of foreign currencies ( primarily the euro ) in relation to the u.s. dollar between the years . property expenses from existing net-leased properties increased primarily due to tenant vacancies during 2018 and 2019 , which resulted in property expenses no longer being reimbursable . net-leased properties acquired in the cpa:17 merger net-leased properties acquired in the cpa:17 merger on october 31 , 2018 ( note 3 ) consisted of 275 net-leased properties , as well as one property placed into service during the first quarter of 2019 , which was an active build-to-suit project at the time of acquisition in the cpa:17 merger . the 275 net-leased properties included 27 self-storage properties acquired in the cpa:17 merger , which were reclassified from operating properties to net-leased properties during the year ended december 31 , 2019 as a result of entering into net-lease agreements during the second quarter of 2019 ( note 5 ) . net-leased properties acquired in the cpa:17 merger contributed lease revenue , depreciation and amortization , and property expenses for a full year during 2019 , as compared to two months during 2018. recently acquired net-leased properties recently acquired net-leased properties are those that we acquired or placed into service subsequent to december 31 , 2016 , excluding properties acquired in the cpa:17 merger , and that were not sold or held for sale during the periods presented . since january 1 , 2017 , we acquired 40 investments , comprised of 121 properties ( two of which we acquired in 2017 , 75 of which we acquired in 2018 , and 44 of which we acquired in 2019 ) , and placed three properties into service ( two in 2018 and one in 2019 ) . 2019 vs. 2018 — for the year ended december 31 , 2019 as compared to 2018 , lease revenues increased by $ 23.3 million as a result of the 45 properties we acquired or placed into service during the year ended december 31 , 2019 and $ 37.7 million as a result of the 77 properties we acquired or placed into service during the year ended december 31 , 2018 . depreciation and amortization expense increased by $ 8.8 million as a result of the 45 properties we acquired or placed into service during the year ended december 31 , 2019 and $ 15.8 million as a result of the 77 properties we acquired or placed into service during the year ended december 31 , 2018 . w. p. carey 2019 10-k – 38 existing operating property we have one hotel operating property with results of operations reflected in all periods presented . in april 2018 , we sold another hotel operating property , which is included in properties sold or held for sale below . for the year ended december 31 , 2019 as compared to 2018 , property level contribution from our existing operating property was substantially unchanged . operating properties acquired in the cpa:17 merger operating properties acquired in the cpa:17 merger ( note 3 ) consisted of ten self-storage properties ( which excludes seven self-storage properties acquired in the cpa:17 merger accounted for under the equity method ) . aside from these ten operating properties , we acquired 27 self-storage properties in the cpa:17 merger ,

liquidity and cash resources arrowhead has historically financed its operations through the sale of securities of arrowhead and its subsidiaries . research and development activities have required significant capital investment since the company 's inception , and are expected to continue to require significant cash investment in fiscal 201 5 , and beyond . at september 30 , 201 4 , the company had cash on hand of approximately $ 132.5 million as compared to $ 19.1 million at september 30 , 2013. excess cash invested in fixed income securities was $ 44.7 million at september 30 , 2014 , compared to $ 10.7 million at september 30 , 2013. the company believes its current financial resources are sufficient to fund its operations through at least the next twelve months . a summary of cash flows for the years ended september 30 , 2014 , 2013 , and 2012 is as follows : replace_table_token_13_th 56 during 2014 , the company used $ 35.4 million in cash from operating activities , which represents the on-going expenses of its research and development programs and corporate overhead . cash outlays were primarily composed of the following : research and development costs were $ 21.7 million , salary and payroll-related expenses were $ 9.1 million , and general and administrative costs were $ 4.6 million . cash used by investing activities was $ 36.5 million , primarily related to net cash investments in fixed income securities of $ 34.8 million . capital expenditures were $ 1.7 million .

immediately following the closing of the cwi 1 and cwi 2 proposed merger : ( i ) the advisory agreements with each of cwi 1 and cwi 2 will terminate ; ( ii ) the operating partnerships of each of cwi 1 and cwi 2 will redeem the special general partnership interests that we currently hold , for which we will receive approximately $ 97 million in consideration , comprised of $ 65 million in shares of cwi 2 preferred stock and 2,840,549 shares in cwi 2 common stock valued at approximately $ 32 million ; ( iii ) cwi 2 will internalize the management services currently provided by us ; and ( iv ) we will provide certain transition services at cost to cwi 2 for periods generally up to 12 months from closing of the proposed merger . please see our current report on form 8-k dated october 22 , 2019 for additional information . amended credit facility on february 20 , 2020 , we amended and restated our senior unsecured credit facility . we increased the capacity of our unsecured line of credit under our amended credit facility to $ 2.1 billion , which is comprised of a $ 1.8 billion revolving line of credit , a £150.0 million term loan , and a $ 105.0 million delayed draw term loan , all maturing in five years . the delayed draw term loan may be drawn within one year and allows for borrowings in u.s. dollars , euros , or british pounds sterling . the aggregate principal amount ( of revolving and term loans ) available under the amended credit facility may be increased up to an amount not to exceed the u.s. dollar equivalent of $ 2.75 billion , subject to the conditions to increase provided in the related credit agreement . we will incur interest at libor , or a libor equivalent , plus 0.85 % on the revolving line of credit , and libor , or a libor equivalent , plus 0.95 % on the term loan and delayed draw term loan ( note 20 ) . w. p. carey 2019 10-k – 26 financial highlights during the year ended december 31 , 2019 , we completed the following ( as further described in the consolidated financial statements ) : real estate investments we acquired 23 investments totaling $ 737.5 million ( note 5 ) we completed seven construction projects at a cost totaling $ 122.5 million . construction projects include build-to-suit and expansion projects ( note 5 ) . we committed to purchase a warehouse and distribution facility in knoxville , tennessee , for approximately $ 68.0 million upon completion of construction of the property , which is expected to take place during the second quarter of 2020 ( note 5 ) . we committed to purchase two warehouse facilities in hillerød and hammelev , denmark , for approximately $ 19.9 million ( based on the exchange rate of the danish krone at december 31 , 2019 ) upon completion of construction of the properties . one property was completed in january 2020 ( note 20 ) and the second property is expected to be completed during the first quarter of 2020 ( note 5 ) . we committed to fund an aggregate of $ 8.3 million ( based on the exchange rate of the euro at december 31 , 2019 ) for a warehouse expansion project for an existing tenant at an industrial and office facility in marktheidenfeld , germany . we currently expect to complete the project in the second quarter of 2020 ( note 5 ) . we committed to fund an aggregate of $ 3.0 million for an expansion project for an existing tenant at a warehouse facility in wichita , kansas . we currently expect to complete in the third quarter of 2020 ( note 5 ) . we committed to fund an aggregate of $ 56.2 million ( based on the exchange rate of the euro at december 31 , 2019 ) for a build-to-suit project for a headquarters and industrial facility in langen , germany , which we currently expect to be completed in the first quarter of 2021 ( note 5 ) . we committed to fund an aggregate of $ 70.0 million for a renovation project at a warehouse facility in bowling green , kentucky , which we currently expect to be completed in the fourth quarter of 2021 ( note 5 ) . dispositions as part of our active capital recycling program , we disposed of 22 properties for total proceeds of $ 382.4 million , net of selling costs ( note 17 ) . in january 2020 , we sold one of our two hotel operating properties for gross proceeds of $ 120.0 million ( inclusive of $ 5.5 million attributable to a noncontrolling interest ) ( note 20 ) . leasing transactions we entered into net lease agreements for certain self-storage properties previously classified as operating properties . as a result , in june 2019 and august 2019 , we reclassified 22 and five consolidated self-storage properties , respectively , with an aggregate carrying value of $ 287.7 million from land , buildings and improvements attributable to operating properties to land , buildings and improvements subject to operating leases . effective as of those times , we began recognizing lease revenues from these properties , whereas previously we recognized operating property revenues and expenses from these properties ( note 5 ) . we restructured the leases with a tenant on a portfolio of grocery store and warehouse properties in croatia . for 19 properties , we reached agreements on new rents , reducing contractual rents , but increasing total contractual minimum annualized base rent ( “ abr ” ) from $ 10.2 million to $ 15.4 million . we extended the lease terms on these properties by a weighted average of three years . story_separator_special_tag w. p. carey 2019 10-k – 37 property level contribution is a non-gaap measure that we believe to be a useful supplemental measure for management and investors in evaluating and analyzing the financial results of our net-leased and operating properties included in our real estate segment over time . property level contribution presents our lease and operating property revenues , less property expenses , reimbursable tenant costs , and depreciation and amortization . reimbursable tenant costs ( within real estate revenues ) are now included within lease revenues in the consolidated statements of income ( note 2 ) . we believe that property level contribution allows for meaningful comparison between periods of the direct costs of owning and operating our net-leased assets and operating properties . while we believe that property level contribution is a useful supplemental measure , it should not be considered as an alternative to net income from real estate attributable to w. p. carey as an indication of our operating performance . existing net-leased properties existing net-leased properties are those that we acquired or placed into service prior to january 1 , 2017 and that were not sold or held for sale during the periods presented . for the periods presented , there were 787 existing net-leased properties . 2019 vs. 2018 — for the year ended december 31 , 2019 as compared to 2018 , lease revenues from existing net-leased properties increased by $ 9.2 million due to new leases , $ 8.2 million related to scheduled rent increases , $ 4.4 million related to completed construction projects on existing properties , and $ 3.1 million primarily due to accelerated amortization of an above-market rent lease intangible during the prior year in connection with a lease restructuring . these increases were partially offset by decreases of $ 10.1 million as a result of the weakening of foreign currencies ( primarily the euro ) in relation to the u.s. dollar between the years and $ 7.3 million due to lease expirations or early termination options . reimbursable tenant costs from existing net-leased properties increased primarily due to land lease payments for several properties recorded during the current year following the adoption of accounting standards update 2016-02 , leases ( topic 842 ) as of january 1 , 2019 ( note 2 ) , as a result of which we began recording such payments on a gross basis , as well as higher real estate taxes related to a domestic property . depreciation and amortization expense from existing net-leased properties decreased primarily due to accelerated amortization of two in-place lease intangibles during the prior year in connection with lease terminations , as well as the weakening of foreign currencies ( primarily the euro ) in relation to the u.s. dollar between the years . property expenses from existing net-leased properties increased primarily due to tenant vacancies during 2018 and 2019 , which resulted in property expenses no longer being reimbursable . net-leased properties acquired in the cpa:17 merger net-leased properties acquired in the cpa:17 merger on october 31 , 2018 ( note 3 ) consisted of 275 net-leased properties , as well as one property placed into service during the first quarter of 2019 , which was an active build-to-suit project at the time of acquisition in the cpa:17 merger . the 275 net-leased properties included 27 self-storage properties acquired in the cpa:17 merger , which were reclassified from operating properties to net-leased properties during the year ended december 31 , 2019 as a result of entering into net-lease agreements during the second quarter of 2019 ( note 5 ) . net-leased properties acquired in the cpa:17 merger contributed lease revenue , depreciation and amortization , and property expenses for a full year during 2019 , as compared to two months during 2018. recently acquired net-leased properties recently acquired net-leased properties are those that we acquired or placed into service subsequent to december 31 , 2016 , excluding properties acquired in the cpa:17 merger , and that were not sold or held for sale during the periods presented . since january 1 , 2017 , we acquired 40 investments , comprised of 121 properties ( two of which we acquired in 2017 , 75 of which we acquired in 2018 , and 44 of which we acquired in 2019 ) , and placed three properties into service ( two in 2018 and one in 2019 ) . 2019 vs. 2018 — for the year ended december 31 , 2019 as compared to 2018 , lease revenues increased by $ 23.3 million as a result of the 45 properties we acquired or placed into service during the year ended december 31 , 2019 and $ 37.7 million as a result of the 77 properties we acquired or placed into service during the year ended december 31 , 2018 . depreciation and amortization expense increased by $ 8.8 million as a result of the 45 properties we acquired or placed into service during the year ended december 31 , 2019 and $ 15.8 million as a result of the 77 properties we acquired or placed into service during the year ended december 31 , 2018 . w. p. carey 2019 10-k – 38 existing operating property we have one hotel operating property with results of operations reflected in all periods presented . in april 2018 , we sold another hotel operating property , which is included in properties sold or held for sale below . for the year ended december 31 , 2019 as compared to 2018 , property level contribution from our existing operating property was substantially unchanged . operating properties acquired in the cpa:17 merger operating properties acquired in the cpa:17 merger ( note 3 ) consisted of ten self-storage properties ( which excludes seven self-storage properties acquired in the cpa:17 merger accounted for under the equity method ) . aside from these ten operating properties , we acquired 27 self-storage properties in the cpa:17 merger ,

liquidity and capital resources sources and uses of cash during the year we use the cash flow generated from our investments primarily to meet our operating expenses , service debt , and fund dividends to stockholders . our cash flows fluctuate periodically due to a number of factors , which may include , among other things : the timing of our equity and debt offerings ; the timing of purchases and sales of real estate ; the timing of the repayment of mortgage loans and receipt of lease revenues ; the timing and amount of other lease-related payments ; the receipt of the asset management fees in either shares of the common stock or limited partnership units of the managed programs or cash ; the timing of distributions from equity investments in the managed programs and real estate ; the receipt of distributions of available cash from the managed reits ; the timing of settlement of foreign currency transactions ; and changes in foreign currency exchange rates . we no longer receive certain fees and distributions from cpa:17 – global following the completion of the cpa:17 merger on october 31 , 2018 ( note 3 ) . despite these fluctuations , we believe that we will generate sufficient cash from operations to meet our normal recurring short-term and long-term liquidity needs . we may also use existing cash resources , available capacity under our amended credit facility , proceeds from dispositions of properties , net contributions from noncontrolling interests , and the issuance of additional debt or equity securities , such as sales of our stock through our atm program , in order to meet these needs . we assess our ability to access capital on an ongoing basis . our sources and uses of cash during the period are described below .

we will remain an “ emerging growth company ” for up to five years from our initial public offering , or until the earliest to occur of ( 1 ) the last day of the first fiscal year in which our total annual gross revenues exceed $ 1.1 billion , ( 2 ) the date that we become a “ large accelerated filer ” as defined in rule 12b-2 under the securities exchange act of 1934 , which would occur if the market value of our common stock that is held by non-affiliates exceeds $ 700 million as of the last business day of our most recently completed second fiscal quarter or ( 3 ) the date on which we have issued more than $ 1.0 billion in non-convertible debt during the preceding three year period . our emerging growth status will expire on the first day of fiscal year 2020 , and as such at that time we will no longer be able to take advantage of the exemptions noted above . 26 overview unique is engaged in the engineering and manufacture of multi-material foam , rubber and plastic components utilized in noise , vibration and harshness , acoustical management , water and air sealing , decorative and other functional applications . the company combines a long history of organic growth with some more recent strategic acquisitions to diversify both product capabilities and markets served . unique 's markets served are the north america automotive and heavy duty truck , as well as the appliance , water heater and hvac markets . sales are conducted directly with major automotive and heavy duty truck , appliance , water heater and hvac oems , or indirectly through the tier 1 suppliers of these oems . the company has its principal executive offices in auburn hills , michigan and has sales , engineering and production facilities in auburn hills , michigan , concord , michigan , lafayette , georgia , louisville , kentucky , evansville , indiana , bryan , ohio , monterrey , mexico , queretaro , mexico and london , ontario . the company also has an independent client sales representative who maintains offices in baldham , germany . unique derives the majority of its net sales from the sales of foam , rubber plastic , and tape adhesive related automotive products . these products are produced from a variety of manufacturing processes including die cutting , compression molding , thermoforming , reaction injection molding , and fusion molding . we believe unique has a broader array of processes and materials utilized than any of its direct competitors , based on our product offerings . by sealing out air noise and water intrusion , and by providing sound absorption and blocking , unique 's products improve the interior comfort of a vehicle , increasing perceived vehicle quality and the overall experience of its passengers . unique 's products perform similar functions for appliances , water heaters and hvac systems , improving thermal characteristics , reducing noise and prolonging equipment life . we primarily operate within the highly competitive and cyclical automotive parts industry . over the past several years the industry has experienced consistent growth as it recovered from the recession of 2009. many sectors of the supply chain are operating near capacity . over the same period we have grown our core automotive parts business at a faster rate than the industry as a whole , indicating we are taking market share from competitors and increasing our content per vehicle on the programs we supply . we expect this trend to continue . recent developments dividend declaration on february 12 , 2019 , our board of directors declared a quarterly cash dividend of $ 0.05 per common share . the dividend will be payable on march 7 , 2019 to shareholders of record at the close of business on february 28 , 2019. fort smith facility closure on february 13 , 2018 , the company made the decision to close its manufacturing facility in fort smith , arkansas . the company ceased operations at the fort smith facility in july of 2018 , and approximately 20 positions were eliminated as a result of the closure . the company 's decision resulted from its desire to streamline operations and to utilize some of the available excess capacity in other of our facilities . the company moved existing fort smith production to its manufacturing facilities in evansville , indiana and monterrey , mexico . the company provided the affected employees severance pay , health benefits continuation and job search assistance . the company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as it did not represent a strategic shift in the company 's operations and the company will have continuing cash flows from the production being moved to other facilities within the company . the company incurred one-time severance costs as a result of this plant closure of $ 233,782 in the 52 weeks ended december 30 , 2018 . the amount of other costs incurred associated with this plant closure , which primarily consisted of preparing and moving existing production equipment and inventory at fort smith to other facilities was $ 559,461 in the 52 weeks ended december 30 , 2018 . all of these costs were recorded to the restructuring expense line in continuing operations in the company 's consolidated statement of operations . on october 18 , 2018 , the company sold the building it owned in fort smith , which had a net book value of $ 733,059 , for cash proceeds of $ 876,032 resulting in a gain on the sale of $ 142,973 . through the date of the sale the building qualified as being held for sale , and therefore was presented as such in the consolidated balance sheet in our historical financial statements . story_separator_special_tag 31 comparison of results of operations for the fifty-two weeks ended december 31 , 2017 and the fifty-two weeks ended january 1 , 2017 in 2016 , we acquired substantially all of the assets of intasco corporation , a canadian based tape manufacturer , for a purchase price of $ 21.03 million , net of cash acquired , at closing , with a portion being held in escrow to fund the obligations of intasco corporation and its stockholders to indemnify unique against certain claims , losses and liabilities . on the same date , we purchased 100 % of the outstanding capital stock of its u.s. subsidiary , intasco usa , inc. , a united states based tape manufacturer , for a purchase price of $ 0.89 million paid by the issuance of 70,797 shares of the company 's common stock , par value $ 0.001 per share . the purchase price was paid with borrowings under a new credit facility which replaced the company 's existing facility . for the fifty-two weeks ended december 31 , 2017 , our financial results include the intasco business for the entire period . for the fifty-two weeks ended january 1 , 2017 , our financial results include the transaction related expenses from the acquisition and the results of operations of the intasco business from apri1 29 , 2016 through january 1 , 2017 . fifty-two weeks ended december 31 , 2017 and fifty-two weeks ended january 1 , 2017 net sales fifty-two weeks ended december 31 , 2017 fifty-two weeks ended january 1 , 2017 ( in thousands ) net sales $ 175,288 $ 170,463 net sales for the fifty-two weeks ended december 31 , 2017 were approximately $ 175.29 million compared to $ 170.46 million for the fifty-two weeks ended january 1 , 2017 . the increase in net sales for the fifty-two weeks ended december 31 , 2017 is attributable to our increased market penetration and content per vehicle and new product introductions , as well as a full 52 weeks of sales from the intasco business . the acquisition occurred on april 29 , 2016 , and therefore only 35 weeks of intasco sales are included for the fifty-two weeks ended january 1 , 2017 . this growth was partially offset by an approximately 4 % overall decline in north american vehicle production during the fifty-two weeks ended december 31 , 2017 period as compared to production during the fifty-two weeks ended january 1 , 2017 . cost of sales the major components of cost of sales are raw materials purchased from third parties , direct labor and benefits , and manufacturing overhead , including facility costs , utilities , supplies , repairs and maintenance , insurance , freight costs of products shipped to customers and depreciation . replace_table_token_8_th 32 cost of sales as a percent of net sales replace_table_token_9_th cost of sales as a percentage of net sales for the fifty-two weeks ended december 31 , 2017 increased to 77.2 % from 76.8 % for the fifty-two weeks ended january 1 , 2017 . the increase in cost of sales as a percentage of net sales was attributable to higher direct labor and benefits and manufacturing overhead as a percentage of net sales , partially offset by lower material costs as a percentage of net sales . material costs as a percentage of net sales decreased to 50.4 % for the fifty-two weeks ended december 31 , 2017 from 51.0 % for the fifty-two weeks ended january 1 , 2017 . material costs for the fifty-two weeks ended december 31 , 2017 as a percentage of net sales were lower compared to the fifty-two weeks ended january 1 , 2017 primarily due to favorable product mix in the fifty-two weeks ended january 1 , 2017 , as well as increased costs in 2016 due to the amortization of the markup to fair market value of inventory acquired in the intasco acquisition . direct labor and benefit costs as a percentage of net sales was 15.3 % for the fifty-two weeks ended december 31 , 2017 compared to 15.0 % for the fifty-two weeks ended january 1 , 2017 . labor and benefit costs as a percentage of net sales in the fifty-two weeks ended december 31 , 2017 were higher due to increased direct and temporary labor hours as a result of change in product mix , and a decline in the use of temporary employees at one of our facilities in michigan as required under our collective bargaining agreement , resulting in an increase in benefit related costs during the fifty-two weeks ended december 31 , 2017 when compared to the fifty-two weeks ended january 1 , 2017 . manufacturing overhead costs as a percentage of net sales were 10.4 % for the fifty-two weeks ended december 31 , 2017 compared 9.9 % for the fifty-two weeks ended january 1 , 2017 . manufacturing overhead as a percentage of net sales in the fifty-two weeks ended december 31 , 2017 were higher due primarily to higher rent costs , as we continued to add capacity in order to meet expected future demand , and increased indirect labor costs as we upgraded our staff and add production capabilities at some of our facilities . depreciation costs as a percentage of net sales in the fifty-two weeks ended december 31 , 2017 were also slightly higher than the fifty-two weeks ended january 1 , 2017 as we added machine capacity , again to meet expected future demand , and to increase capabilities in certain of our facilities . gross profit as a result of the increase in cost of sales as a percentage of net sales described above , gross profit as a percentage of net sales for the fifty-two weeks ended december 31 , 2017 decreased to 22.8 % from 23.2 % for the fifty-two weeks ended january 1 , 2017 . selling , general and administrative expenses

liquidity and capital resources sources and uses of cash during the year we use the cash flow generated from our investments primarily to meet our operating expenses , service debt , and fund dividends to stockholders . our cash flows fluctuate periodically due to a number of factors , which may include , among other things : the timing of our equity and debt offerings ; the timing of purchases and sales of real estate ; the timing of the repayment of mortgage loans and receipt of lease revenues ; the timing and amount of other lease-related payments ; the receipt of the asset management fees in either shares of the common stock or limited partnership units of the managed programs or cash ; the timing of distributions from equity investments in the managed programs and real estate ; the receipt of distributions of available cash from the managed reits ; the timing of settlement of foreign currency transactions ; and changes in foreign currency exchange rates . we no longer receive certain fees and distributions from cpa:17 – global following the completion of the cpa:17 merger on october 31 , 2018 ( note 3 ) . despite these fluctuations , we believe that we will generate sufficient cash from operations to meet our normal recurring short-term and long-term liquidity needs . we may also use existing cash resources , available capacity under our amended credit facility , proceeds from dispositions of properties , net contributions from noncontrolling interests , and the issuance of additional debt or equity securities , such as sales of our stock through our atm program , in order to meet these needs . we assess our ability to access capital on an ongoing basis . our sources and uses of cash during the period are described below .

we will remain an “ emerging growth company ” for up to five years from our initial public offering , or until the earliest to occur of ( 1 ) the last day of the first fiscal year in which our total annual gross revenues exceed $ 1.1 billion , ( 2 ) the date that we become a “ large accelerated filer ” as defined in rule 12b-2 under the securities exchange act of 1934 , which would occur if the market value of our common stock that is held by non-affiliates exceeds $ 700 million as of the last business day of our most recently completed second fiscal quarter or ( 3 ) the date on which we have issued more than $ 1.0 billion in non-convertible debt during the preceding three year period . our emerging growth status will expire on the first day of fiscal year 2020 , and as such at that time we will no longer be able to take advantage of the exemptions noted above . 26 overview unique is engaged in the engineering and manufacture of multi-material foam , rubber and plastic components utilized in noise , vibration and harshness , acoustical management , water and air sealing , decorative and other functional applications . the company combines a long history of organic growth with some more recent strategic acquisitions to diversify both product capabilities and markets served . unique 's markets served are the north america automotive and heavy duty truck , as well as the appliance , water heater and hvac markets . sales are conducted directly with major automotive and heavy duty truck , appliance , water heater and hvac oems , or indirectly through the tier 1 suppliers of these oems . the company has its principal executive offices in auburn hills , michigan and has sales , engineering and production facilities in auburn hills , michigan , concord , michigan , lafayette , georgia , louisville , kentucky , evansville , indiana , bryan , ohio , monterrey , mexico , queretaro , mexico and london , ontario . the company also has an independent client sales representative who maintains offices in baldham , germany . unique derives the majority of its net sales from the sales of foam , rubber plastic , and tape adhesive related automotive products . these products are produced from a variety of manufacturing processes including die cutting , compression molding , thermoforming , reaction injection molding , and fusion molding . we believe unique has a broader array of processes and materials utilized than any of its direct competitors , based on our product offerings . by sealing out air noise and water intrusion , and by providing sound absorption and blocking , unique 's products improve the interior comfort of a vehicle , increasing perceived vehicle quality and the overall experience of its passengers . unique 's products perform similar functions for appliances , water heaters and hvac systems , improving thermal characteristics , reducing noise and prolonging equipment life . we primarily operate within the highly competitive and cyclical automotive parts industry . over the past several years the industry has experienced consistent growth as it recovered from the recession of 2009. many sectors of the supply chain are operating near capacity . over the same period we have grown our core automotive parts business at a faster rate than the industry as a whole , indicating we are taking market share from competitors and increasing our content per vehicle on the programs we supply . we expect this trend to continue . recent developments dividend declaration on february 12 , 2019 , our board of directors declared a quarterly cash dividend of $ 0.05 per common share . the dividend will be payable on march 7 , 2019 to shareholders of record at the close of business on february 28 , 2019. fort smith facility closure on february 13 , 2018 , the company made the decision to close its manufacturing facility in fort smith , arkansas . the company ceased operations at the fort smith facility in july of 2018 , and approximately 20 positions were eliminated as a result of the closure . the company 's decision resulted from its desire to streamline operations and to utilize some of the available excess capacity in other of our facilities . the company moved existing fort smith production to its manufacturing facilities in evansville , indiana and monterrey , mexico . the company provided the affected employees severance pay , health benefits continuation and job search assistance . the company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as it did not represent a strategic shift in the company 's operations and the company will have continuing cash flows from the production being moved to other facilities within the company . the company incurred one-time severance costs as a result of this plant closure of $ 233,782 in the 52 weeks ended december 30 , 2018 . the amount of other costs incurred associated with this plant closure , which primarily consisted of preparing and moving existing production equipment and inventory at fort smith to other facilities was $ 559,461 in the 52 weeks ended december 30 , 2018 . all of these costs were recorded to the restructuring expense line in continuing operations in the company 's consolidated statement of operations . on october 18 , 2018 , the company sold the building it owned in fort smith , which had a net book value of $ 733,059 , for cash proceeds of $ 876,032 resulting in a gain on the sale of $ 142,973 . through the date of the sale the building qualified as being held for sale , and therefore was presented as such in the consolidated balance sheet in our historical financial statements . story_separator_special_tag 31 comparison of results of operations for the fifty-two weeks ended december 31 , 2017 and the fifty-two weeks ended january 1 , 2017 in 2016 , we acquired substantially all of the assets of intasco corporation , a canadian based tape manufacturer , for a purchase price of $ 21.03 million , net of cash acquired , at closing , with a portion being held in escrow to fund the obligations of intasco corporation and its stockholders to indemnify unique against certain claims , losses and liabilities . on the same date , we purchased 100 % of the outstanding capital stock of its u.s. subsidiary , intasco usa , inc. , a united states based tape manufacturer , for a purchase price of $ 0.89 million paid by the issuance of 70,797 shares of the company 's common stock , par value $ 0.001 per share . the purchase price was paid with borrowings under a new credit facility which replaced the company 's existing facility . for the fifty-two weeks ended december 31 , 2017 , our financial results include the intasco business for the entire period . for the fifty-two weeks ended january 1 , 2017 , our financial results include the transaction related expenses from the acquisition and the results of operations of the intasco business from apri1 29 , 2016 through january 1 , 2017 . fifty-two weeks ended december 31 , 2017 and fifty-two weeks ended january 1 , 2017 net sales fifty-two weeks ended december 31 , 2017 fifty-two weeks ended january 1 , 2017 ( in thousands ) net sales $ 175,288 $ 170,463 net sales for the fifty-two weeks ended december 31 , 2017 were approximately $ 175.29 million compared to $ 170.46 million for the fifty-two weeks ended january 1 , 2017 . the increase in net sales for the fifty-two weeks ended december 31 , 2017 is attributable to our increased market penetration and content per vehicle and new product introductions , as well as a full 52 weeks of sales from the intasco business . the acquisition occurred on april 29 , 2016 , and therefore only 35 weeks of intasco sales are included for the fifty-two weeks ended january 1 , 2017 . this growth was partially offset by an approximately 4 % overall decline in north american vehicle production during the fifty-two weeks ended december 31 , 2017 period as compared to production during the fifty-two weeks ended january 1 , 2017 . cost of sales the major components of cost of sales are raw materials purchased from third parties , direct labor and benefits , and manufacturing overhead , including facility costs , utilities , supplies , repairs and maintenance , insurance , freight costs of products shipped to customers and depreciation . replace_table_token_8_th 32 cost of sales as a percent of net sales replace_table_token_9_th cost of sales as a percentage of net sales for the fifty-two weeks ended december 31 , 2017 increased to 77.2 % from 76.8 % for the fifty-two weeks ended january 1 , 2017 . the increase in cost of sales as a percentage of net sales was attributable to higher direct labor and benefits and manufacturing overhead as a percentage of net sales , partially offset by lower material costs as a percentage of net sales . material costs as a percentage of net sales decreased to 50.4 % for the fifty-two weeks ended december 31 , 2017 from 51.0 % for the fifty-two weeks ended january 1 , 2017 . material costs for the fifty-two weeks ended december 31 , 2017 as a percentage of net sales were lower compared to the fifty-two weeks ended january 1 , 2017 primarily due to favorable product mix in the fifty-two weeks ended january 1 , 2017 , as well as increased costs in 2016 due to the amortization of the markup to fair market value of inventory acquired in the intasco acquisition . direct labor and benefit costs as a percentage of net sales was 15.3 % for the fifty-two weeks ended december 31 , 2017 compared to 15.0 % for the fifty-two weeks ended january 1 , 2017 . labor and benefit costs as a percentage of net sales in the fifty-two weeks ended december 31 , 2017 were higher due to increased direct and temporary labor hours as a result of change in product mix , and a decline in the use of temporary employees at one of our facilities in michigan as required under our collective bargaining agreement , resulting in an increase in benefit related costs during the fifty-two weeks ended december 31 , 2017 when compared to the fifty-two weeks ended january 1 , 2017 . manufacturing overhead costs as a percentage of net sales were 10.4 % for the fifty-two weeks ended december 31 , 2017 compared 9.9 % for the fifty-two weeks ended january 1 , 2017 . manufacturing overhead as a percentage of net sales in the fifty-two weeks ended december 31 , 2017 were higher due primarily to higher rent costs , as we continued to add capacity in order to meet expected future demand , and increased indirect labor costs as we upgraded our staff and add production capabilities at some of our facilities . depreciation costs as a percentage of net sales in the fifty-two weeks ended december 31 , 2017 were also slightly higher than the fifty-two weeks ended january 1 , 2017 as we added machine capacity , again to meet expected future demand , and to increase capabilities in certain of our facilities . gross profit as a result of the increase in cost of sales as a percentage of net sales described above , gross profit as a percentage of net sales for the fifty-two weeks ended december 31 , 2017 decreased to 22.8 % from 23.2 % for the fifty-two weeks ended january 1 , 2017 . selling , general and administrative expenses

liquidity and capital resources our principal sources of liquidity are cash flow from operations and borrowings under our amended and restated credit agreement from our senior lenders . 35 our primary uses of cash are payment of vendors , payroll , operating costs , capital expenditures and debt service . as of december 30 , 2018 , december 31 , 2017 and january 1 , 2017 , we had a cash balance of $ 1.41 million , $ 1.43 million and $ 0.71 million , respectively . our excess cash balance is swept daily and applied to reduce borrowings under our revolving line of credit , which remains available for re-borrowing , as needed , subject to compliance with the terms of the facility . as of december 30 , 2018 , december 31 , 2017 and january 1 , 2017 , we had $ 11.61 million , $ 7.19 million and $ 9.42 million , respectively , available for borrowing under our amended and restated credit facility , subject , in each case , to borrowing base restrictions , compliance with the terms of the facility and outstanding letters of credit . at each such date , we were in compliance with all debt covenants under such facilities .

” see note 22 of the notes to consolidated financial statements included in this report for further information on this change in our segment alignment and for more information about our segments . to conform to the new alignment of our segments , we have revised our prior period segment disclosures . how we assess our business performance we closely monitor the primary drivers of pretax operating income , which consist of the following : net interest income we track the spread between the interest income earned on our finance receivables and the interest expense incurred on our debt , and continually monitor the components of our yield and our cost of funds . net credit losses the credit quality of our loans is driven by our long-standing underwriting philosophy , which takes into account the prospective customer 's household budget , and his or her willingness and capacity to repay the proposed loan . we closely analyze credit performance because the profitability of our loan portfolio is directly connected to net credit losses . we define net credit losses as gross charge-offs minus recoveries in the portfolio . additionally , because delinquencies are an early indicator of future net credit losses , we analyze delinquency trends , adjusting for seasonality , to determine whether or not our loans are performing in line with our original estimates . we also monitor recovery rates because of their contribution to the reduction in the severity of our charge-offs . operating expenses we assess our operational efficiency using various metrics and conduct extensive analysis to determine whether fluctuations in cost and expense levels indicate operational trends that need to be addressed . our operating expense analysis also includes a review of origination and servicing costs to assist us in managing overall profitability . because loan volume and portfolio size determine the magnitude of the impact of each of the above factors on our earnings , we also closely monitor origination volume and annual percentage rate . 46 recent developments and outlook initial stockholder share sales on november 7 , 2017 , we entered into an underwriting agreement among the company , the initial stockholder and morgan stanley & co. llc ( the “ underwriter ” ) , for the sale by the initial stockholder of 10,000,000 shares of the company 's common stock , par value $ 0.01 per share ( the “ common stock ” ) , plus an option for the underwriter to purchase up to an additional 1,500,000 shares of common stock within 30 days after the date of the underwriting agreement . the shares sold by the initial stockholder were beneficially owned by fortress . the company did not receive any proceeds from the sale of the shares by the initial stockholder . the transaction closed on november 10 , 2017 and the underwriter purchased 1,000,000 shares under its over-allotment option on december 7 , 2017. on december 13 , 2017 , we entered into an underwriting agreement among the company , the initial stockholder and the underwriter , for the sale by the initial stockholder of 7,500,000 additional shares of the company 's common stock , par value $ 0.01 per share . the shares sold by the initial stockholder were beneficially owned by fortress . the company did not receive any proceeds from the sale of the shares by the initial stockholder . the transaction closed on december 18 , 2017. at december 31 , 2017 , the initial stockholder owned approximately 44 % of omh 's common stock . the initial stockholder is owned primarily by a private equity fund managed by an affiliate of fortress . on december 27 , 2017 , softbank acquired fortress and fortress now operates within softbank as an independent business headquartered in new york . there can be no assurance that the initial stockholder will not offer or sell in the future any of its remaining shares beneficially owned by american international group and its affiliates . apollo-värde transaction on january 3 , 2018 , the apollo-värde group entered into a share purchase agreement with the initial stockholder and the company to acquire from the initial stockholder 54,937,500 shares ( representing approximately 40.6 % of the outstanding shares of our common stock as of such date ) , representing the entire holdings of our stock beneficially owned by fortress . the apollo-värde transaction is expected to close in the second quarter of 2018 and is subject to regulatory approvals and other customary closing conditions . the share purchase agreement is filed as exhibit 10.1 to our current report on form 8-k filed with the sec on january 4 , 2018 , and such current report on form 8-k , including exhibit 10.1 thereto , is incorporated by reference herein in its entirety . upon closing of the apollo-värde transaction , we expect to enter into an amended and restated stockholders ' agreement , the expected terms of which are described in such current report on form 8-k. further , upon closing of the apollo-värde transaction , we expect to recognize non-cash incentive compensation expense of approximately $ 108 million along with a capital contribution offset such that the overall impact to our shareholders ' equity will be neutral . see note 24 of the notes to consolidated financial statements included in this report for further information . sfc 's medium-term note issuances 6.125 % sfc notes on may 15 , 2017 , sfc issued $ 500 million aggregate principal amount of 6.125 % senior notes due 2022 ( the “ 2022 sfc notes ” ) under an indenture dated as of december 3 , 2014 ( the “ sfc base indenture ” ) , as supplemented by a third supplemental indenture , dated as of may 15 , 2017 ( the “ sfc third supplemental indenture ” ) , pursuant to which omh provided a guarantee of the 2022 sfc notes on an unsecured basis . story_separator_special_tag interest income on finance receivables held for sale increased $ 14 million primarily due to ( i ) the transfer of $ 608 million of our personal loans to held for sale on september 30 , 2015 , which were sold in the lendmark sale on may 2 , 2016 , and ( ii ) the transfers of $ 307 million of real estate loans to finance receivables held for sale during 2016 , which were sold in the august 2016 real estate loan sale and december 2016 real estate loan sale . interest expense increased $ 141 million in 2016 when compared to 2015 due to the net of the following : average debt increased primarily due to ( i ) debt acquired in the onemain acquisition and ( ii ) net unsecured debt issued during the 2016 period . this increase was partially offset by ( i ) the elimination of the debt associated with the springcastle interests sale and ( ii ) net repayments under our conduit facilities . see notes 12 and 13 of the notes to consolidated financial statements included in this report for further information on our long-term debt , consumer loan securitization transactions , and our conduit facilities . weighted average interest rate on our debt decreased primarily due to ( i ) debt acquired from the onemain acquisition , which generally has a lower weighted average interest rate relative to sfc 's weighted average interest 52 rate , and ( ii ) the repurchase of $ 600 million unsecured notes , which had a higher interest rate relative to our other indebtedness , in connection with sfc 's offering of the 8.25 % sfc notes , as defined in “ liquidity and capital resources ” included in this report . the decrease was partially offset by ( i ) sfc 's offering of the 8.25 % sfc notes in april of 2016 and ( ii ) the elimination of debt associated with the springcastle interests sale , which generally had a lower interest rate relative to our other indebtedness . provision for finance receivable losses increased $ 216 million in 2016 when compared to 2015 primarily due to ( i ) provision for finance receivable losses of $ 229 million resulting from the onemain acquisition , which reflected net charge-offs of $ 477 million , partially offset by the re-establishment of the allowance for finance receivable losses of $ 248 million in 2015 and ( ii ) higher net charge-offs on springleaf personal loans reflecting growth during the past 12 months . this increase was partially offset by ( i ) lower net charge-offs on the previously owned springcastle portfolio reflecting the springcastle interests sale and the improved central servicing performance as the acquired portfolio matured under our ownership and ( ii ) the continued refinement of our estimates of allowance for finance receivable losses and their related assumptions based on ongoing integration and alignment of collection and charge-off practices . net gain on sale of springcastle interests of $ 167 million in 2016 reflected the net gain associated with the sale of our equity interest in the springcastle joint venture on march 31 , 2016. see note 2 of the notes to consolidated financial statements included in this report for further information on this sale . other revenues increased $ 344 million in 2016 when compared to 2015 primarily due to ( i ) other revenues of $ 319 million resulting from the onemain acquisition , which consisted of insurance revenues of $ 236 million , investment revenues of $ 54 million , and remaining other revenues of $ 29 million , including $ 25 million of revenues from our ancillary products , ( ii ) servicing charge income for the springcastle portfolio of $ 33 million in 2016 , ( iii ) net gain on sales of personal and real estate loans of $ 18 million in 2016 , ( iv ) servicing charge income for the receivables related to the lendmark sale of $ 6 million in 2016 , and ( v ) foreign currency translation adjustment gain of $ 4 million in 2016 resulting from the liquidation of our united kingdom subsidiary . this increase was partially offset by ( i ) a decrease in springleaf investment revenues of $ 20 million during 2016 primarily due to a decrease in invested assets and lower realized gains on the sale of investment securities and ( ii ) net loss on repurchases and repayments of debt of $ 17 million in 2016. acquisition-related transaction and integration costs of $ 108 million and $ 62 million in 2016 and 2015 , respectively , reflected increased costs relating to the onemain acquisition and the lendmark sale , including branch and system conversions , information technology costs , certain compensation and benefit related costs , and other costs and fees that would not have been incurred in the ordinary course of business . see “ non-gaap financial measures ” below for further information regarding these costs . other expenses increased $ 706 million in 2016 when compared to 2015 due to the following : salaries and benefits increased $ 303 million primarily due to salaries and benefits of $ 317 million resulting from the onemain acquisition . this increase was partially offset by non-cash incentive compensation expense of $ 15 million recorded in 2015 relating to the rights of certain executives to receive a portion of the cash proceeds from the sale of omh 's common stock by the initial stockholder . other operating expenses increased $ 332 million primarily due to ( i ) other operating expenses of $ 306 million resulting from the onemain acquisition , which consisted primarily of advertising expenses of $ 74 million , occupancy costs of $ 66 million , amortization on other intangible assets of $ 57 million , and information technology expenses of $ 53 million , ( ii ) a decrease in springleaf deferred

liquidity and capital resources our principal sources of liquidity are cash flow from operations and borrowings under our amended and restated credit agreement from our senior lenders . 35 our primary uses of cash are payment of vendors , payroll , operating costs , capital expenditures and debt service . as of december 30 , 2018 , december 31 , 2017 and january 1 , 2017 , we had a cash balance of $ 1.41 million , $ 1.43 million and $ 0.71 million , respectively . our excess cash balance is swept daily and applied to reduce borrowings under our revolving line of credit , which remains available for re-borrowing , as needed , subject to compliance with the terms of the facility . as of december 30 , 2018 , december 31 , 2017 and january 1 , 2017 , we had $ 11.61 million , $ 7.19 million and $ 9.42 million , respectively , available for borrowing under our amended and restated credit facility , subject , in each case , to borrowing base restrictions , compliance with the terms of the facility and outstanding letters of credit . at each such date , we were in compliance with all debt covenants under such facilities .

” see note 22 of the notes to consolidated financial statements included in this report for further information on this change in our segment alignment and for more information about our segments . to conform to the new alignment of our segments , we have revised our prior period segment disclosures . how we assess our business performance we closely monitor the primary drivers of pretax operating income , which consist of the following : net interest income we track the spread between the interest income earned on our finance receivables and the interest expense incurred on our debt , and continually monitor the components of our yield and our cost of funds . net credit losses the credit quality of our loans is driven by our long-standing underwriting philosophy , which takes into account the prospective customer 's household budget , and his or her willingness and capacity to repay the proposed loan . we closely analyze credit performance because the profitability of our loan portfolio is directly connected to net credit losses . we define net credit losses as gross charge-offs minus recoveries in the portfolio . additionally , because delinquencies are an early indicator of future net credit losses , we analyze delinquency trends , adjusting for seasonality , to determine whether or not our loans are performing in line with our original estimates . we also monitor recovery rates because of their contribution to the reduction in the severity of our charge-offs . operating expenses we assess our operational efficiency using various metrics and conduct extensive analysis to determine whether fluctuations in cost and expense levels indicate operational trends that need to be addressed . our operating expense analysis also includes a review of origination and servicing costs to assist us in managing overall profitability . because loan volume and portfolio size determine the magnitude of the impact of each of the above factors on our earnings , we also closely monitor origination volume and annual percentage rate . 46 recent developments and outlook initial stockholder share sales on november 7 , 2017 , we entered into an underwriting agreement among the company , the initial stockholder and morgan stanley & co. llc ( the “ underwriter ” ) , for the sale by the initial stockholder of 10,000,000 shares of the company 's common stock , par value $ 0.01 per share ( the “ common stock ” ) , plus an option for the underwriter to purchase up to an additional 1,500,000 shares of common stock within 30 days after the date of the underwriting agreement . the shares sold by the initial stockholder were beneficially owned by fortress . the company did not receive any proceeds from the sale of the shares by the initial stockholder . the transaction closed on november 10 , 2017 and the underwriter purchased 1,000,000 shares under its over-allotment option on december 7 , 2017. on december 13 , 2017 , we entered into an underwriting agreement among the company , the initial stockholder and the underwriter , for the sale by the initial stockholder of 7,500,000 additional shares of the company 's common stock , par value $ 0.01 per share . the shares sold by the initial stockholder were beneficially owned by fortress . the company did not receive any proceeds from the sale of the shares by the initial stockholder . the transaction closed on december 18 , 2017. at december 31 , 2017 , the initial stockholder owned approximately 44 % of omh 's common stock . the initial stockholder is owned primarily by a private equity fund managed by an affiliate of fortress . on december 27 , 2017 , softbank acquired fortress and fortress now operates within softbank as an independent business headquartered in new york . there can be no assurance that the initial stockholder will not offer or sell in the future any of its remaining shares beneficially owned by american international group and its affiliates . apollo-värde transaction on january 3 , 2018 , the apollo-värde group entered into a share purchase agreement with the initial stockholder and the company to acquire from the initial stockholder 54,937,500 shares ( representing approximately 40.6 % of the outstanding shares of our common stock as of such date ) , representing the entire holdings of our stock beneficially owned by fortress . the apollo-värde transaction is expected to close in the second quarter of 2018 and is subject to regulatory approvals and other customary closing conditions . the share purchase agreement is filed as exhibit 10.1 to our current report on form 8-k filed with the sec on january 4 , 2018 , and such current report on form 8-k , including exhibit 10.1 thereto , is incorporated by reference herein in its entirety . upon closing of the apollo-värde transaction , we expect to enter into an amended and restated stockholders ' agreement , the expected terms of which are described in such current report on form 8-k. further , upon closing of the apollo-värde transaction , we expect to recognize non-cash incentive compensation expense of approximately $ 108 million along with a capital contribution offset such that the overall impact to our shareholders ' equity will be neutral . see note 24 of the notes to consolidated financial statements included in this report for further information . sfc 's medium-term note issuances 6.125 % sfc notes on may 15 , 2017 , sfc issued $ 500 million aggregate principal amount of 6.125 % senior notes due 2022 ( the “ 2022 sfc notes ” ) under an indenture dated as of december 3 , 2014 ( the “ sfc base indenture ” ) , as supplemented by a third supplemental indenture , dated as of may 15 , 2017 ( the “ sfc third supplemental indenture ” ) , pursuant to which omh provided a guarantee of the 2022 sfc notes on an unsecured basis . story_separator_special_tag interest income on finance receivables held for sale increased $ 14 million primarily due to ( i ) the transfer of $ 608 million of our personal loans to held for sale on september 30 , 2015 , which were sold in the lendmark sale on may 2 , 2016 , and ( ii ) the transfers of $ 307 million of real estate loans to finance receivables held for sale during 2016 , which were sold in the august 2016 real estate loan sale and december 2016 real estate loan sale . interest expense increased $ 141 million in 2016 when compared to 2015 due to the net of the following : average debt increased primarily due to ( i ) debt acquired in the onemain acquisition and ( ii ) net unsecured debt issued during the 2016 period . this increase was partially offset by ( i ) the elimination of the debt associated with the springcastle interests sale and ( ii ) net repayments under our conduit facilities . see notes 12 and 13 of the notes to consolidated financial statements included in this report for further information on our long-term debt , consumer loan securitization transactions , and our conduit facilities . weighted average interest rate on our debt decreased primarily due to ( i ) debt acquired from the onemain acquisition , which generally has a lower weighted average interest rate relative to sfc 's weighted average interest 52 rate , and ( ii ) the repurchase of $ 600 million unsecured notes , which had a higher interest rate relative to our other indebtedness , in connection with sfc 's offering of the 8.25 % sfc notes , as defined in “ liquidity and capital resources ” included in this report . the decrease was partially offset by ( i ) sfc 's offering of the 8.25 % sfc notes in april of 2016 and ( ii ) the elimination of debt associated with the springcastle interests sale , which generally had a lower interest rate relative to our other indebtedness . provision for finance receivable losses increased $ 216 million in 2016 when compared to 2015 primarily due to ( i ) provision for finance receivable losses of $ 229 million resulting from the onemain acquisition , which reflected net charge-offs of $ 477 million , partially offset by the re-establishment of the allowance for finance receivable losses of $ 248 million in 2015 and ( ii ) higher net charge-offs on springleaf personal loans reflecting growth during the past 12 months . this increase was partially offset by ( i ) lower net charge-offs on the previously owned springcastle portfolio reflecting the springcastle interests sale and the improved central servicing performance as the acquired portfolio matured under our ownership and ( ii ) the continued refinement of our estimates of allowance for finance receivable losses and their related assumptions based on ongoing integration and alignment of collection and charge-off practices . net gain on sale of springcastle interests of $ 167 million in 2016 reflected the net gain associated with the sale of our equity interest in the springcastle joint venture on march 31 , 2016. see note 2 of the notes to consolidated financial statements included in this report for further information on this sale . other revenues increased $ 344 million in 2016 when compared to 2015 primarily due to ( i ) other revenues of $ 319 million resulting from the onemain acquisition , which consisted of insurance revenues of $ 236 million , investment revenues of $ 54 million , and remaining other revenues of $ 29 million , including $ 25 million of revenues from our ancillary products , ( ii ) servicing charge income for the springcastle portfolio of $ 33 million in 2016 , ( iii ) net gain on sales of personal and real estate loans of $ 18 million in 2016 , ( iv ) servicing charge income for the receivables related to the lendmark sale of $ 6 million in 2016 , and ( v ) foreign currency translation adjustment gain of $ 4 million in 2016 resulting from the liquidation of our united kingdom subsidiary . this increase was partially offset by ( i ) a decrease in springleaf investment revenues of $ 20 million during 2016 primarily due to a decrease in invested assets and lower realized gains on the sale of investment securities and ( ii ) net loss on repurchases and repayments of debt of $ 17 million in 2016. acquisition-related transaction and integration costs of $ 108 million and $ 62 million in 2016 and 2015 , respectively , reflected increased costs relating to the onemain acquisition and the lendmark sale , including branch and system conversions , information technology costs , certain compensation and benefit related costs , and other costs and fees that would not have been incurred in the ordinary course of business . see “ non-gaap financial measures ” below for further information regarding these costs . other expenses increased $ 706 million in 2016 when compared to 2015 due to the following : salaries and benefits increased $ 303 million primarily due to salaries and benefits of $ 317 million resulting from the onemain acquisition . this increase was partially offset by non-cash incentive compensation expense of $ 15 million recorded in 2015 relating to the rights of certain executives to receive a portion of the cash proceeds from the sale of omh 's common stock by the initial stockholder . other operating expenses increased $ 332 million primarily due to ( i ) other operating expenses of $ 306 million resulting from the onemain acquisition , which consisted primarily of advertising expenses of $ 74 million , occupancy costs of $ 66 million , amortization on other intangible assets of $ 57 million , and information technology expenses of $ 53 million , ( ii ) a decrease in springleaf deferred

liquidity and capital resources sources of funds we finance the majority of our operating liquidity and capital needs through a combination of cash flows from operations , securitization debt , borrowings from conduit facilities , unsecured debt and equity , and may also utilize other corporate debt facilities in the future . as a holding company , all of the funds generated from our operations are earned by our operating subsidiaries . 63 sfc issuance of 5.625 % senior notes due 2023 on december 8 , 2017 , sfc issued $ 875 million aggregate principal amount of the 5.625 % sfc notes under the sfc fourth supplemental indenture , pursuant to which omh provided a guarantee of the 5.625 % sfc notes on an unsecured basis . sfc used a portion of the net proceeds from the sale of the 5.625 % sfc notes to repay at maturity approximately $ 557 million aggregate principal amount of sfc 's existing 6.90 % medium-term notes and for general corporate purposes . see note 12 of the notes to consolidated financial statements included in this report for further information on the issuance . sfc issuance of 6.125 % senior notes due 2022 on may 15 , 2017 , sfc issued $ 500 million aggregate principal amount of the 6.125 % sfc notes under the sfc third supplemental indenture , pursuant to which omh provided a guarantee of the 6.125 % sfc notes on an unsecured basis . on may 30 , 2017 , sfc issued and sold $ 500 million aggregate principal amount of the additional sfc notes in an add-on offering . sfc used a portion of the net proceeds from the sale of the additional sfc notes to repurchase approximately $ 466 million aggregate principal amount of its existing 6.90 % senior notes due 2017 at a premium to par . sfc used the remaining net proceeds from the sale of the 6.125 % sfc notes for general corporate purposes . see note 12 of the notes to consolidated financial statements included in this report for further information on the issuance .

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

liquidity and capital resources sources of funds we finance the majority of our operating liquidity and capital needs through a combination of cash flows from operations , securitization debt , borrowings from conduit facilities , unsecured debt and equity , and may also utilize other corporate debt facilities in the future . as a holding company , all of the funds generated from our operations are earned by our operating subsidiaries . 63 sfc issuance of 5.625 % senior notes due 2023 on december 8 , 2017 , sfc issued $ 875 million aggregate principal amount of the 5.625 % sfc notes under the sfc fourth supplemental indenture , pursuant to which omh provided a guarantee of the 5.625 % sfc notes on an unsecured basis . sfc used a portion of the net proceeds from the sale of the 5.625 % sfc notes to repay at maturity approximately $ 557 million aggregate principal amount of sfc 's existing 6.90 % medium-term notes and for general corporate purposes . see note 12 of the notes to consolidated financial statements included in this report for further information on the issuance . sfc issuance of 6.125 % senior notes due 2022 on may 15 , 2017 , sfc issued $ 500 million aggregate principal amount of the 6.125 % sfc notes under the sfc third supplemental indenture , pursuant to which omh provided a guarantee of the 6.125 % sfc notes on an unsecured basis . on may 30 , 2017 , sfc issued and sold $ 500 million aggregate principal amount of the additional sfc notes in an add-on offering . sfc used a portion of the net proceeds from the sale of the additional sfc notes to repurchase approximately $ 466 million aggregate principal amount of its existing 6.90 % senior notes due 2017 at a premium to par . sfc used the remaining net proceeds from the sale of the 6.125 % sfc notes for general corporate purposes . see note 12 of the notes to consolidated financial statements included in this report for further information on the issuance .

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

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

termination of the written agreement is expected to reduce management time and associated expense related to regulatory reporting requirements , and eliminates one barrier to the bank 's ability to effectively compete for loan and deposit business . results of operations discontinued operations in connection with our exit from the mortgage banking business described above , the revenues and expenses of our mortgage banking division have been classified as discontinued operations for all periods presented . as a result , all comparisons below reflect results from continuing operations . income from discontinued operations was $ 1.2 million for the year ended december 31 , 2014 , while our loss from discontinued operations was $ 7.3 million for the year ended december 31 , 2013 . during the year ended december 31 , 2014 , we recorded a gain in the amount of $ 558 thousand on the sale of the mortgage servicing rights that we sold in april 2014 , which is included in income from discontinued operations in the consolidated statements of operations . this compares to a loss of $ 7.3 million for the year ended december 31 , 2013 from the mortgage banking operations as a result of the decision to discontinue the mortgage banking business . for additional information , see note 16 , discontinued operations , in our accompanying audited consolidated financial statements for the year ended december 31 , 2014 included in part ii item 8 of this annual report . operating results for the years ended december 31 , 2014 , 2013 , and 2012 28 our operating results for the year ended december 31 , 2014 , compared to december 31 , 2013 , and for the year ended december 31 , 2013 , compared to december 31 , 2012 , were as follows : replace_table_token_9_th interest income 2014 vs. 2013 . total interest income increased 7.4 % to $ 38.3 million for the year ended december 31 , 2014 from $ 35.7 million for the year ended december 31 , 2013 . this increase is primarily due to an increase in interest income on loans during the year ended december 31 , 2014 compared to the same prior year period due to an increase in average loan balances , partially offset by a decline in the average yield on loans . during the year ended december 31 , 2014 and 2013 , interest income on loans was $ 36.3 million and $ 33.8 million , respectively , yielding 4.54 % and 4.74 % on average loan balances of $ 799.9 million and $ 713.9 million , respectively . the increase in the average loan balances is attributable to an increase in loan demand . the decrease in loan yield is primarily attributable to the actions of the board of governors of the federal reserve system ( “ federal reserve board ” ) to keep short-term interest rates low . the average yield on interest-earning assets was 3.81 % for the year ended december 31 , 2014 compared to 4.01 % for the year ended december 31 , 2013 . during the year ended december 31 , 2014 and 2013 , interest income from our securities available-for-sale and stock , was $ 1.6 million and $ 1.6 million , yielding 2.27 % and 1.96 % on average balances of $ 71.2 million and $ 81.5 million , respectively . the average securities balances decreased as a result of maturities of , and payments on , securities which we did not fully replace due to liquidity needs . the investment yield increase is primarily due to lower premium amortization attributable to slower projected prepayment speeds on our securities available-for-sale , returning our prepayment speed to a more historically normal level as compared to the accelerated prepayment speed seen in the prior year . interest income from our short-term investments , including our federal funds sold and interest-bearing deposits , was $ 333 thousand and $ 233 thousand for the year ended december 31 , 2014 and 2013 , respectively , yielding 0.25 % and 0.25 % on average balances of $ 134.6 million and $ 93.1 million , respectively . the increase in interest income from our short-term investments was primarily attributable to an increase in the average loan balances during the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 . as a result , total interest income on investments increased for the year ended december 31 , 2014 and 2013 . 2013 vs. 2012 . total interest income decreased 7.2 % to $ 35.7 million for the year ended december 31 , 2013 from $ 38.4 million for the year ended december 31 , 2012 , with an average yield on interest-earning assets of 4.01 % for the year ended december 31 , 2013 compared to 4.22 % for the year ended december 31 , 2012 . this decrease is primarily due to a decrease in interest income on loans during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 due to a decline in the average yield on loans , partially offset by an increase in average loan balances . during the year ended december 31 , 2013 and 2012 , interest income on loans was $ 33.8 million and $ 35.9 million , respectively , yielding 4.74 % and 5.15 % on average loan balances of $ 713.9 million and $ 698.4 million , respectively . the increase in the average loan balances is attributable to an increase in loan demand . the decrease in loan yield is primarily attributable to the actions of the federal reserve board to keep short-term interest rates low . story_separator_special_tag this benefit is the result of an intraperiod tax allocation where the benefit of the income tax provision that is recorded in discontinued operations and other comprehensive income created a tax benefit in continuing operations . on a net basis we recorded no income tax provision . based on the analysis performed , and the positive and negative evidence considered , management chose not to release any portion of the $ 12.1 million valuation allowance as of december 31 , 2014. positive evidence included improvement in our asset quality , tax planning strategies , projected taxable income , and improvement in economic conditions . negative evidence included historical operating losses . management determined the negative evidence was significant enough that until such time as we are in continuous periods of pre-tax income we would not make any reversals of our valuation allowance ; however , we did conclude that it is more-likely-than-not that the existing $ 5.9 net million deferred tax asset will be realized . see `` – critical accounting policies - utilization and valuation of deferred income tax benefits ” below for additional information regarding our deferred tax asset . financial condition assets our total consolidated assets increased by $ 103 million to $ 1.1 billion at december 31 , 2014 from $ 1.0 billion at december 31 , 2013 . the following table sets forth the composition of our interest earning assets at : replace_table_token_14_th ( 1 ) includes interest-earning balances maintained at the frbsf . 35 securities available for sale securities available for sale . securities that we intend to hold for an indefinite period of time , but which may be sold in response to changes in liquidity needs , interest rates , or prepayment risks or other similar factors , are classified as “ securities available for sale ” . such securities are recorded on our balance sheet at their respective fair values and increases or decreases in those values are recorded as unrealized gains or losses , respectively , and are reported as other comprehensive income ( loss ) on our accompanying consolidated balance sheet , rather than included in or deducted from our earnings . the following is a summary of the major components of securities available for sale and a comparison of the amortized cost , estimated fair values and the gross unrealized gains and losses attributable to those securities , as of december 31 , 2014 , 2013 and 2012 : replace_table_token_15_th at december 31 , 2014 , 2013 and 2012 , u.s. agency mortgage backed securities and collateralized mortgage obligations with an aggregate fair market value of $ 3.6 million , $ 9.5 million and $ 10 million , respectively , were pledged to secure fhlb borrowings , repurchase agreements , local agency deposits and treasury , tax and loan accounts . the amortized cost of securities available for sale at december 31 , 2014 is shown in the table below by contractual maturities taking into consideration historical prepayments based on the prior twelve months of principal payments . expected maturities will differ from contractual maturities and historical prepayments , particularly with respect to collateralized mortgage obligations , primarily because prepayment rates are affected by changes in conditions in the interest rate market and , therefore , future prepayment rates may differ from historical prepayment rates . 36 december 31 , 2014 maturing in one year or less over one year through five years over five years through ten years over ten years total ( dollars in thousands ) amortized cost weighted average yield amortized cost weighted average yield amortized cost weighted average yield amortized cost weighted average yield amortized cost weighted average yield securities available for sale : mortgage-backed securities issued by u.s. agencies $ 7,483 1.54 % $ 23,468 1.55 % $ 17,448 1.60 % $ 6,254 1.67 % $ 54,653 1.58 % non-agency collateralized mortgage obligations — — % 790 2.94 % — — % — — % 790 2.94 % asset backed securities — — % — — % — — % 2,083 2.33 % 2,083 2.33 % mutual funds — — % 4,750 1.86 % — — % — — % 4,750 1.86 % total securities available for sale $ 7,483 1.54 % $ 29,008 1.64 % $ 17,448 1.60 % $ 8,337 1.83 % $ 62,276 1.64 % the table below indicates , as of december 31 , 2014 , the gross unrealized losses and fair values of our investments , aggregated by investment category , and length of time that the individual securities have been in a continuous unrealized loss position . replace_table_token_16_th we regularly monitor investments for significant declines in fair value . we have determined that declines in the fair values of these investments below their respective amortized costs , as set forth in the tables above , are temporary because ( i ) those declines were due to interest rate changes and not to a deterioration in the creditworthiness of the issuers of those investment securities , and ( ii ) we have the ability to hold those securities until there is a recovery in their values or until their maturity . we recognize other-than-temporary impairments ( “ otti ” ) to our available-for-sale debt securities in accordance with the financial accounting standards board 's ( “ fasb ” ) asc 320-10. when there are credit losses associated with , but we have no intention to sell , an impaired debt security , and it is more likely than not that we will not have to sell the security before recovery of its cost basis , we will separate the amount of impairment , or otti , between the amount that is credit related and the amount that is related to non-credit factors . credit-related impairments are recognized in our consolidated statements of operations . any non-credit-related impairments are recognized and reflected in other comprehensive income ( loss ) . through the impairment assessment process , we determined that

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

termination of the written agreement is expected to reduce management time and associated expense related to regulatory reporting requirements , and eliminates one barrier to the bank 's ability to effectively compete for loan and deposit business . results of operations discontinued operations in connection with our exit from the mortgage banking business described above , the revenues and expenses of our mortgage banking division have been classified as discontinued operations for all periods presented . as a result , all comparisons below reflect results from continuing operations . income from discontinued operations was $ 1.2 million for the year ended december 31 , 2014 , while our loss from discontinued operations was $ 7.3 million for the year ended december 31 , 2013 . during the year ended december 31 , 2014 , we recorded a gain in the amount of $ 558 thousand on the sale of the mortgage servicing rights that we sold in april 2014 , which is included in income from discontinued operations in the consolidated statements of operations . this compares to a loss of $ 7.3 million for the year ended december 31 , 2013 from the mortgage banking operations as a result of the decision to discontinue the mortgage banking business . for additional information , see note 16 , discontinued operations , in our accompanying audited consolidated financial statements for the year ended december 31 , 2014 included in part ii item 8 of this annual report . operating results for the years ended december 31 , 2014 , 2013 , and 2012 28 our operating results for the year ended december 31 , 2014 , compared to december 31 , 2013 , and for the year ended december 31 , 2013 , compared to december 31 , 2012 , were as follows : replace_table_token_9_th interest income 2014 vs. 2013 . total interest income increased 7.4 % to $ 38.3 million for the year ended december 31 , 2014 from $ 35.7 million for the year ended december 31 , 2013 . this increase is primarily due to an increase in interest income on loans during the year ended december 31 , 2014 compared to the same prior year period due to an increase in average loan balances , partially offset by a decline in the average yield on loans . during the year ended december 31 , 2014 and 2013 , interest income on loans was $ 36.3 million and $ 33.8 million , respectively , yielding 4.54 % and 4.74 % on average loan balances of $ 799.9 million and $ 713.9 million , respectively . the increase in the average loan balances is attributable to an increase in loan demand . the decrease in loan yield is primarily attributable to the actions of the board of governors of the federal reserve system ( “ federal reserve board ” ) to keep short-term interest rates low . the average yield on interest-earning assets was 3.81 % for the year ended december 31 , 2014 compared to 4.01 % for the year ended december 31 , 2013 . during the year ended december 31 , 2014 and 2013 , interest income from our securities available-for-sale and stock , was $ 1.6 million and $ 1.6 million , yielding 2.27 % and 1.96 % on average balances of $ 71.2 million and $ 81.5 million , respectively . the average securities balances decreased as a result of maturities of , and payments on , securities which we did not fully replace due to liquidity needs . the investment yield increase is primarily due to lower premium amortization attributable to slower projected prepayment speeds on our securities available-for-sale , returning our prepayment speed to a more historically normal level as compared to the accelerated prepayment speed seen in the prior year . interest income from our short-term investments , including our federal funds sold and interest-bearing deposits , was $ 333 thousand and $ 233 thousand for the year ended december 31 , 2014 and 2013 , respectively , yielding 0.25 % and 0.25 % on average balances of $ 134.6 million and $ 93.1 million , respectively . the increase in interest income from our short-term investments was primarily attributable to an increase in the average loan balances during the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 . as a result , total interest income on investments increased for the year ended december 31 , 2014 and 2013 . 2013 vs. 2012 . total interest income decreased 7.2 % to $ 35.7 million for the year ended december 31 , 2013 from $ 38.4 million for the year ended december 31 , 2012 , with an average yield on interest-earning assets of 4.01 % for the year ended december 31 , 2013 compared to 4.22 % for the year ended december 31 , 2012 . this decrease is primarily due to a decrease in interest income on loans during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 due to a decline in the average yield on loans , partially offset by an increase in average loan balances . during the year ended december 31 , 2013 and 2012 , interest income on loans was $ 33.8 million and $ 35.9 million , respectively , yielding 4.74 % and 5.15 % on average loan balances of $ 713.9 million and $ 698.4 million , respectively . the increase in the average loan balances is attributable to an increase in loan demand . the decrease in loan yield is primarily attributable to the actions of the federal reserve board to keep short-term interest rates low . story_separator_special_tag this benefit is the result of an intraperiod tax allocation where the benefit of the income tax provision that is recorded in discontinued operations and other comprehensive income created a tax benefit in continuing operations . on a net basis we recorded no income tax provision . based on the analysis performed , and the positive and negative evidence considered , management chose not to release any portion of the $ 12.1 million valuation allowance as of december 31 , 2014. positive evidence included improvement in our asset quality , tax planning strategies , projected taxable income , and improvement in economic conditions . negative evidence included historical operating losses . management determined the negative evidence was significant enough that until such time as we are in continuous periods of pre-tax income we would not make any reversals of our valuation allowance ; however , we did conclude that it is more-likely-than-not that the existing $ 5.9 net million deferred tax asset will be realized . see `` – critical accounting policies - utilization and valuation of deferred income tax benefits ” below for additional information regarding our deferred tax asset . financial condition assets our total consolidated assets increased by $ 103 million to $ 1.1 billion at december 31 , 2014 from $ 1.0 billion at december 31 , 2013 . the following table sets forth the composition of our interest earning assets at : replace_table_token_14_th ( 1 ) includes interest-earning balances maintained at the frbsf . 35 securities available for sale securities available for sale . securities that we intend to hold for an indefinite period of time , but which may be sold in response to changes in liquidity needs , interest rates , or prepayment risks or other similar factors , are classified as “ securities available for sale ” . such securities are recorded on our balance sheet at their respective fair values and increases or decreases in those values are recorded as unrealized gains or losses , respectively , and are reported as other comprehensive income ( loss ) on our accompanying consolidated balance sheet , rather than included in or deducted from our earnings . the following is a summary of the major components of securities available for sale and a comparison of the amortized cost , estimated fair values and the gross unrealized gains and losses attributable to those securities , as of december 31 , 2014 , 2013 and 2012 : replace_table_token_15_th at december 31 , 2014 , 2013 and 2012 , u.s. agency mortgage backed securities and collateralized mortgage obligations with an aggregate fair market value of $ 3.6 million , $ 9.5 million and $ 10 million , respectively , were pledged to secure fhlb borrowings , repurchase agreements , local agency deposits and treasury , tax and loan accounts . the amortized cost of securities available for sale at december 31 , 2014 is shown in the table below by contractual maturities taking into consideration historical prepayments based on the prior twelve months of principal payments . expected maturities will differ from contractual maturities and historical prepayments , particularly with respect to collateralized mortgage obligations , primarily because prepayment rates are affected by changes in conditions in the interest rate market and , therefore , future prepayment rates may differ from historical prepayment rates . 36 december 31 , 2014 maturing in one year or less over one year through five years over five years through ten years over ten years total ( dollars in thousands ) amortized cost weighted average yield amortized cost weighted average yield amortized cost weighted average yield amortized cost weighted average yield amortized cost weighted average yield securities available for sale : mortgage-backed securities issued by u.s. agencies $ 7,483 1.54 % $ 23,468 1.55 % $ 17,448 1.60 % $ 6,254 1.67 % $ 54,653 1.58 % non-agency collateralized mortgage obligations — — % 790 2.94 % — — % — — % 790 2.94 % asset backed securities — — % — — % — — % 2,083 2.33 % 2,083 2.33 % mutual funds — — % 4,750 1.86 % — — % — — % 4,750 1.86 % total securities available for sale $ 7,483 1.54 % $ 29,008 1.64 % $ 17,448 1.60 % $ 8,337 1.83 % $ 62,276 1.64 % the table below indicates , as of december 31 , 2014 , the gross unrealized losses and fair values of our investments , aggregated by investment category , and length of time that the individual securities have been in a continuous unrealized loss position . replace_table_token_16_th we regularly monitor investments for significant declines in fair value . we have determined that declines in the fair values of these investments below their respective amortized costs , as set forth in the tables above , are temporary because ( i ) those declines were due to interest rate changes and not to a deterioration in the creditworthiness of the issuers of those investment securities , and ( ii ) we have the ability to hold those securities until there is a recovery in their values or until their maturity . we recognize other-than-temporary impairments ( “ otti ” ) to our available-for-sale debt securities in accordance with the financial accounting standards board 's ( “ fasb ” ) asc 320-10. when there are credit losses associated with , but we have no intention to sell , an impaired debt security , and it is more likely than not that we will not have to sell the security before recovery of its cost basis , we will separate the amount of impairment , or otti , between the amount that is credit related and the amount that is related to non-credit factors . credit-related impairments are recognized in our consolidated statements of operations . any non-credit-related impairments are recognized and reflected in other comprehensive income ( loss ) . through the impairment assessment process , we determined that

cash flow used in financing activities . in 2014 , financing activities provided net cash of $ 106.8 million , consisting primarily of a $ 102.5 million net increase in interest bearing deposits , which resulted from a decision to increase the rates of interest we pay on our certificates of deposit in order to decrease our loan-to-deposit ratio and increase our liquidity , and an increase in noninterest bearing deposits of $ 33.5 million , partially offset by a $ 30.5 million decrease in borrowings . in 2013 , financing activities used net cash of $ 34.9 million , consisting primarily of a $ 99 million net decrease in interest bearing deposits , which resulted primarily from a decision not to renew some time certificates of deposit at their maturity in order to reduce our costs of funds , partially offset by net proceeds of approximately $ 15.0 million from a private placement of shares of our common stock in the first quarter of 2013 , a $ 15.0 million increase in borrowings and an increase in noninterest bearing deposits of $ 34 million . ratio of loans to deposits . the relationship between gross loans and total deposits can provide a useful measure of a bank 's liquidity . since repayment of loans tends to be less predictable than the maturity of investments and other liquid resources , the higher the loan-to-deposit ratio the less liquid are our assets . on the other hand , since we realize greater yields on loans than we do on investments , a lower loan-to-deposit ratio can adversely affect interest income and earnings . as a result , our goal is to achieve a loan-to-deposit ratio that appropriately balances the requirements of liquidity and the need to generate a fair return on our assets . at december 31 , 2014 and 2013 , the loan-to-deposit ratio was 91 % and 100 % , respectively .

continued disruptions to the supply chain could have a material impact on our future operating results . as a result of the covid-19 pandemic , including related governmental guidance or directives , we are still requiring most office-based employees to work remotely . we may experience reductions in productivity and disruptions to our 15 business routines while our remote work policy remains in place or if our employees become ill and are unable to work . this could have an adverse effect on the timing of our development activities , our ability to raise additional capital , our ability to enter into licensing agreements , or our ability to complete a potential sale or merger of the company . in april 2020 , we received funds in the amount of $ 1.6 million pursuant to a loan under the paycheck protection program of the 2020 cares act ( `` ppp `` ) administered by the small business administration . the loan has an interest rate of 0.98 % and a term of 24 months . no payments are due for the first 10 months following the 24-week covered period , although interest accrues during that period . thereafter , the loan is repayable in monthly installments over the next 18 months to retire the loan plus accrued interest . funds from the loan may only be used for certain purposes , including payroll , benefits , rent and utilities , and a portion of the loan used to pay certain costs may be forgivable , all as provided by the terms of the ppp . the cares act reduces the amount of the ppp loan that may be forgiven if the borrower reduces full-time equivalent employees during the covered period as compared to a base period . as of december 31 , 2020 , all of the funds received under the ppp had been used for qualified purposes . we intend to apply for partial forgiveness of the loan under ppp guidelines . based on the terms of the ppp , we estimate the amount of the loan that will be forgiven will be approximately $ 690,000 , subject to approval by our lender in accordance with ppp guidelines . the loan is evidenced by a promissory note , which contains customary events of default relating to , among other things , payment defaults and breaches of representations and warranties . we may prepay the loan at any time prior to maturity with no prepayment penalties . key accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that materially affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent liabilities . we evaluate our estimates on a continuous basis . we base our estimates on historical data , terms of existing contracts , our evaluation of trends in the consumer display and 3d sensing industries , information provided by our current and prospective customers and strategic partners , information available from other outside sources and on various other assumptions we believe to be reasonable under the circumstances . the results form the basis for making judgments regarding the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following key accounting policies require significant judgments and estimates used in the preparation of our financial statements . revenue recognition revenues are recognized when control of the promised goods or services are transferred to our customers , in an amount that reflects the consideration that we expect to receive in exchange for those goods or services . we generate all of our revenue from contracts with customers . our contract revenue in a particular period is dependent upon when we enter into a contract , the value of the contracts we have entered into , and the availability of technical resources to perform work on the contracts . we recognize contract revenue either at a point in time , or over time , depending upon the characteristics of the individual contract . if control of the deliverable ( s ) occur over time , the revenue is recognized in proportion to the transfer of control . if control passes to the customer only upon completion and transfer of the asset , revenue is recognized at the completion of the contract . in contracts that include significant customer acceptance provisions , we recognize revenue only upon acceptance of the deliverable ( s ) . we identify each performance obligation in our development contracts at contract inception . the contracts generally include product development and customization specified by the customer . in contracts with multiple performance obligations , we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract . determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment . performance obligations that are not distinct at contract inception are combined . if we identify multiple distinct performance obligations , we evaluate each performance obligation to determine if there is a stand-alone selling price . in instances where stand-alone selling price is not directly observable , such as when we do not sell the product or service separately , we determine the stand-alone selling price using information that may 16 include market conditions and other observable inputs . judgment is required to determine the stand-alone selling price for each distinct performance obligation . our development contracts are primarily fixed-fee contracts . story_separator_special_tag we will recognize revenue from sales-based royalties on the basis of the quarterly reports provided by our customer as to the number of royalty-bearing products sold or otherwise distributed . in the event that reports are not received , we will estimate the number of royalty-bearing products sold by our customers . in march 2020 , we entered into an agreement for our customer to take over production of the components we had been producing for them . the agreement provides that , beginning in march 2020 , we will earn a royalty on each component shipped that is approximately equal to the gross profit we would have earned if we continued to produce and ship the components . the increase in license and royalty revenue for the twelve months ended december 31 , 2020 compared to the same period in 2019 was primarily due to this change , moving to a royalty arrangement from recognizing product revenue . contract revenue replace_table_token_3_th contract revenue includes revenue from performance on development contracts and the sale of prototype units and evaluation kits based on our picop® scanning module . our contract revenue in a particular period is dependent upon when we enter into a contract , the value of the contracts we have entered into , and the availability of technical resources to perform work on the contracts . we recognize contract revenue either at a point in time , or over time , depending upon the characteristics of the individual contract . if control of the deliverable ( s ) occur over time , the revenue is recognized in proportion to the transfer of control . if control passes to the customer only upon completion 18 and transfer of the asset , revenue is recognized at the completion of the contract . in contracts that include significant customer acceptance provisions , we recognize revenue only upon acceptance of the deliverable ( s ) . the decrease in contract revenue during the year ended december 31 , 2020 compared to the same period in 2019 was attributed to decreased contract activity because the contract with our april 2017 customer was completed in 2019. our contract backlog , including orders for prototype units and evaluation kits , at december 31 , 2020 and 2019 was zero . cost of product revenue replace_table_token_4_th cost of product revenue includes the direct and allocated indirect costs of products sold to customers . direct costs include labor , materials , reserves for estimated warranty expenses , and other costs incurred directly , or charged to us by our contract manufacturers , in the manufacture of these products . indirect costs include labor , manufacturing overhead , and other costs associated with operating our manufacturing capabilities and capacity . manufacturing overhead includes the costs of procuring , inspecting and storing material , facility and other costs , and is allocated to cost of product revenue based on the proportion of indirect labor which supported production activities . cost of product revenue can fluctuate significantly from period to period , depending on the product mix and volume , the level of manufacturing overhead expense and the volume of direct material purchased . cost of product revenue was lower during the twelve months ended december 31 , 2020 compared to the same period in 2019 due to lower product shipments to a major technology company and lower inventory write-downs . inventory write-downs of $ 168,000 and $ 2.2 million were recorded in the twelve months ended december 31 , 2020 and 2019 , respectively . cost of contract revenue replace_table_token_5_th cost of contract revenue includes both the direct and allocated indirect costs of performing on contracts and producing prototype units and evaluation kits . direct costs include labor , materials and other costs incurred directly in producing prototype units and evaluation kits or performing on a contract . indirect costs include labor and other costs associated with operating our research and development department and building our technical capabilities and capacity . cost of contract revenue is determined by the level of direct and indirect costs incurred , which can fluctuate substantially from period to period . the decrease in the cost of contract revenue during the year ended december 31 , 2020 compared to the same period in 2019 was attributed to reduced activity on the april 2017 development contract because the contract was completed in 2019. research and development expense 2020 2019 $ change % change ( in thousands ) research and development expense $ 9,840 $ 18,661 $ ( 8,821 ) ( 47.3 ) research and development expense consists of compensation related costs of employees and contractors engaged in internal research and product development activities , direct material to support development programs , laboratory operations , outsourced development and processing work , and other operating expenses . we assign our research and development resources based on the business opportunity of the available projects , the skill mix of the resources available and the contractual commitments we have made to our customers . we believe that a substantial level of continuing research and development expense will be required to further develop our scanning technology . 19 the decrease in research and development expense during the year ended december 31 , 2020 compared to the same period in 2019 was attributable to reduced personnel-related compensation and benefits expenses and lower direct materials and subcontractor costs . sales , marketing , general and administrative expense 2020 2019 $ change % change ( in thousands ) sales , marketing , general and administrative expense $ 5,917 $ 8,133 $ ( 2,216 ) ( 27.2 ) sales , marketing , general and administrative expense includes compensation and support costs for marketing , sales , management and administrative staff , and for other general and administrative costs , including legal and accounting services , consultants and other operating expenses . the decrease in sales , marketing , general and administrative expense during the year

cash flow used in financing activities . in 2014 , financing activities provided net cash of $ 106.8 million , consisting primarily of a $ 102.5 million net increase in interest bearing deposits , which resulted from a decision to increase the rates of interest we pay on our certificates of deposit in order to decrease our loan-to-deposit ratio and increase our liquidity , and an increase in noninterest bearing deposits of $ 33.5 million , partially offset by a $ 30.5 million decrease in borrowings . in 2013 , financing activities used net cash of $ 34.9 million , consisting primarily of a $ 99 million net decrease in interest bearing deposits , which resulted primarily from a decision not to renew some time certificates of deposit at their maturity in order to reduce our costs of funds , partially offset by net proceeds of approximately $ 15.0 million from a private placement of shares of our common stock in the first quarter of 2013 , a $ 15.0 million increase in borrowings and an increase in noninterest bearing deposits of $ 34 million . ratio of loans to deposits . the relationship between gross loans and total deposits can provide a useful measure of a bank 's liquidity . since repayment of loans tends to be less predictable than the maturity of investments and other liquid resources , the higher the loan-to-deposit ratio the less liquid are our assets . on the other hand , since we realize greater yields on loans than we do on investments , a lower loan-to-deposit ratio can adversely affect interest income and earnings . as a result , our goal is to achieve a loan-to-deposit ratio that appropriately balances the requirements of liquidity and the need to generate a fair return on our assets . at december 31 , 2014 and 2013 , the loan-to-deposit ratio was 91 % and 100 % , respectively .

continued disruptions to the supply chain could have a material impact on our future operating results . as a result of the covid-19 pandemic , including related governmental guidance or directives , we are still requiring most office-based employees to work remotely . we may experience reductions in productivity and disruptions to our 15 business routines while our remote work policy remains in place or if our employees become ill and are unable to work . this could have an adverse effect on the timing of our development activities , our ability to raise additional capital , our ability to enter into licensing agreements , or our ability to complete a potential sale or merger of the company . in april 2020 , we received funds in the amount of $ 1.6 million pursuant to a loan under the paycheck protection program of the 2020 cares act ( `` ppp `` ) administered by the small business administration . the loan has an interest rate of 0.98 % and a term of 24 months . no payments are due for the first 10 months following the 24-week covered period , although interest accrues during that period . thereafter , the loan is repayable in monthly installments over the next 18 months to retire the loan plus accrued interest . funds from the loan may only be used for certain purposes , including payroll , benefits , rent and utilities , and a portion of the loan used to pay certain costs may be forgivable , all as provided by the terms of the ppp . the cares act reduces the amount of the ppp loan that may be forgiven if the borrower reduces full-time equivalent employees during the covered period as compared to a base period . as of december 31 , 2020 , all of the funds received under the ppp had been used for qualified purposes . we intend to apply for partial forgiveness of the loan under ppp guidelines . based on the terms of the ppp , we estimate the amount of the loan that will be forgiven will be approximately $ 690,000 , subject to approval by our lender in accordance with ppp guidelines . the loan is evidenced by a promissory note , which contains customary events of default relating to , among other things , payment defaults and breaches of representations and warranties . we may prepay the loan at any time prior to maturity with no prepayment penalties . key accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that materially affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent liabilities . we evaluate our estimates on a continuous basis . we base our estimates on historical data , terms of existing contracts , our evaluation of trends in the consumer display and 3d sensing industries , information provided by our current and prospective customers and strategic partners , information available from other outside sources and on various other assumptions we believe to be reasonable under the circumstances . the results form the basis for making judgments regarding the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following key accounting policies require significant judgments and estimates used in the preparation of our financial statements . revenue recognition revenues are recognized when control of the promised goods or services are transferred to our customers , in an amount that reflects the consideration that we expect to receive in exchange for those goods or services . we generate all of our revenue from contracts with customers . our contract revenue in a particular period is dependent upon when we enter into a contract , the value of the contracts we have entered into , and the availability of technical resources to perform work on the contracts . we recognize contract revenue either at a point in time , or over time , depending upon the characteristics of the individual contract . if control of the deliverable ( s ) occur over time , the revenue is recognized in proportion to the transfer of control . if control passes to the customer only upon completion and transfer of the asset , revenue is recognized at the completion of the contract . in contracts that include significant customer acceptance provisions , we recognize revenue only upon acceptance of the deliverable ( s ) . we identify each performance obligation in our development contracts at contract inception . the contracts generally include product development and customization specified by the customer . in contracts with multiple performance obligations , we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract . determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment . performance obligations that are not distinct at contract inception are combined . if we identify multiple distinct performance obligations , we evaluate each performance obligation to determine if there is a stand-alone selling price . in instances where stand-alone selling price is not directly observable , such as when we do not sell the product or service separately , we determine the stand-alone selling price using information that may 16 include market conditions and other observable inputs . judgment is required to determine the stand-alone selling price for each distinct performance obligation . our development contracts are primarily fixed-fee contracts . story_separator_special_tag we will recognize revenue from sales-based royalties on the basis of the quarterly reports provided by our customer as to the number of royalty-bearing products sold or otherwise distributed . in the event that reports are not received , we will estimate the number of royalty-bearing products sold by our customers . in march 2020 , we entered into an agreement for our customer to take over production of the components we had been producing for them . the agreement provides that , beginning in march 2020 , we will earn a royalty on each component shipped that is approximately equal to the gross profit we would have earned if we continued to produce and ship the components . the increase in license and royalty revenue for the twelve months ended december 31 , 2020 compared to the same period in 2019 was primarily due to this change , moving to a royalty arrangement from recognizing product revenue . contract revenue replace_table_token_3_th contract revenue includes revenue from performance on development contracts and the sale of prototype units and evaluation kits based on our picop® scanning module . our contract revenue in a particular period is dependent upon when we enter into a contract , the value of the contracts we have entered into , and the availability of technical resources to perform work on the contracts . we recognize contract revenue either at a point in time , or over time , depending upon the characteristics of the individual contract . if control of the deliverable ( s ) occur over time , the revenue is recognized in proportion to the transfer of control . if control passes to the customer only upon completion 18 and transfer of the asset , revenue is recognized at the completion of the contract . in contracts that include significant customer acceptance provisions , we recognize revenue only upon acceptance of the deliverable ( s ) . the decrease in contract revenue during the year ended december 31 , 2020 compared to the same period in 2019 was attributed to decreased contract activity because the contract with our april 2017 customer was completed in 2019. our contract backlog , including orders for prototype units and evaluation kits , at december 31 , 2020 and 2019 was zero . cost of product revenue replace_table_token_4_th cost of product revenue includes the direct and allocated indirect costs of products sold to customers . direct costs include labor , materials , reserves for estimated warranty expenses , and other costs incurred directly , or charged to us by our contract manufacturers , in the manufacture of these products . indirect costs include labor , manufacturing overhead , and other costs associated with operating our manufacturing capabilities and capacity . manufacturing overhead includes the costs of procuring , inspecting and storing material , facility and other costs , and is allocated to cost of product revenue based on the proportion of indirect labor which supported production activities . cost of product revenue can fluctuate significantly from period to period , depending on the product mix and volume , the level of manufacturing overhead expense and the volume of direct material purchased . cost of product revenue was lower during the twelve months ended december 31 , 2020 compared to the same period in 2019 due to lower product shipments to a major technology company and lower inventory write-downs . inventory write-downs of $ 168,000 and $ 2.2 million were recorded in the twelve months ended december 31 , 2020 and 2019 , respectively . cost of contract revenue replace_table_token_5_th cost of contract revenue includes both the direct and allocated indirect costs of performing on contracts and producing prototype units and evaluation kits . direct costs include labor , materials and other costs incurred directly in producing prototype units and evaluation kits or performing on a contract . indirect costs include labor and other costs associated with operating our research and development department and building our technical capabilities and capacity . cost of contract revenue is determined by the level of direct and indirect costs incurred , which can fluctuate substantially from period to period . the decrease in the cost of contract revenue during the year ended december 31 , 2020 compared to the same period in 2019 was attributed to reduced activity on the april 2017 development contract because the contract was completed in 2019. research and development expense 2020 2019 $ change % change ( in thousands ) research and development expense $ 9,840 $ 18,661 $ ( 8,821 ) ( 47.3 ) research and development expense consists of compensation related costs of employees and contractors engaged in internal research and product development activities , direct material to support development programs , laboratory operations , outsourced development and processing work , and other operating expenses . we assign our research and development resources based on the business opportunity of the available projects , the skill mix of the resources available and the contractual commitments we have made to our customers . we believe that a substantial level of continuing research and development expense will be required to further develop our scanning technology . 19 the decrease in research and development expense during the year ended december 31 , 2020 compared to the same period in 2019 was attributable to reduced personnel-related compensation and benefits expenses and lower direct materials and subcontractor costs . sales , marketing , general and administrative expense 2020 2019 $ change % change ( in thousands ) sales , marketing , general and administrative expense $ 5,917 $ 8,133 $ ( 2,216 ) ( 27.2 ) sales , marketing , general and administrative expense includes compensation and support costs for marketing , sales , management and administrative staff , and for other general and administrative costs , including legal and accounting services , consultants and other operating expenses . the decrease in sales , marketing , general and administrative expense during the year

liquidity and capital resources we have incurred significant losses since inception . we have funded operations to date primarily through the sale of common stock , convertible preferred stock , warrants , the issuance of convertible debt and , to a lesser extent , from development contract revenues , product sales , and licensing activities . at december 31 , 2020 , we had $ 16.9 million in cash and cash equivalents . based on our current operating plan and including $ 61.4 million received in 2021 under at-the-market equity offering agreements with craig-hallum capital group , we anticipate that we have sufficient cash and cash equivalents to fund our operations for at least the next 12 months . we may require additional capital to fund our operating plan past that time . we may obtain additional capital through the issuance of equity or debt securities , and or licensing activities . there can be no assurance that additional capital will be available to us or , if available , will be available on terms acceptable to us or on a timely basis . if adequate capital resources are not available on a timely basis , we intend to consider limiting our operations substantially . this limitation of operations could include further reductions in our research and development projects , staff , operating costs , and capital expenditures . operating activities cash used in operating activities totaled $ 16.1 million during 2020 , compared to $ 24.0 million in 2019. cash used in operating activities resulted primarily from cash used to fund our net loss , after adjusting for non-cash charges such as share-based compensation , depreciation and amortization charges and changes in operating assets and liabilities .

30 consumer electronics highlights : we have an established presence in the home theater market that provides compatibility across devices , such as avrs and dmas , through the inclusion of our dd+ and he-aac technologies . additionally , dolby atmos continues to be adopted in an increasing range of devices including avrs , speakers , soundbars , and dmas . the number of dolby atmos-enabled soundbars available from partners such as lg , sony , and samsung grew from 4 at the start of fiscal 2017 to 13 at the end of fiscal 2017. orange , the largest telecom provider in france , launched its dolby atmos service and is offering a dolby atmos soundbar to its subscribers . in september 2017 , amazon announced the new fire tv with dolby atmos . these hardware offerings can be paired with a growing array of dolby enabled content via ott services and blu-ray discs . we will continue to work with oems to expand the range of dolby atmos-enabled hardware , and with content developers and distributors to expand the range of entertainment offerings that utilize our audio technologies . challenges : we must continue to present compelling reasons for consumers to demand our audio and imaging technologies wherever they enjoy entertainment content . to the extent that oems do not incorporate our technologies in current and future products , our revenue could be impacted . mobile highlights : dd+ is incorporated in apple 's ios , and we continue to focus on adoption of our technologies across other major mobile ecosystems , such as android , windows , and amazon , to facilitate delivery and enhanced consumption of dolby-enabled content from a multitude of streaming services . in addition , he-aac is a de facto audio standard across mobile devices . dolby atmos is currently featured on a number of mobile devices from partners such as amazon , lenovo , and zte . challenges : growth in this market is dependent on several factors . with shorter product lifecycles , it is easier for mobile device oems to add or remove certain of our technologies from mobile devices . our success depends on our ability to address the ever-changing use cases of mobile devices . we must continuously collaborate with manufacturers of mobile devices to incorporate our technologies . finally , we must continue the development and distribution of dolby content via various ecosystems . personal computers highlights : dd+ and he-aac continue to enhance playback in both mac and windows operating systems , including native support in their respective safari and microsoft edge browsers . dolby 's presence in these browsers enables us to reach more users through new types of content , including streaming video entertainment . during fiscal 2017 , lenovo , huawei , and xiaomi launched pcs that feature dolby atmos . we also partnered with huawei on the system design to help create a more immersive audio experience . challenges : in recent years , unit demand for pcs has experienced secular decline as consumer choices have shifted towards other devices such as tablets and mobile phones . this has caused downward pressure on our pc revenues . furthermore , a decline in the portion of pcs that have optical disc functionality will have a negative impact on our asps . other highlights : dd+ is incorporated in both the xbox and playstation gaming consoles and platforms . during fiscal 2017 , microsoft launched hdmi support for dolby atmos on windows and xbox one , which enables playback on downstream atmos devices such as soundbars and avrs . in addition , we launched dolby atmos for headphones , which allows a user to enable dolby atmos on their headphones by purchasing an app on the microsoft app store . oems can also pre-purchase and bundle dolby atmos for headphones into their offerings . for example , plantronics released its rig 800lx gaming headset that included a prepaid voucher to download dolby atmos for headphones on windows and xbox . we also generate revenue from the automotive industry , where we experienced higher than typical revenue due to recoveries in fiscal 2017. challenges : the gaming console market continues to be challenged by competition from mobile devices and gaming pcs , which have faster refresh cycles and appeal to a broader consumer base . in fiscal 2017 , 31 automotive revenues included recoveries that exceeded our expectations , and we anticipate a decline in these recoveries in fiscal 2018. products and services we also generate revenue by providing products and services for a variety of applications in the cinema , broadcast , and communications markets . highlights : we offer servers and audio processors to enable the playback of content in cinemas . our product revenue base expanded due to our portfolio of servers and audio processors , and we continue to see continued adoption of dolby atmos by studios , content creators , post-production facilities , and exhibitors . as of the end of fiscal 2017 , there were approximately 3,200 dolby atmos-enabled screens installed or committed to be installed , and approximately 780 dolby atmos theatrical titles announced or released . during fiscal 2017 , we introduced our most recent cinema products , which include the ims3000 , an integrated imaging and audio server with dolby atmos , the dolby multichannel amplifier , and our 3-axis speaker . these products allow us to offer a more complete dolby atmos offering that can also provide exhibitors with a more cost effective solution than what was previously available to them . challenges : demand for our cinema products is dependent upon industry and economic cycles along with our ability to develop and introduce new technologies , further our relationships with content creators , and promote new cinematic audio and imaging experiences . story_separator_special_tag replace_table_token_10_th 36 2017 vs. 2016 factor revenue gross margin configuration & post-production á higher mastering services no significant fluctuations support & other â decreased support and maintenance services 2016 vs. 2015 factor revenue gross margin configuration & post-production â lower mastering services â lower utilization of available services capacity support & other á increased support and maintenance services no significant fluctuations operating expenses research and development r & d expenses consist primarily of employee compensation and benefits expenses , stock-based compensation , consulting and contract labor costs , depreciation and amortization , facilities costs , costs for outside materials and services , and information technology expenses . replace_table_token_11_th 2017 vs. 2016 category key drivers compensation & benefits á higher headcount on r & d projects along with merit increases across the employee base product development á increased funding of various research projects and initiatives aimed at developing new products and technologies 2016 vs. 2015 category key drivers compensation & benefits á higher headcount on r & d projects along with merit increases across the employee base facilities á higher costs as r & d personnel had not yet fully occupied our worldwide headquarters in fiscal 2015 product development â lower prototype costs depreciation & amortization á higher depreciation primarily from laboratory equipment placed into service sales and marketing s & m expenses consist primarily of employee compensation and benefits expenses , stock-based compensation , marketing and promotional expenses for events such as trade shows and conferences , marketing campaigns , travel-related expenses , consulting fees , facilities costs , depreciation and amortization , information technology expenses , and legal costs associated with the protection of our ip . replace_table_token_12_th 37 2017 vs. 2016 category key drivers compensation & benefits á higher headcount and merit increases across the employee base legal , professional , & consulting á higher costs associated with ip related activities aimed at revenue generation depreciation & amortization â lower amortization from assets that have been fully amortized stock-based compensation â decrease in award grants marketing programs â lower costs associated with select tradeshow activities 2016 vs. 2015 category key drivers compensation & benefits á higher headcount primarily for programs to drive new revenue initiatives , along with merit increases across the employee base facilities á higher costs as s & m personnel had not yet fully occupied our worldwide headquarters in fiscal 2015 stock-based compensation á higher headcount and an increase in award grants marketing programs â lower costs associated with selected marketing efforts legal , professional , and consulting â lower costs associated with ip related activities aimed at revenue generation general and administrative g & a expenses consist primarily of employee compensation and benefits expenses , stock-based compensation , depreciation , facilities and information technology costs , as well as professional fees and other costs associated with external consulting and contract labor . replace_table_token_13_th 2017 vs. 2016 category key drivers compensation & benefits á increase in headcount and merit increases across the employee base stock-based compensation â decrease in award grants 2016 vs. 2015 category key drivers facilities â lower costs as our worldwide headquarters included r & d and s & m departments starting in fiscal 2016 stock-based compensation â decrease in award grants legal , professional , and consulting á higher costs associated with various legal activities depreciation & amortization â lower depreciation as fully depreciated assets were only partially offset by new assets placed in service restructuring restructuring charges recorded as operating expenses in our statements of operations represent costs associated with separate individual restructuring plans implemented in various fiscal periods . the extent of our costs arising as a result of these actions , including fluctuations in related balances between fiscal periods , is based on the nature of activities under the various plans . replace_table_token_14_th 38 restructuring charges recorded in fiscal 2017 were incurred in relation to our fiscal 2017 restructuring plan , which was implemented during fiscal 2017 and represent costs to reduce certain activities in order to reallocate resources towards higher priority investment areas . restructuring charges recorded in fiscal 2016 were incurred in relation to our fiscal 2016 restructuring plan implemented and completed within fiscal 2016 and represent costs to reorganize and consolidate certain strategic activities and positions within our global business infrastructure . these charges primarily related to severance and other related benefits provided to employees . note that a restructuring credit of less than $ 0.1 million was recorded during fiscal 2015 in connection with the completion of activity under the fiscal 2014 restructuring plan . other income/expense other income/ ( expense ) primarily consists of interest income earned on cash and investments and the net gains/ ( losses ) from foreign currency transactions , derivative instruments , and sales of marketable securities from our investment portfolio . replace_table_token_15_th 2017 vs. 2016 category key drivers interest income á higher yields on our investment balances other income/ ( expense ) ßà $ 2 million impairment charge recorded on a cost method investment , offset by lower currency translation losses and other expenses 2016 vs. 2015 category key drivers other income/ ( expense ) â pre-tax gain of $ 26.2 million from the sale of our ownership interest in a jointly-owned real estate entity in fiscal 2015 ( refer to note 16 to our consolidated financial statements for additional information ) â fiscal 2015 included the receipt of a non-recurring governmental grant interest income á higher yields on our investment balances income taxes our effective tax rate is based on our annual fiscal year results , and is affected each period-end by several factors . these include changes in our projected fiscal year results , recurring items such as tax rates and relative income earned in foreign jurisdictions , as well as discrete items such as changes to our uncertain tax positions that may occur in , but are not necessarily consistent between periods . for additional information related to effective tax rates , see note 10

liquidity and capital resources we have incurred significant losses since inception . we have funded operations to date primarily through the sale of common stock , convertible preferred stock , warrants , the issuance of convertible debt and , to a lesser extent , from development contract revenues , product sales , and licensing activities . at december 31 , 2020 , we had $ 16.9 million in cash and cash equivalents . based on our current operating plan and including $ 61.4 million received in 2021 under at-the-market equity offering agreements with craig-hallum capital group , we anticipate that we have sufficient cash and cash equivalents to fund our operations for at least the next 12 months . we may require additional capital to fund our operating plan past that time . we may obtain additional capital through the issuance of equity or debt securities , and or licensing activities . there can be no assurance that additional capital will be available to us or , if available , will be available on terms acceptable to us or on a timely basis . if adequate capital resources are not available on a timely basis , we intend to consider limiting our operations substantially . this limitation of operations could include further reductions in our research and development projects , staff , operating costs , and capital expenditures . operating activities cash used in operating activities totaled $ 16.1 million during 2020 , compared to $ 24.0 million in 2019. cash used in operating activities resulted primarily from cash used to fund our net loss , after adjusting for non-cash charges such as share-based compensation , depreciation and amortization charges and changes in operating assets and liabilities .