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following a year of internal management of marketing , sales and trade distribution functions , we believe the company is well-positioned for a strong , multi-channel sales and marketing campaign in 2021 and beyond . in addition to ed products , petros is committed to identifying and developing other pharmaceuticals to advance men 's health . in march 2020 , petros acquired an exclusive global license ( the “ hybrid license ” ) for the development and commercialization of h100 from hybrid medical llc ( “ hybrid ” ) . h100 is a novel and patented topical formulation candidate for the treatment of acute peyronie 's disease . peyronie 's disease is a condition that occurs upon penile tissue disruption often caused by sexual activity or injury , healing into collagen-based scars that may ultimately harden and cause penile deformity . impact of covid-19 in january 2020 , the world health organization ( “ who ” ) announced a global health emergency because of a new strain of coronavirus originating in wuhan , china ( the “ covid-19 outbreak ” ) and the risks to the international community . in march 2020 , the who classified the covid-19 outbreak as a pandemic , based on the rapid increase in exposure globally . as a result of the covid-19 pandemic , which continues to rapidly evolve , “ shelter in place ” orders and other public health guidance measures were implemented across much of the united states , europe and asia , including in the locations of the company 's offices , key vendors and partners . the pandemic has significantly impacted the economic conditions in the u.s. and globally as federal , state and local governments react to the public health crisis , creating significant uncertainties in the economy . at this time , the future trajectory of the covid-19 outbreak remains uncertain , both in the united states and in other markets . while the company anticipates that the currently available vaccines will be widely distributed in the future , the timing and efficacy of such vaccines are uncertain . the company can not reasonably estimate the length or severity of the impact that the covid-19 outbreak will have on its financial results , and the company may experience a material adverse impact on its sales , results of operations , and cash flows in fiscal 2021. during 2020 , government regulations and the voluntary business practices of the company and prescribing physicians have prevented in-person visits by sales representatives to physicians ' offices . the company has taken steps to mitigate the negative impact on its businesses of such restrictions . in march 2020 , the company reduced our sales representative head count to reflect the lack of in-person visits . the company has maintained a core sales team which continues to contact physicians via telephone and videoconference as well as continuing to have webinars provided by the company 's key opinion leaders to other physicians and pharmacists . the company anticipates rehiring and or assigning representatives to cover sales territories as states reopen and physician access resumes new normal levels . in response to the spread of sars-cov-2 and covid-19 , in march 2020 , the company closed its administrative offices and as of december 31 , 2020 , they remain closed , with the company 's employees continuing their work outside of the company 's offices . the company has selectively resumed in-person interactions by its customer-facing personnel in compliance with local and state restrictions . the company also continues to engage with customers virtually as the company seeks to continue to support healthcare professionals and patient care . however , the company 's ability to engage in personal interactions with physicians and customers remains limited , and it is unknown when the company 's offices will reopen , and these interactions will be fully resumed . 28 nature of operations and basis of presentation petros pharmaceuticals , inc. ( “ petros ” or the “ company ” ) was organized as a delaware corporation on may 14 , 2020 for the purpose of effecting the transactions contemplated by that certain agreement and plan of merger , dated as of may 17 , 2020 ( the “ original merger agreement ” ) , by and between petros , neurotrope , inc. , a nevada corporation ( “ neurotrope ” ) , pm merger sub 1 , llc , a delaware limited liability company and a wholly-owned subsidiary of petros ( “ merger sub 1 ” ) , pn merger sub 2 , inc. , a delaware corporation and a wholly-owned subsidiary of petros ( “ merger sub 2 ” ) , and metuchen pharmaceuticals llc , a delaware limited liability company ( “ metuchen ” ) . on july 23 , 2020 , the parties to the merger agreement entered into the first amendment to the agreement and plan of merger and reorganization ( the “ first merger agreement amendment ” ) and on september 30 , 2020 , the parties to the original merger agreement entered into the second amendment to the agreement and plan of merger and reorganization ( the “ second merger agreement amendment ” and , together with the original merger agreement and the first merger agreement amendment , the “ merger agreement ” ) . the merger agreement provided for ( 1 ) the merger of merger sub 1 , with and into metuchen , with metuchen surviving as a wholly-owned subsidiary of petros ( the “ metuchen merger ” ) and ( 2 ) the merger of merger sub 2 with and into neurotrope , with neurotrope surviving as a wholly-owned subsidiary of petros ( the “ neurotrope merger ” and together with the metuchen merger , the “ mergers ” ) . story_separator_special_tag 32 years ended december 31 , 2020 and december 31 , 2019 the following table sets forth a summary of our statements of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_0_th net sales net sales for the year ended december 31 , 2020 were $ 9,559,469 , composed of $ 6,357,498 of net sales from prescription medicines and net sales of $ 3,201,971 from medical devices . net sales for the year ended december 31 , 2019 were $ 15,577,166 , composed of $ 11,110,660 of net sales from prescription medicines and net sales of $ 4,466,506 from medical devices . for the year ended december 31 , 2020 , gross sales to customers representing 10 % or more of the company 's total gross sales included one customer that represented approximately 85 % of total gross sales . for the year ended december 31 , 2019 , gross sales from customers representing 10 % or more of the company 's total gross sales included one customer that represented approximately 86 % of total gross sales . prescription medicines sales consist of sales of stendra® in the u.s. for the treatment of male ed . stendra® is primarily sold directly to the one customer described above and resold through three main wholesalers , which collectively accounted for approximately 85 % of stendra® net sales for the year ended december 31 , 2020. individually , sales to the three main wholesalers either from the one customer described above or directly , accounted for 42 % , 30 % , and 28 % of stendra® net sales for the year ended december 31 , 2020. medical device sales consist of domestic and international sales of men 's health products for the treatment of ed . the men 's health products do not require a prescription and include vacuum erection devices ( “ veds ” ) , preboost , venoseal , penile injections ( rx ) , and urinary tract infection tests . timm medical discontinued various co-promotion activities in 2019 and is currently selling only veds and venoseal . the veds represent almost 100 % of sales . 33 net sales were 6,017,697 , or 39 % lower during year ended december 31 , 2020 than in the same period in 2019 consisting of a $ 4,753,162 decrease in the net sales of stendra® and a $ 1,264,535 decrease in medical device sales . the decrease in net sales in stendra® was substantially due to lower wholesaler demand to reduce inventory held by wholesalers for the potential effects of covid-19 . the decrease in net sales for our medical devices segment was attributable to the discontinuation of co-promotion activities and lower sales of certain products . cost of sales cost of sales for the year ended december 31 , 2020 were $ 4,046,466 , composed of $ 3,083,417 of cost of sales for our prescription medicines segment and $ 963,049 for our medical devices segment . cost of sales for the year ended december 31 , 2019 were $ 7,427,111 composed of $ 6,057,977 of cost of sales for our prescription medicines segment and $ 1,369,134 for our medical devices segment . cost of sales for the prescription medicine segment for the year ended december 31 , 2020 consisted of 57 % inventory obsolescence reserves , 27 % third-party product cost of sales , 10 % royalty expenses , and 6 % third-party logistics provider order fulfillment and shipping costs . cost of sales for the medical device segment for the year ended december 31 , 2020 consisted of 71 % raw materials , 22 % production labor and 7 % other cost of sales . cost of sales decreased by $ 3,380,645 or 46 % during the year ended december 31 , 2020 compared to the same period 2019. for the years ended december 31 , 2020 and 2019 , cost of sales as a percentage of net sales were 42 % and 48 % , respectively . the decrease in cost of sales as a percentage of net sales was a result of less write-offs for inventory obsolescence , decreased sales order fulfillment costs ( on a per unit basis ) , and decreased shipping expenses by the company 's third-party logistics provider during the year ended december 31 , 2020 due to reduced sales volume . gross profit gross profit for the year ended december 31 , 2020 was $ 5,513,003 or 58 % , composed of $ 3,274,081 of gross profit from prescription medicines and $ 2,238,922 from medical devices . gross profit for the year ended december 31 , 2019 was $ 8,150,055 or 52 % , composed of $ 5,052,683 of gross profit from prescription medicines and $ 3,097,372 from medical devices . the decrease in gross profit was driven by the factors noted above . operating expenses selling , general and administrative selling , general and administrative expenses for the year ended december 31 , 2020 were $ 15,674,968 , composed of $ 8,784,716 of selling , general and administrative expenses of our prescription medicines segment , $ 2,024,448 of selling , general and administrative expenses of our medical devices segment and $ 4,865,804 of general corporate expenses . selling , general and administrative expenses for the year ended december 31 , 2019 were $ 19,727,223 , composed of $ 13,873,200 of selling , general and administrative expenses of our prescription medicines segment , $ 2,735,390 of selling , general and administrative expenses of our medical devices segment and $ 3,118,633 of general corporate expenses . selling , general and administrative expenses for both segments include selling , marketing and regulatory expenses . unallocated general corporate expenses include costs that were not specific to a particular segment but are general to the group , including expenses incurred for administrative and accounting staff , general liability and other insurance , professional fees and other similar corporate expenses . 34 selling ,
| senior debt on september 30 , 2016 , the company entered into a loan agreement ( the “ loan agreement ” ) with hercules capital , inc. ( “ hercules ” ) , for a $ 35 million term loan with a stated interest rate of the greater of either ( i ) prime ( as defined in the loan agreement ) plus 7.25 % or ( ii ) 10.75 % . the loan agreement includes an additional payable-in-kind ( “ pik ” ) interest that increases the outstanding principal on a monthly basis at an annual rate of 1.35 % and a $ 787,500 end of term charge . we refer to the amounts available under the credit facility with hercules as senior debt . on november 22 , 2017 , the company entered into amendment number 1 to the loan agreement ( the “ first amendment ” ) . a covenant was added , in which the company must achieve a certain minimum ebitda , as defined in the first amendment , target for the trailing twelve-month period , ending june 30 , 2018. the end of term charge was increased from $ 787,500 to $ 1,068,750. the minimum ebitda for each of the trailing six months and the fixed charge coverage ratio were reduced from 1:1 to 0.9:1. the company was also required to prepay $ 10,000,000 in principal . monthly principal payments , including interest , commenced november 1 , 2018 with the outstanding balance under the loan agreement , as amended , due in full on november 1 , 2020. the end of term charge is being recognized as interest expense and accreted over the term of the loan agreement , as amended , using the effective interest method . on august 13 , 2019 , the company entered into a forbearance agreement with hercules under which hercules agreed to forbear exercising any remedies under the loan for events of default through the earlier of september 30 , 2019 or the occurrence of an event of default under the loan agreement , as amended .
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our growth strategy focuses on the following three key areas : targeted acquisitions we intend to make selective acquisitions of non-asset based logistics freight brokerage businesses that would benefit from our greater scale and potential access to capital , and we may make similar acquisitions of freight forwarding , expedited and intermodal service businesses , among others . we believe that we are in a position to make the first phase of acquisitions by using existing cash and expanding our credit facilities . organic growth we plan to establish new freight brokerage offices in locations across north america , and we are actively recruiting managers with a proven track record of building successful brokerage operations . we expect the new brokerage offices to generate revenue growth by developing customer and carrier relationships in new territories . optimized operations we intend to optimize our existing operations , acquired companies and greenfield locations by investing in an expanded sales and service workforce , implementing an advanced information technology infrastructure , incorporating industry best practices , and leveraging scale to share capacity more efficiently and increase buying power . recent developments equity investment in september 2011 , pursuant to the investment agreement , dated as of june 13 , 2011 ( the investment agreement ) , by and among jpe , the other investors party thereto ( collectively with jpe , the investors ) and the company , we issued to the investors , for $ 75.0 million in cash : ( i ) an aggregate of 75,000 shares of our series a convertible perpetual preferred stock ( the series a preferred stock ) , which are initially convertible into an aggregate of 10,714,286 shares of our common stock , and ( ii ) warrants initially exercisable for an aggregate of 10,714,286 shares of our common stock at an initial exercise price of $ 7.00 per common share ( the warrants ) . our stockholders approved the issuance of the series a preferred stock and the warrants at the special meeting of our stockholders on september 1 , 2011. we refer to this investment as the equity investment. see note 10 to our audited consolidated financial statements in item 8 of this annual report . the conversion feature of the series a preferred stock was determined to be a beneficial conversion feature ( bcf ) based on the effective initial conversion price and the market value of our common stock at the commitment date for the issuance of the series a preferred stock . generally accepted accounting principles in the united states ( us gaap ) require that we recognize the bcf related to the series a preferred stock as a discount on the series a preferred stock and amortize such amount as a deemed distribution through the earliest conversion date . the calculated value of the bcf was in excess of the relative fair value of net proceeds allocated to the series a preferred stock . accordingly , during the third quarter of 2011 we recorded a discount on the series a preferred stock of $ 44.2 million with immediate recognition of this amount as a deemed distribution because the series a preferred stock is convertible at any time . change of company name in connection with the closing of the equity investment , our name was changed from express-1 expedited solutions , inc. to xpo logistics , inc. on september 2 , 2011. our stockholders approved the amendment to our certificate of incorporation effecting the name change at the special meeting of our stockholders on september 1 , 2011 . 28 reverse stock split in connection with the closing of the equity investment , we effected a 4-for-1 reverse stock split on september 2 , 2011. our stockholders approved the amendment to our certificate of incorporation effecting the reverse stock split at the special meeting of our stockholders on september 1 , 2011. unless otherwise noted , all share-related amounts in this annual report and our audited consolidated financial statements and the related notes thereto reflect the reverse stock split . in connection with the reverse stock split , our stockholders received one new share of our common stock for every four shares of common stock held at the effective time . the reverse stock split reduced the number of shares of outstanding common stock from 33,011,561 to 8,252,891. proportional adjustments were made to the number of shares issuable upon the exercise of outstanding options to purchase shares of common stock and the per share exercise price of those options . increase in authorized shares of common stock in connection with the closing of the equity investment , the number of authorized shares of our common stock was increased from 100,000,000 shares to 150,000,000 shares on september 2 , 2011. our stockholders approved the amendment to our certificate of incorporation effecting the increase in the number of authorized shares of common stock at the special meeting of the company 's stockholders on september 1 , 2011. other reporting disclosures throughout our reports , we refer to the impact of fuel on our business . for purposes of these references , we have considered the impact of fuel surcharge revenues and the related fuel surcharge expenses only as they relate to our expedited transportation business unit . the expedited transportation industry commonly negotiates both fuel surcharges charged to its customers as well as fuel surcharges paid to its carriers . therefore , we feel that this approach most readily conveys the impact of fuel revenues , costs and the resulting gross margin within this business unit . our fuel surcharges are determined on a negotiated customer-by-customer basis and are primarily based on a fuel matrix driven by the department of energy fuel price index . fuel surcharge revenues are charged to our customers to provide for variable costs associated with changing fuel prices . story_separator_special_tag the purchase of certain assets and liabilities of lrg international ( cgl international ) in october 2009 contributed to the revenue increases during 2010 and 2009 of $ 12.1 million and $ 1.6 million , respectively . direct expenses consist primarily of payments for purchased transportation in addition to payments to freight forwarding 's independent offices that control the overall operation of our customers ' shipments . as a percentage of freight forwarding revenue , direct expenses represented 89.8 % for the years ended december 31 , 2010 and 2009. management expected direct expenses to decrease as a percentage of freight forwarding revenue for 2010 because of the acquisition of cgl international with its higher margins . however , because of increasing fuel costs , most notably in the fourth quarter , direct expenses as a percentage of revenue in 2010 stayed unchanged as compared to 2009. the result left gross margin at a comparable percentage of revenue of 10.2 % for the years ended december 31 , 2010 and 2009. for 2010 , cgl international 's direct expense represented $ 10.4 million or 21.5 % of the total direct expense of freight forwarding . sg & a expenses increased for full year 2010 by $ 1.7 million as compared to 2009 , due in part to running cgl international as a company-owned station . for the years ended december 31 , 2010 and 2009 , cgl international added approximately $ 1.3 million and $ 221,000 , respectively , to sg & a expenses . increased salaries and benefits were responsible for $ 1.1 million of the increase in sg & a for full year 2010 . $ 673,000 of this increase for full year 2010 as compared to 2009 related to a full year of cgl international payroll and benefits being absorbed by freight forwarding . the remaining $ 427,000 of increased sg & a expense for 2010 as compared to 2009 reflected the addition of six new employees and incentive and other pay increases for all employees . other costs also increased by $ 521,000 for 2010 as compared to 2009 , of which approximately $ 196,000 was related to cgl international 's full year of costs and approximately $ 280,000 was related to bad debt and impairment charges in connection with a former independent station owner whose contract was terminated . as a percentage of revenue , sg & a costs decreased to 7.3 % for the year ended december 31 , 2010 compared to 7.4 % for the year ended december 31 , 2009. for the year ended december 31 , 2010 , freight forwarding generated income from operations before tax of $ 1.9 million , representing an increase of 67.9 % as compared to full year 2009. approximately $ 488,000 or 25.7 % of freight forwarding 's operating income was generated at cgl international . as of december 31 , 2009 , the company maintained a network of 24 independent stations and two company-owned branches . 36 freight brokerage ( bounce logistics and xpo logistics ) summary financial table for the twelve months ended december 31 , replace_table_token_8_th freight brokerage 2011 vs. 2010 our freight brokerage unit continues to see significant growth , with revenue for the fiscal year ended december 31 , 2011 increasing by 46.0 % to $ 29.2 million , compared to revenue of $ 20.0 million for the fiscal year ended 2010. revenue growth was largely driven by expansion of the freight brokerage customer base resulting from a year-over-year headcount increase of 8 salespeople over the year . for full year 2011 , freight brokerage 's direct transportation expenses of 83.9 % as a percentage of revenue were flat as compared to 83.5 % for 2010. the additional volume coupled with gross margin of 16.1 % added an additional $ 1.4 million of gross margin for full year 2011 as compared to 2010. as a percentage of revenue , sg & a costs decreased to 11.6 % for full year 2011 , compared to 12.2 % for 2010. overall , sg & a expenses increased by $ 948,000 for full year 2011 compared to 2010. salaries and benefits increased by $ 723,000 for full year 2011 as compared to 2010 , due primarily to our investments in new salespeople and sales commissions related to the volume growth . the above items resulted in operating income of $ 1.3 million for full year 2011 , an increase of 50.9 % from $ 865,000 for 2010. management 's growth strategy for our freight brokerage unit is based on : selective acquisitions of non-asset based freight brokerage firms that would benefit from our scale and potential access to capital ; and the opening of new freight brokerage offices in the u.s. ; investment in an expanded sales and service workforce ; technology upgrades to improve efficiency in sales , freight tracking and carrier procurement ; and the integration of industry best practices , with specific focus on better leveraging our scale and lowering administrative overhead . 37 2010 vs. 2009 freight brokerage saw significant growth as its revenue for the year ended december 31 , 2010 increased by 91.8 % to $ 20.0 million compared to 2009 annual revenues of $ 10.4 million . we believe this was reflective of an improving freight environment and an aggressive growth strategy . for the year ended december 31 , 2010 , our freight brokerage unit 's direct transportation expenses increased to 83.5 % as a percentage of revenue as compared to 82.8 % for 2009. we believe this cost increase reflects a tightening of truck capacity in the marketplace . this decrease in margin was more than offset by additional business that generated an additional $ 1.5 million in gross margin for the year ended december 31 , 2010 as compared to 2009. sg & a expenses increased by $ 1.1 million for the year ended december 31 , 2010 as compared to 2009. increased salaries
| senior debt on september 30 , 2016 , the company entered into a loan agreement ( the “ loan agreement ” ) with hercules capital , inc. ( “ hercules ” ) , for a $ 35 million term loan with a stated interest rate of the greater of either ( i ) prime ( as defined in the loan agreement ) plus 7.25 % or ( ii ) 10.75 % . the loan agreement includes an additional payable-in-kind ( “ pik ” ) interest that increases the outstanding principal on a monthly basis at an annual rate of 1.35 % and a $ 787,500 end of term charge . we refer to the amounts available under the credit facility with hercules as senior debt . on november 22 , 2017 , the company entered into amendment number 1 to the loan agreement ( the “ first amendment ” ) . a covenant was added , in which the company must achieve a certain minimum ebitda , as defined in the first amendment , target for the trailing twelve-month period , ending june 30 , 2018. the end of term charge was increased from $ 787,500 to $ 1,068,750. the minimum ebitda for each of the trailing six months and the fixed charge coverage ratio were reduced from 1:1 to 0.9:1. the company was also required to prepay $ 10,000,000 in principal . monthly principal payments , including interest , commenced november 1 , 2018 with the outstanding balance under the loan agreement , as amended , due in full on november 1 , 2020. the end of term charge is being recognized as interest expense and accreted over the term of the loan agreement , as amended , using the effective interest method . on august 13 , 2019 , the company entered into a forbearance agreement with hercules under which hercules agreed to forbear exercising any remedies under the loan for events of default through the earlier of september 30 , 2019 or the occurrence of an event of default under the loan agreement , as amended .
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our growth strategy focuses on the following three key areas : targeted acquisitions we intend to make selective acquisitions of non-asset based logistics freight brokerage businesses that would benefit from our greater scale and potential access to capital , and we may make similar acquisitions of freight forwarding , expedited and intermodal service businesses , among others . we believe that we are in a position to make the first phase of acquisitions by using existing cash and expanding our credit facilities . organic growth we plan to establish new freight brokerage offices in locations across north america , and we are actively recruiting managers with a proven track record of building successful brokerage operations . we expect the new brokerage offices to generate revenue growth by developing customer and carrier relationships in new territories . optimized operations we intend to optimize our existing operations , acquired companies and greenfield locations by investing in an expanded sales and service workforce , implementing an advanced information technology infrastructure , incorporating industry best practices , and leveraging scale to share capacity more efficiently and increase buying power . recent developments equity investment in september 2011 , pursuant to the investment agreement , dated as of june 13 , 2011 ( the investment agreement ) , by and among jpe , the other investors party thereto ( collectively with jpe , the investors ) and the company , we issued to the investors , for $ 75.0 million in cash : ( i ) an aggregate of 75,000 shares of our series a convertible perpetual preferred stock ( the series a preferred stock ) , which are initially convertible into an aggregate of 10,714,286 shares of our common stock , and ( ii ) warrants initially exercisable for an aggregate of 10,714,286 shares of our common stock at an initial exercise price of $ 7.00 per common share ( the warrants ) . our stockholders approved the issuance of the series a preferred stock and the warrants at the special meeting of our stockholders on september 1 , 2011. we refer to this investment as the equity investment. see note 10 to our audited consolidated financial statements in item 8 of this annual report . the conversion feature of the series a preferred stock was determined to be a beneficial conversion feature ( bcf ) based on the effective initial conversion price and the market value of our common stock at the commitment date for the issuance of the series a preferred stock . generally accepted accounting principles in the united states ( us gaap ) require that we recognize the bcf related to the series a preferred stock as a discount on the series a preferred stock and amortize such amount as a deemed distribution through the earliest conversion date . the calculated value of the bcf was in excess of the relative fair value of net proceeds allocated to the series a preferred stock . accordingly , during the third quarter of 2011 we recorded a discount on the series a preferred stock of $ 44.2 million with immediate recognition of this amount as a deemed distribution because the series a preferred stock is convertible at any time . change of company name in connection with the closing of the equity investment , our name was changed from express-1 expedited solutions , inc. to xpo logistics , inc. on september 2 , 2011. our stockholders approved the amendment to our certificate of incorporation effecting the name change at the special meeting of our stockholders on september 1 , 2011 . 28 reverse stock split in connection with the closing of the equity investment , we effected a 4-for-1 reverse stock split on september 2 , 2011. our stockholders approved the amendment to our certificate of incorporation effecting the reverse stock split at the special meeting of our stockholders on september 1 , 2011. unless otherwise noted , all share-related amounts in this annual report and our audited consolidated financial statements and the related notes thereto reflect the reverse stock split . in connection with the reverse stock split , our stockholders received one new share of our common stock for every four shares of common stock held at the effective time . the reverse stock split reduced the number of shares of outstanding common stock from 33,011,561 to 8,252,891. proportional adjustments were made to the number of shares issuable upon the exercise of outstanding options to purchase shares of common stock and the per share exercise price of those options . increase in authorized shares of common stock in connection with the closing of the equity investment , the number of authorized shares of our common stock was increased from 100,000,000 shares to 150,000,000 shares on september 2 , 2011. our stockholders approved the amendment to our certificate of incorporation effecting the increase in the number of authorized shares of common stock at the special meeting of the company 's stockholders on september 1 , 2011. other reporting disclosures throughout our reports , we refer to the impact of fuel on our business . for purposes of these references , we have considered the impact of fuel surcharge revenues and the related fuel surcharge expenses only as they relate to our expedited transportation business unit . the expedited transportation industry commonly negotiates both fuel surcharges charged to its customers as well as fuel surcharges paid to its carriers . therefore , we feel that this approach most readily conveys the impact of fuel revenues , costs and the resulting gross margin within this business unit . our fuel surcharges are determined on a negotiated customer-by-customer basis and are primarily based on a fuel matrix driven by the department of energy fuel price index . fuel surcharge revenues are charged to our customers to provide for variable costs associated with changing fuel prices . story_separator_special_tag the purchase of certain assets and liabilities of lrg international ( cgl international ) in october 2009 contributed to the revenue increases during 2010 and 2009 of $ 12.1 million and $ 1.6 million , respectively . direct expenses consist primarily of payments for purchased transportation in addition to payments to freight forwarding 's independent offices that control the overall operation of our customers ' shipments . as a percentage of freight forwarding revenue , direct expenses represented 89.8 % for the years ended december 31 , 2010 and 2009. management expected direct expenses to decrease as a percentage of freight forwarding revenue for 2010 because of the acquisition of cgl international with its higher margins . however , because of increasing fuel costs , most notably in the fourth quarter , direct expenses as a percentage of revenue in 2010 stayed unchanged as compared to 2009. the result left gross margin at a comparable percentage of revenue of 10.2 % for the years ended december 31 , 2010 and 2009. for 2010 , cgl international 's direct expense represented $ 10.4 million or 21.5 % of the total direct expense of freight forwarding . sg & a expenses increased for full year 2010 by $ 1.7 million as compared to 2009 , due in part to running cgl international as a company-owned station . for the years ended december 31 , 2010 and 2009 , cgl international added approximately $ 1.3 million and $ 221,000 , respectively , to sg & a expenses . increased salaries and benefits were responsible for $ 1.1 million of the increase in sg & a for full year 2010 . $ 673,000 of this increase for full year 2010 as compared to 2009 related to a full year of cgl international payroll and benefits being absorbed by freight forwarding . the remaining $ 427,000 of increased sg & a expense for 2010 as compared to 2009 reflected the addition of six new employees and incentive and other pay increases for all employees . other costs also increased by $ 521,000 for 2010 as compared to 2009 , of which approximately $ 196,000 was related to cgl international 's full year of costs and approximately $ 280,000 was related to bad debt and impairment charges in connection with a former independent station owner whose contract was terminated . as a percentage of revenue , sg & a costs decreased to 7.3 % for the year ended december 31 , 2010 compared to 7.4 % for the year ended december 31 , 2009. for the year ended december 31 , 2010 , freight forwarding generated income from operations before tax of $ 1.9 million , representing an increase of 67.9 % as compared to full year 2009. approximately $ 488,000 or 25.7 % of freight forwarding 's operating income was generated at cgl international . as of december 31 , 2009 , the company maintained a network of 24 independent stations and two company-owned branches . 36 freight brokerage ( bounce logistics and xpo logistics ) summary financial table for the twelve months ended december 31 , replace_table_token_8_th freight brokerage 2011 vs. 2010 our freight brokerage unit continues to see significant growth , with revenue for the fiscal year ended december 31 , 2011 increasing by 46.0 % to $ 29.2 million , compared to revenue of $ 20.0 million for the fiscal year ended 2010. revenue growth was largely driven by expansion of the freight brokerage customer base resulting from a year-over-year headcount increase of 8 salespeople over the year . for full year 2011 , freight brokerage 's direct transportation expenses of 83.9 % as a percentage of revenue were flat as compared to 83.5 % for 2010. the additional volume coupled with gross margin of 16.1 % added an additional $ 1.4 million of gross margin for full year 2011 as compared to 2010. as a percentage of revenue , sg & a costs decreased to 11.6 % for full year 2011 , compared to 12.2 % for 2010. overall , sg & a expenses increased by $ 948,000 for full year 2011 compared to 2010. salaries and benefits increased by $ 723,000 for full year 2011 as compared to 2010 , due primarily to our investments in new salespeople and sales commissions related to the volume growth . the above items resulted in operating income of $ 1.3 million for full year 2011 , an increase of 50.9 % from $ 865,000 for 2010. management 's growth strategy for our freight brokerage unit is based on : selective acquisitions of non-asset based freight brokerage firms that would benefit from our scale and potential access to capital ; and the opening of new freight brokerage offices in the u.s. ; investment in an expanded sales and service workforce ; technology upgrades to improve efficiency in sales , freight tracking and carrier procurement ; and the integration of industry best practices , with specific focus on better leveraging our scale and lowering administrative overhead . 37 2010 vs. 2009 freight brokerage saw significant growth as its revenue for the year ended december 31 , 2010 increased by 91.8 % to $ 20.0 million compared to 2009 annual revenues of $ 10.4 million . we believe this was reflective of an improving freight environment and an aggressive growth strategy . for the year ended december 31 , 2010 , our freight brokerage unit 's direct transportation expenses increased to 83.5 % as a percentage of revenue as compared to 82.8 % for 2009. we believe this cost increase reflects a tightening of truck capacity in the marketplace . this decrease in margin was more than offset by additional business that generated an additional $ 1.5 million in gross margin for the year ended december 31 , 2010 as compared to 2009. sg & a expenses increased by $ 1.1 million for the year ended december 31 , 2010 as compared to 2009. increased salaries
| liquidity and capital resources general as of december 31 , 2011 , we had $ 83.1 million of working capital with associated cash of $ 74.0 million , as compared to working capital of $ 12.3 million and cash of $ 561,000 as of december 31 , 2010. this represents an increase of $ 70.8 million in working capital during the twelve-month period . the increase was primarily due to the net proceeds of cash received relating to the equity investment , which closed on september 2 , 2011. we do not have any material commitments that have not been disclosed elsewhere . we continually evaluate our liquidity requirements , capital needs and availability of capital resources based on our operating needs and our planned growth initiatives . in addition to investing our existing cash balances and net cash provided by operating activities , in certain circumstances we may also use debt financings ( including , without limitation , credit facilities supported by our accounts receivable balances ) and issuances of equity or equity-related securities to fund our operating needs and growth initiatives . we believe that our existing cash balances , funds we expect to generate from our operations and funds available under our current revolving credit facility will be sufficient for the next 12 months to finance our existing operations , our first phase of acquisitions , establishment of planned new sales offices , development and implementation of the first phase of our information technology system and our other growth initiatives . cash flow during the year ended december 31 , 2011 , $ 6.6 million was generated in cash from operations compared to $ 2.3 million for the prior year . the primary source of cash for the year ended december 31 , 2011 was our transportation services revenue , while the primary use of cash for the period was payment for transportation services . cash generated from revenue equaled $ 178.7 million for the year ended december 31 , 2011 as compared to $ 151.4 million for 2010 and correlates directly with revenue increases between the two years .
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the $ 503 million impact from recourse debt transactions is primarily due to higher net borrowings at the parent company . the $ 425 million impact from sales to noncontrolling interests is primarily due to the proceeds received from the sale of a 35 % ownership interest in southland energy . the $ 112 million impact from issuance of preferred shares in subsidiaries is due to proceeds from the issuance of preferred shares to minority interests of cochrane . 108 | 2020 annual report the $ 453 million impact from non-recourse debt transactions is primarily due to lower net borrowings at southland and gener , partially offset by a decrease in net repayments at aes brasil and dpl and higher net borrowings at distributed energy , panama , and vietnam . the $ 290 million impact from parent company revolver transactions is primarily due to higher net repayments in the current year . the $ 259 million impact from acquisitions of noncontrolling interests is primarily due to the acquisition of an additional 19.8 % ownership interest in aes brasil . fiscal year 2019 versus 2018 net cash used in financing activities decreased $ 1.6 billion for the year ended december 31 , 2019 compared to december 31 , 2018. financing cash flows ( in millions ) see note 11— debt in item 8.— financial statements and supplementary data of this form 10-k for more information regarding significant debt transactions . the $ 483 million impact from recourse debt activity is primarily due to higher net repayments of parent company debt in 2018. the $ 480 million impact from non-recourse debt transactions is primarily due to net issuances at gener , alto maipo and dpl , which were partially offset by net repayments at aes brasil , and lower net issuances in 2018 at ipalco . the $ 387 million impact from parent company revolver transactions is primarily from higher repayments in 2018 , and higher borrowings in 2019 for general corporate cash management activities . the $ 278 million impact from non-recourse revolver transactions is primarily due to higher net borrowings at dpl and net repayments at ipalco in 2018. parent company liquidity the following discussion is included as a useful measure of the liquidity available to the aes corporation , or the parent company , given the non-recourse nature of most of our indebtedness . parent company liquidity as outlined below is a non-gaap measure and should not be construed as an alternative to cash and cash equivalents , which is determined in accordance with gaap . parent company liquidity may differ from similarly titled measures used by other companies . the principal sources of liquidity at the parent company level are dividends and other distributions from our subsidiaries , including refinancing proceeds , proceeds from debt and equity financings at the parent company level , including availability under our revolving credit facility , and proceeds from asset sales . cash requirements at the parent company level are primarily to fund interest and principal repayments of debt , construction commitments , other equity commitments , common stock repurchases , acquisitions , taxes , parent company overhead and development costs , and dividends on common stock . 109 | 2020 annual report the company defines parent company liquidity as cash available to the parent company , including cash at qualified holding companies , plus available borrowings under our existing credit facility . the cash held at qualified holding companies represents cash sent to subsidiaries of the company domiciled outside of the u.s. such subsidiaries have no contractual restrictions on their ability to send cash to the parent company . parent company liquidity is reconciled to its most directly comparable gaap financial measure , cash and cash equivalents , at the periods indicated as follows ( in millions ) : replace_table_token_23_th the parent company paid dividends of $ 0.57 per outstanding share to its common stockholders during the year ended december 31 , 2020. while we intend to continue payment of dividends and believe we will have sufficient liquidity to do so , we can provide no assurance that we will continue to pay dividends , or if continued , the amount of such dividends . recourse debt our total recourse debt was $ 3.4 billion at december 31 , 2020 and 2019. see note 11— debt in item 8.— f inancial statements and supplementary data of this form 10-k for additional detail . we believe that our sources of liquidity will be adequate to meet our needs for the foreseeable future . this belief is based on a number of material assumptions , including , without limitation , assumptions about our ability to access the capital markets , the operating and financial performance of our subsidiaries , currency exchange rates , power market pool prices , and the ability of our subsidiaries to pay dividends . in addition , our subsidiaries ' ability to declare and pay cash dividends to us ( at the parent company level ) is subject to certain limitations contained in loans , governmental provisions and other agreements . we can provide no assurance that these sources will be available when needed or that the actual cash requirements will not be greater than anticipated . we have met our interim needs for shorter-term and working capital financing at the parent company level with our revolving credit facility . see item 1a.— risk factors — the aes corporation 's ability to make payments on its outstanding indebtedness is dependent upon the receipt of funds from our subsidiaries , of this form 10-k. various debt instruments at the parent company level , including our revolving credit facility , contain certain restrictive covenants . story_separator_special_tag a considerable amount of judgment is also applied in the estimation of the discount rate used in the dcf model . to the extent practical , inputs to the discount rate are obtained from market data sources ( e.g . , bloomberg ) . the company selects and uses a set of publicly traded companies from the relevant industry to estimate the discount rate inputs . management applies judgment in the selection of such companies based on its view of the most likely market participants . it is reasonably possible that the selection of a different set of likely market participants could produce different input assumptions and result in the use of a different discount rate . accounting for derivative instruments and hedging activities — we enter into various derivative transactions in order to hedge our exposure to certain market risks . we primarily use derivative instruments to manage our interest rate , commodity , and foreign currency exposures . we do not enter into derivative transactions for trading purposes . see note 6— derivative instruments and hedging activities included in item 8 of this form 10-k for further information on the classification . the fair value measurement standard requires the company to consider and reflect the assumptions of market participants in the fair value calculation . these factors include nonperformance risk ( the risk that the obligation will not be fulfilled ) and credit risk , both of the reporting entity ( for liabilities ) and of the counterparty ( for assets ) . credit risk for aes is evaluated at the level of the entity that is party to the contract . nonperformance risk on the company 's derivative instruments is an adjustment to the fair value position that is derived from internally developed valuation models that utilize market inputs that may or may not be observable . as a result of uncertainty , complexity , and judgment , accounting estimates related to derivative accounting could result in material changes to our financial statements under different conditions or utilizing different assumptions . as a part of accounting for these derivatives , we make estimates concerning nonperformance , volatilities , market liquidity , future commodity prices , interest rates , credit ratings , and future foreign exchange rates . refer to note 5— fair value included in item 8 of this form 10-k for additional details . the fair value of our derivative portfolio is generally determined using internal and third party valuation models , most of which are based on observable market inputs , including interest rate curves and forward and spot prices for currencies and commodities . the company derives most of its financial instrument market assumptions from market efficient data sources ( e.g . , bloomberg , reuters and platt 's ) . in some cases , where market data is not readily available , management uses comparable market sources and empirical evidence to derive market 114 | 2020 annual report assumptions to determine a financial instrument 's fair value . in certain instances , published pricing may not extend through the remaining term of the contract and management must make assumptions to extrapolate the curve . specifically , where there is limited forward curve data with respect to foreign exchange contracts beyond the traded points , the company utilizes the interest rate differential approach to construct the remaining portion of the forward curve . for individual contracts , the use of different valuation models or assumptions could have a material effect on the calculated fair value . regulatory assets — management continually assesses whether regulatory assets are probable of future recovery by considering factors such as applicable regulatory changes , recent rate orders applicable to other regulated entities , and the status of any pending or potential deregulation legislation . if future recovery of costs ceases to be probable , any asset write-offs would be required to be recognized in operating income . consolidation — the company enters into transactions impacting the company 's equity interests in its affiliates . in connection with each transaction , the company must determine whether the transaction impacts the company 's consolidation conclusion by first determining whether the transaction should be evaluated under the variable interest model or the voting model . in determining which consolidation model applies to the transaction , the company is required to make judgments about how the entity operates , the most significant of which are whether ( i ) the entity has sufficient equity to finance its activities , ( ii ) the equity holders , as a group , have the characteristics of a controlling financial interest , and ( iii ) whether the entity has non-substantive voting rights . if the entity is determined to be a variable interest entity , the most significant judgment in determining whether the company must consolidate the entity is whether the company , including its related parties and de facto agents , collectively have power and benefits . if aes is determined to have power and benefits , the entity will be consolidated by aes . alternatively , if the entity is determined to be a voting model entity , the most significant judgments involve determining whether the non-aes shareholders have substantive participating rights . the assessment of shareholder rights and whether they are substantive participating rights requires significant judgment since the rights provided under shareholders ' agreements may include selecting , terminating , and setting the compensation of management responsible for implementing the subsidiary 's policies and procedures , and establishing operating and capital decisions of the entity , including budgets , in the ordinary course of business . on the other hand , if shareholder rights are only protective in nature ( referred to as protective rights ) , then such rights would not overcome the presumption that the owner of a majority voting interest shall consolidate its investee . significant judgment is required to determine whether minority rights represent substantive participating rights
| liquidity and capital resources general as of december 31 , 2011 , we had $ 83.1 million of working capital with associated cash of $ 74.0 million , as compared to working capital of $ 12.3 million and cash of $ 561,000 as of december 31 , 2010. this represents an increase of $ 70.8 million in working capital during the twelve-month period . the increase was primarily due to the net proceeds of cash received relating to the equity investment , which closed on september 2 , 2011. we do not have any material commitments that have not been disclosed elsewhere . we continually evaluate our liquidity requirements , capital needs and availability of capital resources based on our operating needs and our planned growth initiatives . in addition to investing our existing cash balances and net cash provided by operating activities , in certain circumstances we may also use debt financings ( including , without limitation , credit facilities supported by our accounts receivable balances ) and issuances of equity or equity-related securities to fund our operating needs and growth initiatives . we believe that our existing cash balances , funds we expect to generate from our operations and funds available under our current revolving credit facility will be sufficient for the next 12 months to finance our existing operations , our first phase of acquisitions , establishment of planned new sales offices , development and implementation of the first phase of our information technology system and our other growth initiatives . cash flow during the year ended december 31 , 2011 , $ 6.6 million was generated in cash from operations compared to $ 2.3 million for the prior year . the primary source of cash for the year ended december 31 , 2011 was our transportation services revenue , while the primary use of cash for the period was payment for transportation services . cash generated from revenue equaled $ 178.7 million for the year ended december 31 , 2011 as compared to $ 151.4 million for 2010 and correlates directly with revenue increases between the two years .
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the $ 503 million impact from recourse debt transactions is primarily due to higher net borrowings at the parent company . the $ 425 million impact from sales to noncontrolling interests is primarily due to the proceeds received from the sale of a 35 % ownership interest in southland energy . the $ 112 million impact from issuance of preferred shares in subsidiaries is due to proceeds from the issuance of preferred shares to minority interests of cochrane . 108 | 2020 annual report the $ 453 million impact from non-recourse debt transactions is primarily due to lower net borrowings at southland and gener , partially offset by a decrease in net repayments at aes brasil and dpl and higher net borrowings at distributed energy , panama , and vietnam . the $ 290 million impact from parent company revolver transactions is primarily due to higher net repayments in the current year . the $ 259 million impact from acquisitions of noncontrolling interests is primarily due to the acquisition of an additional 19.8 % ownership interest in aes brasil . fiscal year 2019 versus 2018 net cash used in financing activities decreased $ 1.6 billion for the year ended december 31 , 2019 compared to december 31 , 2018. financing cash flows ( in millions ) see note 11— debt in item 8.— financial statements and supplementary data of this form 10-k for more information regarding significant debt transactions . the $ 483 million impact from recourse debt activity is primarily due to higher net repayments of parent company debt in 2018. the $ 480 million impact from non-recourse debt transactions is primarily due to net issuances at gener , alto maipo and dpl , which were partially offset by net repayments at aes brasil , and lower net issuances in 2018 at ipalco . the $ 387 million impact from parent company revolver transactions is primarily from higher repayments in 2018 , and higher borrowings in 2019 for general corporate cash management activities . the $ 278 million impact from non-recourse revolver transactions is primarily due to higher net borrowings at dpl and net repayments at ipalco in 2018. parent company liquidity the following discussion is included as a useful measure of the liquidity available to the aes corporation , or the parent company , given the non-recourse nature of most of our indebtedness . parent company liquidity as outlined below is a non-gaap measure and should not be construed as an alternative to cash and cash equivalents , which is determined in accordance with gaap . parent company liquidity may differ from similarly titled measures used by other companies . the principal sources of liquidity at the parent company level are dividends and other distributions from our subsidiaries , including refinancing proceeds , proceeds from debt and equity financings at the parent company level , including availability under our revolving credit facility , and proceeds from asset sales . cash requirements at the parent company level are primarily to fund interest and principal repayments of debt , construction commitments , other equity commitments , common stock repurchases , acquisitions , taxes , parent company overhead and development costs , and dividends on common stock . 109 | 2020 annual report the company defines parent company liquidity as cash available to the parent company , including cash at qualified holding companies , plus available borrowings under our existing credit facility . the cash held at qualified holding companies represents cash sent to subsidiaries of the company domiciled outside of the u.s. such subsidiaries have no contractual restrictions on their ability to send cash to the parent company . parent company liquidity is reconciled to its most directly comparable gaap financial measure , cash and cash equivalents , at the periods indicated as follows ( in millions ) : replace_table_token_23_th the parent company paid dividends of $ 0.57 per outstanding share to its common stockholders during the year ended december 31 , 2020. while we intend to continue payment of dividends and believe we will have sufficient liquidity to do so , we can provide no assurance that we will continue to pay dividends , or if continued , the amount of such dividends . recourse debt our total recourse debt was $ 3.4 billion at december 31 , 2020 and 2019. see note 11— debt in item 8.— f inancial statements and supplementary data of this form 10-k for additional detail . we believe that our sources of liquidity will be adequate to meet our needs for the foreseeable future . this belief is based on a number of material assumptions , including , without limitation , assumptions about our ability to access the capital markets , the operating and financial performance of our subsidiaries , currency exchange rates , power market pool prices , and the ability of our subsidiaries to pay dividends . in addition , our subsidiaries ' ability to declare and pay cash dividends to us ( at the parent company level ) is subject to certain limitations contained in loans , governmental provisions and other agreements . we can provide no assurance that these sources will be available when needed or that the actual cash requirements will not be greater than anticipated . we have met our interim needs for shorter-term and working capital financing at the parent company level with our revolving credit facility . see item 1a.— risk factors — the aes corporation 's ability to make payments on its outstanding indebtedness is dependent upon the receipt of funds from our subsidiaries , of this form 10-k. various debt instruments at the parent company level , including our revolving credit facility , contain certain restrictive covenants . story_separator_special_tag a considerable amount of judgment is also applied in the estimation of the discount rate used in the dcf model . to the extent practical , inputs to the discount rate are obtained from market data sources ( e.g . , bloomberg ) . the company selects and uses a set of publicly traded companies from the relevant industry to estimate the discount rate inputs . management applies judgment in the selection of such companies based on its view of the most likely market participants . it is reasonably possible that the selection of a different set of likely market participants could produce different input assumptions and result in the use of a different discount rate . accounting for derivative instruments and hedging activities — we enter into various derivative transactions in order to hedge our exposure to certain market risks . we primarily use derivative instruments to manage our interest rate , commodity , and foreign currency exposures . we do not enter into derivative transactions for trading purposes . see note 6— derivative instruments and hedging activities included in item 8 of this form 10-k for further information on the classification . the fair value measurement standard requires the company to consider and reflect the assumptions of market participants in the fair value calculation . these factors include nonperformance risk ( the risk that the obligation will not be fulfilled ) and credit risk , both of the reporting entity ( for liabilities ) and of the counterparty ( for assets ) . credit risk for aes is evaluated at the level of the entity that is party to the contract . nonperformance risk on the company 's derivative instruments is an adjustment to the fair value position that is derived from internally developed valuation models that utilize market inputs that may or may not be observable . as a result of uncertainty , complexity , and judgment , accounting estimates related to derivative accounting could result in material changes to our financial statements under different conditions or utilizing different assumptions . as a part of accounting for these derivatives , we make estimates concerning nonperformance , volatilities , market liquidity , future commodity prices , interest rates , credit ratings , and future foreign exchange rates . refer to note 5— fair value included in item 8 of this form 10-k for additional details . the fair value of our derivative portfolio is generally determined using internal and third party valuation models , most of which are based on observable market inputs , including interest rate curves and forward and spot prices for currencies and commodities . the company derives most of its financial instrument market assumptions from market efficient data sources ( e.g . , bloomberg , reuters and platt 's ) . in some cases , where market data is not readily available , management uses comparable market sources and empirical evidence to derive market 114 | 2020 annual report assumptions to determine a financial instrument 's fair value . in certain instances , published pricing may not extend through the remaining term of the contract and management must make assumptions to extrapolate the curve . specifically , where there is limited forward curve data with respect to foreign exchange contracts beyond the traded points , the company utilizes the interest rate differential approach to construct the remaining portion of the forward curve . for individual contracts , the use of different valuation models or assumptions could have a material effect on the calculated fair value . regulatory assets — management continually assesses whether regulatory assets are probable of future recovery by considering factors such as applicable regulatory changes , recent rate orders applicable to other regulated entities , and the status of any pending or potential deregulation legislation . if future recovery of costs ceases to be probable , any asset write-offs would be required to be recognized in operating income . consolidation — the company enters into transactions impacting the company 's equity interests in its affiliates . in connection with each transaction , the company must determine whether the transaction impacts the company 's consolidation conclusion by first determining whether the transaction should be evaluated under the variable interest model or the voting model . in determining which consolidation model applies to the transaction , the company is required to make judgments about how the entity operates , the most significant of which are whether ( i ) the entity has sufficient equity to finance its activities , ( ii ) the equity holders , as a group , have the characteristics of a controlling financial interest , and ( iii ) whether the entity has non-substantive voting rights . if the entity is determined to be a variable interest entity , the most significant judgment in determining whether the company must consolidate the entity is whether the company , including its related parties and de facto agents , collectively have power and benefits . if aes is determined to have power and benefits , the entity will be consolidated by aes . alternatively , if the entity is determined to be a voting model entity , the most significant judgments involve determining whether the non-aes shareholders have substantive participating rights . the assessment of shareholder rights and whether they are substantive participating rights requires significant judgment since the rights provided under shareholders ' agreements may include selecting , terminating , and setting the compensation of management responsible for implementing the subsidiary 's policies and procedures , and establishing operating and capital decisions of the entity , including budgets , in the ordinary course of business . on the other hand , if shareholder rights are only protective in nature ( referred to as protective rights ) , then such rights would not overcome the presumption that the owner of a majority voting interest shall consolidate its investee . significant judgment is required to determine whether minority rights represent substantive participating rights
| cash sources and uses the primary sources of cash for the company in the year ended december 31 , 2020 were debt financings , cash flows from operating activities , sales of short-term investments , and sales to noncontrolling interests . the primary uses of cash in the year ended december 31 , 2020 were repayments of debt , capital expenditures , and purchases of short-term investments . the primary sources of cash for the company in the year ended december 31 , 2019 were debt financings , cash flows from operating activities , and sales of short-term investments . the primary uses of cash in the year ended december 31 , 2019 were repayments of debt , capital expenditures , and purchases of short-term investments . the primary sources of cash for the company in the year ended december 31 , 2018 were debt financings , cash flows from operating activities , proceeds from the sales of business interests , and sales of short-term investments . the primary uses of cash in the year ended december 31 , 2018 were repayments of debt , capital expenditures , and purchases of short-term investments . a summary of cash-based activities are as follows ( in millions ) : replace_table_token_21_th consolidated cash flows the following table reflects the changes in operating , investing , and financing cash flows for the comparative twelve month periods ( in millions ) : replace_table_token_22_th 104 | 2020 annual report operating activities fiscal year 2020 versus 2019 net cash provided by operating activities increased $ 289 million for the year ended december 31 , 2020 , compared to december 31 , 2019. operating cash flows ( 1 ) ( in millions ) ( 1 ) amounts included in the chart above
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these policies are described in note 2 of the notes to our consolidated financial statements included in item 8 hereof . the accounting and financial reporting policies of prudential bancorp conform to accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and to general practices within the banking industry . accordingly , the financial statements require certain estimates , judgments and assumptions , which are believed to be reasonable , based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities as well as contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented . the following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results . these policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods . allowance for loan losses . the allowance for loan losses is established through a provision for loan losses charged to expense . losses are charged against the allowance for loan losses when management believes that the collectability in full of the principal of a loan is unlikely . subsequent recoveries are added to the allowance . the allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairments based upon an evaluation of known and inherent losses in the loan portfolio that are both probable and reasonable to estimate . loan impairment is evaluated based on the fair value of collateral or estimated net realizable value . it is the policy of management to provide for losses on unidentified loans in its portfolio in addition to criticized and classified loans . 59 management monitors its allowance for loan losses at least quarterly and makes adjustments to the allowance through the provision for loan losses as economic conditions and other pertinent factors indicate . the quarterly review and adjustment of the qualitative factors employed in the allowance methodology and the updating of historic loss experience allow for timely reaction to emerging conditions and trends . in this context , a series of qualitative factors are used in a methodology as a measurement of how current circumstances are affecting the loan portfolio . included in these qualitative factors are : · levels of past due , classified , criticized and non-accrual loans , troubled debt restructurings and loan modifications ; · nature and volume of loans ; · changes in lending policies and procedures , underwriting standards , collections , charge-offs and recoveries and for commercial loans , the level of loans being approved with exceptions to lending policy ; · experience , ability and depth of management and staff ; · national and local economic and business conditions , including various market segments ; · quality of the company 's loan review system and degree of board oversight ; · concentrations of credit and changes in levels of such concentrations ; and · effect of external factors on the level of estimated credit losses in the current portfolio . in determining the allowance for loan losses , management has established both specific and general pooled allowances . values assigned to the qualitative factors and those developed from historic loss experience provide a dynamic basis for the calculation of reserve factors for both pass-rated loans ( general pooled allowance ) and for criticized and classified loans . the amount of the specific allowance is determined through a loan-by-loan analysis of certain large dollar commercial real estate loans . loans not individually reviewed are evaluated as a group using reserve factor percentages based on historical loss experience and the qualitative factors described above . in determining the appropriate level of the general pooled allowance , management makes estimates based on internal risk ratings , which take into account such factors as debt service coverage , loan-to-value ratios and external factors . estimates are periodically measured against actual loss experience . this evaluation is inherently subjective as it requires material estimates including , among others , exposure at default , the amount and timing of expected future cash flows on impaired loans , value of collateral , estimated losses on our commercial , construction and residential loan portfolios and historical loss experience . all of these estimates may be susceptible to significant change . while management uses the best information available to make loan loss allowance evaluations , adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance . in addition , the pennsylvania department of banking and securities and the fdic , as an integral part of their examination processes , periodically review our allowance for loan losses . the pennsylvania department of banking and securities and the fdic may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations . to the extent that actual outcomes differ from management 's estimates , additional provisions to the allowance for loan losses may be required that would adversely affect earnings in future periods . investment and mortgage-backed securities available for sale . where quoted prices are available in an active market , securities are classified within level 1 of the valuation hierarchy . story_separator_special_tag 2015 vs. 2014. with respect to the year ended september 30 , 2015 , non-interest income amounted to $ 3.0 million compared with $ 1.1 million for fiscal 2014. the primary reason for the difference in non-interest income between fiscal 2015 as compared to fiscal 2014 was in fiscal 2015 the company recorded an aggregate gain of $ 2.1 million from the sale of three former branch locations . during fiscal 2014 , the company recorded a $ 416,000 gain from the sale of mortgage-back securities classified afs while there were no securities gains recognized during fiscal 2015 . 67 non-interest expense . 2016 vs. 2015. for the year ended september 30 , 2016 , non-interest expense decreased $ 1.9 million to $ 11.3 million compared to fiscal 2015. the decrease for the year ended september 30 , 2016 was primarily due to a cost reduction strategy that began in the beginning of this fiscal year . major component included in this strategy was a reduction in compensation and benefits of approximately $ 1.5 million , reduction in professional services of approximately $ 303,000 , partially offset by small increases in general administrative expenses . also the company recorded $ 300,000 of merger-related costs during fiscal 2016 . 2015 vs. 2014. for the year ended september 30 , 2015 , non-interest expense increased $ 1.7 million to $ 13.2 million compared to fiscal 2014. the increase for the year ended september 30 , 2015 was primarily due to increases in salary and employee benefit expense in large part due to the implementation of the shareholder-approved new equity incentive plan combined with the one-time charges amounting to approximately $ 210,000 associated with a staff reduction effected in connection with the implementation of a comprehensive plan to reduce expenses . part of the plan included implementation of a reorganization plan which will reduce the workforce by more than 10 % . income tax expense . 2016 vs. 2015 . for the year ended september 30 , 2016 , the company recorded income tax expense of $ 1.3 million as compared to $ 116,000 for fiscal 2015. the company 's tax obligation for the year ended september 30 , 2015 was greatly reduced due its ability to utilize its prior period capital loss carryforwards to offset the entire amount of the gains it recorded relating to the sale of its center city , snyder and drexel hill branch offices . 2015 vs. 2014 . for the year ended september 30 , 2015 , the company recorded income tax expense of $ 116,000 as compared to $ 690,000 for fiscal 2014. the company 's tax obligation for the year ended september 30 , 2015 was greatly reduced due its ability to utilize its prior period capital loss carryforwards to offset the entire amount of the gains it recorded relating to the sale of its of previous mentioned branch offices . story_separator_special_tag collapse ; width : 100 % ; font-size : 10pt `` > 70 replace_table_token_30_th ( 1 ) interest-earning assets are included in the period in which the balances are expected to be redeployed and or repriced as a result of anticipated prepayments , scheduled rate adjustments and contractual maturities . ( 2 ) for purposes of the gap analysis , loans receivable includes non-performing loans , gross of the allowance for loan losses , undisbursed loan funds , unamortized discounts and deferred loan fees . ( 3 ) includes fhlb stock . ( 4 ) interest-rate sensitivity gap represents the difference between total interest-earning assets and total interest-bearing liabilities . certain shortcomings are inherent in the method of analysis presented in the foregoing table . for example , although certain assets and liabilities may have similar maturities or periods to repricing , they may react in different degrees to changes in market interest rates . also , the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates , while interest rates on other types may lag behind changes in market rates . additionally , certain assets , such as adjustable-rate loans , have features which restrict changes in interest rates both on a short-term basis and over the life of the asset . further , in the event of a change in interest rates , prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table . finally , the ability of many borrowers to service their adjustable-rate loans may decrease in the event of an interest rate increase . 71 net portfolio value analysis . our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the changes in our net portfolio value ( “ npv ” ) over a range of interest rate scenarios . npv is the present value of expected cash flows from assets , liabilities and off-balance sheet contracts . the npv ratio , under any interest rate scenario , is defined as the npv in that scenario divided by the market value of assets in the same scenario . the following table sets forth our npv as of september 30 , 2016 and reflects the changes to npv as a result of immediate and sustained changes in interest rates as indicated . replace_table_token_31_th at september 30 , 2015 , the company 's npv was $ 131.1 million or 27.1 % of the market value of assets . following a 200 basis point increase in interest rates , the company 's “ post shock ” npv would have been $ 107.4 million or 24.3 % of the market value of assets , a decline of approximately 18.1 % . the change in the npv ratio or company 's sensitivity measure was a decrease of 276 basis points . as is the case with the gap table , certain shortcomings are inherent in the methodology used in the above interest rate risk measurements . modeling changes
| cash sources and uses the primary sources of cash for the company in the year ended december 31 , 2020 were debt financings , cash flows from operating activities , sales of short-term investments , and sales to noncontrolling interests . the primary uses of cash in the year ended december 31 , 2020 were repayments of debt , capital expenditures , and purchases of short-term investments . the primary sources of cash for the company in the year ended december 31 , 2019 were debt financings , cash flows from operating activities , and sales of short-term investments . the primary uses of cash in the year ended december 31 , 2019 were repayments of debt , capital expenditures , and purchases of short-term investments . the primary sources of cash for the company in the year ended december 31 , 2018 were debt financings , cash flows from operating activities , proceeds from the sales of business interests , and sales of short-term investments . the primary uses of cash in the year ended december 31 , 2018 were repayments of debt , capital expenditures , and purchases of short-term investments . a summary of cash-based activities are as follows ( in millions ) : replace_table_token_21_th consolidated cash flows the following table reflects the changes in operating , investing , and financing cash flows for the comparative twelve month periods ( in millions ) : replace_table_token_22_th 104 | 2020 annual report operating activities fiscal year 2020 versus 2019 net cash provided by operating activities increased $ 289 million for the year ended december 31 , 2020 , compared to december 31 , 2019. operating cash flows ( 1 ) ( in millions ) ( 1 ) amounts included in the chart above
| 0 |
these policies are described in note 2 of the notes to our consolidated financial statements included in item 8 hereof . the accounting and financial reporting policies of prudential bancorp conform to accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and to general practices within the banking industry . accordingly , the financial statements require certain estimates , judgments and assumptions , which are believed to be reasonable , based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities as well as contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented . the following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results . these policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods . allowance for loan losses . the allowance for loan losses is established through a provision for loan losses charged to expense . losses are charged against the allowance for loan losses when management believes that the collectability in full of the principal of a loan is unlikely . subsequent recoveries are added to the allowance . the allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairments based upon an evaluation of known and inherent losses in the loan portfolio that are both probable and reasonable to estimate . loan impairment is evaluated based on the fair value of collateral or estimated net realizable value . it is the policy of management to provide for losses on unidentified loans in its portfolio in addition to criticized and classified loans . 59 management monitors its allowance for loan losses at least quarterly and makes adjustments to the allowance through the provision for loan losses as economic conditions and other pertinent factors indicate . the quarterly review and adjustment of the qualitative factors employed in the allowance methodology and the updating of historic loss experience allow for timely reaction to emerging conditions and trends . in this context , a series of qualitative factors are used in a methodology as a measurement of how current circumstances are affecting the loan portfolio . included in these qualitative factors are : · levels of past due , classified , criticized and non-accrual loans , troubled debt restructurings and loan modifications ; · nature and volume of loans ; · changes in lending policies and procedures , underwriting standards , collections , charge-offs and recoveries and for commercial loans , the level of loans being approved with exceptions to lending policy ; · experience , ability and depth of management and staff ; · national and local economic and business conditions , including various market segments ; · quality of the company 's loan review system and degree of board oversight ; · concentrations of credit and changes in levels of such concentrations ; and · effect of external factors on the level of estimated credit losses in the current portfolio . in determining the allowance for loan losses , management has established both specific and general pooled allowances . values assigned to the qualitative factors and those developed from historic loss experience provide a dynamic basis for the calculation of reserve factors for both pass-rated loans ( general pooled allowance ) and for criticized and classified loans . the amount of the specific allowance is determined through a loan-by-loan analysis of certain large dollar commercial real estate loans . loans not individually reviewed are evaluated as a group using reserve factor percentages based on historical loss experience and the qualitative factors described above . in determining the appropriate level of the general pooled allowance , management makes estimates based on internal risk ratings , which take into account such factors as debt service coverage , loan-to-value ratios and external factors . estimates are periodically measured against actual loss experience . this evaluation is inherently subjective as it requires material estimates including , among others , exposure at default , the amount and timing of expected future cash flows on impaired loans , value of collateral , estimated losses on our commercial , construction and residential loan portfolios and historical loss experience . all of these estimates may be susceptible to significant change . while management uses the best information available to make loan loss allowance evaluations , adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance . in addition , the pennsylvania department of banking and securities and the fdic , as an integral part of their examination processes , periodically review our allowance for loan losses . the pennsylvania department of banking and securities and the fdic may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations . to the extent that actual outcomes differ from management 's estimates , additional provisions to the allowance for loan losses may be required that would adversely affect earnings in future periods . investment and mortgage-backed securities available for sale . where quoted prices are available in an active market , securities are classified within level 1 of the valuation hierarchy . story_separator_special_tag 2015 vs. 2014. with respect to the year ended september 30 , 2015 , non-interest income amounted to $ 3.0 million compared with $ 1.1 million for fiscal 2014. the primary reason for the difference in non-interest income between fiscal 2015 as compared to fiscal 2014 was in fiscal 2015 the company recorded an aggregate gain of $ 2.1 million from the sale of three former branch locations . during fiscal 2014 , the company recorded a $ 416,000 gain from the sale of mortgage-back securities classified afs while there were no securities gains recognized during fiscal 2015 . 67 non-interest expense . 2016 vs. 2015. for the year ended september 30 , 2016 , non-interest expense decreased $ 1.9 million to $ 11.3 million compared to fiscal 2015. the decrease for the year ended september 30 , 2016 was primarily due to a cost reduction strategy that began in the beginning of this fiscal year . major component included in this strategy was a reduction in compensation and benefits of approximately $ 1.5 million , reduction in professional services of approximately $ 303,000 , partially offset by small increases in general administrative expenses . also the company recorded $ 300,000 of merger-related costs during fiscal 2016 . 2015 vs. 2014. for the year ended september 30 , 2015 , non-interest expense increased $ 1.7 million to $ 13.2 million compared to fiscal 2014. the increase for the year ended september 30 , 2015 was primarily due to increases in salary and employee benefit expense in large part due to the implementation of the shareholder-approved new equity incentive plan combined with the one-time charges amounting to approximately $ 210,000 associated with a staff reduction effected in connection with the implementation of a comprehensive plan to reduce expenses . part of the plan included implementation of a reorganization plan which will reduce the workforce by more than 10 % . income tax expense . 2016 vs. 2015 . for the year ended september 30 , 2016 , the company recorded income tax expense of $ 1.3 million as compared to $ 116,000 for fiscal 2015. the company 's tax obligation for the year ended september 30 , 2015 was greatly reduced due its ability to utilize its prior period capital loss carryforwards to offset the entire amount of the gains it recorded relating to the sale of its center city , snyder and drexel hill branch offices . 2015 vs. 2014 . for the year ended september 30 , 2015 , the company recorded income tax expense of $ 116,000 as compared to $ 690,000 for fiscal 2014. the company 's tax obligation for the year ended september 30 , 2015 was greatly reduced due its ability to utilize its prior period capital loss carryforwards to offset the entire amount of the gains it recorded relating to the sale of its of previous mentioned branch offices . story_separator_special_tag collapse ; width : 100 % ; font-size : 10pt `` > 70 replace_table_token_30_th ( 1 ) interest-earning assets are included in the period in which the balances are expected to be redeployed and or repriced as a result of anticipated prepayments , scheduled rate adjustments and contractual maturities . ( 2 ) for purposes of the gap analysis , loans receivable includes non-performing loans , gross of the allowance for loan losses , undisbursed loan funds , unamortized discounts and deferred loan fees . ( 3 ) includes fhlb stock . ( 4 ) interest-rate sensitivity gap represents the difference between total interest-earning assets and total interest-bearing liabilities . certain shortcomings are inherent in the method of analysis presented in the foregoing table . for example , although certain assets and liabilities may have similar maturities or periods to repricing , they may react in different degrees to changes in market interest rates . also , the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates , while interest rates on other types may lag behind changes in market rates . additionally , certain assets , such as adjustable-rate loans , have features which restrict changes in interest rates both on a short-term basis and over the life of the asset . further , in the event of a change in interest rates , prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table . finally , the ability of many borrowers to service their adjustable-rate loans may decrease in the event of an interest rate increase . 71 net portfolio value analysis . our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the changes in our net portfolio value ( “ npv ” ) over a range of interest rate scenarios . npv is the present value of expected cash flows from assets , liabilities and off-balance sheet contracts . the npv ratio , under any interest rate scenario , is defined as the npv in that scenario divided by the market value of assets in the same scenario . the following table sets forth our npv as of september 30 , 2016 and reflects the changes to npv as a result of immediate and sustained changes in interest rates as indicated . replace_table_token_31_th at september 30 , 2015 , the company 's npv was $ 131.1 million or 27.1 % of the market value of assets . following a 200 basis point increase in interest rates , the company 's “ post shock ” npv would have been $ 107.4 million or 24.3 % of the market value of assets , a decline of approximately 18.1 % . the change in the npv ratio or company 's sensitivity measure was a decrease of 276 basis points . as is the case with the gap table , certain shortcomings are inherent in the methodology used in the above interest rate risk measurements . modeling changes
| liquidity and capital resources liquidity is the ability to maintain cash flows that are adequate to fund operations and meet other obligations on a timely and cost effective basis in various market conditions . the ability of the company to meet its current financial obligations is a function of balance sheet structure , the ability to liquidate assets and the availability of alternative sources of funds . to meet the needs of the clients and manage the risk of the company , the company engages in liquidity planning and management . 68 our primary sources of funds are from deposits , scheduled principal and interest payments on loans , loan prepayments and the maturity of loans , mortgage-backed securities and other investments , and other funds provided from operations . while scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities are relatively predictable sources of funds , deposit flows and loan prepayments can be greatly influenced by general interest rates , economic conditions and competition . we also maintain excess funds in short-term , interest-bearing assets that provide additional liquidity . at september 30 , 2016 , our cash and cash equivalents amounted to $ 12.4 million . in addition , our available for sale investment and mortgage-backed securities amounted to an aggregate of $ 138.7 million at september 30 , 2016. we use our liquidity to fund existing and future loan commitments , to fund maturing certificates of deposit and demand deposit withdrawals , to invest in other interest-earning assets , and to meet operating expenses . at september 30 , 2016 , we had certificates of deposit maturing within the next 12 months amounting to $ 135.8 million . we anticipate that a significant portion of the maturing certificates of deposit will be redeposited with us unless we determine to lower rates to below competition in order to facilitate the reduction of higher cost deposits during periods when there is excess cash on hand or in order to satisfy our asset/liability goals . there were no deposits as of september 30 , 2016 requiring the pledging of collateral .
| 1 |
this work ranges from receiving , scanning , and delivering faxes to tracking claims with payers and managing denials . we automate this work whenever possible ; when automation is not an option , we perform the work at massive scale with our internal team . the knowledge we gain from doing work for our clients and discovering ways to improve their performance is culled , curated , and captured within athenanet through mechanisms that include our proprietary billing rules engine and clinical quality management engine . using this knowledge , we also proactively coach our clients on best practices to help improve their performance . as we work with clients , payers , and other industry trading partners , more knowledge is infused into each service , which we believe makes athenanet `` smarter `` and more powerful for our clients . this unique combination of opening up the network , multiplying our intelligence , and freeing people to do what matters is fundamental to our service model and value proposition to clients . for the year ended december 31 , 2017 , we generated revenue of $ 1,220.3 million , compared to $ 1,082.9 million for the year ended december 31 , 2016 and $ 924.7 million for the year ended december 31 , 2015 . given the scope of our market opportunity , we have also increased our spending each year on growth , innovation , and infrastructure . 35 our revenue is predominately derived from core athenahealth-branded business services . in most cases , we charge clients a percentage of payments collected by us on behalf of our clients , connecting our financial results directly to those of our clients and our ability to drive revenue to medical practices . therefore , the key drivers of our revenue include growth in the number of providers working within our client accounts , the collections of these providers , and the number of services purchased . to provide these services , we incur expenses in several categories , including cost of revenue , selling and marketing , research and development , and general and administrative expense . in general , our cost of revenue increases as our volume of work increases , whereas our selling and marketing expense correlates with current and expected market demand . our research and development and general and administrative expense categories are less directly related to growth of revenues and relate more to our planning for the future and our overall business management activities . we manage our cash and our use of credit facilities to ensure adequate liquidity and to ensure adherence to related financial covenants . critical accounting policies our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states , or gaap . in connection with the preparation of our consolidated financial statements , we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets and liabilities , the disclosures of contingent assets and liabilities as of the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . we base our assumptions , estimates and judgments on historical experience , current trends , and other factors we believe to be relevant at the time we prepare our consolidated financial statements . the accounting estimates used in the preparation of our consolidated financial statements may change as new events occur , as more experience is acquired , as additional information is obtained , and as our operating environment changes . on a regular basis , we review the accounting policies and assumptions and update our assumptions , estimates , and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with gaap . additionally , we may employ outside experts to assist in our evaluations . however , because future events and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . our significant accounting policies are discussed in note 1 – nature of operations and summary of significant accounting policies , to our accompanying consolidated financial statements . we consider the following accounting policies to be “ critical accounting policies , ” as they require management to make difficult , subjective , or complex judgments , and to make estimates about the effect of matters that are inherently uncertain . we have reviewed these critical accounting policies and related disclosures with the audit committee of our board of directors . 36 description judgment and uncertainties effect if actual results differ from assumptions revenue recognition all revenue , other than certain non-refundable , upfront fees , is recognized when the service is performed . we derive the majority of our revenue from business services associated with our integrated , network-enabled services . our integrated services consist of medical billing and practice management ; electronic health record , or ehr ; patient engagement ; order transmission and care coordination ; and population health management , which are supported by our network , athenanet . our clients typically purchase one-year service contracts related to our integrated , network-enabled services that renew automatically . in most cases , our clients may terminate their agreements without cause by providing notice , generally over a time period prescribed in a client 's contract . our clients are billed monthly , in arrears , typically based upon a percentage of collections posted to our network ; minimum fees ; flat fees ; or per-claim fees , where applicable . invoices are generated within the first two weeks of the subsequent month . story_separator_special_tag the difference between our effective tax rate and our statutory tax rate has historically been driven by the amount of research and development credits we generate each year through the development of new and enhanced services offset by the amount of non-deductible ( or permanent ) differences and the amount of our pre-tax net income . on december 22 , 2017 , president trump enacted “ h.r.1 , ” formerly known as the “ tax cuts and jobs act ” which , beginning in 2018 , will reduce our corporate statutory rate but will increase certain permanent differences in the near term . as of the date of enactment , we have reduced our net deferred tax assets for our new statutory rate which has resulted in a decrease to our income tax provision for the year ended december 31 , 2017. in the future , we expect the difference from our effective tax rate and our newly reduced statutory rate will be less than in the past as the amount of research and development credits that we will generate each year will be offset by higher non-deductible items related to highly compensated employees . in addition , as we expect a higher pre-tax net income as a result of the plan described above . 41 results of operations consolidated results of operations the following table sets forth our consolidated results of operations as a percentage of total revenue for the years ended december 31 , 2017 , 2016 , and 2015 : replace_table_token_4_th percentages for each line item may not sum to the totals or subtotals for each fiscal year due to rounding . comparison of the years ended december 31 , 2017 and 2016 replace_table_token_5_th total revenue for the year ended december 31 , 2017 increased due to an increase in collections-based revenue . the increase in collections-based revenue was primarily due to an increase in the number of clients we serve . the amount of collections processed was as follows : year ended december 31 , change 2017 2016 amount percent ( in millions ) collections processed $ 26,009.8 $ 22,615.0 $ 3,394.8 15 % replace_table_token_6_th 42 cost of revenue . cost of revenue increased primarily due to compensation costs and costs associated with our business partner outsourcing and clearing house activities . compensation costs increased $ 23.3 million in the year ended december 31 , 2017 , largely due to a $ 16.9 million increase in salaries expense as a result of a 14 % average headcount increase compared to december 31 , 2016 . compensation costs also includes a $ 6.3 million charge related to severance associated with the plan , as we decreased headcount by 7 % from the three months ended september 30 , 2017 to the three months ended december 31 , 2017. in addition , costs associated with our business partner outsourcing and clearing house activities increased $ 14.0 million , or 17 % , as the number of claims that we processed on behalf of our clients increased during those same periods . the total claims submitted on behalf of clients were as follows : replace_table_token_7_th replace_table_token_8_th selling and marketing expense . selling and marketing expense remained relatively flat for the year ended december 31 , 2017 . compensation costs increased $ 6.7 million for the year ended december 31 , 2017 , which included $ 3.3 million in severance due to an 18 % average decrease in headcount associated with the plan during the three months ended december 31 , 2017. that increase was offset by a $ 16.3 million decrease in marketing program spend for the year ended december 31 , 2017 , as we pursued cost-saving opportunities . research and development expense . research and development expense increased for the year ended december 31 , 2017 primarily due to compensation costs . compensation costs increased $ 25.5 million for the year ended december 31 , 2017 , largely due to a 9 % increase in headcount , as well as an increase in expensed versus capitalized projects from the year ended december 31 , 2016. in addition , key employee retention costs associated with our acquisitions of filament labs , inc. , or patient io , and praxify technologies , inc. , or praxify , contributed $ 7.1 million to research and development expense in the year ended december 31 , 2017 . general and administrative expense . general and administrative expense increased for the year ended december 31 , 2017 primarily due to the use of consultants . consulting expense increased $ 12.1 million for the year ended december 31 , 2017 . we used consultants in numerous capacities , including assistance in identifying significant cost-savings opportunities related to the plan , temporarily staffing open positions , and assisting in our analysis and implementation of the new revenue recognition standard . year ended december 31 , change 2017 2016 amount percent ( in millions ) income tax provision $ ( 10.8 ) $ — $ ( 10.8 ) 100 % effective tax rate 17 % — % income tax provision . the difference in our effective tax rate for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 , is due to the h.r.1 , formerly known as the tax cuts and jobs act , enactment , the adoption of the new stock-based compensation accounting standard , the release of a portion of our valuation allowance , and the increase in the amount of pre-tax net income . upon adoption of the new stock-based compensation guidance on january 1 , 2017 , we began recognizing excess tax benefits and tax deficiencies through the income tax provision in the consolidated statement of income . prior to adoption , the excess tax benefits and tax deficiencies were recorded to additional paid-in capital on the consolidated balance sheet and excess tax benefits were not recorded until they were able to be
| liquidity and capital resources liquidity is the ability to maintain cash flows that are adequate to fund operations and meet other obligations on a timely and cost effective basis in various market conditions . the ability of the company to meet its current financial obligations is a function of balance sheet structure , the ability to liquidate assets and the availability of alternative sources of funds . to meet the needs of the clients and manage the risk of the company , the company engages in liquidity planning and management . 68 our primary sources of funds are from deposits , scheduled principal and interest payments on loans , loan prepayments and the maturity of loans , mortgage-backed securities and other investments , and other funds provided from operations . while scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities are relatively predictable sources of funds , deposit flows and loan prepayments can be greatly influenced by general interest rates , economic conditions and competition . we also maintain excess funds in short-term , interest-bearing assets that provide additional liquidity . at september 30 , 2016 , our cash and cash equivalents amounted to $ 12.4 million . in addition , our available for sale investment and mortgage-backed securities amounted to an aggregate of $ 138.7 million at september 30 , 2016. we use our liquidity to fund existing and future loan commitments , to fund maturing certificates of deposit and demand deposit withdrawals , to invest in other interest-earning assets , and to meet operating expenses . at september 30 , 2016 , we had certificates of deposit maturing within the next 12 months amounting to $ 135.8 million . we anticipate that a significant portion of the maturing certificates of deposit will be redeposited with us unless we determine to lower rates to below competition in order to facilitate the reduction of higher cost deposits during periods when there is excess cash on hand or in order to satisfy our asset/liability goals . there were no deposits as of september 30 , 2016 requiring the pledging of collateral .
| 0 |
this work ranges from receiving , scanning , and delivering faxes to tracking claims with payers and managing denials . we automate this work whenever possible ; when automation is not an option , we perform the work at massive scale with our internal team . the knowledge we gain from doing work for our clients and discovering ways to improve their performance is culled , curated , and captured within athenanet through mechanisms that include our proprietary billing rules engine and clinical quality management engine . using this knowledge , we also proactively coach our clients on best practices to help improve their performance . as we work with clients , payers , and other industry trading partners , more knowledge is infused into each service , which we believe makes athenanet `` smarter `` and more powerful for our clients . this unique combination of opening up the network , multiplying our intelligence , and freeing people to do what matters is fundamental to our service model and value proposition to clients . for the year ended december 31 , 2017 , we generated revenue of $ 1,220.3 million , compared to $ 1,082.9 million for the year ended december 31 , 2016 and $ 924.7 million for the year ended december 31 , 2015 . given the scope of our market opportunity , we have also increased our spending each year on growth , innovation , and infrastructure . 35 our revenue is predominately derived from core athenahealth-branded business services . in most cases , we charge clients a percentage of payments collected by us on behalf of our clients , connecting our financial results directly to those of our clients and our ability to drive revenue to medical practices . therefore , the key drivers of our revenue include growth in the number of providers working within our client accounts , the collections of these providers , and the number of services purchased . to provide these services , we incur expenses in several categories , including cost of revenue , selling and marketing , research and development , and general and administrative expense . in general , our cost of revenue increases as our volume of work increases , whereas our selling and marketing expense correlates with current and expected market demand . our research and development and general and administrative expense categories are less directly related to growth of revenues and relate more to our planning for the future and our overall business management activities . we manage our cash and our use of credit facilities to ensure adequate liquidity and to ensure adherence to related financial covenants . critical accounting policies our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states , or gaap . in connection with the preparation of our consolidated financial statements , we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets and liabilities , the disclosures of contingent assets and liabilities as of the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . we base our assumptions , estimates and judgments on historical experience , current trends , and other factors we believe to be relevant at the time we prepare our consolidated financial statements . the accounting estimates used in the preparation of our consolidated financial statements may change as new events occur , as more experience is acquired , as additional information is obtained , and as our operating environment changes . on a regular basis , we review the accounting policies and assumptions and update our assumptions , estimates , and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with gaap . additionally , we may employ outside experts to assist in our evaluations . however , because future events and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . our significant accounting policies are discussed in note 1 – nature of operations and summary of significant accounting policies , to our accompanying consolidated financial statements . we consider the following accounting policies to be “ critical accounting policies , ” as they require management to make difficult , subjective , or complex judgments , and to make estimates about the effect of matters that are inherently uncertain . we have reviewed these critical accounting policies and related disclosures with the audit committee of our board of directors . 36 description judgment and uncertainties effect if actual results differ from assumptions revenue recognition all revenue , other than certain non-refundable , upfront fees , is recognized when the service is performed . we derive the majority of our revenue from business services associated with our integrated , network-enabled services . our integrated services consist of medical billing and practice management ; electronic health record , or ehr ; patient engagement ; order transmission and care coordination ; and population health management , which are supported by our network , athenanet . our clients typically purchase one-year service contracts related to our integrated , network-enabled services that renew automatically . in most cases , our clients may terminate their agreements without cause by providing notice , generally over a time period prescribed in a client 's contract . our clients are billed monthly , in arrears , typically based upon a percentage of collections posted to our network ; minimum fees ; flat fees ; or per-claim fees , where applicable . invoices are generated within the first two weeks of the subsequent month . story_separator_special_tag the difference between our effective tax rate and our statutory tax rate has historically been driven by the amount of research and development credits we generate each year through the development of new and enhanced services offset by the amount of non-deductible ( or permanent ) differences and the amount of our pre-tax net income . on december 22 , 2017 , president trump enacted “ h.r.1 , ” formerly known as the “ tax cuts and jobs act ” which , beginning in 2018 , will reduce our corporate statutory rate but will increase certain permanent differences in the near term . as of the date of enactment , we have reduced our net deferred tax assets for our new statutory rate which has resulted in a decrease to our income tax provision for the year ended december 31 , 2017. in the future , we expect the difference from our effective tax rate and our newly reduced statutory rate will be less than in the past as the amount of research and development credits that we will generate each year will be offset by higher non-deductible items related to highly compensated employees . in addition , as we expect a higher pre-tax net income as a result of the plan described above . 41 results of operations consolidated results of operations the following table sets forth our consolidated results of operations as a percentage of total revenue for the years ended december 31 , 2017 , 2016 , and 2015 : replace_table_token_4_th percentages for each line item may not sum to the totals or subtotals for each fiscal year due to rounding . comparison of the years ended december 31 , 2017 and 2016 replace_table_token_5_th total revenue for the year ended december 31 , 2017 increased due to an increase in collections-based revenue . the increase in collections-based revenue was primarily due to an increase in the number of clients we serve . the amount of collections processed was as follows : year ended december 31 , change 2017 2016 amount percent ( in millions ) collections processed $ 26,009.8 $ 22,615.0 $ 3,394.8 15 % replace_table_token_6_th 42 cost of revenue . cost of revenue increased primarily due to compensation costs and costs associated with our business partner outsourcing and clearing house activities . compensation costs increased $ 23.3 million in the year ended december 31 , 2017 , largely due to a $ 16.9 million increase in salaries expense as a result of a 14 % average headcount increase compared to december 31 , 2016 . compensation costs also includes a $ 6.3 million charge related to severance associated with the plan , as we decreased headcount by 7 % from the three months ended september 30 , 2017 to the three months ended december 31 , 2017. in addition , costs associated with our business partner outsourcing and clearing house activities increased $ 14.0 million , or 17 % , as the number of claims that we processed on behalf of our clients increased during those same periods . the total claims submitted on behalf of clients were as follows : replace_table_token_7_th replace_table_token_8_th selling and marketing expense . selling and marketing expense remained relatively flat for the year ended december 31 , 2017 . compensation costs increased $ 6.7 million for the year ended december 31 , 2017 , which included $ 3.3 million in severance due to an 18 % average decrease in headcount associated with the plan during the three months ended december 31 , 2017. that increase was offset by a $ 16.3 million decrease in marketing program spend for the year ended december 31 , 2017 , as we pursued cost-saving opportunities . research and development expense . research and development expense increased for the year ended december 31 , 2017 primarily due to compensation costs . compensation costs increased $ 25.5 million for the year ended december 31 , 2017 , largely due to a 9 % increase in headcount , as well as an increase in expensed versus capitalized projects from the year ended december 31 , 2016. in addition , key employee retention costs associated with our acquisitions of filament labs , inc. , or patient io , and praxify technologies , inc. , or praxify , contributed $ 7.1 million to research and development expense in the year ended december 31 , 2017 . general and administrative expense . general and administrative expense increased for the year ended december 31 , 2017 primarily due to the use of consultants . consulting expense increased $ 12.1 million for the year ended december 31 , 2017 . we used consultants in numerous capacities , including assistance in identifying significant cost-savings opportunities related to the plan , temporarily staffing open positions , and assisting in our analysis and implementation of the new revenue recognition standard . year ended december 31 , change 2017 2016 amount percent ( in millions ) income tax provision $ ( 10.8 ) $ — $ ( 10.8 ) 100 % effective tax rate 17 % — % income tax provision . the difference in our effective tax rate for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 , is due to the h.r.1 , formerly known as the tax cuts and jobs act , enactment , the adoption of the new stock-based compensation accounting standard , the release of a portion of our valuation allowance , and the increase in the amount of pre-tax net income . upon adoption of the new stock-based compensation guidance on january 1 , 2017 , we began recognizing excess tax benefits and tax deficiencies through the income tax provision in the consolidated statement of income . prior to adoption , the excess tax benefits and tax deficiencies were recorded to additional paid-in capital on the consolidated balance sheet and excess tax benefits were not recorded until they were able to be
| net cash used in investing activities increased $ 29.1 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to a $ 24.2 million increase in payments on acquisitions , net of cash acquired , as a result of our purchase of praxify . we expect to continue to invest in capitalized software costs as we continue to develop new and enhance existing services and in property and equipment as we continue to grow . financing cash flow activities the increase in net cash used in financing activities was $ 18.1 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily due to an additional $ 11.3 million in principal payments on our 2015 senior credit facility in the year ended december 31 , 2017 . in addition , net cash used in financing activities increased $ 9.0 million , as we no longer present excess tax benefits within cash flows from financing activities but instead present these cash flows in cash flows from operating activities in the consolidated statements of cash flows , per a change in accounting guidance we adopted january 1 , 2017. for the foreseeable future , we anticipate that income taxes paid for the net settlement of restricted stock unit awards will be greater than the cash received for stock option exercises due to our stock price and theincrease in the issuance of restricted stock units compared to stock options .
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while the 2011 prices of wti crude oil rose almost 20 % compared to the prior year , crude oil sold based on other worldwide benchmark prices , such as brent and tapis , rose even more than wti in that year . the 2011 rise in prices of wti crude oil , which is only used as a benchmark in north america , was held back compared to other worldwide benchmark price increases due to a somewhat temporary crude oil dislocation discount and a bit of supply/demand disparity in the continental u.s. during 2011. the disparity between crude oil and natural gas prices in north america continued to widen during both 2012 and 2011 on an energy equivalent basis due to gas production growth that exceeded demand . u.s. crude oil prices in early 2013 have been similar to 2012 average prices , while natural gas prices in north america in 2013 have thus far been slightly above the 2012 levels due to cold temperatures across much of the northern u.s. during the early winter season . 27 results of operations murphy oil 's results of operations , with associated diluted earnings per share ( eps ) , for the last three years are presented in the following table . replace_table_token_13_th murphy oil 's net income in 2012 increased 11 % compared to 2011 primarily due to higher earnings for continuing exploration and production ( e & p ) operations , partially offset by lower earnings for continuing refining and marketing operations ( r & m ) , lower income from discontinued operations , and higher net costs of corporate activities that were not allocated to operating segments . net income in 2011 was 9 % higher than 2010 , with the improvement primarily attributable to better earnings for r & m continuing operations , higher income from discontinued operations , which was essentially attributable to strong u.s. refining results prior to sale of these assets , and lower net costs for corporate activities . lower e & p earnings for continuing operations in 2011 , primarily associated with a large impairment charge in republic of the congo , somewhat offset these favorable results in other areas . further explanations of each of these variances are found in more detail in the following sections . 2012 vs. 2011 net income in 2012 was $ 970.9 million ( $ 4.99 per diluted share ) compared to $ 872.7 million ( $ 4.49 per diluted share ) in 2011. income from continuing operations was $ 964.1 million ( $ 4.95 per diluted share ) in 2012 , up from $ 729.5 million ( $ 3.75 per diluted share ) in 2011. earnings for 2012 increased primarily due to a combination of lower impairment charges , income tax benefits , higher crude oil sales volumes , lower exploration expenses and higher u.k. r & m earnings . these were partially offset by lower north american natural gas sales prices , lower u.s. retail marketing margins , and unfavorable effects of foreign exchange compared to the prior year . net income in 2012 and 2011 included income from discontinued operations of $ 6.8 million ( $ 0.04 per diluted share ) and $ 143.2 million ( $ 0.74 per diluted share ) , respectively . the stronger results for discontinued operations in 2011 were primarily associated with operating income and a net gain on disposal of two u.s. refineries ( meraux , louisiana and superior , wisconsin ) and associated marketing assets which were sold in 2011. by business unit , e & p income from continuing operations improved $ 290.8 million in 2012 , primarily due to higher crude oil production , lower impairment expense in republic of the congo , income tax benefits associated with exploration activities in republic of the congo and suriname , and lower exploration expenses . e & p operating results were unfavorably affected in 2012 compared to the prior year by lower north american natural gas sales prices and higher expenses for production , depreciation and administration . income from r & m continuing operations was $ 32.7 million lower in 2012 , with the reduction mostly attributable to lower earnings , including an impairment charge , for u.s. ethanol production operations , plus lower u.s. retail fuel margins , with these more than offsetting significantly better u.k. refining margins in the current year . the net costs of corporate activities were higher by $ 23.5 million in 2012 , mostly attributable to unfavorable effects of transactions denominated in foreign currencies . to a lesser degree , the 2012 corporate net costs were unfavorably affected by lower interest income and higher administrative expenses . sales and other operating revenues grew $ 1.0 billion in 2012 compared to 2011 due to higher crude oil sales volumes for the e & p business , plus slightly larger sales volumes for both the u.s. and u.k. r & m continuing operations . gain ( loss ) on sale of assets was $ 23.9 million less in 2012 than 2011 because the earlier year 28 included a $ 23.1 million gain on sale of natural gas storage assets in spain . interest and other operating income was unfavorable by $ 22.0 million in 2012 compared to 2011 mostly due to an $ 18.4 million unfavorable pretax variance from the effects of transactions denominated in foreign currencies , plus interest income in 2011 of $ 2.7 million associated with a recovery of federal royalties for certain deepwater gulf of mexico fields . story_separator_special_tag natural gas sales volumes for continuing operations increased 29 % in 2011 and the improvement was primarily attributable to higher gas volumes produced during 2011 at the tupper west area in western canada following start-up in the first quarter of the year . natural gas sales volumes also improved in 2011 at the tupper area in canada and at fields offshore sarawak ; both of these areas had active development programs during 2011. natural gas sales volumes were lower during 2011 at the kikeh field principally due to less volumes produced because of mechanical issues with wells . the results of operations for oil and gas producing activities for each of the last three years are shown by major operating areas on pages f-51 and f-52 of this form 10-k report . average daily production and sales rates and weighted average sales prices are shown on page 5 of the 2012 annual report . a summary of oil and gas revenues , including intersegment sales that are eliminated in the consolidated financial statements , is presented in the following table . replace_table_token_15_th the company 's total crude oil , condensate and natural gas liquids production averaged 112,591 barrels per day in 2012 , compared to 103,160 barrels per day in 2011 and 126,927 barrels per day in 2010 . 32 united states crude oil production averaged 26,090 barrels per day in 2012 , an annual record for the company in the u.s. , and an increase from 17,148 barrels per day in 2011. the u.s. increase was primarily attributable to an ongoing development drilling program in the eagle ford shale area in south texas . heavy oil production in the western canada sedimentary basin of 7,241 barrels per day in 2012 was about flat with 2011. crude oil production offshore canada fell from 9,204 barrels per day in 2011 to 6,986 barrels per day in 2012 essentially due to more downtime for maintenance at the terra nova field and well decline at the hibernia field . synthetic oil production of 13,830 barrels per day in 2012 slightly exceeded 2011 volumes of 13,498 per day . crude oil and liquids production in malaysia averaged 52,663 barrels per day in 2012 , up from 48,551 barrels per day in 2011 , with the increase mainly due to additional wells brought on production at the kikeh field . oil production in republic of the congo fell to 2,078 barrels per day in 2012 after averaging 4,989 barrels per day in 2011 , with the reduction due to a well that went off production during 2012 and normal decline at other wells in the field . crude oil production in the u.k. was 3,458 barrels per day in 2012 compared to 2,423 barrels per day in 2011. the u.k. increase in 2012 was primarily at schiehallion , where better overall performance more than offset lower volumes at mungo/monan . expected sales of all u.k. oil and natural gas operations in early 2013 led the company to report these u.k. e & p activities as discontinued operations for all periods presented in the consolidated financial statements . united states oil production decreased from 20,114 barrels per day in 2010 to 17,148 barrels per day in 2011 with the lower volumes mostly caused by field decline at thunder hawk that was primarily due to a delay in development drilling operations in 2010 and 2011 following the macondo incident in april 2010. the production decline at thunder hawk was partially offset by higher oil volumes produced in 2011 at the eagle ford shale area in south texas . production of heavy oil in western canada was 7,264 barrels per day in 2011 , up from 5,988 barrels per day in 2010 , primarily due to ongoing drilling operations at the seal area in alberta . oil production offshore canada fell from 11,497 barrels per day in 2010 to 9,204 barrels per day in 2011 primarily due to field decline at terra nova and a reduction of the company 's working interest at this field from 12.0 % in 2010 to 10.475 % in 2011. synthetic oil operations at syncrude had net production of 13,498 barrels per day in 2011 , up from 13,273 barrels per day in 2010 , with the increase caused by a lower royalty rate in 2011 due to higher costs incurred for the operations . oil production in malaysia decreased from 66,897 barrels per day in 2010 to 48,551 barrels per day in 2011 , primarily due to lower production at the kikeh field . mechanical issues at kikeh led to certain wells being down for a portion of 2011. oil production in malaysia was favorably affected in 2011 by higher condensate and other gas liquids produced at gas fields offshore sarawak . the azurite field offshore republic of the congo averaged 4,989 barrels per day in 2011 , down from 5,820 barrels per day in 2010 due to faster than expected well decline . oil production from discontinued operations in the u.k. was 2,423 barrels per day in 2011 , down from 3,295 barrels per day in 2010 , with the decline primarily due to more downtime at the schiehallion and mungo/monan fields during the later year . worldwide sales of natural gas were a company record 490.1 million cubic feet ( mmcf ) per day in 2012 , after averaging 457.4 mmcf per day in 2011 and 356.8 mmcf per day in 2010. natural gas sales volumes in the u.s. were 53.0 mmcf per day in 2012 , up from 2011 production of 47.2 mmcf per day as higher production in the eagle ford shale area more than offset declines at fields in the gulf of mexico . natural gas volumes in western canada increased from 188.8 mmcf per day in 2011 to 217.0 mmcf per day in 2012 essentially due to higher gas volumes produced at the tupper area , as more wells were on production at tupper west during
| net cash used in investing activities increased $ 29.1 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to a $ 24.2 million increase in payments on acquisitions , net of cash acquired , as a result of our purchase of praxify . we expect to continue to invest in capitalized software costs as we continue to develop new and enhance existing services and in property and equipment as we continue to grow . financing cash flow activities the increase in net cash used in financing activities was $ 18.1 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily due to an additional $ 11.3 million in principal payments on our 2015 senior credit facility in the year ended december 31 , 2017 . in addition , net cash used in financing activities increased $ 9.0 million , as we no longer present excess tax benefits within cash flows from financing activities but instead present these cash flows in cash flows from operating activities in the consolidated statements of cash flows , per a change in accounting guidance we adopted january 1 , 2017. for the foreseeable future , we anticipate that income taxes paid for the net settlement of restricted stock unit awards will be greater than the cash received for stock option exercises due to our stock price and theincrease in the issuance of restricted stock units compared to stock options .
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while the 2011 prices of wti crude oil rose almost 20 % compared to the prior year , crude oil sold based on other worldwide benchmark prices , such as brent and tapis , rose even more than wti in that year . the 2011 rise in prices of wti crude oil , which is only used as a benchmark in north america , was held back compared to other worldwide benchmark price increases due to a somewhat temporary crude oil dislocation discount and a bit of supply/demand disparity in the continental u.s. during 2011. the disparity between crude oil and natural gas prices in north america continued to widen during both 2012 and 2011 on an energy equivalent basis due to gas production growth that exceeded demand . u.s. crude oil prices in early 2013 have been similar to 2012 average prices , while natural gas prices in north america in 2013 have thus far been slightly above the 2012 levels due to cold temperatures across much of the northern u.s. during the early winter season . 27 results of operations murphy oil 's results of operations , with associated diluted earnings per share ( eps ) , for the last three years are presented in the following table . replace_table_token_13_th murphy oil 's net income in 2012 increased 11 % compared to 2011 primarily due to higher earnings for continuing exploration and production ( e & p ) operations , partially offset by lower earnings for continuing refining and marketing operations ( r & m ) , lower income from discontinued operations , and higher net costs of corporate activities that were not allocated to operating segments . net income in 2011 was 9 % higher than 2010 , with the improvement primarily attributable to better earnings for r & m continuing operations , higher income from discontinued operations , which was essentially attributable to strong u.s. refining results prior to sale of these assets , and lower net costs for corporate activities . lower e & p earnings for continuing operations in 2011 , primarily associated with a large impairment charge in republic of the congo , somewhat offset these favorable results in other areas . further explanations of each of these variances are found in more detail in the following sections . 2012 vs. 2011 net income in 2012 was $ 970.9 million ( $ 4.99 per diluted share ) compared to $ 872.7 million ( $ 4.49 per diluted share ) in 2011. income from continuing operations was $ 964.1 million ( $ 4.95 per diluted share ) in 2012 , up from $ 729.5 million ( $ 3.75 per diluted share ) in 2011. earnings for 2012 increased primarily due to a combination of lower impairment charges , income tax benefits , higher crude oil sales volumes , lower exploration expenses and higher u.k. r & m earnings . these were partially offset by lower north american natural gas sales prices , lower u.s. retail marketing margins , and unfavorable effects of foreign exchange compared to the prior year . net income in 2012 and 2011 included income from discontinued operations of $ 6.8 million ( $ 0.04 per diluted share ) and $ 143.2 million ( $ 0.74 per diluted share ) , respectively . the stronger results for discontinued operations in 2011 were primarily associated with operating income and a net gain on disposal of two u.s. refineries ( meraux , louisiana and superior , wisconsin ) and associated marketing assets which were sold in 2011. by business unit , e & p income from continuing operations improved $ 290.8 million in 2012 , primarily due to higher crude oil production , lower impairment expense in republic of the congo , income tax benefits associated with exploration activities in republic of the congo and suriname , and lower exploration expenses . e & p operating results were unfavorably affected in 2012 compared to the prior year by lower north american natural gas sales prices and higher expenses for production , depreciation and administration . income from r & m continuing operations was $ 32.7 million lower in 2012 , with the reduction mostly attributable to lower earnings , including an impairment charge , for u.s. ethanol production operations , plus lower u.s. retail fuel margins , with these more than offsetting significantly better u.k. refining margins in the current year . the net costs of corporate activities were higher by $ 23.5 million in 2012 , mostly attributable to unfavorable effects of transactions denominated in foreign currencies . to a lesser degree , the 2012 corporate net costs were unfavorably affected by lower interest income and higher administrative expenses . sales and other operating revenues grew $ 1.0 billion in 2012 compared to 2011 due to higher crude oil sales volumes for the e & p business , plus slightly larger sales volumes for both the u.s. and u.k. r & m continuing operations . gain ( loss ) on sale of assets was $ 23.9 million less in 2012 than 2011 because the earlier year 28 included a $ 23.1 million gain on sale of natural gas storage assets in spain . interest and other operating income was unfavorable by $ 22.0 million in 2012 compared to 2011 mostly due to an $ 18.4 million unfavorable pretax variance from the effects of transactions denominated in foreign currencies , plus interest income in 2011 of $ 2.7 million associated with a recovery of federal royalties for certain deepwater gulf of mexico fields . story_separator_special_tag natural gas sales volumes for continuing operations increased 29 % in 2011 and the improvement was primarily attributable to higher gas volumes produced during 2011 at the tupper west area in western canada following start-up in the first quarter of the year . natural gas sales volumes also improved in 2011 at the tupper area in canada and at fields offshore sarawak ; both of these areas had active development programs during 2011. natural gas sales volumes were lower during 2011 at the kikeh field principally due to less volumes produced because of mechanical issues with wells . the results of operations for oil and gas producing activities for each of the last three years are shown by major operating areas on pages f-51 and f-52 of this form 10-k report . average daily production and sales rates and weighted average sales prices are shown on page 5 of the 2012 annual report . a summary of oil and gas revenues , including intersegment sales that are eliminated in the consolidated financial statements , is presented in the following table . replace_table_token_15_th the company 's total crude oil , condensate and natural gas liquids production averaged 112,591 barrels per day in 2012 , compared to 103,160 barrels per day in 2011 and 126,927 barrels per day in 2010 . 32 united states crude oil production averaged 26,090 barrels per day in 2012 , an annual record for the company in the u.s. , and an increase from 17,148 barrels per day in 2011. the u.s. increase was primarily attributable to an ongoing development drilling program in the eagle ford shale area in south texas . heavy oil production in the western canada sedimentary basin of 7,241 barrels per day in 2012 was about flat with 2011. crude oil production offshore canada fell from 9,204 barrels per day in 2011 to 6,986 barrels per day in 2012 essentially due to more downtime for maintenance at the terra nova field and well decline at the hibernia field . synthetic oil production of 13,830 barrels per day in 2012 slightly exceeded 2011 volumes of 13,498 per day . crude oil and liquids production in malaysia averaged 52,663 barrels per day in 2012 , up from 48,551 barrels per day in 2011 , with the increase mainly due to additional wells brought on production at the kikeh field . oil production in republic of the congo fell to 2,078 barrels per day in 2012 after averaging 4,989 barrels per day in 2011 , with the reduction due to a well that went off production during 2012 and normal decline at other wells in the field . crude oil production in the u.k. was 3,458 barrels per day in 2012 compared to 2,423 barrels per day in 2011. the u.k. increase in 2012 was primarily at schiehallion , where better overall performance more than offset lower volumes at mungo/monan . expected sales of all u.k. oil and natural gas operations in early 2013 led the company to report these u.k. e & p activities as discontinued operations for all periods presented in the consolidated financial statements . united states oil production decreased from 20,114 barrels per day in 2010 to 17,148 barrels per day in 2011 with the lower volumes mostly caused by field decline at thunder hawk that was primarily due to a delay in development drilling operations in 2010 and 2011 following the macondo incident in april 2010. the production decline at thunder hawk was partially offset by higher oil volumes produced in 2011 at the eagle ford shale area in south texas . production of heavy oil in western canada was 7,264 barrels per day in 2011 , up from 5,988 barrels per day in 2010 , primarily due to ongoing drilling operations at the seal area in alberta . oil production offshore canada fell from 11,497 barrels per day in 2010 to 9,204 barrels per day in 2011 primarily due to field decline at terra nova and a reduction of the company 's working interest at this field from 12.0 % in 2010 to 10.475 % in 2011. synthetic oil operations at syncrude had net production of 13,498 barrels per day in 2011 , up from 13,273 barrels per day in 2010 , with the increase caused by a lower royalty rate in 2011 due to higher costs incurred for the operations . oil production in malaysia decreased from 66,897 barrels per day in 2010 to 48,551 barrels per day in 2011 , primarily due to lower production at the kikeh field . mechanical issues at kikeh led to certain wells being down for a portion of 2011. oil production in malaysia was favorably affected in 2011 by higher condensate and other gas liquids produced at gas fields offshore sarawak . the azurite field offshore republic of the congo averaged 4,989 barrels per day in 2011 , down from 5,820 barrels per day in 2010 due to faster than expected well decline . oil production from discontinued operations in the u.k. was 2,423 barrels per day in 2011 , down from 3,295 barrels per day in 2010 , with the decline primarily due to more downtime at the schiehallion and mungo/monan fields during the later year . worldwide sales of natural gas were a company record 490.1 million cubic feet ( mmcf ) per day in 2012 , after averaging 457.4 mmcf per day in 2011 and 356.8 mmcf per day in 2010. natural gas sales volumes in the u.s. were 53.0 mmcf per day in 2012 , up from 2011 production of 47.2 mmcf per day as higher production in the eagle ford shale area more than offset declines at fields in the gulf of mexico . natural gas volumes in western canada increased from 188.8 mmcf per day in 2011 to 217.0 mmcf per day in 2012 essentially due to higher gas volumes produced at the tupper area , as more wells were on production at tupper west during
| cash flows operating activities cash provided by operating activities was $ 3.06 billion in 2012 , $ 2.15 billion in 2011 and $ 3.13 billion in 2010. cash flows associated with formerly owned u.s. refineries and the held for sale u.k. oil and gas production business have been classified as discontinued operations in the company 's consolidated financial statements . cash provided by operating activities included cash from these discontinued operations of $ 61.1 million in 2012 , $ 185.5 million in 2011 and $ 159.5 million in 2010. cash provided by continuing operations in 2012 was $ 1.04 billion more than 2011 primarily due to a lower use of cash to build working capital other than cash , higher income from continuing operations in the current year , and higher non-cash expenses for depreciation and deferred taxes in 2012. cash provided by continuing operations in 2011 was 41 $ 1.01 billion less than 2010 primarily due to timing of cash collected and disbursed associated with changes in other working capital balances . cash was primarily used in 2011 to pay down accounts payable for crude oil feedstocks at formerly owned u.s. petroleum refineries and to pay income taxes in the u.s. and malaysia . cash flow from continuing operations in 2010 included cash receipts of $ 286.4 million related to recovery of u.s. federal royalties and associated interest income . the income associated with the royalty recovery was recorded in 2009 , but the cash proceeds were collected in early 2010. cash provided by operating activities was reduced by expenditures for abandonment of oil and gas properties totaling $ 40.4 million in 2012 , $ 21.5 million in 2011 and $ 36.5 million in 2010. operating cash flows were reduced by payments of income taxes of $ 567.0 million in 2012 , $ 938.9 million in 2011 and $ 585.8 million in 2010. the total reductions of operating cash flows for interest paid during the three years ended december 31 , 2012 , 2011 and 2010 were $ 48.7 million , $ 53.3 million and $ 53.9 million , respectively .
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sales into the other markets category decreased over fiscal 2013 and 2014. the industries in this category focus on upgrading overall quality , improving product performance through increased efficiency , prolonging product life and lowering long-term costs . companies in these industries are looking to achieve these goals through the use of `` advanced materials `` which supports the increased use of high-performance alloys in an expanding number of applications . in addition to supporting and expanding the traditional businesses of oil and gas , flue-gas desulphurization in china , automotive and heat treating , the company expects increased levels of activity overall in non-traditional markets such as fuel cells and silicon feed-stock production applications . summary of capital spending the company is nearing completion of a $ 61.0 million investment at two of its u.s. manufacturing facilities . this includes a $ 37.0 million investment to expand by an estimated 60 % the tubular production capacity of specialty titanium and high-performance nickel alloy tubular products at the arcadia , louisiana facility . in addition , the company made an investment of $ 24.0 million to expand by an estimated 20 % its flat products capacity to produce specialty high-performance alloy flat products at the kokomo , indiana facility . both of these projects are in the commissioning stage and are expected to be released for production by the end of the first quarter of fiscal 2015. these capital investments in arcadia and kokomo are expected to improve the company 's ability to service its customers ' increasing demand for specialty products and also continue to improve product quality , improve operating efficiencies and enhance working capital management for all of the company 's products produced at these locations . the company is also implementing a global information technology system . this upgrade is expected to provide the company with an integrated global system , enhanced analysis capability and improved capabilities in capacity planning , inventory management and customer service . to date , the company has spent $ 10.7 million on the project and expects to spend approximately $ 1.8 million in fiscal 2015 for a total of approximately $ 12.5 million . the system is currently in use at the european service centers and has been implemented in the u.s. for general ledger , accounts payable and purchasing . the company 's domestic service center operations , u.s. shipping , order entry , accounts receivable and credit/collections is being implemented in the first quarter of fiscal 2015. the systems upgrade for the main manufacturing operating system is expected to be implemented during the second and third quarters of fiscal 2015. the company 's evaluation of its global service center and distribution continues . the evaluation has included an analysis of the equipment required , the number and geographic locations of these service centers , the services provided and the cost structure , with the objective of enhancing the distribution organization and service center capabilities . the company has entered into a definitive agreement to purchase the assets and operations of leveltek processing , llc located in laporte , indiana . these assets include coil processing capability with stretch leveling and cut-to-length capability . this transaction is expected to close in the second quarter of fiscal 2015. capital spending in fiscal 2014 was $ 39.7 million , and the forecast for capital spending in fiscal 2015 is approximately $ 22.0 million , excluding the above-mentioned acquisition of the leveltek assets . the $ 22.0 million of planned capital spending includes $ 5.0 million to complete the above-mentioned manufacturing expansions as well as the global it system . the remaining $ 17.0 million of planned 37 spending is earmarked for continued upgrades throughout our manufacturing facilities , and this level of spending is considered a maintenance level of spending . gross profit margin trend performance the following tables show net revenue , gross profit margin and gross profit margin percentage for fiscal 2013 and fiscal 2014. replace_table_token_11_th replace_table_token_12_th the gross margin in the fourth quarter of fiscal 2014 was $ 18.9 million or 15.8 % of net revenues , a sequential increase of $ 4.8 million from the $ 14.1 million or 11.1 % of net revenues in the third quarter of fiscal 2014. the margin compression that occurred over the course of fiscal 2013 and the first part of 2014 was primarily related to lower average selling prices resulting from price competition in the marketplace , lower volumes , and the impact of declining raw material prices in prior periods , resulting in higher-cost inventory charged to cost of sales . the margin compression was most pronounced in the first and second quarters of fiscal 2014 , but the pressure on margins began to lessen in the third and fourth quarters of fiscal 2014 due to strengthening of pricing along with an increase in volumes processed through the kokomo mill , which has resulted in improved absorption of fixed costs . gross margin recovery is expected to continue over the course of fiscal 2015 as pricing continues to strengthen and volumes continue to improve . volumes , competition and pricing business conditions appear to be improving . the company 's backlog increased 32.8 % during fiscal 2014. throughout the first quarter and a portion of the second quarter , the company experienced reduced demand and reduced selling prices due to the market price of nickel and increased price competition in the marketplace , particularly in commodity-type alloys . the intense competitive environment required the company to aggressively price orders across all markets , which unfavorably impacted the company 's gross profit margin and net income in those quarters . in addition , sales volumes below mill capacities in the industry reduced mill-direct lead times . the decline in mill-direct lead times , in turn , resulted in downward pressure on prices for service center transactional business , which typically commands a higher price due to faster product availability . story_separator_special_tag million pounds and $ 18.5 million of net revenues , which was not repeated in fiscal 2013. the other markets are project-oriented in general , and it is uncertain whether a similar project will repeat itself in the future . other revenue . other revenue was $ 10.6 million in fiscal 2013 , a decrease of 25.9 % from $ 14.3 million in fiscal 2012. the decrease in other revenue is primarily attributable to approximately $ 2.6 million of reduced conversion sales . cost of sales . cost of sales was $ 409.1 million , or 84.7 % of net revenues , in fiscal 2013 compared to $ 458.7 million , or 79.1 % of net revenues , in fiscal 2012. cost of sales in fiscal 2013 decreased by $ 49.6 million as compared to fiscal 2012 primarily due to lower volume . when volume decreases , the cost of sales as percentage of net revenues increases due to reduced absorption of manufacturing costs . gross profit . as a result of the above factors , gross margin was $ 73.6 million for fiscal 2013 , a decrease of $ 47.2 million from $ 120.8 million in fiscal 2012. gross margin as a percentage of net revenue decreased to 15.3 % in fiscal 2013 as compared to 20.9 % in fiscal 2012. items impacting the gross margin percentage compression include pricing competition , which we estimate impacted gross profit margin percentage by 3.1 points . the remaining 2.5 percentage point compression is the result of other factors , including higher-cost inventory in cost of sales relative to lower raw material market prices that drive the sales price and unfavorable absorption of fixed costs . selling , general and administrative expense . selling , general and administrative expense was $ 38.2 million for fiscal 2013 , a decrease of $ 2.5 million , or 6.1 % , from $ 40.7 million in fiscal 2012. selling , general and administrative expense reductions were primarily due to reduced costs for incentive compensation programs . selling , general and administrative expenses as a percentage of net revenues increased to 7.9 % for fiscal 2013 , compared to 7.0 % for fiscal 2012 due to decreased revenues . research and technical expense . research and technical expense was $ 3.5 million , or 0.7 % of revenue , for fiscal 2013 , an increase of $ 0.2 million , or 6.7 % , from $ 3.3 million , or 0.6 % of net revenues , in fiscal 2012. operating income . as a result of the above factors , operating income in fiscal 2013 was $ 32.0 million , compared to operating income of $ 77.0 million in fiscal 2012. income taxes . income tax expense was $ 10.4 million in fiscal 2013 , a decrease of $ 16.4 million from an expense of $ 26.8 million in fiscal 2012 , due primarily to lower pretax income generated in fiscal 2013. the effective tax rate for fiscal 2013 was 32.6 % , compared to 34.8 % in fiscal 2012. during fiscal 2013 , the 46 company 's effective tax rate was lower , primarily due to an increased proportion of taxable earnings in foreign jurisdictions with a lower tax rate and the reversal of certain tax reserves no longer required . net income . as a result of the above factors , net income in fiscal 2013 , was $ 21.6 million , a decrease of $ 28.6 million from net income of $ 50.2 million in fiscal 2012. story_separator_special_tag user-specified tagged table > replace_table_token_19_th ( 1 ) as of september 30 , 2014 , the revolver balance was zero , therefore no interest is due . however , the company is obligated to the bank for unused line fees and quarterly management fees . ( 2 ) the company has a funding obligation to contribute $ 67,752 to the domestic pension plan . these payments will be tax deductible . all benefit payments under the domestic pension plan will come from the plan and not the company . ( 3 ) represents expected other postretirement benefits based upon anticipated timing of payments . inflation or deflation while neither inflation nor deflation has had , nor does the company expect them to have , a material impact on operating results , there can be no assurance that the company 's business will not be affected by inflation or deflation in the future . historically , the company has had the ability to pass on to customers both increases in consumable costs and material costs because of the value-added contribution the material makes to the final product . raw material comprises the most significant portion of the product costs . nickel , cobalt and molybdenum , the primary raw materials used to manufacture the company 's products , all have experienced significant fluctuations in price . in the future , the company may not be able to successfully offset rapid increases in the price of nickel or other raw materials . in the event of raw material price declines , the company 's customers may delay order placement , resulting in lower volumes . in the event that raw material price increases occur that the company is unable to pass on to its customers , its cash flows or results of operations could be materially adversely affected . critical accounting policies and estimates overview management 's discussion and analysis of financial condition and results of operations discusses the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis
| cash flows operating activities cash provided by operating activities was $ 3.06 billion in 2012 , $ 2.15 billion in 2011 and $ 3.13 billion in 2010. cash flows associated with formerly owned u.s. refineries and the held for sale u.k. oil and gas production business have been classified as discontinued operations in the company 's consolidated financial statements . cash provided by operating activities included cash from these discontinued operations of $ 61.1 million in 2012 , $ 185.5 million in 2011 and $ 159.5 million in 2010. cash provided by continuing operations in 2012 was $ 1.04 billion more than 2011 primarily due to a lower use of cash to build working capital other than cash , higher income from continuing operations in the current year , and higher non-cash expenses for depreciation and deferred taxes in 2012. cash provided by continuing operations in 2011 was 41 $ 1.01 billion less than 2010 primarily due to timing of cash collected and disbursed associated with changes in other working capital balances . cash was primarily used in 2011 to pay down accounts payable for crude oil feedstocks at formerly owned u.s. petroleum refineries and to pay income taxes in the u.s. and malaysia . cash flow from continuing operations in 2010 included cash receipts of $ 286.4 million related to recovery of u.s. federal royalties and associated interest income . the income associated with the royalty recovery was recorded in 2009 , but the cash proceeds were collected in early 2010. cash provided by operating activities was reduced by expenditures for abandonment of oil and gas properties totaling $ 40.4 million in 2012 , $ 21.5 million in 2011 and $ 36.5 million in 2010. operating cash flows were reduced by payments of income taxes of $ 567.0 million in 2012 , $ 938.9 million in 2011 and $ 585.8 million in 2010. the total reductions of operating cash flows for interest paid during the three years ended december 31 , 2012 , 2011 and 2010 were $ 48.7 million , $ 53.3 million and $ 53.9 million , respectively .
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sales into the other markets category decreased over fiscal 2013 and 2014. the industries in this category focus on upgrading overall quality , improving product performance through increased efficiency , prolonging product life and lowering long-term costs . companies in these industries are looking to achieve these goals through the use of `` advanced materials `` which supports the increased use of high-performance alloys in an expanding number of applications . in addition to supporting and expanding the traditional businesses of oil and gas , flue-gas desulphurization in china , automotive and heat treating , the company expects increased levels of activity overall in non-traditional markets such as fuel cells and silicon feed-stock production applications . summary of capital spending the company is nearing completion of a $ 61.0 million investment at two of its u.s. manufacturing facilities . this includes a $ 37.0 million investment to expand by an estimated 60 % the tubular production capacity of specialty titanium and high-performance nickel alloy tubular products at the arcadia , louisiana facility . in addition , the company made an investment of $ 24.0 million to expand by an estimated 20 % its flat products capacity to produce specialty high-performance alloy flat products at the kokomo , indiana facility . both of these projects are in the commissioning stage and are expected to be released for production by the end of the first quarter of fiscal 2015. these capital investments in arcadia and kokomo are expected to improve the company 's ability to service its customers ' increasing demand for specialty products and also continue to improve product quality , improve operating efficiencies and enhance working capital management for all of the company 's products produced at these locations . the company is also implementing a global information technology system . this upgrade is expected to provide the company with an integrated global system , enhanced analysis capability and improved capabilities in capacity planning , inventory management and customer service . to date , the company has spent $ 10.7 million on the project and expects to spend approximately $ 1.8 million in fiscal 2015 for a total of approximately $ 12.5 million . the system is currently in use at the european service centers and has been implemented in the u.s. for general ledger , accounts payable and purchasing . the company 's domestic service center operations , u.s. shipping , order entry , accounts receivable and credit/collections is being implemented in the first quarter of fiscal 2015. the systems upgrade for the main manufacturing operating system is expected to be implemented during the second and third quarters of fiscal 2015. the company 's evaluation of its global service center and distribution continues . the evaluation has included an analysis of the equipment required , the number and geographic locations of these service centers , the services provided and the cost structure , with the objective of enhancing the distribution organization and service center capabilities . the company has entered into a definitive agreement to purchase the assets and operations of leveltek processing , llc located in laporte , indiana . these assets include coil processing capability with stretch leveling and cut-to-length capability . this transaction is expected to close in the second quarter of fiscal 2015. capital spending in fiscal 2014 was $ 39.7 million , and the forecast for capital spending in fiscal 2015 is approximately $ 22.0 million , excluding the above-mentioned acquisition of the leveltek assets . the $ 22.0 million of planned capital spending includes $ 5.0 million to complete the above-mentioned manufacturing expansions as well as the global it system . the remaining $ 17.0 million of planned 37 spending is earmarked for continued upgrades throughout our manufacturing facilities , and this level of spending is considered a maintenance level of spending . gross profit margin trend performance the following tables show net revenue , gross profit margin and gross profit margin percentage for fiscal 2013 and fiscal 2014. replace_table_token_11_th replace_table_token_12_th the gross margin in the fourth quarter of fiscal 2014 was $ 18.9 million or 15.8 % of net revenues , a sequential increase of $ 4.8 million from the $ 14.1 million or 11.1 % of net revenues in the third quarter of fiscal 2014. the margin compression that occurred over the course of fiscal 2013 and the first part of 2014 was primarily related to lower average selling prices resulting from price competition in the marketplace , lower volumes , and the impact of declining raw material prices in prior periods , resulting in higher-cost inventory charged to cost of sales . the margin compression was most pronounced in the first and second quarters of fiscal 2014 , but the pressure on margins began to lessen in the third and fourth quarters of fiscal 2014 due to strengthening of pricing along with an increase in volumes processed through the kokomo mill , which has resulted in improved absorption of fixed costs . gross margin recovery is expected to continue over the course of fiscal 2015 as pricing continues to strengthen and volumes continue to improve . volumes , competition and pricing business conditions appear to be improving . the company 's backlog increased 32.8 % during fiscal 2014. throughout the first quarter and a portion of the second quarter , the company experienced reduced demand and reduced selling prices due to the market price of nickel and increased price competition in the marketplace , particularly in commodity-type alloys . the intense competitive environment required the company to aggressively price orders across all markets , which unfavorably impacted the company 's gross profit margin and net income in those quarters . in addition , sales volumes below mill capacities in the industry reduced mill-direct lead times . the decline in mill-direct lead times , in turn , resulted in downward pressure on prices for service center transactional business , which typically commands a higher price due to faster product availability . story_separator_special_tag million pounds and $ 18.5 million of net revenues , which was not repeated in fiscal 2013. the other markets are project-oriented in general , and it is uncertain whether a similar project will repeat itself in the future . other revenue . other revenue was $ 10.6 million in fiscal 2013 , a decrease of 25.9 % from $ 14.3 million in fiscal 2012. the decrease in other revenue is primarily attributable to approximately $ 2.6 million of reduced conversion sales . cost of sales . cost of sales was $ 409.1 million , or 84.7 % of net revenues , in fiscal 2013 compared to $ 458.7 million , or 79.1 % of net revenues , in fiscal 2012. cost of sales in fiscal 2013 decreased by $ 49.6 million as compared to fiscal 2012 primarily due to lower volume . when volume decreases , the cost of sales as percentage of net revenues increases due to reduced absorption of manufacturing costs . gross profit . as a result of the above factors , gross margin was $ 73.6 million for fiscal 2013 , a decrease of $ 47.2 million from $ 120.8 million in fiscal 2012. gross margin as a percentage of net revenue decreased to 15.3 % in fiscal 2013 as compared to 20.9 % in fiscal 2012. items impacting the gross margin percentage compression include pricing competition , which we estimate impacted gross profit margin percentage by 3.1 points . the remaining 2.5 percentage point compression is the result of other factors , including higher-cost inventory in cost of sales relative to lower raw material market prices that drive the sales price and unfavorable absorption of fixed costs . selling , general and administrative expense . selling , general and administrative expense was $ 38.2 million for fiscal 2013 , a decrease of $ 2.5 million , or 6.1 % , from $ 40.7 million in fiscal 2012. selling , general and administrative expense reductions were primarily due to reduced costs for incentive compensation programs . selling , general and administrative expenses as a percentage of net revenues increased to 7.9 % for fiscal 2013 , compared to 7.0 % for fiscal 2012 due to decreased revenues . research and technical expense . research and technical expense was $ 3.5 million , or 0.7 % of revenue , for fiscal 2013 , an increase of $ 0.2 million , or 6.7 % , from $ 3.3 million , or 0.6 % of net revenues , in fiscal 2012. operating income . as a result of the above factors , operating income in fiscal 2013 was $ 32.0 million , compared to operating income of $ 77.0 million in fiscal 2012. income taxes . income tax expense was $ 10.4 million in fiscal 2013 , a decrease of $ 16.4 million from an expense of $ 26.8 million in fiscal 2012 , due primarily to lower pretax income generated in fiscal 2013. the effective tax rate for fiscal 2013 was 32.6 % , compared to 34.8 % in fiscal 2012. during fiscal 2013 , the 46 company 's effective tax rate was lower , primarily due to an increased proportion of taxable earnings in foreign jurisdictions with a lower tax rate and the reversal of certain tax reserves no longer required . net income . as a result of the above factors , net income in fiscal 2013 , was $ 21.6 million , a decrease of $ 28.6 million from net income of $ 50.2 million in fiscal 2012. story_separator_special_tag user-specified tagged table > replace_table_token_19_th ( 1 ) as of september 30 , 2014 , the revolver balance was zero , therefore no interest is due . however , the company is obligated to the bank for unused line fees and quarterly management fees . ( 2 ) the company has a funding obligation to contribute $ 67,752 to the domestic pension plan . these payments will be tax deductible . all benefit payments under the domestic pension plan will come from the plan and not the company . ( 3 ) represents expected other postretirement benefits based upon anticipated timing of payments . inflation or deflation while neither inflation nor deflation has had , nor does the company expect them to have , a material impact on operating results , there can be no assurance that the company 's business will not be affected by inflation or deflation in the future . historically , the company has had the ability to pass on to customers both increases in consumable costs and material costs because of the value-added contribution the material makes to the final product . raw material comprises the most significant portion of the product costs . nickel , cobalt and molybdenum , the primary raw materials used to manufacture the company 's products , all have experienced significant fluctuations in price . in the future , the company may not be able to successfully offset rapid increases in the price of nickel or other raw materials . in the event of raw material price declines , the company 's customers may delay order placement , resulting in lower volumes . in the event that raw material price increases occur that the company is unable to pass on to its customers , its cash flows or results of operations could be materially adversely affected . critical accounting policies and estimates overview management 's discussion and analysis of financial condition and results of operations discusses the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis
| liquidity and capital resources comparative cash flow analysis during fiscal 2014 , the company 's primary sources of cash were cash on-hand and cash from operations , as detailed below . at september 30 , 2014 , the company had cash and cash equivalents of $ 45.9 million compared to cash and cash equivalents of $ 68.3 million at september 30 , 2013. as of september 30 , 2014 , the company had cash and cash equivalents of $ 9.1 million that was held by foreign subsidiaries in various currencies . all of this amount is readily convertible to u.s. dollars . net cash provided by operating activities was $ 26.9 million in fiscal 2014 compared to $ 73.4 million in fiscal 2013. net income of $ 3.8 million in fiscal 2014 was $ 17.8 million lower than the $ 21.6 million reported in fiscal 2013. cash used from higher inventories was $ 22.3 million as compared to fiscal 2013 cash generated of $ 31.5 million , a change of $ 53.8 million . additionally , cash generated from lower accounts receivable was $ 9.9 million compared to cash generated by accounts receivable of $ 18.6 million in fiscal 2013 , a change of $ 8.7 million . cash generated from accounts payable and accrued expenses of $ 15.7 million compared to cash used in accounts payable and accrued expenses of $ 12.2 million in fiscal 2013 , a change of $ 27.9 million . additionally , the cash used in accrued pension and postretirement benefits of $ 6.1 million was $ 14.1 million less than the cash used in accrued pension and postretirement benefits in fiscal 2013 of $ 20.2 million . this reduction of $ 14.1 million is primarily a result of the company 's evaluation of its alternatives for cash deployment in fiscal 2014. given the business conditions in fiscal 2014 , the company elected to minimize funding for a majority of the fiscal year because it had met its funding requirements for that time .
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facilitate the future orderly resolution of large financial institutions ; changes in central banks ' policies with respect to the provision or removal of liquidity support to financial markets ; the ability of hsbc holdings plc ( `` hsbc `` and , together with its subsidiaries , `` hsbc group `` ) and hsbc bank usa , national association ( together with its subsidiaries , `` hsbc bank usa `` ) to fulfill the requirements imposed by applicable consent orders or guidance from regulators generally ; the use of us as a conduit for illegal activities without our knowledge by third parties ; the ability to successfully manage our risks ; the possibility of the inadequacy of our data management and policies and processes ; 36 hsbc usa inc. the financial condition of our clients and counterparties and our ability to manage counterparty risk ; concentrations of credit and market risk ; increases in our allowance for credit losses and changes in our assessment of our loan portfolios ; the ability to successfully implement changes to our operational practices as needed and or required from time to time ; damage to our reputation ; the ability to attract or retain key employees , including foreign workers , and customers ; the effects of competition in the markets where we operate including increased competition from non-bank financial services companies , including securities firms ; the effects of operational risks that are inherent in banking operations , including fraudulent and other criminal activities , breakdowns in processes or procedures and systems failure or non-availability ; disruption in our operations from the external environment arising from events such as natural disasters , climate change , outbreaks of contagious disease , acts of war , terrorist attacks , or essential utility outages ; a failure in or a breach of our operation or security systems or infrastructure , or those of third party servicers or vendors , including as a result of cyberattacks ; the ability of third party suppliers , outsourcing vendors , off-shored functions and our affiliates to provide adequate services ; losses suffered due to the negligence , fraud or misconduct of our employees or the negligence , fraud or misconduct on the part of third parties ; a failure in our internal controls ; our ability to meet our funding requirements ; adverse changes to our credit ratings ; financial difficulties or credit downgrades of mortgage bond insurers ; changes in financial accounting standards board ( `` fasb `` ) and international accounting standards board ( `` iasb `` ) accounting standards and their interpretation ; heightened regulatory and government enforcement scrutiny of financial institutions , including in connection with product governance and sales practices , account opening and closing procedures , customer and employee complaints and sales compensation structures related to such practices ; possible negative impact of regulatory investigations and legal proceedings related to alleged foreign exchange manipulation ; changes in the methodology for determining benchmark rates and the implementation of alternative benchmark rates , such as the secured overnight financing rate ( `` sofr `` ) ; heightened regulatory and government enforcement scrutiny of financial markets , with a particular focus on traded asset classes , including foreign exchange ; the possibility of incorrect assumptions or estimates in our financial statements , including reserves related to litigation , deferred tax assets and the fair value of certain assets and liabilities ; model limitations or failure ; the possibility of incorrect interpretations , application of or changes in tax laws to which we and our clients are subject ; the potential for additional financial contribution requirements to the hsbc north america holdings inc. ( `` hsbc north america `` ) pension plan ; unexpected and or increased expenses relating to , among other things , litigation and regulatory matters , remediation efforts , penalties and fines ; and the other risk factors and uncertainties described under item 1a , `` risk factors , `` in this annual report on form 10-k. forward-looking statements are based on our current views and assumptions and speak only as of the date they are made . we undertake no obligation to update any forward-looking statement to reflect subsequent circumstances or events . for more information about factors that could cause actual results to differ materially from those in the forward-looking statements , see item 1a , `` risk factors , `` in this annual report on form 10-k. 37 hsbc usa inc. executive overview hsbc usa is a wholly-owned subsidiary of hsbc north america , which is an indirect wholly-owned subsidiary of hsbc . husi may also be referred to in management 's discussion and analysis of financial condition and results of operations ( `` md & a `` ) as `` we , `` `` us `` or `` our . `` 2020 economic environment the u.s. economy partially rebounded during the second half of 2020 after deteriorating rapidly into recession earlier in the year driven by the covid-19 pandemic which resulted in disruption to business and economic activity as well as to the capital markets . covid-19 's effects in the u.s. and globally have been extreme , and the duration of the pandemic and its ultimate repercussions continue to remain unclear as recently introduced vaccines may not be widely available to the general public for some time and the take-up rate , once available , is uncertain . unprecedented government economic intervention has likely dampened the pandemic 's effects , but at uncertain long-term cost , and additional government support beyond what was enacted in 2020 is currently being considered . story_separator_special_tag in addition , the international swaps and derivatives association updated its benchmark fallback language for new libor-based derivative contracts and established its industry protocol to facilitate the incorporation of the new fallback language into legacy non-cleared derivative contracts . we are adhering to the protocol , which became effective in january 2021. separately , central clearing counterparties are expected to amend their rules no later than the first half of 2021 to incorporate the new fallback language and adhere to the protocol for cleared derivative contracts . our businesses continue to actively develop their capabilities to offer alternative rate products and the supporting processes and systems . during 2020 , we implemented the capabilities to offer sofr-based arm loans in our wealth and personal banking business , sofr-based syndicated loans and real estate bilateral loans in our commercial banking business and sofr-based syndicated loans , bilateral loans and derivatives in our global banking and markets business . additional sofr-based derivative and bilateral loan capabilities are scheduled for implementation in 2021. however , the covid-19 pandemic has impacted the speed at which we are able to develop these capabilities and the readiness of our customers to use alternative rate products . consequently , the sale of libor-based products will continue for longer than initially anticipated . in addition , the covid-19 pandemic has likely affected the pace at which many of our customers will have been preparing to use alternative rate products and , therefore , also to transition their legacy contracts onto replacement rates . the ability of husi and its clients to transition legacy contracts onto replacement rates is dependent on the availability of products that reference replacement rates , including sofr , and on our customers being ready and able to adapt their own processes and systems to accommodate the replacement products . we have finalized pricing and data/workflow requirements related to transitioning legacy contracts onto replacement rates and , during the first quarter of 2021 , will begin to engage our clients to increase awareness , provide alternative products and determine their ability and readiness to transition . we also continue to formulate plans to enable us to transition our libor-based debt and other libor-based debt where we are the payment agent , though execution of these transition plans will , to a certain extent , also depend on the engagement of third party market participants in the transition process . the iba proposal to extend the publication of certain usd libor term rates to june 2023 discussed above will significantly aid in reducing the risks associated with transitioning legacy contracts onto replacement rates . the anticipated longer timeframe for transition may , however , increase potential timing differences between usd libor-based assets and liabilities moving to sofr prior to june 2023. in addition , the exit or transfer of certain derivative contracts as part of our restructuring plan and the sale of substantially all of our libor-linked variable rate debt securities maturing beyond 2021 have led to a reduction in our libor exposures during 2020. we continue to engage with industry participants , the official sector and our clients to support an orderly transition and the mitigation of the risks resulting from the transition . other covid-19 related developments the covid-19 pandemic has significantly disrupted economic activity in many countries , including the united states , and the u.s. government has taken multiple actions to mitigate the magnitude and persistence of the effects of the covid-19 pandemic . the united states has been operating under a presidentially declared national emergency since march 2020. in march 2020 , the coronavirus aid , relief and economic security act ( `` cares act `` ) , which provides financial assistance for businesses and individuals and targeted regulatory relief for financial institutions , was signed into law . in december 2020 , additional covid-19 relief legislation was enacted that extends many of the cares act programs and provides additional financial assistance for businesses and individuals . loan forbearance initiatives the cares act created a forbearance program for federally-backed mortgage loans and provided financial institutions with the option to temporarily suspend certain requirements under u.s. gaap related to troubled debt restructurings ( `` tdr loans `` ) beginning march 1 , 2020. this tdr loan guidance has been extended and can now be applied until the earlier of january 1 , 2022 or 60 days following the termination of the presidentially declared national emergency . during the third quarter of 2020 , we elected to adopt the tdr loan guidance in the cares act and are not applying tdr loan classification to covid-19 related loan modifications in the form of a long-term payment deferral ( for commercial loans all payment modifications , including all payment deferrals ) granted to borrowers that were current ( less than 30 days past due ) as of december 31 , 2019 which otherwise may have been reported as tdr loans . the cares act also prohibits servicers of federally-backed mortgage loans from initiating any foreclosure action on any residential property that is not vacant or abandoned for a period of 60 days . this moratorium has been extended until june 30 , 2021. in addition to these federal measures , some state governments have taken action to require forbearance with respect to certain loans and fees . we 41 hsbc usa inc. are continuing to monitor federal , state and international regulatory developments in relation to covid-19 and their potential impact on our operations . in april 2020 , federal banking regulators issued a revised interagency statement on loan modifications and the reporting for financial institutions working with customers affected by the covid-19 pandemic ( `` interagency statement `` ) . the interagency statement confirmed that covid-19 related short-term loan modifications ( e.g . , payment deferrals of six months or less ) provided to borrowers that were current ( less than 30 days past due ) at the time the relief was granted are
| liquidity and capital resources comparative cash flow analysis during fiscal 2014 , the company 's primary sources of cash were cash on-hand and cash from operations , as detailed below . at september 30 , 2014 , the company had cash and cash equivalents of $ 45.9 million compared to cash and cash equivalents of $ 68.3 million at september 30 , 2013. as of september 30 , 2014 , the company had cash and cash equivalents of $ 9.1 million that was held by foreign subsidiaries in various currencies . all of this amount is readily convertible to u.s. dollars . net cash provided by operating activities was $ 26.9 million in fiscal 2014 compared to $ 73.4 million in fiscal 2013. net income of $ 3.8 million in fiscal 2014 was $ 17.8 million lower than the $ 21.6 million reported in fiscal 2013. cash used from higher inventories was $ 22.3 million as compared to fiscal 2013 cash generated of $ 31.5 million , a change of $ 53.8 million . additionally , cash generated from lower accounts receivable was $ 9.9 million compared to cash generated by accounts receivable of $ 18.6 million in fiscal 2013 , a change of $ 8.7 million . cash generated from accounts payable and accrued expenses of $ 15.7 million compared to cash used in accounts payable and accrued expenses of $ 12.2 million in fiscal 2013 , a change of $ 27.9 million . additionally , the cash used in accrued pension and postretirement benefits of $ 6.1 million was $ 14.1 million less than the cash used in accrued pension and postretirement benefits in fiscal 2013 of $ 20.2 million . this reduction of $ 14.1 million is primarily a result of the company 's evaluation of its alternatives for cash deployment in fiscal 2014. given the business conditions in fiscal 2014 , the company elected to minimize funding for a majority of the fiscal year because it had met its funding requirements for that time .
| 0 |
facilitate the future orderly resolution of large financial institutions ; changes in central banks ' policies with respect to the provision or removal of liquidity support to financial markets ; the ability of hsbc holdings plc ( `` hsbc `` and , together with its subsidiaries , `` hsbc group `` ) and hsbc bank usa , national association ( together with its subsidiaries , `` hsbc bank usa `` ) to fulfill the requirements imposed by applicable consent orders or guidance from regulators generally ; the use of us as a conduit for illegal activities without our knowledge by third parties ; the ability to successfully manage our risks ; the possibility of the inadequacy of our data management and policies and processes ; 36 hsbc usa inc. the financial condition of our clients and counterparties and our ability to manage counterparty risk ; concentrations of credit and market risk ; increases in our allowance for credit losses and changes in our assessment of our loan portfolios ; the ability to successfully implement changes to our operational practices as needed and or required from time to time ; damage to our reputation ; the ability to attract or retain key employees , including foreign workers , and customers ; the effects of competition in the markets where we operate including increased competition from non-bank financial services companies , including securities firms ; the effects of operational risks that are inherent in banking operations , including fraudulent and other criminal activities , breakdowns in processes or procedures and systems failure or non-availability ; disruption in our operations from the external environment arising from events such as natural disasters , climate change , outbreaks of contagious disease , acts of war , terrorist attacks , or essential utility outages ; a failure in or a breach of our operation or security systems or infrastructure , or those of third party servicers or vendors , including as a result of cyberattacks ; the ability of third party suppliers , outsourcing vendors , off-shored functions and our affiliates to provide adequate services ; losses suffered due to the negligence , fraud or misconduct of our employees or the negligence , fraud or misconduct on the part of third parties ; a failure in our internal controls ; our ability to meet our funding requirements ; adverse changes to our credit ratings ; financial difficulties or credit downgrades of mortgage bond insurers ; changes in financial accounting standards board ( `` fasb `` ) and international accounting standards board ( `` iasb `` ) accounting standards and their interpretation ; heightened regulatory and government enforcement scrutiny of financial institutions , including in connection with product governance and sales practices , account opening and closing procedures , customer and employee complaints and sales compensation structures related to such practices ; possible negative impact of regulatory investigations and legal proceedings related to alleged foreign exchange manipulation ; changes in the methodology for determining benchmark rates and the implementation of alternative benchmark rates , such as the secured overnight financing rate ( `` sofr `` ) ; heightened regulatory and government enforcement scrutiny of financial markets , with a particular focus on traded asset classes , including foreign exchange ; the possibility of incorrect assumptions or estimates in our financial statements , including reserves related to litigation , deferred tax assets and the fair value of certain assets and liabilities ; model limitations or failure ; the possibility of incorrect interpretations , application of or changes in tax laws to which we and our clients are subject ; the potential for additional financial contribution requirements to the hsbc north america holdings inc. ( `` hsbc north america `` ) pension plan ; unexpected and or increased expenses relating to , among other things , litigation and regulatory matters , remediation efforts , penalties and fines ; and the other risk factors and uncertainties described under item 1a , `` risk factors , `` in this annual report on form 10-k. forward-looking statements are based on our current views and assumptions and speak only as of the date they are made . we undertake no obligation to update any forward-looking statement to reflect subsequent circumstances or events . for more information about factors that could cause actual results to differ materially from those in the forward-looking statements , see item 1a , `` risk factors , `` in this annual report on form 10-k. 37 hsbc usa inc. executive overview hsbc usa is a wholly-owned subsidiary of hsbc north america , which is an indirect wholly-owned subsidiary of hsbc . husi may also be referred to in management 's discussion and analysis of financial condition and results of operations ( `` md & a `` ) as `` we , `` `` us `` or `` our . `` 2020 economic environment the u.s. economy partially rebounded during the second half of 2020 after deteriorating rapidly into recession earlier in the year driven by the covid-19 pandemic which resulted in disruption to business and economic activity as well as to the capital markets . covid-19 's effects in the u.s. and globally have been extreme , and the duration of the pandemic and its ultimate repercussions continue to remain unclear as recently introduced vaccines may not be widely available to the general public for some time and the take-up rate , once available , is uncertain . unprecedented government economic intervention has likely dampened the pandemic 's effects , but at uncertain long-term cost , and additional government support beyond what was enacted in 2020 is currently being considered . story_separator_special_tag in addition , the international swaps and derivatives association updated its benchmark fallback language for new libor-based derivative contracts and established its industry protocol to facilitate the incorporation of the new fallback language into legacy non-cleared derivative contracts . we are adhering to the protocol , which became effective in january 2021. separately , central clearing counterparties are expected to amend their rules no later than the first half of 2021 to incorporate the new fallback language and adhere to the protocol for cleared derivative contracts . our businesses continue to actively develop their capabilities to offer alternative rate products and the supporting processes and systems . during 2020 , we implemented the capabilities to offer sofr-based arm loans in our wealth and personal banking business , sofr-based syndicated loans and real estate bilateral loans in our commercial banking business and sofr-based syndicated loans , bilateral loans and derivatives in our global banking and markets business . additional sofr-based derivative and bilateral loan capabilities are scheduled for implementation in 2021. however , the covid-19 pandemic has impacted the speed at which we are able to develop these capabilities and the readiness of our customers to use alternative rate products . consequently , the sale of libor-based products will continue for longer than initially anticipated . in addition , the covid-19 pandemic has likely affected the pace at which many of our customers will have been preparing to use alternative rate products and , therefore , also to transition their legacy contracts onto replacement rates . the ability of husi and its clients to transition legacy contracts onto replacement rates is dependent on the availability of products that reference replacement rates , including sofr , and on our customers being ready and able to adapt their own processes and systems to accommodate the replacement products . we have finalized pricing and data/workflow requirements related to transitioning legacy contracts onto replacement rates and , during the first quarter of 2021 , will begin to engage our clients to increase awareness , provide alternative products and determine their ability and readiness to transition . we also continue to formulate plans to enable us to transition our libor-based debt and other libor-based debt where we are the payment agent , though execution of these transition plans will , to a certain extent , also depend on the engagement of third party market participants in the transition process . the iba proposal to extend the publication of certain usd libor term rates to june 2023 discussed above will significantly aid in reducing the risks associated with transitioning legacy contracts onto replacement rates . the anticipated longer timeframe for transition may , however , increase potential timing differences between usd libor-based assets and liabilities moving to sofr prior to june 2023. in addition , the exit or transfer of certain derivative contracts as part of our restructuring plan and the sale of substantially all of our libor-linked variable rate debt securities maturing beyond 2021 have led to a reduction in our libor exposures during 2020. we continue to engage with industry participants , the official sector and our clients to support an orderly transition and the mitigation of the risks resulting from the transition . other covid-19 related developments the covid-19 pandemic has significantly disrupted economic activity in many countries , including the united states , and the u.s. government has taken multiple actions to mitigate the magnitude and persistence of the effects of the covid-19 pandemic . the united states has been operating under a presidentially declared national emergency since march 2020. in march 2020 , the coronavirus aid , relief and economic security act ( `` cares act `` ) , which provides financial assistance for businesses and individuals and targeted regulatory relief for financial institutions , was signed into law . in december 2020 , additional covid-19 relief legislation was enacted that extends many of the cares act programs and provides additional financial assistance for businesses and individuals . loan forbearance initiatives the cares act created a forbearance program for federally-backed mortgage loans and provided financial institutions with the option to temporarily suspend certain requirements under u.s. gaap related to troubled debt restructurings ( `` tdr loans `` ) beginning march 1 , 2020. this tdr loan guidance has been extended and can now be applied until the earlier of january 1 , 2022 or 60 days following the termination of the presidentially declared national emergency . during the third quarter of 2020 , we elected to adopt the tdr loan guidance in the cares act and are not applying tdr loan classification to covid-19 related loan modifications in the form of a long-term payment deferral ( for commercial loans all payment modifications , including all payment deferrals ) granted to borrowers that were current ( less than 30 days past due ) as of december 31 , 2019 which otherwise may have been reported as tdr loans . the cares act also prohibits servicers of federally-backed mortgage loans from initiating any foreclosure action on any residential property that is not vacant or abandoned for a period of 60 days . this moratorium has been extended until june 30 , 2021. in addition to these federal measures , some state governments have taken action to require forbearance with respect to certain loans and fees . we 41 hsbc usa inc. are continuing to monitor federal , state and international regulatory developments in relation to covid-19 and their potential impact on our operations . in april 2020 , federal banking regulators issued a revised interagency statement on loan modifications and the reporting for financial institutions working with customers affected by the covid-19 pandemic ( `` interagency statement `` ) . the interagency statement confirmed that covid-19 related short-term loan modifications ( e.g . , payment deferrals of six months or less ) provided to borrowers that were current ( less than 30 days past due ) at the time the relief was granted are
| liquidity and capital resources effective liquidity management is defined as ensuring we can meet customer loan requests , customer deposit maturities/withdrawals and other cash commitments efficiently under both normal operating conditions and under unpredictable circumstances of industry or market stress . to achieve this objective , we have guidelines that require sufficient liquidity to cover potential funding requirements and to avoid over-dependence on volatile , less reliable funding markets . guidelines are set for the consolidated balance sheet of hsbc usa to ensure that it is a source of strength for our regulated , deposit-taking banking subsidiary , as well as to address the more limited sources of liquidity available to it as a holding company . similar guidelines are set for hsbc bank usa to ensure that it can meet its liquidity needs in various stress scenarios . cash flow analysis , including stress testing scenarios , forms the basis for liquidity management and contingency funding plans . see `` risk management '' in this md & a for further discussion of our approach towards liquidity and funding risk management , including information regarding the key measures employed to define , monitor and control our liquidity and funding risk . during 2020 , the covid-19 pandemic caused disruption to the financial markets as well as business and economic activity . we continue to actively monitor and control our liquidity and funding risk in accordance with hsbc policy . to date , we have not experienced any significant impact to our liquidity or funding capabilities as a result of this disruption .
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equipment and supplies , which consists of reselling printing , imaging , and related equipment to customers primarily to architectural , engineering and construction firms . we have expanded our business beyond the services we traditionally provided to the architectural , engineering , construction , and building owner/operator ( aec/o ) industry in the past and are currently focused on growing mps , aim and cdim , as we believe the mix of services demanded by the aec/o industry continues to shift toward document management at customer locations and in the cloud , and away from its historical emphasis on large-format construction drawings produced “ offsite ” in our service centers . we deliver our services via the cloud , through a nationwide network of service centers , regionally-based technical specialists , locally-based sales executives , and a national/regional sales force known as global solutions . based on our analysis of our operating results , we estimate that sales to the aec/o industry accounted for approximately 78 % of our net sales for 2017 , with the remaining 22 % consisting of sales to businesses outside of construction . 21 costs and expenses our cost of sales consists primarily of materials ( paper , toner and other consumables ) , labor , and “ indirect costs ” which consist primarily of equipment expenses related to our mps contracts and our service center facilities . facilities and equipment expenses include maintenance , repairs , rents , insurance , and depreciation . paper is the largest component of our material cost ; however , paper pricing typically does not significantly affect our operating margins due , in part , to our efforts to pass increased costs on to our customers . we closely monitor material cost as a percentage of net sales to measure volume and waste . we also track labor utilization , or net sales per employee , to measure productivity and determine staffing levels . we maintain low levels of inventory . historically , our capital expenditure requirements have varied due to the cost and availability of capital lease lines of credit . our relationships with credit providers has provided attractive lease rates over the past two years , and as a result , we chose to lease rather than purchase equipment in a significant portion of our engagements . research and development costs consist mainly of the salaries , leased building space , and computer equipment that comprises our data storage and development centers in fremont , california and kolkata , india . such costs are primarily recorded to cost of sales . 22 results of operations replace_table_token_4_th ( 1 ) column does not foot due to rounding . ( 2 ) see `` non-gaap financial measures `` following `` results of operations `` for more information related to our non-gaap disclosures . 23 the following table provides information on the percentages of certain items of selected financial data as a percentage of net sales for the periods indicated : replace_table_token_5_th ( 1 ) column does not foot due to rounding . ( 2 ) see `` non-gaap financial measures `` following `` results of operations `` for more information related to our non-gaap disclosures . fiscal year ended december 31 , 2017 compared to fiscal year ended december 31 , 2016 net sales net sales in 2017 decrease d 2.9 % , compared to 2016 . the decrease in net sales was due primarily to declines in our print-based service offerings . cdim . cdim services in 2017 decrease d $ 7.4 million , or 3.5 % , compared to 2016 . the decrease in sales of cdim services was primarily due to the continued but moderating reduction in demand for printed construction drawings and related services driven by the ongoing adoption of technology replacing traditional print-based service offerings , and softness in our color imaging sales . also contributing to the decline in sales of cdim for the year was the extended closure of our service centers in the southeastern u.s. which were impacted by hurricanes during the third quarter of 2017. cdim services represented 52 % of total net sales for both 2017 and 2016 . mps . mps services in 2017 decrease d $ 2.3 million or 1.7 % , due to the decline in print volumes from existing customers . the decline in print volumes was driven in part by the continued optimization of our customers ' in-house print environment partially offset by new customer acquisitions . our mps offering delivers value to its customers by optimizing their print infrastructure , which in turn , will lower their print volume over time . sales reductions associated with a decline in print volume are typically offset by new customer acquisitions and expansion of mps services within existing customers . revenues from mps services sales represented approximately 33 % of total net sales for 2017 , compared to approximately 32 % during 2016 . the number of mps accounts has grown to approximately 10,100 as of december 31 , 2017 , an increase of approximately 700 locations compared to december 31 , 2016 . while mps is subject to temporary performance fluctuations based on the loss or acquisition of large clients , we believe there is an opportunity for mps sales growth in the future due to the value that we bring to our customers and the desire to reduce costs in the aec/o industry . 24 aim . year-over-year sales of aim services decreased by $ 1.3 million , or 9.0 % , in 2017 , compared to 2016 . the sales decline was primarily driven by a reorganization in our sales staff which we believe caused a temporary decline in aim sales during 2017. we are driving an expansion of our addressable market for aim by targeting building owners and facilities managers that require on-demand legacy documents to operate their assets efficiently . equipment and supplies sales . story_separator_special_tag the adjustment of ebitda for these items is consistent with the definition of adjusted ebitda in our credit agreement ; therefore , we believe this information is useful to investors in assessing our financial performance . the following is a reconciliation of cash flows provided by operating activities to ebitda : replace_table_token_7_th 29 the following is a reconciliation of net ( loss ) income attributable to arc document solutions , inc. shareholders to ebitda and adjusted ebitda : replace_table_token_8_th the following is a reconciliation of net ( loss ) income margin attributable to arc to ebitda margin and adjusted ebitda margin : replace_table_token_9_th ( 1 ) column does not foot due to rounding . 30 the following is a reconciliation of ebitda to net income ( loss ) for each respective quarter . replace_table_token_10_th the following is a reconciliation of net ( loss ) income attributable to arc document solutions , inc. shareholders to adjusted net income and adjusted earnings per share attributable to arc document solutions , inc. shareholders : replace_table_token_11_th liquidity and capital resources our principal sources of cash have been operations and borrowings under our debt and lease agreements . our recent historical uses of cash have been for ongoing operations , payment of principal and interest on outstanding debt obligations , capital expenditures and stock repurchases . total cash and cash equivalents as of december 31 , 2017 was $ 28.1 million . of this amount , $ 14.6 million was held in foreign countries , with $ 11.9 million held in china . repatriation of some of our cash and cash equivalents in foreign countries could be subject to delay for local country approvals and could have potential adverse tax consequences . as a result of holding cash and cash equivalents outside of the u.s. , our financial flexibility may be reduced . 31 supplemental information pertaining to our historical sources and uses of cash is presented as follows and should be read in conjunction with our consolidated statements of cash flows and notes thereto included elsewhere in this report . replace_table_token_12_th operating activities cash flows from operations are primarily driven by sales and net profit generated from these sales , excluding non-cash charges . the decrease in cash flows from operations in 2017 was primarily as a result of the decline in profitability , partially offset by the timing of sales and cash collections as well as the timing of cash outlays related to accounts payable and accrued expenses . days sales outstanding ( “ dso ” ) decreased to 53 days as of december 31 , 2017 from 55 days as of december 31 , 2016. we continue our focus on the timely collection of our accounts receivable . the overall decrease in cash flows from operations in 2016 was primarily as a result of the decline in profitability , as well as the timing of sales and cash collections , partially offset by the timing of cash outlays related to accounts payable and accrued expenses and the reduction in our interest expense resulting from the reduction in principal of our credit agreement . investing activities net cash used in investing activities was primarily related to capital expenditures . we incurred capital expenditures totaling $ 9.1 million , $ 12.1 million , and $ 14.2 million in 2017 , 2016 , and 2015 , respectively . the change in capital expenditures from 2016 to 2017 is driven by the timing of equipment purchases , and whether such equipment is leased or purchased with available cash . the decrease in capital expenditures from 2015 to 2016 , was primarily due to our decision to purchase more equipment in the second and third quarters of 2015 rather than leasing equipment to take advantage of vendor rebates . as we continue to foster our relationships with credit providers and obtain attractive lease rates , we have increasingly chosen to lease rather than purchase equipment . financing activities net cash of $ 42.1 million used in financing activities in 2017 primarily relates to payments on our debt agreements and capital leases . the company amended its credit agreement in the third quarter of 2017 resulting in a decrease in required quarterly principal payments on the term loan facility under the credit agreement . in addition , the amendment to the credit agreement increased the maximum aggregate principal amount of revolving loans from $ 30.0 million to $ 80.0 million , and reduced the outstanding principal amount of the term loan under the agreement at $ 60.0 million , although the total principal amount outstanding remained unchanged at $ 110.0 million on the date of the amendment . prior to entering into the amendment to our credit agreement in the third quarter of 2017 , we had paid $ 68.2 million in aggregate principal on our credit agreement . principal prepayments on the credit agreement of $ 14.2 million in 2017 resulted in a loss on extinguishment and modification of debt of $ 0.2 million for 2017 . in addition , we purchased approximately 1.2 million shares of our company 's outstanding common stock for $ 3.4 million pursuant to our stock repurchase program in 2017 . our cash position , working capital , and debt obligations as of december 31 , 2017 and 2016 are shown below and should be read in conjunction with our consolidated balance sheets and notes thereto contained elsewhere in this report . 32 replace_table_token_13_th ( 1 ) net of deferred financing fees of $ 757 and $ 1,039 at december 31 , 2017 and 2016 , respectively . ( 2 ) includes $ 42.3 million of revolving loans outstanding under our credit agreement at december 31 , 2017 . the decrease of $ 5.3 million in working capital in 2017 was primarily due to an increase in the current portion of long-term debt driven by the amendment to our credit agreement in the third quarter of 2017. to manage our working capital
| liquidity and capital resources effective liquidity management is defined as ensuring we can meet customer loan requests , customer deposit maturities/withdrawals and other cash commitments efficiently under both normal operating conditions and under unpredictable circumstances of industry or market stress . to achieve this objective , we have guidelines that require sufficient liquidity to cover potential funding requirements and to avoid over-dependence on volatile , less reliable funding markets . guidelines are set for the consolidated balance sheet of hsbc usa to ensure that it is a source of strength for our regulated , deposit-taking banking subsidiary , as well as to address the more limited sources of liquidity available to it as a holding company . similar guidelines are set for hsbc bank usa to ensure that it can meet its liquidity needs in various stress scenarios . cash flow analysis , including stress testing scenarios , forms the basis for liquidity management and contingency funding plans . see `` risk management '' in this md & a for further discussion of our approach towards liquidity and funding risk management , including information regarding the key measures employed to define , monitor and control our liquidity and funding risk . during 2020 , the covid-19 pandemic caused disruption to the financial markets as well as business and economic activity . we continue to actively monitor and control our liquidity and funding risk in accordance with hsbc policy . to date , we have not experienced any significant impact to our liquidity or funding capabilities as a result of this disruption .
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equipment and supplies , which consists of reselling printing , imaging , and related equipment to customers primarily to architectural , engineering and construction firms . we have expanded our business beyond the services we traditionally provided to the architectural , engineering , construction , and building owner/operator ( aec/o ) industry in the past and are currently focused on growing mps , aim and cdim , as we believe the mix of services demanded by the aec/o industry continues to shift toward document management at customer locations and in the cloud , and away from its historical emphasis on large-format construction drawings produced “ offsite ” in our service centers . we deliver our services via the cloud , through a nationwide network of service centers , regionally-based technical specialists , locally-based sales executives , and a national/regional sales force known as global solutions . based on our analysis of our operating results , we estimate that sales to the aec/o industry accounted for approximately 78 % of our net sales for 2017 , with the remaining 22 % consisting of sales to businesses outside of construction . 21 costs and expenses our cost of sales consists primarily of materials ( paper , toner and other consumables ) , labor , and “ indirect costs ” which consist primarily of equipment expenses related to our mps contracts and our service center facilities . facilities and equipment expenses include maintenance , repairs , rents , insurance , and depreciation . paper is the largest component of our material cost ; however , paper pricing typically does not significantly affect our operating margins due , in part , to our efforts to pass increased costs on to our customers . we closely monitor material cost as a percentage of net sales to measure volume and waste . we also track labor utilization , or net sales per employee , to measure productivity and determine staffing levels . we maintain low levels of inventory . historically , our capital expenditure requirements have varied due to the cost and availability of capital lease lines of credit . our relationships with credit providers has provided attractive lease rates over the past two years , and as a result , we chose to lease rather than purchase equipment in a significant portion of our engagements . research and development costs consist mainly of the salaries , leased building space , and computer equipment that comprises our data storage and development centers in fremont , california and kolkata , india . such costs are primarily recorded to cost of sales . 22 results of operations replace_table_token_4_th ( 1 ) column does not foot due to rounding . ( 2 ) see `` non-gaap financial measures `` following `` results of operations `` for more information related to our non-gaap disclosures . 23 the following table provides information on the percentages of certain items of selected financial data as a percentage of net sales for the periods indicated : replace_table_token_5_th ( 1 ) column does not foot due to rounding . ( 2 ) see `` non-gaap financial measures `` following `` results of operations `` for more information related to our non-gaap disclosures . fiscal year ended december 31 , 2017 compared to fiscal year ended december 31 , 2016 net sales net sales in 2017 decrease d 2.9 % , compared to 2016 . the decrease in net sales was due primarily to declines in our print-based service offerings . cdim . cdim services in 2017 decrease d $ 7.4 million , or 3.5 % , compared to 2016 . the decrease in sales of cdim services was primarily due to the continued but moderating reduction in demand for printed construction drawings and related services driven by the ongoing adoption of technology replacing traditional print-based service offerings , and softness in our color imaging sales . also contributing to the decline in sales of cdim for the year was the extended closure of our service centers in the southeastern u.s. which were impacted by hurricanes during the third quarter of 2017. cdim services represented 52 % of total net sales for both 2017 and 2016 . mps . mps services in 2017 decrease d $ 2.3 million or 1.7 % , due to the decline in print volumes from existing customers . the decline in print volumes was driven in part by the continued optimization of our customers ' in-house print environment partially offset by new customer acquisitions . our mps offering delivers value to its customers by optimizing their print infrastructure , which in turn , will lower their print volume over time . sales reductions associated with a decline in print volume are typically offset by new customer acquisitions and expansion of mps services within existing customers . revenues from mps services sales represented approximately 33 % of total net sales for 2017 , compared to approximately 32 % during 2016 . the number of mps accounts has grown to approximately 10,100 as of december 31 , 2017 , an increase of approximately 700 locations compared to december 31 , 2016 . while mps is subject to temporary performance fluctuations based on the loss or acquisition of large clients , we believe there is an opportunity for mps sales growth in the future due to the value that we bring to our customers and the desire to reduce costs in the aec/o industry . 24 aim . year-over-year sales of aim services decreased by $ 1.3 million , or 9.0 % , in 2017 , compared to 2016 . the sales decline was primarily driven by a reorganization in our sales staff which we believe caused a temporary decline in aim sales during 2017. we are driving an expansion of our addressable market for aim by targeting building owners and facilities managers that require on-demand legacy documents to operate their assets efficiently . equipment and supplies sales . story_separator_special_tag the adjustment of ebitda for these items is consistent with the definition of adjusted ebitda in our credit agreement ; therefore , we believe this information is useful to investors in assessing our financial performance . the following is a reconciliation of cash flows provided by operating activities to ebitda : replace_table_token_7_th 29 the following is a reconciliation of net ( loss ) income attributable to arc document solutions , inc. shareholders to ebitda and adjusted ebitda : replace_table_token_8_th the following is a reconciliation of net ( loss ) income margin attributable to arc to ebitda margin and adjusted ebitda margin : replace_table_token_9_th ( 1 ) column does not foot due to rounding . 30 the following is a reconciliation of ebitda to net income ( loss ) for each respective quarter . replace_table_token_10_th the following is a reconciliation of net ( loss ) income attributable to arc document solutions , inc. shareholders to adjusted net income and adjusted earnings per share attributable to arc document solutions , inc. shareholders : replace_table_token_11_th liquidity and capital resources our principal sources of cash have been operations and borrowings under our debt and lease agreements . our recent historical uses of cash have been for ongoing operations , payment of principal and interest on outstanding debt obligations , capital expenditures and stock repurchases . total cash and cash equivalents as of december 31 , 2017 was $ 28.1 million . of this amount , $ 14.6 million was held in foreign countries , with $ 11.9 million held in china . repatriation of some of our cash and cash equivalents in foreign countries could be subject to delay for local country approvals and could have potential adverse tax consequences . as a result of holding cash and cash equivalents outside of the u.s. , our financial flexibility may be reduced . 31 supplemental information pertaining to our historical sources and uses of cash is presented as follows and should be read in conjunction with our consolidated statements of cash flows and notes thereto included elsewhere in this report . replace_table_token_12_th operating activities cash flows from operations are primarily driven by sales and net profit generated from these sales , excluding non-cash charges . the decrease in cash flows from operations in 2017 was primarily as a result of the decline in profitability , partially offset by the timing of sales and cash collections as well as the timing of cash outlays related to accounts payable and accrued expenses . days sales outstanding ( “ dso ” ) decreased to 53 days as of december 31 , 2017 from 55 days as of december 31 , 2016. we continue our focus on the timely collection of our accounts receivable . the overall decrease in cash flows from operations in 2016 was primarily as a result of the decline in profitability , as well as the timing of sales and cash collections , partially offset by the timing of cash outlays related to accounts payable and accrued expenses and the reduction in our interest expense resulting from the reduction in principal of our credit agreement . investing activities net cash used in investing activities was primarily related to capital expenditures . we incurred capital expenditures totaling $ 9.1 million , $ 12.1 million , and $ 14.2 million in 2017 , 2016 , and 2015 , respectively . the change in capital expenditures from 2016 to 2017 is driven by the timing of equipment purchases , and whether such equipment is leased or purchased with available cash . the decrease in capital expenditures from 2015 to 2016 , was primarily due to our decision to purchase more equipment in the second and third quarters of 2015 rather than leasing equipment to take advantage of vendor rebates . as we continue to foster our relationships with credit providers and obtain attractive lease rates , we have increasingly chosen to lease rather than purchase equipment . financing activities net cash of $ 42.1 million used in financing activities in 2017 primarily relates to payments on our debt agreements and capital leases . the company amended its credit agreement in the third quarter of 2017 resulting in a decrease in required quarterly principal payments on the term loan facility under the credit agreement . in addition , the amendment to the credit agreement increased the maximum aggregate principal amount of revolving loans from $ 30.0 million to $ 80.0 million , and reduced the outstanding principal amount of the term loan under the agreement at $ 60.0 million , although the total principal amount outstanding remained unchanged at $ 110.0 million on the date of the amendment . prior to entering into the amendment to our credit agreement in the third quarter of 2017 , we had paid $ 68.2 million in aggregate principal on our credit agreement . principal prepayments on the credit agreement of $ 14.2 million in 2017 resulted in a loss on extinguishment and modification of debt of $ 0.2 million for 2017 . in addition , we purchased approximately 1.2 million shares of our company 's outstanding common stock for $ 3.4 million pursuant to our stock repurchase program in 2017 . our cash position , working capital , and debt obligations as of december 31 , 2017 and 2016 are shown below and should be read in conjunction with our consolidated balance sheets and notes thereto contained elsewhere in this report . 32 replace_table_token_13_th ( 1 ) net of deferred financing fees of $ 757 and $ 1,039 at december 31 , 2017 and 2016 , respectively . ( 2 ) includes $ 42.3 million of revolving loans outstanding under our credit agreement at december 31 , 2017 . the decrease of $ 5.3 million in working capital in 2017 was primarily due to an increase in the current portion of long-term debt driven by the amendment to our credit agreement in the third quarter of 2017. to manage our working capital
| debt obligations credit agreement on july 14 , 2017 , we amended our credit agreement which was originally entered into on november 20 , 2014 with wells fargo bank , national association , as administrative agent and the lenders party thereto ( the `` credit agreement '' ) . prior to being amended , the credit agreement provided for the extension of term loans ( “ term loans ” ) in an aggregate principal amount of $ 175.0 million . in addition , prior to being amended , the credit agreement provided for the extension of revolving loans ( “ revolving loans ” ) in an aggregate principal amount not to exceed $ 30.0 million . the amendment increased the maximum aggregate principal amount of revolving loans under the agreement from $ 30 million to $ 80 million and reduced the outstanding principal amount of the term loan under the agreement to $ 60 million . upon the execution of the amendment to the credit agreement , the total principal amount outstanding under the agreement remained unchanged at $ 110.0 million . as a result of the amendment to the credit agreement , the principal of the term loan amortizes at an annual rate of 7.5 % during the first and second years following the date of the amendment and at an annual rate of 10 % during the third , fourth and fifth years following the date of the amendment , with any remaining balance payable upon the maturity date . the amendment also extended the maturity date for both the revolving loans and the term loans until july 14 , 2022. as of december 31 , 2017 , the company 's borrowing availability of revolving loans under the $ 80.0 million revolving loan commitment was $ 35.9 million , after deducting outstanding letters of credit of $ 1.8 million and an outstanding revolving loan balance of $ 42.3 million .
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we expect this access system to generate approximately $ 55 to $ 60 million in revenue in 2016. we plan to continue to restructure both operations and administrative functions as necessary throughout the organization . we have successfully completed our restructuring plans over the past few years , however , we can not be certain further activities , will be completed in the estimated time period or that planned cost savings will be achieved . finally , our facilities are subject to periodic inspection by the united states food and drug administration ( “ fda ” ) and foreign regulatory agencies or notified bodies for , among other things , conformance to quality system regulation and current good manufacturing practice ( “ cgmp ” ) requirements and foreign or international standards . during the third quarter of 2013 , the fda inspected our centennial , colorado manufacturing facility and issued a form 483 with observations on september 20 , 2013. we subsequently submitted responses to the observations , and the fda issued a warning letter on january 30 , 2014 relating to the inspection and the responses to the form 483 observations . accordingly , we undertook corrective actions . during the fourth quarter of 2014 , the fda again inspected our centennial , colorado manufacturing facility and , on november 18 , 2014 , issued a form 483 with eight observations , three of which the fda characterized as repeat observations . on december 10 , 2014 , 19 we responded to the form 483 observations . we have received some additional questions from the fda and responded to these questions on april 25 , 2015. the remediation costs to date have not been material , although there can be no assurance that responding to the form 483 observations or a future inspection by the fda will not result in an additional form 483 or warning letter , or other regulatory actions , which may include consent decrees or fines . critical accounting policies preparation of our financial statements requires us to make estimates and assumptions which affect the reported amounts of assets , liabilities , revenues and expenses . note 1 to the consolidated financial statements describes the significant accounting policies used in preparation of the consolidated financial statements . the most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of conmed corporation . revenue recognition revenue is recognized when title has been transferred to the customer which is at the time of shipment . the following policies apply to our major categories of revenue transactions : sales to customers are evidenced by firm purchase orders . title and the risks and rewards of ownership are transferred to the customer when product is shipped under our stated shipping terms . payment by the customer is due under fixed payment terms and collectability is reasonably assured . we place certain of our capital equipment with customers on a loaned basis in return for commitments to purchase related single-use products over time periods generally ranging from one to three years . in these circumstances , no revenue is recognized upon capital equipment shipment as the equipment is loaned and subject to return if certain minimum single-use purchases are not met . revenue is recognized upon the sale and shipment of the related single-use products . the cost of the equipment is amortized over its estimated useful life . we recognize revenues related to the promotion and marketing of sports medicine allograft tissue in accordance with the contractual terms of our agreement with musculoskeletal transplant foundation ( “ mtf ” ) on a net basis as our role is limited to that of an agent earning a commission or fee . mtf records revenue when the tissue is shipped to the customer . our services are completed at this time and net revenues for the “ service fee ” for our promotional and marketing efforts are then recognized based on a percentage of the net amounts billed by mtf to its customers . the timing of revenue recognition is determined through review of the net billings made by mtf each month . our net commission service fee is based on the contractual terms of our agreement and is currently 50 % . this percentage can vary over the term of the agreement but is contractually determinable . our service fee revenues are recorded net of amortization of the acquired assets , which are being expensed over the expected useful life of 25 years . product returns are only accepted at the discretion of the company and in accordance with our “ returned goods policy ” . historically , the level of product returns has not been significant . we accrue for sales returns , rebates and allowances based upon an analysis of historical customer returns and credits , rebates , discounts and current market conditions . our terms of sale to customers generally do not include any obligations to perform future services . limited warranties are provided for capital equipment sales and provisions for warranty are provided at the time of product sale based upon an analysis of historical data . amounts billed to customers related to shipping and handling have been included in net sales . shipping and handling costs included in selling and administrative expense were $ 12.6 million , $ 13.6 million and $ 12.6 million for 2015 , 2014 and 2013 , respectively . we sell to a diversified base of customers around the world and , therefore , believe there is no material concentration of credit risk . we assess the risk of loss on accounts receivable and adjust the allowance for doubtful accounts based on this risk assessment . historically , losses on accounts receivable have not been material . story_separator_special_tag loss on early extinguishment of debt as discussed in note 5 to the consolidated financial statements , we entered into an amended and restated senior credit agreement on january 17 , 2013. in connection with the refinancing , we recorded a $ 0.3 million loss on the early extinguishment of debt in 2013 related to the write-off of unamortized deferred financing costs under the then existing senior credit agreement . interest expense interest expense was $ 6.0 million in 2015 compared to $ 6.1 million in 2014 and $ 5.6 million in 2013 . interest expense remained flat in 2015 compared to 2014 as higher weighted average borrowings were offset by lower interest rates . the increase in 2014 compared to 2013 is due to the cost associated with higher weighted average borrowings as compared to the same period a year ago . the weighted average interest rates on our borrowings were 2.23 % in 2015 declining from 2.40 % in 2014 and 2.39 % in 2013 . provision for income taxes 24 a provision for income taxes was recorded at an effective rate of 32.4 % , 31.0 % and 29.0 % in 2015 , 2014 and 2013 , respectively , as compared to the federal statutory rate of 35.0 % . the effective tax rate in 2015 is higher than that recorded in 2014 due to the domestic impact , net of foreign tax credits , associated with the repatriation of foreign earnings to the united states , which increased tax expense by $ 1.1 million in the fourth quarter . additionally , the 2015 rate increased compared to 2014 as a result of lower foreign tax benefits resulting from the change in the governmental rate upon which european permanent deductions are calculated and due to benefits recorded in 2014 related to settlements with taxing authorities . these items are offset by decreases resulting from domestic manufacturing benefits and lower state tax expense as a result of a new york state legislative change recorded in 2014. the effective tax rate in 2014 is higher than that recorded in 2013 due to tax legislation changes . in new york state , corporate tax reform enacted in march 2014 changed the tax rate of a manufacturing company such as conmed to essentially 0 % . while this will be positive for the future , previously recorded new york state deferred tax assets of $ 2.3 million that would have been used to offset taxes otherwise payable , no longer have value due to a zero percent tax rate . accordingly , we wrote off these new york state tax assets as a non-cash charge to income tax expense . a reconciliation of the united states statutory income tax rate to our effective tax rate is included in note 6 to the consolidated financial statements . non-gaap financial measures net sales “ on a constant currency basis ” is a non-gaap measure . the company analyzes net sales on a constant currency basis to better measure the comparability of results between periods . to measure percentage sales growth in constant currency , the company removes the impact of changes in foreign currency exchange rates that affect the comparability and trend of net sales . because non-gaap financial measures are not standardized , it may not be possible to compare this financial measure with other companies ' non-gaap financial measures having the same or similar names . this adjusted financial measure should not be considered in isolation or as a substitute for reported net sales growth , the most directly comparable gaap financial measure . this non-gaap financial measure is an additional way of viewing net sales that , when viewed with our gaap results , provides a more complete understanding of our business . the company strongly encourages investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure . story_separator_special_tag style= `` line-height:120 % ; text-align : justify ; font-size:10pt ; `` > the fifth amended and restated senior credit agreement is collateralized by substantially all of our personal property and assets . the senior credit agreement contains covenants and restrictions which , among other things , require the maintenance of certain financial ratios and restrict dividend payments and the incurrence of certain indebtedness and other activities , including acquisitions and dispositions . 26 we have a mortgage note outstanding in connection with the largo , florida property and facilities bearing interest at 8.25 % per annum with semiannual payments of principal and interest through june 2019. the principal balance outstanding on the mortgage note aggregated $ 5.2 million at december 31 , 2015 . the mortgage note is collateralized by the largo , florida property and facilities . our board of directors has authorized a $ 200.0 million share repurchase program . through december 31 , 2015 , we have repurchased a total of 6.1 million shares of common stock aggregating $ 162.6 million under this authorization and have $ 37.4 million remaining available for share repurchases . the repurchase program calls for shares to be purchased in the open market or in private transactions from time to time . we may suspend or discontinue the share repurchase program at any time . we did not purchase any shares of common stock under the share repurchase program during 2015 . we have financed the repurchases and may finance additional repurchases through operating cash flow and from available borrowings under our revolving credit facility . management believes that cash flow from operations , including cash and cash equivalents on hand and available borrowing capacity under our amended and restated senior credit agreement , will be adequate to meet our anticipated operating working capital requirements , debt service , funding of capital expenditures and common stock repurchases in the foreseeable future . see “ item 1. business – forward looking statements . ” restructuring during 2015 , 2014 and
| debt obligations credit agreement on july 14 , 2017 , we amended our credit agreement which was originally entered into on november 20 , 2014 with wells fargo bank , national association , as administrative agent and the lenders party thereto ( the `` credit agreement '' ) . prior to being amended , the credit agreement provided for the extension of term loans ( “ term loans ” ) in an aggregate principal amount of $ 175.0 million . in addition , prior to being amended , the credit agreement provided for the extension of revolving loans ( “ revolving loans ” ) in an aggregate principal amount not to exceed $ 30.0 million . the amendment increased the maximum aggregate principal amount of revolving loans under the agreement from $ 30 million to $ 80 million and reduced the outstanding principal amount of the term loan under the agreement to $ 60 million . upon the execution of the amendment to the credit agreement , the total principal amount outstanding under the agreement remained unchanged at $ 110.0 million . as a result of the amendment to the credit agreement , the principal of the term loan amortizes at an annual rate of 7.5 % during the first and second years following the date of the amendment and at an annual rate of 10 % during the third , fourth and fifth years following the date of the amendment , with any remaining balance payable upon the maturity date . the amendment also extended the maturity date for both the revolving loans and the term loans until july 14 , 2022. as of december 31 , 2017 , the company 's borrowing availability of revolving loans under the $ 80.0 million revolving loan commitment was $ 35.9 million , after deducting outstanding letters of credit of $ 1.8 million and an outstanding revolving loan balance of $ 42.3 million .
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we expect this access system to generate approximately $ 55 to $ 60 million in revenue in 2016. we plan to continue to restructure both operations and administrative functions as necessary throughout the organization . we have successfully completed our restructuring plans over the past few years , however , we can not be certain further activities , will be completed in the estimated time period or that planned cost savings will be achieved . finally , our facilities are subject to periodic inspection by the united states food and drug administration ( “ fda ” ) and foreign regulatory agencies or notified bodies for , among other things , conformance to quality system regulation and current good manufacturing practice ( “ cgmp ” ) requirements and foreign or international standards . during the third quarter of 2013 , the fda inspected our centennial , colorado manufacturing facility and issued a form 483 with observations on september 20 , 2013. we subsequently submitted responses to the observations , and the fda issued a warning letter on january 30 , 2014 relating to the inspection and the responses to the form 483 observations . accordingly , we undertook corrective actions . during the fourth quarter of 2014 , the fda again inspected our centennial , colorado manufacturing facility and , on november 18 , 2014 , issued a form 483 with eight observations , three of which the fda characterized as repeat observations . on december 10 , 2014 , 19 we responded to the form 483 observations . we have received some additional questions from the fda and responded to these questions on april 25 , 2015. the remediation costs to date have not been material , although there can be no assurance that responding to the form 483 observations or a future inspection by the fda will not result in an additional form 483 or warning letter , or other regulatory actions , which may include consent decrees or fines . critical accounting policies preparation of our financial statements requires us to make estimates and assumptions which affect the reported amounts of assets , liabilities , revenues and expenses . note 1 to the consolidated financial statements describes the significant accounting policies used in preparation of the consolidated financial statements . the most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of conmed corporation . revenue recognition revenue is recognized when title has been transferred to the customer which is at the time of shipment . the following policies apply to our major categories of revenue transactions : sales to customers are evidenced by firm purchase orders . title and the risks and rewards of ownership are transferred to the customer when product is shipped under our stated shipping terms . payment by the customer is due under fixed payment terms and collectability is reasonably assured . we place certain of our capital equipment with customers on a loaned basis in return for commitments to purchase related single-use products over time periods generally ranging from one to three years . in these circumstances , no revenue is recognized upon capital equipment shipment as the equipment is loaned and subject to return if certain minimum single-use purchases are not met . revenue is recognized upon the sale and shipment of the related single-use products . the cost of the equipment is amortized over its estimated useful life . we recognize revenues related to the promotion and marketing of sports medicine allograft tissue in accordance with the contractual terms of our agreement with musculoskeletal transplant foundation ( “ mtf ” ) on a net basis as our role is limited to that of an agent earning a commission or fee . mtf records revenue when the tissue is shipped to the customer . our services are completed at this time and net revenues for the “ service fee ” for our promotional and marketing efforts are then recognized based on a percentage of the net amounts billed by mtf to its customers . the timing of revenue recognition is determined through review of the net billings made by mtf each month . our net commission service fee is based on the contractual terms of our agreement and is currently 50 % . this percentage can vary over the term of the agreement but is contractually determinable . our service fee revenues are recorded net of amortization of the acquired assets , which are being expensed over the expected useful life of 25 years . product returns are only accepted at the discretion of the company and in accordance with our “ returned goods policy ” . historically , the level of product returns has not been significant . we accrue for sales returns , rebates and allowances based upon an analysis of historical customer returns and credits , rebates , discounts and current market conditions . our terms of sale to customers generally do not include any obligations to perform future services . limited warranties are provided for capital equipment sales and provisions for warranty are provided at the time of product sale based upon an analysis of historical data . amounts billed to customers related to shipping and handling have been included in net sales . shipping and handling costs included in selling and administrative expense were $ 12.6 million , $ 13.6 million and $ 12.6 million for 2015 , 2014 and 2013 , respectively . we sell to a diversified base of customers around the world and , therefore , believe there is no material concentration of credit risk . we assess the risk of loss on accounts receivable and adjust the allowance for doubtful accounts based on this risk assessment . historically , losses on accounts receivable have not been material . story_separator_special_tag loss on early extinguishment of debt as discussed in note 5 to the consolidated financial statements , we entered into an amended and restated senior credit agreement on january 17 , 2013. in connection with the refinancing , we recorded a $ 0.3 million loss on the early extinguishment of debt in 2013 related to the write-off of unamortized deferred financing costs under the then existing senior credit agreement . interest expense interest expense was $ 6.0 million in 2015 compared to $ 6.1 million in 2014 and $ 5.6 million in 2013 . interest expense remained flat in 2015 compared to 2014 as higher weighted average borrowings were offset by lower interest rates . the increase in 2014 compared to 2013 is due to the cost associated with higher weighted average borrowings as compared to the same period a year ago . the weighted average interest rates on our borrowings were 2.23 % in 2015 declining from 2.40 % in 2014 and 2.39 % in 2013 . provision for income taxes 24 a provision for income taxes was recorded at an effective rate of 32.4 % , 31.0 % and 29.0 % in 2015 , 2014 and 2013 , respectively , as compared to the federal statutory rate of 35.0 % . the effective tax rate in 2015 is higher than that recorded in 2014 due to the domestic impact , net of foreign tax credits , associated with the repatriation of foreign earnings to the united states , which increased tax expense by $ 1.1 million in the fourth quarter . additionally , the 2015 rate increased compared to 2014 as a result of lower foreign tax benefits resulting from the change in the governmental rate upon which european permanent deductions are calculated and due to benefits recorded in 2014 related to settlements with taxing authorities . these items are offset by decreases resulting from domestic manufacturing benefits and lower state tax expense as a result of a new york state legislative change recorded in 2014. the effective tax rate in 2014 is higher than that recorded in 2013 due to tax legislation changes . in new york state , corporate tax reform enacted in march 2014 changed the tax rate of a manufacturing company such as conmed to essentially 0 % . while this will be positive for the future , previously recorded new york state deferred tax assets of $ 2.3 million that would have been used to offset taxes otherwise payable , no longer have value due to a zero percent tax rate . accordingly , we wrote off these new york state tax assets as a non-cash charge to income tax expense . a reconciliation of the united states statutory income tax rate to our effective tax rate is included in note 6 to the consolidated financial statements . non-gaap financial measures net sales “ on a constant currency basis ” is a non-gaap measure . the company analyzes net sales on a constant currency basis to better measure the comparability of results between periods . to measure percentage sales growth in constant currency , the company removes the impact of changes in foreign currency exchange rates that affect the comparability and trend of net sales . because non-gaap financial measures are not standardized , it may not be possible to compare this financial measure with other companies ' non-gaap financial measures having the same or similar names . this adjusted financial measure should not be considered in isolation or as a substitute for reported net sales growth , the most directly comparable gaap financial measure . this non-gaap financial measure is an additional way of viewing net sales that , when viewed with our gaap results , provides a more complete understanding of our business . the company strongly encourages investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure . story_separator_special_tag style= `` line-height:120 % ; text-align : justify ; font-size:10pt ; `` > the fifth amended and restated senior credit agreement is collateralized by substantially all of our personal property and assets . the senior credit agreement contains covenants and restrictions which , among other things , require the maintenance of certain financial ratios and restrict dividend payments and the incurrence of certain indebtedness and other activities , including acquisitions and dispositions . 26 we have a mortgage note outstanding in connection with the largo , florida property and facilities bearing interest at 8.25 % per annum with semiannual payments of principal and interest through june 2019. the principal balance outstanding on the mortgage note aggregated $ 5.2 million at december 31 , 2015 . the mortgage note is collateralized by the largo , florida property and facilities . our board of directors has authorized a $ 200.0 million share repurchase program . through december 31 , 2015 , we have repurchased a total of 6.1 million shares of common stock aggregating $ 162.6 million under this authorization and have $ 37.4 million remaining available for share repurchases . the repurchase program calls for shares to be purchased in the open market or in private transactions from time to time . we may suspend or discontinue the share repurchase program at any time . we did not purchase any shares of common stock under the share repurchase program during 2015 . we have financed the repurchases and may finance additional repurchases through operating cash flow and from available borrowings under our revolving credit facility . management believes that cash flow from operations , including cash and cash equivalents on hand and available borrowing capacity under our amended and restated senior credit agreement , will be adequate to meet our anticipated operating working capital requirements , debt service , funding of capital expenditures and common stock repurchases in the foreseeable future . see “ item 1. business – forward looking statements . ” restructuring during 2015 , 2014 and
| liquidity and capital resources our liquidity needs arise primarily from capital investments , working capital requirements and payments on indebtedness under the amended and restated senior credit agreement , described below . we have historically met these liquidity requirements with funds generated from operations and borrowings under our revolving credit facility . in addition , we have historically used term borrowings , including borrowings under the amended and restated senior credit agreement and borrowings under separate loan facilities , in the case of real property purchases , to finance our acquisitions . we also have the ability to raise funds through the sale of stock or we may issue debt through a private placement or public offering . we believe that our cash on hand , cash from operating activities and proceeds from our amended and restated senior credit agreement provide us with sufficient financial resources to meet our anticipated capital requirements and obligations as they come due . we had total cash on hand at december 31 , 2015 of $ 72.5 million , of which approximately $ 65.9 million was held by our foreign subsidiaries outside the united states with unremitted earnings . we have not repatriated , nor do we anticipate the need to repatriate , permanently reinvested earnings to the u.s. to satisfy domestic liquidity needs arising in the ordinary course of business or associated with our domestic debt service requirements . during the fourth quarter of 2015 , we redeployed cash from certain non-u.s. subsidiaries for u.s. debt reduction of $ 33.0 million which includes $ 9.3 million of 2015 foreign earnings not previously permanently reinvested and a $ 23.7 million return of accumulated foreign basis . we recorded a tax charge of $ 1.1 million and increased foreign borrowings under our revolving credit facility by $ 33.0 million related to this cash redeployment . it is our intention to permanently reinvest the remaining amount of unremitted earnings . if we were to repatriate these funds , we would be required to accrue and pay taxes on such amounts . operating cash flows our net working capital position was $ 287.8
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our distributors and agents , who comprise less than 10 % of consolidated revenue , have no additional product return rights beyond the right to return defective products covered by our warranty policy . we believe our revenue recognition practices are consistent with staff accounting bulletin ( “ sab ” ) 104 and that we have adequately considered the requirements of accounting standards codification ( “ asc ” ) 605 revenue recognition . revenues generated from transactions other than product shipments are contract-related and have historically accounted for less than 2 % of the company 's consolidated revenues . the company establishes an allowance for doubtful accounts based on historical experience and believes the collection of revenues , net of this reserve , is reasonably assured . the allowance for doubtful accounts is an estimate for potential non-collection of accounts receivable based on historical experience . the company did not experience a non-collection of accounts receivable materially affecting its financial condition or results of operations as of and for each of the fiscal years ended june 30 , 2015 , 2014 and 2013. if the financial condition of the company 's customers were to deteriorate , causing an impairment of their ability to make payments , additional provisions for bad debts could be required in future periods . the company 's allowance for doubtful accounts balance at june 30 , 2015 was approximately $ 1.0 million . the company 's allowance for doubtful accounts reserve estimates have historically been proven to be materially correct based upon actual charges incurred . the company records a warranty reserve as a charge against earnings based on a historical percentage of revenues utilizing actual returns over a period that approximates historical warranty experience . if actual returns in the future are not consistent with the historical data used to calculate these estimates , additional warranty reserves could be required . the company 's warranty reserve balance at june 30 , 2015 was approximately $ 3.3 million . the company 's warranty reserve estimates have historically been proven to be materially correct based upon actual charges incurred . the company records an inventory reserve as a charge against earnings for all products on hand for more than twelve to eighteen months , depending on the products that have not been sold to customers or can not be further manufactured for sale to alternative 32 customers . an additional reserve is recorded for products on hand that are in excess of product sold to customers over the same periods noted above . if actual market conditions are less favorable than projected , additional inventory reserves may be required . the company accounts for business acquisitions by establishing the acquisition-date fair value as the measurement for all assets acquired and liabilities assumed . certain provisions of u.s. gaap prescribe , among other things , the determination of acquisition-date fair value of consideration paid in a business combination ( including contingent consideration ) and the exclusion of transaction and acquisition-related restructuring costs from acquisition accounting . the company tests goodwill and indefinite-lived intangible assets on an annual basis for impairment or when events or changes in circumstances indicate that goodwill or indefinite-lived intangible assets might be impaired . other intangible assets are amortized over their estimated useful lives . the determination of the estimated useful lives of other intangible assets and whether goodwill or indefinite-lived intangibles are impaired requires us to make judgments based upon long-term projections of future performance . estimates of fair value are based on our projection of revenues , operating costs and cash flows of each reporting unit considering historical and anticipated results and general economic and market conditions . the fair values of the reporting units are determined using a discounted cash flow analysis based on historical and projected financial information as well as market analysis . the carrying value of goodwill at june 30 , 2015 , 2014 and 2013 was $ 195.9 million , $ 196.1 million and $ 123.4 million , respectively . the annual goodwill impairment analysis considers the financial projections of the reporting unit based on our most recently completed long-term strategic planning processes and also considers the current financial performance compared to our prior projections of the reporting unit . changes in our internal structuring , financial performance , judgments and projections could result in an impairment of goodwill or indefinite-lived intangible assets . the company has the option to perform a qualitative assessment of goodwill prior to completing the two-step process described above to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill and other intangible assets . if the company concludes that this is the case , it must perform the two-step process . otherwise , the company will forego the two-step process and does not need to perform any further testing . as a result of the july 1 , 2014 segment realignment , the company reviewed the recoverability of the carrying value of goodwill at its reporting units . the company had the option to perform a qualitative assessment of goodwill prior to completing the quantitative test to determine whether it was more likely than not that the fair value of a reporting unit was less than its carrying amount , including goodwill and other intangible assets . due to the short duration of time since the company 's most recent annual quantitative goodwill impairment test , which was completed on april 1 , 2014 , the company elected to perform a qualitative test on its reporting units as part of the segment realignment . the company did not record any impairment of goodwill as a result of the segment realignment , as the qualitative assessment did not indicate deterioration in the fair value of its reporting units since the most recent annual impairment test . story_separator_special_tag the increase in segment earnings was the result of higher revenues as well as gross margin improvements from ii-vi laser enterprise , as this business unit has begun to realize certain operational efficiencies and acquisition related synergies . operating income for fiscal year 2014 was negatively impacted by transaction expenses of $ 3.9 million , $ 2.5 million of purchase accounting relating to the fair market inventory adjustment and $ 2.0 million of restructuring efforts at ii-vi laser enterprise . ii-vi photonics ( $ in millions ) replace_table_token_6_th the company 's ii-vi photonics segment includes the combined operations of ii-vi photop and ii-vi optical communications . bookings for the year ended june 30 , 2015 for ii-vi photonics increased 28 % to $ 282.9 million , compared to $ 220.2 million for last fiscal year . the increase in bookings was due to increased demand for a variety of the segment 's products , such as optical components and modules driven by broadband initiatives , development of next generation wireless networks and increasing bandwidth trends in the datacenter and cloud applications . in addition , the segment recorded a full year of bookings from the prior fiscal year acquisition of ii-vi network solutions . revenues for the year ended june 30 , 2015 for ii-vi photonics increased 20 % to $ 260.8 million , compared to $ 216.5 million for last fiscal year . the increase in revenues was due to increased customer demand for optical filters , optical components and assemblies , pump lasers and fiber amplifier modules that serve multiple markets . in addition , the segment recorded a full year of revenues from the prior year acquisition of ii-vi network solutions . operating income for the year ended june 30 , 2015 for ii-vi photonics increased 7300 % to $ 7.2 million , compared to an operating loss of $ ( 0.1 ) million last fiscal year . the improvement in operating income was attributed primarily to incremental margin realized on increased revenues , and favorable product mix towards higher margin products , operational efficiencies and the absence of certain one-time purchase accounting fair market inventory adjustments that occurred in fiscal 2014 , offset by $ 4.5 million of restructuring expenses to “ right-size ” its business in fiscal 2015. during fiscal year 2014 , one-time fair market inventory purchase accounting adjustments totaled $ 1.6 million . 37 ii-vi performance products ( $ in millions ) replace_table_token_7_th the company 's ii-vi performance products segment includes the business units of ii-vi marlow , ii-vi m cubed , ii-vi advanced materials , ii-vi optical systems and ii-vi performance metals . bookings for the year ended june 30 , 2015 for ii-vi performance products decreased 7 % to $ 194.0 million , compared to $ 208.3 million for last fiscal year . the decrease in bookings related to lower order volumes of military-related products as a result of the decline in overall defense spending and funding constraints specific to certain u.s. military programs , as well as softness in the semiconductor capital equipment market . the decrease in bookings was somewhat offset by increased demand for sic substrates addressing high-power high-frequency semiconductor devices . revenues for the year ended june 30 , 2015 for ii-vi performance products decreased 9 % to $ 193.3 million , compared to $ 212.4 million for last fiscal year . the decrease in revenues was due to lower shipment volumes of military related products from lower overall defense spending as well as lower shipments to customers in the semiconductor capital equipment markets . the decrease in revenues was somewhat offset by higher revenues from the segment 's sic substrates . operating income for the year ended june 30 , 2015 for ii-vi performance products decreased 34 % to $ 14.6 million , compared to $ 22.1 million for last fiscal year . the decrease in operating income was a result of lower revenues during the current fiscal year as well as restructuring charges of $ 1.1 million relating to the consolidation of the company 's military-related businesses . fiscal year 2014 compared to fiscal year 2013 the following table sets forth bookings and select items from our consolidated statements of earnings for the years ended june 30 , 2014 and 2013 . ( $ millions , except per share information ) : replace_table_token_8_th consolidated bookings . bookings for the year ended june 30 , 2014 increased 33 % to $ 691.3 million , compared to $ 521.1 million for the 2013 fiscal year . the increase in bookings was mostly attributable to the acquisitions of ii-vi laser enterprise and ii-vi network solutions in fiscal year 2014 as well as the incremental bookings from the 2013 fiscal year acquisitions . in addition , the company 's ii-vi laser 38 solutions segment recorded increased bookings at its legacy business for both diamond window optics used in euv photolithography systems and at ii-vi highyag for fiber beam delivery systems and laser processing heads used in automotive manufacturing . revenues . revenues for the year ended june 30 , 2014 increased 24 % to $ 683.3 million , compared to $ 551.1 million for fiscal year june 30 , 2013. the increase in revenues was mostly attributable to the acquisitions of ii-vi laser enterprise and ii-vi network solutions in fiscal year 2014 , incremental revenues from fiscal year 2013 acquisitions and higher revenues associated with shipments of diamond windows at ii-vi laser solutions and sic wafers at ii-vi advanced materials . somewhat offsetting these higher revenue levels was a decrease in shipment volumes of passive optical components sold by ii-vi photonics segment as well as lower shipments at the company 's military-related businesses , driven primarily by reduced u.s. defense spending . gross margin . gross margin as a percentage of revenues for the year ended june 30 , 2014 was 33.2 % , compared to 36.9 % for fiscal year june 30 , 2013. the decrease in gross
| liquidity and capital resources our liquidity needs arise primarily from capital investments , working capital requirements and payments on indebtedness under the amended and restated senior credit agreement , described below . we have historically met these liquidity requirements with funds generated from operations and borrowings under our revolving credit facility . in addition , we have historically used term borrowings , including borrowings under the amended and restated senior credit agreement and borrowings under separate loan facilities , in the case of real property purchases , to finance our acquisitions . we also have the ability to raise funds through the sale of stock or we may issue debt through a private placement or public offering . we believe that our cash on hand , cash from operating activities and proceeds from our amended and restated senior credit agreement provide us with sufficient financial resources to meet our anticipated capital requirements and obligations as they come due . we had total cash on hand at december 31 , 2015 of $ 72.5 million , of which approximately $ 65.9 million was held by our foreign subsidiaries outside the united states with unremitted earnings . we have not repatriated , nor do we anticipate the need to repatriate , permanently reinvested earnings to the u.s. to satisfy domestic liquidity needs arising in the ordinary course of business or associated with our domestic debt service requirements . during the fourth quarter of 2015 , we redeployed cash from certain non-u.s. subsidiaries for u.s. debt reduction of $ 33.0 million which includes $ 9.3 million of 2015 foreign earnings not previously permanently reinvested and a $ 23.7 million return of accumulated foreign basis . we recorded a tax charge of $ 1.1 million and increased foreign borrowings under our revolving credit facility by $ 33.0 million related to this cash redeployment . it is our intention to permanently reinvest the remaining amount of unremitted earnings . if we were to repatriate these funds , we would be required to accrue and pay taxes on such amounts . operating cash flows our net working capital position was $ 287.8
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our distributors and agents , who comprise less than 10 % of consolidated revenue , have no additional product return rights beyond the right to return defective products covered by our warranty policy . we believe our revenue recognition practices are consistent with staff accounting bulletin ( “ sab ” ) 104 and that we have adequately considered the requirements of accounting standards codification ( “ asc ” ) 605 revenue recognition . revenues generated from transactions other than product shipments are contract-related and have historically accounted for less than 2 % of the company 's consolidated revenues . the company establishes an allowance for doubtful accounts based on historical experience and believes the collection of revenues , net of this reserve , is reasonably assured . the allowance for doubtful accounts is an estimate for potential non-collection of accounts receivable based on historical experience . the company did not experience a non-collection of accounts receivable materially affecting its financial condition or results of operations as of and for each of the fiscal years ended june 30 , 2015 , 2014 and 2013. if the financial condition of the company 's customers were to deteriorate , causing an impairment of their ability to make payments , additional provisions for bad debts could be required in future periods . the company 's allowance for doubtful accounts balance at june 30 , 2015 was approximately $ 1.0 million . the company 's allowance for doubtful accounts reserve estimates have historically been proven to be materially correct based upon actual charges incurred . the company records a warranty reserve as a charge against earnings based on a historical percentage of revenues utilizing actual returns over a period that approximates historical warranty experience . if actual returns in the future are not consistent with the historical data used to calculate these estimates , additional warranty reserves could be required . the company 's warranty reserve balance at june 30 , 2015 was approximately $ 3.3 million . the company 's warranty reserve estimates have historically been proven to be materially correct based upon actual charges incurred . the company records an inventory reserve as a charge against earnings for all products on hand for more than twelve to eighteen months , depending on the products that have not been sold to customers or can not be further manufactured for sale to alternative 32 customers . an additional reserve is recorded for products on hand that are in excess of product sold to customers over the same periods noted above . if actual market conditions are less favorable than projected , additional inventory reserves may be required . the company accounts for business acquisitions by establishing the acquisition-date fair value as the measurement for all assets acquired and liabilities assumed . certain provisions of u.s. gaap prescribe , among other things , the determination of acquisition-date fair value of consideration paid in a business combination ( including contingent consideration ) and the exclusion of transaction and acquisition-related restructuring costs from acquisition accounting . the company tests goodwill and indefinite-lived intangible assets on an annual basis for impairment or when events or changes in circumstances indicate that goodwill or indefinite-lived intangible assets might be impaired . other intangible assets are amortized over their estimated useful lives . the determination of the estimated useful lives of other intangible assets and whether goodwill or indefinite-lived intangibles are impaired requires us to make judgments based upon long-term projections of future performance . estimates of fair value are based on our projection of revenues , operating costs and cash flows of each reporting unit considering historical and anticipated results and general economic and market conditions . the fair values of the reporting units are determined using a discounted cash flow analysis based on historical and projected financial information as well as market analysis . the carrying value of goodwill at june 30 , 2015 , 2014 and 2013 was $ 195.9 million , $ 196.1 million and $ 123.4 million , respectively . the annual goodwill impairment analysis considers the financial projections of the reporting unit based on our most recently completed long-term strategic planning processes and also considers the current financial performance compared to our prior projections of the reporting unit . changes in our internal structuring , financial performance , judgments and projections could result in an impairment of goodwill or indefinite-lived intangible assets . the company has the option to perform a qualitative assessment of goodwill prior to completing the two-step process described above to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill and other intangible assets . if the company concludes that this is the case , it must perform the two-step process . otherwise , the company will forego the two-step process and does not need to perform any further testing . as a result of the july 1 , 2014 segment realignment , the company reviewed the recoverability of the carrying value of goodwill at its reporting units . the company had the option to perform a qualitative assessment of goodwill prior to completing the quantitative test to determine whether it was more likely than not that the fair value of a reporting unit was less than its carrying amount , including goodwill and other intangible assets . due to the short duration of time since the company 's most recent annual quantitative goodwill impairment test , which was completed on april 1 , 2014 , the company elected to perform a qualitative test on its reporting units as part of the segment realignment . the company did not record any impairment of goodwill as a result of the segment realignment , as the qualitative assessment did not indicate deterioration in the fair value of its reporting units since the most recent annual impairment test . story_separator_special_tag the increase in segment earnings was the result of higher revenues as well as gross margin improvements from ii-vi laser enterprise , as this business unit has begun to realize certain operational efficiencies and acquisition related synergies . operating income for fiscal year 2014 was negatively impacted by transaction expenses of $ 3.9 million , $ 2.5 million of purchase accounting relating to the fair market inventory adjustment and $ 2.0 million of restructuring efforts at ii-vi laser enterprise . ii-vi photonics ( $ in millions ) replace_table_token_6_th the company 's ii-vi photonics segment includes the combined operations of ii-vi photop and ii-vi optical communications . bookings for the year ended june 30 , 2015 for ii-vi photonics increased 28 % to $ 282.9 million , compared to $ 220.2 million for last fiscal year . the increase in bookings was due to increased demand for a variety of the segment 's products , such as optical components and modules driven by broadband initiatives , development of next generation wireless networks and increasing bandwidth trends in the datacenter and cloud applications . in addition , the segment recorded a full year of bookings from the prior fiscal year acquisition of ii-vi network solutions . revenues for the year ended june 30 , 2015 for ii-vi photonics increased 20 % to $ 260.8 million , compared to $ 216.5 million for last fiscal year . the increase in revenues was due to increased customer demand for optical filters , optical components and assemblies , pump lasers and fiber amplifier modules that serve multiple markets . in addition , the segment recorded a full year of revenues from the prior year acquisition of ii-vi network solutions . operating income for the year ended june 30 , 2015 for ii-vi photonics increased 7300 % to $ 7.2 million , compared to an operating loss of $ ( 0.1 ) million last fiscal year . the improvement in operating income was attributed primarily to incremental margin realized on increased revenues , and favorable product mix towards higher margin products , operational efficiencies and the absence of certain one-time purchase accounting fair market inventory adjustments that occurred in fiscal 2014 , offset by $ 4.5 million of restructuring expenses to “ right-size ” its business in fiscal 2015. during fiscal year 2014 , one-time fair market inventory purchase accounting adjustments totaled $ 1.6 million . 37 ii-vi performance products ( $ in millions ) replace_table_token_7_th the company 's ii-vi performance products segment includes the business units of ii-vi marlow , ii-vi m cubed , ii-vi advanced materials , ii-vi optical systems and ii-vi performance metals . bookings for the year ended june 30 , 2015 for ii-vi performance products decreased 7 % to $ 194.0 million , compared to $ 208.3 million for last fiscal year . the decrease in bookings related to lower order volumes of military-related products as a result of the decline in overall defense spending and funding constraints specific to certain u.s. military programs , as well as softness in the semiconductor capital equipment market . the decrease in bookings was somewhat offset by increased demand for sic substrates addressing high-power high-frequency semiconductor devices . revenues for the year ended june 30 , 2015 for ii-vi performance products decreased 9 % to $ 193.3 million , compared to $ 212.4 million for last fiscal year . the decrease in revenues was due to lower shipment volumes of military related products from lower overall defense spending as well as lower shipments to customers in the semiconductor capital equipment markets . the decrease in revenues was somewhat offset by higher revenues from the segment 's sic substrates . operating income for the year ended june 30 , 2015 for ii-vi performance products decreased 34 % to $ 14.6 million , compared to $ 22.1 million for last fiscal year . the decrease in operating income was a result of lower revenues during the current fiscal year as well as restructuring charges of $ 1.1 million relating to the consolidation of the company 's military-related businesses . fiscal year 2014 compared to fiscal year 2013 the following table sets forth bookings and select items from our consolidated statements of earnings for the years ended june 30 , 2014 and 2013 . ( $ millions , except per share information ) : replace_table_token_8_th consolidated bookings . bookings for the year ended june 30 , 2014 increased 33 % to $ 691.3 million , compared to $ 521.1 million for the 2013 fiscal year . the increase in bookings was mostly attributable to the acquisitions of ii-vi laser enterprise and ii-vi network solutions in fiscal year 2014 as well as the incremental bookings from the 2013 fiscal year acquisitions . in addition , the company 's ii-vi laser 38 solutions segment recorded increased bookings at its legacy business for both diamond window optics used in euv photolithography systems and at ii-vi highyag for fiber beam delivery systems and laser processing heads used in automotive manufacturing . revenues . revenues for the year ended june 30 , 2014 increased 24 % to $ 683.3 million , compared to $ 551.1 million for fiscal year june 30 , 2013. the increase in revenues was mostly attributable to the acquisitions of ii-vi laser enterprise and ii-vi network solutions in fiscal year 2014 , incremental revenues from fiscal year 2013 acquisitions and higher revenues associated with shipments of diamond windows at ii-vi laser solutions and sic wafers at ii-vi advanced materials . somewhat offsetting these higher revenue levels was a decrease in shipment volumes of passive optical components sold by ii-vi photonics segment as well as lower shipments at the company 's military-related businesses , driven primarily by reduced u.s. defense spending . gross margin . gross margin as a percentage of revenues for the year ended june 30 , 2014 was 33.2 % , compared to 36.9 % for fiscal year june 30 , 2013. the decrease in gross
| net cash provided by operating activities : net cash provided by operating activities was $ 129.4 million and $ 95.5 million for the fiscal years ended june 30 , 2015 and 2014 , respectively . the increase in cash flows from operating activities in fiscal year 2015 compared to fiscal year 2014 was the result of an increase in the company 's net earnings by $ 27.5 million , or 72 % , compared to fiscal year 2014. net cash provided by operating activities was $ 95.5 million and $ 107.6 million for the fiscal years ended june 30 , 2014 and 2013 , respectively . the decrease in cash flows from operating activities in fiscal year 2014 compared to fiscal year 2013 was mostly due to lower earnings levels , offset somewhat by favorable overall working capital changes , specifically in the areas of inventory and accounts payable . in addition , the higher non-cash charges for depreciation , amortization and share-based compensation expense that impacted net earnings did not affect operating cash flow . net cash used in investing activities : net cash used in investing activities was $ 52.2 million and $ 206.8 million for the fiscal years ended june 30 , 2015 and 2014 , respectively . net cash used in investing activities during the year ended june 30 , 2015 consisted of $ 52.3 million paid for capital expenditures of which $ 13.4 million represented the purchase of the ii-vi highyag manufacturing facility in berlin , germany 41 which was previously account ed for as a capital lease . the majority of net cash used in investing activities for fiscal year 2014 consisted of $ 93.1 million for the acquisition of ii-vi laser enterprise and $ 84.6 million net cash for the acquisition of ii-vi network solutions . in a ddition , the company paid $ 29.2 million for capital expenditures in fiscal year 2014. net cash used in investing activities was $ 206.8 million and $ 144.5 million for the fiscal years ended june 30 , 2014 and 2013 , respectively .
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westlake has an option to take 95 % of volumes in excess of the minimum commitment on an annual basis under the ethylene sales agreement if we produce more than our planned production . under the ethylene sales agreement , the price for the sale of such excess ethylene to westlake is based on a formula similar to that used for the minimum purchase commitment , with the exception of certain fixed costs . in addition , under the ethylene sales agreement , if production costs billed to westlake on an annual basis are less than 95 % of the actual production costs incurred by opco during the contract year , opco is entitled to recover the shortfall in such production costs ( proportionate to the volume sold to westlake ) in the subsequent year ( `` shortfall `` ) . the shortfall is recognized during the period in which the related operating , maintenance or turnaround activities occur . we sell ethylene production in excess of volumes sold to westlake , as well as all associated co-products resulting from the ethylene production , directly to third parties on either a spot or contract basis . net proceeds ( after transportation and other costs ) from the sales of associated co-products that result from the production of ethylene purchased by westlake are netted against the ethylene price charged to westlake under the ethylene sales agreement , thereby substantially reducing our exposure to fluctuations in the market prices of these co-products . during 2018 , all the third-party ethylene and associated co-products sales generated 16.4 % of our total revenues . under the services and secondment agreement , opco uses a portion of its production capacity to process purge gas for westlake . on august 4 , 2016 , opco and westlake entered into an amendment to the ethylene sales agreement in order to provide that certain of the pricing components that make up the price for ethylene sold thereunder would be modified to reflect the portion of opco 's production capacity that is used to process westlake 's purge gas instead of producing ethylene and to clarify that costs specific to the processing of westlake 's purge gas would be recovered under the services and secondment agreement , and not the ethylene sales agreement . please refer to note 2 to the consolidated financial statements included within this report for more information on the ethylene sales agreement . how we source feedstock opco has entered into a 12-year feedstock supply agreement ( the `` feedstock supply agreement `` ) with westlake petrochemicals llc , a wholly owned subsidiary of westlake , under which westlake petrochemicals llc supplies opco with ethane and other feedstocks that opco uses to produce ethylene under the ethylene sales agreement . opco may purchase the ethane and other feedstocks to produce ethylene and resulting co-products to sell to unrelated third parties from westlake petrochemicals llc . please refer to note 2 to the consolidated financial statements included within this report for more information on the feedstock supply agreement . how we evaluate operations our management uses a variety of financial and operating metrics to analyze our performance . these metrics are significant factors in assessing our operating results and profitability and include : ( 1 ) production volumes , ( 2 ) operating and maintenance expenses , including turnaround costs , and ( 3 ) mlp distributable cash flow and ebitda . 32 production volumes the amount of profit we generate primarily depends on the volumes of ethylene and resulting co-products we are able to produce at calvert city olefins and lake charles olefins . although westlake has committed to purchasing minimum volumes from us under the ethylene sales agreement , our results of operations are impacted by our ability to : produce sufficient volumes of ethylene to meet our commitments under the ethylene sales agreement or recover our estimated costs through the pricing provisions of the ethylene sales agreement ; contract with third parties for the remaining uncommitted production capacity ; add or increase capacity at our existing production facilities , or add additional production capacity via organic expansion projects and acquisitions ; and achieve or exceed the specified yield factors for natural gas , ethane and other feedstock under the ethylene sales agreement . operating expenses , maintenance capital expenditures and turnaround costs our management seeks to maximize the profitability of our operations by effectively managing operating expenses , maintenance capital expenditures and turnaround costs . our operating expenses are comprised primarily of feedstock costs and natural gas , labor expenses ( including contractor services ) , utility costs ( other than natural gas ) and turnaround and maintenance expenses . with the exception of feedstock , including natural gas , and utilities-related expenses , operating expenses generally remain relatively stable across broad ranges of production volumes but can fluctuate from period to period depending on the circumstances , particularly maintenance and turnaround activities . our maintenance capital expenditures and turnaround costs are comprised primarily of maintenance of our ethylene production facilities and the amortization of capitalized turnaround costs . these capital expenditures relate to the maintenance and integrity of our facilities . we capitalize the costs of major maintenance activities , or turnarounds , and amortize the costs over the period until the next planned turnaround of the affected facility . operating expenses , maintenance capital expenditures and turnaround costs are built into the price per pound of ethylene charged to westlake under the ethylene sales agreement . because the expenses other than feedstock costs and natural gas are based on forecasted amounts and remain a fixed component of the price per pound of ethylene sold under the ethylene sales agreement for any given 12-month period , our ability to manage operating expenses , maintenance expenditures and turnaround cost may directly affect our profitability and cash flows . story_separator_special_tag ebitda increased by $ 24.9 million to $ 490.2 million in 2017 from $ 465.3 million in 2016. the increase in ebitda as compared to the prior year was due to increased production at all of opco 's facilities following the completion of expansion projects at the lake charles petro 1 and calvert city olefins facilities , partially offset by the shortfall of approximately $ 63.5 million recognized in 2016. cash flows operating activities operating activities provided cash of $ 436.2 million in 2018 compared to cash provided of $ 537.4 million in 2017 . the $ 101.2 million decrease in cash flows from operating activities was mainly due to lower operating income and an increase in use of cash in working capital during 2018 as compared to 2017 . changes in components of working capital , which we define for the purposes of this cash flow discussion as accounts receivable—westlake , accounts receivable , net—third parties , inventories , prepaid expenses and other current assets less accounts payable—westlake , accounts payable—third parties and accrued liabilities , used story_separator_special_tag style= `` line-height:120 % ; padding-top:12px ; text-align : left ; text-indent:32px ; font-size:10pt ; `` > based on the terms of our cash distribution policy , we expect that we will distribute to our partners most of the excess cash generated by our operations . to the extent we do not generate sufficient cash flow to fund capital expenditures , we expect to fund them primarily from external sources , including borrowing directly from westlake , as well as future issuances of equity and debt interests . the partnership maintains separate bank accounts , but westlake continues to provide treasury services on our behalf under the services and secondment agreement . our sources of liquidity include cash generated from operations , the opco revolver , the mlp revolver and , if necessary and possible under then current market conditions , the issuance of additional equity interests or debt . we believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements and to make quarterly cash distributions . westlake may also provide other direct and indirect financing to us from time to time , although it is not required to do so . in order to fund non-annual turnaround expenditures , we cause opco to reserve approximately $ 30.0 million during each twelve-month period for turnaround activities . each of opco 's ethylene production facilities requires turnaround maintenance approximately every five years . by reserving additional cash annually , we intend to reduce the variability in opco 's cash flow . westlake 's purchase price for ethylene purchased under the ethylene sales agreement includes a component ( adjusted annually ) designed to cover , over the long term , substantially all of opco 's turnaround expenditures . 38 our cash is generated from cash distributions from opco . opco is a restricted subsidiary under certain indentures governing westlake 's senior notes . the indentures governing westlake 's senior notes prevent opco from making distributions to us if any default or event of default ( as defined in the indentures ) exists . westlake 's credit facility does not prevent opco from making distributions to us . on september 29 , 2017 , we completed our secondary offering of 5,175,000 common units at a price of $ 22.00 per unit . net proceeds to the partnership from the sale of the units were $ 110.7 million , net of underwriting discounts , structuring fees and estimated offering expenses of approximately $ 3.1 million . on august 1 , 2017 , the partnership entered into an investment management agreement with opco and westlake that authorizes westlake to invest the partnership 's and opco 's excess cash with westlake for a term of up to a maximum of nine months . per the terms of the investment management agreement , cash invested with westlake earns a market return plus five basis points and westlake provides daily availability of the invested cash to meet any liquidity needs of the partnership or opco . on january 25 , 2019 , the board of directors of westlake chemical partners gp llc , our general partner , approved a quarterly distribution of $ 0.4328 per unit payable on february 20 , 2019 to unitholders of record on february 5 , 2019 , which equates to approximately $ 14.0 million per quarter , or approximately $ 55.8 million per year in aggregate , based on the number of common units outstanding on december 31 , 2018 . we do not have a legal or contractual obligation to pay distributions on a quarterly basis or any other basis at our minimum quarterly distribution rate or any other rate . capital expenditures opco completed its expansion project to increase the ethylene capacity at its calvert city facility in 2017 and lake charles petro 1 facility upgrade and ethylene capacity expansion project in 2016.westlake has historically funded expansion capital expenditures related to lake charles olefins and calvert city olefins . during the years ended december 31 , 2018 and 2017 , westlake loaned opco $ 3.6 million and $ 165.3 million , respectively . the $ 3.6 million was used to fund working capital needs in 2018 , while $ 47.1 million of the $ 165.3 million amount was used to fund expansion capital expenditures in 2017. we expect that westlake will loan additional cash to opco to fund its expansion capital expenditures in the future , but westlake is under no obligation to do so . cash and cash equivalents as of december 31 , 2018 , our cash and cash equivalents totaled $ 19.7 million . in addition , we have cash invested under the investment management agreement ( as described below ) and a revolving credit facility with westlake available to supplement cash if needed , as described under `` indebtedness `` below . on august 1
| net cash provided by operating activities : net cash provided by operating activities was $ 129.4 million and $ 95.5 million for the fiscal years ended june 30 , 2015 and 2014 , respectively . the increase in cash flows from operating activities in fiscal year 2015 compared to fiscal year 2014 was the result of an increase in the company 's net earnings by $ 27.5 million , or 72 % , compared to fiscal year 2014. net cash provided by operating activities was $ 95.5 million and $ 107.6 million for the fiscal years ended june 30 , 2014 and 2013 , respectively . the decrease in cash flows from operating activities in fiscal year 2014 compared to fiscal year 2013 was mostly due to lower earnings levels , offset somewhat by favorable overall working capital changes , specifically in the areas of inventory and accounts payable . in addition , the higher non-cash charges for depreciation , amortization and share-based compensation expense that impacted net earnings did not affect operating cash flow . net cash used in investing activities : net cash used in investing activities was $ 52.2 million and $ 206.8 million for the fiscal years ended june 30 , 2015 and 2014 , respectively . net cash used in investing activities during the year ended june 30 , 2015 consisted of $ 52.3 million paid for capital expenditures of which $ 13.4 million represented the purchase of the ii-vi highyag manufacturing facility in berlin , germany 41 which was previously account ed for as a capital lease . the majority of net cash used in investing activities for fiscal year 2014 consisted of $ 93.1 million for the acquisition of ii-vi laser enterprise and $ 84.6 million net cash for the acquisition of ii-vi network solutions . in a ddition , the company paid $ 29.2 million for capital expenditures in fiscal year 2014. net cash used in investing activities was $ 206.8 million and $ 144.5 million for the fiscal years ended june 30 , 2014 and 2013 , respectively .
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westlake has an option to take 95 % of volumes in excess of the minimum commitment on an annual basis under the ethylene sales agreement if we produce more than our planned production . under the ethylene sales agreement , the price for the sale of such excess ethylene to westlake is based on a formula similar to that used for the minimum purchase commitment , with the exception of certain fixed costs . in addition , under the ethylene sales agreement , if production costs billed to westlake on an annual basis are less than 95 % of the actual production costs incurred by opco during the contract year , opco is entitled to recover the shortfall in such production costs ( proportionate to the volume sold to westlake ) in the subsequent year ( `` shortfall `` ) . the shortfall is recognized during the period in which the related operating , maintenance or turnaround activities occur . we sell ethylene production in excess of volumes sold to westlake , as well as all associated co-products resulting from the ethylene production , directly to third parties on either a spot or contract basis . net proceeds ( after transportation and other costs ) from the sales of associated co-products that result from the production of ethylene purchased by westlake are netted against the ethylene price charged to westlake under the ethylene sales agreement , thereby substantially reducing our exposure to fluctuations in the market prices of these co-products . during 2018 , all the third-party ethylene and associated co-products sales generated 16.4 % of our total revenues . under the services and secondment agreement , opco uses a portion of its production capacity to process purge gas for westlake . on august 4 , 2016 , opco and westlake entered into an amendment to the ethylene sales agreement in order to provide that certain of the pricing components that make up the price for ethylene sold thereunder would be modified to reflect the portion of opco 's production capacity that is used to process westlake 's purge gas instead of producing ethylene and to clarify that costs specific to the processing of westlake 's purge gas would be recovered under the services and secondment agreement , and not the ethylene sales agreement . please refer to note 2 to the consolidated financial statements included within this report for more information on the ethylene sales agreement . how we source feedstock opco has entered into a 12-year feedstock supply agreement ( the `` feedstock supply agreement `` ) with westlake petrochemicals llc , a wholly owned subsidiary of westlake , under which westlake petrochemicals llc supplies opco with ethane and other feedstocks that opco uses to produce ethylene under the ethylene sales agreement . opco may purchase the ethane and other feedstocks to produce ethylene and resulting co-products to sell to unrelated third parties from westlake petrochemicals llc . please refer to note 2 to the consolidated financial statements included within this report for more information on the feedstock supply agreement . how we evaluate operations our management uses a variety of financial and operating metrics to analyze our performance . these metrics are significant factors in assessing our operating results and profitability and include : ( 1 ) production volumes , ( 2 ) operating and maintenance expenses , including turnaround costs , and ( 3 ) mlp distributable cash flow and ebitda . 32 production volumes the amount of profit we generate primarily depends on the volumes of ethylene and resulting co-products we are able to produce at calvert city olefins and lake charles olefins . although westlake has committed to purchasing minimum volumes from us under the ethylene sales agreement , our results of operations are impacted by our ability to : produce sufficient volumes of ethylene to meet our commitments under the ethylene sales agreement or recover our estimated costs through the pricing provisions of the ethylene sales agreement ; contract with third parties for the remaining uncommitted production capacity ; add or increase capacity at our existing production facilities , or add additional production capacity via organic expansion projects and acquisitions ; and achieve or exceed the specified yield factors for natural gas , ethane and other feedstock under the ethylene sales agreement . operating expenses , maintenance capital expenditures and turnaround costs our management seeks to maximize the profitability of our operations by effectively managing operating expenses , maintenance capital expenditures and turnaround costs . our operating expenses are comprised primarily of feedstock costs and natural gas , labor expenses ( including contractor services ) , utility costs ( other than natural gas ) and turnaround and maintenance expenses . with the exception of feedstock , including natural gas , and utilities-related expenses , operating expenses generally remain relatively stable across broad ranges of production volumes but can fluctuate from period to period depending on the circumstances , particularly maintenance and turnaround activities . our maintenance capital expenditures and turnaround costs are comprised primarily of maintenance of our ethylene production facilities and the amortization of capitalized turnaround costs . these capital expenditures relate to the maintenance and integrity of our facilities . we capitalize the costs of major maintenance activities , or turnarounds , and amortize the costs over the period until the next planned turnaround of the affected facility . operating expenses , maintenance capital expenditures and turnaround costs are built into the price per pound of ethylene charged to westlake under the ethylene sales agreement . because the expenses other than feedstock costs and natural gas are based on forecasted amounts and remain a fixed component of the price per pound of ethylene sold under the ethylene sales agreement for any given 12-month period , our ability to manage operating expenses , maintenance expenditures and turnaround cost may directly affect our profitability and cash flows . story_separator_special_tag ebitda increased by $ 24.9 million to $ 490.2 million in 2017 from $ 465.3 million in 2016. the increase in ebitda as compared to the prior year was due to increased production at all of opco 's facilities following the completion of expansion projects at the lake charles petro 1 and calvert city olefins facilities , partially offset by the shortfall of approximately $ 63.5 million recognized in 2016. cash flows operating activities operating activities provided cash of $ 436.2 million in 2018 compared to cash provided of $ 537.4 million in 2017 . the $ 101.2 million decrease in cash flows from operating activities was mainly due to lower operating income and an increase in use of cash in working capital during 2018 as compared to 2017 . changes in components of working capital , which we define for the purposes of this cash flow discussion as accounts receivable—westlake , accounts receivable , net—third parties , inventories , prepaid expenses and other current assets less accounts payable—westlake , accounts payable—third parties and accrued liabilities , used story_separator_special_tag style= `` line-height:120 % ; padding-top:12px ; text-align : left ; text-indent:32px ; font-size:10pt ; `` > based on the terms of our cash distribution policy , we expect that we will distribute to our partners most of the excess cash generated by our operations . to the extent we do not generate sufficient cash flow to fund capital expenditures , we expect to fund them primarily from external sources , including borrowing directly from westlake , as well as future issuances of equity and debt interests . the partnership maintains separate bank accounts , but westlake continues to provide treasury services on our behalf under the services and secondment agreement . our sources of liquidity include cash generated from operations , the opco revolver , the mlp revolver and , if necessary and possible under then current market conditions , the issuance of additional equity interests or debt . we believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements and to make quarterly cash distributions . westlake may also provide other direct and indirect financing to us from time to time , although it is not required to do so . in order to fund non-annual turnaround expenditures , we cause opco to reserve approximately $ 30.0 million during each twelve-month period for turnaround activities . each of opco 's ethylene production facilities requires turnaround maintenance approximately every five years . by reserving additional cash annually , we intend to reduce the variability in opco 's cash flow . westlake 's purchase price for ethylene purchased under the ethylene sales agreement includes a component ( adjusted annually ) designed to cover , over the long term , substantially all of opco 's turnaround expenditures . 38 our cash is generated from cash distributions from opco . opco is a restricted subsidiary under certain indentures governing westlake 's senior notes . the indentures governing westlake 's senior notes prevent opco from making distributions to us if any default or event of default ( as defined in the indentures ) exists . westlake 's credit facility does not prevent opco from making distributions to us . on september 29 , 2017 , we completed our secondary offering of 5,175,000 common units at a price of $ 22.00 per unit . net proceeds to the partnership from the sale of the units were $ 110.7 million , net of underwriting discounts , structuring fees and estimated offering expenses of approximately $ 3.1 million . on august 1 , 2017 , the partnership entered into an investment management agreement with opco and westlake that authorizes westlake to invest the partnership 's and opco 's excess cash with westlake for a term of up to a maximum of nine months . per the terms of the investment management agreement , cash invested with westlake earns a market return plus five basis points and westlake provides daily availability of the invested cash to meet any liquidity needs of the partnership or opco . on january 25 , 2019 , the board of directors of westlake chemical partners gp llc , our general partner , approved a quarterly distribution of $ 0.4328 per unit payable on february 20 , 2019 to unitholders of record on february 5 , 2019 , which equates to approximately $ 14.0 million per quarter , or approximately $ 55.8 million per year in aggregate , based on the number of common units outstanding on december 31 , 2018 . we do not have a legal or contractual obligation to pay distributions on a quarterly basis or any other basis at our minimum quarterly distribution rate or any other rate . capital expenditures opco completed its expansion project to increase the ethylene capacity at its calvert city facility in 2017 and lake charles petro 1 facility upgrade and ethylene capacity expansion project in 2016.westlake has historically funded expansion capital expenditures related to lake charles olefins and calvert city olefins . during the years ended december 31 , 2018 and 2017 , westlake loaned opco $ 3.6 million and $ 165.3 million , respectively . the $ 3.6 million was used to fund working capital needs in 2018 , while $ 47.1 million of the $ 165.3 million amount was used to fund expansion capital expenditures in 2017. we expect that westlake will loan additional cash to opco to fund its expansion capital expenditures in the future , but westlake is under no obligation to do so . cash and cash equivalents as of december 31 , 2018 , our cash and cash equivalents totaled $ 19.7 million . in addition , we have cash invested under the investment management agreement ( as described below ) and a revolving credit facility with westlake available to supplement cash if needed , as described under `` indebtedness `` below . on august 1
| cash of $ 4.3 million in 2018 as compared to $ 78.3 million of cash provided in 2017 , resulting in an overall unfavorable change of $ 82.6 million . this change was primarily due to the unfavorable change in the westlake accounts receivable balance in 2018 as compared to 2017. the unfavorable change was primarily due to the recovery of the shortfall and a buyer deficiency fee in 2017 that were recognized in 2016 as accounts receivable from westlake . operating activities provided cash of $ 537.4 million in 2017 compared to cash provided of $ 287.7 million in 2016. the $ 249.8 million increase in cash flows from operating activities was mainly due to an increase in cash provided by working capital and lower turnaround related expenditures during 2017 as compared to 2016. changes in components of working capital , which we define for the purposes of this cash flow discussion as accounts receivable—westlake , accounts receivable , net—third parties , inventories , prepaid expenses and other current assets less accounts payable—westlake , accounts payable—third parties and accrued liabilities , provided cash of $ 78.3 million in 2017 as compared to $ 89.8 million of cash used in 2016 , resulting in an overall favorable change of $ 168.1 million . this change was primarily due to a favorable change in the westlake accounts receivable balance due to the collection of the 2016 shortfall amount and a buyer deficiency fee in 2017 , partially offset by unfavorable changes in third party accounts receivable and accrued liabilities .
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see results of operations—mortgage insurance— niw , iif , rif for additional information regarding our portfolio mix and the mortgage industry . since the beginning of 2009 , we have written approximately $ 207 billion of niw in this improving environment . our niw increased 11 % for the year ended december 31 , 2015 , compared to the same period of 2014 . as of december 31 , 2015 , our portfolio of business written since the beginning of 2009 , including harp refinancings , represented approximately 84 % of our total primary rif . as a result of the improving macroeconomic and credit trends referenced above , throughout 2014 and 2015 our results of operations have improved significantly . the negative impact from losses in our legacy portfolio has been reduced and we have continued to write a high volume of insurance on high credit quality loans . the improving environment has contributed to a reduction in our incurred losses and claims submitted and paid in our mortgage insurance business . the number of new primary mortgage insurance defaults , net of defaults that defaulted but were cured within the same period , declined by 13.9 % for the year ended december 31 , 2015 , compared to the same period of 2014. similarly , our primary default rate of 4.0 % at december 31 , 2015 declined from 5.2 % at december 31 , 2014 . 71 part ii item 7. management 's discussion and analysis of financial condition and results of operations while the positive macroeconomic and credit trends have contributed to the improved financial strength of existing private mortgage insurers , these trends also have encouraged newer entrants into the private mortgage insurance industry . the presence of newer entrants in the industry has increased price competition as these companies seek to gain a greater presence in the market and more established industry participants seek to defend their market share and customer relationships . as a result , recent pricing trends have included : ( i ) the increased use of a spectrum of filed rates to allow for formulaic , risk-based pricing ( commonly referred to as “ black-box ” pricing ) ; ( ii ) a significant increase in the broad use of customized ( often discounted ) rates on lender-paid , single premium policies , and more recently , on borrower-paid , monthly premium policies ; and ( iii ) overall reductions in standard filed rates on borrower-paid policies . the willingness of mortgage insurers to offer reduced pricing ( through filed or customized rates ) has been met with an increased demand from certain large lenders for reduced rate products . this has further intensified the pricing environment and has resulted in new pricing levels ( whether through filed or customized rates ) that private mortgage insurers are expected to meet in order to avoid risking a potential significant loss in niw . the heightened pricing competition has occurred in the context of generally higher capital requirements being applied to private mortgage insurers as a result of the pmiers and more aggressive pricing by the fha ( which is most impactful with respect to high-ltv loans for borrowers with fico scores below 720 ) . this has produced a marketplace where balancing both targeted returns on new business and an acceptable share of the insured market has become increasingly challenging for all participants . in formulating our strategy in this environment , we have taken a disciplined approach to establishing rates and delivering a mix of business that is expected to produce our targeted level of returns on a blended basis and an acceptable level of niw . in furtherance of this strategy , we recently : ( 1 ) increased our filed rates for lender-paid mortgage insurance ; ( 2 ) continued to use the authority set forth in our rate filings to provide customized premiums for lender-paid , single premium mortgage insurance on a selective and negotiated basis while , importantly , declining to participate in significantly discounted , single premium business that has been offered for bid on an aggregated basis ( which we estimate represented approximately 5 % of the total private mortgage insurance market in 2015 ) ; and ( 3 ) determined to change our borrower-paid , filed rates in order to remain competitive , which generally will have the effect of decreasing our standard rates on higher fico business and raising our rates on lower fico business where the fha is already very competitive . as a result of these changes , we believe we remain well positioned to compete for the high-quality business being originated today and to capture a larger share of the generally more profitable , borrower-paid business , while at the same time maintaining attractive projected returns on niw within our targeted ranges . while our portfolio returns will depend on a number of factors , including the amount and mix of niw that we are able to write at these new levels and the amount of reinsurance we use in the future , we currently expect our pricing changes will produce returns on new business on an unlevered basis ( i.e . , after-tax underwriting returns plus projected investment income ) of approximately 13 % to 14 % and approximately 16 % to 17 % on a levered basis ( i.e . , after-tax returns taking into consideration a targeted corporate debt to capital ratio of less than 30 % ) . most importantly , we believe our pricing actions will allow us to compete more effectively . the gses recently revised the pmiers , effective on december 31 , 2015 , with the aim of ensuring that the approved insurers will continue to possess the financial and operational capacity to serve as strong counterparties to the gses throughout various market conditions . story_separator_special_tag as our legacy portfolio has become a smaller percentage of our overall insured portfolio , there has been a decrease in the amount of loss mitigation activity with respect to the claims we receive , and we expect this trend to continue . as a result , our future loss mitigation activity is not expected to mitigate our losses to the same extent as in prior years ; - the bofa settlement agreement established that radian will limit rescissions , claim denials or claim curtailments on legacy loans . see note 10 of notes to consolidated financial statements for additional information about the bofa settlement agreement ; and - the freddie mac agreement established certain terms for the treatment of the loans subject to that agreement , including claim payments , loss mitigation activity and insurance coverage , and capped radian guaranty 's claim exposure on such loans . see note 10 of notes to consolidated financial statements for additional information . other operating expenses . our other operating expenses are affected by the level of niw , as well as the level of rif . additionally , in recent periods , our operating expenses have been impacted significantly by compensation expense associated with changes in the estimated fair value of certain of our long-term equity-based incentive awards that are settled in cash . the fair value of these awards , and associated compensation expense , have been dependent , in large part , on our stock price at any given point in time . substantially all of these awards vested and were paid to grantees in june 2014 and june 2015. therefore , although these awards had produced significant expense volatility in the past due to their valuation relative to radian group 's common stock price , the expense volatility from these awards will not continue in the future . certain corporate income and expenses that were previously allocated to the financial guaranty segment but were not reclassified to discontinued operations , such as investment income , interest expense and corporate overhead expenses , have been reallocated to the mortgage insurance segment for those periods in which discontinued operations are presented . 78 part ii item 7. management 's discussion and analysis of financial condition and results of operations third-party reinsurance . we use third-party reinsurance in our mortgage insurance business to manage capital and risk . when we enter into a reinsurance agreement , the reinsurer receives a premium and , in exchange , agrees to insure an agreed upon portion of incurred losses . this arrangement has the impact of reducing our earned premiums but also reduces our net rif , which provides capital relief to the insurance subsidiary ceding the rif and reduces our incurred losses by any incurred losses ceded in accordance with the reinsurance agreement . in addition , we often receive ceding commissions from the reinsurer as part of the transaction , which reduces our operating expenses . in the past , we also had entered into capital markets-based reinsurance transactions designed to transfer all or a portion of the risk associated with certain higher risk mortgage insurance products . see note 8 of notes to consolidated financial statements for more information about our reinsurance arrangements . services on june 30 , 2014 , we acquired clayton , which is a leading provider of services and solutions to the real estate and mortgage finance industries , providing outsourced services , information-based analytics and specialty consulting for buyers and sellers of , and investors in , mortgage- and real estate-related loans and securities as well as other abs . see note 1 of notes to consolidated financial statements and “ item 1. business—mortgage and real estate services ( “ services ” ) —business ” for additional information regarding the services segment 's business . clayton 's principal customers include a wide range of financial institutions , the gses , securitization trusts , investors , regulators and other mortgage-related service providers , including mortgage originators , mortgage purchasers , mbs issuers , mbs investors and mortgage servicers . see “ item 1. business—mortgage and real estate services ( “ services ” ) —customers ” for additional information regarding the services segment 's customers . the results of clayton 's operations have been included in our financial statements in the services segment from the june 30 , 2014 date of acquisition . the services segment 's results primarily reflect the operations and offerings of clayton , along with other services and activities we offer that are complementary to our mortgage insurance business . in contrast to the mortgage insurance segment , the services segment is a fee-for-service business without significant balance sheet risk . key factors impacting results include : services revenue . our services revenue is primarily derived from : ( i ) loan review and due diligence services ; ( ii ) surveillance services , including rmbs surveillance , loan servicer oversight , loan-level servicing compliance reviews and operational reviews of mortgage servicers and originators ; ( iii ) valuation and component services , providing outsourcing solutions primarily for the sfr and real estate markets , as well as outsourced solutions for appraisal , title and closing services ; and ( iv ) reo management services . see “ mortgage and real estate services—business— mortgage and real estate services revenue drivers ” for additional information regarding current and expected future revenue drivers . potential sales volume in our services business depends in part on the overall activity in the mortgage finance market and the health of related industries . we believe the diversity of the services offered by our services segment , which is intended to cover all phases of the mortgage value chain , will help produce fee income from the services segment throughout various mortgage finance environments . for example , the demand for due diligence services may decrease in unfavorable economic conditions due to lower mortgage origination and securitization volumes ,
| cash of $ 4.3 million in 2018 as compared to $ 78.3 million of cash provided in 2017 , resulting in an overall unfavorable change of $ 82.6 million . this change was primarily due to the unfavorable change in the westlake accounts receivable balance in 2018 as compared to 2017. the unfavorable change was primarily due to the recovery of the shortfall and a buyer deficiency fee in 2017 that were recognized in 2016 as accounts receivable from westlake . operating activities provided cash of $ 537.4 million in 2017 compared to cash provided of $ 287.7 million in 2016. the $ 249.8 million increase in cash flows from operating activities was mainly due to an increase in cash provided by working capital and lower turnaround related expenditures during 2017 as compared to 2016. changes in components of working capital , which we define for the purposes of this cash flow discussion as accounts receivable—westlake , accounts receivable , net—third parties , inventories , prepaid expenses and other current assets less accounts payable—westlake , accounts payable—third parties and accrued liabilities , provided cash of $ 78.3 million in 2017 as compared to $ 89.8 million of cash used in 2016 , resulting in an overall favorable change of $ 168.1 million . this change was primarily due to a favorable change in the westlake accounts receivable balance due to the collection of the 2016 shortfall amount and a buyer deficiency fee in 2017 , partially offset by unfavorable changes in third party accounts receivable and accrued liabilities .
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see results of operations—mortgage insurance— niw , iif , rif for additional information regarding our portfolio mix and the mortgage industry . since the beginning of 2009 , we have written approximately $ 207 billion of niw in this improving environment . our niw increased 11 % for the year ended december 31 , 2015 , compared to the same period of 2014 . as of december 31 , 2015 , our portfolio of business written since the beginning of 2009 , including harp refinancings , represented approximately 84 % of our total primary rif . as a result of the improving macroeconomic and credit trends referenced above , throughout 2014 and 2015 our results of operations have improved significantly . the negative impact from losses in our legacy portfolio has been reduced and we have continued to write a high volume of insurance on high credit quality loans . the improving environment has contributed to a reduction in our incurred losses and claims submitted and paid in our mortgage insurance business . the number of new primary mortgage insurance defaults , net of defaults that defaulted but were cured within the same period , declined by 13.9 % for the year ended december 31 , 2015 , compared to the same period of 2014. similarly , our primary default rate of 4.0 % at december 31 , 2015 declined from 5.2 % at december 31 , 2014 . 71 part ii item 7. management 's discussion and analysis of financial condition and results of operations while the positive macroeconomic and credit trends have contributed to the improved financial strength of existing private mortgage insurers , these trends also have encouraged newer entrants into the private mortgage insurance industry . the presence of newer entrants in the industry has increased price competition as these companies seek to gain a greater presence in the market and more established industry participants seek to defend their market share and customer relationships . as a result , recent pricing trends have included : ( i ) the increased use of a spectrum of filed rates to allow for formulaic , risk-based pricing ( commonly referred to as “ black-box ” pricing ) ; ( ii ) a significant increase in the broad use of customized ( often discounted ) rates on lender-paid , single premium policies , and more recently , on borrower-paid , monthly premium policies ; and ( iii ) overall reductions in standard filed rates on borrower-paid policies . the willingness of mortgage insurers to offer reduced pricing ( through filed or customized rates ) has been met with an increased demand from certain large lenders for reduced rate products . this has further intensified the pricing environment and has resulted in new pricing levels ( whether through filed or customized rates ) that private mortgage insurers are expected to meet in order to avoid risking a potential significant loss in niw . the heightened pricing competition has occurred in the context of generally higher capital requirements being applied to private mortgage insurers as a result of the pmiers and more aggressive pricing by the fha ( which is most impactful with respect to high-ltv loans for borrowers with fico scores below 720 ) . this has produced a marketplace where balancing both targeted returns on new business and an acceptable share of the insured market has become increasingly challenging for all participants . in formulating our strategy in this environment , we have taken a disciplined approach to establishing rates and delivering a mix of business that is expected to produce our targeted level of returns on a blended basis and an acceptable level of niw . in furtherance of this strategy , we recently : ( 1 ) increased our filed rates for lender-paid mortgage insurance ; ( 2 ) continued to use the authority set forth in our rate filings to provide customized premiums for lender-paid , single premium mortgage insurance on a selective and negotiated basis while , importantly , declining to participate in significantly discounted , single premium business that has been offered for bid on an aggregated basis ( which we estimate represented approximately 5 % of the total private mortgage insurance market in 2015 ) ; and ( 3 ) determined to change our borrower-paid , filed rates in order to remain competitive , which generally will have the effect of decreasing our standard rates on higher fico business and raising our rates on lower fico business where the fha is already very competitive . as a result of these changes , we believe we remain well positioned to compete for the high-quality business being originated today and to capture a larger share of the generally more profitable , borrower-paid business , while at the same time maintaining attractive projected returns on niw within our targeted ranges . while our portfolio returns will depend on a number of factors , including the amount and mix of niw that we are able to write at these new levels and the amount of reinsurance we use in the future , we currently expect our pricing changes will produce returns on new business on an unlevered basis ( i.e . , after-tax underwriting returns plus projected investment income ) of approximately 13 % to 14 % and approximately 16 % to 17 % on a levered basis ( i.e . , after-tax returns taking into consideration a targeted corporate debt to capital ratio of less than 30 % ) . most importantly , we believe our pricing actions will allow us to compete more effectively . the gses recently revised the pmiers , effective on december 31 , 2015 , with the aim of ensuring that the approved insurers will continue to possess the financial and operational capacity to serve as strong counterparties to the gses throughout various market conditions . story_separator_special_tag as our legacy portfolio has become a smaller percentage of our overall insured portfolio , there has been a decrease in the amount of loss mitigation activity with respect to the claims we receive , and we expect this trend to continue . as a result , our future loss mitigation activity is not expected to mitigate our losses to the same extent as in prior years ; - the bofa settlement agreement established that radian will limit rescissions , claim denials or claim curtailments on legacy loans . see note 10 of notes to consolidated financial statements for additional information about the bofa settlement agreement ; and - the freddie mac agreement established certain terms for the treatment of the loans subject to that agreement , including claim payments , loss mitigation activity and insurance coverage , and capped radian guaranty 's claim exposure on such loans . see note 10 of notes to consolidated financial statements for additional information . other operating expenses . our other operating expenses are affected by the level of niw , as well as the level of rif . additionally , in recent periods , our operating expenses have been impacted significantly by compensation expense associated with changes in the estimated fair value of certain of our long-term equity-based incentive awards that are settled in cash . the fair value of these awards , and associated compensation expense , have been dependent , in large part , on our stock price at any given point in time . substantially all of these awards vested and were paid to grantees in june 2014 and june 2015. therefore , although these awards had produced significant expense volatility in the past due to their valuation relative to radian group 's common stock price , the expense volatility from these awards will not continue in the future . certain corporate income and expenses that were previously allocated to the financial guaranty segment but were not reclassified to discontinued operations , such as investment income , interest expense and corporate overhead expenses , have been reallocated to the mortgage insurance segment for those periods in which discontinued operations are presented . 78 part ii item 7. management 's discussion and analysis of financial condition and results of operations third-party reinsurance . we use third-party reinsurance in our mortgage insurance business to manage capital and risk . when we enter into a reinsurance agreement , the reinsurer receives a premium and , in exchange , agrees to insure an agreed upon portion of incurred losses . this arrangement has the impact of reducing our earned premiums but also reduces our net rif , which provides capital relief to the insurance subsidiary ceding the rif and reduces our incurred losses by any incurred losses ceded in accordance with the reinsurance agreement . in addition , we often receive ceding commissions from the reinsurer as part of the transaction , which reduces our operating expenses . in the past , we also had entered into capital markets-based reinsurance transactions designed to transfer all or a portion of the risk associated with certain higher risk mortgage insurance products . see note 8 of notes to consolidated financial statements for more information about our reinsurance arrangements . services on june 30 , 2014 , we acquired clayton , which is a leading provider of services and solutions to the real estate and mortgage finance industries , providing outsourced services , information-based analytics and specialty consulting for buyers and sellers of , and investors in , mortgage- and real estate-related loans and securities as well as other abs . see note 1 of notes to consolidated financial statements and “ item 1. business—mortgage and real estate services ( “ services ” ) —business ” for additional information regarding the services segment 's business . clayton 's principal customers include a wide range of financial institutions , the gses , securitization trusts , investors , regulators and other mortgage-related service providers , including mortgage originators , mortgage purchasers , mbs issuers , mbs investors and mortgage servicers . see “ item 1. business—mortgage and real estate services ( “ services ” ) —customers ” for additional information regarding the services segment 's customers . the results of clayton 's operations have been included in our financial statements in the services segment from the june 30 , 2014 date of acquisition . the services segment 's results primarily reflect the operations and offerings of clayton , along with other services and activities we offer that are complementary to our mortgage insurance business . in contrast to the mortgage insurance segment , the services segment is a fee-for-service business without significant balance sheet risk . key factors impacting results include : services revenue . our services revenue is primarily derived from : ( i ) loan review and due diligence services ; ( ii ) surveillance services , including rmbs surveillance , loan servicer oversight , loan-level servicing compliance reviews and operational reviews of mortgage servicers and originators ; ( iii ) valuation and component services , providing outsourcing solutions primarily for the sfr and real estate markets , as well as outsourced solutions for appraisal , title and closing services ; and ( iv ) reo management services . see “ mortgage and real estate services—business— mortgage and real estate services revenue drivers ” for additional information regarding current and expected future revenue drivers . potential sales volume in our services business depends in part on the overall activity in the mortgage finance market and the health of related industries . we believe the diversity of the services offered by our services segment , which is intended to cover all phases of the mortgage value chain , will help produce fee income from the services segment throughout various mortgage finance environments . for example , the demand for due diligence services may decrease in unfavorable economic conditions due to lower mortgage origination and securitization volumes ,
| liquidity and capital resources radian group—short-term liquidity needs radian group serves as the holding company for our insurance and other subsidiaries and does not have any operations of its own . at december 31 , 2015 , radian group had immediately available , either directly or through an unregulated subsidiary , unrestricted cash and liquid investments of approximately $ 343 million . this amount excludes certain additional cash and liquid investments that have been advanced from our subsidiaries for corporate expenses and interest payments , but includes $ 89 million that has been deposited with the irs in connection with our dispute with the irs related to the deficiency amount from the irs 's examination of our 2000 through 2007 consolidated federal income tax returns . we have the ability to recall this deposit at any time . subsequent to the end of 2015 , on january 15 , 2016 , we announced that our board of directors had approved a share repurchase program that authorized the company to spend up to an aggregate of $ 100 million to repurchase radian group common stock . the authorization was effective immediately and set to expire on december 31 , 2016. pursuant to this authorization , we purchased approximately 9.4 million shares of radian group common stock , representing approximately 3.8 % of our diluted shares outstanding as of december31 , 2015 , at an average price of $ 10.62 per share , including commissions .
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the design of the sunrise trial was supported by promising data from our prior phase iib second-line nsclc trial in the same indication , which final data was presented at the 2013 american society of clinical oncology annual meeting . in december 2013 , we initiated the phase iii sunrise trial and patient enrollment is ongoing . in addition , in january 2014 , we announced that bavituximab received fda fast track designation for combination with docetaxel in patients with previously-treated non-squamous nsclc . the phase iii sunrise trial is a randomized , double-blind , placebo-controlled trial evaluating bavituximab plus docetaxel versus docetaxel plus placebo in approximately 600 patients at clinical sites worldwide . the trial is enrolling patients with stage iiib/iv non-squamous nsclc who have progressed after standard front-line treatment . patients are randomized into one of two treatment arms . one treatment arm receives docetaxel ( 75 mg/m 2 ) , up to six 21-day cycles , in combination with bavituximab ( 3 mg/kg ) weekly until progression or toxicity . the other treatment receives docetaxel ( 75 mg/m 2 ) , up to six 21-day cycles , in combination with placebo weekly until progression or toxicity . the primary endpoint of the trial is overall survival . bavituximab in front-line nsclc this investigator-sponsored phase ib trial is designed to assess bavituximab with pemetrexed and carboplatin in up to 25 patients with locally advanced or metastatic nsclc . interim data conducted on a small number of patients showed encouraging response rates with the combination of carboplatin , pemetrexed and bavituximab . patient enrollment is complete and additional data is expected during fiscal year 2015. bavituximab in her2-negative metastatic breast cancer ( mbc ) this investigator-sponsored phase i trial was designed to assess bavituximab combined with paclitaxel in up to 14 patients with her2-negative metastatic breast cancer . interim data presented at asco in june 2013 , reported that , from 13 evaluable patients , 85 % of patients achieved an objective tumor response , including 15 % of patients achieving a complete response measured in accordance with recist criteria . patient enrollment is complete and final data from this study is anticipated during fiscal year 2015. bavituximab in advanced liver cancer this ongoing investigator-sponsored phase i/ii trial is designed to assess bavituximab combined with sorafenib in up to 48 patients with advanced liver cancer ( “ hepatocellular carcinoma ” or “ hcc ” ) . data presented at aacr in april 2012 showed that of the nine patients enrolled in the phase i portion of the study , no dose-limiting toxicities or serious adverse events were observed and the trial is currently enrolling the phase ii part of the study . 43 bavituximab in rectal adenocarcinoma this ongoing investigator-sponsored phase i trial is designed to assess bavituximab in combination with capecitabine and radiation therapy in up to 18 patients with stage ii or iii rectal adenocarcinoma . the primary endpoint is to determine the safety , feasibility and tolerability with a standard platform of capecitabine and radiation therapy . secondary endpoints include overall response rate and histopathological response in patients . this trial continues to enroll and dose patients . bavituximab in advanced melanoma in april 2014 , we announced the opening of an investigator-sponsored phase ib trial designed to assess bavituximab in combination with ipilimumab in up to 24 patients with advanced melanoma . the primary endpoint is to determine safety , feasibility and tolerability . secondary endpoints include measurements of disease control rate and overall survival . this trial is open for enrollment . ps-targeting molecular imaging program ( pgn650 ) in addition to the potential for our ps-targeting antibodies to treat cancer , we believe these antibodies may have broad potential for the imaging and diagnosis of multiple diseases , including cancer . ps-targeting antibodies are able to target diseases that present ps on the surface of distressed cells , which we believe is present in multiple disease settings . in oncology , ps is a molecule usually located inside the membrane of healthy cells , but “ flips ” and becomes exposed on the outside of cells in the tumor microenvironment , creating a specific target for the imaging of multiple solid tumor types . our initial clinical candidate is pgn650 , a first-in-class ps-targeting f ( ab ' ) 2 fully human monoclonal antibody fragment joined to the positron emission tomography ( “ pet ” ) imaging radio-isotope iodine-124 that represents a potential new approach to imaging cancer . in preclinical studies , pgn650 accumulates in tumors and provides exceedingly clear in vivo tumor images . the initial goal for the pgn650 program is to further validate the broad nature of the ps-targeting platform in the clinic . our current pgn650 clinical trial evaluating pgn650 imaging in multiple solid tumor types in up to 12 patients was filed under an exploratory ind with the fda . the primary goal of the trial is to estimate radiation dosimetry in critical and non-critical organs and secondary trial objectives include tumor imaging and safety . results from this study may open the door for multiple applications including the development of antibody drug conjugates , the use of pgn650 to monitor the effectiveness of current standard cancer treatments , and the ability to potentially select patients that may benefit from bavituximab-based treatment . patients receive an imaging dose followed by three pet images . successful results from this trial could support several promising new areas of research in the imaging and diagnostic fields . this trial continues to enroll and dose patients . integrated biomanufacturing subsidiary in addition to our clinical research and development efforts , we operate a wholly-owned ( current good manufacturing practices ( “ cgmp ” ) ) contract manufacturing subsidiary , avid bioservices , inc. ( “ avid ” ) . story_separator_special_tag we recognize revenue when all of the following criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery ( or passage of title ) has occurred or services have been rendered , ( iii ) the seller 's price to the buyer is fixed or determinable , and ( iv ) collectability is reasonably assured . we also comply with the authoritative guidance for revenue recognition regarding arrangements with multiple deliverables . contract manufacturing revenue revenue associated with contract manufacturing services provided by avid is recognized once the service has been rendered and or upon shipment ( or passage of title ) of the product to the customer . on occasion , we recognize revenue on a “ bill-and-hold ” basis in accordance with the authoritative guidance . under “ bill-and-hold ” arrangements , revenue is recognized once the product is complete and ready for shipment , title and risk of loss has passed to the customer , management receives a written request from the customer for “ bill-and-hold ” treatment , the product is segregated from other inventory , and no further performance obligations exist . in addition , we also follow the authoritative guidance when reporting revenue as gross when we act as a principal versus reporting revenue as net when we act as an agent . for transactions in which we act as a principal , have discretion to choose suppliers , bear credit risk and perform a substantive part of the services , revenue is recorded at the gross amount billed to a customer and costs associated with these reimbursements are reflected as a component of cost of sales for contract manufacturing services . any amounts received prior to satisfying our revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated financial statements . we also record a provision for estimated contract losses , if any , in the period in which they are determined . license revenue revenue associated with licensing agreements primarily consists of non-refundable upfront license fees , non-refundable annual license fees and milestone payments . non-refundable upfront license fees received under license agreements , whereby continued performance or future obligations are considered inconsequential to the relevant license technology , are recognized as revenue upon delivery of the technology . if a licensing agreement has multiple elements , we analyze each element of our licensing agreements and consider a variety of factors in determining the appropriate method of revenue recognition of each element . 50 multiple element arrangements . prior to the adoption of accounting standards update ( “ asu ” ) no . 2009-13 on may 1 , 2011 , if a license agreement has multiple element arrangements , we analyze and determine whether the deliverables , which often include performance obligations , can be separated or whether they must be accounted for as a single unit of accounting in accordance with the authoritative guidance . under multiple element arrangements , we recognize revenue for delivered elements only when the delivered element has stand-alone value and we have objective and reliable evidence of fair value for each undelivered element . if the fair value of any undelivered element included in a multiple element arrangement can not be objectively determined , the arrangement would then be accounted for as a single unit of accounting , and revenue is recognized over the estimated period of when the performance obligation ( s ) are performed . in addition , under certain circumstances , when there is objective and reliable evidence of the fair value of the undelivered items in an arrangement , but no such evidence for the delivered items , we utilize the residual method to allocate the consideration received under the arrangement . under the residual method , the amount of consideration allocated to delivered items equals the total arrangement consideration less the aggregate fair value of the undelivered items , and revenue is recognized upon delivery of the undelivered items based on the relative fair value of the undelivered items . for licensing agreements or material modifications of existing licensing agreements entered into after may 1 , 2011 , we follow the provisions of asu no . 2009-13. if a licensing agreement includes multiple elements , we identify which deliverables represent separate units of accounting , and then determine how the arrangement consideration should be allocated among the separate units of accounting , which may require the use of significant judgment . if a licensing agreement includes multiple elements , a delivered item is considered a separate unit of accounting if both of the following criteria are met : 1. the delivered item has value to the licensing partner on a standalone basis based on the consideration of the relevant facts and circumstances for each agreement ; 2. if the arrangement includes a general right of return relative to the delivered item , delivery or performance of the undelivered item is considered probable and substantially in the company 's control . arrangement consideration is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price . the relative selling price for each deliverable is determined using vendor specific objective evidence ( “ vsoe ” ) of selling price or third-party evidence of selling price if vsoe does not exist . if neither vsoe nor third-party evidence of selling price exists , we use our best estimate of the selling price for the deliverable . the amount of allocable arrangement consideration is limited to amounts that are fixed or determinable . the consideration received is allocated among the separate units of accounting , and the applicable revenue recognition criteria are applied to each of the separate units . changes in the allocation of the sales price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized under any agreement . milestone payments . effective may 1 , 2011
| liquidity and capital resources radian group—short-term liquidity needs radian group serves as the holding company for our insurance and other subsidiaries and does not have any operations of its own . at december 31 , 2015 , radian group had immediately available , either directly or through an unregulated subsidiary , unrestricted cash and liquid investments of approximately $ 343 million . this amount excludes certain additional cash and liquid investments that have been advanced from our subsidiaries for corporate expenses and interest payments , but includes $ 89 million that has been deposited with the irs in connection with our dispute with the irs related to the deficiency amount from the irs 's examination of our 2000 through 2007 consolidated federal income tax returns . we have the ability to recall this deposit at any time . subsequent to the end of 2015 , on january 15 , 2016 , we announced that our board of directors had approved a share repurchase program that authorized the company to spend up to an aggregate of $ 100 million to repurchase radian group common stock . the authorization was effective immediately and set to expire on december 31 , 2016. pursuant to this authorization , we purchased approximately 9.4 million shares of radian group common stock , representing approximately 3.8 % of our diluted shares outstanding as of december31 , 2015 , at an average price of $ 10.62 per share , including commissions .
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the design of the sunrise trial was supported by promising data from our prior phase iib second-line nsclc trial in the same indication , which final data was presented at the 2013 american society of clinical oncology annual meeting . in december 2013 , we initiated the phase iii sunrise trial and patient enrollment is ongoing . in addition , in january 2014 , we announced that bavituximab received fda fast track designation for combination with docetaxel in patients with previously-treated non-squamous nsclc . the phase iii sunrise trial is a randomized , double-blind , placebo-controlled trial evaluating bavituximab plus docetaxel versus docetaxel plus placebo in approximately 600 patients at clinical sites worldwide . the trial is enrolling patients with stage iiib/iv non-squamous nsclc who have progressed after standard front-line treatment . patients are randomized into one of two treatment arms . one treatment arm receives docetaxel ( 75 mg/m 2 ) , up to six 21-day cycles , in combination with bavituximab ( 3 mg/kg ) weekly until progression or toxicity . the other treatment receives docetaxel ( 75 mg/m 2 ) , up to six 21-day cycles , in combination with placebo weekly until progression or toxicity . the primary endpoint of the trial is overall survival . bavituximab in front-line nsclc this investigator-sponsored phase ib trial is designed to assess bavituximab with pemetrexed and carboplatin in up to 25 patients with locally advanced or metastatic nsclc . interim data conducted on a small number of patients showed encouraging response rates with the combination of carboplatin , pemetrexed and bavituximab . patient enrollment is complete and additional data is expected during fiscal year 2015. bavituximab in her2-negative metastatic breast cancer ( mbc ) this investigator-sponsored phase i trial was designed to assess bavituximab combined with paclitaxel in up to 14 patients with her2-negative metastatic breast cancer . interim data presented at asco in june 2013 , reported that , from 13 evaluable patients , 85 % of patients achieved an objective tumor response , including 15 % of patients achieving a complete response measured in accordance with recist criteria . patient enrollment is complete and final data from this study is anticipated during fiscal year 2015. bavituximab in advanced liver cancer this ongoing investigator-sponsored phase i/ii trial is designed to assess bavituximab combined with sorafenib in up to 48 patients with advanced liver cancer ( “ hepatocellular carcinoma ” or “ hcc ” ) . data presented at aacr in april 2012 showed that of the nine patients enrolled in the phase i portion of the study , no dose-limiting toxicities or serious adverse events were observed and the trial is currently enrolling the phase ii part of the study . 43 bavituximab in rectal adenocarcinoma this ongoing investigator-sponsored phase i trial is designed to assess bavituximab in combination with capecitabine and radiation therapy in up to 18 patients with stage ii or iii rectal adenocarcinoma . the primary endpoint is to determine the safety , feasibility and tolerability with a standard platform of capecitabine and radiation therapy . secondary endpoints include overall response rate and histopathological response in patients . this trial continues to enroll and dose patients . bavituximab in advanced melanoma in april 2014 , we announced the opening of an investigator-sponsored phase ib trial designed to assess bavituximab in combination with ipilimumab in up to 24 patients with advanced melanoma . the primary endpoint is to determine safety , feasibility and tolerability . secondary endpoints include measurements of disease control rate and overall survival . this trial is open for enrollment . ps-targeting molecular imaging program ( pgn650 ) in addition to the potential for our ps-targeting antibodies to treat cancer , we believe these antibodies may have broad potential for the imaging and diagnosis of multiple diseases , including cancer . ps-targeting antibodies are able to target diseases that present ps on the surface of distressed cells , which we believe is present in multiple disease settings . in oncology , ps is a molecule usually located inside the membrane of healthy cells , but “ flips ” and becomes exposed on the outside of cells in the tumor microenvironment , creating a specific target for the imaging of multiple solid tumor types . our initial clinical candidate is pgn650 , a first-in-class ps-targeting f ( ab ' ) 2 fully human monoclonal antibody fragment joined to the positron emission tomography ( “ pet ” ) imaging radio-isotope iodine-124 that represents a potential new approach to imaging cancer . in preclinical studies , pgn650 accumulates in tumors and provides exceedingly clear in vivo tumor images . the initial goal for the pgn650 program is to further validate the broad nature of the ps-targeting platform in the clinic . our current pgn650 clinical trial evaluating pgn650 imaging in multiple solid tumor types in up to 12 patients was filed under an exploratory ind with the fda . the primary goal of the trial is to estimate radiation dosimetry in critical and non-critical organs and secondary trial objectives include tumor imaging and safety . results from this study may open the door for multiple applications including the development of antibody drug conjugates , the use of pgn650 to monitor the effectiveness of current standard cancer treatments , and the ability to potentially select patients that may benefit from bavituximab-based treatment . patients receive an imaging dose followed by three pet images . successful results from this trial could support several promising new areas of research in the imaging and diagnostic fields . this trial continues to enroll and dose patients . integrated biomanufacturing subsidiary in addition to our clinical research and development efforts , we operate a wholly-owned ( current good manufacturing practices ( “ cgmp ” ) ) contract manufacturing subsidiary , avid bioservices , inc. ( “ avid ” ) . story_separator_special_tag we recognize revenue when all of the following criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery ( or passage of title ) has occurred or services have been rendered , ( iii ) the seller 's price to the buyer is fixed or determinable , and ( iv ) collectability is reasonably assured . we also comply with the authoritative guidance for revenue recognition regarding arrangements with multiple deliverables . contract manufacturing revenue revenue associated with contract manufacturing services provided by avid is recognized once the service has been rendered and or upon shipment ( or passage of title ) of the product to the customer . on occasion , we recognize revenue on a “ bill-and-hold ” basis in accordance with the authoritative guidance . under “ bill-and-hold ” arrangements , revenue is recognized once the product is complete and ready for shipment , title and risk of loss has passed to the customer , management receives a written request from the customer for “ bill-and-hold ” treatment , the product is segregated from other inventory , and no further performance obligations exist . in addition , we also follow the authoritative guidance when reporting revenue as gross when we act as a principal versus reporting revenue as net when we act as an agent . for transactions in which we act as a principal , have discretion to choose suppliers , bear credit risk and perform a substantive part of the services , revenue is recorded at the gross amount billed to a customer and costs associated with these reimbursements are reflected as a component of cost of sales for contract manufacturing services . any amounts received prior to satisfying our revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated financial statements . we also record a provision for estimated contract losses , if any , in the period in which they are determined . license revenue revenue associated with licensing agreements primarily consists of non-refundable upfront license fees , non-refundable annual license fees and milestone payments . non-refundable upfront license fees received under license agreements , whereby continued performance or future obligations are considered inconsequential to the relevant license technology , are recognized as revenue upon delivery of the technology . if a licensing agreement has multiple elements , we analyze each element of our licensing agreements and consider a variety of factors in determining the appropriate method of revenue recognition of each element . 50 multiple element arrangements . prior to the adoption of accounting standards update ( “ asu ” ) no . 2009-13 on may 1 , 2011 , if a license agreement has multiple element arrangements , we analyze and determine whether the deliverables , which often include performance obligations , can be separated or whether they must be accounted for as a single unit of accounting in accordance with the authoritative guidance . under multiple element arrangements , we recognize revenue for delivered elements only when the delivered element has stand-alone value and we have objective and reliable evidence of fair value for each undelivered element . if the fair value of any undelivered element included in a multiple element arrangement can not be objectively determined , the arrangement would then be accounted for as a single unit of accounting , and revenue is recognized over the estimated period of when the performance obligation ( s ) are performed . in addition , under certain circumstances , when there is objective and reliable evidence of the fair value of the undelivered items in an arrangement , but no such evidence for the delivered items , we utilize the residual method to allocate the consideration received under the arrangement . under the residual method , the amount of consideration allocated to delivered items equals the total arrangement consideration less the aggregate fair value of the undelivered items , and revenue is recognized upon delivery of the undelivered items based on the relative fair value of the undelivered items . for licensing agreements or material modifications of existing licensing agreements entered into after may 1 , 2011 , we follow the provisions of asu no . 2009-13. if a licensing agreement includes multiple elements , we identify which deliverables represent separate units of accounting , and then determine how the arrangement consideration should be allocated among the separate units of accounting , which may require the use of significant judgment . if a licensing agreement includes multiple elements , a delivered item is considered a separate unit of accounting if both of the following criteria are met : 1. the delivered item has value to the licensing partner on a standalone basis based on the consideration of the relevant facts and circumstances for each agreement ; 2. if the arrangement includes a general right of return relative to the delivered item , delivery or performance of the undelivered item is considered probable and substantially in the company 's control . arrangement consideration is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price . the relative selling price for each deliverable is determined using vendor specific objective evidence ( “ vsoe ” ) of selling price or third-party evidence of selling price if vsoe does not exist . if neither vsoe nor third-party evidence of selling price exists , we use our best estimate of the selling price for the deliverable . the amount of allocable arrangement consideration is limited to amounts that are fixed or determinable . the consideration received is allocated among the separate units of accounting , and the applicable revenue recognition criteria are applied to each of the separate units . changes in the allocation of the sales price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized under any agreement . milestone payments . effective may 1 , 2011
| cash used in operating activities . net cash used in operating activities represents our ( i ) net loss , as reported , ( ii ) less non-cash operating expenses , and ( iii ) net changes in the timing of cash flows as reflected by the changes in operating assets and liabilities , as described in the below table : 54 replace_table_token_8_th net cash used in operating activities for the year ended april 30 , 2014 was $ 28,254,000 compared to $ 20,926,000 for the year ended april 30 , 2013 , representing an increase of $ 7,328,000. this increase in net cash used in operating activities was due to an increase of $ 4,611,000 in net loss reported for fiscal year 2014 after deducting non-cash operating expenses combined with a net change in operating assets and liabilities of $ 2,717,000. the increase in our fiscal year net loss was primarily due to current year increases in research and development expenses , selling , general and administrative expenses and cost of contract manufacturing , offset by an increase in total revenues and a decrease in loss on early extinguishment of debt . the net change in operating assets and liabilities between fiscal year 2014 and fiscal year 2013 was primarily due to decreases in customer deposits and accrued payroll combined with increase in prepaid expenses and other current assets , which were primarily offset by an increase in accrued clinical trial and related fees . cash used in investing activities .
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summary of results for the years ended december 31 , 2011 , 2010 and 2009 consolidated results of operations for the years ended december 31 , 2011 , 2010 and 2009 are as follows ( dollars in thousands ) : replace_table_token_6_th 2011 compared with 2010 revenue decreased by $ 66.0 million , or 16 % . approximately half , or $ 35.7 million of the decline was due to the deconsolidation of rhapsody on march 31 , 2010 in addition to declines of $ 35.1 million in our core products and games segments . cost of revenue decreased by $ 18.1 million compared with the year earlier period due primarily to lower costs of $ 21.9 million from the deconsolidation of our rhapsody joint venture . we recorded impairments of deferred costs of $ 20.0 million in the fourth quarter of 2011 related to certain contracts with carrier customers for which the total estimated costs exceeded the total estimated revenues expected to be recognized . operating expenses improved by $ 64.8 million due primarily to reduced personnel and related costs of $ 31.6 million , $ 13.9 million resulting from the rhapsody deconsolidation , and lower restructuring charges and losses on excess office facilities totaling $ 11.8 million . 2010 compared with 2009 revenue decreased by $ 160.5 million , or 29 % , primarily due to the deconsolidation of rhapsody on march 31 , 2010 , and declines in our core products and games segments . operating expenses improved due to a $ 175.6 million impairment of goodwill in 2009 , lower expenses of $ 78.1 million associated with the deconsolidation of rhapsody and cost reduction initiatives as part of our restructuring efforts in 2010 . 21 segment reporting core products the core products segment primarily generates revenue and incurs costs from the sales of saas services , such as ring-back tones , inter-carrier messages , music on demand and video on demand , professional services and system integration services to carriers and mobile handset companies , sales of licenses of our software products such as helix for handsets , and consumer subscriptions such as superpass and international radio subscriptions . core products segment results of operations for the years ended december 31 , 2011 , 2010 and 2009 are as follows ( dollars in thousands ) : replace_table_token_7_th 2011 compared with 2010 revenue decreased by $ 21.6 million , or 10 % . saas revenue decreased by $ 14.2 million primarily due to lower intercarrier messaging contract prices that contributed $ 8.8 million to the decline , and a $ 5.2 million decline in revenues from our tone business primarily due to a decline in subscribers . in addition , subscription revenue , mainly from our superpass product declined by $ 5.3 million during the year ended december 31 , 2011 , compared with the same period in 2010 due primarily to a decline in the number of subscribers . gross margin decreased primarily due to the impairments of deferred costs as well as lower saas intercarrier messaging contract prices , with no corresponding decreases in cost of revenue . the impairments of deferred costs of $ 19.3 million within the year ended december 31 , 2011 related to certain contracts with carrier customers for which the total estimated costs exceeded the total estimated revenues expected to be recognized . operating expenses decreased by $ 11.0 million primarily due to reductions in personnel and related costs that resulted from our restructuring efforts . 2010 compared with 2009 revenue decreased by $ 20.5 million , or 9 % . saas revenue decreased by $ 14.6 million primarily due to the merger of certain carrier customers resulting in lower overall contract prices with these customers as well as a loss of total subscribers under management . in addition , revenue from system integration , a business that we have de-emphasized since 2008 , decreased by $ 3.5 million . gross margin decreased primarily due to lower saas contract prices with no corresponding decreases in cost of revenue . operating expenses decreased by $ 52.3 million primarily due to impairments of long lived assets and goodwill of $ 50.5 million in 2009 , with no similar impairments in 2010. emerging products the emerging products segment primarily generates revenue and incurs costs from sales of the realplayer and its related products , such as revenue from distribution of third party software products , advertising on realplayer websites and sales of realplayer plus software licenses to consumers . also included within the emerging products segment are the costs to build and develop new product offerings for consumers and corporate customers . emerging products segment results of operations for the years ended december 31 , 2011 , 2010 and 2009 are as follows ( dollars in thousands ) : replace_table_token_8_th 22 2011 compared with 2010 revenue increased by $ 4.8 million , or 12 % . higher unit sales of our realplayer plus software contributed approximately $ 3.9 million to the increase during the period , due to increased marketing efforts . cost of revenue increased $ 4.8 million mainly due to increases related to certain advertising agreements and increased support costs for the distribution of realplayer and other products . operating expenses increased by $ 8.0 million primarily due to increased marketing expense to drive the distribution of realplayer and related third-party software . 2010 compared with 2009 revenue decreased by $ 3.4 million , or 8 % . lower unit distribution of third-party software products , primarily due to increased market saturation of the software products we distribute , accounted for the majority of the decline . gross margin did not change materially . story_separator_special_tag income taxes during the years ended december 31 , 2011 , 2010 , and 2009 , we recognized income tax benefits of $ 17.3 million and $ 36.5 million , and income tax expense of $ 3.3 million , respectively , related to u.s. and foreign income taxes . the tax benefit in the year ended december 31 , 2011 was largely the result of a release in our valuation allowance relating to significant known income in 2012 due to the pending sale of certain patent assets and other technology assets to intel corporation for $ 120.0 million in cash in january 2012. the income tax benefit in 2010 was largely the result of the reversal of unrecognized tax benefits and the restructuring of rhapsody . the income tax expense in 2009 was primarily the result of impairments of long-lived assets and changes in our valuation allowance . we assess the likelihood that our deferred tax assets will be recovered based upon our consideration of many factors , including the current economic climate , our expectations of future taxable income , our ability to project such income , and the appreciation of our investments and other assets . during the year ended december 31 , 2011 , we released $ 22.6 million of our valuation allowance related to our deferred tax assets . these deferred tax assets relate primarily to capital loss carryforwards , and net operating loss carryforwards which we determined , in accordance with fasb asc 740 , accounting for income taxes , we will more likely than not be able to utilize due to the generation of sufficient taxable income in the future from the transaction with intel described above . of the 27 total valuation allowance release , $ 22.6 million was recorded as an income tax benefit in the consolidated financial statements . we maintain a partial valuation allowance of $ 105.2 million for our deferred tax assets due to uncertainty regarding their realization as of december 31 , 2011. adjustments could be required in the future if we estimate that the amount of deferred tax assets to be realized is more or less than the net amount we have recorded . any increase or decrease in the valuation allowance could have the effect of increasing or decreasing the income tax provision in the statement of operations . we generate income in a number of foreign jurisdictions , some of which have higher tax rates and some of which have lower tax rates relative to the u.s. federal statutory rate . changes to the blend of income between jurisdictions with higher or lower effective tax rates than the u.s. federal statutory rate could affect our effective tax rate . for the year ended december 31 , 2011 , decreases in tax expense from income generated in foreign jurisdictions with lower tax rates in comparison to the u.s. federal statutory rate was offset by increases in tax expense from income generated in foreign jurisdictions having comparable , or higher tax rates in comparison to the u.s. federal statutory rate . as such , the effect of differences in foreign tax rates on the company 's tax expense for the year ended december 31 , 2011 is minimal . in the fourth quarter of 2011 , we received a cash payment of approximately $ 8.6 million and in the third quarter of 2010 we received a cash payment of approximately $ 29.5 million , as the result of a refund of u.s. federal taxes previously paid . of the 2011 amount , $ 2.5 million is related to the 2008 amended tax return that was filed as a result of the 2005 to 2007 internal revenue service ( irs ) examination related primarily to allowed deductions and taxes on foreign sales associated with our 2005 antitrust settlement with microsoft corporation . the remaining $ 6.1 million in refunds related to net operating loss carrybacks and prior year tax overpayments . we recorded the related income tax benefit and tax receivable for both the 2011 and 2010 refunds in our consolidated financial statements for the year ended december 31 , 2010. as of december 31 , 2011 and december 31 , 2010 , gross unrecognized tax benefits were $ 16.7 million and $ 14.0 million , respectively . of the increase , $ 3.0 million is due to transfer pricing risk in foreign jurisdictions and $ 0.5 million is related to other prior year positions , partially offset by a decrease of $ 0.8 million related to the closure of a foreign subsidiary which had reserves related to transfer pricing and the expiration of the statute of limitations on state tax returns . the total amount of unrecognized tax benefits that would affect our effective tax rate if recognized is $ 13.5 million as of december 31 , 2011 , and $ 11.0 million as of december 31 , 2010. we currently anticipate the closure of foreign income tax examinations in the next twelve months that may decrease our total unrecognized tax benefits by an amount up to $ 12.0 million as a result of the successful defense of our positions , the settlement and payment of a liability , or a combination thereof . additionally , we anticipate that our total unrecognized tax benefits may increase by an amount up to $ 2.7 million as a result of a potential transfer pricing change . we estimate the impact of uncertain tax positions in accordance with fasb asc 740. this guidance prescribes a recognition threshold and measurement process for recording in the consolidated financial statements uncertain tax positions taken or expected to be taken in our tax return . we file numerous consolidated and separate income tax returns in the united states including federal , state and local , as well as foreign jurisdictions . with few exceptions , we are no longer subject to united states federal income tax examinations for tax years before 2008 or state
| cash used in operating activities . net cash used in operating activities represents our ( i ) net loss , as reported , ( ii ) less non-cash operating expenses , and ( iii ) net changes in the timing of cash flows as reflected by the changes in operating assets and liabilities , as described in the below table : 54 replace_table_token_8_th net cash used in operating activities for the year ended april 30 , 2014 was $ 28,254,000 compared to $ 20,926,000 for the year ended april 30 , 2013 , representing an increase of $ 7,328,000. this increase in net cash used in operating activities was due to an increase of $ 4,611,000 in net loss reported for fiscal year 2014 after deducting non-cash operating expenses combined with a net change in operating assets and liabilities of $ 2,717,000. the increase in our fiscal year net loss was primarily due to current year increases in research and development expenses , selling , general and administrative expenses and cost of contract manufacturing , offset by an increase in total revenues and a decrease in loss on early extinguishment of debt . the net change in operating assets and liabilities between fiscal year 2014 and fiscal year 2013 was primarily due to decreases in customer deposits and accrued payroll combined with increase in prepaid expenses and other current assets , which were primarily offset by an increase in accrued clinical trial and related fees . cash used in investing activities .
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summary of results for the years ended december 31 , 2011 , 2010 and 2009 consolidated results of operations for the years ended december 31 , 2011 , 2010 and 2009 are as follows ( dollars in thousands ) : replace_table_token_6_th 2011 compared with 2010 revenue decreased by $ 66.0 million , or 16 % . approximately half , or $ 35.7 million of the decline was due to the deconsolidation of rhapsody on march 31 , 2010 in addition to declines of $ 35.1 million in our core products and games segments . cost of revenue decreased by $ 18.1 million compared with the year earlier period due primarily to lower costs of $ 21.9 million from the deconsolidation of our rhapsody joint venture . we recorded impairments of deferred costs of $ 20.0 million in the fourth quarter of 2011 related to certain contracts with carrier customers for which the total estimated costs exceeded the total estimated revenues expected to be recognized . operating expenses improved by $ 64.8 million due primarily to reduced personnel and related costs of $ 31.6 million , $ 13.9 million resulting from the rhapsody deconsolidation , and lower restructuring charges and losses on excess office facilities totaling $ 11.8 million . 2010 compared with 2009 revenue decreased by $ 160.5 million , or 29 % , primarily due to the deconsolidation of rhapsody on march 31 , 2010 , and declines in our core products and games segments . operating expenses improved due to a $ 175.6 million impairment of goodwill in 2009 , lower expenses of $ 78.1 million associated with the deconsolidation of rhapsody and cost reduction initiatives as part of our restructuring efforts in 2010 . 21 segment reporting core products the core products segment primarily generates revenue and incurs costs from the sales of saas services , such as ring-back tones , inter-carrier messages , music on demand and video on demand , professional services and system integration services to carriers and mobile handset companies , sales of licenses of our software products such as helix for handsets , and consumer subscriptions such as superpass and international radio subscriptions . core products segment results of operations for the years ended december 31 , 2011 , 2010 and 2009 are as follows ( dollars in thousands ) : replace_table_token_7_th 2011 compared with 2010 revenue decreased by $ 21.6 million , or 10 % . saas revenue decreased by $ 14.2 million primarily due to lower intercarrier messaging contract prices that contributed $ 8.8 million to the decline , and a $ 5.2 million decline in revenues from our tone business primarily due to a decline in subscribers . in addition , subscription revenue , mainly from our superpass product declined by $ 5.3 million during the year ended december 31 , 2011 , compared with the same period in 2010 due primarily to a decline in the number of subscribers . gross margin decreased primarily due to the impairments of deferred costs as well as lower saas intercarrier messaging contract prices , with no corresponding decreases in cost of revenue . the impairments of deferred costs of $ 19.3 million within the year ended december 31 , 2011 related to certain contracts with carrier customers for which the total estimated costs exceeded the total estimated revenues expected to be recognized . operating expenses decreased by $ 11.0 million primarily due to reductions in personnel and related costs that resulted from our restructuring efforts . 2010 compared with 2009 revenue decreased by $ 20.5 million , or 9 % . saas revenue decreased by $ 14.6 million primarily due to the merger of certain carrier customers resulting in lower overall contract prices with these customers as well as a loss of total subscribers under management . in addition , revenue from system integration , a business that we have de-emphasized since 2008 , decreased by $ 3.5 million . gross margin decreased primarily due to lower saas contract prices with no corresponding decreases in cost of revenue . operating expenses decreased by $ 52.3 million primarily due to impairments of long lived assets and goodwill of $ 50.5 million in 2009 , with no similar impairments in 2010. emerging products the emerging products segment primarily generates revenue and incurs costs from sales of the realplayer and its related products , such as revenue from distribution of third party software products , advertising on realplayer websites and sales of realplayer plus software licenses to consumers . also included within the emerging products segment are the costs to build and develop new product offerings for consumers and corporate customers . emerging products segment results of operations for the years ended december 31 , 2011 , 2010 and 2009 are as follows ( dollars in thousands ) : replace_table_token_8_th 22 2011 compared with 2010 revenue increased by $ 4.8 million , or 12 % . higher unit sales of our realplayer plus software contributed approximately $ 3.9 million to the increase during the period , due to increased marketing efforts . cost of revenue increased $ 4.8 million mainly due to increases related to certain advertising agreements and increased support costs for the distribution of realplayer and other products . operating expenses increased by $ 8.0 million primarily due to increased marketing expense to drive the distribution of realplayer and related third-party software . 2010 compared with 2009 revenue decreased by $ 3.4 million , or 8 % . lower unit distribution of third-party software products , primarily due to increased market saturation of the software products we distribute , accounted for the majority of the decline . gross margin did not change materially . story_separator_special_tag income taxes during the years ended december 31 , 2011 , 2010 , and 2009 , we recognized income tax benefits of $ 17.3 million and $ 36.5 million , and income tax expense of $ 3.3 million , respectively , related to u.s. and foreign income taxes . the tax benefit in the year ended december 31 , 2011 was largely the result of a release in our valuation allowance relating to significant known income in 2012 due to the pending sale of certain patent assets and other technology assets to intel corporation for $ 120.0 million in cash in january 2012. the income tax benefit in 2010 was largely the result of the reversal of unrecognized tax benefits and the restructuring of rhapsody . the income tax expense in 2009 was primarily the result of impairments of long-lived assets and changes in our valuation allowance . we assess the likelihood that our deferred tax assets will be recovered based upon our consideration of many factors , including the current economic climate , our expectations of future taxable income , our ability to project such income , and the appreciation of our investments and other assets . during the year ended december 31 , 2011 , we released $ 22.6 million of our valuation allowance related to our deferred tax assets . these deferred tax assets relate primarily to capital loss carryforwards , and net operating loss carryforwards which we determined , in accordance with fasb asc 740 , accounting for income taxes , we will more likely than not be able to utilize due to the generation of sufficient taxable income in the future from the transaction with intel described above . of the 27 total valuation allowance release , $ 22.6 million was recorded as an income tax benefit in the consolidated financial statements . we maintain a partial valuation allowance of $ 105.2 million for our deferred tax assets due to uncertainty regarding their realization as of december 31 , 2011. adjustments could be required in the future if we estimate that the amount of deferred tax assets to be realized is more or less than the net amount we have recorded . any increase or decrease in the valuation allowance could have the effect of increasing or decreasing the income tax provision in the statement of operations . we generate income in a number of foreign jurisdictions , some of which have higher tax rates and some of which have lower tax rates relative to the u.s. federal statutory rate . changes to the blend of income between jurisdictions with higher or lower effective tax rates than the u.s. federal statutory rate could affect our effective tax rate . for the year ended december 31 , 2011 , decreases in tax expense from income generated in foreign jurisdictions with lower tax rates in comparison to the u.s. federal statutory rate was offset by increases in tax expense from income generated in foreign jurisdictions having comparable , or higher tax rates in comparison to the u.s. federal statutory rate . as such , the effect of differences in foreign tax rates on the company 's tax expense for the year ended december 31 , 2011 is minimal . in the fourth quarter of 2011 , we received a cash payment of approximately $ 8.6 million and in the third quarter of 2010 we received a cash payment of approximately $ 29.5 million , as the result of a refund of u.s. federal taxes previously paid . of the 2011 amount , $ 2.5 million is related to the 2008 amended tax return that was filed as a result of the 2005 to 2007 internal revenue service ( irs ) examination related primarily to allowed deductions and taxes on foreign sales associated with our 2005 antitrust settlement with microsoft corporation . the remaining $ 6.1 million in refunds related to net operating loss carrybacks and prior year tax overpayments . we recorded the related income tax benefit and tax receivable for both the 2011 and 2010 refunds in our consolidated financial statements for the year ended december 31 , 2010. as of december 31 , 2011 and december 31 , 2010 , gross unrecognized tax benefits were $ 16.7 million and $ 14.0 million , respectively . of the increase , $ 3.0 million is due to transfer pricing risk in foreign jurisdictions and $ 0.5 million is related to other prior year positions , partially offset by a decrease of $ 0.8 million related to the closure of a foreign subsidiary which had reserves related to transfer pricing and the expiration of the statute of limitations on state tax returns . the total amount of unrecognized tax benefits that would affect our effective tax rate if recognized is $ 13.5 million as of december 31 , 2011 , and $ 11.0 million as of december 31 , 2010. we currently anticipate the closure of foreign income tax examinations in the next twelve months that may decrease our total unrecognized tax benefits by an amount up to $ 12.0 million as a result of the successful defense of our positions , the settlement and payment of a liability , or a combination thereof . additionally , we anticipate that our total unrecognized tax benefits may increase by an amount up to $ 2.7 million as a result of a potential transfer pricing change . we estimate the impact of uncertain tax positions in accordance with fasb asc 740. this guidance prescribes a recognition threshold and measurement process for recording in the consolidated financial statements uncertain tax positions taken or expected to be taken in our tax return . we file numerous consolidated and separate income tax returns in the united states including federal , state and local , as well as foreign jurisdictions . with few exceptions , we are no longer subject to united states federal income tax examinations for tax years before 2008 or state
| liquidity and capital resources the following summarizes working capital , cash , cash equivalents , short-term investments , and restricted cash ( in thousands ) : replace_table_token_19_th the decreases in both working capital and cash , cash equivalents , and short-term investments from december 31 , 2010 , were primarily due to the special cash dividend of $ 136.8 million paid in the third quarter of 2011. the following summarizes cash flow activity ( in thousands ) : replace_table_token_20_th cash used in operating activities consisted of net income ( loss ) adjusted for certain non-cash items including depreciation , amortization , stock-based compensation , deferred income taxes , gain on sales of interest in , and deconsolidation of , rhapsody , asset impairments , accrued restructuring and other charges and the effect of changes in certain operating assets and liabilities , net of acquisitions . cash used in operating activities in the year ended december 31 , 2011 was $ 0.7 million and consisted of ( 1 ) a net loss of $ 27.1 million , ( 2 ) adjustments to reconcile the net loss to cash used by operating activities of $ 11.9 million and ( 3 ) cash used in activities related to changes in certain operating assets and liabilities , net of acquisitions of $ 14.5 million . adjustments to reconcile the net loss to cash used in operating activities primarily consisted of $ 16.9 million of depreciation and amortization expense , $ 7.9 million of equity in the net loss of rhapsody and other equity method investments , and $ 11.7 million of stock-based compensation . 30 changes in certain operating assets and liabilities , net of acquisitions , for the year ended december 31 , 2011 primarily consisted of uses of cash from a decrease in accounts payable , and accrued and other liabilities of $ 14.6 million and $ 20.9 million , respectively . this decrease in accounts payable was primarily related to the timing of certain payments . these uses of cash were partially offset by decreases in accounts receivable and prepaid and other assets of $ 6.8 million and $ 43.2 million , respectively .
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critical accounting policies critical accounting policies are those that are both significant to the overall presentation of our financial condition and results of operations and require management to make difficult , complex or subjective judgments . for example , significant estimates and assumptions have been made with respect to revenue recognition , capitalization of costs related to real estate investments , potential impairment of real estate investments , operating cost reimbursements , and taxable income . minimum rental income attributable to leases is recorded when due from tenants . certain leases provide for additional percentage rents based on tenants ' sales volumes . these percentage rents are recognized when determinable by us . in addition , leases for certain tenants contain rent escalations and or free rent during the first several months of the lease term ; however , such amounts are not material . real estate assets are stated at cost less accumulated depreciation . all costs related to planning , development and construction of buildings prior to the date they become operational , including interest and real estate taxes during the construction period , are capitalized for financial reporting purposes and recorded as property under development until construction has been completed . the viability of all projects under construction or development are regularly evaluated under applicable accounting requirements , including requirements relating to abandonment of assets or changes in use . to the extent a project , or individual components of the project , are no longer considered to have value , the related capitalized costs are charged against operations . subsequent to completion of construction , expenditures for property maintenance are charged to operations as incurred , while significant renovations are capitalized . depreciation of the buildings is recorded on the straight-line method using an estimated useful life of forty years . we evaluate real estate for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets . when any such impairment exists , the related assets will be written down to fair value and such excess carrying value is charged to income . the expected cash flows of a project are dependent on estimates and other factors subject to change , including ( 1 ) changes in the national , regional , and or local economic climates , ( 2 ) competition from other shopping centers , stores , clubs , mailings , and the internet , ( 3 ) increases in operating costs , ( 4 ) bankruptcy and or other changes in the condition of third parties , including tenants , ( 5 ) expected holding period , and ( 6 ) availability of credit . these factors could cause our expected future cash flows from a project to change , and , as a result , an impairment could be considered to have occurred . during 2011 and 2010 we recorded impairment charges of $ 13.5 million and $ 8.14 million , respectively , related to the carrying value of our real estate assets . 28 substantially all of our leases contain provisions requiring tenants to pay as additional rent a proportionate share of operating expenses ( “ operating cost reimbursements ” ) such as real estate taxes , repairs and maintenance , insurance , etc . the related revenue from tenant billings is recognized in the same period the expense is recorded . we have elected to be taxed as a reit under the internal revenue code since our 1994 tax year . as a result , we are not subject to federal income taxes to the extent that we distribute annually at least 90 % of our reit taxable income to our stockholders and satisfy certain other requirements defined in the internal revenue code . we established trs entities pursuant to the provisions of the reit modernization act . our trs entities are able to engage in activities resulting in income that previously would have been disqualified from being eligible reit income under the federal income tax regulations . as a result , certain activities of our company which occur within our trs entities are subject to federal and state income taxes . as of december 31 , 2011 and 2010 , we had accrued a deferred income tax amount of $ 705,000. in addition , we have recorded an income tax liability of $ 128,000 and $ 17,000 as of december 31 , 2011 and 2010 respectively . results of operations comparison of year ended december 31 , 2011 to year ended december 31 , 2010 minimum rental income increased $ 2,316,000 , or 8 % , to $ 32,671,000 in 2011 , compared to $ 30,355,000 in 2010. rental income increased $ 3,137,000 due to the acquisition of 10 properties in 2011 along with the full year impact of nine properties acquired in 2010. the increase was also the result of the development of a walgreens drug store in ann arbor , michigan in september 2010 , the development of a walgreens drug store located in atlantic beach , florida in october 2010 , the development of a walgreens drug store in st augustine shores , florida in november 2010 along with the redevelopment of dick 's sporting goods in boynton beach , florida in october 2010. our revenue increases from these developments amounted to $ 1,724,000. rental revenue decreased $ 2,466,000 due to the closure of borders stores due to the bankruptcy liquidation . in addition , rental income decreased $ 79,000 as a result of other rental income adjustments . story_separator_special_tag as of december 31 , 2011 , the net book value of the four mortgaged properties was approximately $ 9.1 million , and annualized base rent for the four mortgaged properties , one of which was currently occupied , was approximately $ .5 million , or 1.4 % of our annualized base rent as of december 31 , 2011. as previously disclosed , the lender declared all four crossed loans in default and accelerated our obligations thereunder . as a result of the borders liquidation program , we did not have sufficient cash flow from the properties to continue to pay the debt service on the crossed loans and elected not to pay the debt service . on march 6 , 2012 , we conveyed the four mortgaged properties , which were subject to the crossed loans , to the lender pursuant to a consensual deed-in-lieu-of-foreclosure process that satisfied the loans . 32 we paid off a note payable in the amount of $ 704,374 on march 31 , 2011. in august 2011 , we entered into a release agreement for the mortgage loan which was formerly secured by the mortgage on the leasehold interest in the former borders store in lawrence , kansas amounting to approximately $ 2.3 million . while the lender had a leasehold mortgage on the property , we owned the fee interest in the property . the underlying ground lease was in default subsequent to borders rejecting the lease and the lender did not cure the underlying default under the ground lease . the release agreement provided for the extinguishment of all liabilities due to the lender under the loan . the gain on extinguishment of $ 2.4 million has been reflected during 2011. in december 2011 , we conveyed the former borders corporate headquarters property in ann arbor , michigan , which was subject to a non-recourse mortgage loan in default , to the lender pursuant to a consensual deed-in-lieu-of-foreclosure process that satisfied the loan of approximately $ 5.5 million . capitalization as of december 31 , 2011 , our total market capitalization was approximately $ 368 million . market capitalization consisted of $ 119.3 million of debt ( including property related mortgages and the credit facility ) , and $ 248.7 million of shares of common stock ( based on the closing price on the nyse of $ 24.38 per share on december 31 , 2011 ) and op units at market value . our ratio of debt to total market capitalization was 32.4 % at december 31 , 2011. at december 31 , 2011 , the noncontrolling interest in the operating partnership represented a 3.41 % ownership in the operating partnership . the op units may , under certain circumstances , be exchanged for our shares of common stock on a one-for-one basis . we , as sole general partner of the operating partnership , have the option to settle exchanged op units held by others for cash based on the current trading price of our shares . assuming the exchange of all op units , there would have been 10,199,533 shares of common stock outstanding at december 31 , 2011 , with a market value of approximately $ 248.7 million . we completed a secondary offering of 1,495,000 shares of common stock in january/february of 2012. the offering , which included the full exercise of the overallotment option by the underwriters , raised net proceeds of approximately $ 35.1 million after deducting the underwriting discount and other expenses . the proceeds from the offering were used to pay down amounts outstanding under the credit facility and for general corporate purposes . 33 contractual obligations the following table outlines our contractual obligations ( in thousands ) , assuming no mortgage defaults , as of december 31 , 2011 : replace_table_token_12_th estimated interest payments are based on stated rates for mortgages payable , and for notes payable the interest rate in effect for the most recent quarter is assumed to be in effect through the respective maturity date . we plan to begin construction of additional pre-leased developments and may acquire additional properties , which will initially be financed by the credit facility . we will periodically refinance short-term construction and acquisition financing with long-term debt , medium term debt and or equity . off-balance sheet arrangements we do not engage in any off-balance sheet arrangements with unconsolidated entities or financial partnerships , such as structured finance or special purpose entities , that have or are reasonably likely to have a material effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditure or capital resources . inflation our leases generally contain provisions designed to mitigate the adverse impact of inflation on net income . these provisions include clauses enabling us to pass through to our tenants certain operating costs , including real estate taxes , common area maintenance , utilities and insurance , thereby reducing our exposure to cost increases and operating expenses resulting from inflation . certain of our leases contain clauses enabling us to receive percentage rents based on tenants ' gross sales , which generally increase as prices rise , and , in certain cases , escalation clauses , which generally increase rental rates during the term of the leases . in addition , expiring tenant leases permit us to seek increased rents upon re-lease at market rates if rents are below the then existing market rates . funds from operations funds from operations ( “ ffo ” ) is defined by the national association of real estate investment trusts , inc. ( “ nareit ” ) to mean net income computed in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) , excluding gains ( or losses ) from sales of property , plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures . in addition ,
| liquidity and capital resources the following summarizes working capital , cash , cash equivalents , short-term investments , and restricted cash ( in thousands ) : replace_table_token_19_th the decreases in both working capital and cash , cash equivalents , and short-term investments from december 31 , 2010 , were primarily due to the special cash dividend of $ 136.8 million paid in the third quarter of 2011. the following summarizes cash flow activity ( in thousands ) : replace_table_token_20_th cash used in operating activities consisted of net income ( loss ) adjusted for certain non-cash items including depreciation , amortization , stock-based compensation , deferred income taxes , gain on sales of interest in , and deconsolidation of , rhapsody , asset impairments , accrued restructuring and other charges and the effect of changes in certain operating assets and liabilities , net of acquisitions . cash used in operating activities in the year ended december 31 , 2011 was $ 0.7 million and consisted of ( 1 ) a net loss of $ 27.1 million , ( 2 ) adjustments to reconcile the net loss to cash used by operating activities of $ 11.9 million and ( 3 ) cash used in activities related to changes in certain operating assets and liabilities , net of acquisitions of $ 14.5 million . adjustments to reconcile the net loss to cash used in operating activities primarily consisted of $ 16.9 million of depreciation and amortization expense , $ 7.9 million of equity in the net loss of rhapsody and other equity method investments , and $ 11.7 million of stock-based compensation . 30 changes in certain operating assets and liabilities , net of acquisitions , for the year ended december 31 , 2011 primarily consisted of uses of cash from a decrease in accounts payable , and accrued and other liabilities of $ 14.6 million and $ 20.9 million , respectively . this decrease in accounts payable was primarily related to the timing of certain payments . these uses of cash were partially offset by decreases in accounts receivable and prepaid and other assets of $ 6.8 million and $ 43.2 million , respectively .
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critical accounting policies critical accounting policies are those that are both significant to the overall presentation of our financial condition and results of operations and require management to make difficult , complex or subjective judgments . for example , significant estimates and assumptions have been made with respect to revenue recognition , capitalization of costs related to real estate investments , potential impairment of real estate investments , operating cost reimbursements , and taxable income . minimum rental income attributable to leases is recorded when due from tenants . certain leases provide for additional percentage rents based on tenants ' sales volumes . these percentage rents are recognized when determinable by us . in addition , leases for certain tenants contain rent escalations and or free rent during the first several months of the lease term ; however , such amounts are not material . real estate assets are stated at cost less accumulated depreciation . all costs related to planning , development and construction of buildings prior to the date they become operational , including interest and real estate taxes during the construction period , are capitalized for financial reporting purposes and recorded as property under development until construction has been completed . the viability of all projects under construction or development are regularly evaluated under applicable accounting requirements , including requirements relating to abandonment of assets or changes in use . to the extent a project , or individual components of the project , are no longer considered to have value , the related capitalized costs are charged against operations . subsequent to completion of construction , expenditures for property maintenance are charged to operations as incurred , while significant renovations are capitalized . depreciation of the buildings is recorded on the straight-line method using an estimated useful life of forty years . we evaluate real estate for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets . when any such impairment exists , the related assets will be written down to fair value and such excess carrying value is charged to income . the expected cash flows of a project are dependent on estimates and other factors subject to change , including ( 1 ) changes in the national , regional , and or local economic climates , ( 2 ) competition from other shopping centers , stores , clubs , mailings , and the internet , ( 3 ) increases in operating costs , ( 4 ) bankruptcy and or other changes in the condition of third parties , including tenants , ( 5 ) expected holding period , and ( 6 ) availability of credit . these factors could cause our expected future cash flows from a project to change , and , as a result , an impairment could be considered to have occurred . during 2011 and 2010 we recorded impairment charges of $ 13.5 million and $ 8.14 million , respectively , related to the carrying value of our real estate assets . 28 substantially all of our leases contain provisions requiring tenants to pay as additional rent a proportionate share of operating expenses ( “ operating cost reimbursements ” ) such as real estate taxes , repairs and maintenance , insurance , etc . the related revenue from tenant billings is recognized in the same period the expense is recorded . we have elected to be taxed as a reit under the internal revenue code since our 1994 tax year . as a result , we are not subject to federal income taxes to the extent that we distribute annually at least 90 % of our reit taxable income to our stockholders and satisfy certain other requirements defined in the internal revenue code . we established trs entities pursuant to the provisions of the reit modernization act . our trs entities are able to engage in activities resulting in income that previously would have been disqualified from being eligible reit income under the federal income tax regulations . as a result , certain activities of our company which occur within our trs entities are subject to federal and state income taxes . as of december 31 , 2011 and 2010 , we had accrued a deferred income tax amount of $ 705,000. in addition , we have recorded an income tax liability of $ 128,000 and $ 17,000 as of december 31 , 2011 and 2010 respectively . results of operations comparison of year ended december 31 , 2011 to year ended december 31 , 2010 minimum rental income increased $ 2,316,000 , or 8 % , to $ 32,671,000 in 2011 , compared to $ 30,355,000 in 2010. rental income increased $ 3,137,000 due to the acquisition of 10 properties in 2011 along with the full year impact of nine properties acquired in 2010. the increase was also the result of the development of a walgreens drug store in ann arbor , michigan in september 2010 , the development of a walgreens drug store located in atlantic beach , florida in october 2010 , the development of a walgreens drug store in st augustine shores , florida in november 2010 along with the redevelopment of dick 's sporting goods in boynton beach , florida in october 2010. our revenue increases from these developments amounted to $ 1,724,000. rental revenue decreased $ 2,466,000 due to the closure of borders stores due to the bankruptcy liquidation . in addition , rental income decreased $ 79,000 as a result of other rental income adjustments . story_separator_special_tag as of december 31 , 2011 , the net book value of the four mortgaged properties was approximately $ 9.1 million , and annualized base rent for the four mortgaged properties , one of which was currently occupied , was approximately $ .5 million , or 1.4 % of our annualized base rent as of december 31 , 2011. as previously disclosed , the lender declared all four crossed loans in default and accelerated our obligations thereunder . as a result of the borders liquidation program , we did not have sufficient cash flow from the properties to continue to pay the debt service on the crossed loans and elected not to pay the debt service . on march 6 , 2012 , we conveyed the four mortgaged properties , which were subject to the crossed loans , to the lender pursuant to a consensual deed-in-lieu-of-foreclosure process that satisfied the loans . 32 we paid off a note payable in the amount of $ 704,374 on march 31 , 2011. in august 2011 , we entered into a release agreement for the mortgage loan which was formerly secured by the mortgage on the leasehold interest in the former borders store in lawrence , kansas amounting to approximately $ 2.3 million . while the lender had a leasehold mortgage on the property , we owned the fee interest in the property . the underlying ground lease was in default subsequent to borders rejecting the lease and the lender did not cure the underlying default under the ground lease . the release agreement provided for the extinguishment of all liabilities due to the lender under the loan . the gain on extinguishment of $ 2.4 million has been reflected during 2011. in december 2011 , we conveyed the former borders corporate headquarters property in ann arbor , michigan , which was subject to a non-recourse mortgage loan in default , to the lender pursuant to a consensual deed-in-lieu-of-foreclosure process that satisfied the loan of approximately $ 5.5 million . capitalization as of december 31 , 2011 , our total market capitalization was approximately $ 368 million . market capitalization consisted of $ 119.3 million of debt ( including property related mortgages and the credit facility ) , and $ 248.7 million of shares of common stock ( based on the closing price on the nyse of $ 24.38 per share on december 31 , 2011 ) and op units at market value . our ratio of debt to total market capitalization was 32.4 % at december 31 , 2011. at december 31 , 2011 , the noncontrolling interest in the operating partnership represented a 3.41 % ownership in the operating partnership . the op units may , under certain circumstances , be exchanged for our shares of common stock on a one-for-one basis . we , as sole general partner of the operating partnership , have the option to settle exchanged op units held by others for cash based on the current trading price of our shares . assuming the exchange of all op units , there would have been 10,199,533 shares of common stock outstanding at december 31 , 2011 , with a market value of approximately $ 248.7 million . we completed a secondary offering of 1,495,000 shares of common stock in january/february of 2012. the offering , which included the full exercise of the overallotment option by the underwriters , raised net proceeds of approximately $ 35.1 million after deducting the underwriting discount and other expenses . the proceeds from the offering were used to pay down amounts outstanding under the credit facility and for general corporate purposes . 33 contractual obligations the following table outlines our contractual obligations ( in thousands ) , assuming no mortgage defaults , as of december 31 , 2011 : replace_table_token_12_th estimated interest payments are based on stated rates for mortgages payable , and for notes payable the interest rate in effect for the most recent quarter is assumed to be in effect through the respective maturity date . we plan to begin construction of additional pre-leased developments and may acquire additional properties , which will initially be financed by the credit facility . we will periodically refinance short-term construction and acquisition financing with long-term debt , medium term debt and or equity . off-balance sheet arrangements we do not engage in any off-balance sheet arrangements with unconsolidated entities or financial partnerships , such as structured finance or special purpose entities , that have or are reasonably likely to have a material effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditure or capital resources . inflation our leases generally contain provisions designed to mitigate the adverse impact of inflation on net income . these provisions include clauses enabling us to pass through to our tenants certain operating costs , including real estate taxes , common area maintenance , utilities and insurance , thereby reducing our exposure to cost increases and operating expenses resulting from inflation . certain of our leases contain clauses enabling us to receive percentage rents based on tenants ' gross sales , which generally increase as prices rise , and , in certain cases , escalation clauses , which generally increase rental rates during the term of the leases . in addition , expiring tenant leases permit us to seek increased rents upon re-lease at market rates if rents are below the then existing market rates . funds from operations funds from operations ( “ ffo ” ) is defined by the national association of real estate investment trusts , inc. ( “ nareit ” ) to mean net income computed in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) , excluding gains ( or losses ) from sales of property , plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures . in addition ,
| liquidity and capital resources our principal demands for liquidity are operations , distributions to our stockholders , debt repayment , development of new properties , redevelopment of existing properties and future property acquisitions . we intend to meet our short-term liquidity requirements , including capital expenditures related to the leasing and improvement of the properties , through cash flow provided by operations and the credit facility . we believe that adequate cash flow will be available to fund our operations and pay dividends in accordance with reit requirements for at least the next 12 months . we may obtain additional funds for future development or acquisitions through other borrowings or the issuance of additional shares of common stock . although market conditions have limited the availability of new sources of financing and capital , which may have an impact on our ability to obtain financing for planned new development projects in the near term , we believe that these financing sources will enable us to generate funds sufficient to meet both our short-term and long-term capital needs . we completed a secondary offering of 1,495,000 shares of common stock in january/february of 2012. the offering , which included the full exercise of the overallotment option by the underwriters , raised net proceeds of approximately $ 35.1 million after deducting the underwriting discount and other expenses . the proceeds from the offering were used to pay down amounts outstanding under the credit facility and for general corporate purposes . our cash flows from operations decreased $ 614,000 to $ 25,497,000 in 2011 , compared to $ 26,111,000 in 2010. cash used in investing activities decreased $ 3,936,000 to $ 29,252,000 in 2011 , compared to $ 33,188,000 in 2010. cash provided by financing activities decreased $ 1,817,000 to $ 5,165,000 in 2011 , compared to $ 6,982,000 in 2010. our cash and cash equivalents increased by $ 1,505,000 to $ 2,003,000 as of december 31 , 2011 as a result of the foregoing factors . 31 during 2011 , we spent approximately $ 497,000 at our existing community shopping centers for tenant improvement or allowance costs , $ 197,000 for leasing commissions and $ 75,000 for other capital items .
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global consumer solutions revenue is both transaction and subscription based and is derived from the sale of credit monitoring and identity theft protection products , which we deliver electronically to consumers primarily via the internet in the u.s. , canada , and the u.k. we reach consumers directly and indirectly through partners . we also sell consumer and credit information to resellers who combine our information with other information to provide direct to consumer monitoring , reports and scores . geographic information . we currently have significant operations in the following countries : argentina , australia , canada , chile , costa rica , ecuador , el salvador , honduras , india , mexico , new zealand , paraguay , peru , portugal , the republic of ireland , spain , the u.k. , uruguay and the u.s. we also offer equifax branded credit services in india and russia through joint ventures , we have investments in consumer and or commercial credit information companies through joint 29 ventures in cambodia , malaysia and singapore , and have an investment in a consumer and commercial credit information company in brazil . of the countries we operate in , 73 % of our revenue was generated in the u.s. during the twelve months ended december 31 , 2016 . key performance indicators . management focuses on a variety of key indicators to monitor operating and financial performance . these performance indicators include measurements of operating revenue , change in operating revenue , operating income , operating margin , net income , diluted earnings per share , cash provided by operating activities and capital expenditures . key performance indicators for the twelve months ended december 31 , 2016 , 2015 and 2014 , include the following : replace_table_token_5_th * amounts above also include capital expenditures in accounts payable . business environment and company outlook demand for our services tends to be correlated to general levels of economic activity and to consumer credit activity , both enhanced by our own initiatives to expand our products and markets served , and to small commercial credit and marketing activity . in 2017 , in the united states , we expect modest but improving growth in overall economic activity and consumer credit . mortgage market originations are expected to be down in the double digit range for the year . the economic environments impacting five of our six largest international operations , in the u.k. , australia , canada , argentina , and chile , are expected to strengthen in 2017 relative to 2016. in spain , economic growth is expected to remain good in 2017 , although somewhat slower than in 2016. in addition , at their current levels , weaker foreign exchange rates compared to the prior year , will negatively impact both growth in revenue and profit when reported in u.s. dollars . over the long term , we expect that our ongoing investments in new product innovation , business execution , enterprise growth initiatives , technology infrastructure , and continuous process improvement will enable us to deliver long-term multi-year average organic revenue growth ranging between 6 % and 8 % with additional growth of 1 % to 2 % derived from strategic acquisitions consistent with our long-term business strategy . we also expect to grow earnings per share at a somewhat faster rate than revenue over time as a result of both operating and financial leverage . 30 results of operations — twelve months ended december 31 , 2016 , 2015 and 2014 consolidated financial results operating revenue replace_table_token_6_th revenue for 2016 increased by 18 % compared to 2015. the growth was driven by broad-based organic growth due to revenue increases in mortgage , government , healthcare , and direct to consumer reseller verticals as well as the veda acquisition . the effect of foreign exchange rates reduced revenue by $ 75.2 million or 3 % in 2016 compared to 2015. revenue for 2015 increased by 9 % compared to 2014. this broad-based growth was organic , and was driven by revenue increases in mortgage , direct to consumer reseller , healthcare , government , and auto verticals . the effect of foreign exchange rates reduced revenue by $ 75.7 million or 3 % in 2015 compared to 2014. operating expenses replace_table_token_7_th cost of services . cost of services increased $ 226.0 million in 2016 compared to the prior year . the increase in cost of services , when compared to 2015 , was due to the increase in production costs driven by higher revenues including the veda acquisition , as well as increases in people costs , and to a lesser extent an increase in technology costs . the effect of changes in foreign exchange rates reduced cost of services by $ 21.4 million . cost of services increased $ 42.7 million in 2015 compared to the prior year . the increase in cost of services , when compared to 2014 , was due to the increase in production costs driven by higher revenues , as well as increases in people costs , and to a lesser extent an increase in professional services . the effect of changes in foreign exchange rates reduced cost of services by $ 25.3 million . selling , general and administrative expenses . selling , general and administrative expenses increased $ 63.9 million in 2016 as compared to 2015. the increase was due to veda selling , general and administrative expense and integration and transaction costs and increases in people costs across the business . the increase was offset by a decline in costs related to the 31 realignment of internal resources . the impact of changes in foreign currency exchange rates decreased our selling , general and administrative expenses by $ 23.7 million . story_separator_special_tag liabilities related to current payables , incentives and unearned income . fund transfer limitations . the ability of certain of our subsidiaries and associated companies to transfer funds to us may be limited , in some cases , by certain restrictions imposed by foreign governments . these restrictions do not , individually or in the aggregate , materially limit our ability to service our indebtedness , meet our current obligations or pay dividends . we currently hold $ 117.4 million of cash in our foreign subsidiaries . investing activities replace_table_token_18_th * amounts above exclude capital expenditures in accounts payable . our capital expenditures are used for developing , enhancing and deploying new and existing software in support of our expanding product set , replacing or adding equipment , updating systems for regulatory compliance , licensing of standard software applications , investing in system reliability , security and disaster recovery enhancements , and updating or expanding our office facilities . capital expenditures in 2016 and 2015 increased from 2015 and 2014 , respectively , as we are continuing to invest in new products and technology infrastructure . acquisitions , divestitures and investments replace_table_token_19_th 2016 acquisitions and investments . during the first quarter of 2016 , the company completed the acquisition of 100 % of the ordinary voting shares of veda for cash consideration of approximately $ 1.7 billion . during the first quarter of 2016 , we settled all of the foreign currency options related to the veda acquisition on the respective settlement dates for a net cash 38 payment of $ 10.8 million . during the third quarter of 2016 , the company completed the acquisition of barnett and computersoft . refer to note 3 for more information on these acquisitions . 2015 acquisitions and investments . during the first quarter of 2015 , we acquired a 75 % equity interest investment in a debt collections and recovery management venture in the u.k. , as more fully described in note 1. during the third quarter of 2015 , we received $ 2.9 million proceeds from the escrow related to a past disposition . we did not make significant investments in unconsolidated affiliates during 2015 . 2014 acquisitions and investments . during the first quarter of 2014 , we acquired tdx , included as part of our international operating segment , and forseva , included as part of our usis operating segment . we invested $ 2.5 million in our joint venture in india during 2014. during the first quarter of 2013 , we divested two non-strategic business lines , equifax settlement services which was part of our mortgage business within the usis operating segment and talent management services which was part of our employer services business within our workforce solutions operating segment , for a total of $ 47.5 million . $ 3.5 million of the proceeds of the sale of talent management services was placed into an escrow account to be released to us at a later date . during 2014 , we received $ 0.6 million of the proceeds from the escrow . for additional information about our acquisitions , see note 3 of the notes to consolidated financial statements in this report . financing activities replace_table_token_20_th credit facility availability . our principal unsecured revolving credit facility with a group of banks , which we refer to as the revolver , permits us to borrow up to $ 900.0 million through november 2020. the revolver may be used for general corporate purposes . availability of the revolver for borrowings is reduced by the outstanding face amount of any letters of credit issued under the facility and , pursuant to our existing board of directors authorization , by the outstanding principal amount of our commercial paper ( cp ) notes . our $ 900.0 million cp program has been established to allow for borrowing through the private placement of cp with maturities ranging from overnight to 397 days . we may use the proceeds of cp for general corporate purposes . the cp program is supported by our revolver and , pursuant to our existing board of directors authorization , the total amount of cp which may be issued is reduced by the amount of any outstanding borrowings under our revolver . at december 31 , 2016 , the company had $ 310.3 million of cp and $ 0.5 million of letters of credit outstanding , and there were no borrowings outstanding under the revolver . at december 31 , 2016 , a total of $ 589.2 million was available under the revolver . at december 31 , 2016 , approximately 72 % of our debt was fixed rate and 28 % was effectively variable rate . our variable-rate debt consists of our issued commercial paper , which bears short-term interest rates based on the cp market for investment grade issuers . the interest rates reset periodically , depending on the terms of the respective financing arrangements . at december 31 , 2016 , interest rates on our variable-rate debt ranged from 1.0 % to 1.9 % . borrowing and repayment activity . net short-term borrowings ( repayments ) primarily represent borrowings or repayments of outstanding amounts under our cp program . we primarily borrow under our cp program , as needed and availability allows . 39 the increase in net short-term borrowings ( repayments ) primarily relates to the net activity of cp notes in 2016 , as well as the draw down on the 364-day revolver during the first quarter of 2016 and the pay off of the veda assumed debt in the first quarter and the 364-day revolver during the second quarter of 2016. the decrease in net short-term borrowings ( repayments ) in 2015 primarily relates to the net activity of cp notes in 2015 , and reflects the increase in cash flow from operations as well as no material acquisitions entered into during the year . on may 12 , 2016 , we issued
| liquidity and capital resources our principal demands for liquidity are operations , distributions to our stockholders , debt repayment , development of new properties , redevelopment of existing properties and future property acquisitions . we intend to meet our short-term liquidity requirements , including capital expenditures related to the leasing and improvement of the properties , through cash flow provided by operations and the credit facility . we believe that adequate cash flow will be available to fund our operations and pay dividends in accordance with reit requirements for at least the next 12 months . we may obtain additional funds for future development or acquisitions through other borrowings or the issuance of additional shares of common stock . although market conditions have limited the availability of new sources of financing and capital , which may have an impact on our ability to obtain financing for planned new development projects in the near term , we believe that these financing sources will enable us to generate funds sufficient to meet both our short-term and long-term capital needs . we completed a secondary offering of 1,495,000 shares of common stock in january/february of 2012. the offering , which included the full exercise of the overallotment option by the underwriters , raised net proceeds of approximately $ 35.1 million after deducting the underwriting discount and other expenses . the proceeds from the offering were used to pay down amounts outstanding under the credit facility and for general corporate purposes . our cash flows from operations decreased $ 614,000 to $ 25,497,000 in 2011 , compared to $ 26,111,000 in 2010. cash used in investing activities decreased $ 3,936,000 to $ 29,252,000 in 2011 , compared to $ 33,188,000 in 2010. cash provided by financing activities decreased $ 1,817,000 to $ 5,165,000 in 2011 , compared to $ 6,982,000 in 2010. our cash and cash equivalents increased by $ 1,505,000 to $ 2,003,000 as of december 31 , 2011 as a result of the foregoing factors . 31 during 2011 , we spent approximately $ 497,000 at our existing community shopping centers for tenant improvement or allowance costs , $ 197,000 for leasing commissions and $ 75,000 for other capital items .
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global consumer solutions revenue is both transaction and subscription based and is derived from the sale of credit monitoring and identity theft protection products , which we deliver electronically to consumers primarily via the internet in the u.s. , canada , and the u.k. we reach consumers directly and indirectly through partners . we also sell consumer and credit information to resellers who combine our information with other information to provide direct to consumer monitoring , reports and scores . geographic information . we currently have significant operations in the following countries : argentina , australia , canada , chile , costa rica , ecuador , el salvador , honduras , india , mexico , new zealand , paraguay , peru , portugal , the republic of ireland , spain , the u.k. , uruguay and the u.s. we also offer equifax branded credit services in india and russia through joint ventures , we have investments in consumer and or commercial credit information companies through joint 29 ventures in cambodia , malaysia and singapore , and have an investment in a consumer and commercial credit information company in brazil . of the countries we operate in , 73 % of our revenue was generated in the u.s. during the twelve months ended december 31 , 2016 . key performance indicators . management focuses on a variety of key indicators to monitor operating and financial performance . these performance indicators include measurements of operating revenue , change in operating revenue , operating income , operating margin , net income , diluted earnings per share , cash provided by operating activities and capital expenditures . key performance indicators for the twelve months ended december 31 , 2016 , 2015 and 2014 , include the following : replace_table_token_5_th * amounts above also include capital expenditures in accounts payable . business environment and company outlook demand for our services tends to be correlated to general levels of economic activity and to consumer credit activity , both enhanced by our own initiatives to expand our products and markets served , and to small commercial credit and marketing activity . in 2017 , in the united states , we expect modest but improving growth in overall economic activity and consumer credit . mortgage market originations are expected to be down in the double digit range for the year . the economic environments impacting five of our six largest international operations , in the u.k. , australia , canada , argentina , and chile , are expected to strengthen in 2017 relative to 2016. in spain , economic growth is expected to remain good in 2017 , although somewhat slower than in 2016. in addition , at their current levels , weaker foreign exchange rates compared to the prior year , will negatively impact both growth in revenue and profit when reported in u.s. dollars . over the long term , we expect that our ongoing investments in new product innovation , business execution , enterprise growth initiatives , technology infrastructure , and continuous process improvement will enable us to deliver long-term multi-year average organic revenue growth ranging between 6 % and 8 % with additional growth of 1 % to 2 % derived from strategic acquisitions consistent with our long-term business strategy . we also expect to grow earnings per share at a somewhat faster rate than revenue over time as a result of both operating and financial leverage . 30 results of operations — twelve months ended december 31 , 2016 , 2015 and 2014 consolidated financial results operating revenue replace_table_token_6_th revenue for 2016 increased by 18 % compared to 2015. the growth was driven by broad-based organic growth due to revenue increases in mortgage , government , healthcare , and direct to consumer reseller verticals as well as the veda acquisition . the effect of foreign exchange rates reduced revenue by $ 75.2 million or 3 % in 2016 compared to 2015. revenue for 2015 increased by 9 % compared to 2014. this broad-based growth was organic , and was driven by revenue increases in mortgage , direct to consumer reseller , healthcare , government , and auto verticals . the effect of foreign exchange rates reduced revenue by $ 75.7 million or 3 % in 2015 compared to 2014. operating expenses replace_table_token_7_th cost of services . cost of services increased $ 226.0 million in 2016 compared to the prior year . the increase in cost of services , when compared to 2015 , was due to the increase in production costs driven by higher revenues including the veda acquisition , as well as increases in people costs , and to a lesser extent an increase in technology costs . the effect of changes in foreign exchange rates reduced cost of services by $ 21.4 million . cost of services increased $ 42.7 million in 2015 compared to the prior year . the increase in cost of services , when compared to 2014 , was due to the increase in production costs driven by higher revenues , as well as increases in people costs , and to a lesser extent an increase in professional services . the effect of changes in foreign exchange rates reduced cost of services by $ 25.3 million . selling , general and administrative expenses . selling , general and administrative expenses increased $ 63.9 million in 2016 as compared to 2015. the increase was due to veda selling , general and administrative expense and integration and transaction costs and increases in people costs across the business . the increase was offset by a decline in costs related to the 31 realignment of internal resources . the impact of changes in foreign currency exchange rates decreased our selling , general and administrative expenses by $ 23.7 million . story_separator_special_tag liabilities related to current payables , incentives and unearned income . fund transfer limitations . the ability of certain of our subsidiaries and associated companies to transfer funds to us may be limited , in some cases , by certain restrictions imposed by foreign governments . these restrictions do not , individually or in the aggregate , materially limit our ability to service our indebtedness , meet our current obligations or pay dividends . we currently hold $ 117.4 million of cash in our foreign subsidiaries . investing activities replace_table_token_18_th * amounts above exclude capital expenditures in accounts payable . our capital expenditures are used for developing , enhancing and deploying new and existing software in support of our expanding product set , replacing or adding equipment , updating systems for regulatory compliance , licensing of standard software applications , investing in system reliability , security and disaster recovery enhancements , and updating or expanding our office facilities . capital expenditures in 2016 and 2015 increased from 2015 and 2014 , respectively , as we are continuing to invest in new products and technology infrastructure . acquisitions , divestitures and investments replace_table_token_19_th 2016 acquisitions and investments . during the first quarter of 2016 , the company completed the acquisition of 100 % of the ordinary voting shares of veda for cash consideration of approximately $ 1.7 billion . during the first quarter of 2016 , we settled all of the foreign currency options related to the veda acquisition on the respective settlement dates for a net cash 38 payment of $ 10.8 million . during the third quarter of 2016 , the company completed the acquisition of barnett and computersoft . refer to note 3 for more information on these acquisitions . 2015 acquisitions and investments . during the first quarter of 2015 , we acquired a 75 % equity interest investment in a debt collections and recovery management venture in the u.k. , as more fully described in note 1. during the third quarter of 2015 , we received $ 2.9 million proceeds from the escrow related to a past disposition . we did not make significant investments in unconsolidated affiliates during 2015 . 2014 acquisitions and investments . during the first quarter of 2014 , we acquired tdx , included as part of our international operating segment , and forseva , included as part of our usis operating segment . we invested $ 2.5 million in our joint venture in india during 2014. during the first quarter of 2013 , we divested two non-strategic business lines , equifax settlement services which was part of our mortgage business within the usis operating segment and talent management services which was part of our employer services business within our workforce solutions operating segment , for a total of $ 47.5 million . $ 3.5 million of the proceeds of the sale of talent management services was placed into an escrow account to be released to us at a later date . during 2014 , we received $ 0.6 million of the proceeds from the escrow . for additional information about our acquisitions , see note 3 of the notes to consolidated financial statements in this report . financing activities replace_table_token_20_th credit facility availability . our principal unsecured revolving credit facility with a group of banks , which we refer to as the revolver , permits us to borrow up to $ 900.0 million through november 2020. the revolver may be used for general corporate purposes . availability of the revolver for borrowings is reduced by the outstanding face amount of any letters of credit issued under the facility and , pursuant to our existing board of directors authorization , by the outstanding principal amount of our commercial paper ( cp ) notes . our $ 900.0 million cp program has been established to allow for borrowing through the private placement of cp with maturities ranging from overnight to 397 days . we may use the proceeds of cp for general corporate purposes . the cp program is supported by our revolver and , pursuant to our existing board of directors authorization , the total amount of cp which may be issued is reduced by the amount of any outstanding borrowings under our revolver . at december 31 , 2016 , the company had $ 310.3 million of cp and $ 0.5 million of letters of credit outstanding , and there were no borrowings outstanding under the revolver . at december 31 , 2016 , a total of $ 589.2 million was available under the revolver . at december 31 , 2016 , approximately 72 % of our debt was fixed rate and 28 % was effectively variable rate . our variable-rate debt consists of our issued commercial paper , which bears short-term interest rates based on the cp market for investment grade issuers . the interest rates reset periodically , depending on the terms of the respective financing arrangements . at december 31 , 2016 , interest rates on our variable-rate debt ranged from 1.0 % to 1.9 % . borrowing and repayment activity . net short-term borrowings ( repayments ) primarily represent borrowings or repayments of outstanding amounts under our cp program . we primarily borrow under our cp program , as needed and availability allows . 39 the increase in net short-term borrowings ( repayments ) primarily relates to the net activity of cp notes in 2016 , as well as the draw down on the 364-day revolver during the first quarter of 2016 and the pay off of the veda assumed debt in the first quarter and the 364-day revolver during the second quarter of 2016. the decrease in net short-term borrowings ( repayments ) in 2015 primarily relates to the net activity of cp notes in 2015 , and reflects the increase in cash flow from operations as well as no material acquisitions entered into during the year . on may 12 , 2016 , we issued
| debt covenants . the outstanding indentures and comparable instruments contain customary covenants including , for example , limits on secured debt and sale/leaseback transactions . in addition , the senior credit facilities require us to maintain a maximum leverage ratio of not more than 3.5 to 1.0. as permitted under the terms of the senior credit facilities , we made the election to increase the covenant to 4.0 to 1.0 , effective for four consecutive quarters , beginning with the first quarter of 2016 and continuing through the fourth quarter of 2016. none of these covenants are considered restrictive to our operations and , as of december 31 , 2016 , the company was in compliance with all of our debt covenants . the company does not have any credit rating triggers that would accelerate the maturity of a material amount of the outstanding debt ; however , the 6.3 % senior notes due 2017 , 2.3 % senior notes due 2021 , 3.3 % senior notes due 2022 , 3.25 % senior notes due 2026 and 7.0 % senior notes due 2037 ( together , the “ senior notes ” ) contain change in control provisions . if the company experiences a change of control or publicly announces the company 's intention to effect a change of control and the rating on the senior notes is lowered by standard & poor 's , or s & p , and moody 's investors service , or moody 's , below an investment grade rating within 60 days of such change of control or notice thereof , then the company will be required to offer to repurchase the senior
| 1 |
at the end of the second quarter and into the third quarter of 2020 , there was a phased reopening of a significant number of on-premise accounts in certain of our markets , but with restrictions and in the fourth quarter some of these re-openings were reversed and businesses were shut down again . sales to restaurants and bars have not returned to pre-pandemic levels and in many instances , the reopened on-premise accounts have been impacted by further restrictions or further shut downs imposed as a result of the increased spread of the coronavirus . in addition , sporting events , festivals and other large public gatherings where our products are served have been canceled throughout north america and europe . sales to on-premise customers tend to be higher margin than sales to off-premise ( retail outlets ) customers . 39 additionally , these and other governmental or societal impositions of restrictions on public gatherings , especially if prolonged in nature , whether government or self-imposed , will have adverse effects on on-premise traffic and , in turn , our business . we experienced a significant adverse volume impact in 2020 resulting from the initial closure of , and subsequent continued impacts to , the on-premise channel . as perspective , we estimate that approximately 23 % of our 2019 consolidated net sales resulted from on-premise consumption , with approximately 17 % of our north america net sales and approximately 50-55 % of our europe net sales each coming from this important part of the industry , and in many of our markets the on-premise business had been reduced to zero for much of the second quarter of 2020. see further discussion in part i. item 1. business regarding the historical percentage of volume and net sales represented in the on-premise within our north america and europe segments and resulting implications to expected profitability as a result of the effective closures of the on-premise in the markets in which we operate . while we began to see some of the on-premise return mid-year in many of our markets , with the exception of the u.k. , which did not reopen until early july , business and consumer behavior in the channel has been slow and remains uncertain . subsequently , in the fourth quarter of 2020 , the second pandemic wave triggered new lockdowns with different levels of restrictions in europe and canada depending on the market . therefore , as a result of this uncertainty , we currently continue to expect a significant adverse impact to both net sales and profit performance for fiscal 2021 and , possibly beyond . in addition , where we have seen shifts in demand to the off-premise , and shifts into certain package types , which has strained our supply chain and package availability , particularly with aluminum can demand and other packaging materials , requiring that we strategically prioritize certain brands and package types . our supply chain continues to work diligently to ensure sufficient supply of these high demand brand and packages as we adjust to these changing consumer dynamics . further , during 2020 , we recorded charges of $ 15.5 million within cost of goods sold related to temporary `` thank you `` pay for certain essential north america brewery employees . additionally , in order to support the challenges facing our on-premise customers and retailers , and our overall commitment to quality , during the first quarter of 2020 , we initiated voluntary temporary keg relief programs in many of our markets providing customers with reimbursements for untapped kegs that met certain established return requirements . as a result , our results for 2020 further include aggregate charges of $ 42.4 million , inclusive of a reduction to net sales of $ 30.3 million for reimbursements through these keg relief programs , as well as charges of $ 12.1 million within cost of goods sold related to obsolete finished goods keg inventories that were unable to be sold within our freshness specifications as a result of the ongoing on-premise impacts , as well as the costs to facilitate the above mentioned keg returns . these keg return and inventory obsolescence charges were primarily recognized during the first quarter of 2020. see part ii—item 8 financial statements and supplementary data , note 1 , `` basis of presentation and summary of significant accounting policies `` for additional details . as a result of the ongoing impacts of the pandemic , we have continued to take various mitigating actions to offset some of the implications to our employees and communities , as well as the challenges to performance , while also ensuring liquidity and deleverage remain key priorities as further discussed within `` liquidity and capital resources `` below . in addition to actions already taken , additional actions may be necessary . such potential actions include , but are not limited to , drawing on our revolving line of credit facility , issuing additional commercial paper under our u.s. commercial paper program , issuing commercial paper under the covid corporate financing facility in the u.k. ( see part ii—item 8 financial statements and supplementary data , note 11 , `` debt `` for further discussion of the facilities and our remaining capacity ) , further accessing the capital markets , reducing discretionary spending including marketing , general and administrative as well as capital expenditures , asset monetization and taking advantage of certain governmental programs such as furloughs in the u.k. and government relief and payment deferral programs , for example by the u.s. coronavirus aid , relief , and economic security act ( the “ cares act ” ) , and other such government-sponsored legislation and programs . story_separator_special_tag these charges were primarily recognized during the first quarter of 2020 , with adjustments recognized in subsequent quarters in 2020. we also recognized charges to cost of goods sold of $ 15.5 million related to temporary `` thank you `` pay for certain essential north america brewery employees . in the third quarter of 2020 , we formed a joint venture equally owned by mcbc and dgy west holdings , lp that was formed to expand commercialization of yuengling 's brands with operation currently expected to commence in the second half of 2021. tyc will oversee any new market expansion in the u.s. outside yuengling 's current 22-state footprint and new england . we expect that tyc will expand in a methodical pace following disciplined and steady growth . as part of our revitalization plan announced during the fourth quarter of 2019 , we initiated restructuring activities and continue to incur severance and other employee-related costs as special items . following management approval in december 2019 , in january 2020 , we announced plans to cease production at our irwindale , california brewery and entered into an option agreement with pabst brewing company , llc ( `` pabst `` ) , granting pabst an option to purchase our irwindale , california brewery , including plant equipment and machinery and the underlying land for $ 150 million , subject to adjustment as further specified in the option agreement . pursuant to the option agreement , on may 4 , 2020 , pabst exercised its option to purchase the irwindale brewery and the purchase was completed in the fourth quarter of 2020. production at the irwindale brewery ceased during the third quarter of 2020. we recorded special charges related to the planned irwindale brewery closure as further discussed in part ii—item 8 financial statements and supplementary data , note 7 , `` special items . `` the volatility of aluminum , inclusive of midwest premium and tariffs , continued to significantly impact our results during 2020. to the extent these prices continue to fluctuate , our business and financial results could be materially adversely impacted . we continue to monitor these risks and rely on our risk management hedging program to help mitigate price risk exposure for commodities including aluminum and fuel . we identified a triggering event requiring an interim impairment assessment of the goodwill within our historical canada reporting unit at the end of the third quarter of 2019 , as a result , in part , of prolonged weakening of the canadian beer industry negatively impacting the performance of the canada business through the third quarter of 2019 and the expected future cash flows of the canada reporting unit . the interim goodwill impairment analysis resulted in a goodwill impairment loss recognized within our historical canada reporting unit of $ 668.3 million , which was recorded as a special item . see part ii—item 8 financial statements and supplementary data , note 10 , `` goodwill and intangible assets `` for additional information . in further efforts to help optimize the north america brewery network , in the third quarter of 2017 , we announced a plan to build a more efficient and flexible brewery in longueuil , quebec . during the second quarter of 2019 , we completed the sale of our montreal brewery for $ 96.2 million , resulting in a $ 61.3 million gain , which was recorded as a special item . in conjunction with the sale , we agreed to lease back the existing property to continue operations on an uninterrupted basis until the new brewery is operational , which we currently expect to occur in 2021. however , due to the uncertainty inherent in our estimates , and the impacts of the coronavirus pandemic potentially delaying construction of the new brewery , the timing of the brewery closure is subject to change . we will continue to incur significant capital expenditures associated with the construction of the new brewery in longueuil , quebec , through its estimated completion in late 2021. in june 2019 , the ontario government in canada adopted a bill that , if enacted , would terminate a 10-year master framework agreement that was originally signed between the previous government administration and molson canada 2005 , a wholly owned indirect subsidiary of the company , labatt brewing company limited , sleeman breweries ltd. , and brewers retail inc. in 2015 and governs the terms of the beer distribution and retail systems in ontario through 2025. the government has not yet proclaimed the bill as law . the impacts of these potential legislative changes are unknown at this time , but could have a negative impact on the results of operations , cash flows and financial position of the north america segment . while discussions remain ongoing with the government to reach a mutually agreeable alternative to the enactment of the law , it is unclear how the coronavirus pandemic will impact these discussions . molson canada 2005 and the other master framework agreement signatories are prepared to vigorously defend their rights and pursue legal recourse , should the master framework agreement be unilaterally terminated by the enactment of the legislation . for additional information , see part ii—item 8 financial statements and supplementary data , note 18 , `` commitments and contingencies . `` in june 2019 , health canada released final regulations resulting in the legalization of new classes of cannabis products including edibles and cannabis infused beverages on october 17 , 2019 , with product sales being permitted sixty days after submission of the beverage formulations to health canada and satisfaction of all other licensing and regulatory preconditions . 45 truss , our joint venture with hexo in canada , began rolling out its range of thc and cbd infused beverages across the canadian market during the third quarter of 2020. separately , in april 2020 , we completed the formation of a new joint venture with hexo
| debt covenants . the outstanding indentures and comparable instruments contain customary covenants including , for example , limits on secured debt and sale/leaseback transactions . in addition , the senior credit facilities require us to maintain a maximum leverage ratio of not more than 3.5 to 1.0. as permitted under the terms of the senior credit facilities , we made the election to increase the covenant to 4.0 to 1.0 , effective for four consecutive quarters , beginning with the first quarter of 2016 and continuing through the fourth quarter of 2016. none of these covenants are considered restrictive to our operations and , as of december 31 , 2016 , the company was in compliance with all of our debt covenants . the company does not have any credit rating triggers that would accelerate the maturity of a material amount of the outstanding debt ; however , the 6.3 % senior notes due 2017 , 2.3 % senior notes due 2021 , 3.3 % senior notes due 2022 , 3.25 % senior notes due 2026 and 7.0 % senior notes due 2037 ( together , the “ senior notes ” ) contain change in control provisions . if the company experiences a change of control or publicly announces the company 's intention to effect a change of control and the rating on the senior notes is lowered by standard & poor 's , or s & p , and moody 's investors service , or moody 's , below an investment grade rating within 60 days of such change of control or notice thereof , then the company will be required to offer to repurchase the senior
| 0 |
at the end of the second quarter and into the third quarter of 2020 , there was a phased reopening of a significant number of on-premise accounts in certain of our markets , but with restrictions and in the fourth quarter some of these re-openings were reversed and businesses were shut down again . sales to restaurants and bars have not returned to pre-pandemic levels and in many instances , the reopened on-premise accounts have been impacted by further restrictions or further shut downs imposed as a result of the increased spread of the coronavirus . in addition , sporting events , festivals and other large public gatherings where our products are served have been canceled throughout north america and europe . sales to on-premise customers tend to be higher margin than sales to off-premise ( retail outlets ) customers . 39 additionally , these and other governmental or societal impositions of restrictions on public gatherings , especially if prolonged in nature , whether government or self-imposed , will have adverse effects on on-premise traffic and , in turn , our business . we experienced a significant adverse volume impact in 2020 resulting from the initial closure of , and subsequent continued impacts to , the on-premise channel . as perspective , we estimate that approximately 23 % of our 2019 consolidated net sales resulted from on-premise consumption , with approximately 17 % of our north america net sales and approximately 50-55 % of our europe net sales each coming from this important part of the industry , and in many of our markets the on-premise business had been reduced to zero for much of the second quarter of 2020. see further discussion in part i. item 1. business regarding the historical percentage of volume and net sales represented in the on-premise within our north america and europe segments and resulting implications to expected profitability as a result of the effective closures of the on-premise in the markets in which we operate . while we began to see some of the on-premise return mid-year in many of our markets , with the exception of the u.k. , which did not reopen until early july , business and consumer behavior in the channel has been slow and remains uncertain . subsequently , in the fourth quarter of 2020 , the second pandemic wave triggered new lockdowns with different levels of restrictions in europe and canada depending on the market . therefore , as a result of this uncertainty , we currently continue to expect a significant adverse impact to both net sales and profit performance for fiscal 2021 and , possibly beyond . in addition , where we have seen shifts in demand to the off-premise , and shifts into certain package types , which has strained our supply chain and package availability , particularly with aluminum can demand and other packaging materials , requiring that we strategically prioritize certain brands and package types . our supply chain continues to work diligently to ensure sufficient supply of these high demand brand and packages as we adjust to these changing consumer dynamics . further , during 2020 , we recorded charges of $ 15.5 million within cost of goods sold related to temporary `` thank you `` pay for certain essential north america brewery employees . additionally , in order to support the challenges facing our on-premise customers and retailers , and our overall commitment to quality , during the first quarter of 2020 , we initiated voluntary temporary keg relief programs in many of our markets providing customers with reimbursements for untapped kegs that met certain established return requirements . as a result , our results for 2020 further include aggregate charges of $ 42.4 million , inclusive of a reduction to net sales of $ 30.3 million for reimbursements through these keg relief programs , as well as charges of $ 12.1 million within cost of goods sold related to obsolete finished goods keg inventories that were unable to be sold within our freshness specifications as a result of the ongoing on-premise impacts , as well as the costs to facilitate the above mentioned keg returns . these keg return and inventory obsolescence charges were primarily recognized during the first quarter of 2020. see part ii—item 8 financial statements and supplementary data , note 1 , `` basis of presentation and summary of significant accounting policies `` for additional details . as a result of the ongoing impacts of the pandemic , we have continued to take various mitigating actions to offset some of the implications to our employees and communities , as well as the challenges to performance , while also ensuring liquidity and deleverage remain key priorities as further discussed within `` liquidity and capital resources `` below . in addition to actions already taken , additional actions may be necessary . such potential actions include , but are not limited to , drawing on our revolving line of credit facility , issuing additional commercial paper under our u.s. commercial paper program , issuing commercial paper under the covid corporate financing facility in the u.k. ( see part ii—item 8 financial statements and supplementary data , note 11 , `` debt `` for further discussion of the facilities and our remaining capacity ) , further accessing the capital markets , reducing discretionary spending including marketing , general and administrative as well as capital expenditures , asset monetization and taking advantage of certain governmental programs such as furloughs in the u.k. and government relief and payment deferral programs , for example by the u.s. coronavirus aid , relief , and economic security act ( the “ cares act ” ) , and other such government-sponsored legislation and programs . story_separator_special_tag these charges were primarily recognized during the first quarter of 2020 , with adjustments recognized in subsequent quarters in 2020. we also recognized charges to cost of goods sold of $ 15.5 million related to temporary `` thank you `` pay for certain essential north america brewery employees . in the third quarter of 2020 , we formed a joint venture equally owned by mcbc and dgy west holdings , lp that was formed to expand commercialization of yuengling 's brands with operation currently expected to commence in the second half of 2021. tyc will oversee any new market expansion in the u.s. outside yuengling 's current 22-state footprint and new england . we expect that tyc will expand in a methodical pace following disciplined and steady growth . as part of our revitalization plan announced during the fourth quarter of 2019 , we initiated restructuring activities and continue to incur severance and other employee-related costs as special items . following management approval in december 2019 , in january 2020 , we announced plans to cease production at our irwindale , california brewery and entered into an option agreement with pabst brewing company , llc ( `` pabst `` ) , granting pabst an option to purchase our irwindale , california brewery , including plant equipment and machinery and the underlying land for $ 150 million , subject to adjustment as further specified in the option agreement . pursuant to the option agreement , on may 4 , 2020 , pabst exercised its option to purchase the irwindale brewery and the purchase was completed in the fourth quarter of 2020. production at the irwindale brewery ceased during the third quarter of 2020. we recorded special charges related to the planned irwindale brewery closure as further discussed in part ii—item 8 financial statements and supplementary data , note 7 , `` special items . `` the volatility of aluminum , inclusive of midwest premium and tariffs , continued to significantly impact our results during 2020. to the extent these prices continue to fluctuate , our business and financial results could be materially adversely impacted . we continue to monitor these risks and rely on our risk management hedging program to help mitigate price risk exposure for commodities including aluminum and fuel . we identified a triggering event requiring an interim impairment assessment of the goodwill within our historical canada reporting unit at the end of the third quarter of 2019 , as a result , in part , of prolonged weakening of the canadian beer industry negatively impacting the performance of the canada business through the third quarter of 2019 and the expected future cash flows of the canada reporting unit . the interim goodwill impairment analysis resulted in a goodwill impairment loss recognized within our historical canada reporting unit of $ 668.3 million , which was recorded as a special item . see part ii—item 8 financial statements and supplementary data , note 10 , `` goodwill and intangible assets `` for additional information . in further efforts to help optimize the north america brewery network , in the third quarter of 2017 , we announced a plan to build a more efficient and flexible brewery in longueuil , quebec . during the second quarter of 2019 , we completed the sale of our montreal brewery for $ 96.2 million , resulting in a $ 61.3 million gain , which was recorded as a special item . in conjunction with the sale , we agreed to lease back the existing property to continue operations on an uninterrupted basis until the new brewery is operational , which we currently expect to occur in 2021. however , due to the uncertainty inherent in our estimates , and the impacts of the coronavirus pandemic potentially delaying construction of the new brewery , the timing of the brewery closure is subject to change . we will continue to incur significant capital expenditures associated with the construction of the new brewery in longueuil , quebec , through its estimated completion in late 2021. in june 2019 , the ontario government in canada adopted a bill that , if enacted , would terminate a 10-year master framework agreement that was originally signed between the previous government administration and molson canada 2005 , a wholly owned indirect subsidiary of the company , labatt brewing company limited , sleeman breweries ltd. , and brewers retail inc. in 2015 and governs the terms of the beer distribution and retail systems in ontario through 2025. the government has not yet proclaimed the bill as law . the impacts of these potential legislative changes are unknown at this time , but could have a negative impact on the results of operations , cash flows and financial position of the north america segment . while discussions remain ongoing with the government to reach a mutually agreeable alternative to the enactment of the law , it is unclear how the coronavirus pandemic will impact these discussions . molson canada 2005 and the other master framework agreement signatories are prepared to vigorously defend their rights and pursue legal recourse , should the master framework agreement be unilaterally terminated by the enactment of the legislation . for additional information , see part ii—item 8 financial statements and supplementary data , note 18 , `` commitments and contingencies . `` in june 2019 , health canada released final regulations resulting in the legalization of new classes of cannabis products including edibles and cannabis infused beverages on october 17 , 2019 , with product sales being permitted sixty days after submission of the beverage formulations to health canada and satisfaction of all other licensing and regulatory preconditions . 45 truss , our joint venture with hexo in canada , began rolling out its range of thc and cbd infused beverages across the canadian market during the third quarter of 2020. separately , in april 2020 , we completed the formation of a new joint venture with hexo
| cash flows from investing activities net cash used in investing activities of $ 413.6 million in 2020 decreased by $ 19.7 million compared to 2019. this decrease was primarily driven by higher proceeds from the sale of breweries ( approximately $ 150 million from the sale of the irwindale brewery completed in the fourth quarter of 2020 compared with the receipt of $ 94.2 million of net proceeds from the sale of our montreal brewery during the second quarter of 2019 ) and lower capital expenditures , partially offset by the lower cash inflows from other investing activities including proceeds received from the voluntary settlement of our cross currency swaps during the second quarter of 2019 . 52 cash flows from financing activities net cash used in financing activities of approximately $ 1.1 billion in 2020 decreased by $ 936.6 million compared to 2019. this decrease was primarily driven by lower net repayments on debt and borrowings and lower dividends paid resulting from the suspension of dividend payments in the second quarter of 2020 , partially offset by higher net cash outflows from other financing activities . see part ii—item 8 financial statements and supplementary data , note 11 , `` debt '' for a summary of our financing activities and debt position as of december 31 , 2020 and december 31 , 2019. capital resources cash and cash equivalents as of december 31 , 2020 , we had total cash and cash equivalents of $ 770.1 million compared to $ 523.4 million as of december 31 , 2019. the increase in cash and cash equivalents as of december 31 , 2020 from december 31 , 2019 was primarily driven by cash generated from operating activities , including the above-mentioned deferral of tax payments from various government-sponsored payment deferral programs and the proceeds from the sale of the irwindale brewery , partially offset by the repayment of debt , capital expenditures and dividend payments . see part ii—item 8 financial statements and supplementary data , consolidated statements of cash flows for additional detail .
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recent significant acquisitions on february 3 , 2020 , we entered into an asset purchase agreement to acquire substantially all of the assets of cambridge packing co , inc. , a specialty center-of-plate producer and distributor in new england . the purchase price was approximately $ 17.0 million paid in cash at closing and is subject to a customary working capital true-up . we are required to pay additional contingent consideration , if earned , of up to $ 3.0 million over a two -year period upon successful attainment of certain gross profit targets . on january 27 , 2020 , we entered into an asset purchase agreement to acquire substantially all of the assets , including certain real-estate assets , of sid wainer & son , a specialty food and produce distributor in new england . the purchase price was approximately $ 46.5 million paid in cash at closing and is subject to a customary working capital true-up . we are required to pay additional contingent consideration , if earned , of up to $ 4.0 million over a two -year period upon successful attainment of certain gross profit targets . on february 25 , 2019 , pursuant to an asset purchase agreement , we acquired substantially all of the assets of bassian , a specialty center-of-the-plate distributor based in northern california . the aggregate purchase price for the transaction was approximately $ 31.8 million , consisting of $ 28.0 million in cash paid at closing and the issuance of a $ 4.0 million unsecured convertible note , partially offset by the settlement of a net working capital true-up . we will also pay additional contingent consideration , if earned , which could total $ 9.0 million over a four -year period . the payment of the earn-out liability is subject to the successful achievement of certain gross profit targets . on august 25 , 2017 , we entered into an asset purchase agreement to acquire substantially all of the assets of fells point , a specialty center-of-the-plate manufacturer and distributor based in the metro baltimore and washington dc area . the final purchase price for the transaction was approximately $ 34.1 million , including $ 29.7 million paid in cash at closing , $ 3.3 million consisting of 185,442 shares of our common stock and $ 1.1 million paid upon settlement of a net working capital true-up . we are also required to pay additional contingent consideration , if earned , in the form of an earn-out amount which could total approximately $ 12.0 million . the payment of the earn-out liability is subject to the successful achievement of annual 33 adjusted ebitda targets for the fells point business over a period of four years following closing . we paid $ 3.0 million during both fiscal 2018 and fiscal 2019 to the former owners of fells point related to the successful attainment of the targeted ebitda in the first two years of their earn-out agreement . our growth strategies and outlook we continue to invest in our people , facilities and technology in an effort to achieve the following objectives and maintain our premier position within the specialty foodservice distribution market : sales and service territory expansion ; operational excellence and high customer service levels ; expanded purchasing programs and improved buying power ; product innovation and new product category introduction ; operational efficiencies through system enhancements ; and operating expense reduction through the centralization of general and administrative functions . our growth has allowed us to improve upon our organization 's infrastructure , open new distribution facilities and pursue selective acquisitions . over the last several years , we have increased our distribution capacity to approximately 1.7 million square feet in 31 distribution facilities as of february 21 , 2020 . from fiscal 2017 through the end of fiscal 2019 , we have invested significantly in acquisitions , infrastructure and management . key factors affecting our performance due to our focus on menu-driven independent restaurants , fine dining establishments , country clubs , hotels , caterers , culinary schools , bakeries , patisseries , chocolateries , cruise lines , casinos and specialty food stores , our results of operations are materially impacted by the success of the food-away-from-home industry in the united states and canada , which is materially impacted by general economic conditions , weather , discretionary spending levels and consumer confidence . when economic conditions deteriorate , our customers ' businesses are negatively impacted as fewer people eat away-from-home and those who do spend less money . as economic conditions begin to improve , our customers ' businesses historically have likewise improved , which contributes to improvements in our business . similarly , the direct-to-consumer business of our allen brothers subsidiary is significantly dependent on consumers ' discretionary spending habits , and weakness or uncertainty in the economy could lead to consumers buying less from allen brothers . volatile food costs may have a direct impact upon our profitability . prolonged periods of product cost inflation may have a negative impact on our profit margins and results of operations to the extent we are unable to pass on all or a portion of such product cost increases to our customers . in addition , product cost inflation may negatively impact consumer discretionary spending decisions within our customers ' establishments , which could adversely impact our sales . conversely , our profit levels may be negatively impacted during periods of product cost deflation even though our gross profit as a percentage of sales may remain relatively constant . however , some of our products , particularly certain of our center-of-the-plate protein items , are priced on a “ cost plus ” markup , which helps mitigate the negative impact of deflation . story_separator_special_tag goodwill is tested at the reporting unit level , which is an operating segment or a component of an operating segment . when analyzing whether to aggregate components into single reporting units , management considers whether each component has similar economic characteristics . we have evaluated the economic characteristics of our different geographic markets , including our recently acquired businesses , along with the similarity of the operations and margins , nature of the products , type of customer and methods of distribution of products and the regulatory environment in which we operate and concluded that the business consists of three operating segments : east coast , midwest and west coast and these operating segments represent our reporting units . in testing goodwill for impairment , we may elect to perform a qualitative assessment to evaluate whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount . the qualitative analysis considers various factors including macroeconomic conditions , market conditions , industry trends , cost factors and financial performance , among others . if our qualitative assessment indicates that goodwill impairment is more likely than not , we proceed to perform a quantitative assessment to determine the fair value of the reporting unit . when a quantitative analysis is required , we estimate the fair value of our reporting units using an income approach that incorporates the use of a discounted cash flow model that involves many management assumptions that are based upon future growth projections . assumptions include estimates of future revenue based upon budget projections and growth rates which take into account estimated inflation rates . we develop estimates of future levels of gross and operating profits and projected capital expenditures . this methodology includes the use of estimated discount rates based upon industry and competitor analysis as well as other factors . a goodwill impairment loss , if any , would be recognized for the amount by which a reporting unit 's carrying value exceeds its fair value . for the fiscal year ended december 27 , 2019 , the company assessed the recoverability of goodwill using a qualitative analysis and determined that it is more likely than not that the fair value of its reporting units exceeded their respective carry values . total goodwill as of december 27 , 2019 and december 28 , 2018 was $ 197.7 million and $ 184.3 million , respectively . intangible assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable . cash flows expected to be generated by the related assets are estimated over the assets useful lives based on updated projections . if the evaluation indicates that the carrying amount of the asset may not be recoverable , the potential impairment is measured based on a projected discounted cash flow model . there have been no events or changes in circumstances during fiscal 2019 or 2018 indicating that the carrying value of our finite-lived intangible assets are not recoverable . total finite-lived intangible assets as of december 27 , 2019 and december 28 , 2018 were $ 138.8 million and $ 130.0 million , respectively . the assessment of the recoverability of goodwill and intangible assets contain uncertainties requiring management to make assumptions and to apply judgment to estimate economic factors and the profitability of future operations . actual results could differ from these assumptions and projections , resulting in the company revising its assumptions and , if required , recognizing an impairment loss . vendor rebates and other promotional incentives we participate in various rebate and promotional incentives with our suppliers , including volume and growth rebates , annual incentives and promotional programs . in accounting for vendor rebates , we follow the guidance in accounting standards codification subtopic 705-20 “ costs of sales and services—accounting for consideration received from a vendor ” and generally record consideration received under these incentives as a reduction of cost of sales ; however , in certain circumstances , we record marketing-related consideration as a reduction of marketing costs incurred . we may receive consideration in the form of cash and or invoice deductions . we record consideration that we receive for volume and growth rebates and annual incentives as a reduction of cost of sales . we systematically and rationally allocate the consideration for those incentives to each of the underlying transactions that 42 results in progress by us toward earning the incentives . if the incentives are not probable and reasonably estimable , we record the incentives as the underlying objectives or milestones are achieved . we record annual incentives when we earn them , generally over the agreement period . we record consideration received to promote and sell the suppliers ' products as a reduction of our costs , as the consideration is typically a reimbursement of costs incurred by us . if we received consideration from the suppliers in excess of our costs , we record any excess as a reduction of cost of sales . self-insurance reserves we maintain a self-insured group medical program . the program contains individual stop loss thresholds of $ 275 thousand per incident and aggregate stop loss thresholds based upon the average number of employees enrolled in the program throughout the year . the amount in excess of the self-insured levels is fully insured by third party insurers . liabilities associated with this program are estimated in part by considering historical claims experience and medical cost trends . projections of future loss expenses are inherently uncertain because of the random nature of insurance claims occurrences and could be significantly affected if future occurrences and claims differ from these assumptions and historical trends . we are self-insured for workers ' compensation and automobile liability to deductibles or self-insured retentions of $ 500 thousand per occurrence . the amounts in excess of our deductibles are fully insured by third party
| cash flows from investing activities net cash used in investing activities of $ 413.6 million in 2020 decreased by $ 19.7 million compared to 2019. this decrease was primarily driven by higher proceeds from the sale of breweries ( approximately $ 150 million from the sale of the irwindale brewery completed in the fourth quarter of 2020 compared with the receipt of $ 94.2 million of net proceeds from the sale of our montreal brewery during the second quarter of 2019 ) and lower capital expenditures , partially offset by the lower cash inflows from other investing activities including proceeds received from the voluntary settlement of our cross currency swaps during the second quarter of 2019 . 52 cash flows from financing activities net cash used in financing activities of approximately $ 1.1 billion in 2020 decreased by $ 936.6 million compared to 2019. this decrease was primarily driven by lower net repayments on debt and borrowings and lower dividends paid resulting from the suspension of dividend payments in the second quarter of 2020 , partially offset by higher net cash outflows from other financing activities . see part ii—item 8 financial statements and supplementary data , note 11 , `` debt '' for a summary of our financing activities and debt position as of december 31 , 2020 and december 31 , 2019. capital resources cash and cash equivalents as of december 31 , 2020 , we had total cash and cash equivalents of $ 770.1 million compared to $ 523.4 million as of december 31 , 2019. the increase in cash and cash equivalents as of december 31 , 2020 from december 31 , 2019 was primarily driven by cash generated from operating activities , including the above-mentioned deferral of tax payments from various government-sponsored payment deferral programs and the proceeds from the sale of the irwindale brewery , partially offset by the repayment of debt , capital expenditures and dividend payments . see part ii—item 8 financial statements and supplementary data , consolidated statements of cash flows for additional detail .
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recent significant acquisitions on february 3 , 2020 , we entered into an asset purchase agreement to acquire substantially all of the assets of cambridge packing co , inc. , a specialty center-of-plate producer and distributor in new england . the purchase price was approximately $ 17.0 million paid in cash at closing and is subject to a customary working capital true-up . we are required to pay additional contingent consideration , if earned , of up to $ 3.0 million over a two -year period upon successful attainment of certain gross profit targets . on january 27 , 2020 , we entered into an asset purchase agreement to acquire substantially all of the assets , including certain real-estate assets , of sid wainer & son , a specialty food and produce distributor in new england . the purchase price was approximately $ 46.5 million paid in cash at closing and is subject to a customary working capital true-up . we are required to pay additional contingent consideration , if earned , of up to $ 4.0 million over a two -year period upon successful attainment of certain gross profit targets . on february 25 , 2019 , pursuant to an asset purchase agreement , we acquired substantially all of the assets of bassian , a specialty center-of-the-plate distributor based in northern california . the aggregate purchase price for the transaction was approximately $ 31.8 million , consisting of $ 28.0 million in cash paid at closing and the issuance of a $ 4.0 million unsecured convertible note , partially offset by the settlement of a net working capital true-up . we will also pay additional contingent consideration , if earned , which could total $ 9.0 million over a four -year period . the payment of the earn-out liability is subject to the successful achievement of certain gross profit targets . on august 25 , 2017 , we entered into an asset purchase agreement to acquire substantially all of the assets of fells point , a specialty center-of-the-plate manufacturer and distributor based in the metro baltimore and washington dc area . the final purchase price for the transaction was approximately $ 34.1 million , including $ 29.7 million paid in cash at closing , $ 3.3 million consisting of 185,442 shares of our common stock and $ 1.1 million paid upon settlement of a net working capital true-up . we are also required to pay additional contingent consideration , if earned , in the form of an earn-out amount which could total approximately $ 12.0 million . the payment of the earn-out liability is subject to the successful achievement of annual 33 adjusted ebitda targets for the fells point business over a period of four years following closing . we paid $ 3.0 million during both fiscal 2018 and fiscal 2019 to the former owners of fells point related to the successful attainment of the targeted ebitda in the first two years of their earn-out agreement . our growth strategies and outlook we continue to invest in our people , facilities and technology in an effort to achieve the following objectives and maintain our premier position within the specialty foodservice distribution market : sales and service territory expansion ; operational excellence and high customer service levels ; expanded purchasing programs and improved buying power ; product innovation and new product category introduction ; operational efficiencies through system enhancements ; and operating expense reduction through the centralization of general and administrative functions . our growth has allowed us to improve upon our organization 's infrastructure , open new distribution facilities and pursue selective acquisitions . over the last several years , we have increased our distribution capacity to approximately 1.7 million square feet in 31 distribution facilities as of february 21 , 2020 . from fiscal 2017 through the end of fiscal 2019 , we have invested significantly in acquisitions , infrastructure and management . key factors affecting our performance due to our focus on menu-driven independent restaurants , fine dining establishments , country clubs , hotels , caterers , culinary schools , bakeries , patisseries , chocolateries , cruise lines , casinos and specialty food stores , our results of operations are materially impacted by the success of the food-away-from-home industry in the united states and canada , which is materially impacted by general economic conditions , weather , discretionary spending levels and consumer confidence . when economic conditions deteriorate , our customers ' businesses are negatively impacted as fewer people eat away-from-home and those who do spend less money . as economic conditions begin to improve , our customers ' businesses historically have likewise improved , which contributes to improvements in our business . similarly , the direct-to-consumer business of our allen brothers subsidiary is significantly dependent on consumers ' discretionary spending habits , and weakness or uncertainty in the economy could lead to consumers buying less from allen brothers . volatile food costs may have a direct impact upon our profitability . prolonged periods of product cost inflation may have a negative impact on our profit margins and results of operations to the extent we are unable to pass on all or a portion of such product cost increases to our customers . in addition , product cost inflation may negatively impact consumer discretionary spending decisions within our customers ' establishments , which could adversely impact our sales . conversely , our profit levels may be negatively impacted during periods of product cost deflation even though our gross profit as a percentage of sales may remain relatively constant . however , some of our products , particularly certain of our center-of-the-plate protein items , are priced on a “ cost plus ” markup , which helps mitigate the negative impact of deflation . story_separator_special_tag goodwill is tested at the reporting unit level , which is an operating segment or a component of an operating segment . when analyzing whether to aggregate components into single reporting units , management considers whether each component has similar economic characteristics . we have evaluated the economic characteristics of our different geographic markets , including our recently acquired businesses , along with the similarity of the operations and margins , nature of the products , type of customer and methods of distribution of products and the regulatory environment in which we operate and concluded that the business consists of three operating segments : east coast , midwest and west coast and these operating segments represent our reporting units . in testing goodwill for impairment , we may elect to perform a qualitative assessment to evaluate whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount . the qualitative analysis considers various factors including macroeconomic conditions , market conditions , industry trends , cost factors and financial performance , among others . if our qualitative assessment indicates that goodwill impairment is more likely than not , we proceed to perform a quantitative assessment to determine the fair value of the reporting unit . when a quantitative analysis is required , we estimate the fair value of our reporting units using an income approach that incorporates the use of a discounted cash flow model that involves many management assumptions that are based upon future growth projections . assumptions include estimates of future revenue based upon budget projections and growth rates which take into account estimated inflation rates . we develop estimates of future levels of gross and operating profits and projected capital expenditures . this methodology includes the use of estimated discount rates based upon industry and competitor analysis as well as other factors . a goodwill impairment loss , if any , would be recognized for the amount by which a reporting unit 's carrying value exceeds its fair value . for the fiscal year ended december 27 , 2019 , the company assessed the recoverability of goodwill using a qualitative analysis and determined that it is more likely than not that the fair value of its reporting units exceeded their respective carry values . total goodwill as of december 27 , 2019 and december 28 , 2018 was $ 197.7 million and $ 184.3 million , respectively . intangible assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable . cash flows expected to be generated by the related assets are estimated over the assets useful lives based on updated projections . if the evaluation indicates that the carrying amount of the asset may not be recoverable , the potential impairment is measured based on a projected discounted cash flow model . there have been no events or changes in circumstances during fiscal 2019 or 2018 indicating that the carrying value of our finite-lived intangible assets are not recoverable . total finite-lived intangible assets as of december 27 , 2019 and december 28 , 2018 were $ 138.8 million and $ 130.0 million , respectively . the assessment of the recoverability of goodwill and intangible assets contain uncertainties requiring management to make assumptions and to apply judgment to estimate economic factors and the profitability of future operations . actual results could differ from these assumptions and projections , resulting in the company revising its assumptions and , if required , recognizing an impairment loss . vendor rebates and other promotional incentives we participate in various rebate and promotional incentives with our suppliers , including volume and growth rebates , annual incentives and promotional programs . in accounting for vendor rebates , we follow the guidance in accounting standards codification subtopic 705-20 “ costs of sales and services—accounting for consideration received from a vendor ” and generally record consideration received under these incentives as a reduction of cost of sales ; however , in certain circumstances , we record marketing-related consideration as a reduction of marketing costs incurred . we may receive consideration in the form of cash and or invoice deductions . we record consideration that we receive for volume and growth rebates and annual incentives as a reduction of cost of sales . we systematically and rationally allocate the consideration for those incentives to each of the underlying transactions that 42 results in progress by us toward earning the incentives . if the incentives are not probable and reasonably estimable , we record the incentives as the underlying objectives or milestones are achieved . we record annual incentives when we earn them , generally over the agreement period . we record consideration received to promote and sell the suppliers ' products as a reduction of our costs , as the consideration is typically a reimbursement of costs incurred by us . if we received consideration from the suppliers in excess of our costs , we record any excess as a reduction of cost of sales . self-insurance reserves we maintain a self-insured group medical program . the program contains individual stop loss thresholds of $ 275 thousand per incident and aggregate stop loss thresholds based upon the average number of employees enrolled in the program throughout the year . the amount in excess of the self-insured levels is fully insured by third party insurers . liabilities associated with this program are estimated in part by considering historical claims experience and medical cost trends . projections of future loss expenses are inherently uncertain because of the random nature of insurance claims occurrences and could be significantly affected if future occurrences and claims differ from these assumptions and historical trends . we are self-insured for workers ' compensation and automobile liability to deductibles or self-insured retentions of $ 500 thousand per occurrence . the amounts in excess of our deductibles are fully insured by third party
| liquidity and capital resources we finance our day-to-day operations and growth primarily with cash flows from operations , borrowings under our senior secured credit facilities and other indebtedness , operating leases , trade payables and equity financing . indebtedness the following table presents selected financial information on our indebtedness ( in thousands ) : replace_table_token_13_th as of december 27 , 2019 , we have various floating- and fixed-rate debt instruments with varying maturities for an aggregate principal amount of $ 392.1 million . see note 9 “ debt obligations ” to our consolidated financial statements for a full description of our debt instruments . on november 22 , 2019 , we issued $ 150.0 million aggregate principal amount of 1.875 % convertible senior notes ( the “ senior notes ” ) . approximately $ 43.2 million of the net proceeds were used to repay all outstanding borrowings then outstanding under our abl and we intend to use the remainder for working capital and general corporate purposes , which may include future acquisitions . on july 25 , 2018 , the holders of the $ 36.8 million principal amount of convertible subordinated notes that were issued in connection with our acquisition of del monte converted these notes and related accrued interest of $ 0.3 million into 1,246,272 shares of the company 's common stock . on june 29 , 2018 , we entered into an asset-based loan facility ( “ abl ” ) that increased our borrowing capacity from $ 75.0 million to $ 150.0 million . additionally , we reduced the fixed-rate portion of interest charged on our senior secured term loan ( “ term loan ” ) from 475 basis points to 350 basis points over adjusted libor as a result of repricings executed on december 14 , 2017 and november 16 , 2018. a portion of the interest rate charged on our term loan is currently based on libor and , at our option , a component of the interest charged on the borrowings outstanding on our abl , if any , may bear interest rates based on libor .
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we plan to continue to invest in research and development to improve our existing components and products and develop new components , products and systems . the amount of research and development expense we incur may vary from period to period . in general , if net sales continue to increase we expect research and development expense to increase in the aggregate . general and administrative expense . we expect our general and administrative expenses to increase as we continue to invest in systems and resources to support our worldwide operations . legal expenses vary from 42 quarter to quarter based upon the stage of litigation and associated level of litigation activity . having won a jury verdict in a patent litigation in 2011 , we expect legal expenses to decrease in 2012. major customers . while we have a broad and diverse customer base , we have historically depended on a few customers for a significant percentage of our annual net sales . the composition of this group can change from year to year . sales derived from our five largest customers as a percentage of our annual net sales were 17 % in 2011 , 19 % in 2010 and 12 % in 2009. sales to our largest customer accounted for 8 % , 7 % and 3 % of our net sales in 2011 , 2010 and 2009 , respectively . we seek to add new customers and to expand our relationships with existing customers . we anticipate that the composition of our net sales to our significant customers will continue to change . if any of our significant customers were to substantially reduce their purchases from us , our results would be adversely affected . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses . by their nature , these estimates and judgments are subject to an inherent degree of uncertainty . on an ongoing basis we re-evaluate our judgments and estimates including those related to inventories , income taxes and the fair value of certain debt and equity instruments including stock-based compensation . we base our estimates and judgments on our historical experience and on other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from those estimates , which may materially affect our operating results and financial position . the accounting policies described below are those which , in our opinion , involve the most significant application of judgment , or involve complex estimation , and which could , if different judgments or estimates were made , materially affect our reported results of operations and financial position . revenue recognition . our net sales are generated from sales of fiber lasers , fiber amplifiers , diode lasers and complementary products . our products are used in a wide range of applications by different types of end users or used as components integrated into systems by oems or system integrators . we also sell communications systems that include our fiber lasers and amplifiers as components . we recognize revenue when four basic criteria are met : ( i ) persuasive evidence of an arrangement exists ; ( ii ) delivery has occurred or services have been rendered ; ( iii ) the fee is fixed or determinable ; and ( iv ) collectability is reasonably assured . revenue from the sale of our products is generally recognized upon shipment , provided that the other revenue recognition criteria have been met . we have no obligation to provide upgrades , enhancements or customer support subsequent to the sale , other than warranty . revenue from orders with multiple deliverables is divided into separate units of accounting when certain criteria are met . the consideration for the arrangement is then allocated to the separate units of accounting based on their relative fair values . our primary deliverables are equipment and installation services , for which we are able to identify the fair value . installation services are based on a standard rate per day and are not a significant portion of our total revenue . returns and customer credits are infrequent and are recorded as a reduction to revenue . rights of return generally are not included in sales arrangements . we receive a customer purchase order or contract as evidence of an arrangement and product shipment terms are typically free on board , or f.o.b . , shipping point . periodically , our revenue arrangements include customer acceptance clauses . if an acceptance clause defines a performance requirement in a process or application that we can not effectively test prior to delivery or that has not been accepted previously , we defer recognition of revenue until satisfaction of the performance requirement has been proved . 43 inventory . inventory is stated at the lower of cost ( first-in , first-out method ) or market value . inventory includes parts and components that may be specialized in nature and subject to rapid obsolescence . we maintain a reserve for inventory items to provide for an estimated amount of excess or obsolete inventory . the reserve is based upon a review of inventory materials on hand , which we compare with estimated future usage and age . in addition , we review the inventory and compare recorded costs with estimates of current market value . story_separator_special_tag the increase in the provision for income taxes was due to an increase in income before the provision for income taxes , while the decrease in the effective rate was due to the proportion of income earned in countries with lower enacted tax rates . net income . net income attributable to ipg photonics corporation increased by $ 63.8 million to $ 117.8 million in 2011 from $ 54.0 million in 2010. net income attributable to ipg photonics corporation as a percentage of our net sales increased by 6.8 percentage points to 24.8 % in 2011 from 18.0 % in 2010 due to the factors described above . comparison of year ended december 31 , 2010 to year ended december 31 , 2009 net sales . net sales increased by $ 113.4 million , or 61.0 % , to $ 299.3 million in 2010 from $ 185.9 million in 2009. the table below sets forth sales by application ( in thousands , except for percentages ) : replace_table_token_11_th sales for materials processing applications increased due to substantially increased sales of pulsed lasers used in marking and engraving applications and high-power lasers used in cutting and welding applications . sales for communications applications increased due to increased sales of amplifiers in russia . sales for medical applications increased due to increased demand from our primary medical applications customer in the united states and sales to new customers in europe and asia . the decrease in sales of advanced applications was due to lower sales of high-power lasers used in government applications partially offset by increased sales for optical pumping and research and development applications . cost of sales and gross margin . cost of sales increased by $ 31.2 million , or 25.6 % , to $ 152.8 million in 2010 from $ 121.6 million in 2009. our gross margin increased to 48.9 % in 2010 from 34.6 % in 2009. the increase in gross margin was the result of an increase in net sales and more favorable absorption of our fixed manufacturing costs due to an increase in production volume . in addition , cost of sales benefited from a reduction in the cost per watt of our diodes and lower costs associated with greater use of internally manufactured components and accessories . expenses related to inventory reserves and other valuation adjustments decreased by $ 2.6 million to $ 2.7 million , or 0.9 % of sales , for the year ended december 31 , 2010 , as compared to $ 5.3 million , or 2.9 % of sales , for the year ended december 31 , 2009. sales and marketing expense . sales and marketing expense increased by $ 3.9 million , or 26.0 % , to $ 19.1 million in 2010 from $ 15.2 million in 2009 , primarily as a result of an increase in personnel costs due to an increase in headcount and bonus accruals . as a percentage of sales , sales and marketing expense decreased to 6.4 % in 2010 from 8.2 % in 2009. research and development expense . research and development expense increased by $ 0.7 million , or 3.3 % , to $ 19.2 million in 2010 from $ 18.5 million in 2009. this increase was primarily the result of an increase 48 in personnel and consultant costs , partially offset by a decrease in materials used in research and development activities . the increase in personnel costs was driven primarily by bonus accruals . research and development activity continues to focus on enhancing the performance of our internally manufactured components , refining production processes to improve manufacturing yields , developing new products operating at different wavelengths and higher output powers and new complementary accessories used with our products . as a percentage of sales , research and development expense decreased to 6.4 % in 2010 from 10.0 % in 2009. general and administrative expense . general and administrative expense increased by $ 8.1 million , or 39.8 % , to $ 28.6 million in 2010 from $ 20.5 million in 2009 , primarily due to a $ 3.6 million increase in personnel and contractor expenses attributable to higher bonuses and a $ 2.5 million increase in accounting and legal fees related to defending a patent infringement action brought against us . as a percentage of sales , general and administrative expense decreased to 9.6 % in 2010 from 11.0 % in 2009. effect of exchange rates on sales , gross margin and operating expenses . we estimate that if exchange rates had been the same in 2010 as they were in 2009 , sales in 2010 would have been $ 4.5 million higher , gross margin would have been $ 1.6 million higher and operating expenses in total would have been $ 0.3 million higher . the measures that assume constant exchange rates between fiscal year 2010 and fiscal year 2009 are calculated using the average exchange rates for the twelve-month period ended december 31 , 2009 for the respective currencies , which were euro 1=us $ 1.39 , japanese yen 1= us $ 0.01 and russian ruble 1=us $ 0.03. gain ( loss ) on foreign exchange . we incurred a foreign exchange gain of $ 0.8 million in 2010 as compared to a loss of $ 1.0 million in 2009. the change was primarily attributable to the depreciation of the euro against the u.s. dollar and japanese yen . interest expense , net . interest expense , net was $ 1.2 million in 2010 compared to $ 1.3 million in 2009. provision for income taxes . provision for income taxes was $ 24.9 million in 2010 compared to $ 2.5 million in 2009 , representing an effective tax rate of 31.4 % in 2010 and 32.0 % in 2009. the increase in the provision for income taxes was due to an increase in income before the provision for income taxes , while the decrease in the effective rate
| liquidity and capital resources we finance our day-to-day operations and growth primarily with cash flows from operations , borrowings under our senior secured credit facilities and other indebtedness , operating leases , trade payables and equity financing . indebtedness the following table presents selected financial information on our indebtedness ( in thousands ) : replace_table_token_13_th as of december 27 , 2019 , we have various floating- and fixed-rate debt instruments with varying maturities for an aggregate principal amount of $ 392.1 million . see note 9 “ debt obligations ” to our consolidated financial statements for a full description of our debt instruments . on november 22 , 2019 , we issued $ 150.0 million aggregate principal amount of 1.875 % convertible senior notes ( the “ senior notes ” ) . approximately $ 43.2 million of the net proceeds were used to repay all outstanding borrowings then outstanding under our abl and we intend to use the remainder for working capital and general corporate purposes , which may include future acquisitions . on july 25 , 2018 , the holders of the $ 36.8 million principal amount of convertible subordinated notes that were issued in connection with our acquisition of del monte converted these notes and related accrued interest of $ 0.3 million into 1,246,272 shares of the company 's common stock . on june 29 , 2018 , we entered into an asset-based loan facility ( “ abl ” ) that increased our borrowing capacity from $ 75.0 million to $ 150.0 million . additionally , we reduced the fixed-rate portion of interest charged on our senior secured term loan ( “ term loan ” ) from 475 basis points to 350 basis points over adjusted libor as a result of repricings executed on december 14 , 2017 and november 16 , 2018. a portion of the interest rate charged on our term loan is currently based on libor and , at our option , a component of the interest charged on the borrowings outstanding on our abl , if any , may bear interest rates based on libor .
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we plan to continue to invest in research and development to improve our existing components and products and develop new components , products and systems . the amount of research and development expense we incur may vary from period to period . in general , if net sales continue to increase we expect research and development expense to increase in the aggregate . general and administrative expense . we expect our general and administrative expenses to increase as we continue to invest in systems and resources to support our worldwide operations . legal expenses vary from 42 quarter to quarter based upon the stage of litigation and associated level of litigation activity . having won a jury verdict in a patent litigation in 2011 , we expect legal expenses to decrease in 2012. major customers . while we have a broad and diverse customer base , we have historically depended on a few customers for a significant percentage of our annual net sales . the composition of this group can change from year to year . sales derived from our five largest customers as a percentage of our annual net sales were 17 % in 2011 , 19 % in 2010 and 12 % in 2009. sales to our largest customer accounted for 8 % , 7 % and 3 % of our net sales in 2011 , 2010 and 2009 , respectively . we seek to add new customers and to expand our relationships with existing customers . we anticipate that the composition of our net sales to our significant customers will continue to change . if any of our significant customers were to substantially reduce their purchases from us , our results would be adversely affected . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses . by their nature , these estimates and judgments are subject to an inherent degree of uncertainty . on an ongoing basis we re-evaluate our judgments and estimates including those related to inventories , income taxes and the fair value of certain debt and equity instruments including stock-based compensation . we base our estimates and judgments on our historical experience and on other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from those estimates , which may materially affect our operating results and financial position . the accounting policies described below are those which , in our opinion , involve the most significant application of judgment , or involve complex estimation , and which could , if different judgments or estimates were made , materially affect our reported results of operations and financial position . revenue recognition . our net sales are generated from sales of fiber lasers , fiber amplifiers , diode lasers and complementary products . our products are used in a wide range of applications by different types of end users or used as components integrated into systems by oems or system integrators . we also sell communications systems that include our fiber lasers and amplifiers as components . we recognize revenue when four basic criteria are met : ( i ) persuasive evidence of an arrangement exists ; ( ii ) delivery has occurred or services have been rendered ; ( iii ) the fee is fixed or determinable ; and ( iv ) collectability is reasonably assured . revenue from the sale of our products is generally recognized upon shipment , provided that the other revenue recognition criteria have been met . we have no obligation to provide upgrades , enhancements or customer support subsequent to the sale , other than warranty . revenue from orders with multiple deliverables is divided into separate units of accounting when certain criteria are met . the consideration for the arrangement is then allocated to the separate units of accounting based on their relative fair values . our primary deliverables are equipment and installation services , for which we are able to identify the fair value . installation services are based on a standard rate per day and are not a significant portion of our total revenue . returns and customer credits are infrequent and are recorded as a reduction to revenue . rights of return generally are not included in sales arrangements . we receive a customer purchase order or contract as evidence of an arrangement and product shipment terms are typically free on board , or f.o.b . , shipping point . periodically , our revenue arrangements include customer acceptance clauses . if an acceptance clause defines a performance requirement in a process or application that we can not effectively test prior to delivery or that has not been accepted previously , we defer recognition of revenue until satisfaction of the performance requirement has been proved . 43 inventory . inventory is stated at the lower of cost ( first-in , first-out method ) or market value . inventory includes parts and components that may be specialized in nature and subject to rapid obsolescence . we maintain a reserve for inventory items to provide for an estimated amount of excess or obsolete inventory . the reserve is based upon a review of inventory materials on hand , which we compare with estimated future usage and age . in addition , we review the inventory and compare recorded costs with estimates of current market value . story_separator_special_tag the increase in the provision for income taxes was due to an increase in income before the provision for income taxes , while the decrease in the effective rate was due to the proportion of income earned in countries with lower enacted tax rates . net income . net income attributable to ipg photonics corporation increased by $ 63.8 million to $ 117.8 million in 2011 from $ 54.0 million in 2010. net income attributable to ipg photonics corporation as a percentage of our net sales increased by 6.8 percentage points to 24.8 % in 2011 from 18.0 % in 2010 due to the factors described above . comparison of year ended december 31 , 2010 to year ended december 31 , 2009 net sales . net sales increased by $ 113.4 million , or 61.0 % , to $ 299.3 million in 2010 from $ 185.9 million in 2009. the table below sets forth sales by application ( in thousands , except for percentages ) : replace_table_token_11_th sales for materials processing applications increased due to substantially increased sales of pulsed lasers used in marking and engraving applications and high-power lasers used in cutting and welding applications . sales for communications applications increased due to increased sales of amplifiers in russia . sales for medical applications increased due to increased demand from our primary medical applications customer in the united states and sales to new customers in europe and asia . the decrease in sales of advanced applications was due to lower sales of high-power lasers used in government applications partially offset by increased sales for optical pumping and research and development applications . cost of sales and gross margin . cost of sales increased by $ 31.2 million , or 25.6 % , to $ 152.8 million in 2010 from $ 121.6 million in 2009. our gross margin increased to 48.9 % in 2010 from 34.6 % in 2009. the increase in gross margin was the result of an increase in net sales and more favorable absorption of our fixed manufacturing costs due to an increase in production volume . in addition , cost of sales benefited from a reduction in the cost per watt of our diodes and lower costs associated with greater use of internally manufactured components and accessories . expenses related to inventory reserves and other valuation adjustments decreased by $ 2.6 million to $ 2.7 million , or 0.9 % of sales , for the year ended december 31 , 2010 , as compared to $ 5.3 million , or 2.9 % of sales , for the year ended december 31 , 2009. sales and marketing expense . sales and marketing expense increased by $ 3.9 million , or 26.0 % , to $ 19.1 million in 2010 from $ 15.2 million in 2009 , primarily as a result of an increase in personnel costs due to an increase in headcount and bonus accruals . as a percentage of sales , sales and marketing expense decreased to 6.4 % in 2010 from 8.2 % in 2009. research and development expense . research and development expense increased by $ 0.7 million , or 3.3 % , to $ 19.2 million in 2010 from $ 18.5 million in 2009. this increase was primarily the result of an increase 48 in personnel and consultant costs , partially offset by a decrease in materials used in research and development activities . the increase in personnel costs was driven primarily by bonus accruals . research and development activity continues to focus on enhancing the performance of our internally manufactured components , refining production processes to improve manufacturing yields , developing new products operating at different wavelengths and higher output powers and new complementary accessories used with our products . as a percentage of sales , research and development expense decreased to 6.4 % in 2010 from 10.0 % in 2009. general and administrative expense . general and administrative expense increased by $ 8.1 million , or 39.8 % , to $ 28.6 million in 2010 from $ 20.5 million in 2009 , primarily due to a $ 3.6 million increase in personnel and contractor expenses attributable to higher bonuses and a $ 2.5 million increase in accounting and legal fees related to defending a patent infringement action brought against us . as a percentage of sales , general and administrative expense decreased to 9.6 % in 2010 from 11.0 % in 2009. effect of exchange rates on sales , gross margin and operating expenses . we estimate that if exchange rates had been the same in 2010 as they were in 2009 , sales in 2010 would have been $ 4.5 million higher , gross margin would have been $ 1.6 million higher and operating expenses in total would have been $ 0.3 million higher . the measures that assume constant exchange rates between fiscal year 2010 and fiscal year 2009 are calculated using the average exchange rates for the twelve-month period ended december 31 , 2009 for the respective currencies , which were euro 1=us $ 1.39 , japanese yen 1= us $ 0.01 and russian ruble 1=us $ 0.03. gain ( loss ) on foreign exchange . we incurred a foreign exchange gain of $ 0.8 million in 2010 as compared to a loss of $ 1.0 million in 2009. the change was primarily attributable to the depreciation of the euro against the u.s. dollar and japanese yen . interest expense , net . interest expense , net was $ 1.2 million in 2010 compared to $ 1.3 million in 2009. provision for income taxes . provision for income taxes was $ 24.9 million in 2010 compared to $ 2.5 million in 2009 , representing an effective tax rate of 31.4 % in 2010 and 32.0 % in 2009. the increase in the provision for income taxes was due to an increase in income before the provision for income taxes , while the decrease in the effective rate
| liquidity and capital resources our principal sources of liquidity as of december 31 , 2011 consisted of cash and cash equivalents of $ 180.2 million , short-term investments of $ 25.5 million , unused credit lines and overdraft facilities of $ 49.8 million and working capital ( excluding cash and short-term investments ) of $ 135.1 million . this compares to cash and cash equivalents of $ 147.9 million , unused credit lines and overdraft facilities of $ 51.5 million and working capital ( excluding cash ) of $ 70.2 million as of december 31 , 2010. the increase in cash and cash equivalents of $ 32.3 million from december 31 , 2010 relates primarily to cash provided by operating activities in 2011 of $ 87.4 million and a non-controlling equity investment of $ 20.0 million in our russian subsidiary by the russian corporation of nanotechnologies , or rusnano , offset by capital expenditures of $ 53.0 million and purchases of short-term investments of $ 25.5 million . at december 31 , 2011 , $ 106.0 million of cash and $ 18.5 million of short-term investments were held outside of the united states . cash provided by the rusnano investment is being used to fund the expansion of our business in russia , including operating expenses , investments in working capital and capital expenditures . this funding is not available for use outside of russia . terms of this investment are more fully described below . 49 our long-term debt consists primarily of a $ 15.3 million secured variable-rate note , of which the current portion is $ 1.3 million as of december 31 , 2011. the note matures in june 2015 , at which time the outstanding debt balance will be $ 10.7 million . the variable interest rate was fixed by means of interest rate swap instruments . the note is secured by a mortgage on real estate and buildings that we own in massachusetts .
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we believe this because the united states grew to be the world 's largest producer of oil during the second quarter of 2015 , and the increase in oil production was due to the growth of oil-directed drilling in shale formations . these wells produce a large amount of oil immediately following their completion , but typically experience large production declines within two years . therefore , the declining production of these wells , and the rapid decline in drilling of new wells of this type beginning in 2015 are the most likely initial catalysts for improving industry conditions . customer activities directed towards natural gas drilling and production have been weak for several years , with the u.s. domestic natural gas rig count during the first quarter of 2016 falling to the lowest level ever recorded . we believe that customer activities directed towards drilling for natural gas have been weak because of the high production of shale-directed natural gas wells , the high amount of natural gas production associated with oil-directed shale wells in the u.s. domestic market , relatively constant consumption of natural gas in the united states , and the fact that natural gas has not historically been exported from the united states to other markets in which demand and prices are higher . the price of natural gas continued its decline during 2015 and the first quarter of 2016. early in the first quarter of 2016 , the price of natural gas had fallen to approximately $ 2.00 per mcf , its lowest level since the second quarter of 1998 . 17 rpc monitors the number of horizontal and directional wells drilled in the u.s. domestic market , because this type of well is more service-intensive than a vertical oil or gas well , thus requiring more of the company 's services provided for a longer period of time . during 2015 , the average number of horizontal and directional wells drilled in the united states decreased by approximately 43 percent , and was 86 percent of total wells drilled during the year . during the first part of 2016 , the percentage of horizontal and directional wells drilled as a percentage of total wells rose to approximately 88 percent . while the increase in horizontal and directional drilling as a percentage of total drilling is favorable , the absolute declines in drilling directed towards all types of wells makes this trend significantly less meaningful . we also monitor the u.s. domestic well count , which is a measure of wells drilled by the existing drilling rig fleet . we believe that the well count is an important measure of our potential activity levels because it reflects changes in rig efficiencies . during 2015 , the total u.s. domestic well count decreased by approximately 50 percent . in the markets in which rpc has operational locations , the well count decreased by approximately 47 percent . pricing for our services declined significantly during 2015 , as drilling and completion activities declined , creating a significant oversupply of service capacity . this impact was partially offset by greater service intensity within many of the services provided by rpc 's pressure pumping and downhole motors and tools service lines , among others . during previous years , a number of our customers entered into contractual relationships with us to provide services to support their completion programs . all of these arrangements expired during 2014. we did not enter into any new contractual arrangements during 2015 , nor do we expect to enter into any such contractual arrangements in 2016. during 2015 the company decreased our purchases of revenue-producing equipment and temporarily suspended the quarterly dividend to common stockholders . cash flows from operating activities as well as borrowings under our revolving credit facility have been sufficient to fund the company 's lower capital expenditures which decreased to $ 167.4 million in 2015 compared to $ 371.5 million in 2014. the company has a syndicated revolving credit facility in order to maintain sufficient liquidity to fund its capital expenditure and other funding requirements . revenues during 2015 totaled $ 1.3 billion , a decrease of 45.9 percent compared to 2014 due primarily to lower activity levels and pricing for our services . cost of revenues decreased $ 506.9 million in 2015 compared to the prior year due to lower costs resulting from lower activity levels , reduced personnel headcount and incentive compensation , and price reductions from suppliers , partially offset by the impact of increasing service intensity . as a percentage of revenue , cost of revenues increased due to competitive pricing for our services and inefficiencies resulting from lower activity levels . selling , general and administrative expenses as a percentage of revenues increased to 12.4 percent of revenues in 2015 compared to 8.4 percent of revenues in 2014 . ( loss ) income before income taxes decreased to a loss of $ 153.0 million in 2015 compared to income of $ 399.4 million in the prior year . diluted ( loss ) earnings per share were $ ( 0.47 ) in 2015 compared to $ 1.14 in the prior year . cash flows from operating activities increased to $ 473.8 million in 2015 compared to $ 322.8 million in 2014 primarily due to reductions in working capital requirements coupled with lower earnings . as of december 31 , 2015 , there were no outstanding borrowings under our credit facility , a decrease from $ 224.5 million at december 31 , 2014. outlook drilling activity in the u.s. domestic oilfields , as measured by the rotary drilling rig count , reached a recent cyclical peak of 1,931 during the third quarter of 2014. between the third quarter of 2014 and early in the first quarter of 2016 , the drilling rig count has fallen by approximately 73 percent . story_separator_special_tag income tax provision . the income tax provision was $ 154.2 million in 2014 compared to $ 109.4 million in 2013. this increase was due to higher income before taxes partially offset by a decrease in the effective tax rate to 38.6 percent in 2014 compared to 39.6 percent in 2013. net income and diluted earnings per share . net income was $ 245.2 million in 2014 , or $ 1.14 per diluted share , compared to net income of $ 166.9 million , or $ 0.77 per diluted share in 2013. this increase was due to higher profitability as average shares outstanding was essentially unchanged . story_separator_special_tag 0 `` > cash requirements capital expenditures were $ 167.4 million in 2015 , and we currently expect capital expenditures to be approximately $ 60 million in 2016. we expect that a majority of these expenditures in 2016 will be directed towards capitalized equipment maintenance . the remaining capital expenditures will be directed towards the purchase of revenue-producing equipment . the actual amount of expenditures will depend primarily on equipment maintenance requirements , expansion opportunities , and equipment delivery schedules . the company 's retirement income plan , a multiple employer trusteed defined benefit pension plan , provides monthly benefits upon retirement at age 65 to eligible employees . during 2015 , the company contributed $ 0.9 million to the pension plan . the company expects that additional contributions to the defined benefit pension plan of approximately $ 0.9 million will be required in 2016 to achieve the company 's funding objective . the company has a stock buyback program initially adopted in 1998 that authorizes the repurchase of up to 26,578,125 shares . on june 5 , 2013 , the board of directors authorized an additional 5,000,000 shares for repurchase under this program . there were no shares purchased on the open market by the company during 2015 , and 2,050,154 shares remain available to be repurchased under the current authorization as of december 31 , 2015. the company may repurchase outstanding common shares periodically based on market conditions and our capital allocation strategies considering restrictions under our credit facility . the stock buyback program does not have a predetermined expiration date . on july 28 , 2015 , the board of directors voted to temporarily suspend rpc 's quarterly dividend to common stockholders . the company expects to resume cash dividends to common stockholders in the future , subject to the earnings and financial condition of the company and other relevant factors . 23 contractual obligations the company 's obligations and commitments that require future payments include our credit facility , certain non-cancelable operating leases , purchase obligations and other long-term liabilities . the following table summarizes the company 's significant contractual obligations as of december 31 , 2015 : replace_table_token_5_th ( 1 ) operating leases include agreements for various office locations , office equipment , and certain operating equipment . ( 2 ) includes agreements to purchase raw materials , goods or services that have been approved and that specify all significant terms ( pricing , quantity , and timing ) . as part of the normal course of business the company occasionally enters into purchase commitments to manage its various operating needs . ( 3 ) includes expected cash payments for long-term liabilities reflected on the balance sheet where the timing of the payments are known . these amounts include incentive compensation . these amounts exclude pension obligations with uncertain funding requirements and deferred compensation liabilities . fair value measurements the company 's assets and liabilities measured at fair value are classified in the fair value hierarchy ( level 1 , 2 or 3 ) based on the inputs used for valuation . assets and liabilities that are traded on an exchange with a quoted price are classified as level 1. assets and liabilities that are valued using significant observable inputs in addition to quoted market prices are classified as level 2. the company currently has no assets or liabilities measured on a recurring basis that are valued using unobservable inputs and therefore no assets or liabilities measured on a recurring basis are classified as level 3. for defined benefit plan assets classified as level 3 , the values are computed using inputs such as cost , discounted future cash flows , independent appraisals and market based comparable data or on net asset values calculated by the fund or when not publicly available . inflation the company purchases its equipment and materials from suppliers who provide competitive prices , and employs skilled workers from competitive labor markets . if inflation in the general economy increases , the company 's costs for equipment , materials and labor could increase as well . also , increases in activity in the domestic oilfield can cause upward wage pressures in the labor markets from which it hires employees as well as increases in the costs of certain materials and key equipment components used to provide services to the company 's customers . during 2014 , we experienced high employment costs due to the demand for skilled labor in our markets . in addition , we experienced continued high cost for certain raw materials the company uses to provide its services , in spite of our efforts to secure raw materials from alternative sources . during 2015 , however , supplies of raw materials became more readily available as domestic oilfield activity decreased . in addition , skilled labor became more available , and the upward wage pressures that the company experienced in 2014 subsided . by way of illustration , during this time the price index of one of the most critical raw materials the company uses to provide its services declined by more than 20 percent . the company also uses a large amount of diesel fuel to operate its fleet of revenue-producing equipment , and the cost of diesel fuel has declined significantly in 2015 and early in 2016. in
| liquidity and capital resources our principal sources of liquidity as of december 31 , 2011 consisted of cash and cash equivalents of $ 180.2 million , short-term investments of $ 25.5 million , unused credit lines and overdraft facilities of $ 49.8 million and working capital ( excluding cash and short-term investments ) of $ 135.1 million . this compares to cash and cash equivalents of $ 147.9 million , unused credit lines and overdraft facilities of $ 51.5 million and working capital ( excluding cash ) of $ 70.2 million as of december 31 , 2010. the increase in cash and cash equivalents of $ 32.3 million from december 31 , 2010 relates primarily to cash provided by operating activities in 2011 of $ 87.4 million and a non-controlling equity investment of $ 20.0 million in our russian subsidiary by the russian corporation of nanotechnologies , or rusnano , offset by capital expenditures of $ 53.0 million and purchases of short-term investments of $ 25.5 million . at december 31 , 2011 , $ 106.0 million of cash and $ 18.5 million of short-term investments were held outside of the united states . cash provided by the rusnano investment is being used to fund the expansion of our business in russia , including operating expenses , investments in working capital and capital expenditures . this funding is not available for use outside of russia . terms of this investment are more fully described below . 49 our long-term debt consists primarily of a $ 15.3 million secured variable-rate note , of which the current portion is $ 1.3 million as of december 31 , 2011. the note matures in june 2015 , at which time the outstanding debt balance will be $ 10.7 million . the variable interest rate was fixed by means of interest rate swap instruments . the note is secured by a mortgage on real estate and buildings that we own in massachusetts .
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we believe this because the united states grew to be the world 's largest producer of oil during the second quarter of 2015 , and the increase in oil production was due to the growth of oil-directed drilling in shale formations . these wells produce a large amount of oil immediately following their completion , but typically experience large production declines within two years . therefore , the declining production of these wells , and the rapid decline in drilling of new wells of this type beginning in 2015 are the most likely initial catalysts for improving industry conditions . customer activities directed towards natural gas drilling and production have been weak for several years , with the u.s. domestic natural gas rig count during the first quarter of 2016 falling to the lowest level ever recorded . we believe that customer activities directed towards drilling for natural gas have been weak because of the high production of shale-directed natural gas wells , the high amount of natural gas production associated with oil-directed shale wells in the u.s. domestic market , relatively constant consumption of natural gas in the united states , and the fact that natural gas has not historically been exported from the united states to other markets in which demand and prices are higher . the price of natural gas continued its decline during 2015 and the first quarter of 2016. early in the first quarter of 2016 , the price of natural gas had fallen to approximately $ 2.00 per mcf , its lowest level since the second quarter of 1998 . 17 rpc monitors the number of horizontal and directional wells drilled in the u.s. domestic market , because this type of well is more service-intensive than a vertical oil or gas well , thus requiring more of the company 's services provided for a longer period of time . during 2015 , the average number of horizontal and directional wells drilled in the united states decreased by approximately 43 percent , and was 86 percent of total wells drilled during the year . during the first part of 2016 , the percentage of horizontal and directional wells drilled as a percentage of total wells rose to approximately 88 percent . while the increase in horizontal and directional drilling as a percentage of total drilling is favorable , the absolute declines in drilling directed towards all types of wells makes this trend significantly less meaningful . we also monitor the u.s. domestic well count , which is a measure of wells drilled by the existing drilling rig fleet . we believe that the well count is an important measure of our potential activity levels because it reflects changes in rig efficiencies . during 2015 , the total u.s. domestic well count decreased by approximately 50 percent . in the markets in which rpc has operational locations , the well count decreased by approximately 47 percent . pricing for our services declined significantly during 2015 , as drilling and completion activities declined , creating a significant oversupply of service capacity . this impact was partially offset by greater service intensity within many of the services provided by rpc 's pressure pumping and downhole motors and tools service lines , among others . during previous years , a number of our customers entered into contractual relationships with us to provide services to support their completion programs . all of these arrangements expired during 2014. we did not enter into any new contractual arrangements during 2015 , nor do we expect to enter into any such contractual arrangements in 2016. during 2015 the company decreased our purchases of revenue-producing equipment and temporarily suspended the quarterly dividend to common stockholders . cash flows from operating activities as well as borrowings under our revolving credit facility have been sufficient to fund the company 's lower capital expenditures which decreased to $ 167.4 million in 2015 compared to $ 371.5 million in 2014. the company has a syndicated revolving credit facility in order to maintain sufficient liquidity to fund its capital expenditure and other funding requirements . revenues during 2015 totaled $ 1.3 billion , a decrease of 45.9 percent compared to 2014 due primarily to lower activity levels and pricing for our services . cost of revenues decreased $ 506.9 million in 2015 compared to the prior year due to lower costs resulting from lower activity levels , reduced personnel headcount and incentive compensation , and price reductions from suppliers , partially offset by the impact of increasing service intensity . as a percentage of revenue , cost of revenues increased due to competitive pricing for our services and inefficiencies resulting from lower activity levels . selling , general and administrative expenses as a percentage of revenues increased to 12.4 percent of revenues in 2015 compared to 8.4 percent of revenues in 2014 . ( loss ) income before income taxes decreased to a loss of $ 153.0 million in 2015 compared to income of $ 399.4 million in the prior year . diluted ( loss ) earnings per share were $ ( 0.47 ) in 2015 compared to $ 1.14 in the prior year . cash flows from operating activities increased to $ 473.8 million in 2015 compared to $ 322.8 million in 2014 primarily due to reductions in working capital requirements coupled with lower earnings . as of december 31 , 2015 , there were no outstanding borrowings under our credit facility , a decrease from $ 224.5 million at december 31 , 2014. outlook drilling activity in the u.s. domestic oilfields , as measured by the rotary drilling rig count , reached a recent cyclical peak of 1,931 during the third quarter of 2014. between the third quarter of 2014 and early in the first quarter of 2016 , the drilling rig count has fallen by approximately 73 percent . story_separator_special_tag income tax provision . the income tax provision was $ 154.2 million in 2014 compared to $ 109.4 million in 2013. this increase was due to higher income before taxes partially offset by a decrease in the effective tax rate to 38.6 percent in 2014 compared to 39.6 percent in 2013. net income and diluted earnings per share . net income was $ 245.2 million in 2014 , or $ 1.14 per diluted share , compared to net income of $ 166.9 million , or $ 0.77 per diluted share in 2013. this increase was due to higher profitability as average shares outstanding was essentially unchanged . story_separator_special_tag 0 `` > cash requirements capital expenditures were $ 167.4 million in 2015 , and we currently expect capital expenditures to be approximately $ 60 million in 2016. we expect that a majority of these expenditures in 2016 will be directed towards capitalized equipment maintenance . the remaining capital expenditures will be directed towards the purchase of revenue-producing equipment . the actual amount of expenditures will depend primarily on equipment maintenance requirements , expansion opportunities , and equipment delivery schedules . the company 's retirement income plan , a multiple employer trusteed defined benefit pension plan , provides monthly benefits upon retirement at age 65 to eligible employees . during 2015 , the company contributed $ 0.9 million to the pension plan . the company expects that additional contributions to the defined benefit pension plan of approximately $ 0.9 million will be required in 2016 to achieve the company 's funding objective . the company has a stock buyback program initially adopted in 1998 that authorizes the repurchase of up to 26,578,125 shares . on june 5 , 2013 , the board of directors authorized an additional 5,000,000 shares for repurchase under this program . there were no shares purchased on the open market by the company during 2015 , and 2,050,154 shares remain available to be repurchased under the current authorization as of december 31 , 2015. the company may repurchase outstanding common shares periodically based on market conditions and our capital allocation strategies considering restrictions under our credit facility . the stock buyback program does not have a predetermined expiration date . on july 28 , 2015 , the board of directors voted to temporarily suspend rpc 's quarterly dividend to common stockholders . the company expects to resume cash dividends to common stockholders in the future , subject to the earnings and financial condition of the company and other relevant factors . 23 contractual obligations the company 's obligations and commitments that require future payments include our credit facility , certain non-cancelable operating leases , purchase obligations and other long-term liabilities . the following table summarizes the company 's significant contractual obligations as of december 31 , 2015 : replace_table_token_5_th ( 1 ) operating leases include agreements for various office locations , office equipment , and certain operating equipment . ( 2 ) includes agreements to purchase raw materials , goods or services that have been approved and that specify all significant terms ( pricing , quantity , and timing ) . as part of the normal course of business the company occasionally enters into purchase commitments to manage its various operating needs . ( 3 ) includes expected cash payments for long-term liabilities reflected on the balance sheet where the timing of the payments are known . these amounts include incentive compensation . these amounts exclude pension obligations with uncertain funding requirements and deferred compensation liabilities . fair value measurements the company 's assets and liabilities measured at fair value are classified in the fair value hierarchy ( level 1 , 2 or 3 ) based on the inputs used for valuation . assets and liabilities that are traded on an exchange with a quoted price are classified as level 1. assets and liabilities that are valued using significant observable inputs in addition to quoted market prices are classified as level 2. the company currently has no assets or liabilities measured on a recurring basis that are valued using unobservable inputs and therefore no assets or liabilities measured on a recurring basis are classified as level 3. for defined benefit plan assets classified as level 3 , the values are computed using inputs such as cost , discounted future cash flows , independent appraisals and market based comparable data or on net asset values calculated by the fund or when not publicly available . inflation the company purchases its equipment and materials from suppliers who provide competitive prices , and employs skilled workers from competitive labor markets . if inflation in the general economy increases , the company 's costs for equipment , materials and labor could increase as well . also , increases in activity in the domestic oilfield can cause upward wage pressures in the labor markets from which it hires employees as well as increases in the costs of certain materials and key equipment components used to provide services to the company 's customers . during 2014 , we experienced high employment costs due to the demand for skilled labor in our markets . in addition , we experienced continued high cost for certain raw materials the company uses to provide its services , in spite of our efforts to secure raw materials from alternative sources . during 2015 , however , supplies of raw materials became more readily available as domestic oilfield activity decreased . in addition , skilled labor became more available , and the upward wage pressures that the company experienced in 2014 subsided . by way of illustration , during this time the price index of one of the most critical raw materials the company uses to provide its services declined by more than 20 percent . the company also uses a large amount of diesel fuel to operate its fleet of revenue-producing equipment , and the cost of diesel fuel has declined significantly in 2015 and early in 2016. in
| liquidity and capital resources cash and cash flows the company 's cash and cash equivalents were $ 65.2 million as of december 31 , 2015 , $ 9.8 million as of december 31 , 2014 and $ 8.7 million as of december 31 , 2013. the following table sets forth the historical cash flows for the years ended december 31 : replace_table_token_4_th 2015 cash provided by operating activities increased $ 151.0 million in 2015 compared to the prior year due primarily to a favorable change in working capital of $ 506.8 million partially offset by a decrease in net income ( loss ) of $ 344.8 million , an increase in depreciation and amortization of $ 41.3 million , and an unfavorable change in deferred taxes of $ 45.4 million due to a decrease in tax benefits resulting from lower capital expenditures . the favorable change in working capital was primarily due to favorable changes of $ 599.8 million in accounts receivable and $ 56.4 million in inventory as a result of lower business activity levels in 2015 compared to the prior year . also , there was a favorable change in income taxes receivable/payable of $ 3.9 million due to the timing of payments . these favorable changes were partially offset by unfavorable changes in accounts payable of $ 98.9 million , accrued payroll of $ 46.4 million and accrued state , local and other taxes of $ 5.8 million due to lower business activity levels coupled with the timing of payments . cash used for investing activities in 2015 decreased by $ 197.8 million compared to 2014 , primarily as a result of lower capital expenditures in response to weaker industry conditions . cash provided by financing activities in 2015 increased by $ 294.4 million primarily as a result of higher net loan payments funded primarily by the favorable changes in working capital , partially offset by lower open market share repurchases and common stock dividends during 2015 compared to the prior year .
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for 2013 , the return on average equity was 6.66 % , compared to 8.42 % for 2012. the return on average assets was 0.68 % for 2013 and 0.89 % for 2012. the results for 2013 included $ 863 thousand in gains on sales of securities , compared to $ 1.1 million in 2012. during 2013 , the company completed the acquisition of all outstanding stock of the retirement planning consultancy national associates , inc. of cleveland , ohio . the company is a leading independent consultant to retirement plans and offers actuarial , plan design , compliance and administrative services . as a third party administrator , nai provides services to 401 ( k ) , defined benefit , profit sharing , flexible spending , 403 ( b ) , esop and other plans . in acquiring nai , the company assumes a professional staff that is highly qualified and credentialed . synergies and the cost savings resulting from the combining of the operations of the companies will help drive an increase of non-interest income . net interest income net interest income , the principal source of the company 's earnings , represents the difference between interest income on interest-earning assets and interest expense on intere st-bearing liabilities . for 2013 , taxable equivalent net interest income decreased $ 822 thousand , or 2.12 % , from 2012. interest-earning assets averaged $ 1.061 billion during 2013 , increasing $ 30.4 million , or 2.95 % , compared to 2012. the company 's interest-bearing liabilities decreased 0.34 % from $ 881.6 million in 2012 to $ 878.7 million in 2013. the company finances its earning assets with a combination of interest-bearing and interest-free funds . the interest-bearing funds are composed of deposits , short-term borrowings and long-term debt . interest paid for the use of these funds is the second factor in the net interest income equation . interest-free funds , such as demand deposits and stockholders ' equity , require no interest expense and , therefore , contribute significantly to net interest income . the profit margin , or spread , on invested funds is a key performance measure . the company monitors two key performance indicators - net interest spread and net interest margin . the net interest spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities . the net interest spread in 2013 was 3.47 % , decreasing from 3.66 % in 2012. the net interest margin represents the overall profit margin – net interest income as a percentage of total interest-earning assets . this performance indicator gives effect to interest earned for all investable funds including the substantial volume of interest-free funds . for 2013 , the net interest margin , measured on a fully taxable equivalent basis , decreased to 3.58 % , compared to 3.76 % in 2012. the decrease in net interest margin is largely a result of interest-earning assets repricing at lower rate . total taxable equivalent interes t income was $ 43.0 million for 2013 , which is $ 2.0 million less than the $ 45.0 million reported in 2012. in comparing the years ending december 31 , 2013 and 2012 , yields on earning assets decreased 31 basis points while the cost of interest bearing liabilities decreased 12 basis points . average loans increased $ 30.6 million , or 5.42 % , in 2013 , however the yields decreased from 5.71 % in 2012 to 5.24 % in 2013. tax equated income from securities , federal funds and other decreased $ 933 thousand , or 7.3 % , in 2013 , farmers saw its yields on these assets decreased from 2.73 % in 2012 to 2.53 % in 2013. the average balance of investment securities and federal funds sold decreased slightly from $ 465.4 million in 2012 to $ 465.2 million in 2013 . 25 total interest expense a mounted to $ 5.1 million for 2013 , a 18.5 % decrease from $ 6.2 million reported in 2012. the decrease in 2013 is the result of lower rates of interest paid on interest-bearing deposits and repurchase agreements . the cost of interest-bearing liabilities decreased from 0.70 % in 2012 to 0.58 % in 2013. management will continue to evaluate future changes in interest rates and the shape of the treasury yield curve so that assets and liabilities may be priced accordingly to minimize the impact on the net interest margin . noninterest income total noninterest income increased by $ 1.3 million in 2013 . the increase in noninterest income is due to several factors . retirement plan consulting fees increased to $ 477 thousand compared to none in 2012 reflecting the income earned from the newly acquired entity , national associates , inc. ( “ nai ” ) . service charges on deposit accounts increased from $ 2.0 million in 2012 to $ 2.4 million in 2013 as the company made adjustments to the service charge structure of its deposit accounts . bank owned life insurance income increased $ 170 thousand as the company received tax free death benefits , which are included in income . insurance agency commissions also increased $ 119 thousand and trust fees increased $ 86 thousand , as management continues to focus on diversifying revenue sources to decrease the reliance on net interest income as the main driver of revenue . other operating income also increased $ 406 thousand , which is primarily the result of a gain on the sale of land that was owned by the company . noninterest expenses noninterest expense for 2013 was $ 39.1 million , compar ed to $ 35.8 million in 2012 , representing an increase of $ 3.3 million , or 9.2 % . most of the increase was a result of an 11.7 % increase in salary and employee benefits , mainly due to $ 1.3 million recorded in severance costs . story_separator_special_tag the allowance allocated to the one-to-four family real estate loan category and the consumer loan category is based upon the company 's allowance methodology for homogeneous loans , and increases and decreases in the balances of those portfolios . in previous years , the indirect installment loan category has represented the largest percentage of loan losses . the consumer loan category represents approximately 21.9 % of total loans and in 2013 , the net loan losses accounted for 66.7 % of the losses of the entire loan portfolio . for the commercial loan category , which represents only 16.7 % of the total loan portfolio , management relies on the bank 's internal loan review procedures and allocates accordingly based on loan classifications . the commercial real estate loan category represents 34.4 % of the total loan portfolio . there were no loans other than those identified above , that management has known information about possible credit problems of borrowers and their ability to comply with the loan repayment terms . management is actively monitoring certain borrowers ' financial condition and loans which management wants to more close ly monitor due to special circumstances . these loans and their potential loss exposure have been considered in management 's analysis of the adequacy of the allowance for loan losses . loan commitments and lines of credit in the normal course of business , the bank has extended various commitments for credit . commitments for mortgages , revolving lines of credit and letters of credit generally are extended for a period of one month up to one year . normally no fees are charged on any unused portion . normally , an annual fee of two percent is charged for the issuance of a letter of credit . as of december 31 , 2013 , there were no concentrations of loans exceeding 10 % of total loans that are not disclosed as a category of loans . as of that date also , there were no other interest-earning assets that are either nonaccrual , past due , restructured or non-performing . investment securities the investment securities portfolio de creased $ 41.1 million in 2013. maturing security funds were used to fund loan portfolio growth . excess balances of federal funds sold were strategically invested throughout the year . the company 's investment strategy is to maintain a diverse investment security portfolio with a higher concentration in mortgage-backed securities that are issued by u.s. government sponsored enterprises and tax-free municipal securities . farmers sold $ 93.1 million in securities in 2013 , resulting in net security gains of $ 863 thousand . farmers recognized market appreciation on faster paying mortgage-backed securities and lower rated municipal securities , and reinvested in new mortgage-backed securities and higher rated municipal securities to further diversify the securities portfolio . farmers ' objective in managing the investment portfolio is to preserve and enhance corporate liquidity through investment in primarily short and intermediate term securities which are readily marketable and of the highest credit quality . in general , investment in securities i s limited to those funds the bank feels it has in excess of funds used to satisfy loan demand and operating considerations . 31 volcker rule places limits on the trading activity of insured depository institutions and entities affiliated with a depository institution , subject to certain exceptions . the bank does not engage in any of the trading activities or own any of the types of funds regulated by the volcker rule . mortgage-backed securities are created by the pooling of mortgages and issuance of a security . mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages . prepayment estimates for mortgage-backed securities are performed at purchase to ensure that prepayment assumptions are reasonab le considering the underlying collateral for the mortgage-backed securities at issue and current mortgage interest rates and to determine the yield and estimated maturity of the mortgage-backed security portfolio . prepayments that are faster than anticipated may shorten the life of the security and may result in faster amortization of any premiums paid and thereby reduce the net yield on such securities . during periods of declining mortgage interest rates , refinancing generally increases and accelerates the prepayment of the underlying mortgages and the related security . all holdings of mortgage-backed securities were issued by u.s. government sponsored enterprises . the following table shows the carrying value of investment securities by type of obligation at the dates indicated : type replace_table_token_13_th 32 a summary of debt securities held at december 31 , 2013 classified according to maturity and including weighted average yield for each range of maturities is set forth below : replace_table_token_14_th ( 1 ) the weighted average yield has been computed by dividing the total contractual interest income adjusted for amortization of premium or accretion of discount over the life of the security by the par value of the securities outstanding . the weighted average yield of tax-exempt obligations of states and political subdivisions has been calculated on a fully taxable equivalent basis . the amounts of adjustments to interest which are based on the statutory tax rate of 35 % were $ 38 thousand , $ 590 thousand , $ 536 thousand and $ 209 thousand for the four ranges of maturities . ( 2 ) payments based on contractual maturity . premises and equipment premises and equipment de creased $ 1.2 million in 2013. the decrease was the result of normal depreciation and the decision to close two retail branch locations in leetonia and warren , ohio . with declining branch transaction counts and banking trends driving customers towards online banking the decision was made to close the two branches in october 2013 . 33 deposits deposits represent the company 's principal source of funds . the deposit base consists of demand deposits , savings and money market accounts and other time deposits . during the year , the company 's
| liquidity and capital resources cash and cash flows the company 's cash and cash equivalents were $ 65.2 million as of december 31 , 2015 , $ 9.8 million as of december 31 , 2014 and $ 8.7 million as of december 31 , 2013. the following table sets forth the historical cash flows for the years ended december 31 : replace_table_token_4_th 2015 cash provided by operating activities increased $ 151.0 million in 2015 compared to the prior year due primarily to a favorable change in working capital of $ 506.8 million partially offset by a decrease in net income ( loss ) of $ 344.8 million , an increase in depreciation and amortization of $ 41.3 million , and an unfavorable change in deferred taxes of $ 45.4 million due to a decrease in tax benefits resulting from lower capital expenditures . the favorable change in working capital was primarily due to favorable changes of $ 599.8 million in accounts receivable and $ 56.4 million in inventory as a result of lower business activity levels in 2015 compared to the prior year . also , there was a favorable change in income taxes receivable/payable of $ 3.9 million due to the timing of payments . these favorable changes were partially offset by unfavorable changes in accounts payable of $ 98.9 million , accrued payroll of $ 46.4 million and accrued state , local and other taxes of $ 5.8 million due to lower business activity levels coupled with the timing of payments . cash used for investing activities in 2015 decreased by $ 197.8 million compared to 2014 , primarily as a result of lower capital expenditures in response to weaker industry conditions . cash provided by financing activities in 2015 increased by $ 294.4 million primarily as a result of higher net loan payments funded primarily by the favorable changes in working capital , partially offset by lower open market share repurchases and common stock dividends during 2015 compared to the prior year .
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for 2013 , the return on average equity was 6.66 % , compared to 8.42 % for 2012. the return on average assets was 0.68 % for 2013 and 0.89 % for 2012. the results for 2013 included $ 863 thousand in gains on sales of securities , compared to $ 1.1 million in 2012. during 2013 , the company completed the acquisition of all outstanding stock of the retirement planning consultancy national associates , inc. of cleveland , ohio . the company is a leading independent consultant to retirement plans and offers actuarial , plan design , compliance and administrative services . as a third party administrator , nai provides services to 401 ( k ) , defined benefit , profit sharing , flexible spending , 403 ( b ) , esop and other plans . in acquiring nai , the company assumes a professional staff that is highly qualified and credentialed . synergies and the cost savings resulting from the combining of the operations of the companies will help drive an increase of non-interest income . net interest income net interest income , the principal source of the company 's earnings , represents the difference between interest income on interest-earning assets and interest expense on intere st-bearing liabilities . for 2013 , taxable equivalent net interest income decreased $ 822 thousand , or 2.12 % , from 2012. interest-earning assets averaged $ 1.061 billion during 2013 , increasing $ 30.4 million , or 2.95 % , compared to 2012. the company 's interest-bearing liabilities decreased 0.34 % from $ 881.6 million in 2012 to $ 878.7 million in 2013. the company finances its earning assets with a combination of interest-bearing and interest-free funds . the interest-bearing funds are composed of deposits , short-term borrowings and long-term debt . interest paid for the use of these funds is the second factor in the net interest income equation . interest-free funds , such as demand deposits and stockholders ' equity , require no interest expense and , therefore , contribute significantly to net interest income . the profit margin , or spread , on invested funds is a key performance measure . the company monitors two key performance indicators - net interest spread and net interest margin . the net interest spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities . the net interest spread in 2013 was 3.47 % , decreasing from 3.66 % in 2012. the net interest margin represents the overall profit margin – net interest income as a percentage of total interest-earning assets . this performance indicator gives effect to interest earned for all investable funds including the substantial volume of interest-free funds . for 2013 , the net interest margin , measured on a fully taxable equivalent basis , decreased to 3.58 % , compared to 3.76 % in 2012. the decrease in net interest margin is largely a result of interest-earning assets repricing at lower rate . total taxable equivalent interes t income was $ 43.0 million for 2013 , which is $ 2.0 million less than the $ 45.0 million reported in 2012. in comparing the years ending december 31 , 2013 and 2012 , yields on earning assets decreased 31 basis points while the cost of interest bearing liabilities decreased 12 basis points . average loans increased $ 30.6 million , or 5.42 % , in 2013 , however the yields decreased from 5.71 % in 2012 to 5.24 % in 2013. tax equated income from securities , federal funds and other decreased $ 933 thousand , or 7.3 % , in 2013 , farmers saw its yields on these assets decreased from 2.73 % in 2012 to 2.53 % in 2013. the average balance of investment securities and federal funds sold decreased slightly from $ 465.4 million in 2012 to $ 465.2 million in 2013 . 25 total interest expense a mounted to $ 5.1 million for 2013 , a 18.5 % decrease from $ 6.2 million reported in 2012. the decrease in 2013 is the result of lower rates of interest paid on interest-bearing deposits and repurchase agreements . the cost of interest-bearing liabilities decreased from 0.70 % in 2012 to 0.58 % in 2013. management will continue to evaluate future changes in interest rates and the shape of the treasury yield curve so that assets and liabilities may be priced accordingly to minimize the impact on the net interest margin . noninterest income total noninterest income increased by $ 1.3 million in 2013 . the increase in noninterest income is due to several factors . retirement plan consulting fees increased to $ 477 thousand compared to none in 2012 reflecting the income earned from the newly acquired entity , national associates , inc. ( “ nai ” ) . service charges on deposit accounts increased from $ 2.0 million in 2012 to $ 2.4 million in 2013 as the company made adjustments to the service charge structure of its deposit accounts . bank owned life insurance income increased $ 170 thousand as the company received tax free death benefits , which are included in income . insurance agency commissions also increased $ 119 thousand and trust fees increased $ 86 thousand , as management continues to focus on diversifying revenue sources to decrease the reliance on net interest income as the main driver of revenue . other operating income also increased $ 406 thousand , which is primarily the result of a gain on the sale of land that was owned by the company . noninterest expenses noninterest expense for 2013 was $ 39.1 million , compar ed to $ 35.8 million in 2012 , representing an increase of $ 3.3 million , or 9.2 % . most of the increase was a result of an 11.7 % increase in salary and employee benefits , mainly due to $ 1.3 million recorded in severance costs . story_separator_special_tag the allowance allocated to the one-to-four family real estate loan category and the consumer loan category is based upon the company 's allowance methodology for homogeneous loans , and increases and decreases in the balances of those portfolios . in previous years , the indirect installment loan category has represented the largest percentage of loan losses . the consumer loan category represents approximately 21.9 % of total loans and in 2013 , the net loan losses accounted for 66.7 % of the losses of the entire loan portfolio . for the commercial loan category , which represents only 16.7 % of the total loan portfolio , management relies on the bank 's internal loan review procedures and allocates accordingly based on loan classifications . the commercial real estate loan category represents 34.4 % of the total loan portfolio . there were no loans other than those identified above , that management has known information about possible credit problems of borrowers and their ability to comply with the loan repayment terms . management is actively monitoring certain borrowers ' financial condition and loans which management wants to more close ly monitor due to special circumstances . these loans and their potential loss exposure have been considered in management 's analysis of the adequacy of the allowance for loan losses . loan commitments and lines of credit in the normal course of business , the bank has extended various commitments for credit . commitments for mortgages , revolving lines of credit and letters of credit generally are extended for a period of one month up to one year . normally no fees are charged on any unused portion . normally , an annual fee of two percent is charged for the issuance of a letter of credit . as of december 31 , 2013 , there were no concentrations of loans exceeding 10 % of total loans that are not disclosed as a category of loans . as of that date also , there were no other interest-earning assets that are either nonaccrual , past due , restructured or non-performing . investment securities the investment securities portfolio de creased $ 41.1 million in 2013. maturing security funds were used to fund loan portfolio growth . excess balances of federal funds sold were strategically invested throughout the year . the company 's investment strategy is to maintain a diverse investment security portfolio with a higher concentration in mortgage-backed securities that are issued by u.s. government sponsored enterprises and tax-free municipal securities . farmers sold $ 93.1 million in securities in 2013 , resulting in net security gains of $ 863 thousand . farmers recognized market appreciation on faster paying mortgage-backed securities and lower rated municipal securities , and reinvested in new mortgage-backed securities and higher rated municipal securities to further diversify the securities portfolio . farmers ' objective in managing the investment portfolio is to preserve and enhance corporate liquidity through investment in primarily short and intermediate term securities which are readily marketable and of the highest credit quality . in general , investment in securities i s limited to those funds the bank feels it has in excess of funds used to satisfy loan demand and operating considerations . 31 volcker rule places limits on the trading activity of insured depository institutions and entities affiliated with a depository institution , subject to certain exceptions . the bank does not engage in any of the trading activities or own any of the types of funds regulated by the volcker rule . mortgage-backed securities are created by the pooling of mortgages and issuance of a security . mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages . prepayment estimates for mortgage-backed securities are performed at purchase to ensure that prepayment assumptions are reasonab le considering the underlying collateral for the mortgage-backed securities at issue and current mortgage interest rates and to determine the yield and estimated maturity of the mortgage-backed security portfolio . prepayments that are faster than anticipated may shorten the life of the security and may result in faster amortization of any premiums paid and thereby reduce the net yield on such securities . during periods of declining mortgage interest rates , refinancing generally increases and accelerates the prepayment of the underlying mortgages and the related security . all holdings of mortgage-backed securities were issued by u.s. government sponsored enterprises . the following table shows the carrying value of investment securities by type of obligation at the dates indicated : type replace_table_token_13_th 32 a summary of debt securities held at december 31 , 2013 classified according to maturity and including weighted average yield for each range of maturities is set forth below : replace_table_token_14_th ( 1 ) the weighted average yield has been computed by dividing the total contractual interest income adjusted for amortization of premium or accretion of discount over the life of the security by the par value of the securities outstanding . the weighted average yield of tax-exempt obligations of states and political subdivisions has been calculated on a fully taxable equivalent basis . the amounts of adjustments to interest which are based on the statutory tax rate of 35 % were $ 38 thousand , $ 590 thousand , $ 536 thousand and $ 209 thousand for the four ranges of maturities . ( 2 ) payments based on contractual maturity . premises and equipment premises and equipment de creased $ 1.2 million in 2013. the decrease was the result of normal depreciation and the decision to close two retail branch locations in leetonia and warren , ohio . with declining branch transaction counts and banking trends driving customers towards online banking the decision was made to close the two branches in october 2013 . 33 deposits deposits represent the company 's principal source of funds . the deposit base consists of demand deposits , savings and money market accounts and other time deposits . during the year , the company 's
| liquidity farmers maintains , in the opinion of management , liquidity sufficient to satisfy depositors ' requirements and meet the credit needs of customers . the company depends on its ability to maintain its market share of deposits as well as acquiring new funds . the company 's abili ty to attract deposits and borrow funds depends in large measure on its profitability , capitalization and overall financial condition . principal sources of liquidity include assets considered relatively liquid , such as short-term investment securities , federal funds sold and cash and due from banks . 27 along with its liquid assets , farmers has additional sources of liquidity available which help to insure that adequate funds are available as needed . these other sources include , but are not limited to , loan repayments , the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds and borrowings on approved lines of credit at two major dome stic banks . at december 31 , 2013 , farmers had borrowed $ 6 million against these lines of credit . management feels that its liquidity position is more than adequate and will continue to monitor the position on a monthly basis . the company also has additional borrowing capacity with the fhlb , as well as access to the federal reserve discount window , which provides an additional source of funds . the company views its membership in the fhlb as a solid source of liquidity .
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to implement articles of incorporation that enabled us to satisfy the requirements under the code and otherwise to address concerns related to stock ownership , our predecessor , gaylord entertainment company , formerly a delaware corporation ( gaylord ) , formed and merged with and into ryman hospitality properties , inc. ( formerly known as granite hotel properties , inc. ) , a delaware corporation ( ryman ) , effective october 1 , 2012 ( the merger ) . the merger was approved by the stockholders of gaylord at a special meeting of stockholders held on september 25 , 2012. as a result of the merger , the outstanding shares of gaylord 's common stock converted into the right to receive the same number of shares of ryman 's common stock , and ryman succeeded to and began conducting , directly or indirectly , all of the business conducted by gaylord immediately prior to the merger . the rights of our stockholders are now governed by our amended and restated certificate of incorporation ( the charter ) and our amended and restated bylaws . the charter generally prohibits any stockholder from owning more than 9.8 % of the outstanding shares of our common stock or any other class or series of our stock . these ownership limitations are subject to waiver or modification by our board of directors . the shares of our common stock are trading on the new york stock exchange under the ticker symbol rhp . pursuant to rule 12g-3 ( a ) of the securities exchange act of 1934 , as amended ( the exchange act ) , shares of common stock of ryman , as successor to gaylord , are deemed to be registered under section 12 ( b ) of the exchange act . implementation of upreit and trs structure . to facilitate our qualification as a reit , we underwent a reorganization of our operations and corporate structure . we now operate as an umbrella partnership reit ( an upreit ) , which means that all of our assets are held by , and operations are conducted through , rhp hotel properties , lp , a subsidiary operating partnership ( the operating partnership ) that we formed in connection with the reit conversion . in the future , we may amend the limited partnership agreement of the operating partnership to provide that its partnership units will be convertible on a one-for-one basis for shares of our common stock . under certain circumstances , we may issue such partnership units as consideration to acquire hotel properties . by offering partnership units , the seller of such hotel property could defer federal income tax on any of the seller 's gains on sale , and this tax advantage may enable us to acquire hotel properties in the future which otherwise might not be available for sale . as a reit , at least 75 % of our gross income for each taxable year must generally be derived from rents from real property or other income permitted by the code . to meet this requirement , we implemented a structure under which our hotel properties are owned or leased by certain subsidiaries of the operating partnership , which are disregarded entities for federal income tax purposes , and these qualified reit subsidiaries lease or sublease our hotels to taxable reit subsidiaries ( each , a trs ) pursuant to leases that contain economic terms which are similar to a lease between unrelated parties . the rent that we receive from our trs lessees qualifies as rents from real property as long as the property is operated on behalf of our trs lessees by a person who qualifies as an independent contractor ( as defined in the code ) and who is , or is related to a person who is , actively engaged in the trade or business of operating qualified lodging facilities ( as defined in the code ) for any person unrelated to us and our trs lessees ( an eligible independent contractor ) . as described below , our trs lessees have engaged marriott to manage the day-to-day operations of our hotels as an eligible independent contractor . in addition , we own our opry and attractions businesses in trss , and certain of those trss have engaged marriott to manage their assets , as described below . marriott management . on october 1 , 2012 , we completed the marriott sale transaction pursuant to that certain purchase agreement , dated may 30 , 2012 , by and among gaylord , gaylord hotels , inc. , marriott hotel services , inc. , and marriott , pursuant to which we sold the gaylord hotels brand and rights to manage our gaylord hotels properties for $ 210 million in cash ( the marriott sale transaction ) . in connection with the marriott sale transaction , each of our trs lessees for our gaylord hotels properties is now a party to a management agreement ( one for each of our gaylord hotels properties ) and a pooling agreement with marriott . under the management agreements , on october 1 , 2012 , marriott assumed responsibility for managing the day-to-day operations of our gaylord hotels properties . we do not have the authority to require marriott to operate our gaylord hotels properties in a particular manner , although we do have consent and approval rights for certain matters under the hotel management agreements , subject to the limitations described therein . story_separator_special_tag we intend to leverage our existing hotel properties that continue the all-in-one-place self-contained service offerings , as well as a longer-term growth strategy that includes acquisitions of hotels , particularly in the group meetings sector of the hospitality industry , either alone or through joint venture or alliances with one or more third parties . we intend to pursue attractive investment opportunities which meet our acquisition parameters , specifically , group-oriented large hotels and overflow hotels with existing or potential leisure appeal . 39 key performance indicators the operating results of our hospitality segment as managed by marriott are highly dependent on the volume of customers at our hotels and the quality of the customer mix at our hotels . these factors impact the price that our third-party managers can charge for our hotel rooms and other amenities , such as food and beverage and meeting space . key performance indicators related to revenue are : hotel occupancy ( a volume indicator ) ; average daily rate ( adr ) ( a price indicator calculated by dividing room revenue by the number of rooms sold ) ; revenue per available room ( revpar ) ( a summary measure of hotel results calculated by dividing room revenue by room nights available to guests for the period ) ; total revenue per available room ( total revpar ) ( a summary measure of hotel results calculated by dividing the sum of room , food and beverage and other ancillary service revenue by room nights available to guests for the period ) ; and net definite room nights booked ( a volume indicator which represents the total number of definite bookings for future room nights at our hotels confirmed during the applicable period , net of cancellations ) . hospitality segment revenue from our occupied hotel rooms is recognized as earned on the close of business each day and from concessions and food and beverage sales at the time of the sale . attrition fees , which are charged to groups when they do not fulfill the minimum number of room nights or minimum food and beverage spending requirements originally contracted for , as well as cancellation fees , are recognized as revenue in the period they are collected . almost all of our hospitality segment revenues are either cash-based or , for meeting and convention groups meeting credit criteria , billed and collected on a short-term receivables basis . the hospitality industry is capital intensive , and we rely on the ability of our hotels to generate operating cash flow to repay debt financing and fund maintenance capital expenditures . the results of operations of our hospitality segment are affected by the number and type of group meetings and conventions scheduled to attend our hotels in a given period . our hotels attempt to offset any identified shortfalls in occupancy by creating special events or offering incentives to groups in order to attract increased business during this period . a variety of factors can affect the results of any interim period , including the nature and quality of the group meetings and conventions attending our hotels during such period , which meetings and conventions have often been contracted for several years in advance , the level of attrition our hotels experience , and the level of transient business at our hotels during such period . effective october 1 , 2012 , marriott assumed responsibility for managing these processes at our gaylord hotels properties and began managing the inn at opryland on december 1 , 2012. summary financial results the following table summarizes our financial results for the years ended december 31 , 2012 , 2011 and 2010 ( in thousands , except percentages and per share data ) : replace_table_token_7_th 2012 results as compared to 2011 results the increase in our total revenues during 2012 , as compared to 2011 , is attributable to an increase in our hospitality segment revenues of $ 29.4 million and an increase in our opry and attractions segment revenues of $ 5.1 million , as discussed more fully below . the 40 increase in revenues in our hospitality segment is attributable to increases of $ 24.8 million and $ 7.3 million at gaylord palms and gaylord national , respectively , partially offset by decreases in revenue of $ 3.1 million and $ 2.1 million at gaylord opryland and gaylord texan , respectively , as well as the effect of outsourcing retail operations at gaylord opryland , gaylord texan and gaylord national during the fourth quarter of 2012 , as described more fully below . total hospitality revenues in 2012 include $ 6.4 million in attrition and cancellation fee collections , a $ 2.8 million decrease from 2011. the increase in total operating expenses during 2012 , as compared to 2011 , is due primarily to $ 102.0 million in reit conversion costs during 2012 , an increase of $ 10.1 million in our hospitality segment operating expenses , and an increase of $ 6.4 million in our corporate and other segment operating expenses , as discussed more fully below . the above factors resulted in an operating loss of $ 4.8 million for 2012 , as compared to operating income of $ 79.5 million in 2011. our net loss was $ 26.6 million in 2012 , as compared to net income of $ 10.2 million in 2011 , due to the change in our operating income described above , partially offset by the following factors , each as described more fully below : a $ 23.2 million increase in other gains and losses for 2012 , as compared to 2011 , primarily associated with a $ 20.0 million gain on the sale of intellectual property to marriott in connection with the marriott sale transaction and $ 2.3 million received from the marketing and maintenance fund associated with the gaylord national bonds . a $ 16.1 million decrease in our interest expense , net of amounts capitalized
| liquidity farmers maintains , in the opinion of management , liquidity sufficient to satisfy depositors ' requirements and meet the credit needs of customers . the company depends on its ability to maintain its market share of deposits as well as acquiring new funds . the company 's abili ty to attract deposits and borrow funds depends in large measure on its profitability , capitalization and overall financial condition . principal sources of liquidity include assets considered relatively liquid , such as short-term investment securities , federal funds sold and cash and due from banks . 27 along with its liquid assets , farmers has additional sources of liquidity available which help to insure that adequate funds are available as needed . these other sources include , but are not limited to , loan repayments , the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds and borrowings on approved lines of credit at two major dome stic banks . at december 31 , 2013 , farmers had borrowed $ 6 million against these lines of credit . management feels that its liquidity position is more than adequate and will continue to monitor the position on a monthly basis . the company also has additional borrowing capacity with the fhlb , as well as access to the federal reserve discount window , which provides an additional source of funds . the company views its membership in the fhlb as a solid source of liquidity .
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to implement articles of incorporation that enabled us to satisfy the requirements under the code and otherwise to address concerns related to stock ownership , our predecessor , gaylord entertainment company , formerly a delaware corporation ( gaylord ) , formed and merged with and into ryman hospitality properties , inc. ( formerly known as granite hotel properties , inc. ) , a delaware corporation ( ryman ) , effective october 1 , 2012 ( the merger ) . the merger was approved by the stockholders of gaylord at a special meeting of stockholders held on september 25 , 2012. as a result of the merger , the outstanding shares of gaylord 's common stock converted into the right to receive the same number of shares of ryman 's common stock , and ryman succeeded to and began conducting , directly or indirectly , all of the business conducted by gaylord immediately prior to the merger . the rights of our stockholders are now governed by our amended and restated certificate of incorporation ( the charter ) and our amended and restated bylaws . the charter generally prohibits any stockholder from owning more than 9.8 % of the outstanding shares of our common stock or any other class or series of our stock . these ownership limitations are subject to waiver or modification by our board of directors . the shares of our common stock are trading on the new york stock exchange under the ticker symbol rhp . pursuant to rule 12g-3 ( a ) of the securities exchange act of 1934 , as amended ( the exchange act ) , shares of common stock of ryman , as successor to gaylord , are deemed to be registered under section 12 ( b ) of the exchange act . implementation of upreit and trs structure . to facilitate our qualification as a reit , we underwent a reorganization of our operations and corporate structure . we now operate as an umbrella partnership reit ( an upreit ) , which means that all of our assets are held by , and operations are conducted through , rhp hotel properties , lp , a subsidiary operating partnership ( the operating partnership ) that we formed in connection with the reit conversion . in the future , we may amend the limited partnership agreement of the operating partnership to provide that its partnership units will be convertible on a one-for-one basis for shares of our common stock . under certain circumstances , we may issue such partnership units as consideration to acquire hotel properties . by offering partnership units , the seller of such hotel property could defer federal income tax on any of the seller 's gains on sale , and this tax advantage may enable us to acquire hotel properties in the future which otherwise might not be available for sale . as a reit , at least 75 % of our gross income for each taxable year must generally be derived from rents from real property or other income permitted by the code . to meet this requirement , we implemented a structure under which our hotel properties are owned or leased by certain subsidiaries of the operating partnership , which are disregarded entities for federal income tax purposes , and these qualified reit subsidiaries lease or sublease our hotels to taxable reit subsidiaries ( each , a trs ) pursuant to leases that contain economic terms which are similar to a lease between unrelated parties . the rent that we receive from our trs lessees qualifies as rents from real property as long as the property is operated on behalf of our trs lessees by a person who qualifies as an independent contractor ( as defined in the code ) and who is , or is related to a person who is , actively engaged in the trade or business of operating qualified lodging facilities ( as defined in the code ) for any person unrelated to us and our trs lessees ( an eligible independent contractor ) . as described below , our trs lessees have engaged marriott to manage the day-to-day operations of our hotels as an eligible independent contractor . in addition , we own our opry and attractions businesses in trss , and certain of those trss have engaged marriott to manage their assets , as described below . marriott management . on october 1 , 2012 , we completed the marriott sale transaction pursuant to that certain purchase agreement , dated may 30 , 2012 , by and among gaylord , gaylord hotels , inc. , marriott hotel services , inc. , and marriott , pursuant to which we sold the gaylord hotels brand and rights to manage our gaylord hotels properties for $ 210 million in cash ( the marriott sale transaction ) . in connection with the marriott sale transaction , each of our trs lessees for our gaylord hotels properties is now a party to a management agreement ( one for each of our gaylord hotels properties ) and a pooling agreement with marriott . under the management agreements , on october 1 , 2012 , marriott assumed responsibility for managing the day-to-day operations of our gaylord hotels properties . we do not have the authority to require marriott to operate our gaylord hotels properties in a particular manner , although we do have consent and approval rights for certain matters under the hotel management agreements , subject to the limitations described therein . story_separator_special_tag we intend to leverage our existing hotel properties that continue the all-in-one-place self-contained service offerings , as well as a longer-term growth strategy that includes acquisitions of hotels , particularly in the group meetings sector of the hospitality industry , either alone or through joint venture or alliances with one or more third parties . we intend to pursue attractive investment opportunities which meet our acquisition parameters , specifically , group-oriented large hotels and overflow hotels with existing or potential leisure appeal . 39 key performance indicators the operating results of our hospitality segment as managed by marriott are highly dependent on the volume of customers at our hotels and the quality of the customer mix at our hotels . these factors impact the price that our third-party managers can charge for our hotel rooms and other amenities , such as food and beverage and meeting space . key performance indicators related to revenue are : hotel occupancy ( a volume indicator ) ; average daily rate ( adr ) ( a price indicator calculated by dividing room revenue by the number of rooms sold ) ; revenue per available room ( revpar ) ( a summary measure of hotel results calculated by dividing room revenue by room nights available to guests for the period ) ; total revenue per available room ( total revpar ) ( a summary measure of hotel results calculated by dividing the sum of room , food and beverage and other ancillary service revenue by room nights available to guests for the period ) ; and net definite room nights booked ( a volume indicator which represents the total number of definite bookings for future room nights at our hotels confirmed during the applicable period , net of cancellations ) . hospitality segment revenue from our occupied hotel rooms is recognized as earned on the close of business each day and from concessions and food and beverage sales at the time of the sale . attrition fees , which are charged to groups when they do not fulfill the minimum number of room nights or minimum food and beverage spending requirements originally contracted for , as well as cancellation fees , are recognized as revenue in the period they are collected . almost all of our hospitality segment revenues are either cash-based or , for meeting and convention groups meeting credit criteria , billed and collected on a short-term receivables basis . the hospitality industry is capital intensive , and we rely on the ability of our hotels to generate operating cash flow to repay debt financing and fund maintenance capital expenditures . the results of operations of our hospitality segment are affected by the number and type of group meetings and conventions scheduled to attend our hotels in a given period . our hotels attempt to offset any identified shortfalls in occupancy by creating special events or offering incentives to groups in order to attract increased business during this period . a variety of factors can affect the results of any interim period , including the nature and quality of the group meetings and conventions attending our hotels during such period , which meetings and conventions have often been contracted for several years in advance , the level of attrition our hotels experience , and the level of transient business at our hotels during such period . effective october 1 , 2012 , marriott assumed responsibility for managing these processes at our gaylord hotels properties and began managing the inn at opryland on december 1 , 2012. summary financial results the following table summarizes our financial results for the years ended december 31 , 2012 , 2011 and 2010 ( in thousands , except percentages and per share data ) : replace_table_token_7_th 2012 results as compared to 2011 results the increase in our total revenues during 2012 , as compared to 2011 , is attributable to an increase in our hospitality segment revenues of $ 29.4 million and an increase in our opry and attractions segment revenues of $ 5.1 million , as discussed more fully below . the 40 increase in revenues in our hospitality segment is attributable to increases of $ 24.8 million and $ 7.3 million at gaylord palms and gaylord national , respectively , partially offset by decreases in revenue of $ 3.1 million and $ 2.1 million at gaylord opryland and gaylord texan , respectively , as well as the effect of outsourcing retail operations at gaylord opryland , gaylord texan and gaylord national during the fourth quarter of 2012 , as described more fully below . total hospitality revenues in 2012 include $ 6.4 million in attrition and cancellation fee collections , a $ 2.8 million decrease from 2011. the increase in total operating expenses during 2012 , as compared to 2011 , is due primarily to $ 102.0 million in reit conversion costs during 2012 , an increase of $ 10.1 million in our hospitality segment operating expenses , and an increase of $ 6.4 million in our corporate and other segment operating expenses , as discussed more fully below . the above factors resulted in an operating loss of $ 4.8 million for 2012 , as compared to operating income of $ 79.5 million in 2011. our net loss was $ 26.6 million in 2012 , as compared to net income of $ 10.2 million in 2011 , due to the change in our operating income described above , partially offset by the following factors , each as described more fully below : a $ 23.2 million increase in other gains and losses for 2012 , as compared to 2011 , primarily associated with a $ 20.0 million gain on the sale of intellectual property to marriott in connection with the marriott sale transaction and $ 2.3 million received from the marketing and maintenance fund associated with the gaylord national bonds . a $ 16.1 million decrease in our interest expense , net of amounts capitalized
| cash flows from investing activities . during 2012 , our primary sources of funds from investing activities were the receipt of $ 210.0 million from the marriott sale transaction , partially offset by the purchase of property and equipment totaling $ 95.2 million . our capital expenditures during 2012 primarily included the completion of the renovation of the guestrooms , a new sports bar entertainment facility and new resort pools at gaylord palms , the completion of the enhancement to our flood protection system at gaylord opryland and the grand ole opry , and ongoing maintenance capital expenditures for our existing properties . during 2011 , our primary uses of funds and investing activities were the purchase of property and equipment totaling $ 132.6 million , partially offset by the receipt of a $ 2.5 million principal payment on the bonds that were received in april 2008 in connection with the development of gaylord national and $ 1.9 million in proceeds from the sale of certain fixed assets . our capital expenditures during 2011 primarily included remaining flood-related projects at gaylord opryland , the commencement of renovation of the guestrooms , the addition of a sports bar entertainment facility and new resort pools at gaylord palms , the building of our new resort pool at gaylord texan , and various information technology projects , as well as ongoing maintenance capital expenditures for our existing properties . during 2010 , our primary uses of funds and investing activities were the purchase of property and equipment totaling $ 194.6 million , partially offset by the receipt of a $ 3.8 million payment on the bonds that were received in april 2008 in connection with the development of gaylord national . our capital expenditures during 2010 included construction at gaylord opryland , the grand ole opry and our corporate offices of $ 136.8 million , $ 16.7 million and $ 11.3 million , respectively , primarily related to rebuilding costs associated with the nashville flood , as well as ongoing maintenance capital expenditures at our other properties . cash flows from financing activities .
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the standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in prior accounting guidance . asu 2014-09 provides alternative methods of initial adoption , and was effective for fiscal years beginning after december 15 , 2016 , and interim periods within those annual periods . early adoption was not permitted . in august , 2015 , the fasb issued asu no . 2015-14 , “ revenue from contracts with customers : deferral of the effective date ” . the amendment in this asu defers the effective date of asu no . 2014-09 for all entities for one year . public business entities , certain not-for-profit entities , and certain employee benefit plans should apply the guidance in asu 2014-09 to fiscal years beginning after december 15 , 2017 , including interim reporting periods within that fiscal year . earlier application is permitted only as of fiscal years beginning after december 31 , 2016 , including interim reporting periods with that fiscal year . we are currently reviewing the revised guidance and assessing the potential impact on our consolidated financial statements . 25 in july 2015 , the fasb issued asu no . 2015-11 , “ simplifying the measurement of inventory , ” that requires inventory be measured at the lower of cost and net realizable value and options that currently exist for market value be eliminated . the standard defines net realizable value as estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation and is effective for fiscal years beginning after december 15 , 2016 and interim periods within those fiscal years with early adoption permitted . the guidance should be applied prospectively . we do not believe that the adoption of asu 2015-11 will have a significant impact on our consolidated financial statements . in november 2015 , the fasb issued asu no . 2015-17 , “ balance sheet classification of deferred taxes , ” that requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position . the current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by this amendment . the new guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2016. early adoption is permitted and the standard may be applied either retrospectively or on a prospective basis to all deferred tax assets and liabilities . we do not believe that the adoption of asu 2015-17 will have a significant impact on our consolidated financial statements . in january 2016 , the fasb issued asu no . 2016-01 , “ recognition and measurement of financial assets and financial liabilities , ” that modifies certain aspects of the recognition , measurement , presentation , and disclosure of financial instruments . the accounting standard update is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2017 , and early adoption is permitted . we are currently assessing the impact that adopting this new accounting guidance will have on our consolidated financial statements . in february 2016 , the fasb issued asu no . 2016-02 , “ leases ” , that discusses how an entity should account for lease assets and lease liabilities . the guidance specifies that an entity who is a lessee under lease agreements should recognize lease assets and lease liabilities for those leases classified as operating leases under previous fasb guidance . accounting for leases by lessors is largely unchanged under the new guidance . the guidance is effective for us beginning in the first quarter of 2019. early adoption is permitted . in transition , lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach . we are evaluating the impact of adopting this guidance on our consolidated financial statements . in march 2016 , the fasb issued asu 2016-08 , “ principal versus agent considerations ( reporting revenue gross versus net ) , ” which clarifies the implementation guidance on principal versus agent considerations . the amendments in this update do not change the core principle of asu 2014-09. the effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of asu 2014-09. as discussed above , asu 2015-14 defers the effective date of asu 2014-09 by one year . we are currently assessing the impact that adopting this new accounting guidance will have on our consolidated financial statements . in march 2016 , the fasb issued asu 2016-09 , “ improvements to employee share-based payment accounting , ” which simplifies several aspects of the accounting for share-based payment transactions , including the income tax consequences , classification of awards as either equity or liabilities , and classification on the statement of cash flows . the guidance is effective for us beginning in the first quarter of fiscal year 2017. early adoption is permitted . we are evaluating the impact of adopting this guidance on our consolidated financial statements . in april 2016 , the fasb issued asu 2016-10 , “ identifying performance obligations and licensing , ” which clarifies the implementation guidance for performance obligations and licensing . the amendments in this update do not change the core principle of asu 2014-09. the effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of asu 2014-09. as discussed above , asu 2015-14 defers the effective date of asu 2014-09 by one year . we are currently assessing the impact that adopting this new accounting guidance will have on our consolidated financial statements . story_separator_special_tag $ 884,000 for the year ended december 31 , 2015. the increase of approximately $ 142,000 , or 16 % , in cost of goods sold was primarily related to an increase in the number of filters sold . research and development research and development expenses were approximately $ 1,079,000 and $ 826,000 for the years ended december 31 , 2016 and december 31 , 2015 , respectively . this increase of approximately $ 253,000 , or 31 % , is primarily due to an increase in full-time research and development employees . depreciation and amortization expense depreciation and amortization expense was approximately $ 230,000 for the year ended december 31 , 2016 compared to approximately $ 212,000 for the year ended december 31 , 2015 , representing an increase of approximately 8 % related to equipment expenditures for the year ended december 31 , 2016. selling , general and administrative expenses selling , general and administrative expenses were approximately $ 2,854,000 for the year ended december 31 , 2016 compared to approximately $ 3,443,000 for the year ended december 31 , 2015 , representing a decrease of $ 589,000 , or 17 % . the decrease was primarily due to a decrease in legal and auditor expenses of approximately $ 280,000 , a decrease in regulatory expenses of approximately $ 220,000 , which were incurred in 2015 related to standard operating procedure updates , a decrease in severance expense of approximately $ 175,000 incurred in 2015 and a decrease of approximately $ 120,000 in direct compensation and investor relations expenses . these decreases were partially offset by an increase in selling , general and administrative personnel of approximately $ 280,000. interest expense the table below summarizes interest expense for the years ended december 31 , 2016 and 2015 : replace_table_token_1_th interest income interest income of approximately $ 5,000 for the year ended december 31 , 2016 is as result of interest income recognized on a lease receivable . 29 change in fair value of warrant liability we classified certain warrants as liabilities at their fair value and adjusted the warrant liability to fair value at each reporting period . this liability was subject to re-measurement at each balance sheet date until exercised , and any change in fair value is recognized in our consolidated statement of operations and comprehensive income ( loss ) . the fair value of such warrants issued was estimated using a binomial options pricing model . the change in fair value of the warrant liability resulted in income of approximately $ 2,099,000 for the year ended december 31 , 2015. these liability classified warrants were exercised in full on september 29 , 2015. warrant modification expense during the year ended december 31 , 2015 , the modification of the exercise price of the liability-classified warrants resulted in an increase in the warrant liability , immediately before exercise , of approximately $ 1,761,000. other income/expense other expense for the year ended december 31 , 2016 of approximately $ 4,000 is related to foreign currency gains of approximately $ 2,000 and miscellaneous other income of approximately $ 2,000. other income of approximately $ 37,000 for the year ended december 31 , 2015 is due to foreign currency gains . off-balance sheet arrangements we did not have any off-balance sheet arrangements as of december 31 , 2016 or 2015. story_separator_special_tag 0 ; margin-bottom : 0 ; text-align : center `` > as of the date of this annual report on form 10-k , we expect that our existing cash balances and projected increase in product sales from the launch of new products , as well as the approximately $ 1.2 million raised in a pipe offering in march 2017 , will allow us to fund our operations at least into 2018 , if not longer , depending on the timing and market acceptance of our new products . this assumption excludes the impact of future cash receipts from recurring operations . our cash flow currently is not , and historically has not been , sufficient to meet our obligations and commitments . we must seek and obtain additional financing to fund our operations . if we can not raise sufficient capital , in connection with offerings of our common stock or through other means , we will be forced to curtail our planned activities and operations or cease operations entirely and you will lose all of your investment in us . there can be no assurance that we could raise sufficient capital on a timely basis or on satisfactory terms or at all . net cash used in operating activities was approximately $ 2,112,000 for the year ended december 31 , 2016 compared to approximately $ 3,815,000 for the year ended december 31 , 2015. our net loss was approximately $ 3,027,000 for the year ended december 31 , 2016 compared to a net loss of approximately $ 3,426,000 , excluding the noncash impacts of the change in fair value of the warrant liability and the warrant modification , for the year ended december 31 , 2015 , a decrease of approximately $ 399,000. the most significant items contributing to the net decrease of approximately $ 1,703,000 in cash used in operating activities during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 are highlighted below : ● our inventory decreased by approximately $ 103,000 during the 2016 period compared to an increase of approximately $ 405,000 during the 2015 period as a result of managing inventory levels ; ● our accounts receivable increased by approximately $ 17,000 during the 2016 period compared to an increase of approximately $ 302,000 during the 2015 period as a result of timing of receipts ; ● our prepaid expenses and other current assets increased by approximately $ 10,000 during the 2016 period compared to an increase of approximately $ 144,000 during the 2015 period as a result of decreased deposits ; ● our accounts
| cash flows from investing activities . during 2012 , our primary sources of funds from investing activities were the receipt of $ 210.0 million from the marriott sale transaction , partially offset by the purchase of property and equipment totaling $ 95.2 million . our capital expenditures during 2012 primarily included the completion of the renovation of the guestrooms , a new sports bar entertainment facility and new resort pools at gaylord palms , the completion of the enhancement to our flood protection system at gaylord opryland and the grand ole opry , and ongoing maintenance capital expenditures for our existing properties . during 2011 , our primary uses of funds and investing activities were the purchase of property and equipment totaling $ 132.6 million , partially offset by the receipt of a $ 2.5 million principal payment on the bonds that were received in april 2008 in connection with the development of gaylord national and $ 1.9 million in proceeds from the sale of certain fixed assets . our capital expenditures during 2011 primarily included remaining flood-related projects at gaylord opryland , the commencement of renovation of the guestrooms , the addition of a sports bar entertainment facility and new resort pools at gaylord palms , the building of our new resort pool at gaylord texan , and various information technology projects , as well as ongoing maintenance capital expenditures for our existing properties . during 2010 , our primary uses of funds and investing activities were the purchase of property and equipment totaling $ 194.6 million , partially offset by the receipt of a $ 3.8 million payment on the bonds that were received in april 2008 in connection with the development of gaylord national . our capital expenditures during 2010 included construction at gaylord opryland , the grand ole opry and our corporate offices of $ 136.8 million , $ 16.7 million and $ 11.3 million , respectively , primarily related to rebuilding costs associated with the nashville flood , as well as ongoing maintenance capital expenditures at our other properties . cash flows from financing activities .
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the standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in prior accounting guidance . asu 2014-09 provides alternative methods of initial adoption , and was effective for fiscal years beginning after december 15 , 2016 , and interim periods within those annual periods . early adoption was not permitted . in august , 2015 , the fasb issued asu no . 2015-14 , “ revenue from contracts with customers : deferral of the effective date ” . the amendment in this asu defers the effective date of asu no . 2014-09 for all entities for one year . public business entities , certain not-for-profit entities , and certain employee benefit plans should apply the guidance in asu 2014-09 to fiscal years beginning after december 15 , 2017 , including interim reporting periods within that fiscal year . earlier application is permitted only as of fiscal years beginning after december 31 , 2016 , including interim reporting periods with that fiscal year . we are currently reviewing the revised guidance and assessing the potential impact on our consolidated financial statements . 25 in july 2015 , the fasb issued asu no . 2015-11 , “ simplifying the measurement of inventory , ” that requires inventory be measured at the lower of cost and net realizable value and options that currently exist for market value be eliminated . the standard defines net realizable value as estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation and is effective for fiscal years beginning after december 15 , 2016 and interim periods within those fiscal years with early adoption permitted . the guidance should be applied prospectively . we do not believe that the adoption of asu 2015-11 will have a significant impact on our consolidated financial statements . in november 2015 , the fasb issued asu no . 2015-17 , “ balance sheet classification of deferred taxes , ” that requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position . the current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by this amendment . the new guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2016. early adoption is permitted and the standard may be applied either retrospectively or on a prospective basis to all deferred tax assets and liabilities . we do not believe that the adoption of asu 2015-17 will have a significant impact on our consolidated financial statements . in january 2016 , the fasb issued asu no . 2016-01 , “ recognition and measurement of financial assets and financial liabilities , ” that modifies certain aspects of the recognition , measurement , presentation , and disclosure of financial instruments . the accounting standard update is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2017 , and early adoption is permitted . we are currently assessing the impact that adopting this new accounting guidance will have on our consolidated financial statements . in february 2016 , the fasb issued asu no . 2016-02 , “ leases ” , that discusses how an entity should account for lease assets and lease liabilities . the guidance specifies that an entity who is a lessee under lease agreements should recognize lease assets and lease liabilities for those leases classified as operating leases under previous fasb guidance . accounting for leases by lessors is largely unchanged under the new guidance . the guidance is effective for us beginning in the first quarter of 2019. early adoption is permitted . in transition , lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach . we are evaluating the impact of adopting this guidance on our consolidated financial statements . in march 2016 , the fasb issued asu 2016-08 , “ principal versus agent considerations ( reporting revenue gross versus net ) , ” which clarifies the implementation guidance on principal versus agent considerations . the amendments in this update do not change the core principle of asu 2014-09. the effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of asu 2014-09. as discussed above , asu 2015-14 defers the effective date of asu 2014-09 by one year . we are currently assessing the impact that adopting this new accounting guidance will have on our consolidated financial statements . in march 2016 , the fasb issued asu 2016-09 , “ improvements to employee share-based payment accounting , ” which simplifies several aspects of the accounting for share-based payment transactions , including the income tax consequences , classification of awards as either equity or liabilities , and classification on the statement of cash flows . the guidance is effective for us beginning in the first quarter of fiscal year 2017. early adoption is permitted . we are evaluating the impact of adopting this guidance on our consolidated financial statements . in april 2016 , the fasb issued asu 2016-10 , “ identifying performance obligations and licensing , ” which clarifies the implementation guidance for performance obligations and licensing . the amendments in this update do not change the core principle of asu 2014-09. the effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of asu 2014-09. as discussed above , asu 2015-14 defers the effective date of asu 2014-09 by one year . we are currently assessing the impact that adopting this new accounting guidance will have on our consolidated financial statements . story_separator_special_tag $ 884,000 for the year ended december 31 , 2015. the increase of approximately $ 142,000 , or 16 % , in cost of goods sold was primarily related to an increase in the number of filters sold . research and development research and development expenses were approximately $ 1,079,000 and $ 826,000 for the years ended december 31 , 2016 and december 31 , 2015 , respectively . this increase of approximately $ 253,000 , or 31 % , is primarily due to an increase in full-time research and development employees . depreciation and amortization expense depreciation and amortization expense was approximately $ 230,000 for the year ended december 31 , 2016 compared to approximately $ 212,000 for the year ended december 31 , 2015 , representing an increase of approximately 8 % related to equipment expenditures for the year ended december 31 , 2016. selling , general and administrative expenses selling , general and administrative expenses were approximately $ 2,854,000 for the year ended december 31 , 2016 compared to approximately $ 3,443,000 for the year ended december 31 , 2015 , representing a decrease of $ 589,000 , or 17 % . the decrease was primarily due to a decrease in legal and auditor expenses of approximately $ 280,000 , a decrease in regulatory expenses of approximately $ 220,000 , which were incurred in 2015 related to standard operating procedure updates , a decrease in severance expense of approximately $ 175,000 incurred in 2015 and a decrease of approximately $ 120,000 in direct compensation and investor relations expenses . these decreases were partially offset by an increase in selling , general and administrative personnel of approximately $ 280,000. interest expense the table below summarizes interest expense for the years ended december 31 , 2016 and 2015 : replace_table_token_1_th interest income interest income of approximately $ 5,000 for the year ended december 31 , 2016 is as result of interest income recognized on a lease receivable . 29 change in fair value of warrant liability we classified certain warrants as liabilities at their fair value and adjusted the warrant liability to fair value at each reporting period . this liability was subject to re-measurement at each balance sheet date until exercised , and any change in fair value is recognized in our consolidated statement of operations and comprehensive income ( loss ) . the fair value of such warrants issued was estimated using a binomial options pricing model . the change in fair value of the warrant liability resulted in income of approximately $ 2,099,000 for the year ended december 31 , 2015. these liability classified warrants were exercised in full on september 29 , 2015. warrant modification expense during the year ended december 31 , 2015 , the modification of the exercise price of the liability-classified warrants resulted in an increase in the warrant liability , immediately before exercise , of approximately $ 1,761,000. other income/expense other expense for the year ended december 31 , 2016 of approximately $ 4,000 is related to foreign currency gains of approximately $ 2,000 and miscellaneous other income of approximately $ 2,000. other income of approximately $ 37,000 for the year ended december 31 , 2015 is due to foreign currency gains . off-balance sheet arrangements we did not have any off-balance sheet arrangements as of december 31 , 2016 or 2015. story_separator_special_tag 0 ; margin-bottom : 0 ; text-align : center `` > as of the date of this annual report on form 10-k , we expect that our existing cash balances and projected increase in product sales from the launch of new products , as well as the approximately $ 1.2 million raised in a pipe offering in march 2017 , will allow us to fund our operations at least into 2018 , if not longer , depending on the timing and market acceptance of our new products . this assumption excludes the impact of future cash receipts from recurring operations . our cash flow currently is not , and historically has not been , sufficient to meet our obligations and commitments . we must seek and obtain additional financing to fund our operations . if we can not raise sufficient capital , in connection with offerings of our common stock or through other means , we will be forced to curtail our planned activities and operations or cease operations entirely and you will lose all of your investment in us . there can be no assurance that we could raise sufficient capital on a timely basis or on satisfactory terms or at all . net cash used in operating activities was approximately $ 2,112,000 for the year ended december 31 , 2016 compared to approximately $ 3,815,000 for the year ended december 31 , 2015. our net loss was approximately $ 3,027,000 for the year ended december 31 , 2016 compared to a net loss of approximately $ 3,426,000 , excluding the noncash impacts of the change in fair value of the warrant liability and the warrant modification , for the year ended december 31 , 2015 , a decrease of approximately $ 399,000. the most significant items contributing to the net decrease of approximately $ 1,703,000 in cash used in operating activities during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 are highlighted below : ● our inventory decreased by approximately $ 103,000 during the 2016 period compared to an increase of approximately $ 405,000 during the 2015 period as a result of managing inventory levels ; ● our accounts receivable increased by approximately $ 17,000 during the 2016 period compared to an increase of approximately $ 302,000 during the 2015 period as a result of timing of receipts ; ● our prepaid expenses and other current assets increased by approximately $ 10,000 during the 2016 period compared to an increase of approximately $ 144,000 during the 2015 period as a result of decreased deposits ; ● our accounts
| liquidity and capital resources the following table summarizes our liquidity and capital resources as of december 31 , 2016 and 2015 and is intended to supplement the more detailed discussion that follows . the amounts stated are expressed in thousands . replace_table_token_2_th our future liquidity sources and requirements will depend on many factors , including : ● the availability of additional financing , through the sale of equity securities or otherwise , on commercially reasonable terms or at all ; ● the market acceptance of our products , and our ability to effectively and efficiently produce and market our products ; ● the continued progress in , and the costs of , clinical studies and other research and development programs ; ● the costs involved in filing and enforcing patent claims and the status of competitive products ; and ● the cost of litigation , including potential patent litigation and any other actual or threatened litigation . we expect to put our current capital resources to the following uses : ● for the marketing and sales of our water-filtration products ; ● to pursue business development opportunities with respect to our chronic renal treatment system ; and ● for working capital purposes . we operate under an investment , risk management and accounting policy adopted by our board of directors . such policy limits the types of instruments or securities in which we may invest our excess funds : u.s. treasury securities ; certificates of deposit issued by money center banks ; money funds by money center banks ; repurchase agreements ; and eurodollar certificates of deposit issued by money center banks . this policy provides that our primary objectives for investments shall be the preservation of principal and achieving sufficient liquidity to meet our forecasted cash requirements . in addition , provided that such primary objectives are met , we may seek to achieve the maximum yield available under such constraints .
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our fiscal 2018 pre-tax margin ( the ratio of pre-tax income to net sales ) was 10.8 % , a 0.4 percentage point decrease compared to 11.2 % in fiscal 2017. the impairment charge relating to stp and the cost of incremental investments we made in connection with the 2017 tax act collectively reduced pre-tax margin by 0.6 percentage points while the 53 rd week in the fiscal 2018 calendar lifted pretax margin by approximately 0.1 percentage point . fiscal 2017 pre-tax margin was reduced by 0.3 percentage points due to the two third quarter charges referred to above . our cost of sales , including buying and occupancy costs , ratio for fiscal 2018 was 71.1 % , a 0.1 percentage point increase compared to 71.0 % in fiscal 2017. this increase was driven by higher supply chain costs partially offset by the favorable impact of mark-to-market of inventory derivatives and a benefit from the 53 rd week in the fiscal 2018 calendar . merchandise margins were flat compared to fiscal 2017 . our selling , general and administrative ( sg & a ) expense ratio for fiscal 2018 was 17.8 % , a 0.4 percentage point increase from 17.4 % in fiscal 2017. the incremental investments described below related to the 2017 tax act increased the fiscal 2018 expense ratio by 0.3 percentage points . the remaining increase is primarily due to higher store payroll costs due to wage increases . our consolidated average per store inventories , including inventory on hand at our distribution centers ( which excludes inventory in transit ) and excluding our e-commerce businesses , increased 6 % on a reported basis and increased 4 % on a constant currency basis at the end of fiscal 2018 as compared to the prior year . during fiscal 2018 , we repurchased 22.3 million shares of our common stock for $ 1.7 billion , on a trade date basis . earnings per share reflect the benefit of the stock repurchase program . with $ 1.1 billion remaining under previously announced stock repurchase programs , our board of directors approved our 19 th stock repurchase program that authorizes the repurchase of up to an additional $ 3.0 billion . 27 the following is a discussion of our consolidated operating results , followed by a discussion of our segment operating results . tax cuts and jobs act of 2017 : on december 22 , 2017 , the 2017 tax act was enacted into law which , among other things , includes a one-time mandatory transition tax on accumulated foreign undistributed earnings and a reduction of the u.s. corporate income tax rate to 21 percent , effective january 1 , 2018. the change in the u.s. income tax rate also requires us to revalue our deferred tax assets and liabilities . although we are still evaluating the impact of the 2017 tax act on tjx , the company has estimated the impact of the 2017 tax act which resulted in a reduction of the full year tax provision . the company has reinvested a portion of these tax benefits by approving a discretionary bonus to eligible non-bonus plan associates globally , providing an incremental contribution to the company 's defined contribution retirement plans for eligible associates in the u.s. and internationally , as well as making contributions to the company 's charitable foundations , collectively referred to as incremental investments related to the 2017 tax act. the tax benefits recognized due to the 2017 tax act , offset by the after-tax impact of incremental investments we made related to the 2017 tax act , resulted in a net benefit to net income of $ 0.17 per share for the fiscal 2018 fourth quarter and full year . net sales : consolidated net sales for fiscal 2018 totaled $ 35.9 billion , an 8 % increase over $ 33.2 billion in fiscal 2017. the increase reflected a 4 % increase from new stores , a 2 % increase from comp sales , and a 2 % increase from the impact of the 53 rd week in the fiscal 2018 calendar . foreign currency had a neutral impact in fiscal 2018. net sales from our e-commerce businesses amounted to approximately 2 % of total sales and had an immaterial impact on fiscal 2018 sales growth . consolidated net sales for fiscal 2017 totaled $ 33.2 billion , a 7 % increase over $ 30.9 billion in fiscal 2016. the increase reflected a 5 % increase from comp sales and a 4 % increase from new stores , offset by a 2 % negative impact from foreign currency exchange rates . comparable store sales : we define comparable store sales ( comp sales ) , formerly referred to as same-store sales , to be sales of stores that have been in operation for all or a portion of two consecutive fiscal years , or in other words , stores that are starting their third fiscal year of operation . we calculate comp sales on a 52-week basis by comparing the current and prior year weekly periods that are most closely aligned . relocated stores and stores that have changed in size are generally classified in the same way as the original store , and we believe that the impact of these stores on the consolidated comp percentage is immaterial . we define customer traffic to be the number of transactions in stores included in the comp sales calculation and average ticket to be the average retail price of the units sold . we define average transaction or average basket to be the average dollar value of transactions included in the comp sales calculation . story_separator_special_tag 32 homegoods replace_table_token_13_th homegoods ' net sales increased 16 % in fiscal 2018 , on top of a 12 % increase in fiscal 2017. the increase in fiscal 2018 reflected a 10 % increase from new store sales , a 4 % increase from comp sales and a 2 % increase due to the 53 rd week . the sales increase of 12 % in fiscal 2017 reflected a 6 % increase from new store sales and a 6 % increase from comp sales . comp sales growth at homegoods for fiscal 2018 was due to a 4 % increase in customer traffic on top of a 5 % increase in customer traffic in fiscal 2017. comp sales growth in fiscal 2018 and fiscal 2017 was also due to an increase in units sold , which was partially offset by a decrease in the average ticket . segment profit margin decreased to 13.2 % for fiscal 2018 compared to 13.9 % for fiscal 2017. the decrease in segment margin for fiscal 2018 includes a decline in merchandise margin of 0.5 percentage points , primarily as a result of increased freight costs . in addition , higher distribution center costs primarily due to opening a new distribution center , higher store payroll costs , primarily due to wage increases , as well as costs in connection with opening more stores as compared to fiscal 2017 , including our first homesense stores , collectively reduced segment margin by approximately 0.8 percentage points . these costs were partially offset by expense leverage on comp sales growth as well as the benefit of the 53 rd week which lifted segment margin by approximately 0.2 percentage points . segment profit margin for fiscal 2017 was 13.9 % compared to 14.0 % for fiscal 2016. segment margin for fiscal 2017 was favorably impacted by an increase in merchandise margin and expense leverage , primarily occupancy costs , on strong comp sales growth . these increases in segment margin were more than offset by higher payroll costs related to wage increases , an increase in distribution costs , which includes the opening of a new distribution center in fiscal 2017 , and an increase in credit card chargeback costs . in fiscal 2019 , we plan an increase of approximately 85 homegoods stores and 15 homesense stores , which would increase selling square footage by approximately 18 % . 33 foreign segments : tjx canada replace_table_token_14_th net sales for tjx canada increased 15 % in fiscal 2018 , on top of an 11 % increase in fiscal 2017. the increase in sales for fiscal 2018 reflected comp sales growth of 5 % , a 5 % increase from new stores , 3 % from the positive impact of foreign currency translation and a 2 % impact of the 53 rd week . the increase in sales for fiscal 2017 reflected comp sales growth of 8 % and a 5 % increase from new stores offset by 2 % from the negative impact of foreign currency translation . the comp sales increases in fiscal 2018 and fiscal 2017 were primarily due to an increase in customer traffic . segment profit margin increased 1.6 percentage points to 14.6 % in fiscal 2018 compared to 13.0 % in fiscal 2017. the increase in segment margin was primarily due to the combination of an increase in merchandise margin of 0.6 percentage points , which benefitted from the year-over-year increase in the canadian dollar , and expense leverage on the strong comp sales . the increase in the segment margin also included a favorable impact of 0.3 percentage points due to foreign currency , primarily the mark-to-market impact of the inventory derivatives . the fiscal 2018 segment margin also benefitted from the 53 rd week , which lifted the segment margin by approximately 0.1 percentage point . segment profit margin decreased 0.1 percentage point to 13.0 % in fiscal 2017. the decline in segment margin was driven by a decrease in merchandise margin and higher supply chain and distribution center costs , which included the opening of a new distribution center . the decline in merchandise margin was primarily due to transactional foreign exchange as the year-over-year changes in currency exchange rates increased tjx canada 's cost of merchandise purchased in u.s. dollars . these declines in segment margin were largely offset by expense leverage , primarily buying and occupancy costs , on the comp sales growth , as well as the benefit of transactional foreign currency activity resulting in foreign currency gains in fiscal 2017 as compared to foreign currency losses in fiscal 2016. these foreign currency gains and losses result from the timing and settlement of payables denominated in currencies other than the canadian dollar . in fiscal 2019 , we plan an increase of approximately 30 stores in canada , which would increase selling square footage by approximately 6 % . 34 tjx international replace_table_token_15_th net sales for tjx international increased 11 % in fiscal 2018 on top of a 3 % increase in fiscal 2017. the increase in sales for fiscal 2018 reflected a 7 % increase from new stores , comp sales growth of 2 % , and a 2 % benefit from the 53 rd week . foreign currency translation had a neutral impact on fiscal 2018 sales growth . the increase in comp sales for fiscal 2018 was primarily driven by an increase in customer traffic . e-commerce sales represent less than 3 % of tjx international 's net sales . the increase in fiscal 2017 reflected a 12 % increase from new store sales ( which includes a full fiscal year of t.k . maxx in australia ) and a 2 % increase from comp sales , offset by the unfavorable impact from currency translation of 11 % . the increase in comp sales for fiscal 2017 was primarily driven by an increase in customer traffic . segment profit margin decreased to 5.1 %
| liquidity and capital resources the following table summarizes our liquidity and capital resources as of december 31 , 2016 and 2015 and is intended to supplement the more detailed discussion that follows . the amounts stated are expressed in thousands . replace_table_token_2_th our future liquidity sources and requirements will depend on many factors , including : ● the availability of additional financing , through the sale of equity securities or otherwise , on commercially reasonable terms or at all ; ● the market acceptance of our products , and our ability to effectively and efficiently produce and market our products ; ● the continued progress in , and the costs of , clinical studies and other research and development programs ; ● the costs involved in filing and enforcing patent claims and the status of competitive products ; and ● the cost of litigation , including potential patent litigation and any other actual or threatened litigation . we expect to put our current capital resources to the following uses : ● for the marketing and sales of our water-filtration products ; ● to pursue business development opportunities with respect to our chronic renal treatment system ; and ● for working capital purposes . we operate under an investment , risk management and accounting policy adopted by our board of directors . such policy limits the types of instruments or securities in which we may invest our excess funds : u.s. treasury securities ; certificates of deposit issued by money center banks ; money funds by money center banks ; repurchase agreements ; and eurodollar certificates of deposit issued by money center banks . this policy provides that our primary objectives for investments shall be the preservation of principal and achieving sufficient liquidity to meet our forecasted cash requirements . in addition , provided that such primary objectives are met , we may seek to achieve the maximum yield available under such constraints .
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our fiscal 2018 pre-tax margin ( the ratio of pre-tax income to net sales ) was 10.8 % , a 0.4 percentage point decrease compared to 11.2 % in fiscal 2017. the impairment charge relating to stp and the cost of incremental investments we made in connection with the 2017 tax act collectively reduced pre-tax margin by 0.6 percentage points while the 53 rd week in the fiscal 2018 calendar lifted pretax margin by approximately 0.1 percentage point . fiscal 2017 pre-tax margin was reduced by 0.3 percentage points due to the two third quarter charges referred to above . our cost of sales , including buying and occupancy costs , ratio for fiscal 2018 was 71.1 % , a 0.1 percentage point increase compared to 71.0 % in fiscal 2017. this increase was driven by higher supply chain costs partially offset by the favorable impact of mark-to-market of inventory derivatives and a benefit from the 53 rd week in the fiscal 2018 calendar . merchandise margins were flat compared to fiscal 2017 . our selling , general and administrative ( sg & a ) expense ratio for fiscal 2018 was 17.8 % , a 0.4 percentage point increase from 17.4 % in fiscal 2017. the incremental investments described below related to the 2017 tax act increased the fiscal 2018 expense ratio by 0.3 percentage points . the remaining increase is primarily due to higher store payroll costs due to wage increases . our consolidated average per store inventories , including inventory on hand at our distribution centers ( which excludes inventory in transit ) and excluding our e-commerce businesses , increased 6 % on a reported basis and increased 4 % on a constant currency basis at the end of fiscal 2018 as compared to the prior year . during fiscal 2018 , we repurchased 22.3 million shares of our common stock for $ 1.7 billion , on a trade date basis . earnings per share reflect the benefit of the stock repurchase program . with $ 1.1 billion remaining under previously announced stock repurchase programs , our board of directors approved our 19 th stock repurchase program that authorizes the repurchase of up to an additional $ 3.0 billion . 27 the following is a discussion of our consolidated operating results , followed by a discussion of our segment operating results . tax cuts and jobs act of 2017 : on december 22 , 2017 , the 2017 tax act was enacted into law which , among other things , includes a one-time mandatory transition tax on accumulated foreign undistributed earnings and a reduction of the u.s. corporate income tax rate to 21 percent , effective january 1 , 2018. the change in the u.s. income tax rate also requires us to revalue our deferred tax assets and liabilities . although we are still evaluating the impact of the 2017 tax act on tjx , the company has estimated the impact of the 2017 tax act which resulted in a reduction of the full year tax provision . the company has reinvested a portion of these tax benefits by approving a discretionary bonus to eligible non-bonus plan associates globally , providing an incremental contribution to the company 's defined contribution retirement plans for eligible associates in the u.s. and internationally , as well as making contributions to the company 's charitable foundations , collectively referred to as incremental investments related to the 2017 tax act. the tax benefits recognized due to the 2017 tax act , offset by the after-tax impact of incremental investments we made related to the 2017 tax act , resulted in a net benefit to net income of $ 0.17 per share for the fiscal 2018 fourth quarter and full year . net sales : consolidated net sales for fiscal 2018 totaled $ 35.9 billion , an 8 % increase over $ 33.2 billion in fiscal 2017. the increase reflected a 4 % increase from new stores , a 2 % increase from comp sales , and a 2 % increase from the impact of the 53 rd week in the fiscal 2018 calendar . foreign currency had a neutral impact in fiscal 2018. net sales from our e-commerce businesses amounted to approximately 2 % of total sales and had an immaterial impact on fiscal 2018 sales growth . consolidated net sales for fiscal 2017 totaled $ 33.2 billion , a 7 % increase over $ 30.9 billion in fiscal 2016. the increase reflected a 5 % increase from comp sales and a 4 % increase from new stores , offset by a 2 % negative impact from foreign currency exchange rates . comparable store sales : we define comparable store sales ( comp sales ) , formerly referred to as same-store sales , to be sales of stores that have been in operation for all or a portion of two consecutive fiscal years , or in other words , stores that are starting their third fiscal year of operation . we calculate comp sales on a 52-week basis by comparing the current and prior year weekly periods that are most closely aligned . relocated stores and stores that have changed in size are generally classified in the same way as the original store , and we believe that the impact of these stores on the consolidated comp percentage is immaterial . we define customer traffic to be the number of transactions in stores included in the comp sales calculation and average ticket to be the average retail price of the units sold . we define average transaction or average basket to be the average dollar value of transactions included in the comp sales calculation . story_separator_special_tag 32 homegoods replace_table_token_13_th homegoods ' net sales increased 16 % in fiscal 2018 , on top of a 12 % increase in fiscal 2017. the increase in fiscal 2018 reflected a 10 % increase from new store sales , a 4 % increase from comp sales and a 2 % increase due to the 53 rd week . the sales increase of 12 % in fiscal 2017 reflected a 6 % increase from new store sales and a 6 % increase from comp sales . comp sales growth at homegoods for fiscal 2018 was due to a 4 % increase in customer traffic on top of a 5 % increase in customer traffic in fiscal 2017. comp sales growth in fiscal 2018 and fiscal 2017 was also due to an increase in units sold , which was partially offset by a decrease in the average ticket . segment profit margin decreased to 13.2 % for fiscal 2018 compared to 13.9 % for fiscal 2017. the decrease in segment margin for fiscal 2018 includes a decline in merchandise margin of 0.5 percentage points , primarily as a result of increased freight costs . in addition , higher distribution center costs primarily due to opening a new distribution center , higher store payroll costs , primarily due to wage increases , as well as costs in connection with opening more stores as compared to fiscal 2017 , including our first homesense stores , collectively reduced segment margin by approximately 0.8 percentage points . these costs were partially offset by expense leverage on comp sales growth as well as the benefit of the 53 rd week which lifted segment margin by approximately 0.2 percentage points . segment profit margin for fiscal 2017 was 13.9 % compared to 14.0 % for fiscal 2016. segment margin for fiscal 2017 was favorably impacted by an increase in merchandise margin and expense leverage , primarily occupancy costs , on strong comp sales growth . these increases in segment margin were more than offset by higher payroll costs related to wage increases , an increase in distribution costs , which includes the opening of a new distribution center in fiscal 2017 , and an increase in credit card chargeback costs . in fiscal 2019 , we plan an increase of approximately 85 homegoods stores and 15 homesense stores , which would increase selling square footage by approximately 18 % . 33 foreign segments : tjx canada replace_table_token_14_th net sales for tjx canada increased 15 % in fiscal 2018 , on top of an 11 % increase in fiscal 2017. the increase in sales for fiscal 2018 reflected comp sales growth of 5 % , a 5 % increase from new stores , 3 % from the positive impact of foreign currency translation and a 2 % impact of the 53 rd week . the increase in sales for fiscal 2017 reflected comp sales growth of 8 % and a 5 % increase from new stores offset by 2 % from the negative impact of foreign currency translation . the comp sales increases in fiscal 2018 and fiscal 2017 were primarily due to an increase in customer traffic . segment profit margin increased 1.6 percentage points to 14.6 % in fiscal 2018 compared to 13.0 % in fiscal 2017. the increase in segment margin was primarily due to the combination of an increase in merchandise margin of 0.6 percentage points , which benefitted from the year-over-year increase in the canadian dollar , and expense leverage on the strong comp sales . the increase in the segment margin also included a favorable impact of 0.3 percentage points due to foreign currency , primarily the mark-to-market impact of the inventory derivatives . the fiscal 2018 segment margin also benefitted from the 53 rd week , which lifted the segment margin by approximately 0.1 percentage point . segment profit margin decreased 0.1 percentage point to 13.0 % in fiscal 2017. the decline in segment margin was driven by a decrease in merchandise margin and higher supply chain and distribution center costs , which included the opening of a new distribution center . the decline in merchandise margin was primarily due to transactional foreign exchange as the year-over-year changes in currency exchange rates increased tjx canada 's cost of merchandise purchased in u.s. dollars . these declines in segment margin were largely offset by expense leverage , primarily buying and occupancy costs , on the comp sales growth , as well as the benefit of transactional foreign currency activity resulting in foreign currency gains in fiscal 2017 as compared to foreign currency losses in fiscal 2016. these foreign currency gains and losses result from the timing and settlement of payables denominated in currencies other than the canadian dollar . in fiscal 2019 , we plan an increase of approximately 30 stores in canada , which would increase selling square footage by approximately 6 % . 34 tjx international replace_table_token_15_th net sales for tjx international increased 11 % in fiscal 2018 on top of a 3 % increase in fiscal 2017. the increase in sales for fiscal 2018 reflected a 7 % increase from new stores , comp sales growth of 2 % , and a 2 % benefit from the 53 rd week . foreign currency translation had a neutral impact on fiscal 2018 sales growth . the increase in comp sales for fiscal 2018 was primarily driven by an increase in customer traffic . e-commerce sales represent less than 3 % of tjx international 's net sales . the increase in fiscal 2017 reflected a 12 % increase from new store sales ( which includes a full fiscal year of t.k . maxx in australia ) and a 2 % increase from comp sales , offset by the unfavorable impact from currency translation of 11 % . the increase in comp sales for fiscal 2017 was primarily driven by an increase in customer traffic . segment profit margin decreased to 5.1 %
| liquidity and capital resources our liquidity requirements have traditionally been funded through cash generated from operations , supplemented , as needed , by short-term bank borrowings and the issuance of commercial paper . as of february 3 , 2018 , there were no short-term bank borrowings or commercial paper outstanding . we believe our existing cash and cash equivalents , internally generated funds and our credit facilities , described in note j long term debt and credit lines of notes to consolidated financial statements , are more than adequate to meet our operating needs over the next fiscal year . as of february 3 , 2018 , tjx held $ 2.8 billion in cash and $ 0.5 billion in short-term investments . approximately $ 1.8 billion of our cash was held by our foreign subsidiaries with $ 398.6 million held in countries where we provisionally intend to indefinitely reinvest any undistributed earnings . tjx has provided for all applicable state and foreign withholding taxes on all undistributed earnings of its foreign subsidiaries in canada , puerto rico , italy , india , hong kong and vietnam through february 3 , 2018. if we repatriate cash from such subsidiaries , we should not incur additional tax expense and our cash would be reduced by the amount of withholding taxes paid . we expect to repatriate more than $ 1 billion in cash from our subsidiary in canada during fiscal 2019. additionally , as part of the 2017 tax act we recorded a transition tax related to the undistributed earnings of our foreign subsidiaries of $ 193 million which is payable over 8 years . operating activities : net cash provided by operating activities was $ 3.0 billion in fiscal 2018 , $ 3.6 billion in fiscal 2017 and $ 3.0 billion in fiscal 2016. the cash generated from operating activities in each of these fiscal years was largely due to operating earnings .
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- 34 - business cloud services segment performance metrics the following table sets forth certain key operating metrics for our business cloud services segment as of or for the years ended december 31 , 2015 , 2014 and 2013 ( in thousands , except for percentages ) : replace_table_token_7_th ( 1 ) quarterly arpu is calculated using our standard convention of applying the average of the quarter 's beginning and ending base to the total revenue for the quarter . we believe arpu provides investors an understanding of the average monthly revenues we recognize associated with each cloud business customer . as arpu varies based on fixed subscription fee and variable usage components , we believe it can serve as a measure by which investors can evaluate trends in the types of services , levels of services and the usage levels of those services across our cloud business customer base . ( 2 ) cloud business customers is defined as paying direct inward dialing numbers for fax and voice services , and direct and resellers ' accounts for other services . ( 3 ) cancel rate is defined as cancels of small and medium business and individual cloud business customers with greater than four months of continuous service ( continuous service includes cloud business customers administratively canceled and reactivated within the same calendar month ) , and enterprise cloud business customers beginning with their first day of service . calculated monthly and expressed as an average over the three months of the quarter . digital media segment performance metrics the following table sets forth certain key operating metrics for our digital media segment for the years ended december 31 , 2015 , 2014 and 2013 ( in millions ) : replace_table_token_8_th sources : google analytics and partner platforms critical accounting policies and estimates we prepare our consolidated financial statements and related disclosures in accordance with u.s. generally accepted accounting principles ( `` gaap `` ) and our discussion and analysis of our financial condition and operating results require us to make judgments , assumptions and estimates that affect the amounts reported in our consolidated financial statements and - 35 - accompanying notes . see note 2 , `` basis of presentation and summary of significant accounting policies `` of the notes to consolidated financial statements in part ii , item 8 of this form 10-k which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements . we base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities . actual results may differ significantly from those estimates under different assumptions and conditions and may be material . we believe that our most critical accounting policies are those related to revenue recognition , valuation and impairment of marketable securities , share-based compensation expense , long-lived and intangible asset impairment , contingent consideration , income taxes and contingencies and allowance for doubtful accounts . we consider these policies critical because they are those that are most important to the portrayal of our financial condition and results and require management 's most difficult , subjective and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . senior management has reviewed these critical accounting policies and related disclosures with the audit committee of the company 's board of directors . revenue recognition business cloud services the company 's business cloud services revenues substantially consist of monthly fixed subscription and variable usage-based fees , which are primarily paid in advance by credit card . in accordance with gaap , the company recognizes revenue when persuasive evidence of an arrangement exists , services have been provided , the sales price is fixed and determinable and collection is probable . the company defers the portions of monthly , quarterly , semi-annually and annually recurring subscription and usage-based fees collected in advance and recognizes them in the period earned . additionally , the company defers and recognizes subscriber activation fees and related direct incremental costs over a subscriber 's estimated useful life . j2 global 's business cloud services also include patent license revenues generated under license agreements that provide for the payment of contractually determined fully paid-up or royalty-bearing license fees to j2 global in exchange for the grant of non-exclusive , retroactive and future licenses to our intellectual property , including patented technology . patent revenues may also consist of revenues generated from the sale of patents . patent license revenues are recognized when earned over the term of the license agreements . with regard to fully paid-up license arrangements , the company recognizes as revenue in the period the license agreement is executed the portion of the payment attributable to past use of the intellectual property and amortizes the remaining portion of such payments on a straight-line basis , or pro-rata revenue basis , as appropriate over the life of the licensed patent ( s ) . with regard to royalty-bearing license arrangements , the company recognizes revenues of license fees earned during the applicable period . with regard to patent sales , the company recognizes as revenue in the period of the sale the amount of the purchase price over the carrying value of the patent ( s ) sold . the business cloud services business also generates revenues by licensing certain technology to third parties . these licensing revenues are recognized when earned in accordance with the terms of the underlying agreement . generally , revenue is recognized as the third party uses the licensed technology over the period . story_separator_special_tag the new law allows “ grandfathered ” states and local authorities to continue their existing taxes on internet access through june 2020. on february 27 , 2013 , the office of finance for the city of los angeles ( the `` los angeles office of finance `` ) issued us assessments for business and communications taxes for the period of january 1 , 2009 through december 31 , 2012. on september 11 , 2014 , the los angeles office of finance issued us revised assessments increasing our liability to the city of los angeles . on april 30 , 2015 , the los angeles office of finance board of review denied our request to abate the assessments . we paid the assessments and requested the abatement of associated penalties . in addition , we are currently working with the office of the city attorney of the city of los angeles to obtain a refund of the entire amount paid . for other jurisdictions , we currently have no reserves established for these matters , as we have determined that the liability is not probable and estimable . however , it is reasonably possible that such a liability could be incurred , which would result in additional expense , which could materially impact our financial results . allowances for doubtful accounts we reserve for receivables we may not be able to collect . these reserves are typically driven by the volume of credit card declines and past due invoices and are based on historical experience as well as an evaluation of current market conditions . on an ongoing basis , management evaluates the adequacy of these reserves . recent accounting pronouncements see note 2 - basis of presentation and summary of significant accounting policies - to our accompanying consolidated financial statements for a description of recent accounting pronouncements and our expectations of their impact on our consolidated financial position and results of operations . results of operations years ended december 31 , 2015 , 2014 and 2013 business cloud services segment assuming a stable or improving economic environment , and , subject to our risk factors , we expect the revenue and profits as included in the results of operations below in our business cloud services segment to be stable for the foreseeable future ( excluding the impact of acquisitions ) . the main focus of our business cloud services offerings is to reduce or eliminate costs , increase sales and enhance productivity , mobility , business continuity and security of our customers as the technologies and devices they use evolve over time . as a result , we expect to continue to take steps to enhance our existing offerings and offer new services to continue to satisfy the evolving needs of our customers . through our ip licensing operations , which are included in the business cloud services segment , we seek to make our ip available for license to third parties , and we expect to continue to attempt to obtain additional ip through a combination of acquisitions and internal development in an effort to increase available licensing opportunities and related revenues . we expect acquisitions to remain an important component of our strategy and use of capital in this segment ; however , we can not predict whether our current pace of acquisitions will remain the same within this segment . in a given period , we may close greater or fewer acquisitions than in prior periods . moreover , future acquisitions of businesses within this segment but with different business models may impact the segment 's overall profit margins . also , as ip licensing often involves litigation , the timing of licensing transactions is unpredictable and can and does vary significantly from period-to-period . this variability can cause the overall segment 's financial results to materially vary from period-to-period . digital media segment assuming a stable or improving economic environment , and , subject to our risk factors , we expect the revenue and profits in our digital media segment to improve over the next several quarters as we integrate our recent acquisitions and over the longer - 40 - term as advertising transactions continue to shift from offline to online . the main focus of our advertising programs is to provide relevant and useful advertising to visitors to our websites and those included within our advertising networks , reflecting our commitment to constantly improve their overall web experience . as a result , we expect to continue to take steps to improve the relevance of the ads displayed on our websites and those included within our advertising networks . the operating margin we realize on revenues generated from ads placed on our websites is significantly higher than the operating margin we realize from revenues generated from those placed on third-party websites . growth in advertising revenues from our websites has generally exceeded that from third-party websites . this trend has had a positive impact on our operating margins , and we expect that this will continue for the foreseeable future . however , the trend in advertising spend is shifting to mobile devices and other newer advertising formats which generally experience lower margins than those from desktop computers and tablets . we expect this trend to continue to put pressure on our margins . we expect acquisitions to remain an important component of our strategy and use of capital in this segment ; however , we can not predict whether our current pace of acquisitions will remain the same within this segment . in a given period , we may close greater or fewer acquisitions than in prior periods . moreover , future acquisitions of businesses within this segment but with different business models may impact the segment 's overall profit margins . j2 global consolidated we anticipate that the stable revenue trend in our business cloud services segment combined with the improving revenue and profits in our digital media segment will result in overall
| liquidity and capital resources our liquidity requirements have traditionally been funded through cash generated from operations , supplemented , as needed , by short-term bank borrowings and the issuance of commercial paper . as of february 3 , 2018 , there were no short-term bank borrowings or commercial paper outstanding . we believe our existing cash and cash equivalents , internally generated funds and our credit facilities , described in note j long term debt and credit lines of notes to consolidated financial statements , are more than adequate to meet our operating needs over the next fiscal year . as of february 3 , 2018 , tjx held $ 2.8 billion in cash and $ 0.5 billion in short-term investments . approximately $ 1.8 billion of our cash was held by our foreign subsidiaries with $ 398.6 million held in countries where we provisionally intend to indefinitely reinvest any undistributed earnings . tjx has provided for all applicable state and foreign withholding taxes on all undistributed earnings of its foreign subsidiaries in canada , puerto rico , italy , india , hong kong and vietnam through february 3 , 2018. if we repatriate cash from such subsidiaries , we should not incur additional tax expense and our cash would be reduced by the amount of withholding taxes paid . we expect to repatriate more than $ 1 billion in cash from our subsidiary in canada during fiscal 2019. additionally , as part of the 2017 tax act we recorded a transition tax related to the undistributed earnings of our foreign subsidiaries of $ 193 million which is payable over 8 years . operating activities : net cash provided by operating activities was $ 3.0 billion in fiscal 2018 , $ 3.6 billion in fiscal 2017 and $ 3.0 billion in fiscal 2016. the cash generated from operating activities in each of these fiscal years was largely due to operating earnings .
| 0 |
- 34 - business cloud services segment performance metrics the following table sets forth certain key operating metrics for our business cloud services segment as of or for the years ended december 31 , 2015 , 2014 and 2013 ( in thousands , except for percentages ) : replace_table_token_7_th ( 1 ) quarterly arpu is calculated using our standard convention of applying the average of the quarter 's beginning and ending base to the total revenue for the quarter . we believe arpu provides investors an understanding of the average monthly revenues we recognize associated with each cloud business customer . as arpu varies based on fixed subscription fee and variable usage components , we believe it can serve as a measure by which investors can evaluate trends in the types of services , levels of services and the usage levels of those services across our cloud business customer base . ( 2 ) cloud business customers is defined as paying direct inward dialing numbers for fax and voice services , and direct and resellers ' accounts for other services . ( 3 ) cancel rate is defined as cancels of small and medium business and individual cloud business customers with greater than four months of continuous service ( continuous service includes cloud business customers administratively canceled and reactivated within the same calendar month ) , and enterprise cloud business customers beginning with their first day of service . calculated monthly and expressed as an average over the three months of the quarter . digital media segment performance metrics the following table sets forth certain key operating metrics for our digital media segment for the years ended december 31 , 2015 , 2014 and 2013 ( in millions ) : replace_table_token_8_th sources : google analytics and partner platforms critical accounting policies and estimates we prepare our consolidated financial statements and related disclosures in accordance with u.s. generally accepted accounting principles ( `` gaap `` ) and our discussion and analysis of our financial condition and operating results require us to make judgments , assumptions and estimates that affect the amounts reported in our consolidated financial statements and - 35 - accompanying notes . see note 2 , `` basis of presentation and summary of significant accounting policies `` of the notes to consolidated financial statements in part ii , item 8 of this form 10-k which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements . we base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities . actual results may differ significantly from those estimates under different assumptions and conditions and may be material . we believe that our most critical accounting policies are those related to revenue recognition , valuation and impairment of marketable securities , share-based compensation expense , long-lived and intangible asset impairment , contingent consideration , income taxes and contingencies and allowance for doubtful accounts . we consider these policies critical because they are those that are most important to the portrayal of our financial condition and results and require management 's most difficult , subjective and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . senior management has reviewed these critical accounting policies and related disclosures with the audit committee of the company 's board of directors . revenue recognition business cloud services the company 's business cloud services revenues substantially consist of monthly fixed subscription and variable usage-based fees , which are primarily paid in advance by credit card . in accordance with gaap , the company recognizes revenue when persuasive evidence of an arrangement exists , services have been provided , the sales price is fixed and determinable and collection is probable . the company defers the portions of monthly , quarterly , semi-annually and annually recurring subscription and usage-based fees collected in advance and recognizes them in the period earned . additionally , the company defers and recognizes subscriber activation fees and related direct incremental costs over a subscriber 's estimated useful life . j2 global 's business cloud services also include patent license revenues generated under license agreements that provide for the payment of contractually determined fully paid-up or royalty-bearing license fees to j2 global in exchange for the grant of non-exclusive , retroactive and future licenses to our intellectual property , including patented technology . patent revenues may also consist of revenues generated from the sale of patents . patent license revenues are recognized when earned over the term of the license agreements . with regard to fully paid-up license arrangements , the company recognizes as revenue in the period the license agreement is executed the portion of the payment attributable to past use of the intellectual property and amortizes the remaining portion of such payments on a straight-line basis , or pro-rata revenue basis , as appropriate over the life of the licensed patent ( s ) . with regard to royalty-bearing license arrangements , the company recognizes revenues of license fees earned during the applicable period . with regard to patent sales , the company recognizes as revenue in the period of the sale the amount of the purchase price over the carrying value of the patent ( s ) sold . the business cloud services business also generates revenues by licensing certain technology to third parties . these licensing revenues are recognized when earned in accordance with the terms of the underlying agreement . generally , revenue is recognized as the third party uses the licensed technology over the period . story_separator_special_tag the new law allows “ grandfathered ” states and local authorities to continue their existing taxes on internet access through june 2020. on february 27 , 2013 , the office of finance for the city of los angeles ( the `` los angeles office of finance `` ) issued us assessments for business and communications taxes for the period of january 1 , 2009 through december 31 , 2012. on september 11 , 2014 , the los angeles office of finance issued us revised assessments increasing our liability to the city of los angeles . on april 30 , 2015 , the los angeles office of finance board of review denied our request to abate the assessments . we paid the assessments and requested the abatement of associated penalties . in addition , we are currently working with the office of the city attorney of the city of los angeles to obtain a refund of the entire amount paid . for other jurisdictions , we currently have no reserves established for these matters , as we have determined that the liability is not probable and estimable . however , it is reasonably possible that such a liability could be incurred , which would result in additional expense , which could materially impact our financial results . allowances for doubtful accounts we reserve for receivables we may not be able to collect . these reserves are typically driven by the volume of credit card declines and past due invoices and are based on historical experience as well as an evaluation of current market conditions . on an ongoing basis , management evaluates the adequacy of these reserves . recent accounting pronouncements see note 2 - basis of presentation and summary of significant accounting policies - to our accompanying consolidated financial statements for a description of recent accounting pronouncements and our expectations of their impact on our consolidated financial position and results of operations . results of operations years ended december 31 , 2015 , 2014 and 2013 business cloud services segment assuming a stable or improving economic environment , and , subject to our risk factors , we expect the revenue and profits as included in the results of operations below in our business cloud services segment to be stable for the foreseeable future ( excluding the impact of acquisitions ) . the main focus of our business cloud services offerings is to reduce or eliminate costs , increase sales and enhance productivity , mobility , business continuity and security of our customers as the technologies and devices they use evolve over time . as a result , we expect to continue to take steps to enhance our existing offerings and offer new services to continue to satisfy the evolving needs of our customers . through our ip licensing operations , which are included in the business cloud services segment , we seek to make our ip available for license to third parties , and we expect to continue to attempt to obtain additional ip through a combination of acquisitions and internal development in an effort to increase available licensing opportunities and related revenues . we expect acquisitions to remain an important component of our strategy and use of capital in this segment ; however , we can not predict whether our current pace of acquisitions will remain the same within this segment . in a given period , we may close greater or fewer acquisitions than in prior periods . moreover , future acquisitions of businesses within this segment but with different business models may impact the segment 's overall profit margins . also , as ip licensing often involves litigation , the timing of licensing transactions is unpredictable and can and does vary significantly from period-to-period . this variability can cause the overall segment 's financial results to materially vary from period-to-period . digital media segment assuming a stable or improving economic environment , and , subject to our risk factors , we expect the revenue and profits in our digital media segment to improve over the next several quarters as we integrate our recent acquisitions and over the longer - 40 - term as advertising transactions continue to shift from offline to online . the main focus of our advertising programs is to provide relevant and useful advertising to visitors to our websites and those included within our advertising networks , reflecting our commitment to constantly improve their overall web experience . as a result , we expect to continue to take steps to improve the relevance of the ads displayed on our websites and those included within our advertising networks . the operating margin we realize on revenues generated from ads placed on our websites is significantly higher than the operating margin we realize from revenues generated from those placed on third-party websites . growth in advertising revenues from our websites has generally exceeded that from third-party websites . this trend has had a positive impact on our operating margins , and we expect that this will continue for the foreseeable future . however , the trend in advertising spend is shifting to mobile devices and other newer advertising formats which generally experience lower margins than those from desktop computers and tablets . we expect this trend to continue to put pressure on our margins . we expect acquisitions to remain an important component of our strategy and use of capital in this segment ; however , we can not predict whether our current pace of acquisitions will remain the same within this segment . in a given period , we may close greater or fewer acquisitions than in prior periods . moreover , future acquisitions of businesses within this segment but with different business models may impact the segment 's overall profit margins . j2 global consolidated we anticipate that the stable revenue trend in our business cloud services segment combined with the improving revenue and profits in our digital media segment will result in overall
| cash and cash equivalents and investments at december 31 , 2015 , we had cash and investments of $ 413.7 million compared to $ 590.4 million at december 31 , 2014 . the decrease in cash and investments resulted primarily from business acquisitions , dividends , business taxes , and repurchase of stock , partially offset by cash provided by operations and the exercise of stock options . at december 31 , 2015 , cash and investments consisted of cash and cash equivalents of $ 255.5 million , short-term investments of $ 79.7 million and long-term investments of $ 78.6 million . our investments are comprised primarily of readily marketable corporate and governmental debt securities , money-market accounts , equity securities and time deposits . for financial statement presentation , we classify our investments primarily as available-for-sale ; thus , they are reported as short- and long-term based upon their maturity dates . short-term investments mature within one year of the date of the financial statements and long-term investments mature one year or more from the date of the financial statements . short-term investments include restricted balances which the company may not liquidate until maturity , generally within 12 months . restricted balances included in short-term investments were $ 0.1 million at december 31 , 2015 . we retain a substantial portion of our cash and investments in foreign jurisdictions for future reinvestment . as of december 31 , 2015 and 2014 , cash and investments held within foreign and domestic jurisdictions were $ 165.7 million and $ 248.0 million and $ 138.3 million and $ 452.1 million , respectively .
| 1 |
our crude oil logistics segment generated operating income of $ 122.9 million during the year ended march 31 , 2018 , which included a gain of $ 108.6 million on the sale of our previously held 50 % interest in glass mountain pipeline , llc ( “ glass mountain ” ) . water solutions our water solutions segment provides services for the treatment and disposal of wastewater generated from crude oil and natural gas production and for the disposal of solids such as tank bottoms , drilling fluids and drilling muds and performs truck and frac tank washouts . in addition , our water solutions segment sells the recovered hydrocarbons that result from performing these services and sells freshwater to producers for exploration and production activities . our water processing facilities are strategically located near areas of high crude oil and natural gas production . a significant factor affecting the profitability of our water solutions segment is the extent of exploration and production in the areas near our facilities , which is generally based upon producers ' expectations about the profitability of drilling and producing new wells . the primary customer of our wyoming facility has committed to deliver a specified minimum volume of water to our facility under a long-term contract . the primary customers of our colorado facilities have committed to deliver all wastewater produced at wells within the dj basin to our facilities . most customers of our other facilities are not under volume commitments , although many of our facilities have acreage dedications or are connected to producer facilities by pipeline . our water solutions segment generated operating income of $ 210.5 million during the year ended march 31 , 2019 , which included a gain of $ 141.3 million on the sales of our bakken water disposal business and our south pecos water disposal business ( see note 16 to our consolidated financial statements included in this annual report for a further discussion of both transactions ) . our water solutions segment generated an operating loss of $ 24.2 million during the year ended march 31 , 2018 . liquids our liquids segment purchases propane , butane , and other products from refiners , processing plants , producers , and other parties , and sells the products to retailers , wholesalers , refiners , and petrochemical plants throughout the united states and in canada . our liquids segment owns 27 terminals throughout the united states and a salt dome storage facility joint venture in utah , operates a fleet of leased railcars , and leases underground storage capacity . we attempt to reduce our exposure to price fluctuations by using back-to-back physical contracts and pre-sale agreements that allow us to lock in a margin on a percentage of our winter volumes . we also enter into financially settled derivative contracts as economic hedges of our physical inventory , physical sales and physical purchase contracts . our wholesale liquids business is a “ cost-plus ” business that can be affected by both price fluctuations and volume variations . we establish our selling price based on a pass-through of our product supply , transportation , handling , storage , and capital costs plus an acceptable margin . weather conditions and gasoline blending can have a significant impact on the demand for propane and butane , and sales volumes and prices are typically higher during the colder months of the year . consequently , our revenues , operating profits , and operating cash flows are typically lower in the first and second quarters of our fiscal year . the following table summarizes the range of low and high propane spot prices per gallon at conway , kansas , and mt . belvieu , texas , two of our main pricing hubs , for the periods indicated and the prices at period end : replace_table_token_7_th 54 the following table summarizes the range of low and high butane spot prices per gallon at mt . belvieu , texas for the periods indicated and the prices at period end : replace_table_token_8_th we believe volatility in commodity prices will continue , and our ability to adjust to and manage this volatility may impact our financial results . our liquids segment generated an operating loss of $ 2.9 million during the year ended march 31 , 2019 , which included a goodwill impairment charge of $ 66.2 million related to our salt dome storage facility joint venture in utah ( see note 6 to our consolidated financial statements included in this annual report ) . our liquids segment generated an operating loss of $ 93.1 million during the year ended march 31 , 2018 , which included a goodwill impairment charge of $ 116.9 million related to our salt dome storage facility joint venture in utah ( see note 6 to our consolidated financial statements included in this annual report ) . refined products and renewables our refined products and renewables segment conducts gasoline , diesel , ethanol , and biodiesel marketing operations , purchase s refined petroleum and renewable products primarily in the gulf coast , southeast and midwest regions of the united states and schedule s them for delivery at various locations throughout the country . in addition , in certain storage locations , our refined products and renewables segment may also purchase unfinished gasoline blending components for subsequent blending into finished gasoline to supply our marketing business as well as third parties . we sell our products to commercial and industrial end users , independent retailers , distributors , marketers , government entities , and other wholesalers of refined petroleum products . we sell our products at terminals owned by third parties . story_separator_special_tag during the year ended march 31 , 2019 , we recorded a net loss of $ 107.4 million , which included a loss of $ 105.0 million on our transaction with a third party in which they agreed to be fully responsible for our future minimum volume commitment in exchange for $ 67.7 million of deficiency credits on a contract with a crude oil pipeline operator and $ 35.3 million in cash ( see note 2 and note 13 to our consolidated financial statements included in this annual report ) . the loss also includes additional costs related to this transaction of $ 2.0 million . in addition , we recorded a loss of $ 1.3 million related to the sale of two terminals during the year ended march 31 , 2019 . during the year ended march 31 , 2018 , we recorded a gain of $ 108.6 million on the sale of our previously held 50 % interest in glass mountain ( see note 16 to our consolidated financial statements included in this annual report ) . in addition , we recorded a net gain of $ 2.8 million on the sales of certain other assets . 61 water solutions the following table summarizes the operating results of our water solutions segment for the periods indicated : replace_table_token_13_th wastewater disposal service fee revenues . the increase was due primarily to an increase in the volume of wastewater processed at existing facilities as well as facilities acquired from acquisitions . we continue to benefit from the increased oil and gas production and rig counts as compared to the prior year in the basins in which we operate , particularly in the permian basin . recovered hydrocarbon revenues . the increase was due primarily to an increase in the volume of wastewater processed at existing facilities as well as facilities acquired from acquisitions and an increase in crude oil prices ; however , these revenues were negatively impacted by a lower percentage of skim oil volumes recovered per wastewater barrel processed . this lower percentage was due primarily to an increase in wastewater transported through pipelines ( which contains less oil per barrel of wastewater ) , as well as operational changes in the dj basin . other service revenues . other service revenues primarily include solids disposal revenues , water pipeline revenues and freshwater revenues , all of which increased during the year ended march 31 , 2019 due to increased volumes as well as acquisitions . cost of sales-excluding impact of derivatives . the increase was due primarily to an increase in expenses to bring wastewater to certain of our water solutions facilities . 62 cost of sales-derivatives . we enter into derivatives in our water solutions segment to protect against the risk of a decline in the market price of the hydrocarbons we expect to recover when processing the wastewater and selling the skim oil . our cost of sales during the year ended march 31 , 2019 included $ 15.5 million of net unrealized gains on derivatives and $ 2.1 million of net realized losses on derivatives . in december 2018 , we settled derivative contracts that had scheduled settlement dates from january 2019 through december 2020 and recorded a gain of $ 8.4 million on those derivatives . our cost of sales during the year ended march 31 , 2018 included $ 13.7 million of net unrealized losses on derivatives and $ 3.5 million of net realized losses on derivatives . operating and general and administrative expenses . the increase was due primarily to the increase in the number of water disposal facilities and wells that we own and operated due to higher volumes processed at existing facilities and facilities acquired from acquisitions , partially offset by cost reduction efforts . due to the higher volumes processed , our cost per barrel has decreased , as shown in the table above . also contributing to the increase was an increase in acquisition expenses related to one of our ranch acquisitions . depreciation and amortization expense . the increase was due primarily to acquisitions and developed facilities , partially offset by the disposition of our bakken and south pecos water disposal businesses and certain intangible assets being fully amortized during the years ended march 31 , 2019 and 2018 . ( gain ) loss on disposal or impairment of assets , net . during the year ended march 31 , 2019 , we completed the sale of our south pecos water disposal business and recorded a gain on disposal of $ 107.9 million and the sale of our bakken water disposal business and recorded a gain on disposal of $ 33.4 million ( see note 16 to our consolidated financial statements included in this annual report for a further discussion of both transactions ) . in addition , we recorded a net loss of $ 3.1 million on the disposals of certain other assets during the year ended march 31 , 2019 . during the year ended march 31 , 2018 , we recorded a loss of $ 8.2 million on the disposals of certain assets , partially offset by a gain of $ 1.3 million for the termination of a non-compete agreement , which included the carrying value of the non-compete agreement intangible asset that was written off ( see note 7 to our consolidated financial statements included in this annual report ) . revaluation of liabilities . the revaluation of liabilities represents the change in the valuation of our contingent consideration liabilities related to royalty agreements acquired as part of certain business combinations . the reduction in expense during the year ended march 31 , 2019 was due primarily to lower expected production from new customers and an increase in facilities due to acquisitions , resulting in a decrease to the expected future royalty payment . the expense during the year ended march 31 , 2018 was due primarily to higher actual and expected
| cash and cash equivalents and investments at december 31 , 2015 , we had cash and investments of $ 413.7 million compared to $ 590.4 million at december 31 , 2014 . the decrease in cash and investments resulted primarily from business acquisitions , dividends , business taxes , and repurchase of stock , partially offset by cash provided by operations and the exercise of stock options . at december 31 , 2015 , cash and investments consisted of cash and cash equivalents of $ 255.5 million , short-term investments of $ 79.7 million and long-term investments of $ 78.6 million . our investments are comprised primarily of readily marketable corporate and governmental debt securities , money-market accounts , equity securities and time deposits . for financial statement presentation , we classify our investments primarily as available-for-sale ; thus , they are reported as short- and long-term based upon their maturity dates . short-term investments mature within one year of the date of the financial statements and long-term investments mature one year or more from the date of the financial statements . short-term investments include restricted balances which the company may not liquidate until maturity , generally within 12 months . restricted balances included in short-term investments were $ 0.1 million at december 31 , 2015 . we retain a substantial portion of our cash and investments in foreign jurisdictions for future reinvestment . as of december 31 , 2015 and 2014 , cash and investments held within foreign and domestic jurisdictions were $ 165.7 million and $ 248.0 million and $ 138.3 million and $ 452.1 million , respectively .
| 0 |
our crude oil logistics segment generated operating income of $ 122.9 million during the year ended march 31 , 2018 , which included a gain of $ 108.6 million on the sale of our previously held 50 % interest in glass mountain pipeline , llc ( “ glass mountain ” ) . water solutions our water solutions segment provides services for the treatment and disposal of wastewater generated from crude oil and natural gas production and for the disposal of solids such as tank bottoms , drilling fluids and drilling muds and performs truck and frac tank washouts . in addition , our water solutions segment sells the recovered hydrocarbons that result from performing these services and sells freshwater to producers for exploration and production activities . our water processing facilities are strategically located near areas of high crude oil and natural gas production . a significant factor affecting the profitability of our water solutions segment is the extent of exploration and production in the areas near our facilities , which is generally based upon producers ' expectations about the profitability of drilling and producing new wells . the primary customer of our wyoming facility has committed to deliver a specified minimum volume of water to our facility under a long-term contract . the primary customers of our colorado facilities have committed to deliver all wastewater produced at wells within the dj basin to our facilities . most customers of our other facilities are not under volume commitments , although many of our facilities have acreage dedications or are connected to producer facilities by pipeline . our water solutions segment generated operating income of $ 210.5 million during the year ended march 31 , 2019 , which included a gain of $ 141.3 million on the sales of our bakken water disposal business and our south pecos water disposal business ( see note 16 to our consolidated financial statements included in this annual report for a further discussion of both transactions ) . our water solutions segment generated an operating loss of $ 24.2 million during the year ended march 31 , 2018 . liquids our liquids segment purchases propane , butane , and other products from refiners , processing plants , producers , and other parties , and sells the products to retailers , wholesalers , refiners , and petrochemical plants throughout the united states and in canada . our liquids segment owns 27 terminals throughout the united states and a salt dome storage facility joint venture in utah , operates a fleet of leased railcars , and leases underground storage capacity . we attempt to reduce our exposure to price fluctuations by using back-to-back physical contracts and pre-sale agreements that allow us to lock in a margin on a percentage of our winter volumes . we also enter into financially settled derivative contracts as economic hedges of our physical inventory , physical sales and physical purchase contracts . our wholesale liquids business is a “ cost-plus ” business that can be affected by both price fluctuations and volume variations . we establish our selling price based on a pass-through of our product supply , transportation , handling , storage , and capital costs plus an acceptable margin . weather conditions and gasoline blending can have a significant impact on the demand for propane and butane , and sales volumes and prices are typically higher during the colder months of the year . consequently , our revenues , operating profits , and operating cash flows are typically lower in the first and second quarters of our fiscal year . the following table summarizes the range of low and high propane spot prices per gallon at conway , kansas , and mt . belvieu , texas , two of our main pricing hubs , for the periods indicated and the prices at period end : replace_table_token_7_th 54 the following table summarizes the range of low and high butane spot prices per gallon at mt . belvieu , texas for the periods indicated and the prices at period end : replace_table_token_8_th we believe volatility in commodity prices will continue , and our ability to adjust to and manage this volatility may impact our financial results . our liquids segment generated an operating loss of $ 2.9 million during the year ended march 31 , 2019 , which included a goodwill impairment charge of $ 66.2 million related to our salt dome storage facility joint venture in utah ( see note 6 to our consolidated financial statements included in this annual report ) . our liquids segment generated an operating loss of $ 93.1 million during the year ended march 31 , 2018 , which included a goodwill impairment charge of $ 116.9 million related to our salt dome storage facility joint venture in utah ( see note 6 to our consolidated financial statements included in this annual report ) . refined products and renewables our refined products and renewables segment conducts gasoline , diesel , ethanol , and biodiesel marketing operations , purchase s refined petroleum and renewable products primarily in the gulf coast , southeast and midwest regions of the united states and schedule s them for delivery at various locations throughout the country . in addition , in certain storage locations , our refined products and renewables segment may also purchase unfinished gasoline blending components for subsequent blending into finished gasoline to supply our marketing business as well as third parties . we sell our products to commercial and industrial end users , independent retailers , distributors , marketers , government entities , and other wholesalers of refined petroleum products . we sell our products at terminals owned by third parties . story_separator_special_tag during the year ended march 31 , 2019 , we recorded a net loss of $ 107.4 million , which included a loss of $ 105.0 million on our transaction with a third party in which they agreed to be fully responsible for our future minimum volume commitment in exchange for $ 67.7 million of deficiency credits on a contract with a crude oil pipeline operator and $ 35.3 million in cash ( see note 2 and note 13 to our consolidated financial statements included in this annual report ) . the loss also includes additional costs related to this transaction of $ 2.0 million . in addition , we recorded a loss of $ 1.3 million related to the sale of two terminals during the year ended march 31 , 2019 . during the year ended march 31 , 2018 , we recorded a gain of $ 108.6 million on the sale of our previously held 50 % interest in glass mountain ( see note 16 to our consolidated financial statements included in this annual report ) . in addition , we recorded a net gain of $ 2.8 million on the sales of certain other assets . 61 water solutions the following table summarizes the operating results of our water solutions segment for the periods indicated : replace_table_token_13_th wastewater disposal service fee revenues . the increase was due primarily to an increase in the volume of wastewater processed at existing facilities as well as facilities acquired from acquisitions . we continue to benefit from the increased oil and gas production and rig counts as compared to the prior year in the basins in which we operate , particularly in the permian basin . recovered hydrocarbon revenues . the increase was due primarily to an increase in the volume of wastewater processed at existing facilities as well as facilities acquired from acquisitions and an increase in crude oil prices ; however , these revenues were negatively impacted by a lower percentage of skim oil volumes recovered per wastewater barrel processed . this lower percentage was due primarily to an increase in wastewater transported through pipelines ( which contains less oil per barrel of wastewater ) , as well as operational changes in the dj basin . other service revenues . other service revenues primarily include solids disposal revenues , water pipeline revenues and freshwater revenues , all of which increased during the year ended march 31 , 2019 due to increased volumes as well as acquisitions . cost of sales-excluding impact of derivatives . the increase was due primarily to an increase in expenses to bring wastewater to certain of our water solutions facilities . 62 cost of sales-derivatives . we enter into derivatives in our water solutions segment to protect against the risk of a decline in the market price of the hydrocarbons we expect to recover when processing the wastewater and selling the skim oil . our cost of sales during the year ended march 31 , 2019 included $ 15.5 million of net unrealized gains on derivatives and $ 2.1 million of net realized losses on derivatives . in december 2018 , we settled derivative contracts that had scheduled settlement dates from january 2019 through december 2020 and recorded a gain of $ 8.4 million on those derivatives . our cost of sales during the year ended march 31 , 2018 included $ 13.7 million of net unrealized losses on derivatives and $ 3.5 million of net realized losses on derivatives . operating and general and administrative expenses . the increase was due primarily to the increase in the number of water disposal facilities and wells that we own and operated due to higher volumes processed at existing facilities and facilities acquired from acquisitions , partially offset by cost reduction efforts . due to the higher volumes processed , our cost per barrel has decreased , as shown in the table above . also contributing to the increase was an increase in acquisition expenses related to one of our ranch acquisitions . depreciation and amortization expense . the increase was due primarily to acquisitions and developed facilities , partially offset by the disposition of our bakken and south pecos water disposal businesses and certain intangible assets being fully amortized during the years ended march 31 , 2019 and 2018 . ( gain ) loss on disposal or impairment of assets , net . during the year ended march 31 , 2019 , we completed the sale of our south pecos water disposal business and recorded a gain on disposal of $ 107.9 million and the sale of our bakken water disposal business and recorded a gain on disposal of $ 33.4 million ( see note 16 to our consolidated financial statements included in this annual report for a further discussion of both transactions ) . in addition , we recorded a net loss of $ 3.1 million on the disposals of certain other assets during the year ended march 31 , 2019 . during the year ended march 31 , 2018 , we recorded a loss of $ 8.2 million on the disposals of certain assets , partially offset by a gain of $ 1.3 million for the termination of a non-compete agreement , which included the carrying value of the non-compete agreement intangible asset that was written off ( see note 7 to our consolidated financial statements included in this annual report ) . revaluation of liabilities . the revaluation of liabilities represents the change in the valuation of our contingent consideration liabilities related to royalty agreements acquired as part of certain business combinations . the reduction in expense during the year ended march 31 , 2019 was due primarily to lower expected production from new customers and an increase in facilities due to acquisitions , resulting in a decrease to the expected future royalty payment . the expense during the year ended march 31 , 2018 was due primarily to higher actual and expected
| net cash provided by investing activities was $ 105.3 million during the year ended march 31 , 2018 , compared to net cash used in investing activities of $ 264.3 million during the year ended march 31 , 2017. the increase in net cash provided by investing activities was due primarily to : a decrease in capital expenditures from $ 344.9 million during the year ended march 31 , 2017 to $ 133.8 million during the year ended march 31 , 2018 due primarily to capital expenditures for the grand mesa pipeline and the purchase of additional pipeline capacity allocations during the year ended march 31 , 2017 ; a $ 201.0 million increase in proceeds from sales of assets due primarily to the sales of our previously held 50 % interest in glass mountain and a portion of sawtooth and an increase in proceeds from the sale of excess pipe in our crude oil logistics segment during the year ended march 31 , 2018 and the sales of tlp common units we owned and grassland during the year ended march 31 , 2017 ; and a $ 16.9 million payment to terminate a development agreement during the year ended march 31 , 2017 ( see note 16 to our consolidated financial statements included in this annual report ) . these increases in net cash provided by investing activities were partially offset by a $ 63.3 million increase in payments to settle derivatives . financing activities-continuing operations . net cash used in financing activities was $ 793.9 million during the year ended march 31 , 2019 , compared to net cash used in financing activities of $ 390.4 million during the year ended march 31 , 2018 .
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please see important note about forwardlooking statements at the beginning of this form 10-k. overview mitek systems , inc. is engaged in the development , sale and service of its proprietary software solutions related to mobile imaging solutions and intelligent character recognition software . we apply our patented technology in image capture , correction and intelligent data extraction in the mobile financial and business applications market . our technology for extracting data from any image taken using camera-equipped smartphones and tablets enables the development of consumer-friendly software products that use the camera as a simple mechanism to enter data and complete transactions . users take a picture of the document and our products correct image distortion , extract relevant data , route images to their desired location and process transactions through users ' financial institutions . our mobile deposit ® product is software that allows users to remotely deposit a check using their camera-equipped smartphone or tablet . as of september 30 , 2012 , 564 financial institutions , including 28 of the top 50 u.s. retail banks and payment processing companies , have signed agreements to deploy our mobile deposit ® product . of the 564 financial institutions , 205 have deployed our mobile deposit ® product with their customers . other mobile imaging software solutions we offer include mobile photo bill pay , a mobile bill payment product that allows users to pay their bills using their camera-equipped smartphone or tablet , mobile balance transfer , a product that allows credit card issuers to provide an offer to users and transfer an existing credit card balance by capturing an image of the user 's current credit card statement , mobile enrollment , a product that enables users to enroll their checking account as a funding source for mobile payments by taking a photo of a blank check with their camera-equipped smartphone or tablet , and mobile photo quoting , a product that enables users to receive insurance quotes by using their camera-equipped smartphone or tablet to take a picture of their driver 's license and insurance card . our mobile imaging software solutions can be deployed on all major smartphone and tablet operating systems . we market and sell our mobile imaging software solutions through channel partners or directly to enterprise customers and end-users that typically purchase licenses based on the number of transactions or subscribers that use our mobile software . our mobile imaging software solutions are often embedded in other mobile banking or enterprise applications developed by banks , insurance companies or their partners , and marketed under their own proprietary brands . market opportunities , challenges and risks the acceptance of mobile banking by financial institutions and their customers has helped drive demand for our mobile imaging software products . during fiscal year 2012 , a significant number of financial institutions deployed our mobile imaging software products , particularly mobile deposit ® , as part of their offering of mobile banking choices for their customers . we believe that financial institutions see our patented solutions as a way to provide an all-around better retail customer experience in mobile banking . to continue the growth in market acceptance , we must continue to offer mobile imaging software products that address the growing market for mobile banking and mobile imaging solutions sold into other vertical 19 markets . factors adversely affecting the pricing of or demand for our mobile applications , such as competition from other products or alternative technologies , any decline in the demand for mobile applications or negative publicity , or the obsolescence of the software environments in which our products operate , could result in lower revenues or gross margins . further , because most of our revenues are derived from a single type of technology , our product concentration may make us especially vulnerable to fluctuations in market demand and competition from alternative technologies , which could reduce our revenues . the implementation cycles for our software products and services by our channel partners and customers can be lengthy , often a minimum of three to six months and sometimes longer for larger customers , subject to delays and require significant investments . if implementation of our software products by our channel partners and customers are delayed or otherwise not completed , our business , financial condition , and results of operations may be adversely affected . we derive revenue predominately from the sale of software licenses to use the products covered by our patented technologies , such as mobile deposit ® , and to a lesser extent , by providing maintenance and professional services for the products we offer . the revenue we derive from these software licenses is primarily derived from product sales to our channel partners . revenues related to our licenses for mobile imaging software products are required to be recognized upon satisfaction of all applicable revenue recognition criteria . the recognition of future revenues from these licenses is dependent on a number of factors , including but not limited to the timing of implementation of our products by our channel partners and customers and the timing of additional software licenses and or license renewals by our channel partners and customers . during fiscal years 2012 and 2011 , sales of software licenses to channel partners have comprised a significant part of our revenue each quarter . this customer concentration is attributable to the timing of the purchase or renewal of licenses and does not represent a dependence on any channel partner . story_separator_special_tag as a percentage of net sales , general and administrative expenses increased to 62 % in 2012 compared to 33 % in 2011. other income ( expense ) , net interest and other expense , net was $ 239,984 in 2012 compared to $ 427,547 in 2011 , a decrease of $ 187,563 , or 44 % . during fiscal year 2011 , we incurred expenses associated with the accretion of the discount on our convertible debentures and accrued interest on the principal amount of those convertible debentures , including the remaining unamortized discount of approximately $ 320,000 related to the beneficial conversion feature at the time of the conversion of the debentures . these expenses did not recur in fiscal year 2012. this decrease was partially offset by an increase in amortization expense related to investment returns in fiscal year 2012. interest income was $ 277,144 in 2012 compared to $ 48,584 in 2011 , an increase of $ 228 , 560 due to higher cash balances and related investment returns during 2012 . ( benefit from ) provision for income taxes we recorded an income tax benefit of $ 4,008 in 2012. in 2011 , we recorded a provision for income taxes of $ 2,492 , primarily for state franchise taxes . story_separator_special_tag these contractual arrangements is fully described in note 1 to our financial statements included in this form 10-k. we consider many factors when applying gaap to revenue recognition . these factors include , but are not limited to , whether : persuasive evidence of an arrangement exists ; delivery of the product or performance of the service has occurred ; the fees are fixed or determinable ; collection of the contractual fee is probable ; and vendor-specific objective evidence of the fair value of undelivered elements or other appropriate method of revenue allocation exists . 24 each of the relevant factors is analyzed to determine its impact , individually and collectively with other factors , on the revenue to be recognized for any particular contract with a customer . management is required to make judgments regarding the significance of each factor in applying the revenue recognition standards , as well as whether or not each factor complies with such standards . any misjudgment or error by management in its evaluation of the factors and the application of the standards , especially with respect to complex or new types of transactions , could have a material adverse effect on our future revenues and operating results . accounts receivable we consistently monitor collections from our customers and maintain a provision for estimated credit losses that is based on historical experience and on specific customer collection issues . while such credit losses have historically been within our expectations and the provisions established , we can not guarantee that we will continue to experience the same credit loss rates that we have in the past . since our revenue recognition policy requires customers to be deemed creditworthy , our accounts receivable are based on customers whose payment is reasonably assured . our accounts receivable are derived from sales to a wide variety of customers . we do not believe a change in liquidity of any one customer or our inability to collect from any one customer would have a material adverse impact on our financial position . investments we determine the fair value of our assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs . we use a fair value hierarchy with three levels of inputs , of which the first two are considered observable and the last unobservable , to measure fair value : level 1quoted prices in active markets for identical assets or liabilities ; level 2inputs other than level 1 that are observable , either directly or indirectly , such as quoted prices for similar assets or liabilities ; quoted prices in markets that are not active ; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities ; and level 3unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . in using this fair value hierarchy , management may be required to make assumptions about pricing by market participants and assumptions about risk , specifically when using unobservable inputs to determine fair value . these assumptions are subjective in nature and may significantly affect our results of operations . fair value of equity instruments the valuation of certain items , including valuation of warrants , the beneficial conversion feature related to convertible debt and compensation expense related to stock options granted , involves significant estimates based on underlying assumptions made by management . the valuation of warrants and stock options are based upon a black-scholes valuation model , which involves estimates of stock volatility , expected life of the instruments and other assumptions . deferred income taxes deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . we maintain 25 a valuation allowance against deferred tax assets due to uncertainty regarding the future realization based on historical taxable income , projected future taxable income , and the expected timing of the reversals of existing temporary differences . until such time as we can demonstrate that we will no longer incur losses or if we are unable to generate sufficient future taxable income , we could be required to maintain the valuation allowance against
| net cash provided by investing activities was $ 105.3 million during the year ended march 31 , 2018 , compared to net cash used in investing activities of $ 264.3 million during the year ended march 31 , 2017. the increase in net cash provided by investing activities was due primarily to : a decrease in capital expenditures from $ 344.9 million during the year ended march 31 , 2017 to $ 133.8 million during the year ended march 31 , 2018 due primarily to capital expenditures for the grand mesa pipeline and the purchase of additional pipeline capacity allocations during the year ended march 31 , 2017 ; a $ 201.0 million increase in proceeds from sales of assets due primarily to the sales of our previously held 50 % interest in glass mountain and a portion of sawtooth and an increase in proceeds from the sale of excess pipe in our crude oil logistics segment during the year ended march 31 , 2018 and the sales of tlp common units we owned and grassland during the year ended march 31 , 2017 ; and a $ 16.9 million payment to terminate a development agreement during the year ended march 31 , 2017 ( see note 16 to our consolidated financial statements included in this annual report ) . these increases in net cash provided by investing activities were partially offset by a $ 63.3 million increase in payments to settle derivatives . financing activities-continuing operations . net cash used in financing activities was $ 793.9 million during the year ended march 31 , 2019 , compared to net cash used in financing activities of $ 390.4 million during the year ended march 31 , 2018 .
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please see important note about forwardlooking statements at the beginning of this form 10-k. overview mitek systems , inc. is engaged in the development , sale and service of its proprietary software solutions related to mobile imaging solutions and intelligent character recognition software . we apply our patented technology in image capture , correction and intelligent data extraction in the mobile financial and business applications market . our technology for extracting data from any image taken using camera-equipped smartphones and tablets enables the development of consumer-friendly software products that use the camera as a simple mechanism to enter data and complete transactions . users take a picture of the document and our products correct image distortion , extract relevant data , route images to their desired location and process transactions through users ' financial institutions . our mobile deposit ® product is software that allows users to remotely deposit a check using their camera-equipped smartphone or tablet . as of september 30 , 2012 , 564 financial institutions , including 28 of the top 50 u.s. retail banks and payment processing companies , have signed agreements to deploy our mobile deposit ® product . of the 564 financial institutions , 205 have deployed our mobile deposit ® product with their customers . other mobile imaging software solutions we offer include mobile photo bill pay , a mobile bill payment product that allows users to pay their bills using their camera-equipped smartphone or tablet , mobile balance transfer , a product that allows credit card issuers to provide an offer to users and transfer an existing credit card balance by capturing an image of the user 's current credit card statement , mobile enrollment , a product that enables users to enroll their checking account as a funding source for mobile payments by taking a photo of a blank check with their camera-equipped smartphone or tablet , and mobile photo quoting , a product that enables users to receive insurance quotes by using their camera-equipped smartphone or tablet to take a picture of their driver 's license and insurance card . our mobile imaging software solutions can be deployed on all major smartphone and tablet operating systems . we market and sell our mobile imaging software solutions through channel partners or directly to enterprise customers and end-users that typically purchase licenses based on the number of transactions or subscribers that use our mobile software . our mobile imaging software solutions are often embedded in other mobile banking or enterprise applications developed by banks , insurance companies or their partners , and marketed under their own proprietary brands . market opportunities , challenges and risks the acceptance of mobile banking by financial institutions and their customers has helped drive demand for our mobile imaging software products . during fiscal year 2012 , a significant number of financial institutions deployed our mobile imaging software products , particularly mobile deposit ® , as part of their offering of mobile banking choices for their customers . we believe that financial institutions see our patented solutions as a way to provide an all-around better retail customer experience in mobile banking . to continue the growth in market acceptance , we must continue to offer mobile imaging software products that address the growing market for mobile banking and mobile imaging solutions sold into other vertical 19 markets . factors adversely affecting the pricing of or demand for our mobile applications , such as competition from other products or alternative technologies , any decline in the demand for mobile applications or negative publicity , or the obsolescence of the software environments in which our products operate , could result in lower revenues or gross margins . further , because most of our revenues are derived from a single type of technology , our product concentration may make us especially vulnerable to fluctuations in market demand and competition from alternative technologies , which could reduce our revenues . the implementation cycles for our software products and services by our channel partners and customers can be lengthy , often a minimum of three to six months and sometimes longer for larger customers , subject to delays and require significant investments . if implementation of our software products by our channel partners and customers are delayed or otherwise not completed , our business , financial condition , and results of operations may be adversely affected . we derive revenue predominately from the sale of software licenses to use the products covered by our patented technologies , such as mobile deposit ® , and to a lesser extent , by providing maintenance and professional services for the products we offer . the revenue we derive from these software licenses is primarily derived from product sales to our channel partners . revenues related to our licenses for mobile imaging software products are required to be recognized upon satisfaction of all applicable revenue recognition criteria . the recognition of future revenues from these licenses is dependent on a number of factors , including but not limited to the timing of implementation of our products by our channel partners and customers and the timing of additional software licenses and or license renewals by our channel partners and customers . during fiscal years 2012 and 2011 , sales of software licenses to channel partners have comprised a significant part of our revenue each quarter . this customer concentration is attributable to the timing of the purchase or renewal of licenses and does not represent a dependence on any channel partner . story_separator_special_tag as a percentage of net sales , general and administrative expenses increased to 62 % in 2012 compared to 33 % in 2011. other income ( expense ) , net interest and other expense , net was $ 239,984 in 2012 compared to $ 427,547 in 2011 , a decrease of $ 187,563 , or 44 % . during fiscal year 2011 , we incurred expenses associated with the accretion of the discount on our convertible debentures and accrued interest on the principal amount of those convertible debentures , including the remaining unamortized discount of approximately $ 320,000 related to the beneficial conversion feature at the time of the conversion of the debentures . these expenses did not recur in fiscal year 2012. this decrease was partially offset by an increase in amortization expense related to investment returns in fiscal year 2012. interest income was $ 277,144 in 2012 compared to $ 48,584 in 2011 , an increase of $ 228 , 560 due to higher cash balances and related investment returns during 2012 . ( benefit from ) provision for income taxes we recorded an income tax benefit of $ 4,008 in 2012. in 2011 , we recorded a provision for income taxes of $ 2,492 , primarily for state franchise taxes . story_separator_special_tag these contractual arrangements is fully described in note 1 to our financial statements included in this form 10-k. we consider many factors when applying gaap to revenue recognition . these factors include , but are not limited to , whether : persuasive evidence of an arrangement exists ; delivery of the product or performance of the service has occurred ; the fees are fixed or determinable ; collection of the contractual fee is probable ; and vendor-specific objective evidence of the fair value of undelivered elements or other appropriate method of revenue allocation exists . 24 each of the relevant factors is analyzed to determine its impact , individually and collectively with other factors , on the revenue to be recognized for any particular contract with a customer . management is required to make judgments regarding the significance of each factor in applying the revenue recognition standards , as well as whether or not each factor complies with such standards . any misjudgment or error by management in its evaluation of the factors and the application of the standards , especially with respect to complex or new types of transactions , could have a material adverse effect on our future revenues and operating results . accounts receivable we consistently monitor collections from our customers and maintain a provision for estimated credit losses that is based on historical experience and on specific customer collection issues . while such credit losses have historically been within our expectations and the provisions established , we can not guarantee that we will continue to experience the same credit loss rates that we have in the past . since our revenue recognition policy requires customers to be deemed creditworthy , our accounts receivable are based on customers whose payment is reasonably assured . our accounts receivable are derived from sales to a wide variety of customers . we do not believe a change in liquidity of any one customer or our inability to collect from any one customer would have a material adverse impact on our financial position . investments we determine the fair value of our assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs . we use a fair value hierarchy with three levels of inputs , of which the first two are considered observable and the last unobservable , to measure fair value : level 1quoted prices in active markets for identical assets or liabilities ; level 2inputs other than level 1 that are observable , either directly or indirectly , such as quoted prices for similar assets or liabilities ; quoted prices in markets that are not active ; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities ; and level 3unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . in using this fair value hierarchy , management may be required to make assumptions about pricing by market participants and assumptions about risk , specifically when using unobservable inputs to determine fair value . these assumptions are subjective in nature and may significantly affect our results of operations . fair value of equity instruments the valuation of certain items , including valuation of warrants , the beneficial conversion feature related to convertible debt and compensation expense related to stock options granted , involves significant estimates based on underlying assumptions made by management . the valuation of warrants and stock options are based upon a black-scholes valuation model , which involves estimates of stock volatility , expected life of the instruments and other assumptions . deferred income taxes deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . we maintain 25 a valuation allowance against deferred tax assets due to uncertainty regarding the future realization based on historical taxable income , projected future taxable income , and the expected timing of the reversals of existing temporary differences . until such time as we can demonstrate that we will no longer incur losses or if we are unable to generate sufficient future taxable income , we could be required to maintain the valuation allowance against
| liquidity and capital resources on september 30 , 2012 , we had $ 14,607,317 in cash and cash equivalents and short-term and long-term investments compared to $ 16,260,584 on september 30 , 2011 , a decrease of $ 1,653,267 , or 10 % . the decrease in cash and cash equivalents and short-term and long-term investments was primarily due to an increase in cash used in operating activities . 22 credit facility in january 2011 , we entered into a loan and security agreement with our primary operating bank . the loan agreement permits us to borrow , repay and re-borrow , from time to time until january 31 , 2013 , up to $ 400,000 subject to the terms and conditions of the agreement . our obligations under the loan agreement are secured by a security interest in our equipment and other personal property . interest on the credit facility accrues at an annual rate equal to one percentage point above the prime rate , fixed on the date of each advance . interest on the outstanding amount under the loan agreement is payable monthly . the loan agreement contains customary covenants for credit facilities of this type , including limitations on the disposition of assets , mergers and reorganizations . we are also obligated to meet certain financial covenants under the loan agreement , including minimum liquidity , for which we were in compliance as of september 30 , 2012. we had no amounts outstanding under this credit facility as of september 30 , 2012. net cash ( used in ) provided by operating activities net cash used in operating activities during the fiscal year ended september 30 , 2012 was $ 1,778,764 and resulted primarily from hiring additional personnel and other investments in the business .
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the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in part ii , item 8 of this form 10-k. all information presented herein is based on our fiscal calendar . unless otherwise stated , references to particular years or quarters refer to our fiscal years ended in april and the associated quarters of those fiscal years . we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview u.s. gold corp. , formerly known as dataram corporation ( the “ company ” ) , was originally incorporated in the state of new jersey in 1967 and was subsequently re-incorporated under the laws of the state of nevada in 2016. effective june 26 , 2017 , the company changed its legal name to u.s. gold corp. from dataram corporation . on may 23 , 2017 , the company merged with gold king corp. ( “ gold king ” ) , in a transaction treated as a reverse acquisition and recapitalization , and the business of gold king became the business of the company . we are a gold and precious metals exploration company pursuing exploration and development opportunities primarily in nevada and wyoming . none of our properties contain proven and probable reserves , and all of our activities on all of our properties are exploratory in nature . on july 6 , 2016 , the we filed a certificate of amendment to our articles of incorporation with the secretary of state of nevada in order to effectuate a reverse stock split of our issued and outstanding common stock per share on a one for three basis , effective on july 8 , 2016. subsequently , on may 3 , 2017 , we filed another certificate of amendment to our articles of incorporation , as amended , with the secretary of state of the state of nevada in order to effectuate a reverse stock split of our issued and outstanding common stock on a one for four basis . all share and per share values of our common stock for all periods presented in the accompanying consolidated financial statements are retroactively restated for the effect of the reverse stock splits . on july 31 , 2017 , our board of directors , or board , reviewed and approved the recommendation of management to consider strategic options for the legacy business ( “ dataram memory ” ) including the sale of the business , within the next 12 months . we sold the dataram memory business on october 13 , 2017 for a purchase price of $ 900,000. we received net proceeds from the sale of dataram memory business of $ 326,404 after payment of fees related to the sale such as legal and commission expenses and other liabilities assumed . on january 29 , 2018 , we paid a distribution of $ 251,316 to shareholders of record of dataram memory as of the close of business on may 8 , 2017 , or $ 0.2086 per share . as such , the legacy business transactions and operations are reflected on the balance sheet and statement of operations as “ discontinued operation ” . we are an exploration company that owns certain mining leases and other mineral rights comprising the copper king project in wyoming and the keystone and gold bar north projects in nevada . none of our properties contain any proven and probable reserves under sec industry guide 7 , and all of our activities on all of our properties are exploratory in nature . 39 summary of activities for the year ended april 30 , 2019 copper king project drill hole analysis at copper king property , wy on february 21 , 2019 , we announced that datamine of denver , co , completed a comprehensive drill hole analysis of our copper king gold-copper-silver-zinc deposit , located in southeast wyoming . see , item 1. business , copper king project - drill hole analysis at copper king property , wy , above . preliminary economic assessment – copper king property , wy a preliminary economic assessment ( pea ) for the historic copper king deposit was conducted by mine development associates ( mda ) and reported january 11 , 2018. see , item 1. business , copper king project - preliminary economic assessment – copper king property , wy , above . keystone project keystone plan of operations ( poo ) approval and fall 2018 drill program on september 7 , 2018 the u.s. federal government 's department of the interior , bureau of land management ( blm ) approved the previously filed environmental assessment ( ea ) and plan of operations ( poo ) for u.s. gold corp 's 100 % -owned keystone project on nevada 's cortez gold trend . see , item 1. business , keystone project , cortez trend , keystone plan of operations ( poo ) approval and fall 2018 drill program , above . master of science thesis – keystone property , nv during the quarter ended january 31 , 2019 , gabriel e. aliaga completed his master thesis in geology . see , item 1. business , keystone project , cortez trend , nevada - master of science thesis – keystone property , nv , above . drill results at keystone property , nv on march 6 , 2019 , we announced results of its 2018 drilling program and receipt of all the assay results from the 20 square mile , keystone project , in nevada 's cortez trend . see , item 1. business , keystone project , cortez trend , nevada - drill results at keystone property , nv , above . story_separator_special_tag financing activities during the year ended april 30 , 2019 , we sold 290,066 shares of common stock to several investors under our atm agreement with wainwright for aggregate net proceeds of approximately $ 220,000 between december 2018 and march 2019. subsequent to the year ended april 30 , 2019 , on june 19 , 2019 , we entered into a securities purchase agreement with certain purchasers relating to the offer and sale of 1,250 series f preferred units , for $ 2,000 per unit , for an aggregate purchase price of $ 2,500,000. we received net proceeds , after estimated expenses of the offering , of approximately $ 2.4 million . 43 cash flows from financing activities continued to provide the primary source of our liquidity . we are anticipating raising additional capital but there can be no assurance that it will be able to do so or if the terms will be favorable . the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts of and classification of liabilities that might be necessary in the event we can not continue in existence . management has determined that additional capital will be required in the form of equity or debt securities . there are no assurances that management will be able to raise capital on terms acceptable to us . if we are unable to obtain sufficient amounts of additional capital , we may be required to reduce the scope of our planned exploration activities , which could harm our business , financial condition and operating results . if we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations , the percentage ownership of our stockholders will be reduced , stockholders may experience additional dilution , or the equity securities may have rights preferences or privileges senior to the common stock . if adequate funds are not available to us when needed on satisfactory terms , we may be required to cease operating or otherwise modify our business strategy . contractual obligations our contractual obligations at april 30 , 2019 are summarized as follows : replace_table_token_5_th financing transactions on november 2 , 2018 , we entered into an atm agreement with h.c. wainwright & co. , llc . for the year ended april 30 , 2019 , we sold 290,066 shares of common stock and raised a net proceeds of $ 219,796 , net of issuance costs including legal cost related to the sale of shares of common stock of $ 79,031 , through the atm agreement at prices per share averaging $ 1.03. see , summary of activities for the year ended april 30 , 2019 - atm sales - h.c. wainwright & co. , llc , above . subsequent to the year ended april 30 , 2019 , on june 19 , 2019 , we entered into a securities purchase agreement with certain purchasers relating to the offer and sale of 1,250 series f preferred units , for $ 2,000 per unit , for an aggregate purchase price of $ 2,500,000. we received net proceeds , after estimated expenses of the offering , of approximately $ 2.4 million . see , summary of activities for the year ended april 30 , 2019 - sale of series e preferred units , above . 44 summary cash flows for the years ended april 30 , 2019 and 2018 : for the year ended for the year ended april 30 , 2019 april 30 , 2018 story_separator_special_tag use of estimates and assumptions in preparing the consolidated financial statements , management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet , and revenues and expenses for the period then ended . actual results may differ significantly from those estimates . significant estimates made by management include , but are not limited to valuation of mineral rights , goodwill , stock-based compensation , the assumptions used to fair value of common stock issued and options granted , asset retirement obligation , and the valuation of deferred tax assets and liabilities . stock-based compensation share-based compensation is accounted for based on the requirements of asc 718 , “ compensation – stock compensation ' ( “ asc 718 ” ) which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award ( presumptively , the vesting period ) . asc 718 also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award . pursuant to asc 505 , “ equity – equity based payments to non-employees ” ( “ asc 505-50 ” ) , for share-based payments to consultants and other third-parties , compensation expense is determined at the measurement date which is the grant date . until the measurement date is reached , the total amount of compensation expense remains uncertain . in june 2018 , the fasb issued asu 2018-07 , “ compensation — stock compensation ( topic 718 ) : improvements to nonemployee share-based payment accounting ” , which expands the scope of topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees . asu 2018-07 specifies that topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards . asu 2018-07 also clarifies that topic 718 does not apply to share-based payments used to effectively provide ( 1 ) financing to the issuer or ( 2 ) awards granted in conjunction with selling goods or services to customers as part of a
| liquidity and capital resources on september 30 , 2012 , we had $ 14,607,317 in cash and cash equivalents and short-term and long-term investments compared to $ 16,260,584 on september 30 , 2011 , a decrease of $ 1,653,267 , or 10 % . the decrease in cash and cash equivalents and short-term and long-term investments was primarily due to an increase in cash used in operating activities . 22 credit facility in january 2011 , we entered into a loan and security agreement with our primary operating bank . the loan agreement permits us to borrow , repay and re-borrow , from time to time until january 31 , 2013 , up to $ 400,000 subject to the terms and conditions of the agreement . our obligations under the loan agreement are secured by a security interest in our equipment and other personal property . interest on the credit facility accrues at an annual rate equal to one percentage point above the prime rate , fixed on the date of each advance . interest on the outstanding amount under the loan agreement is payable monthly . the loan agreement contains customary covenants for credit facilities of this type , including limitations on the disposition of assets , mergers and reorganizations . we are also obligated to meet certain financial covenants under the loan agreement , including minimum liquidity , for which we were in compliance as of september 30 , 2012. we had no amounts outstanding under this credit facility as of september 30 , 2012. net cash ( used in ) provided by operating activities net cash used in operating activities during the fiscal year ended september 30 , 2012 was $ 1,778,764 and resulted primarily from hiring additional personnel and other investments in the business .
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the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in part ii , item 8 of this form 10-k. all information presented herein is based on our fiscal calendar . unless otherwise stated , references to particular years or quarters refer to our fiscal years ended in april and the associated quarters of those fiscal years . we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview u.s. gold corp. , formerly known as dataram corporation ( the “ company ” ) , was originally incorporated in the state of new jersey in 1967 and was subsequently re-incorporated under the laws of the state of nevada in 2016. effective june 26 , 2017 , the company changed its legal name to u.s. gold corp. from dataram corporation . on may 23 , 2017 , the company merged with gold king corp. ( “ gold king ” ) , in a transaction treated as a reverse acquisition and recapitalization , and the business of gold king became the business of the company . we are a gold and precious metals exploration company pursuing exploration and development opportunities primarily in nevada and wyoming . none of our properties contain proven and probable reserves , and all of our activities on all of our properties are exploratory in nature . on july 6 , 2016 , the we filed a certificate of amendment to our articles of incorporation with the secretary of state of nevada in order to effectuate a reverse stock split of our issued and outstanding common stock per share on a one for three basis , effective on july 8 , 2016. subsequently , on may 3 , 2017 , we filed another certificate of amendment to our articles of incorporation , as amended , with the secretary of state of the state of nevada in order to effectuate a reverse stock split of our issued and outstanding common stock on a one for four basis . all share and per share values of our common stock for all periods presented in the accompanying consolidated financial statements are retroactively restated for the effect of the reverse stock splits . on july 31 , 2017 , our board of directors , or board , reviewed and approved the recommendation of management to consider strategic options for the legacy business ( “ dataram memory ” ) including the sale of the business , within the next 12 months . we sold the dataram memory business on october 13 , 2017 for a purchase price of $ 900,000. we received net proceeds from the sale of dataram memory business of $ 326,404 after payment of fees related to the sale such as legal and commission expenses and other liabilities assumed . on january 29 , 2018 , we paid a distribution of $ 251,316 to shareholders of record of dataram memory as of the close of business on may 8 , 2017 , or $ 0.2086 per share . as such , the legacy business transactions and operations are reflected on the balance sheet and statement of operations as “ discontinued operation ” . we are an exploration company that owns certain mining leases and other mineral rights comprising the copper king project in wyoming and the keystone and gold bar north projects in nevada . none of our properties contain any proven and probable reserves under sec industry guide 7 , and all of our activities on all of our properties are exploratory in nature . 39 summary of activities for the year ended april 30 , 2019 copper king project drill hole analysis at copper king property , wy on february 21 , 2019 , we announced that datamine of denver , co , completed a comprehensive drill hole analysis of our copper king gold-copper-silver-zinc deposit , located in southeast wyoming . see , item 1. business , copper king project - drill hole analysis at copper king property , wy , above . preliminary economic assessment – copper king property , wy a preliminary economic assessment ( pea ) for the historic copper king deposit was conducted by mine development associates ( mda ) and reported january 11 , 2018. see , item 1. business , copper king project - preliminary economic assessment – copper king property , wy , above . keystone project keystone plan of operations ( poo ) approval and fall 2018 drill program on september 7 , 2018 the u.s. federal government 's department of the interior , bureau of land management ( blm ) approved the previously filed environmental assessment ( ea ) and plan of operations ( poo ) for u.s. gold corp 's 100 % -owned keystone project on nevada 's cortez gold trend . see , item 1. business , keystone project , cortez trend , keystone plan of operations ( poo ) approval and fall 2018 drill program , above . master of science thesis – keystone property , nv during the quarter ended january 31 , 2019 , gabriel e. aliaga completed his master thesis in geology . see , item 1. business , keystone project , cortez trend , nevada - master of science thesis – keystone property , nv , above . drill results at keystone property , nv on march 6 , 2019 , we announced results of its 2018 drilling program and receipt of all the assay results from the 20 square mile , keystone project , in nevada 's cortez trend . see , item 1. business , keystone project , cortez trend , nevada - drill results at keystone property , nv , above . story_separator_special_tag financing activities during the year ended april 30 , 2019 , we sold 290,066 shares of common stock to several investors under our atm agreement with wainwright for aggregate net proceeds of approximately $ 220,000 between december 2018 and march 2019. subsequent to the year ended april 30 , 2019 , on june 19 , 2019 , we entered into a securities purchase agreement with certain purchasers relating to the offer and sale of 1,250 series f preferred units , for $ 2,000 per unit , for an aggregate purchase price of $ 2,500,000. we received net proceeds , after estimated expenses of the offering , of approximately $ 2.4 million . 43 cash flows from financing activities continued to provide the primary source of our liquidity . we are anticipating raising additional capital but there can be no assurance that it will be able to do so or if the terms will be favorable . the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts of and classification of liabilities that might be necessary in the event we can not continue in existence . management has determined that additional capital will be required in the form of equity or debt securities . there are no assurances that management will be able to raise capital on terms acceptable to us . if we are unable to obtain sufficient amounts of additional capital , we may be required to reduce the scope of our planned exploration activities , which could harm our business , financial condition and operating results . if we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations , the percentage ownership of our stockholders will be reduced , stockholders may experience additional dilution , or the equity securities may have rights preferences or privileges senior to the common stock . if adequate funds are not available to us when needed on satisfactory terms , we may be required to cease operating or otherwise modify our business strategy . contractual obligations our contractual obligations at april 30 , 2019 are summarized as follows : replace_table_token_5_th financing transactions on november 2 , 2018 , we entered into an atm agreement with h.c. wainwright & co. , llc . for the year ended april 30 , 2019 , we sold 290,066 shares of common stock and raised a net proceeds of $ 219,796 , net of issuance costs including legal cost related to the sale of shares of common stock of $ 79,031 , through the atm agreement at prices per share averaging $ 1.03. see , summary of activities for the year ended april 30 , 2019 - atm sales - h.c. wainwright & co. , llc , above . subsequent to the year ended april 30 , 2019 , on june 19 , 2019 , we entered into a securities purchase agreement with certain purchasers relating to the offer and sale of 1,250 series f preferred units , for $ 2,000 per unit , for an aggregate purchase price of $ 2,500,000. we received net proceeds , after estimated expenses of the offering , of approximately $ 2.4 million . see , summary of activities for the year ended april 30 , 2019 - sale of series e preferred units , above . 44 summary cash flows for the years ended april 30 , 2019 and 2018 : for the year ended for the year ended april 30 , 2019 april 30 , 2018 story_separator_special_tag use of estimates and assumptions in preparing the consolidated financial statements , management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet , and revenues and expenses for the period then ended . actual results may differ significantly from those estimates . significant estimates made by management include , but are not limited to valuation of mineral rights , goodwill , stock-based compensation , the assumptions used to fair value of common stock issued and options granted , asset retirement obligation , and the valuation of deferred tax assets and liabilities . stock-based compensation share-based compensation is accounted for based on the requirements of asc 718 , “ compensation – stock compensation ' ( “ asc 718 ” ) which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award ( presumptively , the vesting period ) . asc 718 also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award . pursuant to asc 505 , “ equity – equity based payments to non-employees ” ( “ asc 505-50 ” ) , for share-based payments to consultants and other third-parties , compensation expense is determined at the measurement date which is the grant date . until the measurement date is reached , the total amount of compensation expense remains uncertain . in june 2018 , the fasb issued asu 2018-07 , “ compensation — stock compensation ( topic 718 ) : improvements to nonemployee share-based payment accounting ” , which expands the scope of topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees . asu 2018-07 specifies that topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards . asu 2018-07 also clarifies that topic 718 does not apply to share-based payments used to effectively provide ( 1 ) financing to the issuer or ( 2 ) awards granted in conjunction with selling goods or services to customers as part of a
| net cash used in operating activities $ ( 5,668,894 ) $ ( 6,986,393 ) net cash provided by ( used in ) investing activities $ - $ 305,925 net cash provided by financing activities $ 219,796 $ 7,506,124 cash used in operating activities net cash used in operating activities totaled approximately $ 5.7 million and $ 7.0 million for the years ended april 30 , 2019 and 2018 , respectively . net loss for the years ended april 30 , 2019 and 2018 totaled approximately $ 8.0 million and $ 13.7 million . the adjustments for the non-cash items decreased from the year ended april 30 , 2018 to april 30 , 2019 due primarily the non-recurrence of 2018 impairment expenses of approximately $ 6.1 million . additionally , we expensed a total of $ 2.3 million in stock-based compensation for options and shares issued to employees , consultants and suppliers earlier in fiscal year 2019. we also established a reserve for the entire balance of a $ 435,000 deferred tax asset due to the unlikelihood it will be utilized in the foreseeable future to offset tax liabilities . net changes in operating assets and liabilities are primarily due to net decreases in cash ofapproximately $ 5.4 million and net increases in reclamation of bond deposits of approximately $ 247,000 , offset by a decrease of $ 132,000 in trade accounts payable and an increase of $ 40,000 in accounts payable to related parties during the year ended april 30 , 2019. cash provided by ( used in ) investing activities net cash provided by investing activities totaled approximately $ 0 and $ 306,000 for the year ended april 30 , 2019 and 2018 , respectively .
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the financial results of xpedx have been presented on a carve-out basis through the distribution date , while the financial results for veritiv , post spin-off , are prepared on a stand-alone basis . as such , the audited consolidated and combined financial statements as of and for the year ended december 31 , 2014 consist of the consolidated results of veritiv on a stand-alone basis for the six months ended december 31 , 2014 and the combined results of operations of xpedx for the six months ended june 30 , 2014 on a carve-out basis . for periods prior to the spin-off , the combined financial statements include expense allocations for certain functions previously provided by international paper . see note 1 of the notes to consolidated and combined financial statements for further information . results of operations , including business segments the following discussion compares the consolidated and combined operating results of veritiv for the years ended december 31 , 2016 , 2015 and 2014 . comparison of the years ended december 31 , 2016 , 2015 and 2014 replace_table_token_4_th * - not meaningful net sales 2016 compared to 2015 : net sales declined by $ 391.1 million , or 4.5 % , primarily due to declines in the print and publishing reportable segments . see the “ segment results ” section for additional discussion . 2015 compared to 2014 : net sales increased due primarily to the net sales contribution of $ 1,798.8 million , or 24.3 % , from the merger . excluding the impact of the merger , net sales declined by $ 487.6 million , or 6.6 % , due to declines in 28 the print , publishing and facility solutions reportable segments . effective january 1 , 2016 , the company harmonized its shipping terms to be f.o.b . destination . previously , certain revenue transactions for the legacy xpedx business were designated as f.o.b . shipping point . management determined that any shipments in transit at december 31 , 2015 would honor the f.o.b . destination terms resulting in a reduction of $ 27.0 million in net sales for the year ended december 31 , 2015. this change in shipping terms primarily impacts the print and publishing segments as they have a larger percentage of revenue derived from direct shipment from the supplier to the customer . cost of products sold 2016 compared to 2015 : cost of products sold decreased by $ 333.9 million , or 4.7 % , primarily due to the decline in sales as previously discussed . see the “ segment results ” section for additional discussion . 2015 compared to 2014 : cost of products sold increased due primarily to incremental costs of $ 1,456.3 million , or 23.6 % , attributable to the merger . this increase was partially offset by a $ 476.9 million , or 7.7 % , decrease in cost of products sold primarily driven by a decline in sales as previously discussed . the above-noted change in shipping terms resulted in a reduction to cost of products sold of $ 24.4 million for the year ended december 31 , 2015. distribution expenses 2016 compared to 2015 : distribution expenses decreased by $ 16.7 million or 3.2 % . the decline was mainly driven by ( i ) a $ 6.3 million decrease in facilities expenses due primarily to warehouse consolidations , ( ii ) a $ 5.9 million decrease in personnel costs due primarily to reductions in temporary employee expense , and ( iii ) a $ 5.3 million decrease in vehicle operating expenses primarily driven by reductions in third party freight expense and fuel . 2015 compared to 2014 : distribution expenses increased due primarily to incremental expenses of $ 121.8 million , or 28.6 % , attributable to the merger . excluding the impact of the merger , distribution expenses decreased by $ 26.2 million , or 6.1 % . the decline was driven by ( i ) a $ 16.8 million decrease in vehicle operation expenses due primarily to reductions in fuel and third-party freight expenses , ( ii ) a $ 4.7 million decrease in facilities expenses primarily driven by warehouse consolidations , ( iii ) a $ 1.8 million decrease in personnel costs due to lower sales volumes , ( iv ) a $ 1.1 million decrease in temporary labor and ( v ) a $ 1.8 million decrease in various other expenses . selling and administrative expenses 2016 compared to 2015 : selling and administrative expenses decreased by $ 27.7 million or 3.2 % . the decrease was primarily attributed to ( i ) a $ 11.2 million decrease in commission expense due in part to lower sales volume and ( ii ) a $ 13.6 million decrease in incentive compensation . in 2013 , xpedx advanced funds to commissioned sales representatives to compensate them for a change in the timing of commission payments . during 2016 , the company recovered $ 6.0 million of those advances which further reduced commission expense . these decreases were partially offset by $ 5.8 million of impairment charges attributable to the publishing and print segment 's customer relationship intangible assets . 2015 compared to 2014 : selling and administrative expenses increased due primarily to incremental expenses of $ 194.7 million , or 28.3 % , from the merger . excluding the impact of the merger , selling and administrative expenses decreased by $ 29.9 million , or 4.3 % . story_separator_special_tag replace_table_token_12_th the table below presents the components of the net sales change compared to the prior year : replace_table_token_13_th comparison of the years ended december 31 , 2016 and december 31 , 2015 the net sales decrease was primarily attributable to ( i ) foreign currency effects , ( ii ) strategic decisions to exit certain unprofitable customer relationships in 2015 and ( iii ) pricing pressure . the adjusted ebitda improvement was primarily due to ( i ) a $ 2.3 million decrease in commissions due to lower sales volume , ( ii ) a $ 2.1 million improvement attributable to cost of products sold decreasing at a faster rate than net sales due to improved sourcing , ( iii ) a $ 0.7 million decrease in bad debt expense due to favorable collections experience and ( iv ) a $ 0.5 million reduction in selling and administrative personnel costs . comparison of the years ended december 31 , 2015 and december 31 , 2014 the net sales increase is due primarily to the net sales contribution of $ 288.0 million from the merger . excluding the impact of changes in foreign currency exchange rates and the merger , net sales decreased 4.2 % , primarily due to the loss of four large customers . the change in shipping terms discussed previously resulted in a $ 1.3 million reduction in 2015 revenue . adjusted ebitda increased by $ 12.3 million as a result of the merger . excluding the merger , adjusted ebitda decreased by $ 4.2 million due to ( i ) a $ 11.3 million decrease due to the reduction in sales volume , ( ii ) a $ 4.7 million increase in personnel costs , which was partially attributable to a $ 2.9 million increase in commission expense due to the change in the sales commission allocations to the segments and ( iii ) a $ 1.7 million increase in various other expenses . these drivers were partially offset by ( i ) an $ 8.7 million decrease in distribution expenses due to lower sales volumes and ( ii ) a $ 4.8 million impact attributable to cost of goods sold decreasing at a faster rate than sales . corporate & other comparison of the years ended december 31 , 2016 and december 31 , 2015 net sales increased $ 8.6 million , or 7.7 % , due to continued growth in freight brokerage services . the adjusted ebitda improvement was primarily due to ( i ) the $ 6.0 million recovery of commission advances and ( ii ) a $ 2.5 million decrease in corporate personnel costs mainly attributable to a reduction in incentive compensation . 35 comparison of the years ended december 31 , 2015 and december 31 , 2014 the net sales increase is due to the net sales contribution of $ 50.5 million from the merger and continued growth in logistics services . adjusted ebitda decreased by $ 49.8 million as a result of the merger . excluding the merger , adjusted ebitda improved by $ 14.9 million . this improvement was attributable to ( i ) a $ 12.9 million decrease in personnel costs driven by restructuring initiatives , ( ii ) a $ 4.6 million reduction in allocated expenses from international paper and ( iii ) a $ 1.8 million increase due to higher logistics services sales . the improvement was partially offset by ( i ) a $ 1.4 million increase in outsourced services driven by the outsourcing of payroll services , ( ii ) a $ 0.8 million increase in distribution expenses and ( iii ) a $ 2.2 million increase in various other expenses . story_separator_special_tag the abl facility has a springing minimum fixed charge coverage ratio of at least 1.00 to 1.00 on a trailing four-quarter basis , which will be tested only when specified availability is less than limits outlined under the abl facility . at december 31 , 2016 the above test was not applicable and is not expected to be applicable in the next 12 months . availability under the abl facility is determined based upon a monthly borrowing base calculation which includes eligible customer receivables and inventory , less outstanding borrowings , letters of credit and certain designated reserves . as of december 31 , 2016 , the available additional borrowing capacity under the abl facility was approximately $ 429.9 million . under the terms of the abl facility , interest rates are based upon libor or the prime rate plus a margin rate , or in the case of canada , a banker 's acceptance rate or base rate plus a margin rate . at both december 31 , 2016 and december 31 , 2015 , the weighted-average borrowing interest rate was 2.5 % . on november 23 , 2016 , the uwwh stockholder , one of veritiv 's existing stockholders and the former parent company of unisource , sold 1.76 million shares of veritiv common stock in an underwritten public offering . veritiv did not receive any of the proceeds . concurrently with the closing of the offering , veritiv repurchased 0.31 million of these offered shares from the underwriters at a price of $ 42.8625 per share , which is the price at which the underwriters purchased such shares from the selling stockholder , for an aggregate purchase price of approximately $ 13.4 million . in conjunction with these transactions , veritiv incurred approximately $ 0.8 million in transaction-related fees , of which approximately $ 0.2 million was recorded as part of the cost to acquire the treasury stock and the remainder was included in selling and administrative expenses on the consolidated and combined statements of operations . veritiv 's ability to fund its capital needs will depend on its ongoing ability to generate cash from operations , borrowings under the abl facility and funds received from capital markets offerings . if veritiv 's cash flows from operating activities
| net cash used in operating activities $ ( 5,668,894 ) $ ( 6,986,393 ) net cash provided by ( used in ) investing activities $ - $ 305,925 net cash provided by financing activities $ 219,796 $ 7,506,124 cash used in operating activities net cash used in operating activities totaled approximately $ 5.7 million and $ 7.0 million for the years ended april 30 , 2019 and 2018 , respectively . net loss for the years ended april 30 , 2019 and 2018 totaled approximately $ 8.0 million and $ 13.7 million . the adjustments for the non-cash items decreased from the year ended april 30 , 2018 to april 30 , 2019 due primarily the non-recurrence of 2018 impairment expenses of approximately $ 6.1 million . additionally , we expensed a total of $ 2.3 million in stock-based compensation for options and shares issued to employees , consultants and suppliers earlier in fiscal year 2019. we also established a reserve for the entire balance of a $ 435,000 deferred tax asset due to the unlikelihood it will be utilized in the foreseeable future to offset tax liabilities . net changes in operating assets and liabilities are primarily due to net decreases in cash ofapproximately $ 5.4 million and net increases in reclamation of bond deposits of approximately $ 247,000 , offset by a decrease of $ 132,000 in trade accounts payable and an increase of $ 40,000 in accounts payable to related parties during the year ended april 30 , 2019. cash provided by ( used in ) investing activities net cash provided by investing activities totaled approximately $ 0 and $ 306,000 for the year ended april 30 , 2019 and 2018 , respectively .
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the financial results of xpedx have been presented on a carve-out basis through the distribution date , while the financial results for veritiv , post spin-off , are prepared on a stand-alone basis . as such , the audited consolidated and combined financial statements as of and for the year ended december 31 , 2014 consist of the consolidated results of veritiv on a stand-alone basis for the six months ended december 31 , 2014 and the combined results of operations of xpedx for the six months ended june 30 , 2014 on a carve-out basis . for periods prior to the spin-off , the combined financial statements include expense allocations for certain functions previously provided by international paper . see note 1 of the notes to consolidated and combined financial statements for further information . results of operations , including business segments the following discussion compares the consolidated and combined operating results of veritiv for the years ended december 31 , 2016 , 2015 and 2014 . comparison of the years ended december 31 , 2016 , 2015 and 2014 replace_table_token_4_th * - not meaningful net sales 2016 compared to 2015 : net sales declined by $ 391.1 million , or 4.5 % , primarily due to declines in the print and publishing reportable segments . see the “ segment results ” section for additional discussion . 2015 compared to 2014 : net sales increased due primarily to the net sales contribution of $ 1,798.8 million , or 24.3 % , from the merger . excluding the impact of the merger , net sales declined by $ 487.6 million , or 6.6 % , due to declines in 28 the print , publishing and facility solutions reportable segments . effective january 1 , 2016 , the company harmonized its shipping terms to be f.o.b . destination . previously , certain revenue transactions for the legacy xpedx business were designated as f.o.b . shipping point . management determined that any shipments in transit at december 31 , 2015 would honor the f.o.b . destination terms resulting in a reduction of $ 27.0 million in net sales for the year ended december 31 , 2015. this change in shipping terms primarily impacts the print and publishing segments as they have a larger percentage of revenue derived from direct shipment from the supplier to the customer . cost of products sold 2016 compared to 2015 : cost of products sold decreased by $ 333.9 million , or 4.7 % , primarily due to the decline in sales as previously discussed . see the “ segment results ” section for additional discussion . 2015 compared to 2014 : cost of products sold increased due primarily to incremental costs of $ 1,456.3 million , or 23.6 % , attributable to the merger . this increase was partially offset by a $ 476.9 million , or 7.7 % , decrease in cost of products sold primarily driven by a decline in sales as previously discussed . the above-noted change in shipping terms resulted in a reduction to cost of products sold of $ 24.4 million for the year ended december 31 , 2015. distribution expenses 2016 compared to 2015 : distribution expenses decreased by $ 16.7 million or 3.2 % . the decline was mainly driven by ( i ) a $ 6.3 million decrease in facilities expenses due primarily to warehouse consolidations , ( ii ) a $ 5.9 million decrease in personnel costs due primarily to reductions in temporary employee expense , and ( iii ) a $ 5.3 million decrease in vehicle operating expenses primarily driven by reductions in third party freight expense and fuel . 2015 compared to 2014 : distribution expenses increased due primarily to incremental expenses of $ 121.8 million , or 28.6 % , attributable to the merger . excluding the impact of the merger , distribution expenses decreased by $ 26.2 million , or 6.1 % . the decline was driven by ( i ) a $ 16.8 million decrease in vehicle operation expenses due primarily to reductions in fuel and third-party freight expenses , ( ii ) a $ 4.7 million decrease in facilities expenses primarily driven by warehouse consolidations , ( iii ) a $ 1.8 million decrease in personnel costs due to lower sales volumes , ( iv ) a $ 1.1 million decrease in temporary labor and ( v ) a $ 1.8 million decrease in various other expenses . selling and administrative expenses 2016 compared to 2015 : selling and administrative expenses decreased by $ 27.7 million or 3.2 % . the decrease was primarily attributed to ( i ) a $ 11.2 million decrease in commission expense due in part to lower sales volume and ( ii ) a $ 13.6 million decrease in incentive compensation . in 2013 , xpedx advanced funds to commissioned sales representatives to compensate them for a change in the timing of commission payments . during 2016 , the company recovered $ 6.0 million of those advances which further reduced commission expense . these decreases were partially offset by $ 5.8 million of impairment charges attributable to the publishing and print segment 's customer relationship intangible assets . 2015 compared to 2014 : selling and administrative expenses increased due primarily to incremental expenses of $ 194.7 million , or 28.3 % , from the merger . excluding the impact of the merger , selling and administrative expenses decreased by $ 29.9 million , or 4.3 % . story_separator_special_tag replace_table_token_12_th the table below presents the components of the net sales change compared to the prior year : replace_table_token_13_th comparison of the years ended december 31 , 2016 and december 31 , 2015 the net sales decrease was primarily attributable to ( i ) foreign currency effects , ( ii ) strategic decisions to exit certain unprofitable customer relationships in 2015 and ( iii ) pricing pressure . the adjusted ebitda improvement was primarily due to ( i ) a $ 2.3 million decrease in commissions due to lower sales volume , ( ii ) a $ 2.1 million improvement attributable to cost of products sold decreasing at a faster rate than net sales due to improved sourcing , ( iii ) a $ 0.7 million decrease in bad debt expense due to favorable collections experience and ( iv ) a $ 0.5 million reduction in selling and administrative personnel costs . comparison of the years ended december 31 , 2015 and december 31 , 2014 the net sales increase is due primarily to the net sales contribution of $ 288.0 million from the merger . excluding the impact of changes in foreign currency exchange rates and the merger , net sales decreased 4.2 % , primarily due to the loss of four large customers . the change in shipping terms discussed previously resulted in a $ 1.3 million reduction in 2015 revenue . adjusted ebitda increased by $ 12.3 million as a result of the merger . excluding the merger , adjusted ebitda decreased by $ 4.2 million due to ( i ) a $ 11.3 million decrease due to the reduction in sales volume , ( ii ) a $ 4.7 million increase in personnel costs , which was partially attributable to a $ 2.9 million increase in commission expense due to the change in the sales commission allocations to the segments and ( iii ) a $ 1.7 million increase in various other expenses . these drivers were partially offset by ( i ) an $ 8.7 million decrease in distribution expenses due to lower sales volumes and ( ii ) a $ 4.8 million impact attributable to cost of goods sold decreasing at a faster rate than sales . corporate & other comparison of the years ended december 31 , 2016 and december 31 , 2015 net sales increased $ 8.6 million , or 7.7 % , due to continued growth in freight brokerage services . the adjusted ebitda improvement was primarily due to ( i ) the $ 6.0 million recovery of commission advances and ( ii ) a $ 2.5 million decrease in corporate personnel costs mainly attributable to a reduction in incentive compensation . 35 comparison of the years ended december 31 , 2015 and december 31 , 2014 the net sales increase is due to the net sales contribution of $ 50.5 million from the merger and continued growth in logistics services . adjusted ebitda decreased by $ 49.8 million as a result of the merger . excluding the merger , adjusted ebitda improved by $ 14.9 million . this improvement was attributable to ( i ) a $ 12.9 million decrease in personnel costs driven by restructuring initiatives , ( ii ) a $ 4.6 million reduction in allocated expenses from international paper and ( iii ) a $ 1.8 million increase due to higher logistics services sales . the improvement was partially offset by ( i ) a $ 1.4 million increase in outsourced services driven by the outsourcing of payroll services , ( ii ) a $ 0.8 million increase in distribution expenses and ( iii ) a $ 2.2 million increase in various other expenses . story_separator_special_tag the abl facility has a springing minimum fixed charge coverage ratio of at least 1.00 to 1.00 on a trailing four-quarter basis , which will be tested only when specified availability is less than limits outlined under the abl facility . at december 31 , 2016 the above test was not applicable and is not expected to be applicable in the next 12 months . availability under the abl facility is determined based upon a monthly borrowing base calculation which includes eligible customer receivables and inventory , less outstanding borrowings , letters of credit and certain designated reserves . as of december 31 , 2016 , the available additional borrowing capacity under the abl facility was approximately $ 429.9 million . under the terms of the abl facility , interest rates are based upon libor or the prime rate plus a margin rate , or in the case of canada , a banker 's acceptance rate or base rate plus a margin rate . at both december 31 , 2016 and december 31 , 2015 , the weighted-average borrowing interest rate was 2.5 % . on november 23 , 2016 , the uwwh stockholder , one of veritiv 's existing stockholders and the former parent company of unisource , sold 1.76 million shares of veritiv common stock in an underwritten public offering . veritiv did not receive any of the proceeds . concurrently with the closing of the offering , veritiv repurchased 0.31 million of these offered shares from the underwriters at a price of $ 42.8625 per share , which is the price at which the underwriters purchased such shares from the selling stockholder , for an aggregate purchase price of approximately $ 13.4 million . in conjunction with these transactions , veritiv incurred approximately $ 0.8 million in transaction-related fees , of which approximately $ 0.2 million was recorded as part of the cost to acquire the treasury stock and the remainder was included in selling and administrative expenses on the consolidated and combined statements of operations . veritiv 's ability to fund its capital needs will depend on its ongoing ability to generate cash from operations , borrowings under the abl facility and funds received from capital markets offerings . if veritiv 's cash flows from operating activities
| liquidity and capital resources the cash requirements of the company are provided by cash flows from operations and borrowings under the abl facility . the following table sets forth a summary of cash flows : replace_table_token_14_th analysis of cash flows the company ended 2016 with $ 69.6 million in cash , an increase of $ 15.2 million during the year . the increase in cash was primarily due to improved cash flow from operating activities of $ 140.2 million in 2016 , compared with $ 113.0 million in 2015. the factors driving the increase in cash flow from operating activities were : ( i ) a $ 69.9 million increase in accounts payable and related party payable , ( ii ) a $ 14.3 million increase in other operating activities and ( iii ) a $ 13.1 million reduction in inventories . the increase in cash from operating activities was partially offset by : ( i ) lower net income , ( ii ) a $ 40.9 million decrease in accrued payroll and benefits , ( iii ) a $ 14.7 million increase in accounts receivable and related party receivable , ( iv ) an $ 11.4 million increase in other current assets and ( v ) a $ 3.6 million decrease in other accrued liabilities . the company also generated $ 18.9 million in positive cash flow from an increase in book overdrafts and $ 6.6 million related to proceeds from asset sales .
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highlights include : average daily occupancy of 96.5 % , 50 basis points higher than the year ended 2017 ; same store net operating income increased 3.1 % with 74.2 % net operating income margin ; and same store rent increases on renewals and new leases averaged 4.5 % and 1.5 % , respectively , for a weighted average increase of 3.0 % . our focus on efficient operations through productivity initiatives such as centralization of administrative tasks , optimization of economies of scale at the corporate level , and investment in more durable , longer-lived materials has helped us control operating expenses . these and other innovations contributed to limiting growth in controllable operating expense ( defined as property expenses less taxes , insurance and utility expenses ) compounding for the past decade at an annual rate of 0.1 % . for the year ended december 31 , 2018 , our real estate portfolio provided 72 % net operating income margins and 67 % free cash flow margins . redevelopment our second line of business is the redevelopment and limited development of apartment communities . through these activities , we expect to create value by repositioning communities within our portfolio . we measure the rate and quality of financial returns by nav creation , an important component of economic income , our primary measure of long-term financial performance . over the past five years , we have spent approximately $ 1.0 billion on redevelopment and development , resulting in estimated value creation of approximately $ 400.0 million . we also undertake limited ground-up development when warranted by risk-adjusted 19 investment returns , either directly or in connection with the redevelopment of an existing apartment community . when warranted , we rely on the expertise and credit of a third-party developer familiar with the local market to limit our exposure to construction risk . we invest to earn risk-adjusted returns in excess of those expected from the apartment communities sold in paired trades to fund the redevelopment or development . of these two activities , we favor redevelopment because it permits adjustment to the scope and timing of spending to align with changing market conditions and customer preferences . during the year ended december 31 , 2018 , we invested $ 175.9 million in redevelopment and development . in boulder , colorado , we have invested $ 68.9 million in the development of parc mosaic , a 226 -unit apartment home community . the site is two miles from the new google campus and is across the street from ball aerospace 's technology campus and foothills hospital . building in boulder is highly regulated and new supply is limited , notwithstanding higher enrollment at the university of colorado and increased employment generally . at the university of colorado anschutz medical campus , we exercised our option to acquire approximately two acres of land adjacent to our 21 fitzsimons apartment community , and broke ground on the development of the fremont , a 253 -apartment home community . we expect to invest approximately $ 87.0 million to construct the community , which is expected to be ready for occupancy in late 2020. we also commenced the next phase of redevelopment at our flamingo community , located in miami beach , bringing our potential net investment to $ 39.7 million . this phase includes extensive redevelopment of retail , leasing , and common areas , including major enhancements to the entryway . in center city , philadelphia , we completed the redevelopment of park towne place , and as of december 31 , 2018 , we had leased 95.6 % of the apartment homes at the community . this multi-year redevelopment of 940 apartment homes , amenities , and common area spaces , was executed on plan and leased-up in-line with expectations with expected free cash flow returns of greater than 9 % . in san jose , california we completed the redevelopment of saybrook pointe , a 324-apartment home , garden-style community . construction was completed on time and in-line with underwritten costs , and lease-up of the community finished ahead of schedule and at rates above underwriting , increasing the expected free cash flow return to greater than 14 % , a 100 basis point outperformance to underwriting . as of december 31 , 2018 , our total estimated net investment in redevelopment and development activities is $ 571.2 million , with a projected weighted average net operating income yield on these investments of 6.1 % , assuming untrended rents . as of december 31 , 2018 , $ 361.0 million of this total has been funded . during the year ended december 31 , 2018 , we leased 457 apartment homes at our redevelopment and development communities . at december 31 , 2018 , our exposure to lease-up at active redevelopment and development communities was approximately 366 apartment homes , of which 208 were being constructed at parc mosaic , and 158 were located in four other communities . additionally , we expect to acquire one ardmore in 2019 upon its completion as part of the philadelphia portfolio acquisition announced in april 2018. this acquisition will increase our exposure to lease-up risk by approximately 100 apartment homes . see below under the liquidity and capital resources – redevelopment/development heading for additional information regarding our redevelopment and development investment during the year ended december 31 , 2018 . portfolio management our portfolio of apartment communities is diversified across “ a , ” “ b , ” and “ c+ ” price points , averaging “ b/b+ ” in quality and is diversified across several of the largest markets in the u.s. we measure the quality of apartment communities in our real estate portfolio based on average rents of our apartment homes compared to local market average rents as reported by a third-party provider of commercial real estate performance and analysis . story_separator_special_tag renewal rents , which is the rent paid by an existing resident who renewed a lease compared to the rent paid prior to renewal , were up 4.5 % for the year ended december 31 , 2018 , and new lease rents , which is the rent paid by a new resident compared to the rent paid by the previous resident of the same apartment home , were up 1.5 % , resulting in a weighted average increase of 3.0 % . the increase in same store rental and other property revenues was partially offset by a $ 4.7 million , or 3.3 % , increase in property operating expenses , primarily due to increases in real estate taxes and repairs and maintenance costs . during the year ended 25 december 31 , 2018 compared to 2017 , controllable operating expenses , which exclude utility costs , real estate taxes and insurance , increased by $ 1.5 million , or 2.0 % . the proportionate property net operating income of other real estate communities increased by $ 44.2 million , or 31.4 % , for the year ended december 31 , 2018 compared to 2017 primarily due to : a $ 24.1 million increase in property net operating income due to the 2018 acquisition of the four philadelphia communities , bent tree apartments and avery row , as well as the stabilization of indigo ; an $ 11.0 million increase in property net operating income due to leasing activities at redevelopment and development communities , partially offset by decreases due to apartment homes taken out of service for redevelopment ; and higher property net operating income of $ 9.1 million from other communities , primarily the effect of our increased ownership interest in the palazzo communities from our june 2017 reacquisition of a 47 % limited partner interest in the related joint venture . as of december 31 , 2017 , as defined by our segment performance metrics , our real estate portfolio consisted of 90 same store apartment communities with 25,197 apartment homes and 32 other real estate communities with 8,845 apartment homes . as of december 31 , 2017 , our other real estate communities included : 15 apartment communities with 6,386 apartment homes in redevelopment or development ; 2 apartment communities with 578 apartment homes recently acquired ; and 15 apartment communities with 1,881 apartment homes that do not meet the definition of same store because they are either subject to agreements that limit the amount by which we may increase rents or have not reached or maintained a stabilized level of occupancy as of the beginning of a two-year comparable period , often due to a casualty event . our real estate segment results for the years ended december 31 , 2017 and 2016 , as presented below , are based on the apartment community classifications as of december 31 , 2017 , and exclude amounts related to apartment communities sold or classified as held for sale during 2018 . the results of operations for these communities are reflected in the comparable periods in the tables below . replace_table_token_6_th for the year ended december 31 , 2017 compared to 2016 , our real estate segment 's proportionate property net operating income increased $ 48.6 million , or 9.5 % . same store proportionate property net operating income increased by $ 15.5 million , or 4.0 % . this increase was primarily attributable to a $ 17.3 million , or 3.3 % , increase in rental and other property revenues due to higher average revenues of approximately $ 59 per effective home , comprised primarily of increases in rental rates . renewal rents , which is the rent paid by an existing resident who renewed a lease compared to the rent paid prior to renewal , were up 4.6 % for the year ended december 31 , 2017 , and new lease rents , which is the rent paid by a new resident compared to the rent paid by the previous resident of the same apartment home , were up 0.6 % , resulting in a weighted average increase of 2.5 % . the increase in same store rental and other property revenues was partially offset by a $ 1.8 million , or 1.3 % , increase in property operating expenses , primarily due to 26 increases in real estate taxes . during the year ended december 31 , 2017 compared to 2016 , controllable operating expenses , which exclude utility costs , real estate taxes and insurance , decreased by $ 1.6 million , or 2.1 % . the proportionate property net operating income of other real estate comm unities increased by $ 33.1 million , or 27.7 % , for the year ended december 31 , 2017 compared to 2016 primarily due to : redevelopment and lease-up activities during the year ended december 31 , 2017 , which helped contribute to incremental property net operating income of $ 20.9 million compared to 2016 ; and higher property net operating income of $ 12.0 million from other communities , including the effect of our increased ownership interest in the palazzo communities from our june 2017 reacquisition of the 47 % limited partner interest in the related joint venture . non-segment real estate operations operating income amounts not attributed to our real estate segment include offsite costs associated with property management , casualty losses , and the results of apartment communities sold or held for sale , reported in consolidated amounts , which we do not allocate to our real estate segment for purposes of evaluating segment performance , as described in note 12 to the consolidated financial statements in item 8. for the years ended december 31 , 2018 , 2017 and 2016 , casualty losses totaled $ 4.0 million , $ 8.2 million and $ 5.6 million , respectively . casualty losses during the year ended december 31 , 2018 included several claims , primarily
| liquidity and capital resources the cash requirements of the company are provided by cash flows from operations and borrowings under the abl facility . the following table sets forth a summary of cash flows : replace_table_token_14_th analysis of cash flows the company ended 2016 with $ 69.6 million in cash , an increase of $ 15.2 million during the year . the increase in cash was primarily due to improved cash flow from operating activities of $ 140.2 million in 2016 , compared with $ 113.0 million in 2015. the factors driving the increase in cash flow from operating activities were : ( i ) a $ 69.9 million increase in accounts payable and related party payable , ( ii ) a $ 14.3 million increase in other operating activities and ( iii ) a $ 13.1 million reduction in inventories . the increase in cash from operating activities was partially offset by : ( i ) lower net income , ( ii ) a $ 40.9 million decrease in accrued payroll and benefits , ( iii ) a $ 14.7 million increase in accounts receivable and related party receivable , ( iv ) an $ 11.4 million increase in other current assets and ( v ) a $ 3.6 million decrease in other accrued liabilities . the company also generated $ 18.9 million in positive cash flow from an increase in book overdrafts and $ 6.6 million related to proceeds from asset sales .
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highlights include : average daily occupancy of 96.5 % , 50 basis points higher than the year ended 2017 ; same store net operating income increased 3.1 % with 74.2 % net operating income margin ; and same store rent increases on renewals and new leases averaged 4.5 % and 1.5 % , respectively , for a weighted average increase of 3.0 % . our focus on efficient operations through productivity initiatives such as centralization of administrative tasks , optimization of economies of scale at the corporate level , and investment in more durable , longer-lived materials has helped us control operating expenses . these and other innovations contributed to limiting growth in controllable operating expense ( defined as property expenses less taxes , insurance and utility expenses ) compounding for the past decade at an annual rate of 0.1 % . for the year ended december 31 , 2018 , our real estate portfolio provided 72 % net operating income margins and 67 % free cash flow margins . redevelopment our second line of business is the redevelopment and limited development of apartment communities . through these activities , we expect to create value by repositioning communities within our portfolio . we measure the rate and quality of financial returns by nav creation , an important component of economic income , our primary measure of long-term financial performance . over the past five years , we have spent approximately $ 1.0 billion on redevelopment and development , resulting in estimated value creation of approximately $ 400.0 million . we also undertake limited ground-up development when warranted by risk-adjusted 19 investment returns , either directly or in connection with the redevelopment of an existing apartment community . when warranted , we rely on the expertise and credit of a third-party developer familiar with the local market to limit our exposure to construction risk . we invest to earn risk-adjusted returns in excess of those expected from the apartment communities sold in paired trades to fund the redevelopment or development . of these two activities , we favor redevelopment because it permits adjustment to the scope and timing of spending to align with changing market conditions and customer preferences . during the year ended december 31 , 2018 , we invested $ 175.9 million in redevelopment and development . in boulder , colorado , we have invested $ 68.9 million in the development of parc mosaic , a 226 -unit apartment home community . the site is two miles from the new google campus and is across the street from ball aerospace 's technology campus and foothills hospital . building in boulder is highly regulated and new supply is limited , notwithstanding higher enrollment at the university of colorado and increased employment generally . at the university of colorado anschutz medical campus , we exercised our option to acquire approximately two acres of land adjacent to our 21 fitzsimons apartment community , and broke ground on the development of the fremont , a 253 -apartment home community . we expect to invest approximately $ 87.0 million to construct the community , which is expected to be ready for occupancy in late 2020. we also commenced the next phase of redevelopment at our flamingo community , located in miami beach , bringing our potential net investment to $ 39.7 million . this phase includes extensive redevelopment of retail , leasing , and common areas , including major enhancements to the entryway . in center city , philadelphia , we completed the redevelopment of park towne place , and as of december 31 , 2018 , we had leased 95.6 % of the apartment homes at the community . this multi-year redevelopment of 940 apartment homes , amenities , and common area spaces , was executed on plan and leased-up in-line with expectations with expected free cash flow returns of greater than 9 % . in san jose , california we completed the redevelopment of saybrook pointe , a 324-apartment home , garden-style community . construction was completed on time and in-line with underwritten costs , and lease-up of the community finished ahead of schedule and at rates above underwriting , increasing the expected free cash flow return to greater than 14 % , a 100 basis point outperformance to underwriting . as of december 31 , 2018 , our total estimated net investment in redevelopment and development activities is $ 571.2 million , with a projected weighted average net operating income yield on these investments of 6.1 % , assuming untrended rents . as of december 31 , 2018 , $ 361.0 million of this total has been funded . during the year ended december 31 , 2018 , we leased 457 apartment homes at our redevelopment and development communities . at december 31 , 2018 , our exposure to lease-up at active redevelopment and development communities was approximately 366 apartment homes , of which 208 were being constructed at parc mosaic , and 158 were located in four other communities . additionally , we expect to acquire one ardmore in 2019 upon its completion as part of the philadelphia portfolio acquisition announced in april 2018. this acquisition will increase our exposure to lease-up risk by approximately 100 apartment homes . see below under the liquidity and capital resources – redevelopment/development heading for additional information regarding our redevelopment and development investment during the year ended december 31 , 2018 . portfolio management our portfolio of apartment communities is diversified across “ a , ” “ b , ” and “ c+ ” price points , averaging “ b/b+ ” in quality and is diversified across several of the largest markets in the u.s. we measure the quality of apartment communities in our real estate portfolio based on average rents of our apartment homes compared to local market average rents as reported by a third-party provider of commercial real estate performance and analysis . story_separator_special_tag renewal rents , which is the rent paid by an existing resident who renewed a lease compared to the rent paid prior to renewal , were up 4.5 % for the year ended december 31 , 2018 , and new lease rents , which is the rent paid by a new resident compared to the rent paid by the previous resident of the same apartment home , were up 1.5 % , resulting in a weighted average increase of 3.0 % . the increase in same store rental and other property revenues was partially offset by a $ 4.7 million , or 3.3 % , increase in property operating expenses , primarily due to increases in real estate taxes and repairs and maintenance costs . during the year ended 25 december 31 , 2018 compared to 2017 , controllable operating expenses , which exclude utility costs , real estate taxes and insurance , increased by $ 1.5 million , or 2.0 % . the proportionate property net operating income of other real estate communities increased by $ 44.2 million , or 31.4 % , for the year ended december 31 , 2018 compared to 2017 primarily due to : a $ 24.1 million increase in property net operating income due to the 2018 acquisition of the four philadelphia communities , bent tree apartments and avery row , as well as the stabilization of indigo ; an $ 11.0 million increase in property net operating income due to leasing activities at redevelopment and development communities , partially offset by decreases due to apartment homes taken out of service for redevelopment ; and higher property net operating income of $ 9.1 million from other communities , primarily the effect of our increased ownership interest in the palazzo communities from our june 2017 reacquisition of a 47 % limited partner interest in the related joint venture . as of december 31 , 2017 , as defined by our segment performance metrics , our real estate portfolio consisted of 90 same store apartment communities with 25,197 apartment homes and 32 other real estate communities with 8,845 apartment homes . as of december 31 , 2017 , our other real estate communities included : 15 apartment communities with 6,386 apartment homes in redevelopment or development ; 2 apartment communities with 578 apartment homes recently acquired ; and 15 apartment communities with 1,881 apartment homes that do not meet the definition of same store because they are either subject to agreements that limit the amount by which we may increase rents or have not reached or maintained a stabilized level of occupancy as of the beginning of a two-year comparable period , often due to a casualty event . our real estate segment results for the years ended december 31 , 2017 and 2016 , as presented below , are based on the apartment community classifications as of december 31 , 2017 , and exclude amounts related to apartment communities sold or classified as held for sale during 2018 . the results of operations for these communities are reflected in the comparable periods in the tables below . replace_table_token_6_th for the year ended december 31 , 2017 compared to 2016 , our real estate segment 's proportionate property net operating income increased $ 48.6 million , or 9.5 % . same store proportionate property net operating income increased by $ 15.5 million , or 4.0 % . this increase was primarily attributable to a $ 17.3 million , or 3.3 % , increase in rental and other property revenues due to higher average revenues of approximately $ 59 per effective home , comprised primarily of increases in rental rates . renewal rents , which is the rent paid by an existing resident who renewed a lease compared to the rent paid prior to renewal , were up 4.6 % for the year ended december 31 , 2017 , and new lease rents , which is the rent paid by a new resident compared to the rent paid by the previous resident of the same apartment home , were up 0.6 % , resulting in a weighted average increase of 2.5 % . the increase in same store rental and other property revenues was partially offset by a $ 1.8 million , or 1.3 % , increase in property operating expenses , primarily due to 26 increases in real estate taxes . during the year ended december 31 , 2017 compared to 2016 , controllable operating expenses , which exclude utility costs , real estate taxes and insurance , decreased by $ 1.6 million , or 2.1 % . the proportionate property net operating income of other real estate comm unities increased by $ 33.1 million , or 27.7 % , for the year ended december 31 , 2017 compared to 2016 primarily due to : redevelopment and lease-up activities during the year ended december 31 , 2017 , which helped contribute to incremental property net operating income of $ 20.9 million compared to 2016 ; and higher property net operating income of $ 12.0 million from other communities , including the effect of our increased ownership interest in the palazzo communities from our june 2017 reacquisition of the 47 % limited partner interest in the related joint venture . non-segment real estate operations operating income amounts not attributed to our real estate segment include offsite costs associated with property management , casualty losses , and the results of apartment communities sold or held for sale , reported in consolidated amounts , which we do not allocate to our real estate segment for purposes of evaluating segment performance , as described in note 12 to the consolidated financial statements in item 8. for the years ended december 31 , 2018 , 2017 and 2016 , casualty losses totaled $ 4.0 million , $ 8.2 million and $ 5.6 million , respectively . casualty losses during the year ended december 31 , 2018 included several claims , primarily
| liquidity our liquidity consists of cash balances and available capacity on our revolving line of credit . during the year ended december 31 , 2018 , we exercised our option to expand our revolving credit facility by $ 200.0 million , bringing the total borrowing capacity to $ 800.0 million . as of december 31 , 2018 , we had cash and restricted cash of $ 72.6 million and had the capacity to borrow up to $ 632.5 million on our revolving credit facility , after consideration of $ 7.1 million letters of credit backed by the facility . we use our credit facility primarily for working capital and other short-term purposes and to secure letters of credit . we manage our financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt . at december 31 , 2018 , we held unencumbered apartment communities with an estimated fair market value of approximately $ 2.7 billion , up 50 % from december 31 , 2017 . two credit rating agencies rate our creditworthiness , using different methodologies and ratios for assessing our credit , and both have rated our credit and outlook as bbb- ( stable ) , an investment grade rating . although some of the ratios they use are similar to those we use to measure our leverage , there are differences in our methods of calculation and therefore our leverage ratios disclosed above are not indicative of the ratios that may be calculated by these agencies .
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the lung cancer biomarker analysis currently includes fish testing for alk and ros1 gene rearrangements and mutation analysis of the t790m , deletion 19 , and l858r mutations of the epidermal growth factor receptor , or egfr , gene as well as b-raf and k-ras using our target-selector platform . the l858r mutation of the egfr gene and exon 19 deletions as activators of egfr kinase activity are associated with the drugs tarceva® , gilotrif® and iressa® . the codon 12 and 13 mutations of the k-ras gene are found in patients whose tumors are unlikely to respond to the egfr kinase inhibitors such as erbitux® and vectibix® . for lung cancer , we also offer a resistance panel assay consisting of the biomarkers met , her2 ( both of which we perform using our technology for ctcs ) and t790m which is performed using ctdna in plasma . this assay could be used by physicians to identify the mechanism causing disease progression for patients with nsclc who are being treated with tki therapy and therefore could qualify for inclusion in a clinical trial . fibroblast growth receptor 1 , or fgfr1 , amplification is offered using our ctc technology . fgfr1 is present in several tumor types , including both nsclc and sclc and has been shown to be a prognostic indicator of progression . fgfr1 is also a key target for many drugs which are in clinical development . mutations of the b-raf gene are associated with zelboraf® and tafinlar® , which are both approved for treating patients with melanoma and are in clinical trials for lung cancer . we offer testing for b-raf on blood using our ctdna offering . 57 we plan to add other biomarker analyses on blood samples to our current assays and our planned future target-selector assays as their relevance is demonstrated in clinical trials and or included in guidelines used by physicians to make treatment decisions . our revenue generating efforts are focused in three areas : · providing clinical testing that oncologists use in order to determine the best treatment plan for their patients ; · providing clinical trial , research and development services to biopharma companies developing cancer therapies ; and · licensing our proprietary testing and or technologies to partners in the united states and abroad . key factors affecting our results of operations and financial condition our overall long-term growth plan depends on our ability to continue to develop and commercialize assays through our clia-certified , cap-accredited , and state-licensed laboratory . we have launched our target-selector offering for breast cancer , lung cancer , gastric cancer , colorectal cancer , prostate cancer , and melanoma , and plan to continue to launch a series of cancer diagnostic assays for different predictive biomarkers assays in the united states as ldts performed in our laboratory , and enhance revenue for these products through the efforts of our sales and marketing organization , which we plan to expand . our sales strategy is to engage oncologists and other physicians in the united states at private and group practices , hospitals and cancer centers . we also plan to evaluate potential opportunities for the commercialization of our products in other countries . in addition to testing for physicians and their patients , we plan to offer clinical trials testing and research services to help increase the efficiency and economic viability of clinical trials for pharmaceutical and biopharmaceutical companies and clinical research organizations both within and outside of the united states . we are currently exploring the possibility of introducing ctdna technology outside the united states as part of ce-marked ivd test kits and or testing systems utilizing our target-selector technologies . we plan to cooperate with partners on accessing markets internationally . we plan for this to be accomplished either through partnerships with local groups and distributors or the development of ivds and or test systems , including instrumentation . we also have a research and development program focused on technology enhancements , novel platform development , and evaluating clinical applications for our cancer diagnostic tests in different cancer types and clinical settings . to facilitate market adoption of our assays , we anticipate having to successfully complete additional clinical utility studies with clinical samples to generate clinical utility data and then publish our results in peer-reviewed scientific journals . our ability to complete such clinical studies is dependent upon our ability to leverage our collaborative relationships with leading institutions to facilitate our research , to conduct the appropriate clinical studies and to obtain favorable clinical data . we collaborate with physicians and researchers at sarah cannon research institute , baylor college of medicine , the university of texas md anderson cancer center , the dana-farber cancer institute , the university of california , san diego , university of california , irvine , washington university , university of colorado , yale university and columbia university and plan to expand our collaborative relationships to include other key thought leaders at other institutions for the cancer types we target with our target selector commercialized assays and our planned future assays . such relationships help us develop and validate the effectiveness and utility of our commercialized assays and our planned future assays in specific clinical settings and provide us access to patient samples and data . we believe that the factors discussed in the following paragraphs have had and are expected to continue to have a material impact on our results of operations and financial condition . revenues we accessioned 1,608 commercial cases during the year ended december 31 , 2015 as compared to 402 commercial cases for the same period in 2014 , an increase of 1,206 cases , or 300 % . revenues from commercial cases are recognized as collected , and the expected collection period for a commercial case often extends beyond the end of the quarter in which accessioned , with multiple payments received per case . story_separator_special_tag change in fair value of warrant liability the decrease in the non-cash loss of approximately $ 202,000 for the year ended december 31 , 2015 as compared to the same period in 2014 is primarily due to a fewer number of estimated average warrants outstanding , as the majority of the outstanding liability-classified warrants were reclassified to equity upon the closing of our initial public offering in february 2014. income taxes over the past several years we have generated operating losses in all jurisdictions in which we may be subject to income taxes . as a result , we have accumulated significant net operating losses and other deferred tax assets . because of our history of losses and the uncertainty as to the realization of those deferred tax assets , a full valuation allowance has been recognized . we do not expect to report a provision for income taxes until we have a history of earnings , if ever , that would support the realization of our deferred tax assets . we have not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation , due to the complexity and cost associated with such a study , and the fact that there may be additional ownership changes in the future , however , we believe an ownership change likely occurred during 2015 . as a result , we have estimated that the use of our net operating loss is limited and the remaining net operating loss carryforwards and research and development credits we estimate can be used in the future remain fully offset by a valuation allowance to reduce the net asset to zero . 62 inflation we do not believe that inflation has had a material adverse impact on our business or operating results during the periods presented . story_separator_special_tag style= `` font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; `` > on stock to aspire capital . aspire capital has no right to require any sales by us , but is obligated to make purchases from us as directed by us in accordance with the common stock purchase agreement . there are no limitations on use of proceeds , financia l or business covenants , restrictions on future fundings , rights of first refusal , participation rights , penalties or liquidated damages in the common stock purchase agreement . in consideration for entering into , and concurrently with the execution of , th e common stock purchase agreement , we issued to aspire capital 165,000 shares of our common stock . the common stock purchase agreement may be terminated by us at any time , at our discretion , without any cost to us . aspire capital has agreed that neither i t nor any of its agents , representatives and affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior to the termination of the common stock purchase agreement . any proceeds we receive under the c ommon stock purchase agremeent are expected to be used for working capital and general corporate purposes . approximately $ 14.0 million , or up to 2,984,122 shares , remains available to be issued to aspire capital under this agreement as of march 3 , 2016. note and warrant financings from february 2011 to november 2012 , we sold secured convertible promissory notes with an aggregate principal amount of approximately $ 12.3 million , together with warrants that subsequently became exercisable for 108,786 shares of our common stock at an exercise price of $ 10.00 per share , to 11 accredited investors , for aggregate gross proceeds of approximately $ 12.3 million . from january 2012 to december 2012 , we sold promissory notes with an aggregate principal amount of approximately $ 6.0 million , together with warrants that subsequently became exercisable for 52,557 shares of our common stock to five accredited investors at an exercise price of $ 10.00 per share , for aggregate gross proceeds of approximately $ 6.0 million . these promissory notes were converted into shares of our common stock upon the closing of our initial public offering . from december 2012 through january 2014 , we sold promissory notes with an aggregate principal amount of approximately $ 5.2 million , together with warrants that subsequently became exercisable for 258,249 shares of our common stock at an exercise price of $ 10.00 per share , to 14 accredited investors , for aggregate gross proceeds of approximately $ 5.2 million . other debt and warrant financings in july 2013 , we entered into a revolving line of credit with ubs bank usa in the initial amount of $ 1.5 million . the maximum amount of this line of credit was subsequently increased to approximately $ 2.6 million . interest accrued daily on the outstanding balance and was paid monthly at a variable rate , which was 2.75 % over the 30 day libor rate , or an effective annual interest rate of 2.92 % . ubs bank usa had the right to terminate the revolving line of credit at any time , and if it did , all amounts drawn under the revolving line of credit would be immediately payable . an affiliate of our director david f. hale , and an affiliate of claire k. t. reiss , a 5 % shareholder and at the time a director , an affiliate of our director edward neff , an affiliate of our director bruce e. gerhardt , and an affiliate of our director ivor royston guaranteed the loan and pledged financial assets to ubs bank usa to secure their guaranties . in return , we issued common stock warrants to the guarantors . the number of shares underlying the associated common stock warrants were fixed so that such warrants became exercisable
| liquidity our liquidity consists of cash balances and available capacity on our revolving line of credit . during the year ended december 31 , 2018 , we exercised our option to expand our revolving credit facility by $ 200.0 million , bringing the total borrowing capacity to $ 800.0 million . as of december 31 , 2018 , we had cash and restricted cash of $ 72.6 million and had the capacity to borrow up to $ 632.5 million on our revolving credit facility , after consideration of $ 7.1 million letters of credit backed by the facility . we use our credit facility primarily for working capital and other short-term purposes and to secure letters of credit . we manage our financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt . at december 31 , 2018 , we held unencumbered apartment communities with an estimated fair market value of approximately $ 2.7 billion , up 50 % from december 31 , 2017 . two credit rating agencies rate our creditworthiness , using different methodologies and ratios for assessing our credit , and both have rated our credit and outlook as bbb- ( stable ) , an investment grade rating . although some of the ratios they use are similar to those we use to measure our leverage , there are differences in our methods of calculation and therefore our leverage ratios disclosed above are not indicative of the ratios that may be calculated by these agencies .
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the lung cancer biomarker analysis currently includes fish testing for alk and ros1 gene rearrangements and mutation analysis of the t790m , deletion 19 , and l858r mutations of the epidermal growth factor receptor , or egfr , gene as well as b-raf and k-ras using our target-selector platform . the l858r mutation of the egfr gene and exon 19 deletions as activators of egfr kinase activity are associated with the drugs tarceva® , gilotrif® and iressa® . the codon 12 and 13 mutations of the k-ras gene are found in patients whose tumors are unlikely to respond to the egfr kinase inhibitors such as erbitux® and vectibix® . for lung cancer , we also offer a resistance panel assay consisting of the biomarkers met , her2 ( both of which we perform using our technology for ctcs ) and t790m which is performed using ctdna in plasma . this assay could be used by physicians to identify the mechanism causing disease progression for patients with nsclc who are being treated with tki therapy and therefore could qualify for inclusion in a clinical trial . fibroblast growth receptor 1 , or fgfr1 , amplification is offered using our ctc technology . fgfr1 is present in several tumor types , including both nsclc and sclc and has been shown to be a prognostic indicator of progression . fgfr1 is also a key target for many drugs which are in clinical development . mutations of the b-raf gene are associated with zelboraf® and tafinlar® , which are both approved for treating patients with melanoma and are in clinical trials for lung cancer . we offer testing for b-raf on blood using our ctdna offering . 57 we plan to add other biomarker analyses on blood samples to our current assays and our planned future target-selector assays as their relevance is demonstrated in clinical trials and or included in guidelines used by physicians to make treatment decisions . our revenue generating efforts are focused in three areas : · providing clinical testing that oncologists use in order to determine the best treatment plan for their patients ; · providing clinical trial , research and development services to biopharma companies developing cancer therapies ; and · licensing our proprietary testing and or technologies to partners in the united states and abroad . key factors affecting our results of operations and financial condition our overall long-term growth plan depends on our ability to continue to develop and commercialize assays through our clia-certified , cap-accredited , and state-licensed laboratory . we have launched our target-selector offering for breast cancer , lung cancer , gastric cancer , colorectal cancer , prostate cancer , and melanoma , and plan to continue to launch a series of cancer diagnostic assays for different predictive biomarkers assays in the united states as ldts performed in our laboratory , and enhance revenue for these products through the efforts of our sales and marketing organization , which we plan to expand . our sales strategy is to engage oncologists and other physicians in the united states at private and group practices , hospitals and cancer centers . we also plan to evaluate potential opportunities for the commercialization of our products in other countries . in addition to testing for physicians and their patients , we plan to offer clinical trials testing and research services to help increase the efficiency and economic viability of clinical trials for pharmaceutical and biopharmaceutical companies and clinical research organizations both within and outside of the united states . we are currently exploring the possibility of introducing ctdna technology outside the united states as part of ce-marked ivd test kits and or testing systems utilizing our target-selector technologies . we plan to cooperate with partners on accessing markets internationally . we plan for this to be accomplished either through partnerships with local groups and distributors or the development of ivds and or test systems , including instrumentation . we also have a research and development program focused on technology enhancements , novel platform development , and evaluating clinical applications for our cancer diagnostic tests in different cancer types and clinical settings . to facilitate market adoption of our assays , we anticipate having to successfully complete additional clinical utility studies with clinical samples to generate clinical utility data and then publish our results in peer-reviewed scientific journals . our ability to complete such clinical studies is dependent upon our ability to leverage our collaborative relationships with leading institutions to facilitate our research , to conduct the appropriate clinical studies and to obtain favorable clinical data . we collaborate with physicians and researchers at sarah cannon research institute , baylor college of medicine , the university of texas md anderson cancer center , the dana-farber cancer institute , the university of california , san diego , university of california , irvine , washington university , university of colorado , yale university and columbia university and plan to expand our collaborative relationships to include other key thought leaders at other institutions for the cancer types we target with our target selector commercialized assays and our planned future assays . such relationships help us develop and validate the effectiveness and utility of our commercialized assays and our planned future assays in specific clinical settings and provide us access to patient samples and data . we believe that the factors discussed in the following paragraphs have had and are expected to continue to have a material impact on our results of operations and financial condition . revenues we accessioned 1,608 commercial cases during the year ended december 31 , 2015 as compared to 402 commercial cases for the same period in 2014 , an increase of 1,206 cases , or 300 % . revenues from commercial cases are recognized as collected , and the expected collection period for a commercial case often extends beyond the end of the quarter in which accessioned , with multiple payments received per case . story_separator_special_tag change in fair value of warrant liability the decrease in the non-cash loss of approximately $ 202,000 for the year ended december 31 , 2015 as compared to the same period in 2014 is primarily due to a fewer number of estimated average warrants outstanding , as the majority of the outstanding liability-classified warrants were reclassified to equity upon the closing of our initial public offering in february 2014. income taxes over the past several years we have generated operating losses in all jurisdictions in which we may be subject to income taxes . as a result , we have accumulated significant net operating losses and other deferred tax assets . because of our history of losses and the uncertainty as to the realization of those deferred tax assets , a full valuation allowance has been recognized . we do not expect to report a provision for income taxes until we have a history of earnings , if ever , that would support the realization of our deferred tax assets . we have not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation , due to the complexity and cost associated with such a study , and the fact that there may be additional ownership changes in the future , however , we believe an ownership change likely occurred during 2015 . as a result , we have estimated that the use of our net operating loss is limited and the remaining net operating loss carryforwards and research and development credits we estimate can be used in the future remain fully offset by a valuation allowance to reduce the net asset to zero . 62 inflation we do not believe that inflation has had a material adverse impact on our business or operating results during the periods presented . story_separator_special_tag style= `` font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; `` > on stock to aspire capital . aspire capital has no right to require any sales by us , but is obligated to make purchases from us as directed by us in accordance with the common stock purchase agreement . there are no limitations on use of proceeds , financia l or business covenants , restrictions on future fundings , rights of first refusal , participation rights , penalties or liquidated damages in the common stock purchase agreement . in consideration for entering into , and concurrently with the execution of , th e common stock purchase agreement , we issued to aspire capital 165,000 shares of our common stock . the common stock purchase agreement may be terminated by us at any time , at our discretion , without any cost to us . aspire capital has agreed that neither i t nor any of its agents , representatives and affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior to the termination of the common stock purchase agreement . any proceeds we receive under the c ommon stock purchase agremeent are expected to be used for working capital and general corporate purposes . approximately $ 14.0 million , or up to 2,984,122 shares , remains available to be issued to aspire capital under this agreement as of march 3 , 2016. note and warrant financings from february 2011 to november 2012 , we sold secured convertible promissory notes with an aggregate principal amount of approximately $ 12.3 million , together with warrants that subsequently became exercisable for 108,786 shares of our common stock at an exercise price of $ 10.00 per share , to 11 accredited investors , for aggregate gross proceeds of approximately $ 12.3 million . from january 2012 to december 2012 , we sold promissory notes with an aggregate principal amount of approximately $ 6.0 million , together with warrants that subsequently became exercisable for 52,557 shares of our common stock to five accredited investors at an exercise price of $ 10.00 per share , for aggregate gross proceeds of approximately $ 6.0 million . these promissory notes were converted into shares of our common stock upon the closing of our initial public offering . from december 2012 through january 2014 , we sold promissory notes with an aggregate principal amount of approximately $ 5.2 million , together with warrants that subsequently became exercisable for 258,249 shares of our common stock at an exercise price of $ 10.00 per share , to 14 accredited investors , for aggregate gross proceeds of approximately $ 5.2 million . other debt and warrant financings in july 2013 , we entered into a revolving line of credit with ubs bank usa in the initial amount of $ 1.5 million . the maximum amount of this line of credit was subsequently increased to approximately $ 2.6 million . interest accrued daily on the outstanding balance and was paid monthly at a variable rate , which was 2.75 % over the 30 day libor rate , or an effective annual interest rate of 2.92 % . ubs bank usa had the right to terminate the revolving line of credit at any time , and if it did , all amounts drawn under the revolving line of credit would be immediately payable . an affiliate of our director david f. hale , and an affiliate of claire k. t. reiss , a 5 % shareholder and at the time a director , an affiliate of our director edward neff , an affiliate of our director bruce e. gerhardt , and an affiliate of our director ivor royston guaranteed the loan and pledged financial assets to ubs bank usa to secure their guaranties . in return , we issued common stock warrants to the guarantors . the number of shares underlying the associated common stock warrants were fixed so that such warrants became exercisable
| liquidity and capital resources we are actively working to improve our financial position and enable the growth of our business , by raising new capital and generating revenues . equity financings pursuant to an underwriting agreement dated february 4 , 2014 between us and aegis capital corp. , or aegis , as representative of the several underwriters named therein , an initial public offering of 1,900,000 shares of common stock at $ 10.00 per share was effected on february 5 , 2014. the closing of the sale of these shares to the underwriters occurred on february 10 , 2014. we received , after deducting underwriting discounts and additional costs paid to the underwriters , approximately $ 17.4 million of net cash proceeds from the sale of these 1,900,000 shares . the total increase in capital as a result of the sale of these shares was approximately $ 16.5 million after deducting $ 0.9 million of additional non-underwriter costs incurred that are netted against these proceeds under applicable accounting guidance . in addition , designees of aegis were issued warrants to buy ( in the aggregate ) up to 95,000 shares of common stock at $ 12.50 per share with a term of five years . pursuant to an underwriting agreement dated february 9 , 2015 between us , aegis and feltl and company , as underwriters named therein , a public offering of 8,000,000 shares of our common stock and warrants to purchase up to an aggregate of 8,000,000 shares of common stock was effected at a combined offering price of $ 1.25. the estimated grant date fair value of these warrants of $ 7.7 million was recorded as an offset to additional paid-in capital within common stock issuance upon the closing of this offering .
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our global delivery network , comprising of highly trained industry and process specialists across the united states , europe and asia , is a key asset . we operate sixteen operations centers in india , six operations centers in the u.s. , three operations centers in the philippines and one operations center in each of bulgaria , romania , malaysia and the czech republic . revenues for the year ended december 31 , 2013 , we had total revenues of $ 478.5 million compared to total revenues of $ 442.9 million for the year ended december 31 , 2012 , an increase of $ 35.6 million or 8.0 % . revenues from outsourcing services increased from $ 366.8 million for the year ended december 31 , 2012 to $ 395.0 million for the year ended december 31 , 2013. revenues from transformation services increased from $ 76.1 million for the year ended december 31 , 2012 to $ 83.5 million for the year ended december 31 , 2013. we serve clients mainly in the u.s. and the u.k. , with these two regions generating approximately 73.8 % and 19.4 % , respectively , of our total revenues for the year ended december 31 , 2013 and approximately 72.3 % and 20.2 % , respectively , of our total revenues for the year ended december 31 , 2012. in the years ended december 31 , 2013 and 2012 , our total revenues from our top ten clients accounted for 57.9 % and 59.1 % of our total revenues , respectively . none of the clients accounted for more than 10 % of our total revenues in the year ended december 31 , 2013 , compared to one client in the year ended december 31 , 2012. although we are increasing and diversifying our customer base , we expect in the near future that a significant portion of our revenues will continue to be contributed by a limited number of large clients . we derived revenues from 22 and 38 new clients for our services in the years ended december 31 , 2013 and 2012 , respectively . in addition , another two clients acquired during the year 2013 did not generate revenues in 2013 but are expected to start generating revenues from 2014. on november 1 , 2013 , we received a termination notice from travelers under the services agreement . travelers represented 9.7 % of our total revenues for the year ended december 31 , 2013. while this termination did not have a material impact on our calendar year 2013 revenues , we do estimate a reduction in 2014 revenues of between $ 12 million and $ 20 million due to certain services we currently provide to travelers being transitioned away from us throughout 2014. in addition , we expect that we will reimburse travelers for certain of their expenses incurred in connection with the termination , which will further reduce our revenues in 2014. we also expect that we will provide certain disentanglement services to travelers at our expense during the transition period , which will increase our expenses in 2014. we are still discussing the termination process with travelers and , as a result , at this point can not reasonably estimate the total amount of reimbursements we may make to travelers or what internal costs we will incur as a result of the termination . 42 our business we break our business into two segments : outsourcing services and transformation services . we market our services to our existing and prospective clients through our sales and client management teams , which are aligned by key industry verticals and cross-industry domains such as finance and accounting . our sales and client management teams operate from the u.s. and europe . outsourcing services : we provide our clients with a range of outsourcing services principally in the insurance , healthcare , utilities , banking and financial services , and travel , transportation and logistics sectors , as well as cross-industry outsourcing services , such as finance and accounting services . we serve primarily the needs of global 1000 companies in these sectors . our outsourcing services involve the transfer to us of select business operations of a client , such as claims processing , policy administration and finance and accounting , after which we administer and manage the operations for our client on an ongoing basis . as part of this transfer , we hire and train employees to work at our operations centers on the relevant outsourcing services , implement a process migration to these operations centers and then provide services either to the client or directly to the client 's customers . each client contract has different terms based on the scope , deliverables and complexity of the engagement . the outsourcing services we provide to any of our clients ( particularly under our general framework agreements ) , and the revenues and income that we derive from those services , may decline or vary as the type and quantity of services we provide under those contracts change over time , including as a result of a shift in the mix of products and services we provide . for most outsourcing services , we enter into long-term agreements with our clients with typical initial terms ranging from three to eight years . these contracts also usually contain provisions permitting termination of the contract after a short notice period . although these agreements provide us with a relatively predictable revenue base for a substantial portion of our business , the long selling cycle for our outsourcing services and the budget and approval processes of prospective clients make it difficult to predict the timing of new client acquisitions . revenues under new client contracts also vary depending on when we complete the selling cycle and the implementation phase . story_separator_special_tag these policies include revenue recognition , estimating tax liabilities , stock-based compensation , goodwill , intangibles and long-lived assets , derivative instruments and assets and obligations related to employee benefit plans . these accounting policies and the associated risks are set out below . future events may not develop exactly as forecast and estimates routinely require adjustment . revenue recognition we derive our revenues from outsourcing and transformation services . revenues from outsourcing services are recognized primarily on a time-and-material , cost-plus or unit-priced basis ; revenues from transformation services are recognized primarily on a time-and-material , fixed price or contingent fee basis . the services provided within our outsourcing and transformation contracts generally contain one unit of accounting except the information technology contracts involving complex implementation services and post contract maintenance services . revenues are recognized under our contracts generally when persuasive evidence of an arrangement exists , the sales price is fixed or determinable , services have been performed and collection of amounts billed is reasonably assured . revenues under time-and-material contracts are recognized as the services are performed . revenues are recognized on cost-plus contracts on the basis of contractually agreed direct and indirect costs incurred on a client contract plus an agreed-upon profit markup . such revenues are recognized as the related services are provided in accordance with the client contract . when the terms of the client contract specify service level parameters that must be met ( such as turnaround time or accuracy ) , we monitor such service level parameters to determine if any service credits or penalties have been incurred . revenues are recognized net of any service credits that are due to a client . we have experienced minimal service credits and penalties to date . revenues for our fixed-price transformation services contracts are recognized using the proportional performance method when the pattern of performance under the contracts can be reasonably determined . we estimate the proportional performance of a contract by comparing the actual number of hours or days worked to 47 the estimated total number of hours or days required to complete each engagement . the use of the proportional performance method requires significant judgment relative to estimating the number of hours or days required to complete the contracted scope of work , including assumptions and estimates relative to the length of time to complete the project and the nature and complexity of the work to be performed . we regularly monitor our estimates for completion of a project and record changes in the period in which a change in an estimate is determined . if a change in an estimate results in a projected loss on a project , such loss is recognized in the period in which it is first identified . revenues from software licensing arrangements , which does not involve significant production , modification , or customization of software , are recognized at the later of time of delivery or expiration of significant termination rights as long as other revenue recognition criteria ( mentioned above ) are met . when there are significant production modifications or customization , installation , systems integration or related services , the professional services and license revenues are combined as a single unit of account and maintenance services , if any , as a separate unit of account and the total contract fees are allocated among the two based on a residual value method . revenues related to license fees and complex information technology application development services are recognized as the service is performed using the percentage of completion method of accounting , under which the total value of revenue is recognized on the basis of the percentage that each contract 's total labor hours to date bears to the total expected labor hours ( input method ) . revenues related to maintenance services contracts , whether entered into solely for providing such services or are segregated from a multiple-element contract , are recognized on a straight-line basis over the contract term unless revenues are earned and obligations are fulfilled in a different pattern . we make accruals for revenues and receivables for services rendered between the last billing date and the balance sheet date . accordingly , our accounts receivable include amounts for services that we have performed and for which an invoice has not yet been issued to the client . these are included in accounts receivable on our consolidated balance sheet and the amounts are disclosed in the notes to our consolidated financial statements . goodwill , intangible assets and long-lived assets the purchase method of accounting is used for all business combinations . we account for our business combinations by recognizing the identifiable tangible and intangible assets and liabilities assumed , and non-controlling interest in the acquired business , measured at their acquisition date fair values . all assets and liabilities of the acquired business including goodwill are assigned to reporting units . acquisition related costs are expensed as incurred under sg & a expenses . we evaluate goodwill for impairment at least annually , or as circumstances warrant . when determining the fair value of our reporting units , we utilize various assumptions , including projections of future cash flows . any adverse changes in key assumptions about our businesses and their prospects or an adverse change in market conditions may cause a change in the estimation of fair value and could result in an impairment charge . we review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . in general , we will recognize an impairment loss when the sum of undiscounted expected future cash flows is less than the carrying amount of such asset . the estimate of undiscounted cash flows and the fair value of assets require several assumptions and estimates like the weighted average cost of capital , discount rates , risk-free rates ,
| liquidity and capital resources we are actively working to improve our financial position and enable the growth of our business , by raising new capital and generating revenues . equity financings pursuant to an underwriting agreement dated february 4 , 2014 between us and aegis capital corp. , or aegis , as representative of the several underwriters named therein , an initial public offering of 1,900,000 shares of common stock at $ 10.00 per share was effected on february 5 , 2014. the closing of the sale of these shares to the underwriters occurred on february 10 , 2014. we received , after deducting underwriting discounts and additional costs paid to the underwriters , approximately $ 17.4 million of net cash proceeds from the sale of these 1,900,000 shares . the total increase in capital as a result of the sale of these shares was approximately $ 16.5 million after deducting $ 0.9 million of additional non-underwriter costs incurred that are netted against these proceeds under applicable accounting guidance . in addition , designees of aegis were issued warrants to buy ( in the aggregate ) up to 95,000 shares of common stock at $ 12.50 per share with a term of five years . pursuant to an underwriting agreement dated february 9 , 2015 between us , aegis and feltl and company , as underwriters named therein , a public offering of 8,000,000 shares of our common stock and warrants to purchase up to an aggregate of 8,000,000 shares of common stock was effected at a combined offering price of $ 1.25. the estimated grant date fair value of these warrants of $ 7.7 million was recorded as an offset to additional paid-in capital within common stock issuance upon the closing of this offering .
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our global delivery network , comprising of highly trained industry and process specialists across the united states , europe and asia , is a key asset . we operate sixteen operations centers in india , six operations centers in the u.s. , three operations centers in the philippines and one operations center in each of bulgaria , romania , malaysia and the czech republic . revenues for the year ended december 31 , 2013 , we had total revenues of $ 478.5 million compared to total revenues of $ 442.9 million for the year ended december 31 , 2012 , an increase of $ 35.6 million or 8.0 % . revenues from outsourcing services increased from $ 366.8 million for the year ended december 31 , 2012 to $ 395.0 million for the year ended december 31 , 2013. revenues from transformation services increased from $ 76.1 million for the year ended december 31 , 2012 to $ 83.5 million for the year ended december 31 , 2013. we serve clients mainly in the u.s. and the u.k. , with these two regions generating approximately 73.8 % and 19.4 % , respectively , of our total revenues for the year ended december 31 , 2013 and approximately 72.3 % and 20.2 % , respectively , of our total revenues for the year ended december 31 , 2012. in the years ended december 31 , 2013 and 2012 , our total revenues from our top ten clients accounted for 57.9 % and 59.1 % of our total revenues , respectively . none of the clients accounted for more than 10 % of our total revenues in the year ended december 31 , 2013 , compared to one client in the year ended december 31 , 2012. although we are increasing and diversifying our customer base , we expect in the near future that a significant portion of our revenues will continue to be contributed by a limited number of large clients . we derived revenues from 22 and 38 new clients for our services in the years ended december 31 , 2013 and 2012 , respectively . in addition , another two clients acquired during the year 2013 did not generate revenues in 2013 but are expected to start generating revenues from 2014. on november 1 , 2013 , we received a termination notice from travelers under the services agreement . travelers represented 9.7 % of our total revenues for the year ended december 31 , 2013. while this termination did not have a material impact on our calendar year 2013 revenues , we do estimate a reduction in 2014 revenues of between $ 12 million and $ 20 million due to certain services we currently provide to travelers being transitioned away from us throughout 2014. in addition , we expect that we will reimburse travelers for certain of their expenses incurred in connection with the termination , which will further reduce our revenues in 2014. we also expect that we will provide certain disentanglement services to travelers at our expense during the transition period , which will increase our expenses in 2014. we are still discussing the termination process with travelers and , as a result , at this point can not reasonably estimate the total amount of reimbursements we may make to travelers or what internal costs we will incur as a result of the termination . 42 our business we break our business into two segments : outsourcing services and transformation services . we market our services to our existing and prospective clients through our sales and client management teams , which are aligned by key industry verticals and cross-industry domains such as finance and accounting . our sales and client management teams operate from the u.s. and europe . outsourcing services : we provide our clients with a range of outsourcing services principally in the insurance , healthcare , utilities , banking and financial services , and travel , transportation and logistics sectors , as well as cross-industry outsourcing services , such as finance and accounting services . we serve primarily the needs of global 1000 companies in these sectors . our outsourcing services involve the transfer to us of select business operations of a client , such as claims processing , policy administration and finance and accounting , after which we administer and manage the operations for our client on an ongoing basis . as part of this transfer , we hire and train employees to work at our operations centers on the relevant outsourcing services , implement a process migration to these operations centers and then provide services either to the client or directly to the client 's customers . each client contract has different terms based on the scope , deliverables and complexity of the engagement . the outsourcing services we provide to any of our clients ( particularly under our general framework agreements ) , and the revenues and income that we derive from those services , may decline or vary as the type and quantity of services we provide under those contracts change over time , including as a result of a shift in the mix of products and services we provide . for most outsourcing services , we enter into long-term agreements with our clients with typical initial terms ranging from three to eight years . these contracts also usually contain provisions permitting termination of the contract after a short notice period . although these agreements provide us with a relatively predictable revenue base for a substantial portion of our business , the long selling cycle for our outsourcing services and the budget and approval processes of prospective clients make it difficult to predict the timing of new client acquisitions . revenues under new client contracts also vary depending on when we complete the selling cycle and the implementation phase . story_separator_special_tag these policies include revenue recognition , estimating tax liabilities , stock-based compensation , goodwill , intangibles and long-lived assets , derivative instruments and assets and obligations related to employee benefit plans . these accounting policies and the associated risks are set out below . future events may not develop exactly as forecast and estimates routinely require adjustment . revenue recognition we derive our revenues from outsourcing and transformation services . revenues from outsourcing services are recognized primarily on a time-and-material , cost-plus or unit-priced basis ; revenues from transformation services are recognized primarily on a time-and-material , fixed price or contingent fee basis . the services provided within our outsourcing and transformation contracts generally contain one unit of accounting except the information technology contracts involving complex implementation services and post contract maintenance services . revenues are recognized under our contracts generally when persuasive evidence of an arrangement exists , the sales price is fixed or determinable , services have been performed and collection of amounts billed is reasonably assured . revenues under time-and-material contracts are recognized as the services are performed . revenues are recognized on cost-plus contracts on the basis of contractually agreed direct and indirect costs incurred on a client contract plus an agreed-upon profit markup . such revenues are recognized as the related services are provided in accordance with the client contract . when the terms of the client contract specify service level parameters that must be met ( such as turnaround time or accuracy ) , we monitor such service level parameters to determine if any service credits or penalties have been incurred . revenues are recognized net of any service credits that are due to a client . we have experienced minimal service credits and penalties to date . revenues for our fixed-price transformation services contracts are recognized using the proportional performance method when the pattern of performance under the contracts can be reasonably determined . we estimate the proportional performance of a contract by comparing the actual number of hours or days worked to 47 the estimated total number of hours or days required to complete each engagement . the use of the proportional performance method requires significant judgment relative to estimating the number of hours or days required to complete the contracted scope of work , including assumptions and estimates relative to the length of time to complete the project and the nature and complexity of the work to be performed . we regularly monitor our estimates for completion of a project and record changes in the period in which a change in an estimate is determined . if a change in an estimate results in a projected loss on a project , such loss is recognized in the period in which it is first identified . revenues from software licensing arrangements , which does not involve significant production , modification , or customization of software , are recognized at the later of time of delivery or expiration of significant termination rights as long as other revenue recognition criteria ( mentioned above ) are met . when there are significant production modifications or customization , installation , systems integration or related services , the professional services and license revenues are combined as a single unit of account and maintenance services , if any , as a separate unit of account and the total contract fees are allocated among the two based on a residual value method . revenues related to license fees and complex information technology application development services are recognized as the service is performed using the percentage of completion method of accounting , under which the total value of revenue is recognized on the basis of the percentage that each contract 's total labor hours to date bears to the total expected labor hours ( input method ) . revenues related to maintenance services contracts , whether entered into solely for providing such services or are segregated from a multiple-element contract , are recognized on a straight-line basis over the contract term unless revenues are earned and obligations are fulfilled in a different pattern . we make accruals for revenues and receivables for services rendered between the last billing date and the balance sheet date . accordingly , our accounts receivable include amounts for services that we have performed and for which an invoice has not yet been issued to the client . these are included in accounts receivable on our consolidated balance sheet and the amounts are disclosed in the notes to our consolidated financial statements . goodwill , intangible assets and long-lived assets the purchase method of accounting is used for all business combinations . we account for our business combinations by recognizing the identifiable tangible and intangible assets and liabilities assumed , and non-controlling interest in the acquired business , measured at their acquisition date fair values . all assets and liabilities of the acquired business including goodwill are assigned to reporting units . acquisition related costs are expensed as incurred under sg & a expenses . we evaluate goodwill for impairment at least annually , or as circumstances warrant . when determining the fair value of our reporting units , we utilize various assumptions , including projections of future cash flows . any adverse changes in key assumptions about our businesses and their prospects or an adverse change in market conditions may cause a change in the estimation of fair value and could result in an impairment charge . we review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . in general , we will recognize an impairment loss when the sum of undiscounted expected future cash flows is less than the carrying amount of such asset . the estimate of undiscounted cash flows and the fair value of assets require several assumptions and estimates like the weighted average cost of capital , discount rates , risk-free rates ,
| liquidity and capital resources replace_table_token_15_th as of december 31 , 2013 , we had $ 154.1 million in cash and cash equivalents and short-term investments ( including $ 67.2 million held by our foreign subsidiaries ) . we do not intend to repatriate our overseas funds since our future growth partially depends upon the continued infrastructure and technology investments , geographical expansions and acquisitions made outside of the u.s. therefore , we need to continuously and permanently reinvest the earnings generated outside of the u.s. if we were to repatriate our overseas funds , we would need to accrue and pay applicable taxes . 56 cash flow from operating activities : cash flows provided by operating activities increased by $ 17.0 million from $ 65.8 million in the year ended december 31 , 2012 to $ 82.8 million in the year ended december 31 , 2013. generally , factors that affect our earningsincluding pricing , volume of services , costs and productivityaffect our cash flows provided by operations in a similar manner . however , while management of working capital , including timing of collections and payments affects operating results only indirectly , the impact on the working capital and cash flows provided by operating activities can be significant .
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our provision for income taxes could be adversely affected by our earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates , losses incurred in jurisdictions for which we are not able to realize the related tax benefit , changes in foreign currency exchange rates , entry into new businesses and geographies and changes to our existing businesses , acquisitions ( including integrations ) and investments , changes in our deferred tax assets and liabilities including changes in our assessment of valuation allowances , changes in the relevant tax laws or interpretations of these tax laws , and developments in current and future tax examinations . we only recognize the tax benefit of an income tax position if we judge that it is more likely than not that the tax position will be sustained , solely on its technical merits , in a tax audit including resolution of any related appeals or litigation processes . to make this judgment , we must interpret complex and sometimes ambiguous tax laws , regulations and administrative practices . if we judge that an income tax position meets this recognition threshold , then we must measure the amount of the tax benefit to be recognized by estimating the largest amount of tax benefit that has a greater than 50 % cumulative probability of being realized upon effective settlement with a taxing authority that has full knowledge of all of the relevant facts . it is inherently difficult and subjective to estimate such amounts , as this requires us to determine the probability of various possible settlement outcomes . we must reevaluate our income tax positions on a quarterly basis to consider factors such as changes in facts or circumstances , changes in tax law , effectively settled issues under audit , the lapse of applicable statute of limitations , and new audit activity . such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision . for a more detailed description of our unrecognized tax benefits , see note 6 in the notes to consolidated financial statements . 28 revenue recognition we begin to recognize revenue when all of the following criteria are met : we have persuasive evidence of an arrangement with a customer ; delivery has occurred ; the fee for the arrangement is considered to be fixed or determinable at the outset of the arrangement ; and collectibility of the fee is probable . significant judgment is involved in the determination of whether the facts and circumstances of an arrangement support that the fee for the arrangement is considered to be fixed or determinable and that collectibility of the fee is probable , and these judgments can affect the amount of revenue that we recognize in a particular reporting period . for installment contracts that do not include a substantial upfront payment , we consider a fee to be fixed or determinable only if the arrangement has payment periods that are less than or equal to the term of the licenses and the payments are collected in equal or nearly equal installments , when evaluated over the entire term of the arrangement . if we no longer were to have a history of collecting under the original contract without providing concessions on term licenses , revenue from term licenses would be required to be recognized when payments under the installment contract become due and payable . such a change could have a material adverse effect on our results of operations . we must also make judgments when assessing whether a contract amendment to a term arrangement ( primarily in the context of a license extension or renewal ) constitutes a concession . we have established a history of collecting under contracts for which the fee has been assessed as fixed or determinable , without providing concessions on payments , products or services . generally , we are able to estimate whether collection is probable , but significant judgment is applied as we assess the creditworthiness of our customers to make this determination . key external and internal factors are considered in developing our creditworthiness assessment , including public information , historical and current financial statements and past collection history . if our experience were to change , it could have a material adverse effect on our results of operations . if , in our judgment , collection of a fee is not probable , we do not record revenue until the uncertainty is removed , which is generally upon receipt of cash payment . in general , revenue associated with term and subscription licenses is recognized ratably over the term of the license , commencing upon the later of the effective date of the arrangement or delivery of the first software product . in general , product revenue associated with perpetual licenses where vendor specific objective evidence , or vsoe , exists for the undelivered maintenance is recognized up front , upon the later of the effective date of the arrangement or delivery of the software product , provided all other conditions for revenue recognition have been met , and maintenance revenue is recognized ratably over the maintenance term . a relatively small percentage of our revenue from software licenses is recognized on an upfront basis . our hardware products generally include the hardware product and its related essential software , and maintenance for the hardware and the essential software . consideration allocated to the hardware product and the essential software is recognized as revenue at the time of delivery , provided all other conditions for revenue recognition have been met . consideration allocated to the maintenance is recognized ratably over the maintenance term . revenue from customized ip services is recognized either on the time and materials method , as work is performed , or on the percentage-of-completion method . story_separator_special_tag our employee salary and other compensation-related costs included in general and administrative decreased during fiscal 2014 , as compared to fiscal 2013 , primarily due to a decrease in acquisition-related compensation costs . employee salary and other compensation-related costs included in general and administrative increased during fiscal 2013 , as compared to fiscal 2012 , primarily due to incremental costs related to employees added from our fiscal 2013 and 2012 acquisitions . stock-based compensation included in operating expenses increased $ 17.5 million during fiscal 2014 , as compared to fiscal 2013 , and $ 18.7 million during fiscal 2013 , as compared to fiscal 2012 , primarily because of higher grant-date fair values of stock awards . during fiscal 2014 , we initiated a voluntary early retirement program . the program was offered to certain eligible employees in north america and japan . we recorded costs associated with this program of approximately $ 9.7 million in our operating expenses during fiscal 2014. we expect our operating expenses to generally increase during fiscal 2015 , as compared to fiscal 2014 , primarily due to expected hiring of additional employees during fiscal 2015 and because fiscal 2015 will include a full year of operating expenses for additional research and development and sales personnel added during fiscal 2014 through hiring and our fiscal 2014 acquisitions . we also expect stock-based compensation included in operating expenses to increase during fiscal 2015 , as compared to fiscal 2014 , due to amortization during fiscal 2015 of unrecognized expense related to unvested awards that generally have higher grant-date fair values compared to awards vested in previous years and amortization of new awards granted during fiscal 2015. many of our operating expenses are transacted in various foreign currencies . we recognize lower expenses in periods when the united states dollar strengthens in value against other currencies and we recognize higher expenses when the united states dollar weakens against other currencies . for an additional description of how changes in foreign exchange rates affect our consolidated financial statements , see the discussion in item 7a , “ quantitative and qualitative disclosures about market risk – foreign currency risk . ” our operating expenses for fiscal 2014 , 2013 and 2012 were as follows : replace_table_token_14_th our operating expenses , as a percentage of total revenue , for fiscal 2014 , 2013 and 2012 were as follows : replace_table_token_15_th 35 marketing and sales the changes in marketing and sales expense were due to the following : replace_table_token_16_th research and development the changes in research and development expense were due to the following : replace_table_token_17_th general and administrative the changes in general and administrative expense were due to the following : replace_table_token_18_th 36 amortization of acquired intangibles replace_table_token_19_th the changes in amortization of acquired intangibles were due to the following : replace_table_token_20_th restructuring and other charges we have initiated various restructuring plans to better align our resources with our business strategy , including a restructuring plan we initiated during fiscal 2014 , or the 2014 restructuring plan , and a restructuring plan we initiated during fiscal 2013 , or the 2013 restructuring plan . for an additional description of the 2014 restructuring plan and 2013 restructuring plan , see note 13 in the notes to consolidated financial statements . because the restructuring charges and related benefits are derived from management 's estimates made during the formulation of the restructuring plans , based on then-currently available information , our restructuring plans may not achieve the benefits anticipated on the timetable or at the level contemplated . demand for our products and services and , ultimately , our future financial performance , is difficult to predict with any degree of certainty . accordingly , additional actions , including further restructuring of our operations , may be required in the future . the following table presents restructuring and other charges ( credits ) , net for our restructuring plans : replace_table_token_21_th restructuring and other charges recorded during fiscal 2014 consisted primarily of costs for severance and termination benefits and impairment of certain property , plant and equipment related to the 2014 restructuring plan . restructuring and other charges recorded during fiscal 2013 consisted primarily of costs for severance and termination benefits related to the 2013 restructuring plan . restructuring and other charges recorded during fiscal 2012 consisted primarily of adjustments to previous estimates of restructuring liabilities . 37 interest expense replace_table_token_22_th we expect interest expense to increase during fiscal 2015 , as compared to fiscal 2014 , due to interest expense on our 2024 notes , partially offset by our repayment of the 2015 notes during fiscal 2015. income taxes the following table presents the provision ( benefit ) for income taxes and the effective tax rate for fiscal 2014 , 2013 and 2012 : replace_table_token_23_th our provision for income taxes for the fiscal year ended january 3 , 2015 primarily resulted from federal , state and foreign income taxes on our fiscal 2014 income . our foreign earnings are generally subject to lower statutory tax rates than our united states earnings . our provision for income taxes included the tax benefit of $ 8.1 million resulting from the enactment of the united states research tax credit in december 2014. our benefit for income taxes for the fiscal year ended december 28 , 2013 primarily consisted of the following : tax benefit of $ 33.7 million related to the release of an uncertain tax position from a previous business combination and the release of related interest and penalties ; and tax benefit of $ 12.8 million for the retroactively enacted fiscal 2012 federal research tax credit and for the fiscal 2013 research tax credit ; which were partially offset by : federal , state and foreign tax expense on our fiscal 2013 income , and tax expense related to integrating our fiscal 2013 acquisitions . 38 our benefit for income taxes for fiscal 2012 primarily consisted of the following : tax benefit from
| liquidity and capital resources replace_table_token_15_th as of december 31 , 2013 , we had $ 154.1 million in cash and cash equivalents and short-term investments ( including $ 67.2 million held by our foreign subsidiaries ) . we do not intend to repatriate our overseas funds since our future growth partially depends upon the continued infrastructure and technology investments , geographical expansions and acquisitions made outside of the u.s. therefore , we need to continuously and permanently reinvest the earnings generated outside of the u.s. if we were to repatriate our overseas funds , we would need to accrue and pay applicable taxes . 56 cash flow from operating activities : cash flows provided by operating activities increased by $ 17.0 million from $ 65.8 million in the year ended december 31 , 2012 to $ 82.8 million in the year ended december 31 , 2013. generally , factors that affect our earningsincluding pricing , volume of services , costs and productivityaffect our cash flows provided by operations in a similar manner . however , while management of working capital , including timing of collections and payments affects operating results only indirectly , the impact on the working capital and cash flows provided by operating activities can be significant .
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our provision for income taxes could be adversely affected by our earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates , losses incurred in jurisdictions for which we are not able to realize the related tax benefit , changes in foreign currency exchange rates , entry into new businesses and geographies and changes to our existing businesses , acquisitions ( including integrations ) and investments , changes in our deferred tax assets and liabilities including changes in our assessment of valuation allowances , changes in the relevant tax laws or interpretations of these tax laws , and developments in current and future tax examinations . we only recognize the tax benefit of an income tax position if we judge that it is more likely than not that the tax position will be sustained , solely on its technical merits , in a tax audit including resolution of any related appeals or litigation processes . to make this judgment , we must interpret complex and sometimes ambiguous tax laws , regulations and administrative practices . if we judge that an income tax position meets this recognition threshold , then we must measure the amount of the tax benefit to be recognized by estimating the largest amount of tax benefit that has a greater than 50 % cumulative probability of being realized upon effective settlement with a taxing authority that has full knowledge of all of the relevant facts . it is inherently difficult and subjective to estimate such amounts , as this requires us to determine the probability of various possible settlement outcomes . we must reevaluate our income tax positions on a quarterly basis to consider factors such as changes in facts or circumstances , changes in tax law , effectively settled issues under audit , the lapse of applicable statute of limitations , and new audit activity . such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision . for a more detailed description of our unrecognized tax benefits , see note 6 in the notes to consolidated financial statements . 28 revenue recognition we begin to recognize revenue when all of the following criteria are met : we have persuasive evidence of an arrangement with a customer ; delivery has occurred ; the fee for the arrangement is considered to be fixed or determinable at the outset of the arrangement ; and collectibility of the fee is probable . significant judgment is involved in the determination of whether the facts and circumstances of an arrangement support that the fee for the arrangement is considered to be fixed or determinable and that collectibility of the fee is probable , and these judgments can affect the amount of revenue that we recognize in a particular reporting period . for installment contracts that do not include a substantial upfront payment , we consider a fee to be fixed or determinable only if the arrangement has payment periods that are less than or equal to the term of the licenses and the payments are collected in equal or nearly equal installments , when evaluated over the entire term of the arrangement . if we no longer were to have a history of collecting under the original contract without providing concessions on term licenses , revenue from term licenses would be required to be recognized when payments under the installment contract become due and payable . such a change could have a material adverse effect on our results of operations . we must also make judgments when assessing whether a contract amendment to a term arrangement ( primarily in the context of a license extension or renewal ) constitutes a concession . we have established a history of collecting under contracts for which the fee has been assessed as fixed or determinable , without providing concessions on payments , products or services . generally , we are able to estimate whether collection is probable , but significant judgment is applied as we assess the creditworthiness of our customers to make this determination . key external and internal factors are considered in developing our creditworthiness assessment , including public information , historical and current financial statements and past collection history . if our experience were to change , it could have a material adverse effect on our results of operations . if , in our judgment , collection of a fee is not probable , we do not record revenue until the uncertainty is removed , which is generally upon receipt of cash payment . in general , revenue associated with term and subscription licenses is recognized ratably over the term of the license , commencing upon the later of the effective date of the arrangement or delivery of the first software product . in general , product revenue associated with perpetual licenses where vendor specific objective evidence , or vsoe , exists for the undelivered maintenance is recognized up front , upon the later of the effective date of the arrangement or delivery of the software product , provided all other conditions for revenue recognition have been met , and maintenance revenue is recognized ratably over the maintenance term . a relatively small percentage of our revenue from software licenses is recognized on an upfront basis . our hardware products generally include the hardware product and its related essential software , and maintenance for the hardware and the essential software . consideration allocated to the hardware product and the essential software is recognized as revenue at the time of delivery , provided all other conditions for revenue recognition have been met . consideration allocated to the maintenance is recognized ratably over the maintenance term . revenue from customized ip services is recognized either on the time and materials method , as work is performed , or on the percentage-of-completion method . story_separator_special_tag our employee salary and other compensation-related costs included in general and administrative decreased during fiscal 2014 , as compared to fiscal 2013 , primarily due to a decrease in acquisition-related compensation costs . employee salary and other compensation-related costs included in general and administrative increased during fiscal 2013 , as compared to fiscal 2012 , primarily due to incremental costs related to employees added from our fiscal 2013 and 2012 acquisitions . stock-based compensation included in operating expenses increased $ 17.5 million during fiscal 2014 , as compared to fiscal 2013 , and $ 18.7 million during fiscal 2013 , as compared to fiscal 2012 , primarily because of higher grant-date fair values of stock awards . during fiscal 2014 , we initiated a voluntary early retirement program . the program was offered to certain eligible employees in north america and japan . we recorded costs associated with this program of approximately $ 9.7 million in our operating expenses during fiscal 2014. we expect our operating expenses to generally increase during fiscal 2015 , as compared to fiscal 2014 , primarily due to expected hiring of additional employees during fiscal 2015 and because fiscal 2015 will include a full year of operating expenses for additional research and development and sales personnel added during fiscal 2014 through hiring and our fiscal 2014 acquisitions . we also expect stock-based compensation included in operating expenses to increase during fiscal 2015 , as compared to fiscal 2014 , due to amortization during fiscal 2015 of unrecognized expense related to unvested awards that generally have higher grant-date fair values compared to awards vested in previous years and amortization of new awards granted during fiscal 2015. many of our operating expenses are transacted in various foreign currencies . we recognize lower expenses in periods when the united states dollar strengthens in value against other currencies and we recognize higher expenses when the united states dollar weakens against other currencies . for an additional description of how changes in foreign exchange rates affect our consolidated financial statements , see the discussion in item 7a , “ quantitative and qualitative disclosures about market risk – foreign currency risk . ” our operating expenses for fiscal 2014 , 2013 and 2012 were as follows : replace_table_token_14_th our operating expenses , as a percentage of total revenue , for fiscal 2014 , 2013 and 2012 were as follows : replace_table_token_15_th 35 marketing and sales the changes in marketing and sales expense were due to the following : replace_table_token_16_th research and development the changes in research and development expense were due to the following : replace_table_token_17_th general and administrative the changes in general and administrative expense were due to the following : replace_table_token_18_th 36 amortization of acquired intangibles replace_table_token_19_th the changes in amortization of acquired intangibles were due to the following : replace_table_token_20_th restructuring and other charges we have initiated various restructuring plans to better align our resources with our business strategy , including a restructuring plan we initiated during fiscal 2014 , or the 2014 restructuring plan , and a restructuring plan we initiated during fiscal 2013 , or the 2013 restructuring plan . for an additional description of the 2014 restructuring plan and 2013 restructuring plan , see note 13 in the notes to consolidated financial statements . because the restructuring charges and related benefits are derived from management 's estimates made during the formulation of the restructuring plans , based on then-currently available information , our restructuring plans may not achieve the benefits anticipated on the timetable or at the level contemplated . demand for our products and services and , ultimately , our future financial performance , is difficult to predict with any degree of certainty . accordingly , additional actions , including further restructuring of our operations , may be required in the future . the following table presents restructuring and other charges ( credits ) , net for our restructuring plans : replace_table_token_21_th restructuring and other charges recorded during fiscal 2014 consisted primarily of costs for severance and termination benefits and impairment of certain property , plant and equipment related to the 2014 restructuring plan . restructuring and other charges recorded during fiscal 2013 consisted primarily of costs for severance and termination benefits related to the 2013 restructuring plan . restructuring and other charges recorded during fiscal 2012 consisted primarily of adjustments to previous estimates of restructuring liabilities . 37 interest expense replace_table_token_22_th we expect interest expense to increase during fiscal 2015 , as compared to fiscal 2014 , due to interest expense on our 2024 notes , partially offset by our repayment of the 2015 notes during fiscal 2015. income taxes the following table presents the provision ( benefit ) for income taxes and the effective tax rate for fiscal 2014 , 2013 and 2012 : replace_table_token_23_th our provision for income taxes for the fiscal year ended january 3 , 2015 primarily resulted from federal , state and foreign income taxes on our fiscal 2014 income . our foreign earnings are generally subject to lower statutory tax rates than our united states earnings . our provision for income taxes included the tax benefit of $ 8.1 million resulting from the enactment of the united states research tax credit in december 2014. our benefit for income taxes for the fiscal year ended december 28 , 2013 primarily consisted of the following : tax benefit of $ 33.7 million related to the release of an uncertain tax position from a previous business combination and the release of related interest and penalties ; and tax benefit of $ 12.8 million for the retroactively enacted fiscal 2012 federal research tax credit and for the fiscal 2013 research tax credit ; which were partially offset by : federal , state and foreign tax expense on our fiscal 2013 income , and tax expense related to integrating our fiscal 2013 acquisitions . 38 our benefit for income taxes for fiscal 2012 primarily consisted of the following : tax benefit from
| other factors affecting liquidity and capital resources 2024 notes on october 9 , 2014 , we issued $ 350.0 million aggregate principal amount of 4.375 % senior notes due october 15 , 2024. we received net proceeds of $ 342.4 million from issuance of the 2024 notes , net of a discount of $ 1.4 million and issuance costs of $ 6.2 million . interest is payable in cash semi-annually commencing on april 15 , 2015. the 2024 notes are unsecured and rank equal in right of payment to all of our existing and future senior indebtedness.the proceeds from the 2024 notes are available for general corporate purposes , which may include the retirement of debt , working capital , capital expenditures , acquisitions and strategic transactions . revolving credit facility on september 19 , 2014 , we amended our senior revolving credit facility on terms substantially similar to the prior credit agreement , except that , as amended , our revolving credit facility ( i ) is unsecured , ( ii ) expires on september 19 , 2019 , ( iii ) has no subsidiary guarantors and ( iv ) includes certain amendments to the negative and financial covenants , such as modifications to provide additional flexibility , a reduction in cadence 's basket for secured debt and a decrease in the maximum permitted funded debt to ebidta ratio from 3:1 to 2.75:1 , subject to certain adjustments .
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( 9 ) excludes data for periods prior to our ownership of certain properties , data for properties sold or classified as held for sale and data for which there was a transfer of operations during the periods presented . ( 10 ) operating data for other triple net leased senior living communities leased to third party operators other than five star and wellness centers are presented based upon the operating results provided by our tenants and managers for the 12 months ended september 30 , 2019 and 2018 , or the most recent prior period for which tenant operating results are made available to us . we have not independently verified tenant operating data . excludes data for periods prior to our ownership of certain properties , data for properties sold or classified as held for sale , and data for which there was a transfer of operations during the periods presented . in connection with the restructuring transaction , as discussed below , we determined to redefine our reportable segments to better reflect our current operating environment . as of december 31 , 2019 , we report under the following two segments : office portfolio and shop . our office portfolio segment consists of medical office properties leased to medical providers and other medical related businesses , as well as life science properties leased to biotech laboratories and other similar tenants . our shop segment consists of managed senior living communities that provide short term and long term residential care and other services for residents where we pay fees to the operator to manage the communities for our account . in addition , our shop segment includes triple net leased senior living communities that provide short term and long term residential care and other services for residents and from which we received rents from five star until january 1 , 2020. pursuant to the restructuring transaction , effective january 1 , 2020 , our previously existing master leases and management and pooling agreements with five star were terminated and replaced with the new management agreements for all of our senior living communities operated by five star . we also continue to report “ non-segment ” operations , which consists of triple net leased senior living communities that are leased to operators other than five star from which we receive rents and wellness centers . office portfolio as of december 31 , 2019 , we owned 138 medical office and life science properties located in 27 states and washington , d.c. these properties have a total of 11.9 million square feet . during the year ended december 31 , 2019 , we entered into lease renewals for 1,255,512 square feet and new leases for 261,960 square feet at our medical office and life science properties . the weighted average annual rental rate for leases entered during 2019 was $ 29.64 per square foot , which was 5.1 % higher than the previous weighted average annual rental rate for the same space . weighted ( by annualized rental income ) average lease term for leases entered during 2019 was 10.2 years . commitments for tenant improvements , leasing commission costs and concessions for leases we entered during 2019 totaled $ 37.4 million , or $ 24.66 per square foot on average ( approximately $ 2.69 per square foot per year of the lease term ) . 64 as of december 31 , 2019 , lease expirations at our medical office and life science properties in our office portfolio segment are as follows ( dollars in thousands ) : replace_table_token_4_th ( 1 ) includes 100 % of square feet from a property owned in a joint venture arrangement in which we own a 55 % equity interest . ( 2 ) annualized rental income is based on rents pursuant to existing leases as of december 31 , 2019 , including straight line rent adjustments , estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties . annualized rental income also includes 100 % of rental income as reported under gaap from a property owned in a joint venture arrangement in which we own a 55 % equity interest . 65 the following table presents information concerning our medical office and life science property tenants that represent 1 % or more of total medical office and life science property annualized rental income as of december 31 , 2019 ( dollars in thousands ) : replace_table_token_5_th ( 1 ) annualized rental income is based on rents pursuant to existing leases as of december 31 , 2019 , including straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties . ( 2 ) the property leased by this tenant is owned by a joint venture arrangement in which we own a 55 % equity interest . rental income presented includes 100 % of rental income as reported under gaap . senior housing operating portfolio as of december 31 , 2019 , five star operated 244 of our senior living communities in our shop segment , of which 166 communities were leased to five star and 78 communities were managed by five star for our account . pursuant to the restructuring transaction , effective january 1 , 2020 , or the conversion time , our previously existing master leases and management and pooling agreements with five star were terminated and replaced with the new management agreements for all of our senior living communities operated by five star . the conversion is a significant change in our historical arrangements with five star and may result in our realizing significantly different operating results from our senior living communities in the future , including increased variability . story_separator_special_tag depreciation and amortization expense increased primarily due to our acquisitions of nine properties and the purchase of capital improvements at certain of our properties since january 1 , 2018 , partially offset by our disposition of 51 properties , certain depreciable leasing related assets becoming fully depreciated and certain of our acquired resident agreements becoming fully amortized since january 1 , 2018 . general and administrative expense . general and administrative expense consists of fees paid to rmr llc under our business management agreement , legal and accounting fees , fees and expenses of our trustees , equity compensation expense and other costs relating to our status as a publicly traded company . general and administrative expense decreased primarily due to a decrease in business management incentive fees as a result of no incentive fees recognized for 2019 , compared to $ 40,642 of business management incentive fees that we recognized during 2018. in addition , we recognized a decrease in our base business management fees expense as a result of lower trading prices for our common shares during 2019 compared to 2018. acquisition and certain other transaction related costs . acquisition and certain other transaction related costs primarily represents costs incurred in connection with the restructuring transaction . impairment of assets . for further information about our asset impairment charges , see note 3 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. gain on sale of properties . gain on sale of properties is the result of our sale of certain office properties and senior living communities during 2019 and 2018. for further information regarding gain on sale of properties , see note 3 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. dividend income . the decrease in dividend income is the result of our sale of all of the rmr inc. class a common stock that we owned on july 1 , 2019 , partially offset by an increase in dividends per share paid by rmr inc. during 2019 compared to 2018. losses on equity securities , net . losses on equity securities , net , represents the net unrealized gains and losses to adjust our investment in five star and rmr inc. to their fair values . interest and other income . the increase in interest and other income is primarily due to an increase in average investable cash on hand and restricted cash . 72 interest expense . interest expense increased primarily due to an increase in borrowings under our revolving credit facility and changes in libor , resulting in an increase in interest expense with respect to our floating rate debt . in addition , interest expense increased due to our february 2018 issuance of $ 500,000 of 4.75 % senior unsecured notes due 2028. these increases were partially offset by our redemption in may 2019 of our $ 400,000 of 3.25 % senior unsecured notes due 2019 , our prepayment in december 2019 of our $ 350,000 term loan and a lower interest rate on our new $ 250,000 term loan obtained in december 2019. story_separator_special_tag style= `` line-height:120 % ; padding-bottom:16px ; text-align : center ; padding-left:48px ; font-size:10pt ; `` > replace_table_token_21_th ( 1 ) comparable properties consists of properties that we have owned and which have been leased to the same operator continuously since january 1 , 2017 ; excludes properties classified as held for sale , if any . rental income . rental income decreased primarily due to reduced rental income resulting from the sale of five senior living communities leased to private operators and the transfer of certain senior living communities we own from triple net leased senior living communities to managed senior living communities since january 1 , 2017 , partially offset by increased rents resulting from our acquisition of two properties and the purchase improvements at our comparable properties since january 1 , 2017. references to changes in the income and expense categories below relate to the comparison of consolidated results for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. depreciation and amortization expense . depreciation and amortization expense increased primarily due to our acquisitions of 16 properties and the purchase of capital improvements since january 1 , 2017 , partially offset by our disposition of six senior living communities since january 1 , 2017. general and administrative expense . general and administrative expense decreased primarily due to a decrease in business management incentive fees . we recognized business management incentive fees of $ 40,642 during 2018 as a result of our total shareholder return , as defined , exceeding the returns for the snl u.s. reit healthcare index over the applicable measurement period by 9.6 % , compared to $ 55,740 of business management incentive fees recognized during 2017. in addition , we recognized a decrease in our base business management fees expense as a result of lower trading prices for our common shares during 2018 compared to 2017. acquisition and certain other transaction related costs . acquisition and certain other transaction related costs include legal and diligence costs incurred in connection with our acquisition , disposition and operations transaction activities that we expensed under gaap . impairment of assets . for further information about our asset impairment charges , see note 3 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. gain on sale of properties . gain on sale of properties is the result of our sale of five senior living communities during 2018 and one senior living community in december 2017 and a permanent land eminent domain taking at our wellness center in romeoville , illinois that occurred in 2017. dividend income . dividend income reflects cash dividends received from our investment in rmr inc. unrealized losses on equity securities . unrealized
| other factors affecting liquidity and capital resources 2024 notes on october 9 , 2014 , we issued $ 350.0 million aggregate principal amount of 4.375 % senior notes due october 15 , 2024. we received net proceeds of $ 342.4 million from issuance of the 2024 notes , net of a discount of $ 1.4 million and issuance costs of $ 6.2 million . interest is payable in cash semi-annually commencing on april 15 , 2015. the 2024 notes are unsecured and rank equal in right of payment to all of our existing and future senior indebtedness.the proceeds from the 2024 notes are available for general corporate purposes , which may include the retirement of debt , working capital , capital expenditures , acquisitions and strategic transactions . revolving credit facility on september 19 , 2014 , we amended our senior revolving credit facility on terms substantially similar to the prior credit agreement , except that , as amended , our revolving credit facility ( i ) is unsecured , ( ii ) expires on september 19 , 2019 , ( iii ) has no subsidiary guarantors and ( iv ) includes certain amendments to the negative and financial covenants , such as modifications to provide additional flexibility , a reduction in cadence 's basket for secured debt and a decrease in the maximum permitted funded debt to ebidta ratio from 3:1 to 2.75:1 , subject to certain adjustments .
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( 9 ) excludes data for periods prior to our ownership of certain properties , data for properties sold or classified as held for sale and data for which there was a transfer of operations during the periods presented . ( 10 ) operating data for other triple net leased senior living communities leased to third party operators other than five star and wellness centers are presented based upon the operating results provided by our tenants and managers for the 12 months ended september 30 , 2019 and 2018 , or the most recent prior period for which tenant operating results are made available to us . we have not independently verified tenant operating data . excludes data for periods prior to our ownership of certain properties , data for properties sold or classified as held for sale , and data for which there was a transfer of operations during the periods presented . in connection with the restructuring transaction , as discussed below , we determined to redefine our reportable segments to better reflect our current operating environment . as of december 31 , 2019 , we report under the following two segments : office portfolio and shop . our office portfolio segment consists of medical office properties leased to medical providers and other medical related businesses , as well as life science properties leased to biotech laboratories and other similar tenants . our shop segment consists of managed senior living communities that provide short term and long term residential care and other services for residents where we pay fees to the operator to manage the communities for our account . in addition , our shop segment includes triple net leased senior living communities that provide short term and long term residential care and other services for residents and from which we received rents from five star until january 1 , 2020. pursuant to the restructuring transaction , effective january 1 , 2020 , our previously existing master leases and management and pooling agreements with five star were terminated and replaced with the new management agreements for all of our senior living communities operated by five star . we also continue to report “ non-segment ” operations , which consists of triple net leased senior living communities that are leased to operators other than five star from which we receive rents and wellness centers . office portfolio as of december 31 , 2019 , we owned 138 medical office and life science properties located in 27 states and washington , d.c. these properties have a total of 11.9 million square feet . during the year ended december 31 , 2019 , we entered into lease renewals for 1,255,512 square feet and new leases for 261,960 square feet at our medical office and life science properties . the weighted average annual rental rate for leases entered during 2019 was $ 29.64 per square foot , which was 5.1 % higher than the previous weighted average annual rental rate for the same space . weighted ( by annualized rental income ) average lease term for leases entered during 2019 was 10.2 years . commitments for tenant improvements , leasing commission costs and concessions for leases we entered during 2019 totaled $ 37.4 million , or $ 24.66 per square foot on average ( approximately $ 2.69 per square foot per year of the lease term ) . 64 as of december 31 , 2019 , lease expirations at our medical office and life science properties in our office portfolio segment are as follows ( dollars in thousands ) : replace_table_token_4_th ( 1 ) includes 100 % of square feet from a property owned in a joint venture arrangement in which we own a 55 % equity interest . ( 2 ) annualized rental income is based on rents pursuant to existing leases as of december 31 , 2019 , including straight line rent adjustments , estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties . annualized rental income also includes 100 % of rental income as reported under gaap from a property owned in a joint venture arrangement in which we own a 55 % equity interest . 65 the following table presents information concerning our medical office and life science property tenants that represent 1 % or more of total medical office and life science property annualized rental income as of december 31 , 2019 ( dollars in thousands ) : replace_table_token_5_th ( 1 ) annualized rental income is based on rents pursuant to existing leases as of december 31 , 2019 , including straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties . ( 2 ) the property leased by this tenant is owned by a joint venture arrangement in which we own a 55 % equity interest . rental income presented includes 100 % of rental income as reported under gaap . senior housing operating portfolio as of december 31 , 2019 , five star operated 244 of our senior living communities in our shop segment , of which 166 communities were leased to five star and 78 communities were managed by five star for our account . pursuant to the restructuring transaction , effective january 1 , 2020 , or the conversion time , our previously existing master leases and management and pooling agreements with five star were terminated and replaced with the new management agreements for all of our senior living communities operated by five star . the conversion is a significant change in our historical arrangements with five star and may result in our realizing significantly different operating results from our senior living communities in the future , including increased variability . story_separator_special_tag depreciation and amortization expense increased primarily due to our acquisitions of nine properties and the purchase of capital improvements at certain of our properties since january 1 , 2018 , partially offset by our disposition of 51 properties , certain depreciable leasing related assets becoming fully depreciated and certain of our acquired resident agreements becoming fully amortized since january 1 , 2018 . general and administrative expense . general and administrative expense consists of fees paid to rmr llc under our business management agreement , legal and accounting fees , fees and expenses of our trustees , equity compensation expense and other costs relating to our status as a publicly traded company . general and administrative expense decreased primarily due to a decrease in business management incentive fees as a result of no incentive fees recognized for 2019 , compared to $ 40,642 of business management incentive fees that we recognized during 2018. in addition , we recognized a decrease in our base business management fees expense as a result of lower trading prices for our common shares during 2019 compared to 2018. acquisition and certain other transaction related costs . acquisition and certain other transaction related costs primarily represents costs incurred in connection with the restructuring transaction . impairment of assets . for further information about our asset impairment charges , see note 3 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. gain on sale of properties . gain on sale of properties is the result of our sale of certain office properties and senior living communities during 2019 and 2018. for further information regarding gain on sale of properties , see note 3 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. dividend income . the decrease in dividend income is the result of our sale of all of the rmr inc. class a common stock that we owned on july 1 , 2019 , partially offset by an increase in dividends per share paid by rmr inc. during 2019 compared to 2018. losses on equity securities , net . losses on equity securities , net , represents the net unrealized gains and losses to adjust our investment in five star and rmr inc. to their fair values . interest and other income . the increase in interest and other income is primarily due to an increase in average investable cash on hand and restricted cash . 72 interest expense . interest expense increased primarily due to an increase in borrowings under our revolving credit facility and changes in libor , resulting in an increase in interest expense with respect to our floating rate debt . in addition , interest expense increased due to our february 2018 issuance of $ 500,000 of 4.75 % senior unsecured notes due 2028. these increases were partially offset by our redemption in may 2019 of our $ 400,000 of 3.25 % senior unsecured notes due 2019 , our prepayment in december 2019 of our $ 350,000 term loan and a lower interest rate on our new $ 250,000 term loan obtained in december 2019. story_separator_special_tag style= `` line-height:120 % ; padding-bottom:16px ; text-align : center ; padding-left:48px ; font-size:10pt ; `` > replace_table_token_21_th ( 1 ) comparable properties consists of properties that we have owned and which have been leased to the same operator continuously since january 1 , 2017 ; excludes properties classified as held for sale , if any . rental income . rental income decreased primarily due to reduced rental income resulting from the sale of five senior living communities leased to private operators and the transfer of certain senior living communities we own from triple net leased senior living communities to managed senior living communities since january 1 , 2017 , partially offset by increased rents resulting from our acquisition of two properties and the purchase improvements at our comparable properties since january 1 , 2017. references to changes in the income and expense categories below relate to the comparison of consolidated results for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. depreciation and amortization expense . depreciation and amortization expense increased primarily due to our acquisitions of 16 properties and the purchase of capital improvements since january 1 , 2017 , partially offset by our disposition of six senior living communities since january 1 , 2017. general and administrative expense . general and administrative expense decreased primarily due to a decrease in business management incentive fees . we recognized business management incentive fees of $ 40,642 during 2018 as a result of our total shareholder return , as defined , exceeding the returns for the snl u.s. reit healthcare index over the applicable measurement period by 9.6 % , compared to $ 55,740 of business management incentive fees recognized during 2017. in addition , we recognized a decrease in our base business management fees expense as a result of lower trading prices for our common shares during 2018 compared to 2017. acquisition and certain other transaction related costs . acquisition and certain other transaction related costs include legal and diligence costs incurred in connection with our acquisition , disposition and operations transaction activities that we expensed under gaap . impairment of assets . for further information about our asset impairment charges , see note 3 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. gain on sale of properties . gain on sale of properties is the result of our sale of five senior living communities during 2018 and one senior living community in december 2017 and a permanent land eminent domain taking at our wellness center in romeoville , illinois that occurred in 2017. dividend income . dividend income reflects cash dividends received from our investment in rmr inc. unrealized losses on equity securities . unrealized
| loss on early extinguishment of debt . we recognized a loss on early extinguishment of debt in connection with our prepayment of mortgage debts and of our $ 350,000 term loan . income tax expense . income tax expense is the result of operating income we earned in certain jurisdictions that is subject to state income taxes . equity in earnings of an investee . equity in earnings of an investee represents our proportionate share of earnings from our investment in aic . year ended december 31 , 2018 compared to year ended december 31 , 2017 : unless otherwise indicated , references in this section to changes or comparisons of results , income or expenses refer to comparisons of the results for the year ended december 31 , 2018 to the year ended december 31 , 2017. our definition of noi and our reconciliation of net income ( loss ) to noi and a description of why we believe noi is an appropriate supplemental measure is included below under the heading “ non-gaap financial measures. ” replace_table_token_15_th nm - not meaningful 73 office portfolio : replace_table_token_16_th ( 1 ) consists of medical office and life science properties that we have owned and which have been in service continuously since january 1 , 2017 , including our life science property owned in a joint venture arrangement in which we own a 55 % equity interest ; excludes properties classified as held for sale , if any . ( 2 ) prior periods exclude space remeasurements made subsequent to those periods . ( 3 ) medical office and life science property occupancy includes ( i ) out of service assets undergoing redevelopment , ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants , and ( iii ) space being fitted out for occupancy .
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we refine cst into terpene fractions , which can be further upgraded into terpene resins . the various fractions and derivatives resulting from our cto and cst refining process provide for distinct functionalities and properties , determining their respective applications and end markets . we focus our resources on four product groups : adhesives ; roads and construction ; tires ; and performance chemicals . within our product groups , our products are sold into a diverse range of submarkets , including packaging , tapes and labels , pavement marking , high performance tires , fuel additives , oilfield and mining , coatings , metalworking fluids and lubricants , inks , and flavor and fragrances , among others . while this business is based predominantly on the refining and upgrading of cto and cst , we have the capacity to use both hydrocarbon-based raw materials , such as alpha-methyl-styrene , rosins , and gum rosins where appropriate and , accordingly , are able to offer tailored solutions for our customers . 32 status of synergies , operational improvement , and cost reduction initiatives we previously announced synergies and operational improvement initiatives associated with the arizona chemical acquisition and a cost reduction initiative targeted at lowering costs in our polymer segment . the polymer segment cost reduction initiative began in 2015 with a total target savings of $ 70 million to be realized by the end of 2018. we realized approximately $ 45.0 million to date and we currently anticipate we will realize a significant portion of the remaining savings in 2018. in conjunction with the acquisition of arizona chemical , we identified $ 65 million of cost-based synergies , approximately $ 25 million of which relate to general and administrative costs , and approximately $ 40 million of which are associated with operation cost improvements ; all of which has been realized as of december 31 , 2017. results of operations factors affecting our results of operations raw materials . we use butadiene , styrene , and isoprene in our polymer segment and cto and cst in our chemical segment as our primary raw materials . the cost of these raw materials has generally correlated with changes in energy prices and is generally influenced by supply and demand factors and for our isoprene monomers the prices for natural and synthetic rubber . average purchase prices of our raw materials increased during 2017 compared to 2016 and were lower in 2016 compared to 2015 . we use the fifo basis of accounting for inventory and cost of goods sold , and therefore gross profit . in periods of raw material price volatility , reported results under fifo will differ from what the results would have been if cost of goods sold were based on ecrc . specifically , in periods of rising raw material costs , reported gross profit will be higher under fifo than under ecrc . conversely , in periods of declining raw material costs , reported gross profit will be lower under fifo than under ecrc . in recognition of the fact that the cost of raw materials affects our results of operations and the comparability of our results of operations , we provide the difference , or spread , between fifo and ecrc to arrive at our adjusted ebitda . international operations and currency fluctuations . we operate a geographically diverse business , serving customers in numerous countries from fourteen manufacturing facilities on four continents . our sales and production costs are mainly denominated in u.s. dollars , euro , japanese yen , swedish krona , and brazilian real . from time to time , we use hedging strategies to reduce our exposure to currency fluctuations . we generated our revenue from customers located in the following regions : replace_table_token_14_th seasonality . seasonal changes and weather conditions typically affect our sales of products in our paving , pavement markings , roofing , and construction applications , which generally results in higher sales volumes in the second and third quarters of the calendar year compared to the first and fourth quarters of the calendar year . sales for our other product applications tend to show relatively little seasonality . 33 kraton corporation consolidated statements of operations ( in thousands , except per share data ) replace_table_token_15_th consolidated results year ended december 31 , 2017 compared to year ended december 31 , 2016 our operating results for the year ended december 31 , 2016 include the operating results for arizona chemical since the acquisition date of january 6 , 2016 . revenue was $ 1,960.4 million for the year ended december 31 , 2017 compared to $ 1,744.1 million for the year ended december 31 , 2016 , an increase of $ 216.3 million , or 12.4 % . revenue for the polymer segment increase d $ 174.9 million and revenue for the chemical segment increase d $ 41.3 million . for additional information regarding the changes in revenue , see our segment disclosures below . cost of goods sold was $ 1,418.5 million for the year ended december 31 , 2017 compared to $ 1,265.1 million for the year ended december 31 , 2016 , an increase of $ 153.4 million , or 12.1 % . the increase was primarily driven by higher average raw material costs and sales volumes , partially offset by the $ 24.7 million of higher costs of goods sold in 2016 related to the fair value adjustment in purchase accounting for inventory . selling , general , and administrative expenses were $ 161.9 million for the year ended december 31 , 2017 compared to $ 177.6 million for the year ended december 31 , 2016 . the $ 15.7 million decrease is primarily attributable to lower transaction , acquisition , and restructuring costs , partially offset by higher employee related costs . story_separator_special_tag sales volumes were 324.2 kilotons for the year ended december 31 , 2016 , an increase of 17.7 kilotons , or 5.8 % . with respect to revenue for the polymer segment product groups : cariflex revenue was $ 171.0 million for the year ended december 31 , 2016 compared to $ 142.9 million for the year ended december 31 , 2015. the increase of $ 28.1 million was attributable to a 19.3 % increase in sales volumes , primarily due to higher sales into surgical glove applications , and changes in foreign currency of $ 5.3 million , partially offset by a $ 5.1 million decrease attributable to lower average selling prices resulting from lower raw material costs . specialty polymers revenue was $ 340.3 million for the year ended december 31 , 2016 compared to $ 350.7 million for the year ended december 31 , 2015 , a decrease of $ 10.4 million . excluding the $ 9.9 million effect of the sale of bcu , revenue was essentially unchanged . revenue associated with a 6.9 % increase in sales volume , primarily into automotive and consumer applications , was essentially offset by the impact of lower average selling prices associated with product mix and to a lesser extent lower raw material cost . changes in currency exchange rates had a $ 1.5 million negative effect on revenue . performance products revenue was $ 513.1 million for the year ended december 31 , 2016 compared to $ 540.6 million for the year ended december 31 , 2015. the $ 27.5 million decline was primarily driven by a lower average selling prices of $ 50.7 million , resulting from lower prices for certain sis product grades , product mix , and raw material costs , partially offset by a 4.3 % increase in sales volumes . the increase in sales volumes was primarily driven by paving , roofing , and personal care applications , partially offset by lower sales of sis product grades into packaging and industrial adhesive applications . changes in foreign currency exchange rates had a $ 0.8 million negative effect on revenue . for the year ended december 31 , 2016 , the polymer segment operating income was $ 77.9 million compared to $ 18.2 million for the year ended december 31 , 2015. for the year ended december 31 , 2016 , the polymer segment generated $ 183.1 million of adjusted ebitda ( non-gaap ) compared to $ 166.8 million for the year ended december 31 , 2015 , an increase of $ 16.3 million , or 9.8 % . the effect of currency fluctuations negatively impacted adjusted ebitda ( non-gaap ) by $ 6.5 million . see item 6. selected financial data for a reconciliation of u.s. gaap operating income to adjusted ebitda ( non-gaap ) . 38 chemical segment the following results of operations for the chemical segment have been included in our consolidated results effective as of the date of the acquisition , january 6 , 2016 . replace_table_token_17_th ( 1 ) see item 6. selected financial data for a reconciliation of u.s. gaap operating income to non-gaap adjusted ebitda . ( 2 ) defined as adjusted ebitda as a percentage of revenue . year ended december 31 , 2017 compared to year ended december 31 , 2016 revenue for the chemical segment was $ 760.7 million for the year ended december 31 , 2017 compared to $ 719.4 million for the year ended december 31 , 2016 . sales volumes were 426.4 kilotons for the year ended december 31 , 2017 , an increase of 14.9 kilotons or 3.6 % . adhesives volumes increase d 7.2 % , performance chemicals volumes increase d 2.0 % , roads and construction volumes increase d 2.6 % , and tires volumes increase d 10.0 % . with respect to revenue for the chemical segment product groups : adhesives revenue was $ 253.0 million for the year ended december 31 , 2017 compared to $ 246.4 million for the year ended december 31 , 2016 . the increase was primarily driven by improved sales volumes . performance chemicals revenue was $ 409.6 million for the year ended december 31 , 2017 compared to $ 381.5 million for the year ended december 31 , 2016 . the increase was primarily attributable to higher average selling prices and to a lesser extent improved sales volumes . roads and construction revenue was $ 48.2 million for the year ended december 31 , 2017 compared to $ 48.9 million for the year ended december 31 , 2016 , which was essentially flat . tires revenue was $ 50.0 million for the year ended december 31 , 2017 compared to $ 42.5 million for the year ended december 31 , 2016 . the increase was driven by improved sales volumes and higher average selling prices . for the year ended december 31 , 2017 , the chemical segment operating income was $ 84.7 million compared to $ 58.4 million for the year ended december 31 , 2016 . for the year ended december 31 , 2017 , the chemical segment generated $ 151.2 million of adjusted ebitda ( non-gaap ) compared to $ 171.0 million for the year ended december 31 , 2016 . the decrease in adjusted ebitda was primarily due to lower margins indicative of the impact of low-cost c5/c9 hydrocarbon alternatives and pricing pressure for tofa and tor products , which more than offset the increase in sales volumes . see item 6. selected financial data for a reconciliation of u.s. gaap operating income to non-gaap adjusted ebitda . 39 critical accounting policies the preparation of these financial statements in conformity with u.s. gaap requires management to make assumptions and estimates that directly affect the amounts reported in the consolidated financial statements . certain critical accounting policies requiring significant judgments , estimates , and assumptions are described in this section . we consider an accounting estimate to
| loss on early extinguishment of debt . we recognized a loss on early extinguishment of debt in connection with our prepayment of mortgage debts and of our $ 350,000 term loan . income tax expense . income tax expense is the result of operating income we earned in certain jurisdictions that is subject to state income taxes . equity in earnings of an investee . equity in earnings of an investee represents our proportionate share of earnings from our investment in aic . year ended december 31 , 2018 compared to year ended december 31 , 2017 : unless otherwise indicated , references in this section to changes or comparisons of results , income or expenses refer to comparisons of the results for the year ended december 31 , 2018 to the year ended december 31 , 2017. our definition of noi and our reconciliation of net income ( loss ) to noi and a description of why we believe noi is an appropriate supplemental measure is included below under the heading “ non-gaap financial measures. ” replace_table_token_15_th nm - not meaningful 73 office portfolio : replace_table_token_16_th ( 1 ) consists of medical office and life science properties that we have owned and which have been in service continuously since january 1 , 2017 , including our life science property owned in a joint venture arrangement in which we own a 55 % equity interest ; excludes properties classified as held for sale , if any . ( 2 ) prior periods exclude space remeasurements made subsequent to those periods . ( 3 ) medical office and life science property occupancy includes ( i ) out of service assets undergoing redevelopment , ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants , and ( iii ) space being fitted out for occupancy .
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we refine cst into terpene fractions , which can be further upgraded into terpene resins . the various fractions and derivatives resulting from our cto and cst refining process provide for distinct functionalities and properties , determining their respective applications and end markets . we focus our resources on four product groups : adhesives ; roads and construction ; tires ; and performance chemicals . within our product groups , our products are sold into a diverse range of submarkets , including packaging , tapes and labels , pavement marking , high performance tires , fuel additives , oilfield and mining , coatings , metalworking fluids and lubricants , inks , and flavor and fragrances , among others . while this business is based predominantly on the refining and upgrading of cto and cst , we have the capacity to use both hydrocarbon-based raw materials , such as alpha-methyl-styrene , rosins , and gum rosins where appropriate and , accordingly , are able to offer tailored solutions for our customers . 32 status of synergies , operational improvement , and cost reduction initiatives we previously announced synergies and operational improvement initiatives associated with the arizona chemical acquisition and a cost reduction initiative targeted at lowering costs in our polymer segment . the polymer segment cost reduction initiative began in 2015 with a total target savings of $ 70 million to be realized by the end of 2018. we realized approximately $ 45.0 million to date and we currently anticipate we will realize a significant portion of the remaining savings in 2018. in conjunction with the acquisition of arizona chemical , we identified $ 65 million of cost-based synergies , approximately $ 25 million of which relate to general and administrative costs , and approximately $ 40 million of which are associated with operation cost improvements ; all of which has been realized as of december 31 , 2017. results of operations factors affecting our results of operations raw materials . we use butadiene , styrene , and isoprene in our polymer segment and cto and cst in our chemical segment as our primary raw materials . the cost of these raw materials has generally correlated with changes in energy prices and is generally influenced by supply and demand factors and for our isoprene monomers the prices for natural and synthetic rubber . average purchase prices of our raw materials increased during 2017 compared to 2016 and were lower in 2016 compared to 2015 . we use the fifo basis of accounting for inventory and cost of goods sold , and therefore gross profit . in periods of raw material price volatility , reported results under fifo will differ from what the results would have been if cost of goods sold were based on ecrc . specifically , in periods of rising raw material costs , reported gross profit will be higher under fifo than under ecrc . conversely , in periods of declining raw material costs , reported gross profit will be lower under fifo than under ecrc . in recognition of the fact that the cost of raw materials affects our results of operations and the comparability of our results of operations , we provide the difference , or spread , between fifo and ecrc to arrive at our adjusted ebitda . international operations and currency fluctuations . we operate a geographically diverse business , serving customers in numerous countries from fourteen manufacturing facilities on four continents . our sales and production costs are mainly denominated in u.s. dollars , euro , japanese yen , swedish krona , and brazilian real . from time to time , we use hedging strategies to reduce our exposure to currency fluctuations . we generated our revenue from customers located in the following regions : replace_table_token_14_th seasonality . seasonal changes and weather conditions typically affect our sales of products in our paving , pavement markings , roofing , and construction applications , which generally results in higher sales volumes in the second and third quarters of the calendar year compared to the first and fourth quarters of the calendar year . sales for our other product applications tend to show relatively little seasonality . 33 kraton corporation consolidated statements of operations ( in thousands , except per share data ) replace_table_token_15_th consolidated results year ended december 31 , 2017 compared to year ended december 31 , 2016 our operating results for the year ended december 31 , 2016 include the operating results for arizona chemical since the acquisition date of january 6 , 2016 . revenue was $ 1,960.4 million for the year ended december 31 , 2017 compared to $ 1,744.1 million for the year ended december 31 , 2016 , an increase of $ 216.3 million , or 12.4 % . revenue for the polymer segment increase d $ 174.9 million and revenue for the chemical segment increase d $ 41.3 million . for additional information regarding the changes in revenue , see our segment disclosures below . cost of goods sold was $ 1,418.5 million for the year ended december 31 , 2017 compared to $ 1,265.1 million for the year ended december 31 , 2016 , an increase of $ 153.4 million , or 12.1 % . the increase was primarily driven by higher average raw material costs and sales volumes , partially offset by the $ 24.7 million of higher costs of goods sold in 2016 related to the fair value adjustment in purchase accounting for inventory . selling , general , and administrative expenses were $ 161.9 million for the year ended december 31 , 2017 compared to $ 177.6 million for the year ended december 31 , 2016 . the $ 15.7 million decrease is primarily attributable to lower transaction , acquisition , and restructuring costs , partially offset by higher employee related costs . story_separator_special_tag sales volumes were 324.2 kilotons for the year ended december 31 , 2016 , an increase of 17.7 kilotons , or 5.8 % . with respect to revenue for the polymer segment product groups : cariflex revenue was $ 171.0 million for the year ended december 31 , 2016 compared to $ 142.9 million for the year ended december 31 , 2015. the increase of $ 28.1 million was attributable to a 19.3 % increase in sales volumes , primarily due to higher sales into surgical glove applications , and changes in foreign currency of $ 5.3 million , partially offset by a $ 5.1 million decrease attributable to lower average selling prices resulting from lower raw material costs . specialty polymers revenue was $ 340.3 million for the year ended december 31 , 2016 compared to $ 350.7 million for the year ended december 31 , 2015 , a decrease of $ 10.4 million . excluding the $ 9.9 million effect of the sale of bcu , revenue was essentially unchanged . revenue associated with a 6.9 % increase in sales volume , primarily into automotive and consumer applications , was essentially offset by the impact of lower average selling prices associated with product mix and to a lesser extent lower raw material cost . changes in currency exchange rates had a $ 1.5 million negative effect on revenue . performance products revenue was $ 513.1 million for the year ended december 31 , 2016 compared to $ 540.6 million for the year ended december 31 , 2015. the $ 27.5 million decline was primarily driven by a lower average selling prices of $ 50.7 million , resulting from lower prices for certain sis product grades , product mix , and raw material costs , partially offset by a 4.3 % increase in sales volumes . the increase in sales volumes was primarily driven by paving , roofing , and personal care applications , partially offset by lower sales of sis product grades into packaging and industrial adhesive applications . changes in foreign currency exchange rates had a $ 0.8 million negative effect on revenue . for the year ended december 31 , 2016 , the polymer segment operating income was $ 77.9 million compared to $ 18.2 million for the year ended december 31 , 2015. for the year ended december 31 , 2016 , the polymer segment generated $ 183.1 million of adjusted ebitda ( non-gaap ) compared to $ 166.8 million for the year ended december 31 , 2015 , an increase of $ 16.3 million , or 9.8 % . the effect of currency fluctuations negatively impacted adjusted ebitda ( non-gaap ) by $ 6.5 million . see item 6. selected financial data for a reconciliation of u.s. gaap operating income to adjusted ebitda ( non-gaap ) . 38 chemical segment the following results of operations for the chemical segment have been included in our consolidated results effective as of the date of the acquisition , january 6 , 2016 . replace_table_token_17_th ( 1 ) see item 6. selected financial data for a reconciliation of u.s. gaap operating income to non-gaap adjusted ebitda . ( 2 ) defined as adjusted ebitda as a percentage of revenue . year ended december 31 , 2017 compared to year ended december 31 , 2016 revenue for the chemical segment was $ 760.7 million for the year ended december 31 , 2017 compared to $ 719.4 million for the year ended december 31 , 2016 . sales volumes were 426.4 kilotons for the year ended december 31 , 2017 , an increase of 14.9 kilotons or 3.6 % . adhesives volumes increase d 7.2 % , performance chemicals volumes increase d 2.0 % , roads and construction volumes increase d 2.6 % , and tires volumes increase d 10.0 % . with respect to revenue for the chemical segment product groups : adhesives revenue was $ 253.0 million for the year ended december 31 , 2017 compared to $ 246.4 million for the year ended december 31 , 2016 . the increase was primarily driven by improved sales volumes . performance chemicals revenue was $ 409.6 million for the year ended december 31 , 2017 compared to $ 381.5 million for the year ended december 31 , 2016 . the increase was primarily attributable to higher average selling prices and to a lesser extent improved sales volumes . roads and construction revenue was $ 48.2 million for the year ended december 31 , 2017 compared to $ 48.9 million for the year ended december 31 , 2016 , which was essentially flat . tires revenue was $ 50.0 million for the year ended december 31 , 2017 compared to $ 42.5 million for the year ended december 31 , 2016 . the increase was driven by improved sales volumes and higher average selling prices . for the year ended december 31 , 2017 , the chemical segment operating income was $ 84.7 million compared to $ 58.4 million for the year ended december 31 , 2016 . for the year ended december 31 , 2017 , the chemical segment generated $ 151.2 million of adjusted ebitda ( non-gaap ) compared to $ 171.0 million for the year ended december 31 , 2016 . the decrease in adjusted ebitda was primarily due to lower margins indicative of the impact of low-cost c5/c9 hydrocarbon alternatives and pricing pressure for tofa and tor products , which more than offset the increase in sales volumes . see item 6. selected financial data for a reconciliation of u.s. gaap operating income to non-gaap adjusted ebitda . 39 critical accounting policies the preparation of these financial statements in conformity with u.s. gaap requires management to make assumptions and estimates that directly affect the amounts reported in the consolidated financial statements . certain critical accounting policies requiring significant judgments , estimates , and assumptions are described in this section . we consider an accounting estimate to
| net cash provided by operating activities totaled $ 138.5 million for the year ended december 31 , 2016 and $ 103.8 million for the year ended december 31 , 2015 . this represents a net increase of $ 34.6 million , which was primarily driven by increases in operating income and changes in working capital . the net change in working capital was a use of cash flows of $ 3.7 million in 2016 compared to a source of cash of $ 46.1 million in 2015 ; a period-over-period decrease in cash flows of $ 49.8 million . the period-over-period changes are as follows : $ 44.7 million decrease in cash flows for other payables and accruals primarily due to the timing of payments related to transaction related costs ; $ 21.3 million decrease in cash flows associated with inventories of products , materials , and supplies , due to higher raw material costs in our polymer segment , partially offset by lower inventory volumes in our polymer and chemical segments ; and $ 4.9 million decrease in cash flows due to the timing of payments of other items , including accounts receivable , related party transactions , taxes , and pension costs ; partially offset by a $ 21.1 million increase in cash flows associated with trade accounts payable due to higher raw material costs in our polymer segment and timing of payments . investing cash flows net cash used in investing activities totaled $ 122.6 million , $ 1,364.8 million , and $ 128.7 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively .
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estimates and judgments used in the preparation of our financial statements are , by their nature , uncertain and unpredictable , and depend upon , among other things , many factors outside of our control , such as demand for our products and economic conditions . accordingly , our estimates and judgments may prove to be incorrect and actual results may differ , perhaps significantly , from these estimates . we believe the following critical accounting policies reflect our more significant judgments used in the preparation of our consolidated financial statements . revenue recognition . we recognize revenue in accordance with financial accounting standards board ( “ fasb ” ) – accounting standards codification ( “ asc ” ) 605-10-s25 revenue recognition – overall – recognition . asc 605-10-s25 requires that four basic criteria must be met before revenue can be recognized : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . determination of criteria ( 3 ) and ( 4 ) are based on management 's judgment regarding the fixed nature of the fee charged for products delivered and the collectability of those fees . the application of these criteria has resulted in our generally recognizing revenue upon shipment ( when title passes ) to customers . should changes in conditions cause management to determine these criteria are not met for certain future transactions , revenue recognized for any reporting period could be adversely impacted . approximately 91 % of our distributor sales , including sales to our value-added resellers , for the year ended december 31 , 2012 were made through distribution arrangements with third parties . these arrangements do not include any special payment terms ( our normal payment terms are 30-45 days for our distributors ) , price protection or exchange rights . returns are limited to our standard product warranty . certain of our large distributors have contracts that include limited stock rotation rights that permit the return of a small percentage of the previous six months ' purchases . approximately 9 % of our distributor sales for the year ended december 31 , 2012 were made through small distributors primarily based on purchase orders . these distributors also have limited or no stock rotation rights . our revenue consists primarily of sales of assembled and tested finished goods . we also sell die in wafer form to our customers and value-added resellers , and we receive royalty revenue from third parties and value-added resellers . we maintain a sales reserve for stock rotation rights , which is based on historical experience of actual stock rotation returns on a per distributor basis , where available , and information related to products in the distribution channel . this reserve is recorded at the time of sale . historically , these returns were not material to our consolidated financial statements . in the future , if we are unable to estimate our stock rotation returns accurately , we may not be able to recognize revenue from sales to our distributors based on when we sell inventory to our distributors . instead , we may have to recognize revenue when the distributor sells through such inventory to an end-customer . 34 we generally recognize revenue upon shipment of products to the distributor for the following reasons ( based on asc 605-15-25-1 revenue recognition – products – recognition – sales of products when right of return exists ) : ( 1 ) our price is fixed and determinable at the date of sale . we do not offer special payment terms , price protection or price adjustments to distributors where we recognize revenue upon shipment ( 2 ) our distributors are obligated to pay us and this obligation is not contingent on the resale of our products ( 3 ) the distributor 's obligation is unchanged in the event of theft or physical destruction or damage to the products ( 4 ) our distributors have stand-alone economic substance apart from our relationship ( 5 ) we do not have any obligations for future performance to directly bring about the resale of our products by the distributor ( 6 ) the amount of future returns can be reasonably estimated . we have the ability and the information necessary to track inventory sold to and held at our distributors . we maintain a history of returns and have the ability to estimate the stock rotation returns on a quarterly basis . if we enter into arrangements that have rights of return that are not estimable , we recognize revenue under such arrangements only after the distributor has sold our products to an end customer . the terms in a majority of our distribution agreements include the non-exclusive right to promote , develop a market for , and sell our products in certain regions of the world and the ability to terminate the distribution agreement by either party with up to three months ' notice . we provide a one year warranty against defects in materials and workmanship . under this warranty , we will repair the goods , provide replacements at no charge , or , under certain circumstances , provide a refund to the customer for defective products . estimated warranty returns and warranty costs are based on historical experience and are recorded at the time product revenue is recognized . two of our u.s. distributors have distribution agreements where revenue is recognized upon sale by these distributors to their end customers because these distributors have certain rights of return which management believes are not estimable . the deferred income balance from these two distributors as of december 31 , 2012 and 2011 was $ 1.4 million and $ 0.9 million , respectively . inventory valuation . story_separator_special_tag 39 replace_table_token_8_th r & d expenses were $ 48.8 million , or 22.8 % of revenue , for the year ended december 31 , 2012 and $ 44.5 million , or 22.7 % of revenue , for the year ended december 31 , 2011. r & d expenses increased year-over-year primarily due to an increase in cash and stock-based compensation expenses and an increase in expenses associated with increased new product development . our r & d headcount as of december 31 , 2012 was 388 employees , compared to 374 employees as of december 31 , 2011. r & d expenses were $ 44.5 million , or 22.7 % of revenue , for the year ended december 31 , 2011 and $ 44.4 million , or 20.3 % of revenue , for the year ended december 31 , 2010. for the year ended december 31 , 2011 , r & d expenses remained flat with the same period in 2010 due to lower stock-based compensation expenses . these were partially offset by an increase in cash compensation expenses and new product development expenses . selling , general and administrative selling , general and administrative expenses include salary and benefit expenses for sales , marketing and administrative personnel , sales commissions , travel expenses , related facilities costs , outside legal and accounting fees , and fees associated with sarbanes-oxley compliance requirements . replace_table_token_9_th sg & a expenses were $ 50.0 million , or 23.4 % of revenue , for the year ended december 31 , 2012 and $ 40.3 million , or 20.5 % of revenue , for the year ended december 31 , 2011. sg & a expenses increased year-over-year primarily due to an increase in cash and stock-based compensation expenses , professional services fees and sales commission on higher revenue compared to the same period in 2011. our sg & a headcount as of december 31 , 2012 was 250 employees , compared to 238 employees as of december 31 , 2011. sg & a expenses were $ 40.3 million , or 20.5 % of revenue , for the year ended december 31 , 2011 and $ 41.2 million , or 18.8 % of revenue , for the year ended december 31 , 2010. for the year ended december 31 , 2011 , sg & a expenses decreased from the same period in 2010 due to lower stock-based compensation expenses . these were partially offset by an increase in cash compensation expenses . litigation expense ( benefit ) , net replace_table_token_10_th litigation benefit , net , was ( $ 2.9 ) million , or ( 1.4 % ) of revenue , for the year ended december 31 , 2012 , compared to an expense of $ 3.4 million , or 1.7 % of revenue , for the year ended december 31 , 2011. the year-over-year decrease in litigation expense was primarily due to $ 3.7 million received in connection with settlements reached with linear and silergy . these payments were recorded as credits to litigation expense ( benefit ) , net , in the consolidated statements of operations . during the year ended december 31 , 2011 , we incurred legal expenses primarily to recover attorneys ' fees from o2micro relating to our lawsuits involving o2micro , which were resolved in the second quarter of 2010. compared with 2011 , litigation expenses decreased as a result of us being party to fewer material legal actions . 40 litigation expenses were $ 3.4 million , or 1.7 % of revenue , for the year ended december 31 , 2011 , compared to $ 5.4 million , or 2.5 % of revenue , for the year ended december 31 , 2010. during the year ended december 31 , 2011 , we incurred legal expenses primarily to recover attorneys ' fees from o2micro relating to our earlier lawsuits with them , which were resolved in the second quarter of 2010. during the year ended december 31 , 2010 , we incurred legal expenses primarily for the defense of those lawsuits . overall , our litigation expense decreased as a result of us being party to fewer material legal actions . for a more complete description of our current material litigation matters , please see part i , item 3 “ legal proceedings ” and note 10 “ litigation ” of notes to consolidated financial statements . interest income and other , net for the years ended december 31 , 2012 , 2011 and 2010 , interest income and other , net , was $ 0.6 million , $ 0.3 million and $ 0.9 million , respectively . interest income increased from 2011 to 2012 due to higher average cash and investment balances in 2012 as compared to 2011. interest income decreased from 2010 to 2011 due to lower cash and investment balances in 2011 , which resulted from stock repurchase activity and the purchase of our san jose headquarters as well as interest rate declines year-over-year . income tax provision the income tax provision for the year ended december 31 , 2012 was $ 2.1 million or 11.9 % of our income before income taxes . this differs from the federal statutory rate of 34 % primarily because our foreign income was taxed at lower rates and because of the benefit that we realized as a result of stock options exercised and restricted units released . the income tax provision for year ended december 31 , 2011 was $ 0.4 million or 3.1 % of our income before income taxes . this differs from the federal statutory rate of 34 % primarily because our foreign income was taxed at lower rates and because of the benefit that we realized as a result of stock options exercised and restricted units released . the income tax provision for the year ended december 31 , 2010 was $ 1.9 million or 5.9 % of our income before income taxes . this was lower
| net cash provided by operating activities totaled $ 138.5 million for the year ended december 31 , 2016 and $ 103.8 million for the year ended december 31 , 2015 . this represents a net increase of $ 34.6 million , which was primarily driven by increases in operating income and changes in working capital . the net change in working capital was a use of cash flows of $ 3.7 million in 2016 compared to a source of cash of $ 46.1 million in 2015 ; a period-over-period decrease in cash flows of $ 49.8 million . the period-over-period changes are as follows : $ 44.7 million decrease in cash flows for other payables and accruals primarily due to the timing of payments related to transaction related costs ; $ 21.3 million decrease in cash flows associated with inventories of products , materials , and supplies , due to higher raw material costs in our polymer segment , partially offset by lower inventory volumes in our polymer and chemical segments ; and $ 4.9 million decrease in cash flows due to the timing of payments of other items , including accounts receivable , related party transactions , taxes , and pension costs ; partially offset by a $ 21.1 million increase in cash flows associated with trade accounts payable due to higher raw material costs in our polymer segment and timing of payments . investing cash flows net cash used in investing activities totaled $ 122.6 million , $ 1,364.8 million , and $ 128.7 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively .
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estimates and judgments used in the preparation of our financial statements are , by their nature , uncertain and unpredictable , and depend upon , among other things , many factors outside of our control , such as demand for our products and economic conditions . accordingly , our estimates and judgments may prove to be incorrect and actual results may differ , perhaps significantly , from these estimates . we believe the following critical accounting policies reflect our more significant judgments used in the preparation of our consolidated financial statements . revenue recognition . we recognize revenue in accordance with financial accounting standards board ( “ fasb ” ) – accounting standards codification ( “ asc ” ) 605-10-s25 revenue recognition – overall – recognition . asc 605-10-s25 requires that four basic criteria must be met before revenue can be recognized : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . determination of criteria ( 3 ) and ( 4 ) are based on management 's judgment regarding the fixed nature of the fee charged for products delivered and the collectability of those fees . the application of these criteria has resulted in our generally recognizing revenue upon shipment ( when title passes ) to customers . should changes in conditions cause management to determine these criteria are not met for certain future transactions , revenue recognized for any reporting period could be adversely impacted . approximately 91 % of our distributor sales , including sales to our value-added resellers , for the year ended december 31 , 2012 were made through distribution arrangements with third parties . these arrangements do not include any special payment terms ( our normal payment terms are 30-45 days for our distributors ) , price protection or exchange rights . returns are limited to our standard product warranty . certain of our large distributors have contracts that include limited stock rotation rights that permit the return of a small percentage of the previous six months ' purchases . approximately 9 % of our distributor sales for the year ended december 31 , 2012 were made through small distributors primarily based on purchase orders . these distributors also have limited or no stock rotation rights . our revenue consists primarily of sales of assembled and tested finished goods . we also sell die in wafer form to our customers and value-added resellers , and we receive royalty revenue from third parties and value-added resellers . we maintain a sales reserve for stock rotation rights , which is based on historical experience of actual stock rotation returns on a per distributor basis , where available , and information related to products in the distribution channel . this reserve is recorded at the time of sale . historically , these returns were not material to our consolidated financial statements . in the future , if we are unable to estimate our stock rotation returns accurately , we may not be able to recognize revenue from sales to our distributors based on when we sell inventory to our distributors . instead , we may have to recognize revenue when the distributor sells through such inventory to an end-customer . 34 we generally recognize revenue upon shipment of products to the distributor for the following reasons ( based on asc 605-15-25-1 revenue recognition – products – recognition – sales of products when right of return exists ) : ( 1 ) our price is fixed and determinable at the date of sale . we do not offer special payment terms , price protection or price adjustments to distributors where we recognize revenue upon shipment ( 2 ) our distributors are obligated to pay us and this obligation is not contingent on the resale of our products ( 3 ) the distributor 's obligation is unchanged in the event of theft or physical destruction or damage to the products ( 4 ) our distributors have stand-alone economic substance apart from our relationship ( 5 ) we do not have any obligations for future performance to directly bring about the resale of our products by the distributor ( 6 ) the amount of future returns can be reasonably estimated . we have the ability and the information necessary to track inventory sold to and held at our distributors . we maintain a history of returns and have the ability to estimate the stock rotation returns on a quarterly basis . if we enter into arrangements that have rights of return that are not estimable , we recognize revenue under such arrangements only after the distributor has sold our products to an end customer . the terms in a majority of our distribution agreements include the non-exclusive right to promote , develop a market for , and sell our products in certain regions of the world and the ability to terminate the distribution agreement by either party with up to three months ' notice . we provide a one year warranty against defects in materials and workmanship . under this warranty , we will repair the goods , provide replacements at no charge , or , under certain circumstances , provide a refund to the customer for defective products . estimated warranty returns and warranty costs are based on historical experience and are recorded at the time product revenue is recognized . two of our u.s. distributors have distribution agreements where revenue is recognized upon sale by these distributors to their end customers because these distributors have certain rights of return which management believes are not estimable . the deferred income balance from these two distributors as of december 31 , 2012 and 2011 was $ 1.4 million and $ 0.9 million , respectively . inventory valuation . story_separator_special_tag 39 replace_table_token_8_th r & d expenses were $ 48.8 million , or 22.8 % of revenue , for the year ended december 31 , 2012 and $ 44.5 million , or 22.7 % of revenue , for the year ended december 31 , 2011. r & d expenses increased year-over-year primarily due to an increase in cash and stock-based compensation expenses and an increase in expenses associated with increased new product development . our r & d headcount as of december 31 , 2012 was 388 employees , compared to 374 employees as of december 31 , 2011. r & d expenses were $ 44.5 million , or 22.7 % of revenue , for the year ended december 31 , 2011 and $ 44.4 million , or 20.3 % of revenue , for the year ended december 31 , 2010. for the year ended december 31 , 2011 , r & d expenses remained flat with the same period in 2010 due to lower stock-based compensation expenses . these were partially offset by an increase in cash compensation expenses and new product development expenses . selling , general and administrative selling , general and administrative expenses include salary and benefit expenses for sales , marketing and administrative personnel , sales commissions , travel expenses , related facilities costs , outside legal and accounting fees , and fees associated with sarbanes-oxley compliance requirements . replace_table_token_9_th sg & a expenses were $ 50.0 million , or 23.4 % of revenue , for the year ended december 31 , 2012 and $ 40.3 million , or 20.5 % of revenue , for the year ended december 31 , 2011. sg & a expenses increased year-over-year primarily due to an increase in cash and stock-based compensation expenses , professional services fees and sales commission on higher revenue compared to the same period in 2011. our sg & a headcount as of december 31 , 2012 was 250 employees , compared to 238 employees as of december 31 , 2011. sg & a expenses were $ 40.3 million , or 20.5 % of revenue , for the year ended december 31 , 2011 and $ 41.2 million , or 18.8 % of revenue , for the year ended december 31 , 2010. for the year ended december 31 , 2011 , sg & a expenses decreased from the same period in 2010 due to lower stock-based compensation expenses . these were partially offset by an increase in cash compensation expenses . litigation expense ( benefit ) , net replace_table_token_10_th litigation benefit , net , was ( $ 2.9 ) million , or ( 1.4 % ) of revenue , for the year ended december 31 , 2012 , compared to an expense of $ 3.4 million , or 1.7 % of revenue , for the year ended december 31 , 2011. the year-over-year decrease in litigation expense was primarily due to $ 3.7 million received in connection with settlements reached with linear and silergy . these payments were recorded as credits to litigation expense ( benefit ) , net , in the consolidated statements of operations . during the year ended december 31 , 2011 , we incurred legal expenses primarily to recover attorneys ' fees from o2micro relating to our lawsuits involving o2micro , which were resolved in the second quarter of 2010. compared with 2011 , litigation expenses decreased as a result of us being party to fewer material legal actions . 40 litigation expenses were $ 3.4 million , or 1.7 % of revenue , for the year ended december 31 , 2011 , compared to $ 5.4 million , or 2.5 % of revenue , for the year ended december 31 , 2010. during the year ended december 31 , 2011 , we incurred legal expenses primarily to recover attorneys ' fees from o2micro relating to our earlier lawsuits with them , which were resolved in the second quarter of 2010. during the year ended december 31 , 2010 , we incurred legal expenses primarily for the defense of those lawsuits . overall , our litigation expense decreased as a result of us being party to fewer material legal actions . for a more complete description of our current material litigation matters , please see part i , item 3 “ legal proceedings ” and note 10 “ litigation ” of notes to consolidated financial statements . interest income and other , net for the years ended december 31 , 2012 , 2011 and 2010 , interest income and other , net , was $ 0.6 million , $ 0.3 million and $ 0.9 million , respectively . interest income increased from 2011 to 2012 due to higher average cash and investment balances in 2012 as compared to 2011. interest income decreased from 2010 to 2011 due to lower cash and investment balances in 2011 , which resulted from stock repurchase activity and the purchase of our san jose headquarters as well as interest rate declines year-over-year . income tax provision the income tax provision for the year ended december 31 , 2012 was $ 2.1 million or 11.9 % of our income before income taxes . this differs from the federal statutory rate of 34 % primarily because our foreign income was taxed at lower rates and because of the benefit that we realized as a result of stock options exercised and restricted units released . the income tax provision for year ended december 31 , 2011 was $ 0.4 million or 3.1 % of our income before income taxes . this differs from the federal statutory rate of 34 % primarily because our foreign income was taxed at lower rates and because of the benefit that we realized as a result of stock options exercised and restricted units released . the income tax provision for the year ended december 31 , 2010 was $ 1.9 million or 5.9 % of our income before income taxes . this was lower
| liquidity and capital resources replace_table_token_11_th as of december 31 , 2012 , we had cash and cash equivalents of $ 75.1 million and short-term investments of $ 85.5 million compared with cash and cash equivalents of $ 96.4 million and short-term investments of $ 77.8 million as of december 31 , 2011. the decrease of $ 21.3 million in cash and cash equivalents in 2012 compared to 2011 was primarily due to the $ 35.7 million cash dividend paid to common stockholders on december 28 , 2012 , investment in equipment and building improvements at our new headquarters located in san jose , california and investment in short-term securities . these uses of cash were partially offset by cash generated from operating activities and proceeds from the exercise of stock options and purchases under our employee stock purchase plan . we have financed our operations primarily with cash generated from operating activities , proceeds received from the exercise of stock options and proceeds from the issuance of shares through our employee stock purchase plan . as of december 31 , 2012 , $ 43.8 million of the $ 75.1 million of cash and cash equivalents and $ 17.0 million of the $ 85.5 million of short-term investments were held by our international subsidiaries . if these funds are needed for our operations in the u.s. , we may be required to accrue and pay u.s. taxes to repatriate these funds .
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passenger revenues fare revenues . tickets sold are initially deferred within air traffic liability on the company 's balance sheet . passenger fare revenues are recognized at time of departure when transportation is provided . all tickets sold by the company are nonrefundable . an unused ticket expires at the date of scheduled travel and is recognized as revenue at the date of scheduled travel . passenger revenues reported prior to the adoption of asu 2014-09 are now reported as fare revenues within passenger revenues in the company 's disaggregated revenue table within “ notes to the financial statements— 4 , revenue disaggregation . `` non-fare revenues . our most significant non-fare revenues include revenues generated from air travel-related services paid for baggage , passenger usage fees , advance seat selection , itinerary changes , and loyalty programs . the adoption of asu 39 2014-09 impacted the classification of these ancillary items since they are deemed part of the single performance obligation of providing passenger transportation . these ancillary items are now recognized in non-fare revenues within passenger revenues in the company 's disaggregated revenue table within “ notes to the financial statements— 4 , revenue disaggregation . `` passenger non-fare revenues are recognized at time of departure when transportation is provided . passenger revenues are recognized once the related flight departs . accordingly , the value of tickets and non-fare revenues sold in advance of travel is included under our current liabilities as “ air traffic liability , ” or atl , until the related air travel is provided . revenue generated from the free spirit credit card affinity program are recognized in accordance with the criteria as set forth in accounting standards update asu 2014-09. please see “ —critical accounting policies and estimates—frequent flyer program . ” other revenues other revenues primarily consist of the marketing component of the sale of frequent flyer miles to our credit card partner and commissions revenue from the sale of various items such as hotels and rental cars . substantially all of our revenues are denominated in u.s. dollars . we recognize revenues net of certain taxes and airport passenger fees , which are collected by us on behalf of airports and governmental agencies and remitted to the applicable governmental entity or airport on a periodic basis . these taxes and fees include u.s. federal transportation taxes , federal security charges , airport passenger facility charges and foreign arrival and departure taxes . these items are collected from customers at the time they purchase their tickets , but are not included in our revenues . upon collection from the customer , we record a liability within other current liabilities on our balance sheets and relieve the liability when payments are remitted to the applicable governmental agency or airport . operating expenses our operating expenses consist of the following line items . aircraft fuel . aircraft fuel expense includes the cost of jet fuel , related federal taxes , fueling into-plane fees and transportation fees . it also includes realized and unrealized gains and losses arising from activity on our fuel derivatives , if any . our fuel derivatives , if any , generally consist of united states gulf coast jet fuel swaps ( `` jet fuel swaps `` ) and united states gulf coast jet fuel options ( `` jet fuel options `` ) . salaries , wages and benefits . salaries , wages and benefits expense includes the salaries , hourly wages , bonuses and equity compensation paid to employees for their services , as well as the related expenses associated with employee benefit plans and employer payroll taxes . landing fees and other rents . landing fees and other rents include both fixed and variable facilities expenses , such as the fees charged by airports for the use or lease of airport facilities , overfly fees paid to other countries and the monthly rent paid for our headquarters facility . aircraft rent . aircraft rent expense consists of all minimum lease payments under the terms of our aircraft and spare engine lease agreements recognized on a straight-line basis . aircraft rent expense also includes supplemental rent . supplemental rent is made up of maintenance reserves paid to aircraft lessors in advance of the performance of major maintenance activities that are not probable of being reimbursed and probable and estimable return condition obligations . aircraft rent expense is net of the amortization of gains and losses on sale leaseback transactions on our flight equipment . as of december 31 , 2018 , 46 of our 128 aircraft and 12 of our 20 spare engines are financed under operating leases . depreciation and amortization . depreciation and amortization expense includes the depreciation of fixed assets we own and leasehold improvements . it also includes the amortization of capitalized software costs and heavy maintenance . under the deferral method , the cost of our heavy maintenance is capitalized and amortized on a straight-line or usage basis until the earlier of the next estimated heavy maintenance event or the remaining lease term . distribution . distribution expense includes all of our direct costs , including the cost of web support , our third-party call center , travel agent commissions and related gds fees and credit card transaction fees , associated with the sale of our tickets and other products and services . maintenance , materials and repairs . maintenance , materials and repairs expense includes parts , materials , repairs and fees for repairs performed by third-party vendors and in-house mechanics required to maintain our fleet . it excludes direct labor 40 cost related to our own mechanics , which is included under salaries , wages and benefits . it also excludes the amortization of heavy maintenance expenses , which we defer under the deferral method of accounting and amortize as a component of depreciation and amortization expense . special charges . story_separator_special_tag please see “ —critical accounting policies and estimates—aircraft maintenance , materials , repair costs and related heavy maintenance amortization ” and “ —maintenance reserves . ” critical accounting policies and estimates the following discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities , revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements . for a detailed discussion of our significant accounting policies , refer to “ notes to financial statements—1 . summary of significant accounting policies . ” critical accounting policies are defined as those policies that reflect significant judgments or estimates about matters both inherently uncertain and material to our financial condition or results of operations . revenue recognition . revenues from tickets sold are initially deferred as atl . passenger revenues are recognized when transportation is provided . an unused non-refundable ticket expires at the date of scheduled travel and is recognized as revenue for the expired ticket value at the date of scheduled travel . as of december 31 , 2018 and 2017 , we had air traffic liability ( `` atl `` ) balances of $ 292.0 million and $ 263.7 million , respectively . as of december 31 , 2018 , all of the atl balance as of december 31 , 2017 has been recognized . customers may elect to change or cancel their itinerary prior to the date of departure . for changes , a service charge is recognized at time of departure of newly scheduled travel and is deducted from the face value of the original purchase price of the ticket , and the original ticket becomes invalid . for cancellations , a service charge is assessed and the amount remaining after deducting the service charge is called a credit shell which generally expires 60 days from the date the credit shell is created and can be used towards the purchase of a new ticket and the company 's other service offerings . both the service charge and credit shell amounts are recorded as deferred revenue and amounts expected to expire unused are estimated based on historical experience . estimating the amount of credits that will go unused involves some level of subjectivity and judgment . however , given the relatively short period of time to expiration , this does not have a significant impact on the company 's financial statements . frequent flyer program . our frequent flyer program generates customer loyalty by rewarding customers with mileage credits to travel on spirit . when traveling , customers earn redeemable mileage credits for each mile flown on spirit . customers can also earn mileage credits through participating companies such as the co-branded spirit credit card . mileage credits are redeemable by customers in future periods for air travel on spirit . to reflect the mileage credits earned , the program includes two types of transactions that are considered revenue arrangements with multiple performance obligations : ( 1 ) mileage credits earned with travel and ( 2 ) mileage credits sold to co-branded credit card partner . the adoption of asu 2014-09 eliminated the incremental cost method for frequent flyer program accounting , which required us to re-value and record a liability associated with customer flight miles earned with travel as part of our frequent flyer program with a relative fair value . upon adoption of asu 2014-09 on january 1 , 2018 , we recorded an increase to our air traffic liability of $ 12.4 million . passenger ticket sales earning mileage credits . passenger ticket sales earning mileage credits provide customers with ( 1 ) mileage credits earned and ( 2 ) air transportation . we value each performance obligation on a standalone basis . to value the mileage credits earned , we consider the quantitative value a passenger receives by redeeming miles for a ticket rather than paying cash , which is referred to as equivalent ticket value ( `` etv `` ) . we defer revenue for the mileage credits when earned and recognize loyalty travel awards in passenger revenue as the miles are redeemed and services are provided . we record the air transportation portion of the passenger ticket sales in air traffic 44 liability and recognize passenger revenue when transportation is provided or if the ticket goes unused , at the date of scheduled travel . sale of mileage credits . customers may earn mileage credits based on their spending with our co-branded credit card company with which we have an agreement to sell mileage credits . the contract to sell mileage credits under this agreement has multiple performance obligations . during the year ended december 31 , 2018 and 2017 , total cash sales from this agreement were $ 39.2 million and $ 49.5 million , respectively , which are allocated to travel and other performance obligations . our co-brand credit card agreement provides for joint marketing where cardholders earn mileage credits for making purchases using co-branded cards . during 2015 , we extended its agreement with the administrator of the free spirit affinity credit card program to extend through 2022. we account for this agreement consistently with the accounting method that allocates the consideration received to the individual products and services delivered . the value is allocated based on the relative selling prices of those products and services , which generally consists of ( i ) travel miles to be awarded , ( ii ) licensing of brand and access to member lists and ( iii ) advertising and marketing efforts . we determined the best estimate of the selling prices by considering discounted cash flow analysis using multiple inputs and assumptions , including : ( 1 ) the expected
| liquidity and capital resources replace_table_token_11_th as of december 31 , 2012 , we had cash and cash equivalents of $ 75.1 million and short-term investments of $ 85.5 million compared with cash and cash equivalents of $ 96.4 million and short-term investments of $ 77.8 million as of december 31 , 2011. the decrease of $ 21.3 million in cash and cash equivalents in 2012 compared to 2011 was primarily due to the $ 35.7 million cash dividend paid to common stockholders on december 28 , 2012 , investment in equipment and building improvements at our new headquarters located in san jose , california and investment in short-term securities . these uses of cash were partially offset by cash generated from operating activities and proceeds from the exercise of stock options and purchases under our employee stock purchase plan . we have financed our operations primarily with cash generated from operating activities , proceeds received from the exercise of stock options and proceeds from the issuance of shares through our employee stock purchase plan . as of december 31 , 2012 , $ 43.8 million of the $ 75.1 million of cash and cash equivalents and $ 17.0 million of the $ 85.5 million of short-term investments were held by our international subsidiaries . if these funds are needed for our operations in the u.s. , we may be required to accrue and pay u.s. taxes to repatriate these funds .
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passenger revenues fare revenues . tickets sold are initially deferred within air traffic liability on the company 's balance sheet . passenger fare revenues are recognized at time of departure when transportation is provided . all tickets sold by the company are nonrefundable . an unused ticket expires at the date of scheduled travel and is recognized as revenue at the date of scheduled travel . passenger revenues reported prior to the adoption of asu 2014-09 are now reported as fare revenues within passenger revenues in the company 's disaggregated revenue table within “ notes to the financial statements— 4 , revenue disaggregation . `` non-fare revenues . our most significant non-fare revenues include revenues generated from air travel-related services paid for baggage , passenger usage fees , advance seat selection , itinerary changes , and loyalty programs . the adoption of asu 39 2014-09 impacted the classification of these ancillary items since they are deemed part of the single performance obligation of providing passenger transportation . these ancillary items are now recognized in non-fare revenues within passenger revenues in the company 's disaggregated revenue table within “ notes to the financial statements— 4 , revenue disaggregation . `` passenger non-fare revenues are recognized at time of departure when transportation is provided . passenger revenues are recognized once the related flight departs . accordingly , the value of tickets and non-fare revenues sold in advance of travel is included under our current liabilities as “ air traffic liability , ” or atl , until the related air travel is provided . revenue generated from the free spirit credit card affinity program are recognized in accordance with the criteria as set forth in accounting standards update asu 2014-09. please see “ —critical accounting policies and estimates—frequent flyer program . ” other revenues other revenues primarily consist of the marketing component of the sale of frequent flyer miles to our credit card partner and commissions revenue from the sale of various items such as hotels and rental cars . substantially all of our revenues are denominated in u.s. dollars . we recognize revenues net of certain taxes and airport passenger fees , which are collected by us on behalf of airports and governmental agencies and remitted to the applicable governmental entity or airport on a periodic basis . these taxes and fees include u.s. federal transportation taxes , federal security charges , airport passenger facility charges and foreign arrival and departure taxes . these items are collected from customers at the time they purchase their tickets , but are not included in our revenues . upon collection from the customer , we record a liability within other current liabilities on our balance sheets and relieve the liability when payments are remitted to the applicable governmental agency or airport . operating expenses our operating expenses consist of the following line items . aircraft fuel . aircraft fuel expense includes the cost of jet fuel , related federal taxes , fueling into-plane fees and transportation fees . it also includes realized and unrealized gains and losses arising from activity on our fuel derivatives , if any . our fuel derivatives , if any , generally consist of united states gulf coast jet fuel swaps ( `` jet fuel swaps `` ) and united states gulf coast jet fuel options ( `` jet fuel options `` ) . salaries , wages and benefits . salaries , wages and benefits expense includes the salaries , hourly wages , bonuses and equity compensation paid to employees for their services , as well as the related expenses associated with employee benefit plans and employer payroll taxes . landing fees and other rents . landing fees and other rents include both fixed and variable facilities expenses , such as the fees charged by airports for the use or lease of airport facilities , overfly fees paid to other countries and the monthly rent paid for our headquarters facility . aircraft rent . aircraft rent expense consists of all minimum lease payments under the terms of our aircraft and spare engine lease agreements recognized on a straight-line basis . aircraft rent expense also includes supplemental rent . supplemental rent is made up of maintenance reserves paid to aircraft lessors in advance of the performance of major maintenance activities that are not probable of being reimbursed and probable and estimable return condition obligations . aircraft rent expense is net of the amortization of gains and losses on sale leaseback transactions on our flight equipment . as of december 31 , 2018 , 46 of our 128 aircraft and 12 of our 20 spare engines are financed under operating leases . depreciation and amortization . depreciation and amortization expense includes the depreciation of fixed assets we own and leasehold improvements . it also includes the amortization of capitalized software costs and heavy maintenance . under the deferral method , the cost of our heavy maintenance is capitalized and amortized on a straight-line or usage basis until the earlier of the next estimated heavy maintenance event or the remaining lease term . distribution . distribution expense includes all of our direct costs , including the cost of web support , our third-party call center , travel agent commissions and related gds fees and credit card transaction fees , associated with the sale of our tickets and other products and services . maintenance , materials and repairs . maintenance , materials and repairs expense includes parts , materials , repairs and fees for repairs performed by third-party vendors and in-house mechanics required to maintain our fleet . it excludes direct labor 40 cost related to our own mechanics , which is included under salaries , wages and benefits . it also excludes the amortization of heavy maintenance expenses , which we defer under the deferral method of accounting and amortize as a component of depreciation and amortization expense . special charges . story_separator_special_tag please see “ —critical accounting policies and estimates—aircraft maintenance , materials , repair costs and related heavy maintenance amortization ” and “ —maintenance reserves . ” critical accounting policies and estimates the following discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities , revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements . for a detailed discussion of our significant accounting policies , refer to “ notes to financial statements—1 . summary of significant accounting policies . ” critical accounting policies are defined as those policies that reflect significant judgments or estimates about matters both inherently uncertain and material to our financial condition or results of operations . revenue recognition . revenues from tickets sold are initially deferred as atl . passenger revenues are recognized when transportation is provided . an unused non-refundable ticket expires at the date of scheduled travel and is recognized as revenue for the expired ticket value at the date of scheduled travel . as of december 31 , 2018 and 2017 , we had air traffic liability ( `` atl `` ) balances of $ 292.0 million and $ 263.7 million , respectively . as of december 31 , 2018 , all of the atl balance as of december 31 , 2017 has been recognized . customers may elect to change or cancel their itinerary prior to the date of departure . for changes , a service charge is recognized at time of departure of newly scheduled travel and is deducted from the face value of the original purchase price of the ticket , and the original ticket becomes invalid . for cancellations , a service charge is assessed and the amount remaining after deducting the service charge is called a credit shell which generally expires 60 days from the date the credit shell is created and can be used towards the purchase of a new ticket and the company 's other service offerings . both the service charge and credit shell amounts are recorded as deferred revenue and amounts expected to expire unused are estimated based on historical experience . estimating the amount of credits that will go unused involves some level of subjectivity and judgment . however , given the relatively short period of time to expiration , this does not have a significant impact on the company 's financial statements . frequent flyer program . our frequent flyer program generates customer loyalty by rewarding customers with mileage credits to travel on spirit . when traveling , customers earn redeemable mileage credits for each mile flown on spirit . customers can also earn mileage credits through participating companies such as the co-branded spirit credit card . mileage credits are redeemable by customers in future periods for air travel on spirit . to reflect the mileage credits earned , the program includes two types of transactions that are considered revenue arrangements with multiple performance obligations : ( 1 ) mileage credits earned with travel and ( 2 ) mileage credits sold to co-branded credit card partner . the adoption of asu 2014-09 eliminated the incremental cost method for frequent flyer program accounting , which required us to re-value and record a liability associated with customer flight miles earned with travel as part of our frequent flyer program with a relative fair value . upon adoption of asu 2014-09 on january 1 , 2018 , we recorded an increase to our air traffic liability of $ 12.4 million . passenger ticket sales earning mileage credits . passenger ticket sales earning mileage credits provide customers with ( 1 ) mileage credits earned and ( 2 ) air transportation . we value each performance obligation on a standalone basis . to value the mileage credits earned , we consider the quantitative value a passenger receives by redeeming miles for a ticket rather than paying cash , which is referred to as equivalent ticket value ( `` etv `` ) . we defer revenue for the mileage credits when earned and recognize loyalty travel awards in passenger revenue as the miles are redeemed and services are provided . we record the air transportation portion of the passenger ticket sales in air traffic 44 liability and recognize passenger revenue when transportation is provided or if the ticket goes unused , at the date of scheduled travel . sale of mileage credits . customers may earn mileage credits based on their spending with our co-branded credit card company with which we have an agreement to sell mileage credits . the contract to sell mileage credits under this agreement has multiple performance obligations . during the year ended december 31 , 2018 and 2017 , total cash sales from this agreement were $ 39.2 million and $ 49.5 million , respectively , which are allocated to travel and other performance obligations . our co-brand credit card agreement provides for joint marketing where cardholders earn mileage credits for making purchases using co-branded cards . during 2015 , we extended its agreement with the administrator of the free spirit affinity credit card program to extend through 2022. we account for this agreement consistently with the accounting method that allocates the consideration received to the individual products and services delivered . the value is allocated based on the relative selling prices of those products and services , which generally consists of ( i ) travel miles to be awarded , ( ii ) licensing of brand and access to member lists and ( iii ) advertising and marketing efforts . we determined the best estimate of the selling prices by considering discounted cash flow analysis using multiple inputs and assumptions , including : ( 1 ) the expected
| net cash provided by financing activities . during 2018 , financing activities provided $ 481.1 million . we received $ 832.1 million in connection with the 2015-1c and 2017-1c eetcs and the debt financing of 14 aircraft delivered during 2018 . in addition , we paid $ 137.3 million in debt principal payment obligations and $ 205.7 million in capital lease obligations . the payments on capital lease obligations are primarily related to an aircraft purchase agreement for the purchase of 14 a319 aircraft which we previously operated under operating leases . for additional information , refer to `` notes to financial statements - 5. special charges . '' during 2017 , financing activities provided $ 466.7 million . we received $ 629.7 million in connection with the debt financing of 17 aircraft delivered during 2017. we spent $ 46.6 million to repurchase common stock primarily under our stock repurchase authorization , which became effective in october 2017 , and we paid $ 102.3 million in debt principal payment obligations related to the financing of our aircraft . during 2016 , financing activities provided $ 249.9 million . we received $ 417.3 million in connection with the debt financing of 11 aircraft delivered during 2016. we spent $ 102.5 million to repurchase common stock primarily under our stock repurchase authorization , which became effective in october 2015 , and we paid $ 64.4 million in debt principal payment obligations related to the financing of our aircraft . commitments and contractual obligations we have contractual obligations and commitments primarily with regard to future purchases of aircraft and engines , payment of debt , and lease arrangements . the following table discloses aggregate information about our contractual obligations as of december 31 , 2018 and the periods in which payments are due ( in millions ) : replace_table_token_21_th 58 ( 1 ) includes principal only associated with senior and junior term loans , fixed-rate loans , class a , class b , and class c series 2015-1 eetcs , class aa , class a , class b , and class c series 2017-1 eetcs , and our revolving credit facility .
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a summary of these key financial metrics for the year ended june 30 , 2017 as compared to the year ended june 30 , 2016 follows : fiscal year 2017 reported revenue increased by 19 % to $ 2,135.4 million . 32 consolidated constant-currency revenue increased by 21 % and excluding acquisitions completed in the last four quarters increased by 8 % . operating income decreased $ 123.9 million to an operating loss of $ 45.7 million . adjusted nopat decreased $ 75.2 million to $ 64.6 million . for our fiscal year 2017 , the increase in reported revenue growth was primarily due to the addition of the revenue of our wirmachendruck business , which we acquired in fiscal 2016 and therefore only partially contributed to the prior comparative period , and our recently acquired national pen business , as well as continued growth in the vistaprint business and upload and print businesses acquired more than twelve months prior . the following items negatively impacted our operating income for the year ended june 30 , 2017 , leading to the decrease in operating income as compared to the prior period : increased organic investments in fiscal year 2017 compared to fiscal year 2016 , which materially weighed on profitability . these investments include costs that impact our gross profit such as shipping price reductions , expanded design services , and new product introduction . significant acquisition-related expense associated with our wirmachendruck contingent earn-out arrangement , due to its continued strong performance , as well as $ 7.1 million of amortization expense for acquired intangible assets of our newly acquired national pen business . restructuring-related charges related to our reorganization , which was announced in january 2017 , resulting in one-time employee termination costs as well as third party professional fees . declines from the termination of two partner contracts within our albumprinter and corporate solutions businesses . increased third-party fulfillment and shipping costs during the second quarter of fiscal 2017 due to production inefficiencies in our vistaprint business . increased share-based compensation , excluding restructuring related charges , during the current fiscal year primarily driven by our new long-term incentive program and the accelerated vesting of equity awards from two acquisition-related arrangements . the decrease in adjusted nopat ( a non-gaap financial measure ) was also negatively impacted by the items described above , with the exception of the restructuring-related charges , the expense associated with our wirmachendruck contingent earn-out arrangement and the national pen intangible asset amortization , as these expenses are excluded from adjusted nopat . primarily as a result of the organizational changes announced on january 25 , 2017 , we incurred aggregate pre-tax restructuring charges of $ 26.7 million during the year ended june 30 , 2017. the restructuring is substantially complete and we do not expect material charges in future quarters related to these changes . in fiscal 2018 as compared to the current period , we expect to realize net operating expense savings of approximately $ 50 million and pre-tax cash flow from operations savings of approximately $ 35 million , as a result of these reductions in headcount and related non-compensation savings . consolidated results of operations consolidated revenue we generate revenue primarily from the sale and shipping of customized manufactured products , and by providing digital services , website design and hosting , and email marketing services , as well as a small percentage from order referral fees and other third-party offerings . for the years ended june 30 , 2017 and 2016 , our reported revenue increased , primarily due to the addition of revenue from our wirmachendruck business acquired on february 1 , 2016 and our national pen business acquired on december 30 , 2016. currency fluctuations negatively impacted our fiscal 2017 and 2016 reported revenue growth . the increases in constant-currency revenue excluding acquisitions for which there is no comparable year-over-year revenue were driven by continued growth in the vistaprint business , as well as growth in our upload and print businesses acquired more than twelve months prior , which were partially offset by declines from the termination of two partner contracts within our albumprinter and corporate solutions businesses . 33 total revenue by reportable segment for the years ended june 30 , 2017 , 2016 and 2015 is shown in the following tables : replace_table_token_7_th replace_table_token_8_th _ ( 1 ) fiscal 2017 includes the impact of national pen from its acquisition date of december 30 , 2016 in our national pen segment . ( 2 ) fiscal 2016 includes the impact of alcione , tradeprint and wirmachendruck from their respective acquisition dates in our upload and print segment ( 3 ) fiscal 2015 includes from their respective acquisition dates , the impact of fotoknudsen and printi which are part of our all other businesses segment , as well as easyflyer , exagroup and druck.at which are part of our upload and print segment ( 4 ) constant-currency revenue growth , a non-gaap financial measure , represents the change in total revenue between current and prior year periods at constant-currency exchange rates by translating all non-u.s. dollar denominated revenue generated in the current period using the prior year period 's average exchange rate for each currency to the u.s. dollar . ( 5 ) constant-currency revenue growth excluding acquisitions , a non-gaap financial measure , excludes revenue results for businesses in the period in which there is no comparable year-over-year revenue . revenue from our fiscal 2016 acquisitions is excluded from fiscal 2017 revenue growth for quarters with no comparable year-over-year revenue . for example , revenue from tradeprint , which we acquired in q1 2016 , is excluded from q1 2017 revenue growth since there are no full quarter results in the comparable period , but revenue from tradeprint is included in q2 , q3 , and q4 2017 revenue growth . story_separator_special_tag 38 reportable segment results our primary metric used to measure segment financial performance is adjusted net operating profit which excludes certain non-operational items including acquisition-related expenses , certain impairments and restructuring charges . vistaprint replace_table_token_13_th _ ( 1 ) during the fourth quarter of fiscal 2017 , we identified errors related to our unaudited segment profitability disclosures that were recast and reported during the third quarter of fiscal 2017. the impact of these errors have been revised for all periods presented . refer to note 16 for additional details . segment revenue vistaprint 's reported revenue growth for the year ended june 30 , 2017 of 7 % was negatively affected by currency impacts of 2 % , resulting in constant-currency growth of 9 % . the vistaprint constant-currency growth was due to growth in both repeat customers and new customer bookings . while both new and repeat customer bookings contributed to this revenue growth , we continue to see stronger growth resulting from improved customer satisfaction among repeat customers . performance continues to be stronger in the north american and australian markets , with improving results in certain european markets . revenue from our focus product categories including signage , marketing materials and promotional products and apparel is growing faster than the overall segment . in addition , some of our customer value proposition efforts , including our continued roll-out of shipping price reductions , have created revenue headwinds in certain markets , including france , germany , the netherlands , united kingdom and the united states , but we expect these investments will attract higher-value customers and improve customer loyalty in future periods . the vistaprint business reported revenue growth of 6 % for the year ended june 30 , 2016 was negatively affected by currency impacts of 4 % , resulting in constant-currency growth of 10 % . the constant-currency revenue growth is due to repeat customer bookings growth , with improving growth in new customer bookings . we experienced strong revenue growth in the same focus product categories discussed above , and performance was stronger in north america and australia . segment profitability vistaprint 's adjusted net operating profit decreased for the year ended june 30 , 2017 as compared to the prior period , primarily due to the roll-out of planned investments including shipping price reductions , expanded design services and new product introduction that have negatively impacted gross profit . while these investments have reduced our current period profitability , we expect that these investments will attract higher-value customers and improve customer loyalty in future periods . these increases in planned investments were partially offset by operating expense efficiencies and incremental profits from revenue growth . adjusted net operating profit increased for the year ended june 30 , 2016 as compared to the prior period , primarily due to $ 35.6 million in additional gross profit as a result of revenue growth , partially offset by an increase in planned advertising spend . upload and print replace_table_token_14_th 39 segment revenue the reported revenue growth of 36 % for the year ended june 30 , 2017 was primarily due to the addition of revenue from our fiscal 2016 acquisition of wirmachendruck . the reported revenue growth was negatively affected by currency impacts during the year ended june 30 , 2017 of 3 % . the upload and print constant-currency revenue growth excluding revenue from businesses acquired in the past twelve months was 13 % , primarily driven by continued growth from our pixartprinting , printdeal and exagroup businesses . our growth in constant currency revenue excluding recent acquisitions has moderated as we passed the acquisition anniversary of some of the slower-growing acquisitions , and we also have seen some moderation in the growth rates of businesses we acquired in prior years . for the year ended june 30 , 2016 , our reported revenue growth includes the addition of aggregate revenue of $ 205.4 million , from the businesses we acquired in fiscal 2016 and fiscal 2015 for quarters with no comparable revenue . the upload and print constant-currency revenue growth excluding revenue from businesses acquired in the past twelve months was 27 % for the year ended june 30 , 2016 , due to continued strong performance from our pixartprinting and printdeal businesses , which we acquired in fiscal 2014. segment profitability the increase in adjusted net operating profit for the year ended june 30 , 2017 as compared to the prior period is primarily due to our wirmachendruck business , which we acquired in fiscal 2016 and did not have a full comparable fiscal year , partially offset by a decline in the profitability of our tradeprint business , as well as continued investments in oversight , technology , and marketing . upload and print adjusted net operating profit increased for the year ended june 30 , 2016 , as compared to the prior period , primarily as a result of higher adjusted net operating profit of $ 21.4 million from the businesses we acquired during the fourth quarter of fiscal 2015 and fiscal 2016. in addition , both the pixartprinting and printdeal businesses have increased their contribution to adjusted net operating profit due to growth in revenue and improvements in gross margin . national pen replace_table_token_15_th segment revenue and profitability as we acquired national pen on december 30 , 2016 there are no comparative operating results presented . for the year ended june 30 , 2017 reported revenue was $ 112.7 million and adjusted net operating loss was $ 2.2 million . as national pen profitability has traditionally been highly seasonal , we expect the first and second quarters of our fiscal year to be its strongest for both revenue and profitability . all other businesses replace_table_token_16_th segment revenue the all other businesses revenue decline for the year ended june 30 , 2017 was due to the termination of certain partner contracts in both our corporate solutions and albumprinter businesses . these
| net cash provided by financing activities . during 2018 , financing activities provided $ 481.1 million . we received $ 832.1 million in connection with the 2015-1c and 2017-1c eetcs and the debt financing of 14 aircraft delivered during 2018 . in addition , we paid $ 137.3 million in debt principal payment obligations and $ 205.7 million in capital lease obligations . the payments on capital lease obligations are primarily related to an aircraft purchase agreement for the purchase of 14 a319 aircraft which we previously operated under operating leases . for additional information , refer to `` notes to financial statements - 5. special charges . '' during 2017 , financing activities provided $ 466.7 million . we received $ 629.7 million in connection with the debt financing of 17 aircraft delivered during 2017. we spent $ 46.6 million to repurchase common stock primarily under our stock repurchase authorization , which became effective in october 2017 , and we paid $ 102.3 million in debt principal payment obligations related to the financing of our aircraft . during 2016 , financing activities provided $ 249.9 million . we received $ 417.3 million in connection with the debt financing of 11 aircraft delivered during 2016. we spent $ 102.5 million to repurchase common stock primarily under our stock repurchase authorization , which became effective in october 2015 , and we paid $ 64.4 million in debt principal payment obligations related to the financing of our aircraft . commitments and contractual obligations we have contractual obligations and commitments primarily with regard to future purchases of aircraft and engines , payment of debt , and lease arrangements . the following table discloses aggregate information about our contractual obligations as of december 31 , 2018 and the periods in which payments are due ( in millions ) : replace_table_token_21_th 58 ( 1 ) includes principal only associated with senior and junior term loans , fixed-rate loans , class a , class b , and class c series 2015-1 eetcs , class aa , class a , class b , and class c series 2017-1 eetcs , and our revolving credit facility .
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a summary of these key financial metrics for the year ended june 30 , 2017 as compared to the year ended june 30 , 2016 follows : fiscal year 2017 reported revenue increased by 19 % to $ 2,135.4 million . 32 consolidated constant-currency revenue increased by 21 % and excluding acquisitions completed in the last four quarters increased by 8 % . operating income decreased $ 123.9 million to an operating loss of $ 45.7 million . adjusted nopat decreased $ 75.2 million to $ 64.6 million . for our fiscal year 2017 , the increase in reported revenue growth was primarily due to the addition of the revenue of our wirmachendruck business , which we acquired in fiscal 2016 and therefore only partially contributed to the prior comparative period , and our recently acquired national pen business , as well as continued growth in the vistaprint business and upload and print businesses acquired more than twelve months prior . the following items negatively impacted our operating income for the year ended june 30 , 2017 , leading to the decrease in operating income as compared to the prior period : increased organic investments in fiscal year 2017 compared to fiscal year 2016 , which materially weighed on profitability . these investments include costs that impact our gross profit such as shipping price reductions , expanded design services , and new product introduction . significant acquisition-related expense associated with our wirmachendruck contingent earn-out arrangement , due to its continued strong performance , as well as $ 7.1 million of amortization expense for acquired intangible assets of our newly acquired national pen business . restructuring-related charges related to our reorganization , which was announced in january 2017 , resulting in one-time employee termination costs as well as third party professional fees . declines from the termination of two partner contracts within our albumprinter and corporate solutions businesses . increased third-party fulfillment and shipping costs during the second quarter of fiscal 2017 due to production inefficiencies in our vistaprint business . increased share-based compensation , excluding restructuring related charges , during the current fiscal year primarily driven by our new long-term incentive program and the accelerated vesting of equity awards from two acquisition-related arrangements . the decrease in adjusted nopat ( a non-gaap financial measure ) was also negatively impacted by the items described above , with the exception of the restructuring-related charges , the expense associated with our wirmachendruck contingent earn-out arrangement and the national pen intangible asset amortization , as these expenses are excluded from adjusted nopat . primarily as a result of the organizational changes announced on january 25 , 2017 , we incurred aggregate pre-tax restructuring charges of $ 26.7 million during the year ended june 30 , 2017. the restructuring is substantially complete and we do not expect material charges in future quarters related to these changes . in fiscal 2018 as compared to the current period , we expect to realize net operating expense savings of approximately $ 50 million and pre-tax cash flow from operations savings of approximately $ 35 million , as a result of these reductions in headcount and related non-compensation savings . consolidated results of operations consolidated revenue we generate revenue primarily from the sale and shipping of customized manufactured products , and by providing digital services , website design and hosting , and email marketing services , as well as a small percentage from order referral fees and other third-party offerings . for the years ended june 30 , 2017 and 2016 , our reported revenue increased , primarily due to the addition of revenue from our wirmachendruck business acquired on february 1 , 2016 and our national pen business acquired on december 30 , 2016. currency fluctuations negatively impacted our fiscal 2017 and 2016 reported revenue growth . the increases in constant-currency revenue excluding acquisitions for which there is no comparable year-over-year revenue were driven by continued growth in the vistaprint business , as well as growth in our upload and print businesses acquired more than twelve months prior , which were partially offset by declines from the termination of two partner contracts within our albumprinter and corporate solutions businesses . 33 total revenue by reportable segment for the years ended june 30 , 2017 , 2016 and 2015 is shown in the following tables : replace_table_token_7_th replace_table_token_8_th _ ( 1 ) fiscal 2017 includes the impact of national pen from its acquisition date of december 30 , 2016 in our national pen segment . ( 2 ) fiscal 2016 includes the impact of alcione , tradeprint and wirmachendruck from their respective acquisition dates in our upload and print segment ( 3 ) fiscal 2015 includes from their respective acquisition dates , the impact of fotoknudsen and printi which are part of our all other businesses segment , as well as easyflyer , exagroup and druck.at which are part of our upload and print segment ( 4 ) constant-currency revenue growth , a non-gaap financial measure , represents the change in total revenue between current and prior year periods at constant-currency exchange rates by translating all non-u.s. dollar denominated revenue generated in the current period using the prior year period 's average exchange rate for each currency to the u.s. dollar . ( 5 ) constant-currency revenue growth excluding acquisitions , a non-gaap financial measure , excludes revenue results for businesses in the period in which there is no comparable year-over-year revenue . revenue from our fiscal 2016 acquisitions is excluded from fiscal 2017 revenue growth for quarters with no comparable year-over-year revenue . for example , revenue from tradeprint , which we acquired in q1 2016 , is excluded from q1 2017 revenue growth since there are no full quarter results in the comparable period , but revenue from tradeprint is included in q2 , q3 , and q4 2017 revenue growth . story_separator_special_tag 38 reportable segment results our primary metric used to measure segment financial performance is adjusted net operating profit which excludes certain non-operational items including acquisition-related expenses , certain impairments and restructuring charges . vistaprint replace_table_token_13_th _ ( 1 ) during the fourth quarter of fiscal 2017 , we identified errors related to our unaudited segment profitability disclosures that were recast and reported during the third quarter of fiscal 2017. the impact of these errors have been revised for all periods presented . refer to note 16 for additional details . segment revenue vistaprint 's reported revenue growth for the year ended june 30 , 2017 of 7 % was negatively affected by currency impacts of 2 % , resulting in constant-currency growth of 9 % . the vistaprint constant-currency growth was due to growth in both repeat customers and new customer bookings . while both new and repeat customer bookings contributed to this revenue growth , we continue to see stronger growth resulting from improved customer satisfaction among repeat customers . performance continues to be stronger in the north american and australian markets , with improving results in certain european markets . revenue from our focus product categories including signage , marketing materials and promotional products and apparel is growing faster than the overall segment . in addition , some of our customer value proposition efforts , including our continued roll-out of shipping price reductions , have created revenue headwinds in certain markets , including france , germany , the netherlands , united kingdom and the united states , but we expect these investments will attract higher-value customers and improve customer loyalty in future periods . the vistaprint business reported revenue growth of 6 % for the year ended june 30 , 2016 was negatively affected by currency impacts of 4 % , resulting in constant-currency growth of 10 % . the constant-currency revenue growth is due to repeat customer bookings growth , with improving growth in new customer bookings . we experienced strong revenue growth in the same focus product categories discussed above , and performance was stronger in north america and australia . segment profitability vistaprint 's adjusted net operating profit decreased for the year ended june 30 , 2017 as compared to the prior period , primarily due to the roll-out of planned investments including shipping price reductions , expanded design services and new product introduction that have negatively impacted gross profit . while these investments have reduced our current period profitability , we expect that these investments will attract higher-value customers and improve customer loyalty in future periods . these increases in planned investments were partially offset by operating expense efficiencies and incremental profits from revenue growth . adjusted net operating profit increased for the year ended june 30 , 2016 as compared to the prior period , primarily due to $ 35.6 million in additional gross profit as a result of revenue growth , partially offset by an increase in planned advertising spend . upload and print replace_table_token_14_th 39 segment revenue the reported revenue growth of 36 % for the year ended june 30 , 2017 was primarily due to the addition of revenue from our fiscal 2016 acquisition of wirmachendruck . the reported revenue growth was negatively affected by currency impacts during the year ended june 30 , 2017 of 3 % . the upload and print constant-currency revenue growth excluding revenue from businesses acquired in the past twelve months was 13 % , primarily driven by continued growth from our pixartprinting , printdeal and exagroup businesses . our growth in constant currency revenue excluding recent acquisitions has moderated as we passed the acquisition anniversary of some of the slower-growing acquisitions , and we also have seen some moderation in the growth rates of businesses we acquired in prior years . for the year ended june 30 , 2016 , our reported revenue growth includes the addition of aggregate revenue of $ 205.4 million , from the businesses we acquired in fiscal 2016 and fiscal 2015 for quarters with no comparable revenue . the upload and print constant-currency revenue growth excluding revenue from businesses acquired in the past twelve months was 27 % for the year ended june 30 , 2016 , due to continued strong performance from our pixartprinting and printdeal businesses , which we acquired in fiscal 2014. segment profitability the increase in adjusted net operating profit for the year ended june 30 , 2017 as compared to the prior period is primarily due to our wirmachendruck business , which we acquired in fiscal 2016 and did not have a full comparable fiscal year , partially offset by a decline in the profitability of our tradeprint business , as well as continued investments in oversight , technology , and marketing . upload and print adjusted net operating profit increased for the year ended june 30 , 2016 , as compared to the prior period , primarily as a result of higher adjusted net operating profit of $ 21.4 million from the businesses we acquired during the fourth quarter of fiscal 2015 and fiscal 2016. in addition , both the pixartprinting and printdeal businesses have increased their contribution to adjusted net operating profit due to growth in revenue and improvements in gross margin . national pen replace_table_token_15_th segment revenue and profitability as we acquired national pen on december 30 , 2016 there are no comparative operating results presented . for the year ended june 30 , 2017 reported revenue was $ 112.7 million and adjusted net operating loss was $ 2.2 million . as national pen profitability has traditionally been highly seasonal , we expect the first and second quarters of our fiscal year to be its strongest for both revenue and profitability . all other businesses replace_table_token_16_th segment revenue the all other businesses revenue decline for the year ended june 30 , 2017 was due to the termination of certain partner contracts in both our corporate solutions and albumprinter businesses . these
| liquidity and capital resources consolidated statements of cash flows data : in thousands replace_table_token_17_th at june 30 , 2017 , we had $ 37.7 million of cash and cash equivalents ( inclusive of $ 12.0 million of cash classified as held for sale ) and $ 882.6 million of outstanding debt , excluding debt issuance costs and debt discounts . the decline in cash and cash equivalent assets during the period , was primarily due to the implementation of a cash pooling program during fiscal 2017 for certain of our european bank accounts . we expect cash and cash equivalents and outstanding debt levels to fluctuate over time depending on our working capital needs , as well as our organic investment , share repurchase and acquisition activity . the cash flows during the year ended june 30 , 2017 related primarily to the following items : cash inflows : proceeds of debt of $ 196.9 million , net of payments adjustments for non-cash items of $ 230.0 million primarily related to positive adjustments for depreciation and amortization of $ 158.4 million , share-based compensation costs of $ 48.6 million , the change of our contingent earn-out liability of $ 39.4 million , unrealized currency-related gains of $ 10.1 million , impairment of goodwill and acquired intangible assets of $ 9.6 million offset by negative adjustments for non-cash tax related items of $ 41.4 million proceeds from the sale of available-for-sale securities of $ 6.3 million proceeds from the issuance of ordinary shares from the exercise of share options of $ 6.2 million proceeds from the sale of assets of $ 4.5 million changes in working capital balances of $ 1.2 million primarily driven by an increase in accounts payable 41 cash outflows : net loss of $ 72.2 million payments for acquisitions , net of cash acquired , of $ 204.9 million capital
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this includes 9,200 indirect automobile loans and 8,100 direct automobile loans , representing $ 93.2 million and $ 61.2 million in finance receivables , respectively . retail loans as of december 31 , 2014 , we had approximately 25,900 retail purchase loans outstanding , representing $ 26.1 million in finance receivables . insurance products we offer our customers optional payment protection insurance options relating to many of our loan products . branch small loans , convenience checks , and large loans are our core products and will be the drivers of our future growth . our primary sources of revenue are interest and fee income from our loan products , of which interest and fees relating to branch small loans , convenience checks , and automobile loans have historically been the largest component . we also offer automobile loans and retail loans through online credit application networks . in addition to interest and fee income from loans , we derive revenue from optional insurance products purchased by customers of our direct loan products . factors affecting our results of operations our business is driven by several factors affecting our revenues , costs , and results of operations , including the following : growth in loan portfolio . the revenue that we derive from interest and fees from our loan products is largely driven by the amount of loans that we originate . we originated or purchased approximately 143,500 , 172,900 , and 120,900 new loan accounts during 2014 , 2013 , and 2012 , respectively . average finance receivables grew 36.5 % from $ 264.5 million in 2011 to $ 361.1 million in 2012 , grew 32.2 % to $ 477.4 million in 2013 , and grew 10.9 % to $ 529.5 million in 2014. we source our loans through our branches and our direct mail program , as well as through automobile dealerships and retailers that partner with us . our loans are made almost exclusively in geographic markets served by our network of branches . increasing the number of branches we operate allows us to increase the number of loans that we are able to service . we opened or acquired 36 , 43 , and 51 new branches in 2014 , 2013 , and 2012 , respectively . we believe we have the opportunity to add as many as 700 additional branches over time in the states where it is currently favorable for us to conduct business , and we have plans to continue to grow our branch network . product mix . we offer a number of different loan products , including small loans ( comprised of branch small loans and convenience checks ) , large loans , automobile loans , and retail loans . we charge different interest rates and fees and are exposed to different credit risks with respect to the various types of loans we offer . our product mix also varies to some extent by state , and we expect to continue to diversify our product mix in the future . asset quality . our results of operations are highly dependent upon the quality of our asset portfolio . we recorded a $ 69.1 million provision for credit losses during 2014 ( or 13.0 % as a percentage of average finance receivables ) , a $ 39.2 million provision for credit losses during 2013 ( or 8.2 % of average finance receivables ) , and a $ 27.8 million provision for credit losses during 2012 ( or 7.7 % of average finance receivables ) . the quality of our asset portfolio is the result of our ability to enforce sound underwriting standards , maintain diligent service and collection of the portfolio , and respond to changing economic conditions as we grow our loan portfolio . 48 allowance for credit losses . we evaluate losses in each of our categories of loans in establishing the allowance for credit losses . the following table sets forth our allowance for credit losses compared to the related finance receivables ( in thousands ) : replace_table_token_15_th the allowance for credit losses uses the net charge-off rate for the most recent six months ( branch small loans and convenience checks ) , ten months ( large and retail loans ) , and twelve months ( automobile loans ) as a percentage of the most recent month-end balance of loans as a key data point in estimating the allowance . based on our 2014 annual evaluation of the effective lives of our loan categories , retail loans have been updated to use a ten month effective life rather than eleven . this had a negligible impact on the allowance due to the relative size of the retail loan portfolio . we believe that the primary underlying factors driving the provision for credit losses for each of these loan types are our underwriting standards , the general economic conditions in the areas in which we conduct business , and the effectiveness of our collection efforts . in addition , gasoline prices and the market for repossessed automobiles at auction are additional underlying factors that we believe influence the provision for credit losses for automobile purchase loans and , to a lesser extent , large loans . we monitor these factors , the amount and past due status of delinquencies , and the slow file ( which consists of all loans one or more days past due ) to identify trends that might require us to modify the allowance for credit losses accordingly . the allowance as a percentage of finance receivables increased from december 31 , 2013 to december 31 , 2014 for convenience checks due to increased delinquency and net charge-offs that resulted from a higher-than-normal proportion of lower credit quality loans originated during the summer direct mail campaigns . interest rates . story_separator_special_tag legal ( compliance , compensation , class action , and other ) costs . 57 we are transitioning to a new loan management system . with this new systems platform , we expect enhanced functionality and efficiency in the processing and servicing of our diverse product portfolio and growing loan account base . the transition created one-time implementation costs of $ 1.8 million for the year ended december 31 , 2014. in october 2014 , we accepted the resignation of our chief executive officer ( executive ) . the resignation was treated as a termination without cause pursuant to the executive 's employment agreement , dated march 18 , 2013. we entered into a separation agreement with the executive , dated december 11 , 2014. the employment agreement and the separation agreement are attached as exhibits 10.1 to the current reports on form 8-k , filed with the sec on march 21 , 2013 and december 17 , 2014 , respectively . in the three months ended december 31 , 2014 , we recorded $ 1.2 million for the cost of the separation agreement , which is included in personnel expense on the consolidated income statement . we modernized our pto policy effective february 1 , 2014. the new policy terms are more consistent with industry practices on the amount of pto , eligible service requirements , cashout policy , and the use of partial pto days . the policy change had accounting implications . under the legacy policy , employees earned pto in one year and then were able to use the pto in the following year . that type of policy created a pto liability under compensated absences accounting literature . under the new policy , pto is earned and used in the same calendar year , eliminating a pto liability at the end of each year ( with the exception of carryover pto granted in extenuating circumstances ) . in the transition to the new policy , employees were given the opportunity to forfeit earned and unused pto days under the legacy policy in exchange for additional pto days and other benefits under the new policy or to remain on the old policy . as a result , effective january 31 , 2014 , based upon employee elections in january 2014 , the pto liability for certain employees was eliminated , and beginning february 1 , 2014 , such employees began accruing pto under the new policy . the effect of the policy change was reflected in the period the change was implemented . thus , in the first quarter of 2014 , this change in policy resulted in a reversal of $ 1.4 million of personnel expense . the policy was amended in december 2014 to allow employees to carry-over up to 40 hours of pto into the following calendar year . any carried over time must be used during the first quarter of the following year or it will be forfeited . personnel . the largest component of general and administrative expenses is personnel expense , which increased $ 15.5 million , or 38.9 % , to $ 55.4 million in 2014 from $ 39.9 million for 2013. this increase is primarily due to $ 4.0 million in additional costs related to the 79 branches opened in 2013 and 2014 , $ 1.9 million to increase personnel and $ 1.2 million for overtime to improve collections , $ 0.8 million for increased operations car expense allowances , $ 1.2 million for increased insurance costs primarily due to the affordable care act requirements , and $ 0.5 million for increased branch bonuses . in addition , we added approximately $ 2.0 million in corporate functions to handle growth and reduce outsourced providers in 2015 and had $ 1.2 million in executive separation costs . the compensation committee also revised our short-term incentive plan and implemented a long-term incentive plan . these changes added approximately $ 0.7 million in costs to 2014 and we expect about $ 0.5 million of incremental quarterly run rate going forward . occupancy . occupancy expenses increased $ 3.8 million , or 32.5 % , to $ 15.4 million in 2014 from $ 11.6 million in 2013. the increase in occupancy expenses is the result of 36 branches opened in 2014 , telecommunications upgrades , and increased data processing needs . additionally , we frequently experience increases in rent as we renew existing leases . marketing . marketing expenses increased $ 2.4 million , or 59.0 % , to $ 6.3 million in 2014 from $ 4.0 million in 2013. the increase was due to the increases in the volume of our mail campaigns , invitations to apply and pre-qualified offers to support our 36 new branches and grow our loan portfolio . 58 other expenses . other expenses increased $ 4.1 million , or 26.3 % , to $ 19.6 million in 2014 from $ 15.6 million in 2013. the increase was primarily due to $ 1.8 million of non-operating expenses related to the implementation of a new loan management system , the addition of 36 new branches , and other legal , compliance and human resources consulting costs associated with being a growing public company . the increase was offset by prior year non-operating expenses of $ 2.0 million related to director compensation and the secondary offerings . interest expense . interest expense on the senior revolving credit facility and other debt increased $ 803,000 , or 5.7 % , to $ 14.9 million in 2014 from $ 14.1 million in 2013. this increase was due primarily to the increase in the average balance of our senior revolving credit facility . the average cost of our senior revolving credit facility decreased by 3 basis points from 4.51 % for the year ended december 31 , 2013 to 4.48 % for the year ended december 31 , 2014. the difference was due primarily to the mix between our libor-based
| liquidity and capital resources consolidated statements of cash flows data : in thousands replace_table_token_17_th at june 30 , 2017 , we had $ 37.7 million of cash and cash equivalents ( inclusive of $ 12.0 million of cash classified as held for sale ) and $ 882.6 million of outstanding debt , excluding debt issuance costs and debt discounts . the decline in cash and cash equivalent assets during the period , was primarily due to the implementation of a cash pooling program during fiscal 2017 for certain of our european bank accounts . we expect cash and cash equivalents and outstanding debt levels to fluctuate over time depending on our working capital needs , as well as our organic investment , share repurchase and acquisition activity . the cash flows during the year ended june 30 , 2017 related primarily to the following items : cash inflows : proceeds of debt of $ 196.9 million , net of payments adjustments for non-cash items of $ 230.0 million primarily related to positive adjustments for depreciation and amortization of $ 158.4 million , share-based compensation costs of $ 48.6 million , the change of our contingent earn-out liability of $ 39.4 million , unrealized currency-related gains of $ 10.1 million , impairment of goodwill and acquired intangible assets of $ 9.6 million offset by negative adjustments for non-cash tax related items of $ 41.4 million proceeds from the sale of available-for-sale securities of $ 6.3 million proceeds from the issuance of ordinary shares from the exercise of share options of $ 6.2 million proceeds from the sale of assets of $ 4.5 million changes in working capital balances of $ 1.2 million primarily driven by an increase in accounts payable 41 cash outflows : net loss of $ 72.2 million payments for acquisitions , net of cash acquired , of $ 204.9 million capital
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this includes 9,200 indirect automobile loans and 8,100 direct automobile loans , representing $ 93.2 million and $ 61.2 million in finance receivables , respectively . retail loans as of december 31 , 2014 , we had approximately 25,900 retail purchase loans outstanding , representing $ 26.1 million in finance receivables . insurance products we offer our customers optional payment protection insurance options relating to many of our loan products . branch small loans , convenience checks , and large loans are our core products and will be the drivers of our future growth . our primary sources of revenue are interest and fee income from our loan products , of which interest and fees relating to branch small loans , convenience checks , and automobile loans have historically been the largest component . we also offer automobile loans and retail loans through online credit application networks . in addition to interest and fee income from loans , we derive revenue from optional insurance products purchased by customers of our direct loan products . factors affecting our results of operations our business is driven by several factors affecting our revenues , costs , and results of operations , including the following : growth in loan portfolio . the revenue that we derive from interest and fees from our loan products is largely driven by the amount of loans that we originate . we originated or purchased approximately 143,500 , 172,900 , and 120,900 new loan accounts during 2014 , 2013 , and 2012 , respectively . average finance receivables grew 36.5 % from $ 264.5 million in 2011 to $ 361.1 million in 2012 , grew 32.2 % to $ 477.4 million in 2013 , and grew 10.9 % to $ 529.5 million in 2014. we source our loans through our branches and our direct mail program , as well as through automobile dealerships and retailers that partner with us . our loans are made almost exclusively in geographic markets served by our network of branches . increasing the number of branches we operate allows us to increase the number of loans that we are able to service . we opened or acquired 36 , 43 , and 51 new branches in 2014 , 2013 , and 2012 , respectively . we believe we have the opportunity to add as many as 700 additional branches over time in the states where it is currently favorable for us to conduct business , and we have plans to continue to grow our branch network . product mix . we offer a number of different loan products , including small loans ( comprised of branch small loans and convenience checks ) , large loans , automobile loans , and retail loans . we charge different interest rates and fees and are exposed to different credit risks with respect to the various types of loans we offer . our product mix also varies to some extent by state , and we expect to continue to diversify our product mix in the future . asset quality . our results of operations are highly dependent upon the quality of our asset portfolio . we recorded a $ 69.1 million provision for credit losses during 2014 ( or 13.0 % as a percentage of average finance receivables ) , a $ 39.2 million provision for credit losses during 2013 ( or 8.2 % of average finance receivables ) , and a $ 27.8 million provision for credit losses during 2012 ( or 7.7 % of average finance receivables ) . the quality of our asset portfolio is the result of our ability to enforce sound underwriting standards , maintain diligent service and collection of the portfolio , and respond to changing economic conditions as we grow our loan portfolio . 48 allowance for credit losses . we evaluate losses in each of our categories of loans in establishing the allowance for credit losses . the following table sets forth our allowance for credit losses compared to the related finance receivables ( in thousands ) : replace_table_token_15_th the allowance for credit losses uses the net charge-off rate for the most recent six months ( branch small loans and convenience checks ) , ten months ( large and retail loans ) , and twelve months ( automobile loans ) as a percentage of the most recent month-end balance of loans as a key data point in estimating the allowance . based on our 2014 annual evaluation of the effective lives of our loan categories , retail loans have been updated to use a ten month effective life rather than eleven . this had a negligible impact on the allowance due to the relative size of the retail loan portfolio . we believe that the primary underlying factors driving the provision for credit losses for each of these loan types are our underwriting standards , the general economic conditions in the areas in which we conduct business , and the effectiveness of our collection efforts . in addition , gasoline prices and the market for repossessed automobiles at auction are additional underlying factors that we believe influence the provision for credit losses for automobile purchase loans and , to a lesser extent , large loans . we monitor these factors , the amount and past due status of delinquencies , and the slow file ( which consists of all loans one or more days past due ) to identify trends that might require us to modify the allowance for credit losses accordingly . the allowance as a percentage of finance receivables increased from december 31 , 2013 to december 31 , 2014 for convenience checks due to increased delinquency and net charge-offs that resulted from a higher-than-normal proportion of lower credit quality loans originated during the summer direct mail campaigns . interest rates . story_separator_special_tag legal ( compliance , compensation , class action , and other ) costs . 57 we are transitioning to a new loan management system . with this new systems platform , we expect enhanced functionality and efficiency in the processing and servicing of our diverse product portfolio and growing loan account base . the transition created one-time implementation costs of $ 1.8 million for the year ended december 31 , 2014. in october 2014 , we accepted the resignation of our chief executive officer ( executive ) . the resignation was treated as a termination without cause pursuant to the executive 's employment agreement , dated march 18 , 2013. we entered into a separation agreement with the executive , dated december 11 , 2014. the employment agreement and the separation agreement are attached as exhibits 10.1 to the current reports on form 8-k , filed with the sec on march 21 , 2013 and december 17 , 2014 , respectively . in the three months ended december 31 , 2014 , we recorded $ 1.2 million for the cost of the separation agreement , which is included in personnel expense on the consolidated income statement . we modernized our pto policy effective february 1 , 2014. the new policy terms are more consistent with industry practices on the amount of pto , eligible service requirements , cashout policy , and the use of partial pto days . the policy change had accounting implications . under the legacy policy , employees earned pto in one year and then were able to use the pto in the following year . that type of policy created a pto liability under compensated absences accounting literature . under the new policy , pto is earned and used in the same calendar year , eliminating a pto liability at the end of each year ( with the exception of carryover pto granted in extenuating circumstances ) . in the transition to the new policy , employees were given the opportunity to forfeit earned and unused pto days under the legacy policy in exchange for additional pto days and other benefits under the new policy or to remain on the old policy . as a result , effective january 31 , 2014 , based upon employee elections in january 2014 , the pto liability for certain employees was eliminated , and beginning february 1 , 2014 , such employees began accruing pto under the new policy . the effect of the policy change was reflected in the period the change was implemented . thus , in the first quarter of 2014 , this change in policy resulted in a reversal of $ 1.4 million of personnel expense . the policy was amended in december 2014 to allow employees to carry-over up to 40 hours of pto into the following calendar year . any carried over time must be used during the first quarter of the following year or it will be forfeited . personnel . the largest component of general and administrative expenses is personnel expense , which increased $ 15.5 million , or 38.9 % , to $ 55.4 million in 2014 from $ 39.9 million for 2013. this increase is primarily due to $ 4.0 million in additional costs related to the 79 branches opened in 2013 and 2014 , $ 1.9 million to increase personnel and $ 1.2 million for overtime to improve collections , $ 0.8 million for increased operations car expense allowances , $ 1.2 million for increased insurance costs primarily due to the affordable care act requirements , and $ 0.5 million for increased branch bonuses . in addition , we added approximately $ 2.0 million in corporate functions to handle growth and reduce outsourced providers in 2015 and had $ 1.2 million in executive separation costs . the compensation committee also revised our short-term incentive plan and implemented a long-term incentive plan . these changes added approximately $ 0.7 million in costs to 2014 and we expect about $ 0.5 million of incremental quarterly run rate going forward . occupancy . occupancy expenses increased $ 3.8 million , or 32.5 % , to $ 15.4 million in 2014 from $ 11.6 million in 2013. the increase in occupancy expenses is the result of 36 branches opened in 2014 , telecommunications upgrades , and increased data processing needs . additionally , we frequently experience increases in rent as we renew existing leases . marketing . marketing expenses increased $ 2.4 million , or 59.0 % , to $ 6.3 million in 2014 from $ 4.0 million in 2013. the increase was due to the increases in the volume of our mail campaigns , invitations to apply and pre-qualified offers to support our 36 new branches and grow our loan portfolio . 58 other expenses . other expenses increased $ 4.1 million , or 26.3 % , to $ 19.6 million in 2014 from $ 15.6 million in 2013. the increase was primarily due to $ 1.8 million of non-operating expenses related to the implementation of a new loan management system , the addition of 36 new branches , and other legal , compliance and human resources consulting costs associated with being a growing public company . the increase was offset by prior year non-operating expenses of $ 2.0 million related to director compensation and the secondary offerings . interest expense . interest expense on the senior revolving credit facility and other debt increased $ 803,000 , or 5.7 % , to $ 14.9 million in 2014 from $ 14.1 million in 2013. this increase was due primarily to the increase in the average balance of our senior revolving credit facility . the average cost of our senior revolving credit facility decreased by 3 basis points from 4.51 % for the year ended december 31 , 2013 to 4.48 % for the year ended december 31 , 2014. the difference was due primarily to the mix between our libor-based
| liquidity and capital resources our primary cash needs relate to the funding of our lending activities and , to a lesser extent , capital expenditures relating to expanding and maintaining our branch locations . in connection with our plans to expand our branch network in future years , we will incur approximately $ 3.0 million to $ 6.0 million of capital expenditures annually . we have historically financed , and plan to continue to finance , our short-term and long-term operating liquidity and capital needs through a combination of cash flows from operations and borrowings under our senior revolving credit facility . as a holding company , almost all of the funds generated from our operations are earned by our operating subsidiaries . in addition , our wholly-owned subsidiary , rmc reinsurance ltd. , is required to maintain cash reserves against life insurance policies ceded to it , as determined by the ceding company , and has also purchased a cash-collateralized letter of credit in favor of the ceding company . as of december 31 , 2014 , these reserve requirements totaled $ 1.9 million . additionally , we had a reserve for life insurance claims on our balance sheet of $ 215,000 , as determined by the third party , unrelated ceding company . cash flow . operating activities . net cash provided by operating activities increased by $ 12.9 million , or 17.8 % , to $ 85.5 million in 2014 from $ 72.6 million in 2013. the increase was primarily due to higher net income , before provision for credit losses , due to growth in the business . net cash provided by operating activities increased by $ 14.9 million , or 25.8 % , to $ 72.6 million in 2013 from $ 57.7 million in 2012. the increase was primarily due to higher profitability due to growth in the business . investing activities . investing activities consist of finance receivables originated and purchased , net change in restricted cash , and the purchase of furniture and equipment for new and existing branches .
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the terms of these agreements include payment to us of one or more of the following : nonrefundable , up-front license fees ; milestone payments ; and royalties on product sales . revenue from our human therapeutics segment is shown in our consolidated statements of operations as collaborative arrangements revenue . revenue from our biomanufacturing segment was generated by our former subsidiary , microbia , which had entered into research and development service agreements with various third parties . these agreements generally provided for fees for research and development services rendered . as a result of the sale of our interest in microbia , revenue from our biomanufacturing segment is included in net income ( loss ) from discontinued operations . we expect our revenue to fluctuate for the foreseeable future as our collaborative arrangements revenue is principally based on the achievement of clinical and commercial milestones . research and development expense . research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates . these expenses consist primarily of compensation , benefits and other employee related expenses , research and development related facility costs and third-party contract costs relating to research , formulation , manufacturing , preclinical study and clinical trial activities . the costs of revenue related to the microbia services contracts and costs associated with microbia 's research and development activities are included in net income ( loss ) from discontinued operations . we charge all research and development expenses to operations as incurred . under our forest collaboration agreement we are reimbursed for certain research and development expenses and we net these reimbursements against our research and development expenses as incurred . 43 our lead product candidate is linaclotide and it represents the largest portion of our research and development expense for our product candidates . linaclotide is a first-in-class compound currently in phase 3 clinical development for the treatment of ibs-c and cc and is our only product candidate that has demonstrated clinical proof of concept . in september and november 2010 , we announced the positive top-line results from each of the two phase 3 clinical trials assessing the safety and efficacy of linaclotide in patients with ibs-c , and in november 2009 , we announced that we achieved positive results in each of our phase 3 cc trials . we have a pipeline of early stage , pre-proof of concept development candidates in multiple therapeutic areas , including gastrointestinal disease , pain and inflammation , and respiratory disease . we are also conducting early stage , preclinical research in these therapeutic areas , as well as in the area of cardiovascular disease . the following table sets forth our research and development expenses related to our product pipeline for the years ended december 31 , 2010 , 2009 and 2008. these expenses relate primarily to external costs associated with manufacturing , preclinical studies and clinical trial costs . costs related to facilities , depreciation , share-based compensation and research and development support services are not directly charged to programs . replace_table_token_5_th we began tracking program expenses for linaclotide in 2004 , and research and development program expenses from inception to december 31 , 2010 were approximately $ 123.4 million . the expenses for linaclotide include both reimbursements to us by forest as well as our portion of costs incurred by forest for linaclotide and invoiced to us under the cost-sharing provisions of our collaboration agreement . the lengthy process of securing fda approvals for new drugs requires the expenditure of substantial resources . any failure by us to obtain , or any delay in obtaining , regulatory approvals would materially adversely affect our product development efforts and our business overall . accordingly , we can not currently estimate with any degree of certainty the amount of time or money that we will be required to expend in the future on linaclotide or our other product candidates prior to their regulatory approval , if such approval is ever granted . as a result of these uncertainties surrounding the timing and outcome of any approvals , we are currently unable to estimate precisely when , if ever , linaclotide , or any of our other product candidates will generate revenues and cash flows . we invest carefully in our pipeline , and the commitment of funding for each subsequent stage of our development programs is dependent upon the receipt of clear , supportive data . in addition , we are actively engaged in evaluating externally discovered drug candidates at all stages of development . in evaluating potential assets , we apply the same criteria as those used for investments in internally-discovered assets . the majority of our external costs are spent on linaclotide , as costs associated with later stage clinical trials are , in most cases , more significant than those incurred in earlier stages of our pipeline . we expect external costs related to the linaclotide program to begin decreasing provided that no other clinical trials are necessary to obtain regulatory approval in the u.s. if our other product candidates are successful in early stage clinical trials , we would expect external costs to increase as the programs progress through later stage clinical trials . the remainder of our research and development expense is not tracked by project as it consists primarily of our internal costs , and it benefits multiple projects that are in earlier stages of development and which typically share resources . 44 the successful development of our product candidates is highly uncertain and subject to a number of risks including , but not limited to : the duration of clinical trials may vary substantially according to the type , complexity and novelty of the product candidate . story_separator_special_tag our forfeiture rates were 5.5 % , 5.8 % and 4.4 % as of december 31 , 2010 , 2009 and 2008 , respectively . if our actual forfeiture rate varies from our historical rates and estimates , additional adjustments to compensation expense may be required in future periods . we have historically granted stock options at exercise prices not less than the fair value of our common stock as determined by our board of directors , with input from management . due to the absence of an active market for our common stock , prior to our initial public offering on february 2 , 2010 , our board of directors has historically determined , with input from management , the estimated fair value of our common stock on the date of grant based on a number of objective and subjective factors , including : the prices at which we sold shares of convertible preferred stock ; the superior rights and preferences of securities senior to our common stock at the time of each grant ; the likelihood of achieving a liquidity event such as an initial public offering or sale of our company ; our historical operating and financial performance and the status of our research and product development efforts ; achievement of enterprise milestones , including our entering into collaboration and license agreements ; and external market conditions affecting the biotechnology industry sector . 49 in connection with the preparation of the consolidated financial statements for the years ended december 31 , 2009 and 2008 , our board of directors also considered valuations provided by management in determining the fair value of our common stock . such valuations were prepared as of march 31 , june 30 , october 28 and december 31 , 2008 , and march 31 , june 30 , september 30 , november 2 and december 31 , 2009 , and valued our common stock at $ 4.33 , $ 4.67 , $ 4.98 , $ 4.89 , $ 5.00 , $ 5.48 , $ 7.36 , $ 11.75 and $ 12.05 per share , respectively . the valuations have been used to estimate the fair value of our common stock as of each option grant date and in calculating share-based compensation expense . our board of directors has consistently used the most recent quarterly valuation provided by management for determining the fair value of our common stock unless a specific event occurred that necessitated an interim valuation . the valuations were prepared consistent with the american institute of certified public accountants practice aid , valuation of privately-held company equity securities issued as compensation , or the practice aid . we used the guideline company method and the similar transaction method of the market approach , which compare our company to similar publicly-traded companies or transactions , and an income approach , which looks at projected future cash flows , to value our company from among the alternatives discussed in the practice aid . in addition , as we had several series of convertible preferred stock outstanding prior to our initial public offering in february 2010 , it was also necessary to allocate our company 's value to the various classes of stock , including stock options . as provided in the practice aid , there are several approaches for allocating enterprise value of a privately-held company among the securities held in a complex capital structure . the possible methodologies include the probability-weighted expected return method , the option-pricing method and the current value method . we used the probability-weighted expected return method described in the practice aid to allocate the enterprise values to the common stock . under this method , the value of our common stock is estimated based upon an analysis of future values for our company assuming various future outcomes , the timing of which is based on the plans of our board of directors and management . under this approach , share value is based on the probability-weighted present value of expected future investment returns , considering each of the possible outcomes available to us , as well as the rights of each share class . we estimated the fair value of our common stock using a probability-weighted analysis of the present value of the returns afforded to our stockholders under each of four possible future scenarios . three of the scenarios assumed a stockholder exit , either through an ipo or a sale of our company . the fourth scenario assumed a sale of our company at a value that is less than the cumulative amounts invested by our preferred stockholders . for the march 31 , 2008 valuation , we utilized a one product ipo scenario reflecting only linaclotide advancing in the clinic at the time of an ipo . beginning with the october 28 , 2008 valuation , we included two separate ipo scenarios to better reflect our company 's risk profile at that time . the linaclotide program was by then advancing in two indications , cc and ibs-c. we believed that the ibs-c indication had a significantly higher market value and higher clinical risk for ironwood . to better reflect the potential liquidity outcomes for linaclotide , the first ipo scenario included an assumption of successful phase 3 clinical trials for both the cc and ibs-c indications at the time of an ipo , and the second ipo scenario reflected successful phase 3 clinical trials in only the cc indication at the time of the ipo . for both ipo scenarios and the sale scenario , the estimated future values of our common stock were calculated using assumptions including : the expected pre-money or sale valuations based on the market approach , and the income approach using the discounted cash flow method , and the expected dates of the future expected ipo or sale . for the sale at an assumed price less than the liquidation preference scenario , the estimated future and present
| liquidity and capital resources our primary cash needs relate to the funding of our lending activities and , to a lesser extent , capital expenditures relating to expanding and maintaining our branch locations . in connection with our plans to expand our branch network in future years , we will incur approximately $ 3.0 million to $ 6.0 million of capital expenditures annually . we have historically financed , and plan to continue to finance , our short-term and long-term operating liquidity and capital needs through a combination of cash flows from operations and borrowings under our senior revolving credit facility . as a holding company , almost all of the funds generated from our operations are earned by our operating subsidiaries . in addition , our wholly-owned subsidiary , rmc reinsurance ltd. , is required to maintain cash reserves against life insurance policies ceded to it , as determined by the ceding company , and has also purchased a cash-collateralized letter of credit in favor of the ceding company . as of december 31 , 2014 , these reserve requirements totaled $ 1.9 million . additionally , we had a reserve for life insurance claims on our balance sheet of $ 215,000 , as determined by the third party , unrelated ceding company . cash flow . operating activities . net cash provided by operating activities increased by $ 12.9 million , or 17.8 % , to $ 85.5 million in 2014 from $ 72.6 million in 2013. the increase was primarily due to higher net income , before provision for credit losses , due to growth in the business . net cash provided by operating activities increased by $ 14.9 million , or 25.8 % , to $ 72.6 million in 2013 from $ 57.7 million in 2012. the increase was primarily due to higher profitability due to growth in the business . investing activities . investing activities consist of finance receivables originated and purchased , net change in restricted cash , and the purchase of furniture and equipment for new and existing branches .
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the terms of these agreements include payment to us of one or more of the following : nonrefundable , up-front license fees ; milestone payments ; and royalties on product sales . revenue from our human therapeutics segment is shown in our consolidated statements of operations as collaborative arrangements revenue . revenue from our biomanufacturing segment was generated by our former subsidiary , microbia , which had entered into research and development service agreements with various third parties . these agreements generally provided for fees for research and development services rendered . as a result of the sale of our interest in microbia , revenue from our biomanufacturing segment is included in net income ( loss ) from discontinued operations . we expect our revenue to fluctuate for the foreseeable future as our collaborative arrangements revenue is principally based on the achievement of clinical and commercial milestones . research and development expense . research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates . these expenses consist primarily of compensation , benefits and other employee related expenses , research and development related facility costs and third-party contract costs relating to research , formulation , manufacturing , preclinical study and clinical trial activities . the costs of revenue related to the microbia services contracts and costs associated with microbia 's research and development activities are included in net income ( loss ) from discontinued operations . we charge all research and development expenses to operations as incurred . under our forest collaboration agreement we are reimbursed for certain research and development expenses and we net these reimbursements against our research and development expenses as incurred . 43 our lead product candidate is linaclotide and it represents the largest portion of our research and development expense for our product candidates . linaclotide is a first-in-class compound currently in phase 3 clinical development for the treatment of ibs-c and cc and is our only product candidate that has demonstrated clinical proof of concept . in september and november 2010 , we announced the positive top-line results from each of the two phase 3 clinical trials assessing the safety and efficacy of linaclotide in patients with ibs-c , and in november 2009 , we announced that we achieved positive results in each of our phase 3 cc trials . we have a pipeline of early stage , pre-proof of concept development candidates in multiple therapeutic areas , including gastrointestinal disease , pain and inflammation , and respiratory disease . we are also conducting early stage , preclinical research in these therapeutic areas , as well as in the area of cardiovascular disease . the following table sets forth our research and development expenses related to our product pipeline for the years ended december 31 , 2010 , 2009 and 2008. these expenses relate primarily to external costs associated with manufacturing , preclinical studies and clinical trial costs . costs related to facilities , depreciation , share-based compensation and research and development support services are not directly charged to programs . replace_table_token_5_th we began tracking program expenses for linaclotide in 2004 , and research and development program expenses from inception to december 31 , 2010 were approximately $ 123.4 million . the expenses for linaclotide include both reimbursements to us by forest as well as our portion of costs incurred by forest for linaclotide and invoiced to us under the cost-sharing provisions of our collaboration agreement . the lengthy process of securing fda approvals for new drugs requires the expenditure of substantial resources . any failure by us to obtain , or any delay in obtaining , regulatory approvals would materially adversely affect our product development efforts and our business overall . accordingly , we can not currently estimate with any degree of certainty the amount of time or money that we will be required to expend in the future on linaclotide or our other product candidates prior to their regulatory approval , if such approval is ever granted . as a result of these uncertainties surrounding the timing and outcome of any approvals , we are currently unable to estimate precisely when , if ever , linaclotide , or any of our other product candidates will generate revenues and cash flows . we invest carefully in our pipeline , and the commitment of funding for each subsequent stage of our development programs is dependent upon the receipt of clear , supportive data . in addition , we are actively engaged in evaluating externally discovered drug candidates at all stages of development . in evaluating potential assets , we apply the same criteria as those used for investments in internally-discovered assets . the majority of our external costs are spent on linaclotide , as costs associated with later stage clinical trials are , in most cases , more significant than those incurred in earlier stages of our pipeline . we expect external costs related to the linaclotide program to begin decreasing provided that no other clinical trials are necessary to obtain regulatory approval in the u.s. if our other product candidates are successful in early stage clinical trials , we would expect external costs to increase as the programs progress through later stage clinical trials . the remainder of our research and development expense is not tracked by project as it consists primarily of our internal costs , and it benefits multiple projects that are in earlier stages of development and which typically share resources . 44 the successful development of our product candidates is highly uncertain and subject to a number of risks including , but not limited to : the duration of clinical trials may vary substantially according to the type , complexity and novelty of the product candidate . story_separator_special_tag our forfeiture rates were 5.5 % , 5.8 % and 4.4 % as of december 31 , 2010 , 2009 and 2008 , respectively . if our actual forfeiture rate varies from our historical rates and estimates , additional adjustments to compensation expense may be required in future periods . we have historically granted stock options at exercise prices not less than the fair value of our common stock as determined by our board of directors , with input from management . due to the absence of an active market for our common stock , prior to our initial public offering on february 2 , 2010 , our board of directors has historically determined , with input from management , the estimated fair value of our common stock on the date of grant based on a number of objective and subjective factors , including : the prices at which we sold shares of convertible preferred stock ; the superior rights and preferences of securities senior to our common stock at the time of each grant ; the likelihood of achieving a liquidity event such as an initial public offering or sale of our company ; our historical operating and financial performance and the status of our research and product development efforts ; achievement of enterprise milestones , including our entering into collaboration and license agreements ; and external market conditions affecting the biotechnology industry sector . 49 in connection with the preparation of the consolidated financial statements for the years ended december 31 , 2009 and 2008 , our board of directors also considered valuations provided by management in determining the fair value of our common stock . such valuations were prepared as of march 31 , june 30 , october 28 and december 31 , 2008 , and march 31 , june 30 , september 30 , november 2 and december 31 , 2009 , and valued our common stock at $ 4.33 , $ 4.67 , $ 4.98 , $ 4.89 , $ 5.00 , $ 5.48 , $ 7.36 , $ 11.75 and $ 12.05 per share , respectively . the valuations have been used to estimate the fair value of our common stock as of each option grant date and in calculating share-based compensation expense . our board of directors has consistently used the most recent quarterly valuation provided by management for determining the fair value of our common stock unless a specific event occurred that necessitated an interim valuation . the valuations were prepared consistent with the american institute of certified public accountants practice aid , valuation of privately-held company equity securities issued as compensation , or the practice aid . we used the guideline company method and the similar transaction method of the market approach , which compare our company to similar publicly-traded companies or transactions , and an income approach , which looks at projected future cash flows , to value our company from among the alternatives discussed in the practice aid . in addition , as we had several series of convertible preferred stock outstanding prior to our initial public offering in february 2010 , it was also necessary to allocate our company 's value to the various classes of stock , including stock options . as provided in the practice aid , there are several approaches for allocating enterprise value of a privately-held company among the securities held in a complex capital structure . the possible methodologies include the probability-weighted expected return method , the option-pricing method and the current value method . we used the probability-weighted expected return method described in the practice aid to allocate the enterprise values to the common stock . under this method , the value of our common stock is estimated based upon an analysis of future values for our company assuming various future outcomes , the timing of which is based on the plans of our board of directors and management . under this approach , share value is based on the probability-weighted present value of expected future investment returns , considering each of the possible outcomes available to us , as well as the rights of each share class . we estimated the fair value of our common stock using a probability-weighted analysis of the present value of the returns afforded to our stockholders under each of four possible future scenarios . three of the scenarios assumed a stockholder exit , either through an ipo or a sale of our company . the fourth scenario assumed a sale of our company at a value that is less than the cumulative amounts invested by our preferred stockholders . for the march 31 , 2008 valuation , we utilized a one product ipo scenario reflecting only linaclotide advancing in the clinic at the time of an ipo . beginning with the october 28 , 2008 valuation , we included two separate ipo scenarios to better reflect our company 's risk profile at that time . the linaclotide program was by then advancing in two indications , cc and ibs-c. we believed that the ibs-c indication had a significantly higher market value and higher clinical risk for ironwood . to better reflect the potential liquidity outcomes for linaclotide , the first ipo scenario included an assumption of successful phase 3 clinical trials for both the cc and ibs-c indications at the time of an ipo , and the second ipo scenario reflected successful phase 3 clinical trials in only the cc indication at the time of the ipo . for both ipo scenarios and the sale scenario , the estimated future values of our common stock were calculated using assumptions including : the expected pre-money or sale valuations based on the market approach , and the income approach using the discounted cash flow method , and the expected dates of the future expected ipo or sale . for the sale at an assumed price less than the liquidation preference scenario , the estimated future and present
| liquidity and capital resources the following table sets forth the major sources and uses of cash for each of the periods set forth below : replace_table_token_12_th we have incurred losses since our inception on january 5 , 1998 and , as of december 31 , 2010 , we had a cumulative deficit of approximately $ 367.5 million . we have financed our operations to date primarily through the sale of preferred stock and common stock , including approximately $ 203.2 million of net proceeds from our ipo , payments received under collaborative arrangements , including reimbursement of certain expenses , debt financings and interest earned on investments . at december 31 , 2010 , we had approximately $ 248.0 million of unrestricted cash , cash equivalents and available-for-sale securities . our cash equivalents include amounts held in money market funds , stated at cost plus accrued interest , which approximates fair market value and amounts held in certain u.s. government sponsored securities . our available-for-sale securities include amounts held in u.s. treasury securities and u.s. government sponsored securities . we invest cash in excess of immediate requirements in accordance with our investment policy , which limits the amounts we may invest in any one type of investment and requires all investments held by us to be a+ rated so as to primarily achieve liquidity and capital preservation . cash flows from operating activities net cash used in operating activities totaled approximately $ 67.9 million for the year ended december 31 , 2010. the primary uses of cash were our net loss from continuing operations of approximately $ 56.4 million , approximately $ 6.0 million used in operating activities from discontinued operations and a decrease of approximately $ 21.3 million in working capital resulting primarily from changes in deferred revenue associated with the recognition of revenue from our forest collaboration agreement and our almirall and astellas license agreements , as well as the achievement of the milestone associated with the almirall agreement . these uses of cash were partially offset by non-cash items of approximately $ 15.8 million .
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under the lifo inventory costing method , changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials may have been acquired at potentially significantly different values due to the length of time from the acquisition of the raw materials to the sale of the processed finished goods to the customers . in a period of rising raw material costs , the lifo inventory valuation normally results in higher cost of sales . conversely , in a period of decreasing raw material costs , the lifo inventory valuation normally results in lower cost of sales . the volatility of the costs of raw materials has impacted our operations over the past several years . we , and others in our industry , generally have been able to pass cost increases on major raw materials through to our customers using surcharges that are structured to recover increases in raw material costs . generally , the formula used to calculate a surcharge is based on published prices of the respective raw materials for the previous month which correlates to the prices we pay for our raw material purchases . however , a portion of our surcharges to customers may be calculated using a different surcharge formula or may be based on the raw material prices at the time of order , which creates a lag between surcharge revenue and corresponding raw material costs recognized in cost of sales . the surcharge mechanism protects our net income on such sales except for the lag effect discussed above . however , surcharges have had a dilutive effect on our gross margin and operating margin percentages as described later in this report . approximately 25 percent of our net sales are sales to customers under firm price sales arrangements . firm price sales arrangements involve a risk of profit margin fluctuations , particularly when raw material prices are volatile . in order to reduce the risk of fluctuating profit margins on these sales , we enter into commodity forward contracts to purchase certain critical raw materials necessary to produce the related products sold . firm price sales arrangements generally include certain annual purchasing commitments and consumption schedules agreed to by the customers at selling prices based on raw material prices at the time the arrangements are established . if a customer fails to meet the volume commitments ( or the consumption schedule deviates from the agreed-upon terms of the firm price sales arrangements ) , the company may need to absorb the gains or losses associated with the commodity forward contracts on a temporary basis . gains or losses associated with commodity forward contracts are reclassified to earnings/loss when earnings are impacted by the hedged transaction . because we value most of our inventory under the lifo costing methodology , changes in the cost of raw materials and production activities are recognized in cost of sales in the current period attempting to match the most recently incurred costs with revenues . gains and or losses on the commodity forward contracts are reclassified from other comprehensive income together with the actual purchase price of the underlying commodities when the underlying commodities are purchased and recorded in inventory . to the extent that the total purchase price of the commodities , inclusive of the gains or losses on the commodity forward contracts , are higher or lower relative to the beginning of year costs , our cost of goods sold reflects such amounts . accordingly , the gains and or losses associated with commodity forward contracts may not impact the same period that the firm price sales arrangements revenue is recognized , and comparisons of gross profit from period to period may be impacted . these firm price sales arrangements are expected to continue as we look to strengthen our long-term customer relationships by expanding , renewing and in certain cases extending to a longer term , our customer long-term arrangements . we produce hundreds of grades of materials , with a wide range of pricing and profit levels depending on the grade . in addition , our product mix within a period is subject to the fluctuating order patterns of our customers as well as decisions we may make on participation in certain products based on available capacity including the impacts of capacity commitments we may have under existing customer agreements . while we expect to see positive contribution from a more favorable product mix in our margin performance over time , the impact by period may fluctuate , and period-to-period comparisons may vary . net pension expense net pension expense , as we define it below , includes the net periodic benefit costs related to both our pension and other postretirement plans . the net periodic benefit costs are determined annually based on beginning of year balances and are recorded ratably throughout the fiscal year , unless a significant re-measurement event occurs . the following is a summary of the net periodic benefit costs for the years ended june 30 , 2016 , 2015 and 2014 : replace_table_token_8_th 18 the service cost component of net pension expense represents the estimated cost of future pension liabilities earned associated with active employees . the pension earnings , interest and deferrals ( “ pension eid ” ) is comprised of the expected return on plan assets , interest costs on the projected benefit obligations of the plans and amortization of actuarial gains and losses and prior service costs . during the year ended june 30 , 2016 , we offered an early retirement incentive to certain employees . as a result of the incentive , $ 9.4 million was paid from the company 's qualified pension plan consisting of various personnel-related costs to cover severance payments . during the year ended june 30 , 2015 , in connection with a restructuring plan , we reduced approximately 200 salaried positions . story_separator_special_tag our fiscal year 2015 results reflect the impact of increasing sales by 2 percent in a challenging market environment which was more than offset by the weakness in the oil and gas businesses , increased operating costs and the restructuring plan implemented in the third quarter of fiscal year 2015. net sales net sales for fiscal year 2015 were $ 2,226.7 million , which was a 2 percent increase from fiscal year 2014. excluding surcharge revenue , sales were 2 percent higher than fiscal year 2014 on 4 percent lower volume . the results reflect sales increasing in the aerospace and defense , medical and transportation end-use markets , partially offset by the weakness in the energy end-use market due to weak market conditions . the increase in sales combined with lower shipment volume reflects a favorable shift in product mix . geographically , sales outside the united states increased 2 percent from fiscal year 2014 to $ 646.8 million . international sales as a percentage of our total net sales represented 29 percent for both fiscal years 2015 and 2014 . 25 sales by end-use markets we sell to customers across diversified end-use markets . the following table includes comparative information for our net sales , which includes surcharge revenue , by principal end-use markets which we believe is helpful supplemental information in analyzing the performance of the business from period to period : replace_table_token_17_th the following table includes comparative information for our net sales by the same principal end-use markets , but excluding surcharge revenue : replace_table_token_18_th sales to the aerospace and defense end-use market increased 5 percent from fiscal year 2014 to $ 1,053.8 million . excluding surcharge revenue , sales increased 4 percent on 2 percent higher shipment volume . the results reflect an increase in sales of fastener materials and a stronger demand for engine materials , partially offset by lower demand for structural and defense materials . sales to the energy end-use market of $ 285.6 million reflected an 8 percent decrease from fiscal year 2014. excluding surcharge revenue , sales decreased 9 percent on 9 percent lower shipment volume . the results reflect demand softness in materials used in oil and gas drilling and completions in the second half of fiscal year 2015. also , north american average directional and horizontal rig count decreased 46 percent from the prior year . these declines were partially offset by a moderate increase in power generation sales . transportation end-use market sales increased 11 percent from fiscal year 2014 to $ 171.0 million . excluding surcharge revenue , sales increased 9 percent on 5 percent higher shipment volume . the results reflect a strengthening mix for our materials used in engine fasteners , valve and fuel system materials . low fuel prices drove up sales for vehicle platforms with higher carpenter material content . in addition , sales of light trucks increased from the year ago period . also , fiscal year 2015 backlog is experiencing growth due to an improved mix compared to fiscal year 2014. sales to the medical end-use market increased 10 percent to $ 129.4 million from fiscal year 2014. excluding surcharge revenue , sales increased 10 percent on 13 percent higher shipment volume . the results reflect strength in demand for materials used for surgical instruments , as well as increased sales of titanium materials used in orthopedic implant procedures . however , the medical market pricing environment remains extremely competitive . industrial and consumer end-use market sales were $ 450.0 million for fiscal year 2015. excluding surcharge revenue , sales increased 1 percent on 14 percent lower shipment volume . the results reflect a favorable shift in product mix related to high-end consumer electronics and industrial capital goods . 26 distribution end-use market sales decreased 1 percent from the same period a year ago to $ 136.9 million . excluding surcharge revenue , sales decreased 1 percent from the same period a year ago . gross profit gross profit in fiscal year 2015 decreased to $ 318.3 million , or 14.3 percent of net sales ( 17.6 percent of net sales excluding surcharge revenue ) , from $ 398.9 million , or 18.4 percent of net sales ( 22.4 percent of net sales excluding surcharge revenue ) , for fiscal year 2014. the results reflect a stronger product mix which was more than offset by higher operating costs , unfavorable cost absorption as a result of reducing inventory and incremental depreciation expense due to the athens facility which was placed into service late in fiscal year 2014. our surcharge mechanism is structured to recover increases in raw material costs , although in certain cases with a lag effect as discussed above . while the surcharge generally protects the absolute gross profit dollars , it does have a dilutive effect on gross margin as a percent of sales . the following represents a summary of the dilutive impact of the surcharge on gross margin for fiscal years 2015 and 2014. we present and discuss these financial measures because management believes removing the impact of these items provides a more consistent and meaningful basis for comparing results of operations from period to period . see the section “ non-gaap financial measures ” below for further discussion of these financial measures . replace_table_token_19_th selling , general and administrative expenses selling , general and administrative expenses in fiscal year 2015 were $ 177.7 million , or 8.0 percent of net sales ( 9.8 percent of net sales excluding surcharge revenue ) , compared to $ 186.9 million , or 8.6 percent of net sales ( 10.5 percent of net sales excluding surcharge revenue ) , in fiscal year 2014. selling , general and administrative expenses decreased from the same period last year primarily due to lower depreciation and amortization expense of $ 4.3 million , lower variable compensation expense of $ 3.5 million , a reduction in pension eid expense of $ 3.1 million
| liquidity and capital resources the following table sets forth the major sources and uses of cash for each of the periods set forth below : replace_table_token_12_th we have incurred losses since our inception on january 5 , 1998 and , as of december 31 , 2010 , we had a cumulative deficit of approximately $ 367.5 million . we have financed our operations to date primarily through the sale of preferred stock and common stock , including approximately $ 203.2 million of net proceeds from our ipo , payments received under collaborative arrangements , including reimbursement of certain expenses , debt financings and interest earned on investments . at december 31 , 2010 , we had approximately $ 248.0 million of unrestricted cash , cash equivalents and available-for-sale securities . our cash equivalents include amounts held in money market funds , stated at cost plus accrued interest , which approximates fair market value and amounts held in certain u.s. government sponsored securities . our available-for-sale securities include amounts held in u.s. treasury securities and u.s. government sponsored securities . we invest cash in excess of immediate requirements in accordance with our investment policy , which limits the amounts we may invest in any one type of investment and requires all investments held by us to be a+ rated so as to primarily achieve liquidity and capital preservation . cash flows from operating activities net cash used in operating activities totaled approximately $ 67.9 million for the year ended december 31 , 2010. the primary uses of cash were our net loss from continuing operations of approximately $ 56.4 million , approximately $ 6.0 million used in operating activities from discontinued operations and a decrease of approximately $ 21.3 million in working capital resulting primarily from changes in deferred revenue associated with the recognition of revenue from our forest collaboration agreement and our almirall and astellas license agreements , as well as the achievement of the milestone associated with the almirall agreement . these uses of cash were partially offset by non-cash items of approximately $ 15.8 million .
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under the lifo inventory costing method , changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials may have been acquired at potentially significantly different values due to the length of time from the acquisition of the raw materials to the sale of the processed finished goods to the customers . in a period of rising raw material costs , the lifo inventory valuation normally results in higher cost of sales . conversely , in a period of decreasing raw material costs , the lifo inventory valuation normally results in lower cost of sales . the volatility of the costs of raw materials has impacted our operations over the past several years . we , and others in our industry , generally have been able to pass cost increases on major raw materials through to our customers using surcharges that are structured to recover increases in raw material costs . generally , the formula used to calculate a surcharge is based on published prices of the respective raw materials for the previous month which correlates to the prices we pay for our raw material purchases . however , a portion of our surcharges to customers may be calculated using a different surcharge formula or may be based on the raw material prices at the time of order , which creates a lag between surcharge revenue and corresponding raw material costs recognized in cost of sales . the surcharge mechanism protects our net income on such sales except for the lag effect discussed above . however , surcharges have had a dilutive effect on our gross margin and operating margin percentages as described later in this report . approximately 25 percent of our net sales are sales to customers under firm price sales arrangements . firm price sales arrangements involve a risk of profit margin fluctuations , particularly when raw material prices are volatile . in order to reduce the risk of fluctuating profit margins on these sales , we enter into commodity forward contracts to purchase certain critical raw materials necessary to produce the related products sold . firm price sales arrangements generally include certain annual purchasing commitments and consumption schedules agreed to by the customers at selling prices based on raw material prices at the time the arrangements are established . if a customer fails to meet the volume commitments ( or the consumption schedule deviates from the agreed-upon terms of the firm price sales arrangements ) , the company may need to absorb the gains or losses associated with the commodity forward contracts on a temporary basis . gains or losses associated with commodity forward contracts are reclassified to earnings/loss when earnings are impacted by the hedged transaction . because we value most of our inventory under the lifo costing methodology , changes in the cost of raw materials and production activities are recognized in cost of sales in the current period attempting to match the most recently incurred costs with revenues . gains and or losses on the commodity forward contracts are reclassified from other comprehensive income together with the actual purchase price of the underlying commodities when the underlying commodities are purchased and recorded in inventory . to the extent that the total purchase price of the commodities , inclusive of the gains or losses on the commodity forward contracts , are higher or lower relative to the beginning of year costs , our cost of goods sold reflects such amounts . accordingly , the gains and or losses associated with commodity forward contracts may not impact the same period that the firm price sales arrangements revenue is recognized , and comparisons of gross profit from period to period may be impacted . these firm price sales arrangements are expected to continue as we look to strengthen our long-term customer relationships by expanding , renewing and in certain cases extending to a longer term , our customer long-term arrangements . we produce hundreds of grades of materials , with a wide range of pricing and profit levels depending on the grade . in addition , our product mix within a period is subject to the fluctuating order patterns of our customers as well as decisions we may make on participation in certain products based on available capacity including the impacts of capacity commitments we may have under existing customer agreements . while we expect to see positive contribution from a more favorable product mix in our margin performance over time , the impact by period may fluctuate , and period-to-period comparisons may vary . net pension expense net pension expense , as we define it below , includes the net periodic benefit costs related to both our pension and other postretirement plans . the net periodic benefit costs are determined annually based on beginning of year balances and are recorded ratably throughout the fiscal year , unless a significant re-measurement event occurs . the following is a summary of the net periodic benefit costs for the years ended june 30 , 2016 , 2015 and 2014 : replace_table_token_8_th 18 the service cost component of net pension expense represents the estimated cost of future pension liabilities earned associated with active employees . the pension earnings , interest and deferrals ( “ pension eid ” ) is comprised of the expected return on plan assets , interest costs on the projected benefit obligations of the plans and amortization of actuarial gains and losses and prior service costs . during the year ended june 30 , 2016 , we offered an early retirement incentive to certain employees . as a result of the incentive , $ 9.4 million was paid from the company 's qualified pension plan consisting of various personnel-related costs to cover severance payments . during the year ended june 30 , 2015 , in connection with a restructuring plan , we reduced approximately 200 salaried positions . story_separator_special_tag our fiscal year 2015 results reflect the impact of increasing sales by 2 percent in a challenging market environment which was more than offset by the weakness in the oil and gas businesses , increased operating costs and the restructuring plan implemented in the third quarter of fiscal year 2015. net sales net sales for fiscal year 2015 were $ 2,226.7 million , which was a 2 percent increase from fiscal year 2014. excluding surcharge revenue , sales were 2 percent higher than fiscal year 2014 on 4 percent lower volume . the results reflect sales increasing in the aerospace and defense , medical and transportation end-use markets , partially offset by the weakness in the energy end-use market due to weak market conditions . the increase in sales combined with lower shipment volume reflects a favorable shift in product mix . geographically , sales outside the united states increased 2 percent from fiscal year 2014 to $ 646.8 million . international sales as a percentage of our total net sales represented 29 percent for both fiscal years 2015 and 2014 . 25 sales by end-use markets we sell to customers across diversified end-use markets . the following table includes comparative information for our net sales , which includes surcharge revenue , by principal end-use markets which we believe is helpful supplemental information in analyzing the performance of the business from period to period : replace_table_token_17_th the following table includes comparative information for our net sales by the same principal end-use markets , but excluding surcharge revenue : replace_table_token_18_th sales to the aerospace and defense end-use market increased 5 percent from fiscal year 2014 to $ 1,053.8 million . excluding surcharge revenue , sales increased 4 percent on 2 percent higher shipment volume . the results reflect an increase in sales of fastener materials and a stronger demand for engine materials , partially offset by lower demand for structural and defense materials . sales to the energy end-use market of $ 285.6 million reflected an 8 percent decrease from fiscal year 2014. excluding surcharge revenue , sales decreased 9 percent on 9 percent lower shipment volume . the results reflect demand softness in materials used in oil and gas drilling and completions in the second half of fiscal year 2015. also , north american average directional and horizontal rig count decreased 46 percent from the prior year . these declines were partially offset by a moderate increase in power generation sales . transportation end-use market sales increased 11 percent from fiscal year 2014 to $ 171.0 million . excluding surcharge revenue , sales increased 9 percent on 5 percent higher shipment volume . the results reflect a strengthening mix for our materials used in engine fasteners , valve and fuel system materials . low fuel prices drove up sales for vehicle platforms with higher carpenter material content . in addition , sales of light trucks increased from the year ago period . also , fiscal year 2015 backlog is experiencing growth due to an improved mix compared to fiscal year 2014. sales to the medical end-use market increased 10 percent to $ 129.4 million from fiscal year 2014. excluding surcharge revenue , sales increased 10 percent on 13 percent higher shipment volume . the results reflect strength in demand for materials used for surgical instruments , as well as increased sales of titanium materials used in orthopedic implant procedures . however , the medical market pricing environment remains extremely competitive . industrial and consumer end-use market sales were $ 450.0 million for fiscal year 2015. excluding surcharge revenue , sales increased 1 percent on 14 percent lower shipment volume . the results reflect a favorable shift in product mix related to high-end consumer electronics and industrial capital goods . 26 distribution end-use market sales decreased 1 percent from the same period a year ago to $ 136.9 million . excluding surcharge revenue , sales decreased 1 percent from the same period a year ago . gross profit gross profit in fiscal year 2015 decreased to $ 318.3 million , or 14.3 percent of net sales ( 17.6 percent of net sales excluding surcharge revenue ) , from $ 398.9 million , or 18.4 percent of net sales ( 22.4 percent of net sales excluding surcharge revenue ) , for fiscal year 2014. the results reflect a stronger product mix which was more than offset by higher operating costs , unfavorable cost absorption as a result of reducing inventory and incremental depreciation expense due to the athens facility which was placed into service late in fiscal year 2014. our surcharge mechanism is structured to recover increases in raw material costs , although in certain cases with a lag effect as discussed above . while the surcharge generally protects the absolute gross profit dollars , it does have a dilutive effect on gross margin as a percent of sales . the following represents a summary of the dilutive impact of the surcharge on gross margin for fiscal years 2015 and 2014. we present and discuss these financial measures because management believes removing the impact of these items provides a more consistent and meaningful basis for comparing results of operations from period to period . see the section “ non-gaap financial measures ” below for further discussion of these financial measures . replace_table_token_19_th selling , general and administrative expenses selling , general and administrative expenses in fiscal year 2015 were $ 177.7 million , or 8.0 percent of net sales ( 9.8 percent of net sales excluding surcharge revenue ) , compared to $ 186.9 million , or 8.6 percent of net sales ( 10.5 percent of net sales excluding surcharge revenue ) , in fiscal year 2014. selling , general and administrative expenses decreased from the same period last year primarily due to lower depreciation and amortization expense of $ 4.3 million , lower variable compensation expense of $ 3.5 million , a reduction in pension eid expense of $ 3.1 million
| liquidity and financial resources we ended fiscal year 2016 with $ 82.0 million of cash , an increase of $ 12.0 million from fiscal year 2015 . during fiscal year 2016 our cash from operations was $ 256.9 million as compared with $ 282.6 million in fiscal year 2015 . our free cash flow , which we define under “ non-gaap financial measures ” below , was positive $ 138.6 million as compared to positive $ 74.4 million for the same period a year ago . the increase in free cash flow reflects significantly lower capital spending levels largely related to the winding down in capital expenditures associated with the construction of our athens , alabama facility . capital expenditures for property , equipment and software were $ 95.2 million for fiscal year 2016 as compared to $ 170.5 million for the fiscal year 2015. in fiscal year 2017 , we expect capital expenditures to be approximately $ 120 million . during fiscal year 2016 , we used $ 123.9 million to purchase 3,762,200 shares of common stock pursuant to the terms of the share repurchase program authorized by our board of directors in october 2014. to date we used $ 248.4 million to purchase 6,757,472 shares .
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on january 15 , 2015 , we completed two separate acquisitions . through our wholly-owned subsidiary , willdan energy solutions ( `` wes `` ) , we acquired all of the outstanding shares of abacus resource management company ( `` abacus `` ) , an oregon-based energy engineering company . in addition , we , through our wholly-owned subsidiary wes , also acquired substantially all of the assets of 360 energy engineers , llc ( `` 360 energy `` ) , a kansas-based energy and engineering energy management consulting company . pursuant to the terms of the stock purchase agreement , dated as of january 15 , 2015 ( the `` abacus agreement `` ) , by and among us , wes , abacus and mark kinzer and steve rubbert ( the `` abacus shareholders `` ) , wes will pay the abacus shareholders a maximum purchase price of $ 6,150,000 , consisting of ( i ) $ 2,500,000 in cash paid at closing ( subject to certain post-closing adjustments ) , ( ii ) 75,758 shares of common stock , par value $ 0.01 per share , of the company ( `` common stock `` ) equaling $ 1,000,000 based on the volume-weighted average price of shares of the common stock for the ten trading days immediately prior to , but not including , the closing date of the abacus acquisition , ( iii ) $ 1,250,000 aggregate principal amount of promissory notes issued to the abacus shareholders ( collectively , the `` abacus notes `` ) and ( iv ) up to $ 1,400,000 in cash , payable at the end of the company 's and wes 's 2015 and 2016 fiscal years , if certain financial targets of abacus are met during such fiscal years . the abacus notes were issued in an initial outstanding principal amount of $ 625,000 to each of the abacus shareholders . the abacus notes provide for a fixed interest rate of 4 % per annum and are fully amortizing and payable in equal monthly installments between january 15 , 2015 and their january 15 , 2017 maturity date . the abacus notes contain events of default provisions customary for documents of their nature . pursuant to the terms of the asset purchase agreement , dated as of january 15 , 2015 ( the `` 360 energy agreement `` ) , by and among us , wes and 360 energy , wes will pay 360 energy a maximum purchase price of $ 15,000,000 , consisting of ( i ) $ 4,875,000 in cash paid at closing , ( ii ) 47,348 shares of common stock equaling $ 625,000 based on the volume-weighted average price of shares of the common stock for the ten trading days immediately prior to , but not including , the closing date of the 360 energy acquisition , ( iii ) $ 3,000,000 aggregate principal amount of promissory note issued to 360 energy ( the `` 360 energy note `` and , together with the abacus notes , the `` notes `` ) and ( iv ) up to $ 6,500,000 in cash , payable at the end of the company 's and wes 's 2015 , 2016 and 2017 fiscal years , if certain financial targets of wes 's division made up of the assets acquired from , and former employees of , 360 energy are met during such fiscal years . the 360 energy note was issued in an initial outstanding principal amount of $ 3,000,000. the 360 energy note provides for a fixed interest rate of 4 % per annum and is fully amortizing and payable in equal monthly installments between january 15 , 2015 and their january 15 , 2018 maturity date . the 360 energy note contains events of default provisions customary for documents of its nature . we also provided a guaranty to 360 energy which guarantees wes 's obligations under the promissory note issued to 360 energy . 37 to finance the acquisitions of abacus and 360 energy , we borrowed $ 2,000,000 under our delayed draw term loan facility and used cash on hand to pay the remaining $ 5,375,000. amended credit facility . on january 14 , 2015 , we and our subsidiaries , as guarantors , entered into the second amendment ( the `` second amendment `` ) to the credit agreement ( as amended , the `` bmo credit agreement `` ) , dated as of march 24 , 2014 , by and between us , the guarantors listed therein and bmo harris bank national association ( `` bmo harris `` ) . the bmo credit agreement governs our credit facility that includes a revolving line of credit and a delayed draw term loan facility . the second amendment revised the bmo credit agreement to , among other things , permit the acquisitions of abacus and 360 energy , the incurrence of the notes and the 360 energy guaranty issued in connection with the acquisitions of abacus and 360 energy and to add abacus as a guarantor under the bmo credit agreement upon the closing of the acquisition of abacus . the second amendment also increased the amount available to us for borrowing under the delayed draw term loan facility from $ 2,500,000 to $ 3,000,000. in addition , the second amendment increased the interest rate under the delayed draw term loan facility by 25 basis points . giving effect to the second amendment , borrowings under the delayed draw term loan facility will now bear interest , at our option , at ( a ) the base rate plus an applicable margin ranging between 1.25 % and 1.75 % , or ( b ) the libor rate plus an applicable margin ranging between 2.25 % and 2.75 % . story_separator_special_tag income taxes income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial reporting basis and tax basis of our assets and liabilities , subject to a judgmental assessment of the recoverability of deferred tax assets . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . a valuation allowance is recorded when it is more likely than not that some of the deferred tax assets may not be realized . significant judgment is applied when assessing the need for valuation allowances . areas of estimation include our consideration of future taxable income and ongoing prudent and feasible tax planning strategies . should a change in circumstances lead to a change in judgment about the utilization of deferred tax assets in future years , we would adjust the related valuation allowances in the period that the change in circumstances occurs , along with a corresponding increase or charge to income . during fiscal year 2014 , management assessed the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets . based on this evaluation , as of january 2 , 2015 , we reversed the valuation allowance on our deferred tax assets . we will continue to assess the need for a valuation allowance in the future . the provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities . we recognize the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will be sustained on examination by the tax authorities , based on the technical merits of the 42 position . the tax benefit is measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . we recognize interest and penalties related to unrecognized tax benefits in income tax expense . results of operations the following table sets forth , for the periods indicated , certain information derived from our consolidated statements of operations expressed as a percentage of contract revenue . amounts may not add to the totals due to rounding . replace_table_token_8_th fiscal year 2014 compared to fiscal year 2013 contract revenue . our contract revenue was $ 108.1 million for fiscal year 2014 , with $ 52.9 million attributable to the energy efficiency services segment , $ 40.8 million attributable to the engineering services segment , $ 10.6 million attributable to the public finance services segment , and $ 3.7 million attributable to the homeland security services segment . consolidated contract revenue increased $ 22.6 million , or 26.4 % , to $ 108.1 million for fiscal year 2014 from $ 85.5 million for fiscal year 2013. this was primarily the result of increases of $ 16.9 million , or 46.9 % , and $ 5.6 million , or 15.8 % , in contract revenue from our energy efficiency services and engineering services segments , respectively . contract revenue for our public finance services increased $ 0.8 million , or 8.0 % to $ 10.6 million for fiscal year 2014 from $ 9.8 million for fiscal year 2013. contract revenue for our homeland security services segment decreased by $ 0.7 million , or 15.4 % , to $ 3.7 million for fiscal year 2014 from 43 $ 4.4 million for fiscal year 2013. contract revenue for the energy efficiency services segment increased primarily because of increased demand for energy efficiency services in the states of new york and california , largely due to a contract modification that expanded an existing small business direct install ( `` sbdi `` ) contract with consolidated edison . contract revenue for the engineering services segment increased primarily due to greater demand for our city engineering services in northern california , our building and safety services , and our construction management services . revenue in the homeland security services segment decreased due to slightly lower levels of activity in the traditional planning , training and exercise consulting services business . direct costs of contract revenue . direct costs of contract revenue were $ 63.8 million for fiscal year 2014 , with $ 34.9 million attributable to the energy efficiency services segment , $ 22.4 million attributable to the engineering services segment , $ 4.3 million attributable to the public finance services segment , and $ 2.2 million attributable to the homeland security services segment . overall , direct costs increased by $ 14.9 million , or 30.4 % , to $ 63.8 million for fiscal year 2014 from $ 48.9 million for fiscal 2013. the increase in direct costs was primarily attributable to an increase in direct costs within our energy efficiency services segment of $ 11.8 million , or 51.2 % for fiscal year 2014. direct costs of contract revenue also increased within our engineering services and public finance segments by $ 3.4 million , or 17.7 % , and $ 0.3 million , or 6.2 % , respectively . direct costs of contract revenue in our homeland security services segment decreased by $ 0.5 million , or 19.1 % to $ 2.2 million for fiscal year 2014 from $ 2.8 million for fiscal year 2013. direct costs increased as a result of increases in subcontractor services and other direct costs of $ 10.8 million and an increase in salaries and wages of $ 4.1 million . within direct costs of contract revenue , salaries and wages decreased to 26.1 % of contract revenue for fiscal year 2014
| liquidity and financial resources we ended fiscal year 2016 with $ 82.0 million of cash , an increase of $ 12.0 million from fiscal year 2015 . during fiscal year 2016 our cash from operations was $ 256.9 million as compared with $ 282.6 million in fiscal year 2015 . our free cash flow , which we define under “ non-gaap financial measures ” below , was positive $ 138.6 million as compared to positive $ 74.4 million for the same period a year ago . the increase in free cash flow reflects significantly lower capital spending levels largely related to the winding down in capital expenditures associated with the construction of our athens , alabama facility . capital expenditures for property , equipment and software were $ 95.2 million for fiscal year 2016 as compared to $ 170.5 million for the fiscal year 2015. in fiscal year 2017 , we expect capital expenditures to be approximately $ 120 million . during fiscal year 2016 , we used $ 123.9 million to purchase 3,762,200 shares of common stock pursuant to the terms of the share repurchase program authorized by our board of directors in october 2014. to date we used $ 248.4 million to purchase 6,757,472 shares .
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on january 15 , 2015 , we completed two separate acquisitions . through our wholly-owned subsidiary , willdan energy solutions ( `` wes `` ) , we acquired all of the outstanding shares of abacus resource management company ( `` abacus `` ) , an oregon-based energy engineering company . in addition , we , through our wholly-owned subsidiary wes , also acquired substantially all of the assets of 360 energy engineers , llc ( `` 360 energy `` ) , a kansas-based energy and engineering energy management consulting company . pursuant to the terms of the stock purchase agreement , dated as of january 15 , 2015 ( the `` abacus agreement `` ) , by and among us , wes , abacus and mark kinzer and steve rubbert ( the `` abacus shareholders `` ) , wes will pay the abacus shareholders a maximum purchase price of $ 6,150,000 , consisting of ( i ) $ 2,500,000 in cash paid at closing ( subject to certain post-closing adjustments ) , ( ii ) 75,758 shares of common stock , par value $ 0.01 per share , of the company ( `` common stock `` ) equaling $ 1,000,000 based on the volume-weighted average price of shares of the common stock for the ten trading days immediately prior to , but not including , the closing date of the abacus acquisition , ( iii ) $ 1,250,000 aggregate principal amount of promissory notes issued to the abacus shareholders ( collectively , the `` abacus notes `` ) and ( iv ) up to $ 1,400,000 in cash , payable at the end of the company 's and wes 's 2015 and 2016 fiscal years , if certain financial targets of abacus are met during such fiscal years . the abacus notes were issued in an initial outstanding principal amount of $ 625,000 to each of the abacus shareholders . the abacus notes provide for a fixed interest rate of 4 % per annum and are fully amortizing and payable in equal monthly installments between january 15 , 2015 and their january 15 , 2017 maturity date . the abacus notes contain events of default provisions customary for documents of their nature . pursuant to the terms of the asset purchase agreement , dated as of january 15 , 2015 ( the `` 360 energy agreement `` ) , by and among us , wes and 360 energy , wes will pay 360 energy a maximum purchase price of $ 15,000,000 , consisting of ( i ) $ 4,875,000 in cash paid at closing , ( ii ) 47,348 shares of common stock equaling $ 625,000 based on the volume-weighted average price of shares of the common stock for the ten trading days immediately prior to , but not including , the closing date of the 360 energy acquisition , ( iii ) $ 3,000,000 aggregate principal amount of promissory note issued to 360 energy ( the `` 360 energy note `` and , together with the abacus notes , the `` notes `` ) and ( iv ) up to $ 6,500,000 in cash , payable at the end of the company 's and wes 's 2015 , 2016 and 2017 fiscal years , if certain financial targets of wes 's division made up of the assets acquired from , and former employees of , 360 energy are met during such fiscal years . the 360 energy note was issued in an initial outstanding principal amount of $ 3,000,000. the 360 energy note provides for a fixed interest rate of 4 % per annum and is fully amortizing and payable in equal monthly installments between january 15 , 2015 and their january 15 , 2018 maturity date . the 360 energy note contains events of default provisions customary for documents of its nature . we also provided a guaranty to 360 energy which guarantees wes 's obligations under the promissory note issued to 360 energy . 37 to finance the acquisitions of abacus and 360 energy , we borrowed $ 2,000,000 under our delayed draw term loan facility and used cash on hand to pay the remaining $ 5,375,000. amended credit facility . on january 14 , 2015 , we and our subsidiaries , as guarantors , entered into the second amendment ( the `` second amendment `` ) to the credit agreement ( as amended , the `` bmo credit agreement `` ) , dated as of march 24 , 2014 , by and between us , the guarantors listed therein and bmo harris bank national association ( `` bmo harris `` ) . the bmo credit agreement governs our credit facility that includes a revolving line of credit and a delayed draw term loan facility . the second amendment revised the bmo credit agreement to , among other things , permit the acquisitions of abacus and 360 energy , the incurrence of the notes and the 360 energy guaranty issued in connection with the acquisitions of abacus and 360 energy and to add abacus as a guarantor under the bmo credit agreement upon the closing of the acquisition of abacus . the second amendment also increased the amount available to us for borrowing under the delayed draw term loan facility from $ 2,500,000 to $ 3,000,000. in addition , the second amendment increased the interest rate under the delayed draw term loan facility by 25 basis points . giving effect to the second amendment , borrowings under the delayed draw term loan facility will now bear interest , at our option , at ( a ) the base rate plus an applicable margin ranging between 1.25 % and 1.75 % , or ( b ) the libor rate plus an applicable margin ranging between 2.25 % and 2.75 % . story_separator_special_tag income taxes income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial reporting basis and tax basis of our assets and liabilities , subject to a judgmental assessment of the recoverability of deferred tax assets . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . a valuation allowance is recorded when it is more likely than not that some of the deferred tax assets may not be realized . significant judgment is applied when assessing the need for valuation allowances . areas of estimation include our consideration of future taxable income and ongoing prudent and feasible tax planning strategies . should a change in circumstances lead to a change in judgment about the utilization of deferred tax assets in future years , we would adjust the related valuation allowances in the period that the change in circumstances occurs , along with a corresponding increase or charge to income . during fiscal year 2014 , management assessed the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets . based on this evaluation , as of january 2 , 2015 , we reversed the valuation allowance on our deferred tax assets . we will continue to assess the need for a valuation allowance in the future . the provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities . we recognize the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will be sustained on examination by the tax authorities , based on the technical merits of the 42 position . the tax benefit is measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . we recognize interest and penalties related to unrecognized tax benefits in income tax expense . results of operations the following table sets forth , for the periods indicated , certain information derived from our consolidated statements of operations expressed as a percentage of contract revenue . amounts may not add to the totals due to rounding . replace_table_token_8_th fiscal year 2014 compared to fiscal year 2013 contract revenue . our contract revenue was $ 108.1 million for fiscal year 2014 , with $ 52.9 million attributable to the energy efficiency services segment , $ 40.8 million attributable to the engineering services segment , $ 10.6 million attributable to the public finance services segment , and $ 3.7 million attributable to the homeland security services segment . consolidated contract revenue increased $ 22.6 million , or 26.4 % , to $ 108.1 million for fiscal year 2014 from $ 85.5 million for fiscal year 2013. this was primarily the result of increases of $ 16.9 million , or 46.9 % , and $ 5.6 million , or 15.8 % , in contract revenue from our energy efficiency services and engineering services segments , respectively . contract revenue for our public finance services increased $ 0.8 million , or 8.0 % to $ 10.6 million for fiscal year 2014 from $ 9.8 million for fiscal year 2013. contract revenue for our homeland security services segment decreased by $ 0.7 million , or 15.4 % , to $ 3.7 million for fiscal year 2014 from 43 $ 4.4 million for fiscal year 2013. contract revenue for the energy efficiency services segment increased primarily because of increased demand for energy efficiency services in the states of new york and california , largely due to a contract modification that expanded an existing small business direct install ( `` sbdi `` ) contract with consolidated edison . contract revenue for the engineering services segment increased primarily due to greater demand for our city engineering services in northern california , our building and safety services , and our construction management services . revenue in the homeland security services segment decreased due to slightly lower levels of activity in the traditional planning , training and exercise consulting services business . direct costs of contract revenue . direct costs of contract revenue were $ 63.8 million for fiscal year 2014 , with $ 34.9 million attributable to the energy efficiency services segment , $ 22.4 million attributable to the engineering services segment , $ 4.3 million attributable to the public finance services segment , and $ 2.2 million attributable to the homeland security services segment . overall , direct costs increased by $ 14.9 million , or 30.4 % , to $ 63.8 million for fiscal year 2014 from $ 48.9 million for fiscal 2013. the increase in direct costs was primarily attributable to an increase in direct costs within our energy efficiency services segment of $ 11.8 million , or 51.2 % for fiscal year 2014. direct costs of contract revenue also increased within our engineering services and public finance segments by $ 3.4 million , or 17.7 % , and $ 0.3 million , or 6.2 % , respectively . direct costs of contract revenue in our homeland security services segment decreased by $ 0.5 million , or 19.1 % to $ 2.2 million for fiscal year 2014 from $ 2.8 million for fiscal year 2013. direct costs increased as a result of increases in subcontractor services and other direct costs of $ 10.8 million and an increase in salaries and wages of $ 4.1 million . within direct costs of contract revenue , salaries and wages decreased to 26.1 % of contract revenue for fiscal year 2014
| cash flows from financing activities cash flows provided by financing activities were $ 0.1 million for fiscal year 2014 , as compared to cash flows used in financing activities of $ 3.1 million and cash flows provided by financing activities of $ 2.7 million for fiscal years 2013 and 2012 , respectively . the net cash flows provided by financing activities for fiscal year 2014 increased by $ 3.2 million from fiscal year 2013 primarily due to a decrease in repayments on our line of credit during fiscal year 2014. the net cash flows used in financing activities for fiscal year 2013 increased by $ 5.8 million from fiscal year 2012 primarily due to a decrease in net borrowings under our line of credit during fiscal year 2013. the net cash flows provided by financing activities in fiscal year 2012 were primarily attributable to borrowings under our revolving line of credit , partially offset by repayments of our revolving line of credit and changes in the excess of outstanding checks over bank balance . outstanding indebtedness on march 24 , 2014 , we entered into a credit agreement with bmo harris bank , n.a. , or bmo , that provides for a revolving line of credit of up to $ 7.5 million , subject to a borrowing base calculation , including a $ 5.0 million standby letter of credit sub-facility , and a delayed draw term loan facility of up to $ 2.5 million . all borrowings under the revolving line of credit are limited to a borrowing base equal to roughly 75 % of the eligible accounts receivable plus 50 % of the lower of cost or market value of our eligible inventory , each term as defined in the credit agreement . as of january 2 , 2015 , there were no outstanding borrowings under the revolving line of credit or term loan facility and all $ 7.5 million under the revolving line of credit and $ 2.5 million under the delayed draw term loan facility were available for borrowing . under the bmo credit agreement , as of january 2 , 2014 , no cash amounts are restricted .
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although we monitor the three elements of primary working capital ( receivables , inventory and payables ) , our primary focus is on the total amount due to the significant impact it has on our cash flow . 22 our management structure , financial reporting systems , and associated internal controls and procedures , are all consistent with our three geographic business segments . we report on a march 31 fiscal year-end . our financial results are largely driven by the following factors : global economic conditions and general cyclical patterns of the industries in which our customers operate ; changes in our selling prices and , in periods when our product costs increase , our ability to raise our selling prices to pass such cost increases through to our customers ; the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity ; the extent to which we can control our fixed and variable costs , including those for our raw materials , manufacturing , distribution and operating activities ; changes in our level of debt and changes in the variable interest rates under our credit facilities ; and the size and number of acquisitions and our ability to achieve their intended benefits . we have two primary product lines : reserve power products and motive power products . net sales classifications by product line are as follows : reserve power products are used for backup power for the continuous operation of critical applications in telecommunications systems , uninterruptible power systems , or “ ups ” applications for computer and computer-controlled systems , and other specialty power applications , including security systems , premium starting , lighting and ignition applications , in switchgear , electrical control systems used in electric utilities , large-scale energy storage , energy pipelines , in commercial aircraft , satellites , military aircraft , submarines , ships and tactical vehicles . reserve power products also include thermally managed cabinets and enclosures for electronic equipment and batteries . motive power products are used to provide power for electric industrial forklifts used in manufacturing , warehousing and other material handling applications as well as mining equipment , diesel locomotive starting and other rail equipment . current market conditions economic climate recent indicators continue to suggest a mixed trend in economic activity among the different geographical regions . economic activity continues to strengthen in north america while emea is experiencing limited growth . our asia region is experiencing the fastest growth of any region in which we do business . volatility of commodities and foreign currencies our most significant commodity and foreign currency exposures are related to lead and the euro . historically , volatility of commodity costs and foreign currency exchange rates have caused large swings in our production costs . as the global economic climate changes , we anticipate that our commodity costs and foreign currency exposures may continue to fluctuate as they have in the past several years . overall , on a consolidated basis , we have experienced stable trends more recently in our revenue and order rates and commodity cost changes have not been substantial . however , we have experienced lower revenues and increased costs due to movements in foreign currency exchange rates . customer pricing our selling prices fluctuated during the last several years to offset the volatile cost of commodities . approximately 35 % of our revenue is currently subject to agreements that adjust pricing to a market-based index for lead . during fiscal 2015 , our selling prices increased slightly , compared to the comparable prior year periods . liquidity and capital resources we believe that our financial position is strong , and we have substantial liquidity with $ 269 million of available cash and cash equivalents and undrawn committed and uncommitted credit lines of approximately $ 465 million at march 31 , 2015 to cover short-term liquidity requirements and anticipated growth in the foreseeable future . our 2011 credit facility , which we entered into in march 2011 and expanded in july 2014 , is committed through september 2018 as long as we continue to comply with its covenants and conditions . current market conditions related to our liquidity and capital resources are favorable . we believe current conditions remain favorable for the company to have continued positive cash flow from operations that , along with available cash and cash 23 equivalents and our undrawn lines of credit , will be sufficient to fund our capital expenditures , acquisitions and other investments for growth . the convertible notes became convertible at the option of the holders effective march 1 , 2015. additionally , on may 7 , 2015 , the company announced that it had called for redemption all of the convertible notes on june 8 , 2015 , at a price equal to $ 1,000.66 per $ 1,000 original principal amount of convertible notes , which is equal to 100 % of the accreted principal amount of the convertible notes being repurchased , plus accrued and unpaid interest . additionally , the holders are now permitted to convert their convertible notes at their option on or before june 5 , 2015. the conversion rate , as of may 7 , 2015 , of the convertible notes is 25.1086 shares of the company 's common stock per $ 1,000 in principal amount of the convertible notes . the company has also offered ( the “ offer ” ) to purchase all outstanding convertible notes in cash at a purchase price of $ 1,000 original principal amount of convertible notes , with such offer expiring on may 29 , 2015. as of march 31 , 2015 , the company has $ 172.3 million of convertible notes outstanding . story_separator_special_tag all models incorporate various assumptions such as the risk-free interest rate , expected volatility , expected dividend yield and expected life of the awards . when estimating the requisite service period of the awards , we consider many related factors including types of awards , employee class , and historical experience . actual results , and future changes in estimates of the requisite service period may differ substantially from our current estimates . income taxes our effective tax rate is based on pretax income , statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate . we account for income taxes in accordance with applicable guidance on accounting for income taxes , which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between book and tax bases on recorded assets and liabilities . accounting guidance also requires that deferred tax assets be reduced by a valuation allowance , when it is more likely than not that a tax benefit will not be realized . the recognition and measurement of a tax position is based on management 's best judgment given the facts , circumstances and information available at the reporting date . we evaluate tax positions to determine whether the benefits of tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position . for tax positions that are more likely than not of being sustained upon audit , we recognize the largest amount of the benefit that is greater than 50 % likely of being realized upon ultimate settlement in the financial statements . for tax positions that are not more likely than not of being sustained upon audit , we do not recognize any portion of the benefit in the financial statements . if the more likely than 27 not threshold is not met in the period for which a tax position is taken , we may subsequently recognize the benefit of that tax position if the tax matter is effectively settled , the statute of limitations expires , or if the more likely than not threshold is met in a subsequent period . we evaluate , on a quarterly basis , our ability to realize deferred tax assets by assessing our valuation allowance and by adjusting the amount of such allowance , if necessary . the factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets . to the extent we prevail in matters for which reserves have been established , or are required to pay amounts in excess of our reserves , our effective tax rate in a given financial statement period could be materially affected . an unfavorable tax settlement would require use of cash and result in an increase in the effective tax rate in the year of resolution . a favorable tax settlement would be recognized as a reduction in our effective tax rate in the year of resolution . results of operations— fiscal 2015 compared to fiscal 2014 the following table presents summary consolidated statement of income data for fiscal year ended march 31 , 2015 , compared to fiscal year ended march 31 , 2014 : replace_table_token_3_th nm = not meaningful overview our sales in fiscal 2015 were $ 2.5 billion , a 1.3 % increase from prior year 's sales . this was the result of a 2 % increase in organic volume and a 3 % increase from acquisitions partially offset by a 4 % decrease due to foreign currency translation impact . gross margin percentage in fiscal 2015 increased by 20 basis points to 25.6 % compared to fiscal 2014 , mainly due to higher organic volume and favorable mix combined with the benefits of restructuring programs in emea . a discussion of specific fiscal 2015 versus fiscal 2014 operating results follows , including an analysis and discussion of the results of our reportable segments . 28 net sales net sales by reportable segment were as follows : replace_table_token_4_th the americas segment 's revenue increased by $ 54.8 million or 4.3 % in fiscal 2015 , as compared to fiscal 2014 , primarily due to an increase in acquisitions and organic volume of approximately 4 % and 2 % , respectively , partially offset by a negative currency translation impact of approximately 2 % . the emea segment 's revenue decreased by $ 17.3 million or 1.8 % in fiscal 2015 , as compared to fiscal 2014 , primarily due to an 8 % decrease due to currency translation impact partially offset by an increase of 5 % in organic volume and a 1 % increase in pricing . the asia segment 's revenue decreased by $ 6.4 million or 2.6 % in fiscal 2015 , as compared to fiscal 2014 , primarily due to a 14 % decrease in organic volume and a 3 % decrease in currency translation impact partially offset by a 14 % increase in acquisitions . the decrease in asia 's organic volume is primarily due to lower sales to a major chinese telecommunication company under a new tender program pursuant to which we participated at a lower volume . net sales by product line were as follows : replace_table_token_5_th sales in our reserve power product line increased in fiscal 2015 by $ 18.2 million or 1.5 % compared to the prior year primarily due to acquisitions and higher organic volume which contributed approximately 5 % and 1 % , respectively , offset by negative currency translation impact of 4 % . sales in our motive power product line increased in fiscal 2015 by $ 12.9 million or 1.1 % compared to the prior year primarily due to higher organic volume and acquisitions of 2 % each , pricing of approximately 1 % , offset partially
| cash flows from financing activities cash flows provided by financing activities were $ 0.1 million for fiscal year 2014 , as compared to cash flows used in financing activities of $ 3.1 million and cash flows provided by financing activities of $ 2.7 million for fiscal years 2013 and 2012 , respectively . the net cash flows provided by financing activities for fiscal year 2014 increased by $ 3.2 million from fiscal year 2013 primarily due to a decrease in repayments on our line of credit during fiscal year 2014. the net cash flows used in financing activities for fiscal year 2013 increased by $ 5.8 million from fiscal year 2012 primarily due to a decrease in net borrowings under our line of credit during fiscal year 2013. the net cash flows provided by financing activities in fiscal year 2012 were primarily attributable to borrowings under our revolving line of credit , partially offset by repayments of our revolving line of credit and changes in the excess of outstanding checks over bank balance . outstanding indebtedness on march 24 , 2014 , we entered into a credit agreement with bmo harris bank , n.a. , or bmo , that provides for a revolving line of credit of up to $ 7.5 million , subject to a borrowing base calculation , including a $ 5.0 million standby letter of credit sub-facility , and a delayed draw term loan facility of up to $ 2.5 million . all borrowings under the revolving line of credit are limited to a borrowing base equal to roughly 75 % of the eligible accounts receivable plus 50 % of the lower of cost or market value of our eligible inventory , each term as defined in the credit agreement . as of january 2 , 2015 , there were no outstanding borrowings under the revolving line of credit or term loan facility and all $ 7.5 million under the revolving line of credit and $ 2.5 million under the delayed draw term loan facility were available for borrowing . under the bmo credit agreement , as of january 2 , 2014 , no cash amounts are restricted .
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although we monitor the three elements of primary working capital ( receivables , inventory and payables ) , our primary focus is on the total amount due to the significant impact it has on our cash flow . 22 our management structure , financial reporting systems , and associated internal controls and procedures , are all consistent with our three geographic business segments . we report on a march 31 fiscal year-end . our financial results are largely driven by the following factors : global economic conditions and general cyclical patterns of the industries in which our customers operate ; changes in our selling prices and , in periods when our product costs increase , our ability to raise our selling prices to pass such cost increases through to our customers ; the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity ; the extent to which we can control our fixed and variable costs , including those for our raw materials , manufacturing , distribution and operating activities ; changes in our level of debt and changes in the variable interest rates under our credit facilities ; and the size and number of acquisitions and our ability to achieve their intended benefits . we have two primary product lines : reserve power products and motive power products . net sales classifications by product line are as follows : reserve power products are used for backup power for the continuous operation of critical applications in telecommunications systems , uninterruptible power systems , or “ ups ” applications for computer and computer-controlled systems , and other specialty power applications , including security systems , premium starting , lighting and ignition applications , in switchgear , electrical control systems used in electric utilities , large-scale energy storage , energy pipelines , in commercial aircraft , satellites , military aircraft , submarines , ships and tactical vehicles . reserve power products also include thermally managed cabinets and enclosures for electronic equipment and batteries . motive power products are used to provide power for electric industrial forklifts used in manufacturing , warehousing and other material handling applications as well as mining equipment , diesel locomotive starting and other rail equipment . current market conditions economic climate recent indicators continue to suggest a mixed trend in economic activity among the different geographical regions . economic activity continues to strengthen in north america while emea is experiencing limited growth . our asia region is experiencing the fastest growth of any region in which we do business . volatility of commodities and foreign currencies our most significant commodity and foreign currency exposures are related to lead and the euro . historically , volatility of commodity costs and foreign currency exchange rates have caused large swings in our production costs . as the global economic climate changes , we anticipate that our commodity costs and foreign currency exposures may continue to fluctuate as they have in the past several years . overall , on a consolidated basis , we have experienced stable trends more recently in our revenue and order rates and commodity cost changes have not been substantial . however , we have experienced lower revenues and increased costs due to movements in foreign currency exchange rates . customer pricing our selling prices fluctuated during the last several years to offset the volatile cost of commodities . approximately 35 % of our revenue is currently subject to agreements that adjust pricing to a market-based index for lead . during fiscal 2015 , our selling prices increased slightly , compared to the comparable prior year periods . liquidity and capital resources we believe that our financial position is strong , and we have substantial liquidity with $ 269 million of available cash and cash equivalents and undrawn committed and uncommitted credit lines of approximately $ 465 million at march 31 , 2015 to cover short-term liquidity requirements and anticipated growth in the foreseeable future . our 2011 credit facility , which we entered into in march 2011 and expanded in july 2014 , is committed through september 2018 as long as we continue to comply with its covenants and conditions . current market conditions related to our liquidity and capital resources are favorable . we believe current conditions remain favorable for the company to have continued positive cash flow from operations that , along with available cash and cash 23 equivalents and our undrawn lines of credit , will be sufficient to fund our capital expenditures , acquisitions and other investments for growth . the convertible notes became convertible at the option of the holders effective march 1 , 2015. additionally , on may 7 , 2015 , the company announced that it had called for redemption all of the convertible notes on june 8 , 2015 , at a price equal to $ 1,000.66 per $ 1,000 original principal amount of convertible notes , which is equal to 100 % of the accreted principal amount of the convertible notes being repurchased , plus accrued and unpaid interest . additionally , the holders are now permitted to convert their convertible notes at their option on or before june 5 , 2015. the conversion rate , as of may 7 , 2015 , of the convertible notes is 25.1086 shares of the company 's common stock per $ 1,000 in principal amount of the convertible notes . the company has also offered ( the “ offer ” ) to purchase all outstanding convertible notes in cash at a purchase price of $ 1,000 original principal amount of convertible notes , with such offer expiring on may 29 , 2015. as of march 31 , 2015 , the company has $ 172.3 million of convertible notes outstanding . story_separator_special_tag all models incorporate various assumptions such as the risk-free interest rate , expected volatility , expected dividend yield and expected life of the awards . when estimating the requisite service period of the awards , we consider many related factors including types of awards , employee class , and historical experience . actual results , and future changes in estimates of the requisite service period may differ substantially from our current estimates . income taxes our effective tax rate is based on pretax income , statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate . we account for income taxes in accordance with applicable guidance on accounting for income taxes , which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between book and tax bases on recorded assets and liabilities . accounting guidance also requires that deferred tax assets be reduced by a valuation allowance , when it is more likely than not that a tax benefit will not be realized . the recognition and measurement of a tax position is based on management 's best judgment given the facts , circumstances and information available at the reporting date . we evaluate tax positions to determine whether the benefits of tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position . for tax positions that are more likely than not of being sustained upon audit , we recognize the largest amount of the benefit that is greater than 50 % likely of being realized upon ultimate settlement in the financial statements . for tax positions that are not more likely than not of being sustained upon audit , we do not recognize any portion of the benefit in the financial statements . if the more likely than 27 not threshold is not met in the period for which a tax position is taken , we may subsequently recognize the benefit of that tax position if the tax matter is effectively settled , the statute of limitations expires , or if the more likely than not threshold is met in a subsequent period . we evaluate , on a quarterly basis , our ability to realize deferred tax assets by assessing our valuation allowance and by adjusting the amount of such allowance , if necessary . the factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets . to the extent we prevail in matters for which reserves have been established , or are required to pay amounts in excess of our reserves , our effective tax rate in a given financial statement period could be materially affected . an unfavorable tax settlement would require use of cash and result in an increase in the effective tax rate in the year of resolution . a favorable tax settlement would be recognized as a reduction in our effective tax rate in the year of resolution . results of operations— fiscal 2015 compared to fiscal 2014 the following table presents summary consolidated statement of income data for fiscal year ended march 31 , 2015 , compared to fiscal year ended march 31 , 2014 : replace_table_token_3_th nm = not meaningful overview our sales in fiscal 2015 were $ 2.5 billion , a 1.3 % increase from prior year 's sales . this was the result of a 2 % increase in organic volume and a 3 % increase from acquisitions partially offset by a 4 % decrease due to foreign currency translation impact . gross margin percentage in fiscal 2015 increased by 20 basis points to 25.6 % compared to fiscal 2014 , mainly due to higher organic volume and favorable mix combined with the benefits of restructuring programs in emea . a discussion of specific fiscal 2015 versus fiscal 2014 operating results follows , including an analysis and discussion of the results of our reportable segments . 28 net sales net sales by reportable segment were as follows : replace_table_token_4_th the americas segment 's revenue increased by $ 54.8 million or 4.3 % in fiscal 2015 , as compared to fiscal 2014 , primarily due to an increase in acquisitions and organic volume of approximately 4 % and 2 % , respectively , partially offset by a negative currency translation impact of approximately 2 % . the emea segment 's revenue decreased by $ 17.3 million or 1.8 % in fiscal 2015 , as compared to fiscal 2014 , primarily due to an 8 % decrease due to currency translation impact partially offset by an increase of 5 % in organic volume and a 1 % increase in pricing . the asia segment 's revenue decreased by $ 6.4 million or 2.6 % in fiscal 2015 , as compared to fiscal 2014 , primarily due to a 14 % decrease in organic volume and a 3 % decrease in currency translation impact partially offset by a 14 % increase in acquisitions . the decrease in asia 's organic volume is primarily due to lower sales to a major chinese telecommunication company under a new tender program pursuant to which we participated at a lower volume . net sales by product line were as follows : replace_table_token_5_th sales in our reserve power product line increased in fiscal 2015 by $ 18.2 million or 1.5 % compared to the prior year primarily due to acquisitions and higher organic volume which contributed approximately 5 % and 1 % , respectively , offset by negative currency translation impact of 4 % . sales in our motive power product line increased in fiscal 2015 by $ 12.9 million or 1.1 % compared to the prior year primarily due to higher organic volume and acquisitions of 2 % each , pricing of approximately 1 % , offset partially
| cash provided by operating activities for fiscal 2015 , 2014 and 2013 , was $ 194.5 million , $ 193.6 million and $ 244.4 million , respectively . during fiscal 2015 , cash from operating activities was provided primarily from net earnings of $ 181.5 million , depreciation and amortization of $ 57.0 million , non-cash charges relating to write-off of goodwill and other assets of $ 23.9 million , deferred taxes of $ 31.9 million , stock-based compensation of $ 25.3 million , non-cash interest and restructuring charges of $ 9.5 million and $ 3.3 million , respectively , were partially offset by a non-cash gain of $ 2.0 million on disposition of our equity interest in altergy and non-cash credits relating to the reversal of the remaining legal accrual of $ 16.2 million . also partially offsetting our cash provided from operating activities was the increase in primary working capital of $ 49.9 million , net of currency translation changes and our payment of $ 40.0 million towards the altergy award , pursuant to the final legal settlement of the altergy matter and accrued income tax expense of $ 15.5 million . during fiscal 2014 , cash from operating activities was provided primarily from net earnings of $ 146.7 million , depreciation and amortization of $ 54.0 million , non-cash charges relating to write-off of goodwill and other assets of $ 10.2 million , restructuring charges of $ 11.5 million , a net source of $ 25.6 million from non-cash interest expense and stock compensation , $ 90.3 million from other accrued , including the legal proceedings charge of $ 58.2 million , were partially offset by cash used
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advance payments for goods and services that will be used in future r & d activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made . although we do not expect our estimates to be materially different from amounts actually incurred , if our estimates of the status and timing of services performed differ from the actual status and timing of services performed , it could result in us reporting amounts that are too high or too low in any particular period . to date , there has been no material differences between our estimates of such expenses and the amounts actually incurred . jobs act accounting election in april 2012 , the jumpstart our business startups act of 2012 , or jobs act , was enacted . section 107 of the 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 , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected not to avail ourselves of this extended transition period and , as a result , we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies . this election is irrevocable . new accounting pronouncements from time to time , new accounting pronouncements are issued by the financial accounting standards board , or fasb , or other standard setting bodies that are adopted by us as of the specified effective date . unless otherwise discussed , we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption . a description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in note 2 to our financial statements appearing at the end of this annual report on form 10-k. 77 item 7a . quantitative and qualitati ve disclosures about market risk . we are exposed to market risks related to changes in foreign currency exchange rates and interest rates . we contract with vendors in foreign countries . as such , we have exposure to adverse changes in exchange rates of foreign currencies , principally the swiss franc and the euro , associated with our foreign transactions . we believe this exposure to be immaterial . we currently do not hedge against this exposure to fluctuations in exchange rates . our exposure to market risk also relates to interest rate sensitivity , which is affected by changes in the general level of u.s. interest rates . as of december 31 , 2017 , our aggregate outstanding indebtedness was $ 10.0 million , which bears interest at the rate equal to libor plus 8.45 % . due to the short-term duration of our indebtedness , an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our debt instruments . item 8. financial statements and supplementary data . index to financial statements page report of independent registered public accounting firm 79 financial statements : balance sheets 80 statements of operations and comprehensive loss 81 statements of convertible preferred stock and stockholders ' ( deficit ) equity 82 statements of cash flows 83 notes to financial statements 84 78 report of independent regist ered public accounting firm to the stockholders and the board of directors of scpharmaceuticals , inc. opinion on the financial statements we have audited the accompanying balance sheets of scpharmaceuticals , inc. ( the company ) as of december 31 , 2017 and 2016 , the related statements of operations and comprehensive loss , convertible preferred stock and stockholders ' ( deficit ) equity and cash flows for each of the three years in the period ended december 31 , 2017 , and the related notes to the financial statements ( collectively , the financial statements ) . in our opinion , the financial statements present fairly , in all material respects , the financial position of the company as of december 31 , 2017 and 2016 , and the results of its operations and its cash flows for each of the three years in the period ended december 31 , 2017 , in conformity with accounting principles generally accepted in the united states of america . basis for opinion these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on the company 's financial statements based on our audits . we are a public accounting firm registered with the public company accounting oversight board ( united states ) ( pcaob ) and are required to be independent with respect to the company in accordance with u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . we conducted our audits in accordance with the standards of the pcaob . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement , whether due to error or fraud . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . as part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . our audits included performing procedures to assess the risks of material misstatement of the financial statements , whether due to error or fraud , and performing procedures that respond to story_separator_special_tag advance payments for goods and services that will be used in future r & d activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made . although we do not expect our estimates to be materially different from amounts actually incurred , if our estimates of the status and timing of services performed differ from the actual status and timing of services performed , it could result in us reporting amounts that are too high or too low in any particular period . to date , there has been no material differences between our estimates of such expenses and the amounts actually incurred . jobs act accounting election in april 2012 , the jumpstart our business startups act of 2012 , or jobs act , was enacted . section 107 of the 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 , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected not to avail ourselves of this extended transition period and , as a result , we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies . this election is irrevocable . new accounting pronouncements from time to time , new accounting pronouncements are issued by the financial accounting standards board , or fasb , or other standard setting bodies that are adopted by us as of the specified effective date . unless otherwise discussed , we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption . a description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in note 2 to our financial statements appearing at the end of this annual report on form 10-k. 77 item 7a . quantitative and qualitati ve disclosures about market risk . we are exposed to market risks related to changes in foreign currency exchange rates and interest rates . we contract with vendors in foreign countries . as such , we have exposure to adverse changes in exchange rates of foreign currencies , principally the swiss franc and the euro , associated with our foreign transactions . we believe this exposure to be immaterial . we currently do not hedge against this exposure to fluctuations in exchange rates . our exposure to market risk also relates to interest rate sensitivity , which is affected by changes in the general level of u.s. interest rates . as of december 31 , 2017 , our aggregate outstanding indebtedness was $ 10.0 million , which bears interest at the rate equal to libor plus 8.45 % . due to the short-term duration of our indebtedness , an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our debt instruments . item 8. financial statements and supplementary data . index to financial statements page report of independent registered public accounting firm 79 financial statements : balance sheets 80 statements of operations and comprehensive loss 81 statements of convertible preferred stock and stockholders ' ( deficit ) equity 82 statements of cash flows 83 notes to financial statements 84 78 report of independent regist ered public accounting firm to the stockholders and the board of directors of scpharmaceuticals , inc. opinion on the financial statements we have audited the accompanying balance sheets of scpharmaceuticals , inc. ( the company ) as of december 31 , 2017 and 2016 , the related statements of operations and comprehensive loss , convertible preferred stock and stockholders ' ( deficit ) equity and cash flows for each of the three years in the period ended december 31 , 2017 , and the related notes to the financial statements ( collectively , the financial statements ) . in our opinion , the financial statements present fairly , in all material respects , the financial position of the company as of december 31 , 2017 and 2016 , and the results of its operations and its cash flows for each of the three years in the period ended december 31 , 2017 , in conformity with accounting principles generally accepted in the united states of america . basis for opinion these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on the company 's financial statements based on our audits . we are a public accounting firm registered with the public company accounting oversight board ( united states ) ( pcaob ) and are required to be independent with respect to the company in accordance with u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . we conducted our audits in accordance with the standards of the pcaob . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement , whether due to error or fraud . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . as part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . our audits included performing procedures to assess the risks of material misstatement of the financial statements , whether due to error or fraud , and performing procedures that respond to
| cash provided by operating activities for fiscal 2015 , 2014 and 2013 , was $ 194.5 million , $ 193.6 million and $ 244.4 million , respectively . during fiscal 2015 , cash from operating activities was provided primarily from net earnings of $ 181.5 million , depreciation and amortization of $ 57.0 million , non-cash charges relating to write-off of goodwill and other assets of $ 23.9 million , deferred taxes of $ 31.9 million , stock-based compensation of $ 25.3 million , non-cash interest and restructuring charges of $ 9.5 million and $ 3.3 million , respectively , were partially offset by a non-cash gain of $ 2.0 million on disposition of our equity interest in altergy and non-cash credits relating to the reversal of the remaining legal accrual of $ 16.2 million . also partially offsetting our cash provided from operating activities was the increase in primary working capital of $ 49.9 million , net of currency translation changes and our payment of $ 40.0 million towards the altergy award , pursuant to the final legal settlement of the altergy matter and accrued income tax expense of $ 15.5 million . during fiscal 2014 , cash from operating activities was provided primarily from net earnings of $ 146.7 million , depreciation and amortization of $ 54.0 million , non-cash charges relating to write-off of goodwill and other assets of $ 10.2 million , restructuring charges of $ 11.5 million , a net source of $ 25.6 million from non-cash interest expense and stock compensation , $ 90.3 million from other accrued , including the legal proceedings charge of $ 58.2 million , were partially offset by cash used
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advance payments for goods and services that will be used in future r & d activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made . although we do not expect our estimates to be materially different from amounts actually incurred , if our estimates of the status and timing of services performed differ from the actual status and timing of services performed , it could result in us reporting amounts that are too high or too low in any particular period . to date , there has been no material differences between our estimates of such expenses and the amounts actually incurred . jobs act accounting election in april 2012 , the jumpstart our business startups act of 2012 , or jobs act , was enacted . section 107 of the 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 , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected not to avail ourselves of this extended transition period and , as a result , we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies . this election is irrevocable . new accounting pronouncements from time to time , new accounting pronouncements are issued by the financial accounting standards board , or fasb , or other standard setting bodies that are adopted by us as of the specified effective date . unless otherwise discussed , we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption . a description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in note 2 to our financial statements appearing at the end of this annual report on form 10-k. 77 item 7a . quantitative and qualitati ve disclosures about market risk . we are exposed to market risks related to changes in foreign currency exchange rates and interest rates . we contract with vendors in foreign countries . as such , we have exposure to adverse changes in exchange rates of foreign currencies , principally the swiss franc and the euro , associated with our foreign transactions . we believe this exposure to be immaterial . we currently do not hedge against this exposure to fluctuations in exchange rates . our exposure to market risk also relates to interest rate sensitivity , which is affected by changes in the general level of u.s. interest rates . as of december 31 , 2017 , our aggregate outstanding indebtedness was $ 10.0 million , which bears interest at the rate equal to libor plus 8.45 % . due to the short-term duration of our indebtedness , an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our debt instruments . item 8. financial statements and supplementary data . index to financial statements page report of independent registered public accounting firm 79 financial statements : balance sheets 80 statements of operations and comprehensive loss 81 statements of convertible preferred stock and stockholders ' ( deficit ) equity 82 statements of cash flows 83 notes to financial statements 84 78 report of independent regist ered public accounting firm to the stockholders and the board of directors of scpharmaceuticals , inc. opinion on the financial statements we have audited the accompanying balance sheets of scpharmaceuticals , inc. ( the company ) as of december 31 , 2017 and 2016 , the related statements of operations and comprehensive loss , convertible preferred stock and stockholders ' ( deficit ) equity and cash flows for each of the three years in the period ended december 31 , 2017 , and the related notes to the financial statements ( collectively , the financial statements ) . in our opinion , the financial statements present fairly , in all material respects , the financial position of the company as of december 31 , 2017 and 2016 , and the results of its operations and its cash flows for each of the three years in the period ended december 31 , 2017 , in conformity with accounting principles generally accepted in the united states of america . basis for opinion these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on the company 's financial statements based on our audits . we are a public accounting firm registered with the public company accounting oversight board ( united states ) ( pcaob ) and are required to be independent with respect to the company in accordance with u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . we conducted our audits in accordance with the standards of the pcaob . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement , whether due to error or fraud . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . as part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . our audits included performing procedures to assess the risks of material misstatement of the financial statements , whether due to error or fraud , and performing procedures that respond to story_separator_special_tag advance payments for goods and services that will be used in future r & d activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made . although we do not expect our estimates to be materially different from amounts actually incurred , if our estimates of the status and timing of services performed differ from the actual status and timing of services performed , it could result in us reporting amounts that are too high or too low in any particular period . to date , there has been no material differences between our estimates of such expenses and the amounts actually incurred . jobs act accounting election in april 2012 , the jumpstart our business startups act of 2012 , or jobs act , was enacted . section 107 of the 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 , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected not to avail ourselves of this extended transition period and , as a result , we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies . this election is irrevocable . new accounting pronouncements from time to time , new accounting pronouncements are issued by the financial accounting standards board , or fasb , or other standard setting bodies that are adopted by us as of the specified effective date . unless otherwise discussed , we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption . a description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in note 2 to our financial statements appearing at the end of this annual report on form 10-k. 77 item 7a . quantitative and qualitati ve disclosures about market risk . we are exposed to market risks related to changes in foreign currency exchange rates and interest rates . we contract with vendors in foreign countries . as such , we have exposure to adverse changes in exchange rates of foreign currencies , principally the swiss franc and the euro , associated with our foreign transactions . we believe this exposure to be immaterial . we currently do not hedge against this exposure to fluctuations in exchange rates . our exposure to market risk also relates to interest rate sensitivity , which is affected by changes in the general level of u.s. interest rates . as of december 31 , 2017 , our aggregate outstanding indebtedness was $ 10.0 million , which bears interest at the rate equal to libor plus 8.45 % . due to the short-term duration of our indebtedness , an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our debt instruments . item 8. financial statements and supplementary data . index to financial statements page report of independent registered public accounting firm 79 financial statements : balance sheets 80 statements of operations and comprehensive loss 81 statements of convertible preferred stock and stockholders ' ( deficit ) equity 82 statements of cash flows 83 notes to financial statements 84 78 report of independent regist ered public accounting firm to the stockholders and the board of directors of scpharmaceuticals , inc. opinion on the financial statements we have audited the accompanying balance sheets of scpharmaceuticals , inc. ( the company ) as of december 31 , 2017 and 2016 , the related statements of operations and comprehensive loss , convertible preferred stock and stockholders ' ( deficit ) equity and cash flows for each of the three years in the period ended december 31 , 2017 , and the related notes to the financial statements ( collectively , the financial statements ) . in our opinion , the financial statements present fairly , in all material respects , the financial position of the company as of december 31 , 2017 and 2016 , and the results of its operations and its cash flows for each of the three years in the period ended december 31 , 2017 , in conformity with accounting principles generally accepted in the united states of america . basis for opinion these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on the company 's financial statements based on our audits . we are a public accounting firm registered with the public company accounting oversight board ( united states ) ( pcaob ) and are required to be independent with respect to the company in accordance with u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . we conducted our audits in accordance with the standards of the pcaob . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement , whether due to error or fraud . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . as part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . our audits included performing procedures to assess the risks of material misstatement of the financial statements , whether due to error or fraud , and performing procedures that respond to
| cash flows the following table summarizes our sources and uses of cash for each of the periods presented : replace_table_token_6_th net cash used in operating activities during the year ended december 31 , 2017 , net cash used in operating activities was $ 22.7 million , consisting primarily of a net loss of $ 23.8 million . this was offset by non-cash charges of $ 1.1 million . the non-cash charges primarily consisted of depreciation , stock-based compensation expense and non-cash interest expense related to amortization of debt discount associated with the 2017 loan agreement . during the year ended december 31 , 2016 , net cash used in operating activities was $ 15.5 million , consisting primarily of a net loss of $ 24.4 million , offset by a decrease in net operating assets of $ 1.5 million and non-cash charges of $ 7.4 million . the decrease in net operating assets primarily consisted of increased accruals for pharmaceutical development and accounts payable for clinical trials , device engineering costs , the expansion of our commercial organization , and legal costs associated with our series b preferred stock financing . the non-cash charges primarily consisted of depreciation , stock-based compensation expense and non-cash interest expense related to convertible notes payable . during the year ended december 31 , 2015 , net cash used in operating activities was $ 9.6 million , consisting primarily of a net loss of $ 10.5 million , offset by a decrease in net operating assets of $ 0.9 million .
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in 2009 , 2010 , and 2011 , we recognized additional gains of $ 0.2 million , $ 0.3 million , and $ 0.2 million , respectively , which were recorded in cost of revenue . we will continue to record additional gain in the future contingent upon attainment of certain earnout provisions . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . the policies discussed below are considered by management to be critical because changes in such estimates can materially affect the amount of our reported net income or loss . for all of these policies , management cautions that actual results may differ materially from these estimates under different assumptions or conditions . revenue recognition we recognize revenue when the earnings process is complete . we recognize product revenue upon shipment of product under contractual terms which transfer title to customers upon shipment , under normal credit terms , net of estimated sales returns and allowances at the time of shipment . revenue is deferred if there are significant post-delivery obligations or if the fees are not fixed or determinable . when significant post-delivery obligations exist , revenue is deferred until such obligations are fulfilled . our arrangements generally do not have any significant post-delivery obligations . if our arrangements include customer acceptance provisions , revenue is recognized upon obtaining the signed acceptance certificate from the customer , unless we can objectively demonstrate that the delivered products or services meet all the acceptance criteria specified in the arrangement prior to obtaining the signed acceptance . in those instances where revenue is recognized prior to obtaining the signed acceptance certificate , we use successful completion of customer testing as the basis to objectively demonstrate that the delivered products or services meet all the acceptance criteria specified in the arrangement . we also consider historical acceptance experience with the customer , as well as the payment terms specified in the arrangement , when revenue is recognized prior to obtaining the signed acceptance certificate . when collectability is not reasonably assured , revenue is recognized when cash is collected . we make certain sales to product distributors . these customers are given certain privileges to return a portion of inventory . return privileges generally allow distributors to return inventory based on a percent of purchases made within a specific period of time . we recognize revenue on sales to distributors that have contractual return rights when the products have been sold by the distributors , unless there is sufficient customer specific sales and sales returns history to support revenue recognition upon shipment . in those instances when revenue is recognized upon shipment to distributors , we use historical rates of return from the distributors to provide for estimated product returns . we accrue for warranty costs , sales returns and other allowances at the time of shipment based on historical experience and expected future costs . in october 2009 , the financial accounting standards board , or fasb , amended the accounting standards for multiple deliverable revenue arrangements to : ( i ) provide updated guidance on whether multiple deliverables exist , how the deliverables in an arrangement should be separated , and how the consideration should be allocated ; ( ii ) require an entity to allocate revenue in an arrangement using a best estimate of selling prices , or bsp , for deliverables if a vendor does not have vendor-specific objective evidence of selling price , or vsoe , or third-party evidence of selling price , or tpe ; and ( iii ) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method . 28 we adopted the updated accounting standards on january 1 , 2011 on a prospective basis for applicable transactions originating or materially modified after december 31 , 2010. this guidance does not change the units of accounting for revenue transactions . our products and services qualify as separate units of accounting and are deemed to be non-contingent deliverables as our arrangements typically do not have any significant performance , cancellation , termination and refund type provisions . products are typically considered delivered upon shipment . revenue from services is recognized ratably over the period during which the services are to be performed . prior to the adoption of accounting standards update , or asu , 2009-13 , revenue recognition ( topic 605 ) : multiple-deliverable revenue arrangements , we established the fair value or tpe of services in multiple-element arrangements based primarily on sales prices when the products and services were sold separately . as such , we applied the residual method to allocate the arrangement fee between products and services . in limited circumstances , if fair value could not be established for undelivered elements , all of the revenue under the arrangement was deferred until those elements were delivered . upon adoption of asu 2009-13 , on january 1 , 2011 , we allocated revenue to products and services in such arrangements using the relative selling price method to recognize revenue when the basic revenue recognition criteria for each deliverable are met . we derive revenue primarily from stand-alone sales of our products . in certain cases , our products are sold along with services , which include education , training , installation , and or extended warranty services . we have established tpe for our training , education and installation services . story_separator_special_tag after determining there were indicators of impairment , we proceeded to test for impairment and concluded that an impairment charge was required . the impairment charges were incurred to write-down the value of our fixed assets to fair value , as discussed in note 4 of the consolidated financial statements . there were no similar impairment charges incurred in 2010. interest expense interest expense for 2011 decreased by $ 1.0 million to zero compared to $ 1.0 million in 2010 , primarily due to a decrease in outstanding debt balances and continued low interest rates during 2011. this includes the effect of our september 2010 extinguishment of debt associated with the sale of our oakland , california campus as discussed in note 7 of the consolidated financial statements . interest income interest income for 2011 remained consistent with 2010 due to low average balances of cash and cash equivalents and the continued low interest rates during 2011. other income other income for 2011 increased by $ 0.1 million to $ 0.1 million compared to zero in 2010 due to an increased foreign exchange gain from prior period . 34 income tax provision during the years ended december 31 , 2011 and 2010 , we recorded an income tax provision of $ 0.1 million and an income tax benefit of $ 0.1 million , respectively , related to foreign and state taxes . no material provision or benefit for income taxes was recorded in 2011 and 2010 , due to our recurring operating losses and the significant uncertainty regarding the realization of our net deferred tax assets , against which we have continued to record a full valuation allowance . 2010 compared with 2009 net revenue information about our net revenue for products and services for 2010 and 2009 is summarized below ( in millions ) : replace_table_token_6_th information about our net revenue for north america and international markets for 2010 and 2009 is summarized below ( in millions ) : replace_table_token_7_th net revenue increased 2 % or $ 2.5 million to $ 129.0 million for 2010 compared to $ 126.5 million for 2009. the increase in net revenue was primarily attributable to an increase in product revenue , which in 2010 increased 3 % or $ 3.7 million compared to 2009. the increase was primarily due to increased sales in our slms product portfolio related to the continued success of our mxk product launch . service revenue decreased 21 % or $ 1.2 million compared to 2009 , primarily due to a decrease in gross sales accompanied by the timing of services performed and revenue earned . service revenue represents revenue from maintenance and other services associated with product shipments . international net revenue increased 11 % or $ 7.9 million to $ 78.8 million in 2010 and represented 61 % of total net revenue compared with 56 % in 2009. the increase in international net revenue was primarily due to higher demand in latin america as a result of recent growth in demand for our products . in addition to the growth experienced in latin america , we experienced continued growth associated with one customer in the middle east ( etisalat ) that accounted for 24 % of net revenue in 2010. the increase in international net revenue was partially offset by a decrease in domestic net revenue of 10 % or $ 5.4 million to $ 50.2 million in 2010 compared to $ 55.6 million in 2009. the decrease was primarily the result of the continued weak economic conditions in the united states during 2010 . 35 etisalat accounted for 24 % and 19 % of net revenue in 2010 and 2009 , respectively . cost of revenue and gross profit total cost of revenue , including stock-based compensation , decreased $ 1.2 million or 2 % to $ 79.9 million for 2010 , compared to $ 81.1 million for 2009. total cost of revenue was 62 % of net revenue for 2010 , compared to 64 % of net revenue for 2009 , which resulted in an increase in gross profit percentage from 36 % in 2009 to 38 % in 2010. the gross margin increased as compared with prior periods primarily due to increased sales volume and the reduction in cost of revenue for the period resulting from greater sales of products with higher gross margin , such as our mxk products . research and product development expenses research and product development expenses decreased 4 % or $ 0.9 million to $ 21.2 million for 2010 compared to $ 22.1 million for 2009. the decrease was primarily due to a reduction in non-personnel expenses resulting from the introduction of our mxk product to the market mid-year 2009 causing a decrease in prototype and rework expenses of $ 0.7 million in 2010. sales and marketing expenses sales and marketing expenses increased 9 % or $ 2.0 million to $ 24.0 million for 2010 compared to $ 22.0 million for 2009. the increase was primarily attributable to increases in marketing expenses of $ 1.3 million as we continue to grow our brand awareness which included increases of $ 0.5 million in personnel-related costs and $ 0.8 million in non-personnel costs . in addition , overall sales and customer service expenses increased $ 0.7 million compared to 2009 , mainly due to increased personnel-related expenses , including $ 0.3 million of additional headcount expenses incurred to support operations in the middle east . general and administrative expenses general and administrative expenses remained flat at $ 9.9 million for both 2010 and 2009. there were continued reductions made in personnel-related costs of $ 0.3 million in 2010 compared to 2009 and $ 0.4 million in cost savings related to decreased property taxes resulting from our september 2010 sale of the oakland , california campus . these decreases were offset by a $ 0.2 million increase in software maintenance expenses , and $ 0.5 million increase in other miscellaneous expenses .
| cash flows the following table summarizes our sources and uses of cash for each of the periods presented : replace_table_token_6_th net cash used in operating activities during the year ended december 31 , 2017 , net cash used in operating activities was $ 22.7 million , consisting primarily of a net loss of $ 23.8 million . this was offset by non-cash charges of $ 1.1 million . the non-cash charges primarily consisted of depreciation , stock-based compensation expense and non-cash interest expense related to amortization of debt discount associated with the 2017 loan agreement . during the year ended december 31 , 2016 , net cash used in operating activities was $ 15.5 million , consisting primarily of a net loss of $ 24.4 million , offset by a decrease in net operating assets of $ 1.5 million and non-cash charges of $ 7.4 million . the decrease in net operating assets primarily consisted of increased accruals for pharmaceutical development and accounts payable for clinical trials , device engineering costs , the expansion of our commercial organization , and legal costs associated with our series b preferred stock financing . the non-cash charges primarily consisted of depreciation , stock-based compensation expense and non-cash interest expense related to convertible notes payable . during the year ended december 31 , 2015 , net cash used in operating activities was $ 9.6 million , consisting primarily of a net loss of $ 10.5 million , offset by a decrease in net operating assets of $ 0.9 million .
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in 2009 , 2010 , and 2011 , we recognized additional gains of $ 0.2 million , $ 0.3 million , and $ 0.2 million , respectively , which were recorded in cost of revenue . we will continue to record additional gain in the future contingent upon attainment of certain earnout provisions . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . the policies discussed below are considered by management to be critical because changes in such estimates can materially affect the amount of our reported net income or loss . for all of these policies , management cautions that actual results may differ materially from these estimates under different assumptions or conditions . revenue recognition we recognize revenue when the earnings process is complete . we recognize product revenue upon shipment of product under contractual terms which transfer title to customers upon shipment , under normal credit terms , net of estimated sales returns and allowances at the time of shipment . revenue is deferred if there are significant post-delivery obligations or if the fees are not fixed or determinable . when significant post-delivery obligations exist , revenue is deferred until such obligations are fulfilled . our arrangements generally do not have any significant post-delivery obligations . if our arrangements include customer acceptance provisions , revenue is recognized upon obtaining the signed acceptance certificate from the customer , unless we can objectively demonstrate that the delivered products or services meet all the acceptance criteria specified in the arrangement prior to obtaining the signed acceptance . in those instances where revenue is recognized prior to obtaining the signed acceptance certificate , we use successful completion of customer testing as the basis to objectively demonstrate that the delivered products or services meet all the acceptance criteria specified in the arrangement . we also consider historical acceptance experience with the customer , as well as the payment terms specified in the arrangement , when revenue is recognized prior to obtaining the signed acceptance certificate . when collectability is not reasonably assured , revenue is recognized when cash is collected . we make certain sales to product distributors . these customers are given certain privileges to return a portion of inventory . return privileges generally allow distributors to return inventory based on a percent of purchases made within a specific period of time . we recognize revenue on sales to distributors that have contractual return rights when the products have been sold by the distributors , unless there is sufficient customer specific sales and sales returns history to support revenue recognition upon shipment . in those instances when revenue is recognized upon shipment to distributors , we use historical rates of return from the distributors to provide for estimated product returns . we accrue for warranty costs , sales returns and other allowances at the time of shipment based on historical experience and expected future costs . in october 2009 , the financial accounting standards board , or fasb , amended the accounting standards for multiple deliverable revenue arrangements to : ( i ) provide updated guidance on whether multiple deliverables exist , how the deliverables in an arrangement should be separated , and how the consideration should be allocated ; ( ii ) require an entity to allocate revenue in an arrangement using a best estimate of selling prices , or bsp , for deliverables if a vendor does not have vendor-specific objective evidence of selling price , or vsoe , or third-party evidence of selling price , or tpe ; and ( iii ) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method . 28 we adopted the updated accounting standards on january 1 , 2011 on a prospective basis for applicable transactions originating or materially modified after december 31 , 2010. this guidance does not change the units of accounting for revenue transactions . our products and services qualify as separate units of accounting and are deemed to be non-contingent deliverables as our arrangements typically do not have any significant performance , cancellation , termination and refund type provisions . products are typically considered delivered upon shipment . revenue from services is recognized ratably over the period during which the services are to be performed . prior to the adoption of accounting standards update , or asu , 2009-13 , revenue recognition ( topic 605 ) : multiple-deliverable revenue arrangements , we established the fair value or tpe of services in multiple-element arrangements based primarily on sales prices when the products and services were sold separately . as such , we applied the residual method to allocate the arrangement fee between products and services . in limited circumstances , if fair value could not be established for undelivered elements , all of the revenue under the arrangement was deferred until those elements were delivered . upon adoption of asu 2009-13 , on january 1 , 2011 , we allocated revenue to products and services in such arrangements using the relative selling price method to recognize revenue when the basic revenue recognition criteria for each deliverable are met . we derive revenue primarily from stand-alone sales of our products . in certain cases , our products are sold along with services , which include education , training , installation , and or extended warranty services . we have established tpe for our training , education and installation services . story_separator_special_tag after determining there were indicators of impairment , we proceeded to test for impairment and concluded that an impairment charge was required . the impairment charges were incurred to write-down the value of our fixed assets to fair value , as discussed in note 4 of the consolidated financial statements . there were no similar impairment charges incurred in 2010. interest expense interest expense for 2011 decreased by $ 1.0 million to zero compared to $ 1.0 million in 2010 , primarily due to a decrease in outstanding debt balances and continued low interest rates during 2011. this includes the effect of our september 2010 extinguishment of debt associated with the sale of our oakland , california campus as discussed in note 7 of the consolidated financial statements . interest income interest income for 2011 remained consistent with 2010 due to low average balances of cash and cash equivalents and the continued low interest rates during 2011. other income other income for 2011 increased by $ 0.1 million to $ 0.1 million compared to zero in 2010 due to an increased foreign exchange gain from prior period . 34 income tax provision during the years ended december 31 , 2011 and 2010 , we recorded an income tax provision of $ 0.1 million and an income tax benefit of $ 0.1 million , respectively , related to foreign and state taxes . no material provision or benefit for income taxes was recorded in 2011 and 2010 , due to our recurring operating losses and the significant uncertainty regarding the realization of our net deferred tax assets , against which we have continued to record a full valuation allowance . 2010 compared with 2009 net revenue information about our net revenue for products and services for 2010 and 2009 is summarized below ( in millions ) : replace_table_token_6_th information about our net revenue for north america and international markets for 2010 and 2009 is summarized below ( in millions ) : replace_table_token_7_th net revenue increased 2 % or $ 2.5 million to $ 129.0 million for 2010 compared to $ 126.5 million for 2009. the increase in net revenue was primarily attributable to an increase in product revenue , which in 2010 increased 3 % or $ 3.7 million compared to 2009. the increase was primarily due to increased sales in our slms product portfolio related to the continued success of our mxk product launch . service revenue decreased 21 % or $ 1.2 million compared to 2009 , primarily due to a decrease in gross sales accompanied by the timing of services performed and revenue earned . service revenue represents revenue from maintenance and other services associated with product shipments . international net revenue increased 11 % or $ 7.9 million to $ 78.8 million in 2010 and represented 61 % of total net revenue compared with 56 % in 2009. the increase in international net revenue was primarily due to higher demand in latin america as a result of recent growth in demand for our products . in addition to the growth experienced in latin america , we experienced continued growth associated with one customer in the middle east ( etisalat ) that accounted for 24 % of net revenue in 2010. the increase in international net revenue was partially offset by a decrease in domestic net revenue of 10 % or $ 5.4 million to $ 50.2 million in 2010 compared to $ 55.6 million in 2009. the decrease was primarily the result of the continued weak economic conditions in the united states during 2010 . 35 etisalat accounted for 24 % and 19 % of net revenue in 2010 and 2009 , respectively . cost of revenue and gross profit total cost of revenue , including stock-based compensation , decreased $ 1.2 million or 2 % to $ 79.9 million for 2010 , compared to $ 81.1 million for 2009. total cost of revenue was 62 % of net revenue for 2010 , compared to 64 % of net revenue for 2009 , which resulted in an increase in gross profit percentage from 36 % in 2009 to 38 % in 2010. the gross margin increased as compared with prior periods primarily due to increased sales volume and the reduction in cost of revenue for the period resulting from greater sales of products with higher gross margin , such as our mxk products . research and product development expenses research and product development expenses decreased 4 % or $ 0.9 million to $ 21.2 million for 2010 compared to $ 22.1 million for 2009. the decrease was primarily due to a reduction in non-personnel expenses resulting from the introduction of our mxk product to the market mid-year 2009 causing a decrease in prototype and rework expenses of $ 0.7 million in 2010. sales and marketing expenses sales and marketing expenses increased 9 % or $ 2.0 million to $ 24.0 million for 2010 compared to $ 22.0 million for 2009. the increase was primarily attributable to increases in marketing expenses of $ 1.3 million as we continue to grow our brand awareness which included increases of $ 0.5 million in personnel-related costs and $ 0.8 million in non-personnel costs . in addition , overall sales and customer service expenses increased $ 0.7 million compared to 2009 , mainly due to increased personnel-related expenses , including $ 0.3 million of additional headcount expenses incurred to support operations in the middle east . general and administrative expenses general and administrative expenses remained flat at $ 9.9 million for both 2010 and 2009. there were continued reductions made in personnel-related costs of $ 0.3 million in 2010 compared to 2009 and $ 0.4 million in cost savings related to decreased property taxes resulting from our september 2010 sale of the oakland , california campus . these decreases were offset by a $ 0.2 million increase in software maintenance expenses , and $ 0.5 million increase in other miscellaneous expenses .
| liquidity and capital resources our operations are financed through a combination of our existing cash , cash equivalents , available credit facilities , and sales of equity and debt instruments , based on our operating requirements and market conditions . at december 31 , 2011 , cash and cash equivalents were $ 18.2 million compared to $ 21.2 million at december 31 , 2010. the decrease in cash and cash equivalents of $ 3.0 million was attributable to net cash used in operating activities and investing activities of $ 6.8 million and $ 1.4 million , respectively , offset by net cash provided by financing activities of $ 5.2 million . operating activities for fiscal year 2011 , net cash used in operating activities consisted of a net loss of $ 11.7 million , adjusted for non-cash charges totaling $ 9.6 million and an increase in operating assets totaling $ 4.7 million . the most significant components of the changes in net operating assets were an increase in accounts receivable of $ 3.8 million and a decrease in accrued and other liabilities of $ 4.4 million , partially offset by a decrease in inventories of $ 3.7 million . the increase in accounts receivable related to the timing of cash collections . the main driver for the decrease in accrued and other liabilities related to a decrease of $ 1.9 million related to payments made under the largo lease liability , as well as , a non-cash decrease of $ 0.8 million due to the continued amortization of our deferred gain and leasehold improvement liabilities in connection with our oakland campus . lastly , the decrease in inventories was primarily due to better utilization of inventory during 2011. for fiscal year 2010 , net cash provided by operating activities consisted of a net loss of $ 4.8 million , adjusted for non-cash charges totaling $ 2.7 million and a decrease in operating assets totaling $ 4.2 million . the most significant components of the changes in net operating assets were a decrease in accounts receivable of $ 6.6 million partially offset by a decrease in accounts payable of $ 3.1 million .
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29 ageagle 's key growth objectives are centered on three primary areas of focus : 1 ) ag solutions : leveraging our reputation as one of the leading technology solutions providers to the agriculture industry to increase market share through delivery of best-in-class drones , sensors and data analytics for hemp and other commercial crops ; 2 ) drone manufacturing : establishing ageagle as the dominant commercial drone design , engineering , manufacturing , assembly and testing company in the united states ; and 3 ) drone solutions : establishing the company as one of the industry 's leading american-made trusted source for turnkey , end-to-end , tailored drone solutions to the world . we intend to grow our business by preserving a leadership position in our core ag solutions business ; providing quality contract manufacturing , assembly and testing services ; and innovating new customer-focused drone systems and solutions to capture significant share of the broader commercial drone market . in addition , we expect to accelerate our growth and expansion through strategic acquisitions of drone-related companies offering distinct technological and competitive advantages and have defensible ip protection in place , if applicable . key growth strategies we intend to grow our business by achieving greater market penetration of the growing precision agriculture marketplace ; by promoting our new service targeting the sustainable agriculture marketplace for the 2021 growing season ; and by creating new , easier to use and higher value products that position ageagle as a leading innovator and trusted solutions provider in high growth markets where advanced aerial imaging and data capture and analytics technologies can be used to achieve specific business and sustainability objectives . currently , our management is actively exploring new vertical expansion opportunities in other industries outside of agriculture and its related areas , including drone-enabled package delivery . in addition to drone package deliveries , we believe that our solutions and services may also be well suited for use in decontamination , mapping and surveying , mining/resource exploration , insurance inspection and infrastructure/asset inspection , among other industrial applications . key components of our growth strategy include the following : ● achieving greater market penetration of the u.s. industrial hemp industry by working to establish hempoverview and other related products and services as the gold industry standard for hemp cultivation oversight , compliance , enforcement and commerce . ageagle is – and intends to remain – at the leading edge of leveraging best-in-class technology to provide turnkey solutions for state and tribal regulatory departments of agriculture , industrial hemp and hemp-derived cbd growers and processors . at this time , ageagle believes that it is the only company in the nation with extensive experience in agriculture that is effectively addressing the emerging needs and challenges of the domestic hemp cultivation industry through the application of advanced technology – a key competitive differential that the company hopes to continue capitalizing on in the coming year . ● deliver new and innovative solutions . ageagle 's research and development efforts are the foundation of the company , and we intend to continue investing in our own innovations , pioneering new and enhanced products and solutions that enable us to satisfy the company 's customers – both in response to and in anticipation of their needs . ageagle believes that by investing in research and development , the company can be a leader in delivering innovative drone systems and solutions that address market needs within our current target markets , enabling us to create new opportunities for growth . ● continue to expand the ageagle platform of drone systems and solutions into other industries beyond agriculture and commercial package delivery . the company is actively pursuing opportunities outside of agriculture as we continue to expand and grow the ageagle platform . we are confident in the uav systems , services and solutions we offer today and believe that these systems , services and solutions could provide other drone industry sectors the same kind of optimization we are currently providing the agriculture industry . expansion initiatives include the provision of quality contract manufacturing , design and engineering , assembly and testing of advanced drones and drone-related equipment , as well as turnkey drone solutions for the broader drone market . 30 ● growth through acquisition . through successful execution of our growth-through-acquisition strategies , we intend to acquire technologically-advanced drone-related companies and intellectual property that complement and strengthen our value proposition to the market . we believe that by investing in complementary acquisitions , we can accelerate our revenue growth and deliver a broader array of innovative drone systems and solutions that address specialized market needs within our current target markets and in emerging drone industry sectors . competitive strengths ageagle believes the following attributes and capabilities provide us with long-term competitive advantages : ● proprietary technologies , in-house capabilities and industry experience - we believe our decade of experience in commercial drone design and engineering ; in-house manufacturing , assembly and testing capabilities ; and advanced technology development skillset serve to differentiate ageagle in the marketplace . as of today , we develop and manufacture all the drone systems and solutions we produce in the united states , which allows us to avoid many of the potential difficulties that could arise if our engineering and manufacturing operations were otherwise located outside of the country . in addition , ageagle is committed to meeting and exceeding quality and safety standards for manufacturing , assembly , design and engineering and testing of drones , drone subcomponents and related drone equipment in our wichita-based manufacturing operations . story_separator_special_tag 34 during the year ended december 31 , 2020 , cost of sales totaled $ 711,650 , a $ 509,601 , or 252 % , increase when compared to $ 202,049 in the year ended december 31 , 2019. we had a gross profit of $ 573,733 , or 45 % gross profit margin , during the year ended december 31 , 2020 compared to $ 94,628 , or 32 % gross profit margin , for the year ended december 31 , 2019. the primary factors contributing to the increase in our cost of sales and gross profit margin was due to the continued shift in mix of products and services we now offer customers in the new markets we serve that have resulted in higher margin for our sales . we recorded total operating expenses of $ 5,505,040 during 2020 , a 110 % increase as compared to operating expenses of $ 2,616,821 in the same period of 2019. our operating expenses are comprised of general and administrative expenses , professional fees , and selling expenses . general and administrative expenses totaled $ 2,732,274 in 2020 compared to $ 1,850,225 in 2019 , an increase of 48 % . the increase was primarily due to recruiting fees associated with the search for new ceo , costs for public relations services , payments to directors as compensation fees , additional payroll and bonus payments associated with new hires and existing employees , stock compensation expenses , and added annual shareholder meeting costs . professional fees also increased 308 % as we had $ 2,703,371 of expenses for the current period versus $ 662,633 in the comparable prior period . the increase was mainly due to additional consulting service fees related to additional operational and business development consultants required to expand our growth opportunities , fractional cto services , along with incremental legal expenses mainly associated with our capital raising activities and an estimated contingent liability accrual associated with a consultant agreement . also included in operating expenses was selling costs that decreased 38 % to $ 40,003 versus $ 65,015 in the prior year 's comparable period due to less travel and conference expenses for the purposes of new business development as a result of covid-19 . lastly , we recorded $ 29,392 and $ 38,498 related to research and development expenses during the years ended december 31 , 2020 and 2019 , respectively . other income ( expenses ) for the year ended december 31 , 2020 was ( $ 594 ) as we recorded a loss on disposal of fixed assets due to our moving to wichita . there was no other income ( expenses ) recorded for the comparable period during 2019. interest expense for the year ended december 31 , 2020 was $ 549 related to the paycheck protection plan ( ppp ) loan as compared to $ 501 in the prior year related to a promissory note that was repaid in march 2019. our net loss was $ 4,932,450 in 2020. this represents a $ 2,409,756 increase over our net loss of $ 2,522,694 in 2019. overall , the increase in net loss is due to greater operating costs which includes additional general and administrative costs along with added professional expenses as a result of the shift in our sales and long-term growth strategies that required increase business development resources , offset by approximately $ 163,000 charge of a goodwill impairment that occurred in 2019. we are in the process of continuing to address these shifts by developing new platforms , products and services that support prevailing growth opportunities in domestic industrial hemp and sustainable agriculture and growing our drone-enabled package delivery business . for the year ended december 31 , 2020 and 2019 , our net loss available to common stockholders was $ 14,043,777 and $ 2,684,916 , respectively an increase of $ 11,358,861. the increase is due to non-cash charges stemming from required deemed dividend accounting for modifications to certain preferred stock , redemption of preferred stock and the trigger of down round provisions on certain preferred stock and warrants . story_separator_special_tag text-align : justify ; text-indent : 0.5in `` > the company has continued to realize losses from operations . however , as a result of our capital raise efforts , we believe we will have sufficient cash to meet our anticipated operating costs and capital expenditure requirements through december 2022. our primary need for liquidity is to fund working capital requirements of our business , capital expenditures , acquisitions , debt service , and for general corporate purposes . our primary source of liquidity is funds generated by financing activities and from private placements . our ability to fund our operations , to make planned capital expenditures , to make planned acquisitions , to make scheduled debt payments , and to repay or refinance indebtedness depends on our future operating performance and cash flows , which are subject to prevailing economic conditions and financial , business and other factors , some of which are beyond our control . if the company is unable to generate significant sales growth in the near term and raise additional capital , there is a risk that the company could default on additional obligations ; and could be required to discontinue or significantly reduce the scope of its operations if no other means of financing operations are available . the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the company be unable to continue as a going concern . off-balance sheet arrangements on december 31 , 2020 , we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenue or expenses , results of operations , liquidity , capital
| liquidity and capital resources our operations are financed through a combination of our existing cash , cash equivalents , available credit facilities , and sales of equity and debt instruments , based on our operating requirements and market conditions . at december 31 , 2011 , cash and cash equivalents were $ 18.2 million compared to $ 21.2 million at december 31 , 2010. the decrease in cash and cash equivalents of $ 3.0 million was attributable to net cash used in operating activities and investing activities of $ 6.8 million and $ 1.4 million , respectively , offset by net cash provided by financing activities of $ 5.2 million . operating activities for fiscal year 2011 , net cash used in operating activities consisted of a net loss of $ 11.7 million , adjusted for non-cash charges totaling $ 9.6 million and an increase in operating assets totaling $ 4.7 million . the most significant components of the changes in net operating assets were an increase in accounts receivable of $ 3.8 million and a decrease in accrued and other liabilities of $ 4.4 million , partially offset by a decrease in inventories of $ 3.7 million . the increase in accounts receivable related to the timing of cash collections . the main driver for the decrease in accrued and other liabilities related to a decrease of $ 1.9 million related to payments made under the largo lease liability , as well as , a non-cash decrease of $ 0.8 million due to the continued amortization of our deferred gain and leasehold improvement liabilities in connection with our oakland campus . lastly , the decrease in inventories was primarily due to better utilization of inventory during 2011. for fiscal year 2010 , net cash provided by operating activities consisted of a net loss of $ 4.8 million , adjusted for non-cash charges totaling $ 2.7 million and a decrease in operating assets totaling $ 4.2 million . the most significant components of the changes in net operating assets were a decrease in accounts receivable of $ 6.6 million partially offset by a decrease in accounts payable of $ 3.1 million .
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29 ageagle 's key growth objectives are centered on three primary areas of focus : 1 ) ag solutions : leveraging our reputation as one of the leading technology solutions providers to the agriculture industry to increase market share through delivery of best-in-class drones , sensors and data analytics for hemp and other commercial crops ; 2 ) drone manufacturing : establishing ageagle as the dominant commercial drone design , engineering , manufacturing , assembly and testing company in the united states ; and 3 ) drone solutions : establishing the company as one of the industry 's leading american-made trusted source for turnkey , end-to-end , tailored drone solutions to the world . we intend to grow our business by preserving a leadership position in our core ag solutions business ; providing quality contract manufacturing , assembly and testing services ; and innovating new customer-focused drone systems and solutions to capture significant share of the broader commercial drone market . in addition , we expect to accelerate our growth and expansion through strategic acquisitions of drone-related companies offering distinct technological and competitive advantages and have defensible ip protection in place , if applicable . key growth strategies we intend to grow our business by achieving greater market penetration of the growing precision agriculture marketplace ; by promoting our new service targeting the sustainable agriculture marketplace for the 2021 growing season ; and by creating new , easier to use and higher value products that position ageagle as a leading innovator and trusted solutions provider in high growth markets where advanced aerial imaging and data capture and analytics technologies can be used to achieve specific business and sustainability objectives . currently , our management is actively exploring new vertical expansion opportunities in other industries outside of agriculture and its related areas , including drone-enabled package delivery . in addition to drone package deliveries , we believe that our solutions and services may also be well suited for use in decontamination , mapping and surveying , mining/resource exploration , insurance inspection and infrastructure/asset inspection , among other industrial applications . key components of our growth strategy include the following : ● achieving greater market penetration of the u.s. industrial hemp industry by working to establish hempoverview and other related products and services as the gold industry standard for hemp cultivation oversight , compliance , enforcement and commerce . ageagle is – and intends to remain – at the leading edge of leveraging best-in-class technology to provide turnkey solutions for state and tribal regulatory departments of agriculture , industrial hemp and hemp-derived cbd growers and processors . at this time , ageagle believes that it is the only company in the nation with extensive experience in agriculture that is effectively addressing the emerging needs and challenges of the domestic hemp cultivation industry through the application of advanced technology – a key competitive differential that the company hopes to continue capitalizing on in the coming year . ● deliver new and innovative solutions . ageagle 's research and development efforts are the foundation of the company , and we intend to continue investing in our own innovations , pioneering new and enhanced products and solutions that enable us to satisfy the company 's customers – both in response to and in anticipation of their needs . ageagle believes that by investing in research and development , the company can be a leader in delivering innovative drone systems and solutions that address market needs within our current target markets , enabling us to create new opportunities for growth . ● continue to expand the ageagle platform of drone systems and solutions into other industries beyond agriculture and commercial package delivery . the company is actively pursuing opportunities outside of agriculture as we continue to expand and grow the ageagle platform . we are confident in the uav systems , services and solutions we offer today and believe that these systems , services and solutions could provide other drone industry sectors the same kind of optimization we are currently providing the agriculture industry . expansion initiatives include the provision of quality contract manufacturing , design and engineering , assembly and testing of advanced drones and drone-related equipment , as well as turnkey drone solutions for the broader drone market . 30 ● growth through acquisition . through successful execution of our growth-through-acquisition strategies , we intend to acquire technologically-advanced drone-related companies and intellectual property that complement and strengthen our value proposition to the market . we believe that by investing in complementary acquisitions , we can accelerate our revenue growth and deliver a broader array of innovative drone systems and solutions that address specialized market needs within our current target markets and in emerging drone industry sectors . competitive strengths ageagle believes the following attributes and capabilities provide us with long-term competitive advantages : ● proprietary technologies , in-house capabilities and industry experience - we believe our decade of experience in commercial drone design and engineering ; in-house manufacturing , assembly and testing capabilities ; and advanced technology development skillset serve to differentiate ageagle in the marketplace . as of today , we develop and manufacture all the drone systems and solutions we produce in the united states , which allows us to avoid many of the potential difficulties that could arise if our engineering and manufacturing operations were otherwise located outside of the country . in addition , ageagle is committed to meeting and exceeding quality and safety standards for manufacturing , assembly , design and engineering and testing of drones , drone subcomponents and related drone equipment in our wichita-based manufacturing operations . story_separator_special_tag 34 during the year ended december 31 , 2020 , cost of sales totaled $ 711,650 , a $ 509,601 , or 252 % , increase when compared to $ 202,049 in the year ended december 31 , 2019. we had a gross profit of $ 573,733 , or 45 % gross profit margin , during the year ended december 31 , 2020 compared to $ 94,628 , or 32 % gross profit margin , for the year ended december 31 , 2019. the primary factors contributing to the increase in our cost of sales and gross profit margin was due to the continued shift in mix of products and services we now offer customers in the new markets we serve that have resulted in higher margin for our sales . we recorded total operating expenses of $ 5,505,040 during 2020 , a 110 % increase as compared to operating expenses of $ 2,616,821 in the same period of 2019. our operating expenses are comprised of general and administrative expenses , professional fees , and selling expenses . general and administrative expenses totaled $ 2,732,274 in 2020 compared to $ 1,850,225 in 2019 , an increase of 48 % . the increase was primarily due to recruiting fees associated with the search for new ceo , costs for public relations services , payments to directors as compensation fees , additional payroll and bonus payments associated with new hires and existing employees , stock compensation expenses , and added annual shareholder meeting costs . professional fees also increased 308 % as we had $ 2,703,371 of expenses for the current period versus $ 662,633 in the comparable prior period . the increase was mainly due to additional consulting service fees related to additional operational and business development consultants required to expand our growth opportunities , fractional cto services , along with incremental legal expenses mainly associated with our capital raising activities and an estimated contingent liability accrual associated with a consultant agreement . also included in operating expenses was selling costs that decreased 38 % to $ 40,003 versus $ 65,015 in the prior year 's comparable period due to less travel and conference expenses for the purposes of new business development as a result of covid-19 . lastly , we recorded $ 29,392 and $ 38,498 related to research and development expenses during the years ended december 31 , 2020 and 2019 , respectively . other income ( expenses ) for the year ended december 31 , 2020 was ( $ 594 ) as we recorded a loss on disposal of fixed assets due to our moving to wichita . there was no other income ( expenses ) recorded for the comparable period during 2019. interest expense for the year ended december 31 , 2020 was $ 549 related to the paycheck protection plan ( ppp ) loan as compared to $ 501 in the prior year related to a promissory note that was repaid in march 2019. our net loss was $ 4,932,450 in 2020. this represents a $ 2,409,756 increase over our net loss of $ 2,522,694 in 2019. overall , the increase in net loss is due to greater operating costs which includes additional general and administrative costs along with added professional expenses as a result of the shift in our sales and long-term growth strategies that required increase business development resources , offset by approximately $ 163,000 charge of a goodwill impairment that occurred in 2019. we are in the process of continuing to address these shifts by developing new platforms , products and services that support prevailing growth opportunities in domestic industrial hemp and sustainable agriculture and growing our drone-enabled package delivery business . for the year ended december 31 , 2020 and 2019 , our net loss available to common stockholders was $ 14,043,777 and $ 2,684,916 , respectively an increase of $ 11,358,861. the increase is due to non-cash charges stemming from required deemed dividend accounting for modifications to certain preferred stock , redemption of preferred stock and the trigger of down round provisions on certain preferred stock and warrants . story_separator_special_tag text-align : justify ; text-indent : 0.5in `` > the company has continued to realize losses from operations . however , as a result of our capital raise efforts , we believe we will have sufficient cash to meet our anticipated operating costs and capital expenditure requirements through december 2022. our primary need for liquidity is to fund working capital requirements of our business , capital expenditures , acquisitions , debt service , and for general corporate purposes . our primary source of liquidity is funds generated by financing activities and from private placements . our ability to fund our operations , to make planned capital expenditures , to make planned acquisitions , to make scheduled debt payments , and to repay or refinance indebtedness depends on our future operating performance and cash flows , which are subject to prevailing economic conditions and financial , business and other factors , some of which are beyond our control . if the company is unable to generate significant sales growth in the near term and raise additional capital , there is a risk that the company could default on additional obligations ; and could be required to discontinue or significantly reduce the scope of its operations if no other means of financing operations are available . the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the company be unable to continue as a going concern . off-balance sheet arrangements on december 31 , 2020 , we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenue or expenses , results of operations , liquidity , capital
| cash flows december 31 , 2020 as compared to december 31 , 2019 cash on hand was $ 23,940,333 on december 31 , 2020 , an increase of $ 23,222,336 compared to the $ 717,997 on hand at december 31 , 2019. cash used in operations for 2020 was $ 2,256,571 compared to $ 1,818,290 of cash used by operations for 2019. the increase in cash used in operating activities was driven largely decrease in deferred revenue offset by an increase mainly in accounts payables and accrued expenses related to purchases of inventories and payments for professional services and other costs associated the growth of the business . cash used by investing activities during 2020 was $ 779,023compared to $ 24,445 in 2019. the increase in cash used in our investing activities resulted from the addition of note receivable agreements executed for the purposes of a strategic partnership and a letter of intent associated with an acquisition . in addition , we made purchases of property and equipment and building improvements related to the new leased warehouse and corporate offices along with recording capitalized costs associated with the development of the hempoverview platform . 35 cash provided in financing activities during the 12 months ended december 31 , 2020 was $ 26,257,930 compared to cash used in financing activities of $ 40,998 as of december 31 , 2019. the increase in cash provided by our financing activities was due to sales of our preferred stock , common stock , warrants , and promissory note proceeds as part of coronavirus aid , relief and economic security act 's paycheck protection plan ( ppp ) . liquidity and capital resources as of december 31 , 2020 , we had working capital of $ 22,615,624 and a loss from operations of $ 4,932,450 for the period then ended . while there can be no guarantees , we believe cash on hand , in connection with cash generated from revenue , will be sufficient to fund the next year of operations . in addition , we intend to pursue other opportunities of raising capital with outside investors .
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we intend to gradually form motor load performance for peak and low-hours , which will account for about 3 % of the annual maximum power load on the demand side and to ensure the electricity supply and demand balance for situations of non-severe power shortages . in december 2019 , a novel strain of coronavirus ( covid-19 ) was reported in wuhan , china . the world health organization has declared the outbreak to constitute a “ public health emergency of international concern . ” this pandemic , which continues to spread to additional countries , and is disrupting supply chains and affecting production and sales across a range of industries as a result of quarantines , facility closures , and travel and logistics restrictions in connection with the outbreak . therefore , the company expects this matter to negatively impact its operating results even though china is opening up most of the cities and industries as of this report date . however , the related financial impact can not be reasonably estimated at this time . for the years ended december 31 , 2019 and 2018 , the company had a net loss of $ 8.77 million and $ 66.00 million , respectively . the company has an accumulated deficit of $ 46.45 million as of december 31 , 2019. the company is in the process of transforming and expanding into an energy storage integrated solution provider as described above . the historical operating results indicate substantial doubt exists related to the company 's ability to continue as a going concern . however , the company had $ 16.22 million cash on hand at december 31 , 2019 and has collected rmb 327.60 million ( $ 46.96 million ) in 2020 up to this report date , this also satisfies the company 's estimated liquidity needs 12 months from the issuance of the financial statements . the company believes that the actions discussed above are probable of occurring and the occurrence , as well as the cash flow discussed , mitigate the substantial doubt raised by its historical operating results . management also intends to raise additional funds by way of a private or public offering , or by obtaining loans from banks or others . while the company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions , there can be no assurances to that effect . the ability of the company to continue as a going concern is dependent upon the company 's ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering , or debt financing including bank loans . our subsidiaries our business is primarily conducted through our wholly-owned subsidiaries , sifang holdings co. , ltd. ( “ sifang ” ) and shanghai yinghua financial leasing co. , ltd ( “ yinghua ” ) ; sifang 's wholly-owned subsidiaries , huahong new energy technology co. , ltd. ( “ huahong ” ) and shanghai tch energy tech co. , ltd. ( “ shanghai tch ” ) ; shanghai tch 's wholly-owned subsidiary , xi'an tch energy technology company , ltd ( “ xi'an tch ” ) ; xi'an tch 's wholly-owned subsidiaries , erdos tch energy saving development co. , ltd ( “ erdos tch ” ) and zhongxun energy investment ( beijing ) co. , ltd ( “ zhongxun ” ) ; and xi'an tch 's 90 % and shanghai tch 's 10 % owned subsidiary , xi'an zhonghong new energy technology co. , ltd. ( “ zhonghong ” ) . zhonghong provides energy saving solutions and services , including constructing , selling and leasing energy saving systems and equipment to customers , project investment . 33 the company 's organizational chart as of december 31 , 2019 is as follows : creg legal structure shanghai tch and its subsidiaries shanghai tch was established as a foreign investment enterprise in shanghai under the laws of the prc on may 25 , 2004 and has registered capital of $ 29.80 million . xi'an tch was incorporated in xi'an , shaanxi province under the laws of the prc on november 8 , 2007. in february 2009 , huahong was incorporated in xi'an , shaanxi province . erdos tch was incorporated in april 2009 in erdos , inner mongolia autonomous region . on july 19 , 2013 , xi'an tch formed xi'an zhonghong new energy technology co. , ltd ( “ zhonghong ” ) . xi'an tch owns 90 % and shanghai tch owns 10 % of zhonghong . as of december 31 , 2019 , shanghai tch , through its subsidiaries , had sales or sales-type leases with pucheng for two biomass power generation ( “ bmpg ” ) systems . the fund management company and the hyref fund on june 25 , 2013 , xi'an tch and hongyuan huifu venture capital co. ltd ( “ hongyuan huifu ” ) established beijing hongyuan recycling energy investment management company ltd. ( the “ fund management company ” ) with registered capital of rmb 10 million ( $ 1.45 million ) . xi'an tch made an initial capital contribution of rmb 4 million ( $ 650,000 ) and has 40 % ownership interest in the fund management company . with respect to the fund management company , voting rights and dividend rights are allocated 80 % and 20 % between hongyuan huifu and xi'an tch , respectively . 34 the fund management company is the general partner of beijing hongyuan recycling energy investment center , llp ( the “ hyref fund ” ) , a limited liability partnership established july 18 , 2013 in beijing . the fund management company made an initial capital contribution of rmb 5 million ( $ 830,000 ) to the hyref fund . story_separator_special_tag 37 on july 24 , 2013 , zhonghong entered into a cooperative agreement of cdq and cdq whpg project with boxing county chengli gas supply co. , ltd. ( “ chengli ” ) . the parties entered into a supplement agreement on july 26 , 2013. pursuant to these agreements , zhonghong agreed to design , build and maintain a 25 mw cdq system and a cdq whpg system to supply power to chengli , and chengli agreed to pay energy saving fees ( the “ chengli project ” ) . chengli will contract the operation of the system to a third party contractor that is mutually agreed to by zhonghong . in addition , chengli will provide the land for the cdq system and cdq whpg system at no cost to zhonghong . the term of these agreements is 20 years . the watt hours generated by the chengli project will be charged at rmb 0.42 ( $ 0.068 ) per kwh ( excluding tax ) . the operating time shall be based upon an average 8,000 hours annually . if the operating time is less than 8,000 hours per year due to a reason attributable to chengli , then time charged shall be 8,000 hours a year , and if it is less than 8,000 hours due to a reason attributable to zhonghong , then it shall be charged at actual operating hours . the construction of the chengli project was completed in the second quarter of 2015 and the project successfully completed commissioning tests in the first quarter of 2017. the chengli project is now operational , however , due to intensifying environmental protection , the local environmental authorities required the project owner constructing cdq sewage treatment to complete supporting works , which were completed and passed through acceptance inspection during the quarter ended september 30 , 2018. however , the owner of chengli project changed from chengli to shandong boxing shengli technology company ltd. ( “ shengli ” ) . this change resulted from transfer of the equity ownership of chengli to shengli ( a private company ) in march 2014. chengli , a 100 % state-owned enterprise that is 100 % owned by the local power supply bureau , is no longer allowed to carry out business activities , and shengli , the new owner , is not entitled to the high on-grid prices , and thus demanded a renegotiation of the settlement terms for the project . the company negotiated with the new project owner on the lease term , settlement method and settlement price , but no agreement has been reached . on july 22 , 2013 , zhonghong entered into an engineering , procurement and construction ( “ epc ” ) general contractor agreement for the boxing county chengli gas supply co. , ltd. cdq power generation project ( the “ chengli project ” ) with xi'an huaxin new energy co. , ltd. ( “ huaxin ” ) . zhonghong , as the owner of the chengli project , contracted epc services for a cdq system and a 25 mw cdq whpg system for chengli to huaxin . huaxin shall provide construction , equipment procurement , transportation , installation and adjustment , test run , construction engineering management and other necessary services to complete the chengli project and ensure the cdq system and cdq whpg system for chengli meet the inspection and acceptance requirements and work normally . the chengli project is a turn-key project in which huaxin is responsible for monitoring the quality , safety , duration and cost of the chengli project . the total contract price is rmb 200 million ( $ 33.34 million ) , which includes all materials , equipment , labor , transportation , electricity , water , waste disposal , machinery and safety costs . on december 29 , 2018 , xi'an zhonghong , xi'an tch , the “ hyref ” , guohua ku , and mr. chonggong bai entered into a cdq whpg station fixed assets transfer agreement , pursuant to which xi'an zhonghong transferred chengli cdq whpg station as the repayment for the loan of rmb 188,639,400 ( $ 27.54 million ) to hyref . xi'an zhonghong , xi'an tch , guohua ku and chonggong bai also agreed to buy back the cdq whpg station when conditions under the buy back agreement are met ( see note 10 ) . the transfer was completed january 22 , 2019 , and the company recorded $ 624,133 loss from this transfer . since the original terms of buy back agreement are still valid , the buy back possibility is uncertain ; therefore , the assets of chengli cdq whpg station , and the corresponding loan principal and interest , can not be terminated due to the existence of buy back clauses . 38 tianyu waste heat power generation project on july 19 , 2013 , zhonghong entered into a cooperative agreement ( the “ tianyu agreement ” ) for energy management of cdq and cdq whpg with jiangsu tianyu energy and chemical group co. , ltd ( “ tianyu ” ) . pursuant to the tianyu agreement , zhonghong will design , build , operate and maintain two sets of 25 mw cdq and cdq whpg systems for two subsidiaries of tianyu – xuzhou tian'an chemical co. , ltd ( “ xuzhou tian'an ” ) and xuzhou huayu coking co. , ltd. ( “ xuzhou huayu ” ) – to be located at xuzhou tian'an and xuzhou huayu 's respective locations ( the “ tianyu project ” ) . upon completion of the tianyu project , zhonghong will charge tianyu an energy saving fee of rmb 0.534 ( $ 0.087 ) per kwh ( excluding tax ) . the operating time will be based upon an average 8,000 hours annually for each of xuzhou tian'an and xuzhou huayu . if the operating time is less than 8,000 hours per year due to a reason attributable
| cash flows december 31 , 2020 as compared to december 31 , 2019 cash on hand was $ 23,940,333 on december 31 , 2020 , an increase of $ 23,222,336 compared to the $ 717,997 on hand at december 31 , 2019. cash used in operations for 2020 was $ 2,256,571 compared to $ 1,818,290 of cash used by operations for 2019. the increase in cash used in operating activities was driven largely decrease in deferred revenue offset by an increase mainly in accounts payables and accrued expenses related to purchases of inventories and payments for professional services and other costs associated the growth of the business . cash used by investing activities during 2020 was $ 779,023compared to $ 24,445 in 2019. the increase in cash used in our investing activities resulted from the addition of note receivable agreements executed for the purposes of a strategic partnership and a letter of intent associated with an acquisition . in addition , we made purchases of property and equipment and building improvements related to the new leased warehouse and corporate offices along with recording capitalized costs associated with the development of the hempoverview platform . 35 cash provided in financing activities during the 12 months ended december 31 , 2020 was $ 26,257,930 compared to cash used in financing activities of $ 40,998 as of december 31 , 2019. the increase in cash provided by our financing activities was due to sales of our preferred stock , common stock , warrants , and promissory note proceeds as part of coronavirus aid , relief and economic security act 's paycheck protection plan ( ppp ) . liquidity and capital resources as of december 31 , 2020 , we had working capital of $ 22,615,624 and a loss from operations of $ 4,932,450 for the period then ended . while there can be no guarantees , we believe cash on hand , in connection with cash generated from revenue , will be sufficient to fund the next year of operations . in addition , we intend to pursue other opportunities of raising capital with outside investors .
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we intend to gradually form motor load performance for peak and low-hours , which will account for about 3 % of the annual maximum power load on the demand side and to ensure the electricity supply and demand balance for situations of non-severe power shortages . in december 2019 , a novel strain of coronavirus ( covid-19 ) was reported in wuhan , china . the world health organization has declared the outbreak to constitute a “ public health emergency of international concern . ” this pandemic , which continues to spread to additional countries , and is disrupting supply chains and affecting production and sales across a range of industries as a result of quarantines , facility closures , and travel and logistics restrictions in connection with the outbreak . therefore , the company expects this matter to negatively impact its operating results even though china is opening up most of the cities and industries as of this report date . however , the related financial impact can not be reasonably estimated at this time . for the years ended december 31 , 2019 and 2018 , the company had a net loss of $ 8.77 million and $ 66.00 million , respectively . the company has an accumulated deficit of $ 46.45 million as of december 31 , 2019. the company is in the process of transforming and expanding into an energy storage integrated solution provider as described above . the historical operating results indicate substantial doubt exists related to the company 's ability to continue as a going concern . however , the company had $ 16.22 million cash on hand at december 31 , 2019 and has collected rmb 327.60 million ( $ 46.96 million ) in 2020 up to this report date , this also satisfies the company 's estimated liquidity needs 12 months from the issuance of the financial statements . the company believes that the actions discussed above are probable of occurring and the occurrence , as well as the cash flow discussed , mitigate the substantial doubt raised by its historical operating results . management also intends to raise additional funds by way of a private or public offering , or by obtaining loans from banks or others . while the company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions , there can be no assurances to that effect . the ability of the company to continue as a going concern is dependent upon the company 's ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering , or debt financing including bank loans . our subsidiaries our business is primarily conducted through our wholly-owned subsidiaries , sifang holdings co. , ltd. ( “ sifang ” ) and shanghai yinghua financial leasing co. , ltd ( “ yinghua ” ) ; sifang 's wholly-owned subsidiaries , huahong new energy technology co. , ltd. ( “ huahong ” ) and shanghai tch energy tech co. , ltd. ( “ shanghai tch ” ) ; shanghai tch 's wholly-owned subsidiary , xi'an tch energy technology company , ltd ( “ xi'an tch ” ) ; xi'an tch 's wholly-owned subsidiaries , erdos tch energy saving development co. , ltd ( “ erdos tch ” ) and zhongxun energy investment ( beijing ) co. , ltd ( “ zhongxun ” ) ; and xi'an tch 's 90 % and shanghai tch 's 10 % owned subsidiary , xi'an zhonghong new energy technology co. , ltd. ( “ zhonghong ” ) . zhonghong provides energy saving solutions and services , including constructing , selling and leasing energy saving systems and equipment to customers , project investment . 33 the company 's organizational chart as of december 31 , 2019 is as follows : creg legal structure shanghai tch and its subsidiaries shanghai tch was established as a foreign investment enterprise in shanghai under the laws of the prc on may 25 , 2004 and has registered capital of $ 29.80 million . xi'an tch was incorporated in xi'an , shaanxi province under the laws of the prc on november 8 , 2007. in february 2009 , huahong was incorporated in xi'an , shaanxi province . erdos tch was incorporated in april 2009 in erdos , inner mongolia autonomous region . on july 19 , 2013 , xi'an tch formed xi'an zhonghong new energy technology co. , ltd ( “ zhonghong ” ) . xi'an tch owns 90 % and shanghai tch owns 10 % of zhonghong . as of december 31 , 2019 , shanghai tch , through its subsidiaries , had sales or sales-type leases with pucheng for two biomass power generation ( “ bmpg ” ) systems . the fund management company and the hyref fund on june 25 , 2013 , xi'an tch and hongyuan huifu venture capital co. ltd ( “ hongyuan huifu ” ) established beijing hongyuan recycling energy investment management company ltd. ( the “ fund management company ” ) with registered capital of rmb 10 million ( $ 1.45 million ) . xi'an tch made an initial capital contribution of rmb 4 million ( $ 650,000 ) and has 40 % ownership interest in the fund management company . with respect to the fund management company , voting rights and dividend rights are allocated 80 % and 20 % between hongyuan huifu and xi'an tch , respectively . 34 the fund management company is the general partner of beijing hongyuan recycling energy investment center , llp ( the “ hyref fund ” ) , a limited liability partnership established july 18 , 2013 in beijing . the fund management company made an initial capital contribution of rmb 5 million ( $ 830,000 ) to the hyref fund . story_separator_special_tag 37 on july 24 , 2013 , zhonghong entered into a cooperative agreement of cdq and cdq whpg project with boxing county chengli gas supply co. , ltd. ( “ chengli ” ) . the parties entered into a supplement agreement on july 26 , 2013. pursuant to these agreements , zhonghong agreed to design , build and maintain a 25 mw cdq system and a cdq whpg system to supply power to chengli , and chengli agreed to pay energy saving fees ( the “ chengli project ” ) . chengli will contract the operation of the system to a third party contractor that is mutually agreed to by zhonghong . in addition , chengli will provide the land for the cdq system and cdq whpg system at no cost to zhonghong . the term of these agreements is 20 years . the watt hours generated by the chengli project will be charged at rmb 0.42 ( $ 0.068 ) per kwh ( excluding tax ) . the operating time shall be based upon an average 8,000 hours annually . if the operating time is less than 8,000 hours per year due to a reason attributable to chengli , then time charged shall be 8,000 hours a year , and if it is less than 8,000 hours due to a reason attributable to zhonghong , then it shall be charged at actual operating hours . the construction of the chengli project was completed in the second quarter of 2015 and the project successfully completed commissioning tests in the first quarter of 2017. the chengli project is now operational , however , due to intensifying environmental protection , the local environmental authorities required the project owner constructing cdq sewage treatment to complete supporting works , which were completed and passed through acceptance inspection during the quarter ended september 30 , 2018. however , the owner of chengli project changed from chengli to shandong boxing shengli technology company ltd. ( “ shengli ” ) . this change resulted from transfer of the equity ownership of chengli to shengli ( a private company ) in march 2014. chengli , a 100 % state-owned enterprise that is 100 % owned by the local power supply bureau , is no longer allowed to carry out business activities , and shengli , the new owner , is not entitled to the high on-grid prices , and thus demanded a renegotiation of the settlement terms for the project . the company negotiated with the new project owner on the lease term , settlement method and settlement price , but no agreement has been reached . on july 22 , 2013 , zhonghong entered into an engineering , procurement and construction ( “ epc ” ) general contractor agreement for the boxing county chengli gas supply co. , ltd. cdq power generation project ( the “ chengli project ” ) with xi'an huaxin new energy co. , ltd. ( “ huaxin ” ) . zhonghong , as the owner of the chengli project , contracted epc services for a cdq system and a 25 mw cdq whpg system for chengli to huaxin . huaxin shall provide construction , equipment procurement , transportation , installation and adjustment , test run , construction engineering management and other necessary services to complete the chengli project and ensure the cdq system and cdq whpg system for chengli meet the inspection and acceptance requirements and work normally . the chengli project is a turn-key project in which huaxin is responsible for monitoring the quality , safety , duration and cost of the chengli project . the total contract price is rmb 200 million ( $ 33.34 million ) , which includes all materials , equipment , labor , transportation , electricity , water , waste disposal , machinery and safety costs . on december 29 , 2018 , xi'an zhonghong , xi'an tch , the “ hyref ” , guohua ku , and mr. chonggong bai entered into a cdq whpg station fixed assets transfer agreement , pursuant to which xi'an zhonghong transferred chengli cdq whpg station as the repayment for the loan of rmb 188,639,400 ( $ 27.54 million ) to hyref . xi'an zhonghong , xi'an tch , guohua ku and chonggong bai also agreed to buy back the cdq whpg station when conditions under the buy back agreement are met ( see note 10 ) . the transfer was completed january 22 , 2019 , and the company recorded $ 624,133 loss from this transfer . since the original terms of buy back agreement are still valid , the buy back possibility is uncertain ; therefore , the assets of chengli cdq whpg station , and the corresponding loan principal and interest , can not be terminated due to the existence of buy back clauses . 38 tianyu waste heat power generation project on july 19 , 2013 , zhonghong entered into a cooperative agreement ( the “ tianyu agreement ” ) for energy management of cdq and cdq whpg with jiangsu tianyu energy and chemical group co. , ltd ( “ tianyu ” ) . pursuant to the tianyu agreement , zhonghong will design , build , operate and maintain two sets of 25 mw cdq and cdq whpg systems for two subsidiaries of tianyu – xuzhou tian'an chemical co. , ltd ( “ xuzhou tian'an ” ) and xuzhou huayu coking co. , ltd. ( “ xuzhou huayu ” ) – to be located at xuzhou tian'an and xuzhou huayu 's respective locations ( the “ tianyu project ” ) . upon completion of the tianyu project , zhonghong will charge tianyu an energy saving fee of rmb 0.534 ( $ 0.087 ) per kwh ( excluding tax ) . the operating time will be based upon an average 8,000 hours annually for each of xuzhou tian'an and xuzhou huayu . if the operating time is less than 8,000 hours per year due to a reason attributable
| liquidity and capital resources comparison of years ended december 31 , 2019 and 2018 as of december 31 , 2019 , the company had cash and equivalents of $ 16.22 million , other current assets of $ 48.40 million , current liabilities of $ 36.25 million , working capital of $ 28.37 million , a current ratio of 1.78:1 and a liability-to-equity ratio of 0.57:1. the following is a summary of cash provided by or used in each of the indicated types of activities during the years ended december 31 , 2019 and 2018 : 2019 2018 cash provided by ( used in ) : operating activities $ ( 14,649,028 ) $ 2,168,285 investing activities 5,074 - financing activities ( 21,816,293 ) 3,689,190 45 net cash used in operating activities was $ 14.65 million during the year ended december 31 , 2019 , compared to $ 2.17 million cash provided by operating activities for the year ended december 31 , 2018. the increase in net cash outflow for the year ended december 31 , 2019 was mainly due to increased cash outflow of interest payable on entrusted loan by $ 19,185,209 which was partly offset by decrease cash inflow of accounts receivable by $ 2,542,534. net cash provided by investing activities was $ 5,074 and $ nil , respectively , for the years ended december 31 , 2019 and 2018. for the year endeddecember 31 , 2019 , $ 5,074 was the proceeds from disposal of the fixed assets .
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among the factors that could cause actual results to differ materially are the following : the effect of business and economic conditions ; the impact of competitive products and their pricing ; unexpected manufacturing or supplier problems ; the company 's ability to maintain sufficient credit arrangements ; changes in governmental standards by which our environmental control products are evaluated and the risk factors reported from time to time in the company 's sec reports , including its recent report on form 10-k. the company undertakes no obligation to update forward-looking statements as a result of future events or developments . overview the company was incorporated on april 27 , 1998 , in the state of delaware under the name “ diversified american holdings , inc. ” the company subsequently changed its name to “ cemtrex inc. ” on december 16 , 2004. unless the context requires otherwise , all references to “ we ” , “ our ” , “ us ” , “ company ” , “ registrant ” , “ cemtrex ” or “ management ” refer to cemtrex , inc. and its subsidiaries . cemtrex is a leading diversified technology company that operates in a wide array of business segments and provides solutions to meet today 's industrial and manufacturing challenges . the company provides manufacturing services of advanced electronic system assemblies , provides broad-based industrial services , instruments & emission monitors for industrial processes , and provides industrial air filtration & environmental control systems . through our electronics manufacturing services ( “ ems ” ) segment , we provide end to end electronic manufacturing services , which include product design and sustaining engineering services , printed circuit board assembly and production , cabling and wire harnessing , systems integration , comprehensive testing services and completely assembled electronic products . our ems segment offers fully integrated contract manufacturing services to global original equipment manufacturers ( oems ) and technology companies that operate primarily in the medical , industrial , automation , automotive , and renewable markets . through our industrial products and services ( “ ips ” ) segment , we provide a complete line of air filtration and environmental control products to a wide variety of industrial and manufacturing industries worldwide . the segment also manufactures , sells , and services monitoring instruments , software and systems for measurement of emissions of greenhouse gases , hazardous gases , particulate and other regulated pollutants used in emissions trading globally as well as for industrial processes . we also market monitoring and analysis equipment for gas and liquid measurement for various downstream oil & gas applications as well as various industrial process applications . in addition we , through our newly acquired business , offer one-source expertise and capabilities in plant and equipment erection , relocation , and disassembly in a wide variety of industrial markets like automotive , printing & graphics , industrial automation , packaging , and chemicals among others . critical accounting policies and estimates the following discussion and analysis is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses , and assets and liabilities during the periods reported . estimates are used when accounting for certain items such as revenues , allowances for returns , early payment discounts , customer discounts , doubtful accounts , employee compensation programs , depreciation and amortization periods , taxes , inventory values , and valuations of investments , goodwill , other intangible assets and long-lived assets . we base our estimates on historical experience , where applicable and other assumptions that we believe are reasonable under the circumstances . actual results may differ from our estimates under different assumptions or conditions . we believe that the following critical accounting policies affect our more significant judgments and estimates used in preparation of our consolidated financial statements . 19 we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we base our estimates on the aging of our accounts receivable balances and our historical write-off experience , net of recoveries . we value our inventories at the lower of cost or market . we write down inventory balances for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions . goodwill is reviewed for possible impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the company 's carrying amount is greater than the fair value . in accordance with sfas 142 , the company examined goodwill for impairment and determined that the company 's carrying amount did not exceed the fair value , thus , there was no impairment . generally , sales are recognized when shipments are made to customers . rebates , allowances for damaged goods and other advertising and marketing program rebates are accrued pursuant to contractual provisions and included in accrued expenses . certain amount of our revenues fall under the percentage-of-completion method of accounting used for long-term contracts . under this method , sales and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion . sales and gross profit are adjusted prospectively for revisions in estimated total contract costs and contract values . estimated losses are recorded when identified . story_separator_special_tag in countries in which the company operates , and the functional currency is other than the u.s. dollar , assets and liabilities are translated using published exchange rates in effect at the consolidated balance sheet date . revenues and expenses and cash flows are translated using an approximate weighted average exchange rate for the period . resulting translation adjustments are recorded as a component of accumulated other comprehensive income on the accompanying consolidated balance sheet . results of operations - for the fiscal years ending september 30 , 2016 and 2015 total revenue for the years ended september 30 , 2016 and 2015 was $ 93,704,560 and $ 56,887,389 , respectively , an increase of $ 36,817,171 , or 65 % . net income for years ended september 30 , 2016 and 2015 was $ 4,994,045 and $ 2,838,116 , respectively , an increase of $ 2,155,929 , or 76 % . revenues and net income in this period as compared to the previous one was higher as a result of the acquisitions of ais and periscope . revenues our ips segment 's revenues for the year ended september 30 , 2016 increased by $ 17,621,667 or 56 % , to $ 49,224,011 from $ 31,622,344 for the year ended september 30 , 2015. the acquisition of ais on december 15 , 2015 , provided an additional $ 16,751,330 in revenues while existing companies had an increase in revenues of $ 870,337. our ems segment 's revenues for the year ended september 30 , 2016 increased by $ 19,195,504 or 76 % to $ 44,460,549 from $ 25,265,045 for the year ended september 30 , 2015. the acquisition of periscope on may 31 , 2016 , provided an additional $ 18,688,287 in revenues while existing companies had an increase in revenues of $ 507,217. gross profit gross profit for the year ended september 30 , 2016 was $ 29,213,670 or 31 % of revenues as compared to gross profit of $ 16,322,570 or 29 % of revenues for the year ended september 30 , 2015. the increase in gross profit percentage in the year ended september 30 , 2016 , as compared to the prior year , was a direct result of higher profit margin projects executed during this period as compared to the prior year . the higher dollar amount of gross profit during fiscal 2016 was due to higher overall revenue . 20 operating expenses operating expenses for the year ended september 30 , 2016 increased $ 10,328,226 or 75 % to $ 24,149,772 from $ 13,281,546 for the year ended september 30 , 2015. operating expenses as a percentage of revenue increased in the year ended september 30 , 2016 to 26 % from 24 % in the year ended september 30 , 2015. the acquisition of ais and periscope provided additional operating expenses of $ 10,449,718 , while existing companies had a decrease of $ 121,492. other income other income for the fiscal year of 2016 was $ 1,693,931 as compared to $ 834,290 for the fiscal year of 2015. the acquisition of ais and periscope provided additional other income of $ 913,545 , while existing companies had a decrease of $ 53,904. interest expense interest expense for the fiscal year of 2016 was $ 673,612 as compared to $ 496,281 for the fiscal year of 2015. the acquisition of ais and periscope provided additional interest expense of $ 271,456 , while existing companies had a decrease of $ 94,125. provision for income taxes during the fiscal year of 2016 we recorded an income tax provision of $ 1,090,172 compared to $ 917 for the fiscal year of 2015. the provision for income tax is based upon the projected income tax from the company 's various domestic and international subsidiaries that are subject to income taxes . net income the company had net income of $ 4,994,045 or 5 % of revenues , for the year ended september 30 , 2016 as compared to a net income of $ 2,383,116 or 5 % of revenues , for the year ended september 30 , 2015. the increase in net income of $ 2,155,929 was mainly due to higher profit margin of projects executed during this period as compared to the prior year . effects of inflation the company 's business and operations have not been materially affected by inflation during the periods for which financial information is presented . story_separator_special_tag we anticipate that the outlook for our products and services remains fairly strong and we are positioned well to take advantage of it . we believe there is currently a gradually increasing public awareness of the issues surrounding air quality and that this trend will continue for the next several years . we also believe there is an increase in public concern regarding the effects of air quality on society and future generations , as well as an increase in interest by standards-making bodies in creating specifications and techniques for detecting , defining and solving air quality problems . as a result , we believe there will be an increase in interest in our emission monitors , and environmental control products of subsidiary griffin filters . 22 this outlook section , and other portions of this document , include certain “ forward-looking statements ” within the meaning of that term in section 27a of the securities act of 1933 , and section 21e of the securities exchange act of 1934 , including , among others , those statements preceded by , following or including the words “ believe , ” “ expect , ” “ intend , ” “ anticipate ” or similar expressions . these forward-looking statements are based largely on the current expectations of management and are subject to a number of assumptions , risks and uncertainties . our actual results could differ materially from these forward-looking statements . important factors to consider in evaluating such forward-looking statements include those discussed in item 1a .
| liquidity and capital resources comparison of years ended december 31 , 2019 and 2018 as of december 31 , 2019 , the company had cash and equivalents of $ 16.22 million , other current assets of $ 48.40 million , current liabilities of $ 36.25 million , working capital of $ 28.37 million , a current ratio of 1.78:1 and a liability-to-equity ratio of 0.57:1. the following is a summary of cash provided by or used in each of the indicated types of activities during the years ended december 31 , 2019 and 2018 : 2019 2018 cash provided by ( used in ) : operating activities $ ( 14,649,028 ) $ 2,168,285 investing activities 5,074 - financing activities ( 21,816,293 ) 3,689,190 45 net cash used in operating activities was $ 14.65 million during the year ended december 31 , 2019 , compared to $ 2.17 million cash provided by operating activities for the year ended december 31 , 2018. the increase in net cash outflow for the year ended december 31 , 2019 was mainly due to increased cash outflow of interest payable on entrusted loan by $ 19,185,209 which was partly offset by decrease cash inflow of accounts receivable by $ 2,542,534. net cash provided by investing activities was $ 5,074 and $ nil , respectively , for the years ended december 31 , 2019 and 2018. for the year endeddecember 31 , 2019 , $ 5,074 was the proceeds from disposal of the fixed assets .
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among the factors that could cause actual results to differ materially are the following : the effect of business and economic conditions ; the impact of competitive products and their pricing ; unexpected manufacturing or supplier problems ; the company 's ability to maintain sufficient credit arrangements ; changes in governmental standards by which our environmental control products are evaluated and the risk factors reported from time to time in the company 's sec reports , including its recent report on form 10-k. the company undertakes no obligation to update forward-looking statements as a result of future events or developments . overview the company was incorporated on april 27 , 1998 , in the state of delaware under the name “ diversified american holdings , inc. ” the company subsequently changed its name to “ cemtrex inc. ” on december 16 , 2004. unless the context requires otherwise , all references to “ we ” , “ our ” , “ us ” , “ company ” , “ registrant ” , “ cemtrex ” or “ management ” refer to cemtrex , inc. and its subsidiaries . cemtrex is a leading diversified technology company that operates in a wide array of business segments and provides solutions to meet today 's industrial and manufacturing challenges . the company provides manufacturing services of advanced electronic system assemblies , provides broad-based industrial services , instruments & emission monitors for industrial processes , and provides industrial air filtration & environmental control systems . through our electronics manufacturing services ( “ ems ” ) segment , we provide end to end electronic manufacturing services , which include product design and sustaining engineering services , printed circuit board assembly and production , cabling and wire harnessing , systems integration , comprehensive testing services and completely assembled electronic products . our ems segment offers fully integrated contract manufacturing services to global original equipment manufacturers ( oems ) and technology companies that operate primarily in the medical , industrial , automation , automotive , and renewable markets . through our industrial products and services ( “ ips ” ) segment , we provide a complete line of air filtration and environmental control products to a wide variety of industrial and manufacturing industries worldwide . the segment also manufactures , sells , and services monitoring instruments , software and systems for measurement of emissions of greenhouse gases , hazardous gases , particulate and other regulated pollutants used in emissions trading globally as well as for industrial processes . we also market monitoring and analysis equipment for gas and liquid measurement for various downstream oil & gas applications as well as various industrial process applications . in addition we , through our newly acquired business , offer one-source expertise and capabilities in plant and equipment erection , relocation , and disassembly in a wide variety of industrial markets like automotive , printing & graphics , industrial automation , packaging , and chemicals among others . critical accounting policies and estimates the following discussion and analysis is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses , and assets and liabilities during the periods reported . estimates are used when accounting for certain items such as revenues , allowances for returns , early payment discounts , customer discounts , doubtful accounts , employee compensation programs , depreciation and amortization periods , taxes , inventory values , and valuations of investments , goodwill , other intangible assets and long-lived assets . we base our estimates on historical experience , where applicable and other assumptions that we believe are reasonable under the circumstances . actual results may differ from our estimates under different assumptions or conditions . we believe that the following critical accounting policies affect our more significant judgments and estimates used in preparation of our consolidated financial statements . 19 we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we base our estimates on the aging of our accounts receivable balances and our historical write-off experience , net of recoveries . we value our inventories at the lower of cost or market . we write down inventory balances for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions . goodwill is reviewed for possible impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the company 's carrying amount is greater than the fair value . in accordance with sfas 142 , the company examined goodwill for impairment and determined that the company 's carrying amount did not exceed the fair value , thus , there was no impairment . generally , sales are recognized when shipments are made to customers . rebates , allowances for damaged goods and other advertising and marketing program rebates are accrued pursuant to contractual provisions and included in accrued expenses . certain amount of our revenues fall under the percentage-of-completion method of accounting used for long-term contracts . under this method , sales and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion . sales and gross profit are adjusted prospectively for revisions in estimated total contract costs and contract values . estimated losses are recorded when identified . story_separator_special_tag in countries in which the company operates , and the functional currency is other than the u.s. dollar , assets and liabilities are translated using published exchange rates in effect at the consolidated balance sheet date . revenues and expenses and cash flows are translated using an approximate weighted average exchange rate for the period . resulting translation adjustments are recorded as a component of accumulated other comprehensive income on the accompanying consolidated balance sheet . results of operations - for the fiscal years ending september 30 , 2016 and 2015 total revenue for the years ended september 30 , 2016 and 2015 was $ 93,704,560 and $ 56,887,389 , respectively , an increase of $ 36,817,171 , or 65 % . net income for years ended september 30 , 2016 and 2015 was $ 4,994,045 and $ 2,838,116 , respectively , an increase of $ 2,155,929 , or 76 % . revenues and net income in this period as compared to the previous one was higher as a result of the acquisitions of ais and periscope . revenues our ips segment 's revenues for the year ended september 30 , 2016 increased by $ 17,621,667 or 56 % , to $ 49,224,011 from $ 31,622,344 for the year ended september 30 , 2015. the acquisition of ais on december 15 , 2015 , provided an additional $ 16,751,330 in revenues while existing companies had an increase in revenues of $ 870,337. our ems segment 's revenues for the year ended september 30 , 2016 increased by $ 19,195,504 or 76 % to $ 44,460,549 from $ 25,265,045 for the year ended september 30 , 2015. the acquisition of periscope on may 31 , 2016 , provided an additional $ 18,688,287 in revenues while existing companies had an increase in revenues of $ 507,217. gross profit gross profit for the year ended september 30 , 2016 was $ 29,213,670 or 31 % of revenues as compared to gross profit of $ 16,322,570 or 29 % of revenues for the year ended september 30 , 2015. the increase in gross profit percentage in the year ended september 30 , 2016 , as compared to the prior year , was a direct result of higher profit margin projects executed during this period as compared to the prior year . the higher dollar amount of gross profit during fiscal 2016 was due to higher overall revenue . 20 operating expenses operating expenses for the year ended september 30 , 2016 increased $ 10,328,226 or 75 % to $ 24,149,772 from $ 13,281,546 for the year ended september 30 , 2015. operating expenses as a percentage of revenue increased in the year ended september 30 , 2016 to 26 % from 24 % in the year ended september 30 , 2015. the acquisition of ais and periscope provided additional operating expenses of $ 10,449,718 , while existing companies had a decrease of $ 121,492. other income other income for the fiscal year of 2016 was $ 1,693,931 as compared to $ 834,290 for the fiscal year of 2015. the acquisition of ais and periscope provided additional other income of $ 913,545 , while existing companies had a decrease of $ 53,904. interest expense interest expense for the fiscal year of 2016 was $ 673,612 as compared to $ 496,281 for the fiscal year of 2015. the acquisition of ais and periscope provided additional interest expense of $ 271,456 , while existing companies had a decrease of $ 94,125. provision for income taxes during the fiscal year of 2016 we recorded an income tax provision of $ 1,090,172 compared to $ 917 for the fiscal year of 2015. the provision for income tax is based upon the projected income tax from the company 's various domestic and international subsidiaries that are subject to income taxes . net income the company had net income of $ 4,994,045 or 5 % of revenues , for the year ended september 30 , 2016 as compared to a net income of $ 2,383,116 or 5 % of revenues , for the year ended september 30 , 2015. the increase in net income of $ 2,155,929 was mainly due to higher profit margin of projects executed during this period as compared to the prior year . effects of inflation the company 's business and operations have not been materially affected by inflation during the periods for which financial information is presented . story_separator_special_tag we anticipate that the outlook for our products and services remains fairly strong and we are positioned well to take advantage of it . we believe there is currently a gradually increasing public awareness of the issues surrounding air quality and that this trend will continue for the next several years . we also believe there is an increase in public concern regarding the effects of air quality on society and future generations , as well as an increase in interest by standards-making bodies in creating specifications and techniques for detecting , defining and solving air quality problems . as a result , we believe there will be an increase in interest in our emission monitors , and environmental control products of subsidiary griffin filters . 22 this outlook section , and other portions of this document , include certain “ forward-looking statements ” within the meaning of that term in section 27a of the securities act of 1933 , and section 21e of the securities exchange act of 1934 , including , among others , those statements preceded by , following or including the words “ believe , ” “ expect , ” “ intend , ” “ anticipate ” or similar expressions . these forward-looking statements are based largely on the current expectations of management and are subject to a number of assumptions , risks and uncertainties . our actual results could differ materially from these forward-looking statements . important factors to consider in evaluating such forward-looking statements include those discussed in item 1a .
| liquidity and capital resources working capital was $ 11,771,946 at september 30 , 2016 compared to $ 4,693,904 at september 30 , 2015. this includes cash and cash equivalents of $ 6,045,521 at september 30 , 2016 and $ 1,486,737 at september 30 , 2015 , respectively . the acquisition of ais and periscope provided additional working capital of $ 5,432,734 , while existing companies had an increase of $ 1,645,308. accounts receivable increased by $ 8,797,683 or 184 % to $ 13,568,727 at september 30 , 2016 from $ 4,771,044 at september 30 , 2015. the acquisition of ais and periscope provided additional accounts receivable of $ 7,406,279 while existing companies had an increase of $ 1,391,404. inventories increased by $ 7,702,111 or 121 % to $ 14,071,627 at september 30 , 2016 from $ 6,369,516 at september 30 , 2015. the acquisition of ais and periscope provided additional inventories of $ 7,736,297 while existing companies had a decrease of $ 34,186. operating activities provided $ 7,895,211 for the year ended september 30 , 2016 compared to providing $ 3,879,926 of cash for the year ended september 30 , 2015. the increase in operating cash flows in fiscal 2016 was primarily due to profitable operations .
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for the twelve months ended december 31 , 2018 , the company generated $ 16.6 million in revenue from fee-based products , or 33.3 percent of total operating revenue . strengthen our penetration in all markets served : over our 117-year history of continuous operation in northwest ohio , we have established a significant presence in our traditional markets in defiance , fulton , paulding and williams counties in ohio . in our newer markets of bowling green , columbus , findlay , toledo ( ohio ) and ft. wayne ( indiana ) , our current market penetration is minimal but we believe our potential for growth is significant . we continue to seek to expand this presence and penetration in all of our markets . expand product utilization by new and existing customers : as of december 31 , 2019 , we served 30,377 households and provided 91,154 products and services ( 3.00 products & services per household ) to these households . our strategy is to continue to expand the scope of our relationship with each household via our dynamic “ on-boarding ” process . proactively identifying client needs is a key ingredient of our value proposition . as of december 31 , 2018 , we served 29,562 households and provided 87,202 products and services ( 2.95 products & services per household ) to these households . deliver gains in operational excellence : our management team believes that becoming and remaining a high-performance financial services company will depend upon seamlessly and consistently delivering operational excellence , as demonstrated by the company 's leadership in the origination and servicing of residential mortgage loans . as of december 31 , 2019 , the company serviced 8,155 residential mortgage loans with a principal balance of $ 1.2 billion . as of december 31 , 2018 , the company serviced 7,586 loans with a principal balance of $ 1.1 billion . sustain asset quality : as of december 31 , 2019 , the company 's asset quality metrics remained strong . specifically , total nonperforming assets were $ 5.3 million , or 0.51 percent of total assets . total delinquent loans at december 31 , 2019 were 0.28 percent of total loans . as of december 31 , 2018 , the company had total nonperforming assets of $ 4.0 million , or 0.40 percent of total assets . total delinquent loans at december 31 , 2018 were 0.65 percent of total loans . 35 critical accounting policies the accounting and reporting policies of the company are in accordance with generally accepted accounting principles in the united states and conform to general practices within the banking industry . the company 's significant accounting policies are described in detail in the notes to the company 's consolidated financial statements for the years ended december 31 , 2019 and 2018. the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions . the company 's financial position and results of operations can be affected by these estimates and assumptions and are integral to the understanding of reported results . critical accounting policies are those policies that management believes are the most important to the portrayal of the company 's financial condition and results , and they require management to make estimates that are difficult , subjective or complex . allowance for loan losses : the allowance for loan losses provides coverage for probable losses inherent in the company 's loan portfolio . management evaluates the adequacy of the allowance for loan losses each quarter based on changes , if any , in the nature and amount of problem assets and associated collateral , underwriting activities , loan portfolio composition ( including product mix and geographic , industry or customer-specific concentrations ) , trends in loan performance , regulatory guidance and economic factors . this evaluation is inherently subjective , as it requires the use of significant management estimates . many factors can affect management 's estimates of specific and expected losses , including volatility of default probabilities , rating migrations , loss severity and economic and political conditions . the allowance is increased through provisions charged to operating earnings and reduced by net charge offs . the company determines the amount of the allowance based on relative risk characteristics of the loan portfolio . the allowance recorded for commercial loans is based on reviews of individual credit relationships and an analysis of the migration of commercial loans and actual loss experience . the allowance recorded for homogeneous consumer loans is based on an analysis of loan mix , risk characteristics of the portfolio , fraud loss and bankruptcy experiences , and historical losses , adjusted for current trends , for each homogeneous category or group of loans . the allowance for credit losses relating to impaired loans is based on each impaired loan 's observable market price , the collateral for certain collateral-dependent loans , or the discounted cash flows using the loan 's effective interest rate . regardless of the extent of the company 's analysis of customer performance , portfolio trends or risk management processes , certain inherent , but undetected , losses are probable within the loan portfolio . this is due to several factors including inherent delays in obtaining information regarding a customer 's financial condition or changes in their unique business conditions , the subjective nature of individual loan valuations , collateral assessments and the interpretation of economic trends . volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger non-homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are also factors . the company estimates a range of inherent losses related to the existence of these exposures . story_separator_special_tag the level of mortgage origination was up from the $ 342.1 million in 2018. the company 's loans serviced for others ended the year at $ 1.2 billion , up from $ 1.1 billion at december 31 , 2018. operating revenue was up compared to the prior year by $ 3.0 million , or 5.9 percent , which is impacted by a $ 1.1 million temporary omsr impairment . our 2019 results include the impact from our two new subsidiaries : sbfg title with net income of $ 0.3 million and sb captive with net income of $ 0.9 million . net interest margin on a fully tax equivalent basis ( “ fte ” ) for 2019 was 3.82 percent , down 13 basis points from 2018. operating expense was up compared to the prior year by $ 2.6 million , or 7.4 percent , due to compensation and fringe benefit cost increases as a result of higher mortgage commission levels . net charge offs for 2019 of $ 0.21 million resulted in a loan loss provision of $ 0.8 million , compared to net charge offs of $ 0.36 million and a $ 0.6 million loan loss provision in 2018 . 38 results of operations replace_table_token_21_th 1 operating revenue equals net interest income plus noninterest income . net interest income years ended december 31 , ( $ in thousands ) 2019 2018 % change total net interest income $ 34,826 $ 33,267 4.7 % net interest income was $ 34.8 million for 2019 compared to $ 33.3 million for 2018 , an increase of $ 1.6 million or 4.7 percent . average earning assets increased to $ 915.0 million in 2019 , compared to $ 845.7 million in 2018 , an increase of $ 69.3 million or 8.2 percent due to higher loan volume . the consolidated 2019 full year net interest margin on an fte basis decreased 12 basis points to 3.83 percent compared to 3.95 percent for the full year of 2018. provision for loan losses of $ 0.8 million was taken in 2019 compared to $ 0.6 million taken for 2018. for 2019 , net charge offs totaled $ 0.21 million , or 0.03 percent of average loans . this charge off level was lower than 2018 , in which net charge offs were $ 0.36 million or 0.06 percent of average loans . replace_table_token_22_th 39 total noninterest income was $ 18.0 million for 2019 compared to $ 16.6 million for 2018 , representing an increase of $ 1.4 million , or 8.4 percent , year-over-year . this increase was driven by a 22.5 percent increase in gains on sale of residential real estate loans and the addition of our title agency . the company sold $ 367.3 million of originated mortgages into the secondary market , which allowed our serviced loan portfolio to grow to $ 1.2 billion at december 31 , 2019 from $ 1.1 billion at december 31 , 2018. the higher servicing balance of the portfolio led to the 9.1 percent increase in mortgage loan servicing income . the sale of non-mortgage loans ( small business and farm credits ) was flat to the prior year . the company continued to expand its wealth management assets under care , which resulted in a 7.7 percent increase in wealth fee income . replace_table_token_23_th total noninterest expense was $ 37.4 million for 2019 compared to $ 34.8 million for 2018 , representing a $ 2.6 million , or 7.4 percent , increase year-over-year . total full-time equivalent employees ended 2019 at 252 , which was up 2 from year end 2018. salaries and benefits were driven by higher compensation costs in the mortgage division . professional fees were higher due to higher spending on legal in connection with acquisition activities . the addition of our title agency added $ 0.9 million in operating expense for the year . the addition of capital from our common raise drove the higher level of franchise taxes in 2019. earnings summary – 2018 vs. 2017 net income for 2018 was $ 11.6 million , and net income available to common shareholders was $ 10.7 million , or $ 1.51 per diluted share , compared with net income of $ 11.1 million and net income available to common of $ 10.1 million , or $ 1.74 per diluted share , for 2017. the company 's 2018 results reflect the issuance of 1.66 million new common shares in the first quarter . the company 's 2017 results included a $ 1.7 million one-time reduction in tax expense due to the enactment in december 2017 of the “ tax cuts and jobs act ” ( “ tcja ” ) . state bank reported net income for 2018 of $ 12.9 million , which was up from the $ 12.3 million in net income in 2017. rdsi reported net income for 2018 of $ 0.1 million , compared to a net loss of $ 0.2 million reported for 2017 due to the sale of the rdsi assets in january 2018. positive results for 2018 included loan growth of $ 75.3 million , and deposit growth of $ 73.0 million . the mortgage banking business line continues to contribute significant revenues , with residential real estate loan production of $ 342.1 million for the year , resulting in $ 6.9 million of revenue from gains on sale . the level of mortgage origination was up from the $ 315.8 million in 2017. the company 's loans serviced for others ended the year at $ 1.1 billion , up from $ 994.9 million at december 31 , 2017 . 40 operating revenue in 2018 was up compared to the prior year by $ 4.3 million , or 9.4 percent , due to higher margin income due to $ 75.3 million in balance sheet loan growth , in addition to the sale of our item processing business , which netted $ 0.4 million in revenue
| liquidity and capital resources working capital was $ 11,771,946 at september 30 , 2016 compared to $ 4,693,904 at september 30 , 2015. this includes cash and cash equivalents of $ 6,045,521 at september 30 , 2016 and $ 1,486,737 at september 30 , 2015 , respectively . the acquisition of ais and periscope provided additional working capital of $ 5,432,734 , while existing companies had an increase of $ 1,645,308. accounts receivable increased by $ 8,797,683 or 184 % to $ 13,568,727 at september 30 , 2016 from $ 4,771,044 at september 30 , 2015. the acquisition of ais and periscope provided additional accounts receivable of $ 7,406,279 while existing companies had an increase of $ 1,391,404. inventories increased by $ 7,702,111 or 121 % to $ 14,071,627 at september 30 , 2016 from $ 6,369,516 at september 30 , 2015. the acquisition of ais and periscope provided additional inventories of $ 7,736,297 while existing companies had a decrease of $ 34,186. operating activities provided $ 7,895,211 for the year ended september 30 , 2016 compared to providing $ 3,879,926 of cash for the year ended september 30 , 2015. the increase in operating cash flows in fiscal 2016 was primarily due to profitable operations .
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for the twelve months ended december 31 , 2018 , the company generated $ 16.6 million in revenue from fee-based products , or 33.3 percent of total operating revenue . strengthen our penetration in all markets served : over our 117-year history of continuous operation in northwest ohio , we have established a significant presence in our traditional markets in defiance , fulton , paulding and williams counties in ohio . in our newer markets of bowling green , columbus , findlay , toledo ( ohio ) and ft. wayne ( indiana ) , our current market penetration is minimal but we believe our potential for growth is significant . we continue to seek to expand this presence and penetration in all of our markets . expand product utilization by new and existing customers : as of december 31 , 2019 , we served 30,377 households and provided 91,154 products and services ( 3.00 products & services per household ) to these households . our strategy is to continue to expand the scope of our relationship with each household via our dynamic “ on-boarding ” process . proactively identifying client needs is a key ingredient of our value proposition . as of december 31 , 2018 , we served 29,562 households and provided 87,202 products and services ( 2.95 products & services per household ) to these households . deliver gains in operational excellence : our management team believes that becoming and remaining a high-performance financial services company will depend upon seamlessly and consistently delivering operational excellence , as demonstrated by the company 's leadership in the origination and servicing of residential mortgage loans . as of december 31 , 2019 , the company serviced 8,155 residential mortgage loans with a principal balance of $ 1.2 billion . as of december 31 , 2018 , the company serviced 7,586 loans with a principal balance of $ 1.1 billion . sustain asset quality : as of december 31 , 2019 , the company 's asset quality metrics remained strong . specifically , total nonperforming assets were $ 5.3 million , or 0.51 percent of total assets . total delinquent loans at december 31 , 2019 were 0.28 percent of total loans . as of december 31 , 2018 , the company had total nonperforming assets of $ 4.0 million , or 0.40 percent of total assets . total delinquent loans at december 31 , 2018 were 0.65 percent of total loans . 35 critical accounting policies the accounting and reporting policies of the company are in accordance with generally accepted accounting principles in the united states and conform to general practices within the banking industry . the company 's significant accounting policies are described in detail in the notes to the company 's consolidated financial statements for the years ended december 31 , 2019 and 2018. the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions . the company 's financial position and results of operations can be affected by these estimates and assumptions and are integral to the understanding of reported results . critical accounting policies are those policies that management believes are the most important to the portrayal of the company 's financial condition and results , and they require management to make estimates that are difficult , subjective or complex . allowance for loan losses : the allowance for loan losses provides coverage for probable losses inherent in the company 's loan portfolio . management evaluates the adequacy of the allowance for loan losses each quarter based on changes , if any , in the nature and amount of problem assets and associated collateral , underwriting activities , loan portfolio composition ( including product mix and geographic , industry or customer-specific concentrations ) , trends in loan performance , regulatory guidance and economic factors . this evaluation is inherently subjective , as it requires the use of significant management estimates . many factors can affect management 's estimates of specific and expected losses , including volatility of default probabilities , rating migrations , loss severity and economic and political conditions . the allowance is increased through provisions charged to operating earnings and reduced by net charge offs . the company determines the amount of the allowance based on relative risk characteristics of the loan portfolio . the allowance recorded for commercial loans is based on reviews of individual credit relationships and an analysis of the migration of commercial loans and actual loss experience . the allowance recorded for homogeneous consumer loans is based on an analysis of loan mix , risk characteristics of the portfolio , fraud loss and bankruptcy experiences , and historical losses , adjusted for current trends , for each homogeneous category or group of loans . the allowance for credit losses relating to impaired loans is based on each impaired loan 's observable market price , the collateral for certain collateral-dependent loans , or the discounted cash flows using the loan 's effective interest rate . regardless of the extent of the company 's analysis of customer performance , portfolio trends or risk management processes , certain inherent , but undetected , losses are probable within the loan portfolio . this is due to several factors including inherent delays in obtaining information regarding a customer 's financial condition or changes in their unique business conditions , the subjective nature of individual loan valuations , collateral assessments and the interpretation of economic trends . volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger non-homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are also factors . the company estimates a range of inherent losses related to the existence of these exposures . story_separator_special_tag the level of mortgage origination was up from the $ 342.1 million in 2018. the company 's loans serviced for others ended the year at $ 1.2 billion , up from $ 1.1 billion at december 31 , 2018. operating revenue was up compared to the prior year by $ 3.0 million , or 5.9 percent , which is impacted by a $ 1.1 million temporary omsr impairment . our 2019 results include the impact from our two new subsidiaries : sbfg title with net income of $ 0.3 million and sb captive with net income of $ 0.9 million . net interest margin on a fully tax equivalent basis ( “ fte ” ) for 2019 was 3.82 percent , down 13 basis points from 2018. operating expense was up compared to the prior year by $ 2.6 million , or 7.4 percent , due to compensation and fringe benefit cost increases as a result of higher mortgage commission levels . net charge offs for 2019 of $ 0.21 million resulted in a loan loss provision of $ 0.8 million , compared to net charge offs of $ 0.36 million and a $ 0.6 million loan loss provision in 2018 . 38 results of operations replace_table_token_21_th 1 operating revenue equals net interest income plus noninterest income . net interest income years ended december 31 , ( $ in thousands ) 2019 2018 % change total net interest income $ 34,826 $ 33,267 4.7 % net interest income was $ 34.8 million for 2019 compared to $ 33.3 million for 2018 , an increase of $ 1.6 million or 4.7 percent . average earning assets increased to $ 915.0 million in 2019 , compared to $ 845.7 million in 2018 , an increase of $ 69.3 million or 8.2 percent due to higher loan volume . the consolidated 2019 full year net interest margin on an fte basis decreased 12 basis points to 3.83 percent compared to 3.95 percent for the full year of 2018. provision for loan losses of $ 0.8 million was taken in 2019 compared to $ 0.6 million taken for 2018. for 2019 , net charge offs totaled $ 0.21 million , or 0.03 percent of average loans . this charge off level was lower than 2018 , in which net charge offs were $ 0.36 million or 0.06 percent of average loans . replace_table_token_22_th 39 total noninterest income was $ 18.0 million for 2019 compared to $ 16.6 million for 2018 , representing an increase of $ 1.4 million , or 8.4 percent , year-over-year . this increase was driven by a 22.5 percent increase in gains on sale of residential real estate loans and the addition of our title agency . the company sold $ 367.3 million of originated mortgages into the secondary market , which allowed our serviced loan portfolio to grow to $ 1.2 billion at december 31 , 2019 from $ 1.1 billion at december 31 , 2018. the higher servicing balance of the portfolio led to the 9.1 percent increase in mortgage loan servicing income . the sale of non-mortgage loans ( small business and farm credits ) was flat to the prior year . the company continued to expand its wealth management assets under care , which resulted in a 7.7 percent increase in wealth fee income . replace_table_token_23_th total noninterest expense was $ 37.4 million for 2019 compared to $ 34.8 million for 2018 , representing a $ 2.6 million , or 7.4 percent , increase year-over-year . total full-time equivalent employees ended 2019 at 252 , which was up 2 from year end 2018. salaries and benefits were driven by higher compensation costs in the mortgage division . professional fees were higher due to higher spending on legal in connection with acquisition activities . the addition of our title agency added $ 0.9 million in operating expense for the year . the addition of capital from our common raise drove the higher level of franchise taxes in 2019. earnings summary – 2018 vs. 2017 net income for 2018 was $ 11.6 million , and net income available to common shareholders was $ 10.7 million , or $ 1.51 per diluted share , compared with net income of $ 11.1 million and net income available to common of $ 10.1 million , or $ 1.74 per diluted share , for 2017. the company 's 2018 results reflect the issuance of 1.66 million new common shares in the first quarter . the company 's 2017 results included a $ 1.7 million one-time reduction in tax expense due to the enactment in december 2017 of the “ tax cuts and jobs act ” ( “ tcja ” ) . state bank reported net income for 2018 of $ 12.9 million , which was up from the $ 12.3 million in net income in 2017. rdsi reported net income for 2018 of $ 0.1 million , compared to a net loss of $ 0.2 million reported for 2017 due to the sale of the rdsi assets in january 2018. positive results for 2018 included loan growth of $ 75.3 million , and deposit growth of $ 73.0 million . the mortgage banking business line continues to contribute significant revenues , with residential real estate loan production of $ 342.1 million for the year , resulting in $ 6.9 million of revenue from gains on sale . the level of mortgage origination was up from the $ 315.8 million in 2017. the company 's loans serviced for others ended the year at $ 1.1 billion , up from $ 994.9 million at december 31 , 2017 . 40 operating revenue in 2018 was up compared to the prior year by $ 4.3 million , or 9.4 percent , due to higher margin income due to $ 75.3 million in balance sheet loan growth , in addition to the sale of our item processing business , which netted $ 0.4 million in revenue
| liquidity liquidity relates primarily to the company 's ability to fund loan demand , meet deposit customers ' withdrawal requirements and provide for operating expenses . sources used to satisfy these needs consist of cash and due from banks , interest-bearing deposits in other financial institutions , securities available-for-sale , loans held for sale and borrowings from various sources . these assets , excluding the borrowings , are commonly referred to as liquid assets . liquid assets were $ 135.3 million at december 31 , 2019 , compared to $ 143.8 million at december 31 , 2018. the company 's commercial real estate , first mortgage residential , agricultural and multi-family mortgage portfolio of $ 610.9 million at december 31 , 2019 , can and is readily used to collateralize borrowings , which is an additional source of liquidity . management believes the company 's current liquidity level , without these borrowings , is sufficient to meet its current and anticipated liquidity needs . at december 31 , 2019 , all eligible commercial real estate , residential first , multi-family mortgage and agricultural loans were pledged under a federal home loan bank ( “ fhlb ” ) blanket lien . significant additional off-balance-sheet liquidity is available in the form of fhlb advances , unused federal funds lines from correspondent banks and the national certificate of deposit market . management expects the risk of changes in off-balance-sheet arrangements to be immaterial to earnings .
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excluding material gains and expenses related to merger and acquisition related activities , including divestitures , adjusted net income to common stockholders was $ 26.6 million , or $ 1.37 per diluted share , for the year ended december 31 , 2017 compared to $ 21.2 million , or $ 1.17 per diluted share for the year ended december 31 , 2016. for the year ended december 31 , 2017 , our return on average common equity was 10.73 % and our return on average assets was 1.27 % . at december 31 , 2017 , we had total assets of $ 3.499 billion , including gross loans of $ 2.811 billion , compared to $ 2.641 billion of total assets and $ 2.028 billion of gross loans at december 31 , 2016. the year-over-year increases in total assets and gross loans were due in part to the acquisition of nine branches from independent bank in colorado and our acquisition of valley bancorp , inc. discussed below . excluding the acquired balances , organic loan growth totaled $ 587 million during the year ended december 31 , 2017. our commercial finance loans increased from $ 693.7 million in aggregate as of december 31 , 2016 to $ 897.5 million as of december 31 , 2017 , an increase of 29 % , and constitute 32 % of our total loan portfolio at december 31 , 2017 . 43 at december 31 , 2017 , we had total liabilities of $ 3.107 billion , including total deposits of $ 2.621 billion compared to $ 2.352 billion of total liabilities and $ 2.016 billion of total deposits at december 31 , 2016. the year-over-year increase in total deposits of $ 605 million was due in part to the acquisition of nine branches from independent bank in colorado and our acquisition of valley bancorp , inc. discussed below . excluding the assumed balances , organic deposit growth totaled $ 151 million during the year ended december 31 , 2017. at december 31 , 2017 , we had total stockholders ' equity of $ 391.7 million . during the year ended december 31 , 2017 , total stockholders ' equity increased $ 102.4 million , primarily due to $ 65.5 million of net proceeds from the august 1 , 2017 common stock offering discussed below and our net income for the period . capital ratios remained strong with tier 1 capital and total capital to risk weighted assets ratios of 11.15 % and 13.21 % , respectively , at december 31 , 2017. triumph capital advisors on march 31 , 2017 , the company sold its 100 % membership interest in triumph capital advisors , llc ( “ tca ” ) . as part of the tca sale on march 31 , 2017 , the company recorded a pre-tax gain on sale of $ 20.9 million , net of $ 0.4 million of direct transaction costs . in addition , the company incurred other indirect transaction related costs of $ 0.3 million and recorded $ 4.8 million in incremental bonus expense for the amount paid to team members to recognize their contribution to the transaction and building the value realized in the sale of the business . the tca sale resulted in a net pre-tax contribution to earnings for the year ended december 31 , 2017 of $ 15.7 million , or approximately $ 10.0 million net of tax . consideration received by the company included a seller financed loan receivable in the amount of $ 10.5 million . for further information , see note 2 – business combinations and divestitures in the accompanying notes to the consolidated financial statements included elsewhere in this report . common stock offering on august 1 , 2017 , the company completed an underwritten common stock offering issuing 2.53 million shares of the company 's common stock , including 0.33 million shares sold pursuant to the underwriters ' full exercise of their option to purchase additional shares , at $ 27.50 per share for total gross proceeds of $ 69.6 million . net proceeds after underwriting discounts and offering expenses were $ 65.5 million . the company used a portion of the net proceeds of the offering to fund a portion of the consideration paid for the acquisition of valley bancorp , inc. and for general corporate purposes . independent bank – colorado branches on october 6 , 2017 , the company , through its subsidiary tbk bank , completed its acquisition of nine branch locations in colorado from independent bank group , inc. 's banking subsidiary independent bank ( the “ acquired branches ” ) for an aggregate deposit premium of approximately $ 6.8 million or 4.2 % . as part of the acquisition , the company acquired $ 95.8 million of loans , assumed $ 160.7 million of deposits associated with the branches and recorded $ 3.3 million of core deposit intangible assets and $ 5.8 million of goodwill . for further information , see note 2 – business combinations and divestitures in the accompanying notes to the consolidated financial statements included elsewhere in this report . valley bancorp , inc. effective december 9 , 2017 , the company acquired valley bancorp , inc. ( “ valley ” ) and its community banking subsidiary , valley bank & trust , which was merged into tbk bank upon closing , in an all-cash transaction for $ 40.1 million . as part of the valley acquisition , the company acquired $ 171.2 million of loans , assumed $ 293.4 million of deposits associated with valley and recorded $ 6.1 million of core deposit intangible assets and $ 10.5 million of goodwill . for further information , see note 2 – business combinations and divestitures in the accompanying notes to the consolidated financial statements included elsewhere in this report . story_separator_special_tag contributing factors to this increase included increased use of higher rate certificates of deposit to fund our loan growth , higher rates on short term and floating rate fhlb advances as a result of higher interest rates in the economy , and most significantly , a full year effect of our issuance of $ 50.0 million of subordinated notes on september 30 , 2016 at an initial fixed rate of 6.5 % . the lower cost customer deposits assumed in the acquired branches and valley acquisitions partially offset these increases . year ended december 31 , 2016 compared with year ended december 31 , 2015. we earned net interest income of $ 112.4 million for the year ended december 31 , 2016 compared to $ 90.7 million for the year ended december 31 , 2015. this increase in net interest income was driven by increases in average interest earning assets , which increased to $ 1.902 billion for the year ended december 31 , 2016 from $ 1.396 billion for the year ended december 31 , 2015 , an increase of $ 506 million , or 36.2 % . the increase in interest earning assets was impacted by the $ 460.8 million of loans and $ 161.7 million of investment securities acquired in the coloeast acquisition on august 1 , 2016 , which were outstanding for five months during the year ended december 31 , 2016. the remaining increase primarily resulted from organic growth in our loan portfolio . our commercial finance product lines , including our factored receivables , asset-based loans , equipment finance loans , and premium finance loans increased on a period over period basis as a result of the continued execution of our growth strategy for such products . our outstanding commercial finance balances increased $ 172.7 million , or 33.1 % , from $ 521.0 million at december 31 , 2015 to $ 693.7 million at december 31 , 2016. we also experienced organic growth in our mortgage warehouse facilities and community banking lending products period over period , including commercial real estate and general commercial and industrial loans . the increases in our net interest income resulting from changes in the interest income generated by the acquired coloeast assets and the organic growth in our loan portfolio discussed above were offset in part by an increase in our interest expense associated with the growth in customer deposits and other borrowings . average total interest bearing deposits increased to $ 1.315 billion for the year ended december 31 , 2016 from $ 1.025 billion for the year ended december 31 , 2015 , an increase of $ 290 million , or 28.3 % . the $ 653.0 million of customer deposits assumed in the coloeast acquisition on august 1 , 2016 , which were outstanding for five months during the year ended december 31 , 2016 , contributed to the increase in average interest bearing deposits during the period . the remaining increase was partially due to growth in our certificates of deposit as these higher cost deposit products were used to fund our loan growth period over period . in addition , our use of other interest bearing borrowings , consisting primarily of fhlb advances , was also increased to fund loans . finally , we issued $ 50.0 million of subordinated notes on september 30 , 2016 at an initial fixed rate of 6.5 % that increased our interest expense during 2016. net interest margin decreased to 5.91 % for the year ended december 31 , 2016 from 6.49 % for the year ended december 31 , 2015 , a decrease of 58 basis points . the decline in our net interest margin primarily resulted from a decrease in yields on our interest earning assets . our average yield on earning assets decreased to 6.55 % for the year ended december 31 , 2016 from 7.07 % for the year ended december 31 , 2015 , a decrease of 52 basis points . the decrease is primarily attributable to a change in the mix within our loan portfolio period over period . the lower yielding community banking loans acquired in the coloeast acquisition resulted in a decrease in the average balance of our higher yielding commercial finance products as a percentage of the average balance of the total portfolio from 40 % at december 31 , 2015 to 38 % at december 31 , 2016. in addition , our transportation factoring balances , which generate a higher yield than our non-transportation factoring balances , decreased as a percentage of the overall factoring portfolio to 77 % at december 31 , 2016 compared to 82 % at december 31 , 2015 as we expanded our non-transportation factoring product lines in 2016 . 49 a component of the yield on our loan portfolio consists of discount accretion on acquired loan portfolios . during the year ended december 31 , 2016 , we acquired loans in the coloeast acquisition with an additional purchase discount of $ 12.0 million which is being accreted into income over the remaining lives of the acquired loans . due in part to accretion associated with the coloeast acquired loans , the aggregate increased yield on our loan portfolio attributable to accretion of purchase discounts associated with these acquisitions increased to 48 basis points for the year ended december 31 , 2016 compared to 42 basis points for the year ended december 31 , 2015. discount accretion for the year ended december 31 , 2016 also included approximately $ 1.2 million of accretion resulting from the payoff of an individual purchased credit impaired loan in excess of its carrying amount . excluding the impact of discount accretion , the adjusted yield on our loan portfolio was 7.23 % and 8.20 % for the years ended december 31 , 2016 and 2015 , respectively . our adjusted net interest margin , which excludes the impact of the acquired loan discount accretion described above
| liquidity liquidity relates primarily to the company 's ability to fund loan demand , meet deposit customers ' withdrawal requirements and provide for operating expenses . sources used to satisfy these needs consist of cash and due from banks , interest-bearing deposits in other financial institutions , securities available-for-sale , loans held for sale and borrowings from various sources . these assets , excluding the borrowings , are commonly referred to as liquid assets . liquid assets were $ 135.3 million at december 31 , 2019 , compared to $ 143.8 million at december 31 , 2018. the company 's commercial real estate , first mortgage residential , agricultural and multi-family mortgage portfolio of $ 610.9 million at december 31 , 2019 , can and is readily used to collateralize borrowings , which is an additional source of liquidity . management believes the company 's current liquidity level , without these borrowings , is sufficient to meet its current and anticipated liquidity needs . at december 31 , 2019 , all eligible commercial real estate , residential first , multi-family mortgage and agricultural loans were pledged under a federal home loan bank ( “ fhlb ” ) blanket lien . significant additional off-balance-sheet liquidity is available in the form of fhlb advances , unused federal funds lines from correspondent banks and the national certificate of deposit market . management expects the risk of changes in off-balance-sheet arrangements to be immaterial to earnings .
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