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although we undertake no obligation to revise or update any forward-looking statements , you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the securities and exchange commission , including annual reports on form 10-k , registration statements on form n-2 or form 10 , quarterly reports on form 10-q and current reports on form 8-k. overview nmf holdings is a delaware limited liability company . nmf holdings is externally managed and has elected to be treated as a business development company ( `` bdc `` ) under the investment company act of 1940 , as amended ( the `` 1940 act `` ) . as such , nmf holdings is obligated to comply with certain 66 regulatory requirements . nmf holdings intends to be treated as a partnership for federal income tax purposes for so long as it has at least two members . nmf holdings is externally managed by the investment adviser . new mountain finance administration , l.l.c . ( the `` administrator `` ) provides the administrative services necessary for operations . the investment adviser and administrator are wholly-owned subsidiaries of new mountain capital ( defined as new mountain capital group , l.l.c . and its affiliates ) . new mountain capital is a firm with a track record of investing in the middle market and with assets under management ( which includes amounts committed , not all of which have been drawn down and invested to date ) totaling approximately $ 9.0 billion as of december 31 , 2011. new mountain capital focuses on investing in defensive growth companies across its private equity , public equity , and credit investment vehicles . nmf holdings , formerly known as new mountain guardian ( leveraged ) , l.l.c . , was originally formed as a subsidiary of new mountain guardian aiv , l.p. ( `` guardian aiv `` ) by new mountain capital in october 2008. guardian aiv was formed through an allocation of approximately $ 300.0 million of the $ 5.1 billion of commitments supporting new mountain partners iii , l.p. , a private equity fund managed by new mountain capital . in february 2009 , new mountain capital formed a co-investment vehicle , new mountain guardian partners , l.p. , comprising $ 20.4 million of commitments . new mountain guardian ( leveraged ) , l.l.c . and new mountain guardian partners , l.p. , together with their respective direct and indirect wholly-owned subsidiaries , are defined as the `` predecessor entities `` . new mountain finance is a delaware corporation that was originally incorporated on june 29 , 2010. new mountain finance is a closed-end , non-diversified management investment company that has elected to be treated as a bdc under the 1940 act . as such , new mountain finance is obligated to comply with certain regulatory requirements . new mountain finance intends to be treated , and intends to comply with the requirements to qualify annually , as a regulated investment company ( `` ric `` ) under subchapter m of the internal revenue code of 1986 , as amended , ( the `` code `` ) commencing with its taxable year ended december 31 , 2011. aiv holdings is a delaware corporation that was originally incorporated on march 11 , 2011. guardian aiv , a delaware limited partnership , is aiv holdings ' sole stockholder . aiv holdings is a closed-end , non-diversified management investment company that has elected to be treated as a bdc under the 1940 act . as such , aiv holdings is obligated to comply with certain regulatory requirements . aiv holdings intends to be treated , and intends to comply with the requirements to qualify annually , as a ric under the code commencing with its taxable year ended december 31 , 2011. on may 19 , 2011 , new mountain finance priced its initial public offering ( the `` ipo `` ) of 7,272,727 shares of common stock at a public offering price of $ 13.75 per share . concurrently with the closing of the ipo and at the public offering price of $ 13.75 per share , new mountain finance sold an additional 2,172,000 shares of its common stock to certain executives and employees of , and other individuals affiliated with , new mountain capital in a concurrent private placement ( the `` concurrent private placement `` ) . additionally , 1,252,964 shares were issued to the limited partners of new mountain guardian partners , l.p. at that time for their ownership interest in the predecessor entities . in connection with new mountain finance 's ipo and through a series of transactions , nmf holdings owns all of the operations of the predecessor entities , including all of the assets and liabilities related to such operations . new mountain finance and aiv holdings are holding companies with no direct operations of their own , and their sole asset is their ownership in nmf holdings . new mountain finance and aiv holdings each entered into a joinder agreement with respect to the limited liability company agreement , as amended and restated , of nmf holdings , pursuant to which new mountain finance and aiv holdings were admitted as members of nmf holdings . new mountain finance acquired from nmf holdings , with the gross proceeds of the ipo and the concurrent private placement , common membership units ( `` units `` ) of nmf holdings ( the number of units are equal to the number 67 of shares of new mountain finance 's common stock sold in the ipo and the concurrent private placement ) . story_separator_special_tag this unrealized appreciation and unrealized depreciation is shown separately on the statements of operations of new mountain finance and aiv holdings , respectively . all expenses , including those of new mountain finance and aiv holdings , are paid and recorded by the operating company . expenses are allocated to new mountain finance and aiv holdings based on pro-rata ownership interest . in addition , the operating company paid all of the offering costs related to the ipo . new mountain finance and aiv holdings have recorded their portion of the offering costs as a direct reduction to net assets and the cost of their investment in the operating company . with respect to the expenses incident to any registration of shares of new mountain finance 's common stock issued in exchange for units of the operating company , aiv holdings is responsible for the expenses of any demand registration ( including underwriters ' discounts or commissions ) and their pro-rata share of any `` piggyback `` registration expenses . no shares have been exchanged since formation . monitoring of portfolio investments the operating company monitors the performance and financial trends of its portfolio companies on at least a quarterly basis . the operating company attempts to identify any developments at the portfolio company or within the industry or the macroeconomic environment that may alter any material element of its original investment strategy . the operating company uses an investment rating system to characterize and monitor the credit profile and expected level of returns on each investment in the portfolio . the operating company uses a four-level numeric rating scale as follows : investment rating 1—investment is performing above expectations ; investment rating 2—investment is performing in-line with expectations . all new loans are rated 2 at initial purchase ; investment rating 3—investment is performing below expectations and risk has increased since the original investment ; and investment rating 4—investment is performing substantially below expectations and risks have increased substantially since the original investment . 73 as of december 31 , 2011 , all investments in the operating company 's portfolio had an investment rating of 1 or 2 with the exception of one investment . as of december 31 , 2011 , the operating company 's original first lien position in ati acquisition company had an investment rating of 4 due to the underlying business encountering significant regulatory headwinds which have led to the portfolio company 's underperformance . at december 31 , 2011 , the operating company 's original first lien position in ati acquisition company was also put on non-accrual status due to the inability of the portfolio company to service its interest payments for the quarter then ended . as of december 31 , 2011 , this first lien debt investment had a cost basis of $ 4.4 million and a fair value of $ 0.8 million . additionally , the operating company has two super priority first lien debt investments in ati acquisition company with a combined cost basis and fair value of $ 1.6 million as of december 31 , 2011. neither super priority first lien positions are on non-accrual status . as of december 31 , 2011 , the operating company 's total investment in ati acquisition company had an aggregate cost basis of $ 5.9 million and an aggregate fair value of $ 2.4 million . portfolio and investment activity the fair value of the operating company 's investments was approximately $ 703.5 million in 55 portfolio companies at december 31 , 2011 , $ 441.1 million in 43 portfolio companies at december 31 , 2010 and $ 320.5 million in 24 portfolio companies at december 31 , 2009. for the year ended december 31 , 2011 , nmf holdings made approximately $ 493.3 million of new investments in 37 portfolio companies . for the year ended december 31 , 2010 , nmf holdings made approximately $ 332.7 million of new investments in 34 portfolio companies . for the year ended december 31 , 2009 , nmf holdings made approximately $ 268.4 million of new investments in 29 portfolio companies . for the year ended december 31 , 2011 , nmf holdings had approximately $ 146.4 million in debt repayments in existing portfolio companies and sales of securities in 17 portfolio companies aggregating approximately $ 85.6 million . in addition , during the year ended december 31 , 2011 , nmf holdings had a change in unrealized appreciation on 17 portfolio companies totaling approximately $ 6.1 million , which was offset by a change in unrealized depreciation on 48 portfolio companies totaling approximately $ 29.2 million . for the year ended december 31 , 2010 , nmf holdings had approximately $ 40.3 million in debt repayments in existing portfolio companies and sales of securities in 16 portfolio companies aggregating approximately $ 217.9 million . during the year ended december 31 , 2010 , nmf holdings had a change in unrealized appreciation on 36 portfolio companies totaling approximately $ 13.0 million , which was offset by a change in unrealized depreciation on 18 portfolio companies totaling approximately $ 53.0 million . for the year ended december 31 , 2009 , nmf holdings had approximately $ 10.1 million in debt repayments in existing portfolio companies and sales of securities in 12 portfolio companies aggregating approximately $ 115.3 million . during the year ended december 31 , 2009 , nmf holdings had a change in unrealized appreciation on 21 portfolio companies totaling approximately $ 69.3 million , which was offset by a change in unrealized depreciation on four portfolio companies totaling approximately $ 1.2 million . at december 31 , 2011 , the operating company 's weighted average unadjusted and adjusted yield to maturity was approximately 10.7 % and 13.1 % , respectively . recent accounting standards updates in may 2011 , the financial accounting standards board ( `` fasb `` ) issued accounting standards update no . 2011-04 , amendments to achieve common fair

liquidity and capital resources the primary use of existing funds and any funds raised in the future is expected to be for the operating company 's repayment of indebtedness , the operating company 's investments in portfolio companies , cash distributions to our unit holders or for other general corporate purposes . guardian aiv and new mountain guardian partners , l.p. contributed a portfolio to the operating company in connection with the ipo of new mountain finance , receiving 20,221,938 units of nmf holdings and 1,252,964 shares of new mountain finance , respectively . on may 19 , 2011 , new mountain finance priced its initial offering of 7,272,727 shares of common stock at a public offering price of $ 13.75 per share . concurrently with the closing of the ipo and at the public offering price of $ 13.75 per share , new mountain finance sold an additional 2,172,000 shares of its common stock to certain executives and employees of , and other individuals affiliated with , new mountain capital in the concurrent private placement . new mountain finance used the gross proceeds from the ipo and concurrent private placement to acquire units in nmf holdings . the operating company 's liquidity is generated and generally available through advances from the revolving credit facilities , from cash flows from operations , and , we expect , through periodic follow-on equity offerings of new mountain finance . at december 31 , 2011 , december 31 , 2010 and december 31 , 2009 , the operating company had cash and cash equivalents of approximately $ 15.3 million , $ 10.7 million and $ 4.1 million , respectively . cash ( used in ) provided by operating activities for the years ended december 31 , 2011 , december 31 , 2010 and december 31 , 2009 was approximately $ ( 316.3 ) million , $ 29.1 million and $ ( 157.2 ) million , respectively . we expect that all current liquidity needs by the operating company will be met with cash flows from operations and other activities .

markets in africa and brazil have opened at a similar pace compared to fiscal year 2015 , and crop qualities are mixed , with production volumes expected to be lower in most origins . although we are not seeing significant delays in customer orders , we expect shipping instructions to be weighted towards the second half of our fiscal year . in addition , while our own leaf inventories are well-managed , global tobacco leaf inventory volumes are high . this may have the effect of extending the duration of the oversupply conditions , despite reduced new crop production and a more positive outlook for demand from some customers based on recent recoveries in certain of their retail markets . looking beyond near-term market conditions , we are optimistic about the future as we believe there are several trends in our business that could provide opportunities for us to increase our market share and to offer additional services to our customers . we have recently seen an increase in the level of supply chain services , which include direct purchasing , that we provide our customers , notably in the united states , mexico , brazil , and the dominican republic . we believe these moves acknowledge the efficiencies and services that global leaf suppliers bring to the entire supply chain . in addition , we believe that compliant leaf requirements and reduction in sourcing complexity will continue to be important to our customers and should favor stable global leaf suppliers who are able to meet these requirements . 18 results of operations amounts described as net income and earnings per diluted share in the following discussion are attributable to universal corporation and exclude earnings related to non-controlling interests in subsidiaries . the total for segment operating income referred to in the discussion below is a non-gaap financial measure . this measure is not a financial measure calculated in accordance with gaap and should not be considered as a substitute for net income , operating income , cash flows from operating activities or any other operating performance measure calculated in accordance with gaap , and it may not be comparable to similarly titled measures reported by other companies . we have provided a reconciliation of the total for segment operating income to consolidated operating income in note 15 . `` operating segments `` to the consolidated financial statements in item 8. we evaluate our segment performance excluding certain significant charges or credits . we believe this measure , which excludes these items that we believe are not indicative of our core operating results , provides investors with important information that is useful in understanding our business results and trends . fiscal year ended march 31 , 2015 , compared to the fiscal year ended march 31 , 2014 net income for the fiscal year ended march 31 , 2015 , was $ 114.6 million , or $ 4.06 per diluted share , compared with last year 's net income of $ 149.0 million , or $ 5.25 per diluted share . last year 's results included a gain of $ 81.6 million before tax ( $ 53.1 million after tax , or $ 1.87 per diluted share ) , from the favorable outcome of litigation in brazil related to previous years ' excise tax credits . results for the current fiscal year included a further gain related to those tax credits , of $ 12.7 million before tax ( $ 0.29 per diluted share ) recorded in the fourth fiscal quarter from updated projections of the utilization of the credits before expiration . the current year also included an income tax benefit of $ 8.0 million ( $ 0.28 per diluted share ) arising from a subsidiary 's payment of a portion of a fine following the resolution of a court case . pretax restructuring costs of $ 4.9 million ( $ 0.11 per diluted share ) and $ 6.7 million ( $ 0.15 per diluted share ) were also incurred for fiscal years 2015 and 2014 , respectively . excluding those items in both years , net income for the fiscal year increased $ 1.2 million ( $ 0.07 per diluted share ) compared to the same period last year . segment operating income , which excludes those items , was $ 167.2 million for fiscal year 2015 , a decrease of $ 8.0 million from the prior year . that reduction was primarily attributable to this year 's lower sales volumes , partially mitigated by a reduction in selling , general , and administrative costs . revenues of $ 2.3 billion for fiscal year 2015 declined 11 % compared with the previous year , driven mainly by those lower overall volumes and modestly lower green leaf costs . flue-cured and burley leaf tobacco operations other regions operating income for the other regions segment for the fiscal year ended march 31 , 2015 , was $ 125.8 million , down 6 % compared to $ 133.4 million in the previous fiscal year . the decrease was attributable mainly to reduced sales volumes in all regions along with inventory writedowns , primarily in africa and south america , reflecting this year 's oversupply market conditions . the impact of those factors was somewhat mitigated by improved gross margins , particularly in brazil , where volatile markets increased green leaf costs last year , as well as benefits from lower selling , general and administrative costs . results for europe were also negatively influenced by currency translation effects from a stronger u.s. dollar . selling , general , and administrative expenses for the segment declined for the fiscal year , mostly from lower currency remeasurement and exchange losses in the philippines and brazil , lower provisions for supplier advances , and positive comparisons of value-added tax valuation allowances , partly offset by higher customer claims . story_separator_special_tag in addition to our operating requirements for working capital , we expect to spend around $ 60 to $ 65 million during fiscal year 2016 for capital expenditures to maintain our facilities , complete the construction of a new manufacturing facility for our food ingredients business , and invest in opportunities to grow and improve our tobacco business . we also expect to provide about $ 12 million in funding to our pension plans . we have no long-term debt maturing before fiscal year 2020. after balancing our capital structure , any excess cash flow from operations after dividends and capital expenditures will be available to fund expansion , purchase our stock , or otherwise enhance shareholder value . story_separator_special_tag were unused and available to support seasonal working capital needs . we also have an active , undenominated universal shelf registration filed with the sec in november 2014 , that provides for future issuance of additional debt or equity securities . we have no long-term debt maturing in fiscal year 2016. derivatives from time to time , we use interest rate swap agreements to manage our exposure to changes in interest rates . upon repayment of outstanding term loans in december 2014 , we terminated $ 74 million notional amount of swap agreements . the fair value of these swap agreements was a liability of approximately $ 0.6 million . in january 2015 , we entered into interest rate swap agreements that convert the variable benchmark libor rate on the new term loans entered into in december 2014 to a fixed rate . with the swap agreements in place , the effective interest rates on the $ 150 million five-year term loan and the $ 220 million seven-year term loan were 2.95 % and 3.49 % , respectively , as of march 31 , 2015. these agreements were entered into to eliminate the variability of cash flows in the interest payments on our variable-rate five- and seven-year term loans and are accounted for as cash flow hedges . under the swap agreements , we receive variable rate interest and pay fixed rate interest . at march 31 , 2015 , the fair value of our open interest rate hedge swaps was a net liability of approximately $ 3 million . 24 we also enter forward contracts from time to time to hedge certain foreign currency exposures , primarily related to forecast purchases of tobacco and related processing costs in brazil , as well as our net monetary asset exposure in local currency there . we generally account for our hedges of forecast tobacco purchases as cash flow hedges . at march 31 , 2015 , the fair value of those open contracts was a net liability of approximately $ 0.3 million . we also had other forward contracts outstanding that were not designated as hedges , and the fair value of those contracts was a net asset of approximately $ 5 million at march 31 , 2015. for additional information , see note 9 to the consolidated financial statements in item 8. pension funding funds supporting our erisa-regulated u.s. defined benefit pension plan increased by $ 10 million during fiscal year 2015 to $ 204 million , as contributions and asset returns exceeded benefit payments . following the changes to the plan benefit formula during fiscal year 2014 , the accumulated benefit obligation ( “ abo ” ) and the projected benefit obligation ( “ pbo ” ) were both approximately $ 230 million as of march 31 , 2015 . the abo and pbo are calculated on the basis of certain assumptions that are outlined in note 11 to the consolidated financial statements in item 8. we expect to make contributions of about $ 12 million to our pension plans , including $ 5 million to our erisa-regulated plan , during the next year . it is our policy to regularly monitor the performance of the funds and to review the adequacy of our funding and plan contributions . contractual obligations our contractual obligations as of march 31 , 2015 , were as follows : replace_table_token_3_th ( 1 ) includes interest payments . interest payments on $ 429.9 million of variable rate debt were estimated based on rates as of march 31 , 2015 . the company has entered interest rate swaps that effectively convert the interest payments on the $ 370.0 million outstanding balance of its two bank term loans from variable to fixed . the fixed rate has been used to determine the contractual interest payments for all periods . in addition to principal and interest payments on notes payable and long-term debt , our contractual obligations include operating lease payments , inventory purchase commitments , and capital expenditure commitments . operating lease obligations represent minimum payments due under leases for various production , storage , distribution , and other facilities , as well as vehicles and equipment . tobacco inventory purchase obligations primarily represent contracts to purchase tobacco from farmers . the amounts shown above are estimates since actual quantities purchased will depend on crop yield , and prices will depend on the quality of the tobacco delivered . about 43 % of our crop year contracts to purchase tobacco are with farmers in brazil . we have partially funded our tobacco purchases in brazil and in other regions with advances to farmers and other suppliers , which totaled approximately $ 115 million , net of allowances , at march 31 , 2015 . in addition , we have guaranteed bank loans to farmers in brazil that relate to a portion of our tobacco purchase obligations there . at march 31 , 2015 , we were contingently liable under those guarantees for outstanding balances of approximately $ 17 million ( including accrued interest ) , and we had recorded a liability of approximately $ 2 million for the fair value of those guarantees . as tobacco is purchased and the related bank loans are repaid ,

liquidity and capital resources the primary use of existing funds and any funds raised in the future is expected to be for the operating company 's repayment of indebtedness , the operating company 's investments in portfolio companies , cash distributions to our unit holders or for other general corporate purposes . guardian aiv and new mountain guardian partners , l.p. contributed a portfolio to the operating company in connection with the ipo of new mountain finance , receiving 20,221,938 units of nmf holdings and 1,252,964 shares of new mountain finance , respectively . on may 19 , 2011 , new mountain finance priced its initial offering of 7,272,727 shares of common stock at a public offering price of $ 13.75 per share . concurrently with the closing of the ipo and at the public offering price of $ 13.75 per share , new mountain finance sold an additional 2,172,000 shares of its common stock to certain executives and employees of , and other individuals affiliated with , new mountain capital in the concurrent private placement . new mountain finance used the gross proceeds from the ipo and concurrent private placement to acquire units in nmf holdings . the operating company 's liquidity is generated and generally available through advances from the revolving credit facilities , from cash flows from operations , and , we expect , through periodic follow-on equity offerings of new mountain finance . at december 31 , 2011 , december 31 , 2010 and december 31 , 2009 , the operating company had cash and cash equivalents of approximately $ 15.3 million , $ 10.7 million and $ 4.1 million , respectively . cash ( used in ) provided by operating activities for the years ended december 31 , 2011 , december 31 , 2010 and december 31 , 2009 was approximately $ ( 316.3 ) million , $ 29.1 million and $ ( 157.2 ) million , respectively . we expect that all current liquidity needs by the operating company will be met with cash flows from operations and other activities .

markets in africa and brazil have opened at a similar pace compared to fiscal year 2015 , and crop qualities are mixed , with production volumes expected to be lower in most origins . although we are not seeing significant delays in customer orders , we expect shipping instructions to be weighted towards the second half of our fiscal year . in addition , while our own leaf inventories are well-managed , global tobacco leaf inventory volumes are high . this may have the effect of extending the duration of the oversupply conditions , despite reduced new crop production and a more positive outlook for demand from some customers based on recent recoveries in certain of their retail markets . looking beyond near-term market conditions , we are optimistic about the future as we believe there are several trends in our business that could provide opportunities for us to increase our market share and to offer additional services to our customers . we have recently seen an increase in the level of supply chain services , which include direct purchasing , that we provide our customers , notably in the united states , mexico , brazil , and the dominican republic . we believe these moves acknowledge the efficiencies and services that global leaf suppliers bring to the entire supply chain . in addition , we believe that compliant leaf requirements and reduction in sourcing complexity will continue to be important to our customers and should favor stable global leaf suppliers who are able to meet these requirements . 18 results of operations amounts described as net income and earnings per diluted share in the following discussion are attributable to universal corporation and exclude earnings related to non-controlling interests in subsidiaries . the total for segment operating income referred to in the discussion below is a non-gaap financial measure . this measure is not a financial measure calculated in accordance with gaap and should not be considered as a substitute for net income , operating income , cash flows from operating activities or any other operating performance measure calculated in accordance with gaap , and it may not be comparable to similarly titled measures reported by other companies . we have provided a reconciliation of the total for segment operating income to consolidated operating income in note 15 . `` operating segments `` to the consolidated financial statements in item 8. we evaluate our segment performance excluding certain significant charges or credits . we believe this measure , which excludes these items that we believe are not indicative of our core operating results , provides investors with important information that is useful in understanding our business results and trends . fiscal year ended march 31 , 2015 , compared to the fiscal year ended march 31 , 2014 net income for the fiscal year ended march 31 , 2015 , was $ 114.6 million , or $ 4.06 per diluted share , compared with last year 's net income of $ 149.0 million , or $ 5.25 per diluted share . last year 's results included a gain of $ 81.6 million before tax ( $ 53.1 million after tax , or $ 1.87 per diluted share ) , from the favorable outcome of litigation in brazil related to previous years ' excise tax credits . results for the current fiscal year included a further gain related to those tax credits , of $ 12.7 million before tax ( $ 0.29 per diluted share ) recorded in the fourth fiscal quarter from updated projections of the utilization of the credits before expiration . the current year also included an income tax benefit of $ 8.0 million ( $ 0.28 per diluted share ) arising from a subsidiary 's payment of a portion of a fine following the resolution of a court case . pretax restructuring costs of $ 4.9 million ( $ 0.11 per diluted share ) and $ 6.7 million ( $ 0.15 per diluted share ) were also incurred for fiscal years 2015 and 2014 , respectively . excluding those items in both years , net income for the fiscal year increased $ 1.2 million ( $ 0.07 per diluted share ) compared to the same period last year . segment operating income , which excludes those items , was $ 167.2 million for fiscal year 2015 , a decrease of $ 8.0 million from the prior year . that reduction was primarily attributable to this year 's lower sales volumes , partially mitigated by a reduction in selling , general , and administrative costs . revenues of $ 2.3 billion for fiscal year 2015 declined 11 % compared with the previous year , driven mainly by those lower overall volumes and modestly lower green leaf costs . flue-cured and burley leaf tobacco operations other regions operating income for the other regions segment for the fiscal year ended march 31 , 2015 , was $ 125.8 million , down 6 % compared to $ 133.4 million in the previous fiscal year . the decrease was attributable mainly to reduced sales volumes in all regions along with inventory writedowns , primarily in africa and south america , reflecting this year 's oversupply market conditions . the impact of those factors was somewhat mitigated by improved gross margins , particularly in brazil , where volatile markets increased green leaf costs last year , as well as benefits from lower selling , general and administrative costs . results for europe were also negatively influenced by currency translation effects from a stronger u.s. dollar . selling , general , and administrative expenses for the segment declined for the fiscal year , mostly from lower currency remeasurement and exchange losses in the philippines and brazil , lower provisions for supplier advances , and positive comparisons of value-added tax valuation allowances , partly offset by higher customer claims . story_separator_special_tag in addition to our operating requirements for working capital , we expect to spend around $ 60 to $ 65 million during fiscal year 2016 for capital expenditures to maintain our facilities , complete the construction of a new manufacturing facility for our food ingredients business , and invest in opportunities to grow and improve our tobacco business . we also expect to provide about $ 12 million in funding to our pension plans . we have no long-term debt maturing before fiscal year 2020. after balancing our capital structure , any excess cash flow from operations after dividends and capital expenditures will be available to fund expansion , purchase our stock , or otherwise enhance shareholder value . story_separator_special_tag were unused and available to support seasonal working capital needs . we also have an active , undenominated universal shelf registration filed with the sec in november 2014 , that provides for future issuance of additional debt or equity securities . we have no long-term debt maturing in fiscal year 2016. derivatives from time to time , we use interest rate swap agreements to manage our exposure to changes in interest rates . upon repayment of outstanding term loans in december 2014 , we terminated $ 74 million notional amount of swap agreements . the fair value of these swap agreements was a liability of approximately $ 0.6 million . in january 2015 , we entered into interest rate swap agreements that convert the variable benchmark libor rate on the new term loans entered into in december 2014 to a fixed rate . with the swap agreements in place , the effective interest rates on the $ 150 million five-year term loan and the $ 220 million seven-year term loan were 2.95 % and 3.49 % , respectively , as of march 31 , 2015. these agreements were entered into to eliminate the variability of cash flows in the interest payments on our variable-rate five- and seven-year term loans and are accounted for as cash flow hedges . under the swap agreements , we receive variable rate interest and pay fixed rate interest . at march 31 , 2015 , the fair value of our open interest rate hedge swaps was a net liability of approximately $ 3 million . 24 we also enter forward contracts from time to time to hedge certain foreign currency exposures , primarily related to forecast purchases of tobacco and related processing costs in brazil , as well as our net monetary asset exposure in local currency there . we generally account for our hedges of forecast tobacco purchases as cash flow hedges . at march 31 , 2015 , the fair value of those open contracts was a net liability of approximately $ 0.3 million . we also had other forward contracts outstanding that were not designated as hedges , and the fair value of those contracts was a net asset of approximately $ 5 million at march 31 , 2015. for additional information , see note 9 to the consolidated financial statements in item 8. pension funding funds supporting our erisa-regulated u.s. defined benefit pension plan increased by $ 10 million during fiscal year 2015 to $ 204 million , as contributions and asset returns exceeded benefit payments . following the changes to the plan benefit formula during fiscal year 2014 , the accumulated benefit obligation ( “ abo ” ) and the projected benefit obligation ( “ pbo ” ) were both approximately $ 230 million as of march 31 , 2015 . the abo and pbo are calculated on the basis of certain assumptions that are outlined in note 11 to the consolidated financial statements in item 8. we expect to make contributions of about $ 12 million to our pension plans , including $ 5 million to our erisa-regulated plan , during the next year . it is our policy to regularly monitor the performance of the funds and to review the adequacy of our funding and plan contributions . contractual obligations our contractual obligations as of march 31 , 2015 , were as follows : replace_table_token_3_th ( 1 ) includes interest payments . interest payments on $ 429.9 million of variable rate debt were estimated based on rates as of march 31 , 2015 . the company has entered interest rate swaps that effectively convert the interest payments on the $ 370.0 million outstanding balance of its two bank term loans from variable to fixed . the fixed rate has been used to determine the contractual interest payments for all periods . in addition to principal and interest payments on notes payable and long-term debt , our contractual obligations include operating lease payments , inventory purchase commitments , and capital expenditure commitments . operating lease obligations represent minimum payments due under leases for various production , storage , distribution , and other facilities , as well as vehicles and equipment . tobacco inventory purchase obligations primarily represent contracts to purchase tobacco from farmers . the amounts shown above are estimates since actual quantities purchased will depend on crop yield , and prices will depend on the quality of the tobacco delivered . about 43 % of our crop year contracts to purchase tobacco are with farmers in brazil . we have partially funded our tobacco purchases in brazil and in other regions with advances to farmers and other suppliers , which totaled approximately $ 115 million , net of allowances , at march 31 , 2015 . in addition , we have guaranteed bank loans to farmers in brazil that relate to a portion of our tobacco purchase obligations there . at march 31 , 2015 , we were contingently liable under those guarantees for outstanding balances of approximately $ 17 million ( including accrued interest ) , and we had recorded a liability of approximately $ 2 million for the fair value of those guarantees . as tobacco is purchased and the related bank loans are repaid ,

cash flow our operations generated about $ 226.5 million in operating cash flows in fiscal year 2015. that amount was about $ 230 million higher than the $ 3.5 million we required during the same period last fiscal year , primarily due to lower crop purchase volumes and green leaf prices . during the fiscal year ended march 31 , 2015 , we increased our cash balances by $ 85.3 million , spent $ 58.4 million on capital projects , returned $ 94.9 million to shareholders in the form of dividends and repurchases of our common and preferred stock , and refinanced a major portion of our capital structure , extending our debt maturities . at march 31 , 2015 , cash balances totaled $ 248.8 million . working capital working capital at march 31 , 2015 , was about $ 1.4 billion , up $ 145.4 million from last year 's level . the $ 85.3 million increase in cash and cash equivalents was partially offset by fewer advances to suppliers on smaller anticipated 2015 crops , down $ 19.7 million . we extended our debt maturities as part of our $ 800 million refinancing in december 2014 and , as a result , we have no principal payments due on our long-term debt over the next twelve months . tobacco inventories of $ 636.5 million at march 31 , 2015 , were relatively flat compared to inventory levels at the end of the prior fiscal year . we usually finance inventory with a mix of cash , notes payable , and customer deposits , depending on our borrowing capabilities , interest rates , and exchange rates , as well as those of our customers . we generally do not purchase material quantities of tobacco on a speculative basis . however , when we contract directly with farmers , we are often obligated to buy all stalk positions , which may contain less marketable leaf styles .

sg & a is an important financial metric that we analyze to help us evaluate the contribution of our selling , marketing and proposal activities to revenue generation . 54 other income and expenses other income and expenses includes interest income , interest expense , changes in fair value of certain financial investments , gains/losses on sale of available-for-sale equity securities and losses from equity method investments . income tax expense our effective tax rates are substantially lower than the statutory rates primarily due to research and development tax credits . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . when we prepare these consolidated financial statements , we are required 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 revenue and expenses during the reporting period . some of our accounting policies require that we make subjective judgments , including estimates that involve matters that are inherently uncertain . our most critical estimates include those related to revenue recognition , inventories and reserves for excess and obsolescence , self-insured liabilities , accounting for stock-based awards , and income taxes . we base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . our actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting estimates affect our more significant judgments and estimates used in preparing our consolidated financial statements . see note 1 of the notes to consolidated financial statements for our organization and significant accounting policies . there have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements . revenue recognition significant management judgments and estimates must be made and used in connection with the recognition of revenue in any accounting period . material differences in the amount of revenue in any given period may result if these judgments or estimates prove to be incorrect or if management 's estimates change on the basis of development of the business or market conditions . management judgments and estimates have been applied consistently and have been reliable historically . we believe that there are two key factors which impact the reliability of management 's estimates . the first of those key factors is that the terms of our contracts are typically less than six months . the short-term nature of such contracts reduces the risk that material changes in accounting estimates will occur on the basis of market conditions or other factors . the second key factor is that we have hundreds of contracts in any given accounting period , which reduces the risk that any one change in an accounting estimate on one or several contracts would have a material impact on our consolidated financial statements or our two reporting segments ' measures of profit . the substantial majority of our revenue is generated pursuant to written contractual arrangements to design , develop , manufacture and or modify complex products , and to provide related engineering , technical and other services according to customer specifications . these contracts may be fixed price or cost-reimbursable . we consider all contracts for treatment in accordance with authoritative guidance for contracts with multiple deliverables . 55 revenue from product sales not under contractual arrangement is recognized at the time title and the risk and rewards of ownership pass , which typically occurs when the products are shipped and collection is reasonably assured . revenue and profits on fixed-price contracts are recognized using percentage-of-completion methods of accounting . revenue and profits on fixed-price production contracts , whose units are produced and delivered in a continuous or sequential process , are recorded as units are delivered based on their selling prices , or the units-of-delivery method . revenue and profits on other fixed-price contracts with significant engineering as well as production requirements are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract , or the cost-to-cost method . under percentage-of-completion methods of accounting , a single estimated total profit margin is used to recognize profit for each contract over its entire period of performance , which can exceed one year . accounting for revenue and profits on a fixed-price contract requires the preparation of estimates of ( 1 ) the total contract revenue , ( 2 ) the total costs at completion , which is equal to the sum of the actual incurred costs to date on the contract and the estimated costs to complete the contract 's statement of work and ( 3 ) the measurement of progress towards completion . the estimated profit or loss at completion on a contract is equal to the difference between the total estimated contract revenue and the total estimated cost at completion . under the units-of-delivery method , sales on a fixed-price type contract are recorded as the units are delivered during the period based on their contractual selling prices . under the cost-to-cost method , sales on a fixed-price type contract are recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total estimated costs at completion , multiplied by ( a ) the total estimated contract revenue , less ( b ) the cumulative sales recognized in prior periods . story_separator_special_tag uas gross margin increased $ 1.7 million , or 2 % , to $ 80.8 million for the fiscal year ended april 30 , 2014 , primarily due to an increase in sales volume . as a percentage of revenue , gross margin for uas decreased from 41 % to 39 % . ees gross margin decreased $ 0.7 million , or 5 % , to $ 12.8 million for the fiscal year ended april 30 , 2014. as a percentage of revenue , ees gross margin increased from 29 % to 30 % . selling , general and administrative . sg & a expense for the fiscal year ended april 30 , 2014 was $ 55.7 million , or 22 % of revenue , compared to sg & a expense of $ 51.5 million , or 21 % of revenue , for the fiscal year ended april 30 , 2013. sg & a expense increased by $ 4.2 million primarily due to impairment costs of tier-ii related assets and higher incentive compensation as a result of achieving certain measures of financial performance . research and development . r & d expense for the fiscal year ended april 30 , 2014 was $ 25.5 million , or 10 % of revenue , compared to r & d expense of $ 37.2 million , or 15 % of revenue , for the fiscal year ended april 30 , 2013. r & d expense decreased primarily due to decreased investments in various technology development initiatives . interest income . interest income for the fiscal year ended april 30 , 2014 was $ 0.9 million , as compared to $ 0.7 million for the fiscal year ended april 30 , 2013. other income . other income for the fiscal year ended april 30 , 2014 was $ 1.6 million , as compared to $ 6.2 million for the fiscal year ended april 30 , 2013. other income primarily represents the change in fair value of the conversion feature of our investment in convertible bonds . income tax expense . our effective income tax expense rate was 7.9 % for the fiscal year ended april 30 , 2014 , as compared to an effective income expense tax rate of 3.2 % for the fiscal year ended april 30 , 2013. the increase in the effective income tax expense rate was primarily due to higher taxable income and lower r & d tax credits . liquidity and capital resources we currently have no material cash commitments , except for normal recurring trade payables , accrued expenses and ongoing research and development costs , all of which we anticipate funding through our existing working capital and funds provided by operating activities . the majority of our purchase obligations are pursuant to funded contractual arrangements with our customers . in addition , we do not currently anticipate significant investment in property , plant and equipment , and we believe that our existing cash , cash equivalents , cash provided by operating activities and other financing sources will be sufficient to meet our anticipated working capital , capital expenditure and debt service requirements , if any , during the next twelve months . there can be no assurance , however , that our business will continue to generate cash flow at current levels . if we are unable to generate sufficient cash flow from operations , then we may be required to sell assets , reduce capital expenditures or obtain additional financing . we anticipate that existing sources of liquidity and cash flows from operations will be sufficient to satisfy our cash needs for the foreseeable future . our primary liquidity needs are for financing working capital , investing in capital expenditures , supporting product development efforts , introducing new products and enhancing existing products , and marketing acceptance and adoption of our products and services . our future capital requirements , to a certain extent , are also subject to general conditions in or affecting the defense and electric vehicle 61 industries and are subject to general economic , political , financial , competitive , legislative and regulatory factors that are beyond our control . moreover , to the extent that existing cash , cash equivalents , cash from operations , and cash from short-term borrowing are insufficient to fund our future activities , we may need to raise additional funds through public or private equity or debt financing . in addition , we may also need to seek additional equity funding or debt financing if we become a party to any agreement or letter of intent for potential investments in , or acquisitions of , businesses , services or technologies . our working capital requirements vary by contract type . on cost-plus-fee programs , we typically bill our incurred costs and fees monthly as work progresses , and therefore working capital investment is minimal . on fixed-price contracts , we typically are paid as we deliver products , and working capital is needed to fund labor and expenses incurred during the lead time from contract award until contract deliveries begin . story_separator_special_tag size= `` 2 `` > revenue from contracts with customers ( topic 606 ) . the new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized . the core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . this asu is effective for annual periods beginning after december 15 , 2017 and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption . we are evaluating the potential impact of this adoption on our consolidated financial statements . in june 2014 , the fasb issued asu no . 2014-12 , compensation—stock compensation (

cash flow our operations generated about $ 226.5 million in operating cash flows in fiscal year 2015. that amount was about $ 230 million higher than the $ 3.5 million we required during the same period last fiscal year , primarily due to lower crop purchase volumes and green leaf prices . during the fiscal year ended march 31 , 2015 , we increased our cash balances by $ 85.3 million , spent $ 58.4 million on capital projects , returned $ 94.9 million to shareholders in the form of dividends and repurchases of our common and preferred stock , and refinanced a major portion of our capital structure , extending our debt maturities . at march 31 , 2015 , cash balances totaled $ 248.8 million . working capital working capital at march 31 , 2015 , was about $ 1.4 billion , up $ 145.4 million from last year 's level . the $ 85.3 million increase in cash and cash equivalents was partially offset by fewer advances to suppliers on smaller anticipated 2015 crops , down $ 19.7 million . we extended our debt maturities as part of our $ 800 million refinancing in december 2014 and , as a result , we have no principal payments due on our long-term debt over the next twelve months . tobacco inventories of $ 636.5 million at march 31 , 2015 , were relatively flat compared to inventory levels at the end of the prior fiscal year . we usually finance inventory with a mix of cash , notes payable , and customer deposits , depending on our borrowing capabilities , interest rates , and exchange rates , as well as those of our customers . we generally do not purchase material quantities of tobacco on a speculative basis . however , when we contract directly with farmers , we are often obligated to buy all stalk positions , which may contain less marketable leaf styles .

sg & a is an important financial metric that we analyze to help us evaluate the contribution of our selling , marketing and proposal activities to revenue generation . 54 other income and expenses other income and expenses includes interest income , interest expense , changes in fair value of certain financial investments , gains/losses on sale of available-for-sale equity securities and losses from equity method investments . income tax expense our effective tax rates are substantially lower than the statutory rates primarily due to research and development tax credits . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . when we prepare these consolidated financial statements , we are required 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 revenue and expenses during the reporting period . some of our accounting policies require that we make subjective judgments , including estimates that involve matters that are inherently uncertain . our most critical estimates include those related to revenue recognition , inventories and reserves for excess and obsolescence , self-insured liabilities , accounting for stock-based awards , and income taxes . we base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . our actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting estimates affect our more significant judgments and estimates used in preparing our consolidated financial statements . see note 1 of the notes to consolidated financial statements for our organization and significant accounting policies . there have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements . revenue recognition significant management judgments and estimates must be made and used in connection with the recognition of revenue in any accounting period . material differences in the amount of revenue in any given period may result if these judgments or estimates prove to be incorrect or if management 's estimates change on the basis of development of the business or market conditions . management judgments and estimates have been applied consistently and have been reliable historically . we believe that there are two key factors which impact the reliability of management 's estimates . the first of those key factors is that the terms of our contracts are typically less than six months . the short-term nature of such contracts reduces the risk that material changes in accounting estimates will occur on the basis of market conditions or other factors . the second key factor is that we have hundreds of contracts in any given accounting period , which reduces the risk that any one change in an accounting estimate on one or several contracts would have a material impact on our consolidated financial statements or our two reporting segments ' measures of profit . the substantial majority of our revenue is generated pursuant to written contractual arrangements to design , develop , manufacture and or modify complex products , and to provide related engineering , technical and other services according to customer specifications . these contracts may be fixed price or cost-reimbursable . we consider all contracts for treatment in accordance with authoritative guidance for contracts with multiple deliverables . 55 revenue from product sales not under contractual arrangement is recognized at the time title and the risk and rewards of ownership pass , which typically occurs when the products are shipped and collection is reasonably assured . revenue and profits on fixed-price contracts are recognized using percentage-of-completion methods of accounting . revenue and profits on fixed-price production contracts , whose units are produced and delivered in a continuous or sequential process , are recorded as units are delivered based on their selling prices , or the units-of-delivery method . revenue and profits on other fixed-price contracts with significant engineering as well as production requirements are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract , or the cost-to-cost method . under percentage-of-completion methods of accounting , a single estimated total profit margin is used to recognize profit for each contract over its entire period of performance , which can exceed one year . accounting for revenue and profits on a fixed-price contract requires the preparation of estimates of ( 1 ) the total contract revenue , ( 2 ) the total costs at completion , which is equal to the sum of the actual incurred costs to date on the contract and the estimated costs to complete the contract 's statement of work and ( 3 ) the measurement of progress towards completion . the estimated profit or loss at completion on a contract is equal to the difference between the total estimated contract revenue and the total estimated cost at completion . under the units-of-delivery method , sales on a fixed-price type contract are recorded as the units are delivered during the period based on their contractual selling prices . under the cost-to-cost method , sales on a fixed-price type contract are recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total estimated costs at completion , multiplied by ( a ) the total estimated contract revenue , less ( b ) the cumulative sales recognized in prior periods . story_separator_special_tag uas gross margin increased $ 1.7 million , or 2 % , to $ 80.8 million for the fiscal year ended april 30 , 2014 , primarily due to an increase in sales volume . as a percentage of revenue , gross margin for uas decreased from 41 % to 39 % . ees gross margin decreased $ 0.7 million , or 5 % , to $ 12.8 million for the fiscal year ended april 30 , 2014. as a percentage of revenue , ees gross margin increased from 29 % to 30 % . selling , general and administrative . sg & a expense for the fiscal year ended april 30 , 2014 was $ 55.7 million , or 22 % of revenue , compared to sg & a expense of $ 51.5 million , or 21 % of revenue , for the fiscal year ended april 30 , 2013. sg & a expense increased by $ 4.2 million primarily due to impairment costs of tier-ii related assets and higher incentive compensation as a result of achieving certain measures of financial performance . research and development . r & d expense for the fiscal year ended april 30 , 2014 was $ 25.5 million , or 10 % of revenue , compared to r & d expense of $ 37.2 million , or 15 % of revenue , for the fiscal year ended april 30 , 2013. r & d expense decreased primarily due to decreased investments in various technology development initiatives . interest income . interest income for the fiscal year ended april 30 , 2014 was $ 0.9 million , as compared to $ 0.7 million for the fiscal year ended april 30 , 2013. other income . other income for the fiscal year ended april 30 , 2014 was $ 1.6 million , as compared to $ 6.2 million for the fiscal year ended april 30 , 2013. other income primarily represents the change in fair value of the conversion feature of our investment in convertible bonds . income tax expense . our effective income tax expense rate was 7.9 % for the fiscal year ended april 30 , 2014 , as compared to an effective income expense tax rate of 3.2 % for the fiscal year ended april 30 , 2013. the increase in the effective income tax expense rate was primarily due to higher taxable income and lower r & d tax credits . liquidity and capital resources we currently have no material cash commitments , except for normal recurring trade payables , accrued expenses and ongoing research and development costs , all of which we anticipate funding through our existing working capital and funds provided by operating activities . the majority of our purchase obligations are pursuant to funded contractual arrangements with our customers . in addition , we do not currently anticipate significant investment in property , plant and equipment , and we believe that our existing cash , cash equivalents , cash provided by operating activities and other financing sources will be sufficient to meet our anticipated working capital , capital expenditure and debt service requirements , if any , during the next twelve months . there can be no assurance , however , that our business will continue to generate cash flow at current levels . if we are unable to generate sufficient cash flow from operations , then we may be required to sell assets , reduce capital expenditures or obtain additional financing . we anticipate that existing sources of liquidity and cash flows from operations will be sufficient to satisfy our cash needs for the foreseeable future . our primary liquidity needs are for financing working capital , investing in capital expenditures , supporting product development efforts , introducing new products and enhancing existing products , and marketing acceptance and adoption of our products and services . our future capital requirements , to a certain extent , are also subject to general conditions in or affecting the defense and electric vehicle 61 industries and are subject to general economic , political , financial , competitive , legislative and regulatory factors that are beyond our control . moreover , to the extent that existing cash , cash equivalents , cash from operations , and cash from short-term borrowing are insufficient to fund our future activities , we may need to raise additional funds through public or private equity or debt financing . in addition , we may also need to seek additional equity funding or debt financing if we become a party to any agreement or letter of intent for potential investments in , or acquisitions of , businesses , services or technologies . our working capital requirements vary by contract type . on cost-plus-fee programs , we typically bill our incurred costs and fees monthly as work progresses , and therefore working capital investment is minimal . on fixed-price contracts , we typically are paid as we deliver products , and working capital is needed to fund labor and expenses incurred during the lead time from contract award until contract deliveries begin . story_separator_special_tag size= `` 2 `` > revenue from contracts with customers ( topic 606 ) . the new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized . the core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . this asu is effective for annual periods beginning after december 15 , 2017 and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption . we are evaluating the potential impact of this adoption on our consolidated financial statements . in june 2014 , the fasb issued asu no . 2014-12 , compensation—stock compensation (

cash flows the following table provides our cash flow data as of : replace_table_token_9_th cash provided by operating activities . net cash provided by operating activities for the fiscal year ended april 30 , 2015 increased by $ 5.4 million to $ 39.4 million , compared to net cash provided by operating activities of $ 34.0 million for the fiscal year ended april 30 , 2014. this increase in net cash provided by operating activities was primarily due to higher working capital generated of $ 16.1 million , a higher loss on disposal of fixed assets of $ 3.7 million and a change in fair value of the cybaero notes of $ 1.7 million , partially offset by lower net income of $ 10.8 million , lower impairment of long-lived assets of $ 2.9 million , lower tax benefits of $ 2.3 million and lower depreciation expense of $ 0.8 million . net cash provided by operating activities for the fiscal year ended april 30 , 2014 increased by $ 4.8 million to $ 34.0 million , compared to net cash provided by operating activities of $ 29.2 million for the fiscal year ended april 30 , 2013. this increase in net cash provided by operating activities was primarily due to the change in fair value of the cybaero notes of $ 4.4 million , impairment of tier-ii related assets of $ 3.3 million , higher net income of $ 3.3 million and higher working capital generated of $ 2.9 million , partially offset by higher deferred income taxes of $ 7.0 million and lower depreciation expense of $ 1.8 million . cash ( used in ) provided by investing activities .

these rich media experiences include games , movies , music , television , and social interactions with family , friends , and colleagues . at microsoft , our approach is to simplify and increase the accessibility of these entertainment experiences to broaden market penetration of our software and services . we invest significant resources in partnerships , content , windows phone , xbox , and xbox live . search over the last two decades , web content and social connections have increased dramatically as people spend more time online , while discoverability and accessibility has been transforming from direct navigation and document links . there is significant opportunity to deliver differentiated products that helps users make better decisions and 23 part ii item 7 complete tasks more simply when using pc , mobile , and other devices . our approach is to use machine learning to try to understand user intent , and differentiate our product by focusing on the integration of visual , social , and other elements which simplifies people 's interaction with the internet . we invest significant resources in bing , sharepoint , windows , and windows phone . communications and productivity personal and business productivity has been transformed by the ubiquity of computing and software tools . over the last decade , microsoft redefined software productivity beyond the rich office client on the pc . productivity scenarios now encompass unified communications , business intelligence , collaboration , content management , and relationship management , which are increasingly powered by server-side applications . these server applications can be hosted by the customer , a partner , or by microsoft in the cloud . there are significant opportunities to provide productivity and communication scenarios across pcs , mobile devices , and other devices that connect to services . we invest significant resources in dynamics , exchange , lync , office , office 365 , sharepoint , and windows live . economic conditions , challenges and risks as discussed above , our industry is dynamic and highly competitive . we must anticipate changes in technology and business models . our model for growth is based on our ability to initiate and embrace disruptive technology trends , to enter new markets , both in terms of geographies and product areas , and to drive broad adoption of the products and services we develop and market . at microsoft , we prioritize our investments among the highest long-term growth opportunities . these investments require significant resources and are multi-year in nature . the products and services we bring to market can be built internally , brought to market as part of a partnership or alliance , or through acquisition . our success is highly dependent on our ability to attract and retain qualified employees . we rely on hiring from a mix of university and industry talent worldwide . microsoft competes for talented individuals worldwide by offering broad customer reach , scale in resources , and competitive compensation . demand for our software , services , and hardware has a strong correlation to global macroeconomic factors . the current macroeconomic factors remain dynamic . see a discussion of these factors and other risks under risk factors ( part 1 , item 1a . of this form 10-k ) . seasonality our revenue historically has fluctuated quarterly and has generally been the highest in the second quarter of our fiscal year due to corporate calendar year-end spending trends in our major markets and holiday season spending by consumers . our entertainment and devices division is particularly seasonal as its products are aimed at the consumer market and are in highest demand during the holiday shopping season . typically , the entertainment and devices division has generated approximately 40 % of its yearly segment revenue in our second fiscal quarter . in addition , quarterly revenue may be impacted by the deferral of revenue . see the discussions below regarding sales of earlier versions of the microsoft office system with a guarantee to be upgraded to the newest version of the microsoft office system at minimal or no cost ( the “office deferral” ) and sales of windows vista with a guarantee to be upgraded to windows 7 at minimal or no cost and of windows 7 to retailers before general availability ( the “windows 7 deferral” ) . 24 part ii item 7 results of operations summary of results for fiscal years 2011 , 2010 , and 2009 replace_table_token_3_th fiscal year 2011 compared with fiscal year 2010 revenue increased primarily due to strong sales of the xbox 360 entertainment platform , the 2010 microsoft office system , and server and tools products , offset in part by lower windows revenue . revenue also increased due to the $ 254 million office deferral in fiscal year 2010 and the subsequent recognition of the office deferral during fiscal year 2011. changes in foreign currency exchange rates had an insignificant impact on revenue . operating income increased reflecting the change in revenue , offset in part by higher operating expenses . key changes in operating expenses were : cost of revenue increased $ 3.2 billion or 26 % , due to higher costs associated with our online offerings , including traffic acquisition costs , and increased volumes of xbox 360 consoles and kinect sensors sold . sales and marketing expenses increased $ 726 million or 5 % , primarily reflecting increased advertising and marketing of the xbox 360 platform , windows phone , and windows and windows live , higher headcount-related expenses and increased fees paid to third party enterprise software advisors . research and development expenses increased $ 329 million or 4 % , due mainly to higher headcount-related expenses . general and administrative expenses increased $ 159 million or 4 % , due mainly to higher headcount-related expenses and new puerto rican excise taxes , partially offset by prior year transition expenses associated with the inception of the yahoo ! story_separator_special_tag we shipped 10.3 million xbox 360 consoles during fiscal year 2010 , compared with 11.2 million xbox 360 consoles during fiscal year 2009. non-gaming revenue decreased $ 197 million or 25 % primarily reflecting decreased zune and windows phone revenue . edd operating income increased due to reduced operating expenses . cost of revenue decreased $ 496 million or 12 % , primarily due to lower xbox 360 console costs , offset in part by increased royalty costs resulting from increased xbox live digital marketplace third-party content sales and charges resulting from the discontinuation of the kin phone . sales and marketing costs decreased $ 75 million or 9 % , primarily due to decreased xbox 360 platform marketing activities . research and development expenses increased $ 54 million or 6 % , primarily reflecting increased headcount-related expenses , offset in part by decreased third-party development and programming costs . corporate-level activity replace_table_token_9_th certain corporate-level activity is not allocated to our segments , including costs of : broad-based sales and marketing ; product support services ; human resources ; legal ; finance ; information technology ; corporate development and procurement activities ; research and development ; and legal settlements and contingencies . fiscal year 2011 compared with fiscal year 2010 corporate-level expenses increased due mainly to new puerto rican excise taxes , certain revenue related sales and marketing expenses , and increased headcount-related expenses . these increases were offset in part by lower legal charges , which were $ 332 million in fiscal year 2011 compared to $ 533 million in fiscal year 2010 . 30 part ii item 7 fiscal year 2010 compared with fiscal year 2009 corporate-level expenses decreased due mainly to employee severance charges of $ 330 million incurred in the prior year , decreased partner payments , and reductions in other costs due to resource management efforts . these decreases in expenses were offset in part by an increase in legal charges and costs associated with broad-based sales and marketing activities . legal charges were approximately $ 533 million compared to $ 283 million in the prior year . operating expenses cost of revenue replace_table_token_10_th cost of revenue includes : manufacturing and distribution costs for products sold and programs licensed ; operating costs related to product support service centers and product distribution centers ; costs incurred to include software on pcs sold by oems , to drive traffic to our web sites , and to acquire online advertising space ( “traffic acquisition costs” ) ; costs incurred to support and maintain internet-based products and services , including royalties ; warranty costs ; inventory valuation adjustments ; costs associated with the delivery of consulting services ; and the amortization of capitalized research and development costs . fiscal year 2011 compared with fiscal year 2010 cost of revenue increased primarily due to increased volumes of xbox 360 consoles and kinect sensors sold , higher costs associated with our online offerings , including traffic acquisition costs , and higher expenses from providing enterprise services , as well as royalty costs relating to xbox live digital content sold . fiscal year 2010 compared with fiscal year 2009 cost of revenue increased reflecting higher online costs , mainly yahoo ! reimbursement and implementation costs and traffic acquisition costs , as well as increased royalty costs resulting from increased xbox live digital marketplace third-party content sales and charges resulting from the discontinuation of the kin phone . for the current fiscal year , these costs were offset in part by lower xbox 360 console costs and reductions in other costs due to resource management efforts . research and development replace_table_token_11_th research and development expenses include payroll , employee benefits , stock-based compensation expense , and other headcount-related expenses associated with product development . research and development expenses also include third-party development and programming costs , localization costs incurred to translate software for international markets , and the amortization of purchased software code and services content . fiscal year 2011 compared with fiscal year 2010 research and development expenses increased primarily due to a 5 % increase in headcount-related expenses and the capitalization of certain software development costs in the prior year . 31 part ii item 7 fiscal year 2010 compared with fiscal year 2009 research and development expenses decreased , primarily reflecting decreased third-party development and programming costs and the capitalization of certain microsoft office system software development costs . these decreases were offset in part by the capitalization of certain software and development costs related to windows 7 product development in the prior year . sales and marketing replace_table_token_12_th sales and marketing expenses include payroll , employee benefits , stock-based compensation expense , and other headcount-related expenses associated with sales and marketing personnel and the costs of advertising , promotions , trade shows , seminars , and other programs . fiscal year 2011 compared with fiscal year 2010 sales and marketing expenses increased primarily as a result of increased advertising and marketing of the xbox 360 platform , windows phone , and windows and windows live , a 5 % increase in headcount-related expenses , and increased fees paid to third party enterprise software advisors . fiscal year 2010 compared with fiscal year 2009 sales and marketing expenses increased , primarily reflecting increased advertising and marketing of windows 7 and bing and increased sales force expenses related to windows 7. general and administrative replace_table_token_13_th general and administrative expenses include payroll , employee benefits , stock-based compensation expense , severance expense , and other headcount-related expenses associated with finance , legal , facilities , certain human resources and other administrative personnel , certain taxes , and legal and other administrative fees . fiscal year 2011 compared with fiscal year 2010 general and administrative expenses increased primarily due to a 12 % increase in headcount-related expenses and new puerto rican excise taxes , partially offset by prior year transition expenses associated with the inception of the yahoo ! commercial agreement . fiscal

cash flows the following table provides our cash flow data as of : replace_table_token_9_th cash provided by operating activities . net cash provided by operating activities for the fiscal year ended april 30 , 2015 increased by $ 5.4 million to $ 39.4 million , compared to net cash provided by operating activities of $ 34.0 million for the fiscal year ended april 30 , 2014. this increase in net cash provided by operating activities was primarily due to higher working capital generated of $ 16.1 million , a higher loss on disposal of fixed assets of $ 3.7 million and a change in fair value of the cybaero notes of $ 1.7 million , partially offset by lower net income of $ 10.8 million , lower impairment of long-lived assets of $ 2.9 million , lower tax benefits of $ 2.3 million and lower depreciation expense of $ 0.8 million . net cash provided by operating activities for the fiscal year ended april 30 , 2014 increased by $ 4.8 million to $ 34.0 million , compared to net cash provided by operating activities of $ 29.2 million for the fiscal year ended april 30 , 2013. this increase in net cash provided by operating activities was primarily due to the change in fair value of the cybaero notes of $ 4.4 million , impairment of tier-ii related assets of $ 3.3 million , higher net income of $ 3.3 million and higher working capital generated of $ 2.9 million , partially offset by higher deferred income taxes of $ 7.0 million and lower depreciation expense of $ 1.8 million . cash ( used in ) provided by investing activities .

these rich media experiences include games , movies , music , television , and social interactions with family , friends , and colleagues . at microsoft , our approach is to simplify and increase the accessibility of these entertainment experiences to broaden market penetration of our software and services . we invest significant resources in partnerships , content , windows phone , xbox , and xbox live . search over the last two decades , web content and social connections have increased dramatically as people spend more time online , while discoverability and accessibility has been transforming from direct navigation and document links . there is significant opportunity to deliver differentiated products that helps users make better decisions and 23 part ii item 7 complete tasks more simply when using pc , mobile , and other devices . our approach is to use machine learning to try to understand user intent , and differentiate our product by focusing on the integration of visual , social , and other elements which simplifies people 's interaction with the internet . we invest significant resources in bing , sharepoint , windows , and windows phone . communications and productivity personal and business productivity has been transformed by the ubiquity of computing and software tools . over the last decade , microsoft redefined software productivity beyond the rich office client on the pc . productivity scenarios now encompass unified communications , business intelligence , collaboration , content management , and relationship management , which are increasingly powered by server-side applications . these server applications can be hosted by the customer , a partner , or by microsoft in the cloud . there are significant opportunities to provide productivity and communication scenarios across pcs , mobile devices , and other devices that connect to services . we invest significant resources in dynamics , exchange , lync , office , office 365 , sharepoint , and windows live . economic conditions , challenges and risks as discussed above , our industry is dynamic and highly competitive . we must anticipate changes in technology and business models . our model for growth is based on our ability to initiate and embrace disruptive technology trends , to enter new markets , both in terms of geographies and product areas , and to drive broad adoption of the products and services we develop and market . at microsoft , we prioritize our investments among the highest long-term growth opportunities . these investments require significant resources and are multi-year in nature . the products and services we bring to market can be built internally , brought to market as part of a partnership or alliance , or through acquisition . our success is highly dependent on our ability to attract and retain qualified employees . we rely on hiring from a mix of university and industry talent worldwide . microsoft competes for talented individuals worldwide by offering broad customer reach , scale in resources , and competitive compensation . demand for our software , services , and hardware has a strong correlation to global macroeconomic factors . the current macroeconomic factors remain dynamic . see a discussion of these factors and other risks under risk factors ( part 1 , item 1a . of this form 10-k ) . seasonality our revenue historically has fluctuated quarterly and has generally been the highest in the second quarter of our fiscal year due to corporate calendar year-end spending trends in our major markets and holiday season spending by consumers . our entertainment and devices division is particularly seasonal as its products are aimed at the consumer market and are in highest demand during the holiday shopping season . typically , the entertainment and devices division has generated approximately 40 % of its yearly segment revenue in our second fiscal quarter . in addition , quarterly revenue may be impacted by the deferral of revenue . see the discussions below regarding sales of earlier versions of the microsoft office system with a guarantee to be upgraded to the newest version of the microsoft office system at minimal or no cost ( the “office deferral” ) and sales of windows vista with a guarantee to be upgraded to windows 7 at minimal or no cost and of windows 7 to retailers before general availability ( the “windows 7 deferral” ) . 24 part ii item 7 results of operations summary of results for fiscal years 2011 , 2010 , and 2009 replace_table_token_3_th fiscal year 2011 compared with fiscal year 2010 revenue increased primarily due to strong sales of the xbox 360 entertainment platform , the 2010 microsoft office system , and server and tools products , offset in part by lower windows revenue . revenue also increased due to the $ 254 million office deferral in fiscal year 2010 and the subsequent recognition of the office deferral during fiscal year 2011. changes in foreign currency exchange rates had an insignificant impact on revenue . operating income increased reflecting the change in revenue , offset in part by higher operating expenses . key changes in operating expenses were : cost of revenue increased $ 3.2 billion or 26 % , due to higher costs associated with our online offerings , including traffic acquisition costs , and increased volumes of xbox 360 consoles and kinect sensors sold . sales and marketing expenses increased $ 726 million or 5 % , primarily reflecting increased advertising and marketing of the xbox 360 platform , windows phone , and windows and windows live , higher headcount-related expenses and increased fees paid to third party enterprise software advisors . research and development expenses increased $ 329 million or 4 % , due mainly to higher headcount-related expenses . general and administrative expenses increased $ 159 million or 4 % , due mainly to higher headcount-related expenses and new puerto rican excise taxes , partially offset by prior year transition expenses associated with the inception of the yahoo ! story_separator_special_tag we shipped 10.3 million xbox 360 consoles during fiscal year 2010 , compared with 11.2 million xbox 360 consoles during fiscal year 2009. non-gaming revenue decreased $ 197 million or 25 % primarily reflecting decreased zune and windows phone revenue . edd operating income increased due to reduced operating expenses . cost of revenue decreased $ 496 million or 12 % , primarily due to lower xbox 360 console costs , offset in part by increased royalty costs resulting from increased xbox live digital marketplace third-party content sales and charges resulting from the discontinuation of the kin phone . sales and marketing costs decreased $ 75 million or 9 % , primarily due to decreased xbox 360 platform marketing activities . research and development expenses increased $ 54 million or 6 % , primarily reflecting increased headcount-related expenses , offset in part by decreased third-party development and programming costs . corporate-level activity replace_table_token_9_th certain corporate-level activity is not allocated to our segments , including costs of : broad-based sales and marketing ; product support services ; human resources ; legal ; finance ; information technology ; corporate development and procurement activities ; research and development ; and legal settlements and contingencies . fiscal year 2011 compared with fiscal year 2010 corporate-level expenses increased due mainly to new puerto rican excise taxes , certain revenue related sales and marketing expenses , and increased headcount-related expenses . these increases were offset in part by lower legal charges , which were $ 332 million in fiscal year 2011 compared to $ 533 million in fiscal year 2010 . 30 part ii item 7 fiscal year 2010 compared with fiscal year 2009 corporate-level expenses decreased due mainly to employee severance charges of $ 330 million incurred in the prior year , decreased partner payments , and reductions in other costs due to resource management efforts . these decreases in expenses were offset in part by an increase in legal charges and costs associated with broad-based sales and marketing activities . legal charges were approximately $ 533 million compared to $ 283 million in the prior year . operating expenses cost of revenue replace_table_token_10_th cost of revenue includes : manufacturing and distribution costs for products sold and programs licensed ; operating costs related to product support service centers and product distribution centers ; costs incurred to include software on pcs sold by oems , to drive traffic to our web sites , and to acquire online advertising space ( “traffic acquisition costs” ) ; costs incurred to support and maintain internet-based products and services , including royalties ; warranty costs ; inventory valuation adjustments ; costs associated with the delivery of consulting services ; and the amortization of capitalized research and development costs . fiscal year 2011 compared with fiscal year 2010 cost of revenue increased primarily due to increased volumes of xbox 360 consoles and kinect sensors sold , higher costs associated with our online offerings , including traffic acquisition costs , and higher expenses from providing enterprise services , as well as royalty costs relating to xbox live digital content sold . fiscal year 2010 compared with fiscal year 2009 cost of revenue increased reflecting higher online costs , mainly yahoo ! reimbursement and implementation costs and traffic acquisition costs , as well as increased royalty costs resulting from increased xbox live digital marketplace third-party content sales and charges resulting from the discontinuation of the kin phone . for the current fiscal year , these costs were offset in part by lower xbox 360 console costs and reductions in other costs due to resource management efforts . research and development replace_table_token_11_th research and development expenses include payroll , employee benefits , stock-based compensation expense , and other headcount-related expenses associated with product development . research and development expenses also include third-party development and programming costs , localization costs incurred to translate software for international markets , and the amortization of purchased software code and services content . fiscal year 2011 compared with fiscal year 2010 research and development expenses increased primarily due to a 5 % increase in headcount-related expenses and the capitalization of certain software development costs in the prior year . 31 part ii item 7 fiscal year 2010 compared with fiscal year 2009 research and development expenses decreased , primarily reflecting decreased third-party development and programming costs and the capitalization of certain microsoft office system software development costs . these decreases were offset in part by the capitalization of certain software and development costs related to windows 7 product development in the prior year . sales and marketing replace_table_token_12_th sales and marketing expenses include payroll , employee benefits , stock-based compensation expense , and other headcount-related expenses associated with sales and marketing personnel and the costs of advertising , promotions , trade shows , seminars , and other programs . fiscal year 2011 compared with fiscal year 2010 sales and marketing expenses increased primarily as a result of increased advertising and marketing of the xbox 360 platform , windows phone , and windows and windows live , a 5 % increase in headcount-related expenses , and increased fees paid to third party enterprise software advisors . fiscal year 2010 compared with fiscal year 2009 sales and marketing expenses increased , primarily reflecting increased advertising and marketing of windows 7 and bing and increased sales force expenses related to windows 7. general and administrative replace_table_token_13_th general and administrative expenses include payroll , employee benefits , stock-based compensation expense , severance expense , and other headcount-related expenses associated with finance , legal , facilities , certain human resources and other administrative personnel , certain taxes , and legal and other administrative fees . fiscal year 2011 compared with fiscal year 2010 general and administrative expenses increased primarily due to a 12 % increase in headcount-related expenses and new puerto rican excise taxes , partially offset by prior year transition expenses associated with the inception of the yahoo ! commercial agreement . fiscal

cash flows fiscal year 2011 compared with fiscal year 2010 cash flows from operations increased $ 2.9 billion during the current fiscal year to $ 27.0 billion due mainly to increased revenue and cash collections from customers . cash used in financing decreased $ 4.9 billion to $ 8.4 billion due mainly to a $ 5.8 billion increase in proceeds from issuance of debt , net of repayments , offset in part by a $ 602 million increase in cash paid for dividends . cash used in investing increased $ 3.3 billion to $ 14.6 billion due to a $ 5.8 billion increase in purchases of investments , offset in part by a $ 2.5 billion increase in cash from securities lending . fiscal year 2010 compared with fiscal year 2009 cash flow from operations increased $ 5.0 billion , primarily due to payment of $ 4.1 billion to the internal revenue service in the prior year as a result of our settlement of the 2000-2003 audit examination along with increased cash received from customers in the current year . cash used for financing increased $ 5.8 billion , primarily due to a $ 5.6 35 part ii item 7 billion decrease in net cash proceeds from issuance and repayments of short-term and long-term debt . financing activities also included a $ 1.9 billion increase in cash used for common stock repurchases , which was offset in part by a $ 1.7 billion increase in cash received from common stock issued . cash used for investing decreased $ 4.5 billion due to a $ 3.3 billion decrease in cash used for combined investment purchases , sales , and maturities along with a $ 1.1 billion decrease in additions to property and equipment . debt short-term debt during fiscal year 2011 , we repaid $ 1.0 billion of commercial paper , leaving zero outstanding . on november 5 , 2010 , our $ 1.0 billion 364-day credit facility expired .

our belief that our existing level of inventory will allow us to maintain competitive lead times and provide strong delivery performance to our customers ; the effect that distributor and customer inventory holding patterns will have on us ; our belief that customers recognize our products and brand name and use distributors as an effective supply channel ; anticipating increased customer requirements to meet voluntary criteria related to the reduction or elimination of substances in our products ; our belief that our direct sales personnel combined with our distributors provide an effective means of reaching our customer base ; the accuracy of our estimates of the useful life and values of our property , assets and other liabilities ; our ability to increase the proprietary portion of our analog , interface , mixed signal and timing product lines and the effect of such an increase ; our belief that our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs ; the impact of any supply disruption we may experience ; our ability to effectively utilize our facilities at appropriate capacity levels and anticipated costs ; 35 that we adjust capacity utilization to respond to actual and anticipated business and industry-related conditions ; that manufacturing costs will be reduced by transition to advanced process technologies ; our ability to maintain manufacturing yields ; continuing our investments in new and enhanced products ; the cost effectiveness of using our own assembly and test operations ; our plans for operation of our fabrication facilities , including our plan to close our facility in santa clara , california ; the cost savings from re-purposing fab 5 for the manufacture of discrete and specialty products in addition to a lower volume of a diversified set of standard products and transferring the manufacture of certain higher volume products to other facilities ; our anticipated level of capital expenditures ; continuation and amount of quarterly cash dividends ; the sufficiency of our existing sources of liquidity to finance anticipated capital expenditures and otherwise meet our anticipated cash requirements , and the effects that our contractual obligations are expected to have on them ; the impact of seasonality on our business ; our belief that our it system compromise has not had a material adverse effect on our business or resulted in any material damage to us ; our expectation that we will continue to be the target of attacks on our data , attempts to breach our security and attempts to introduce malicious software into our it systems ; the accuracy of our estimates used in valuing employee equity awards ; that the resolution of legal actions will not have a material effect on our business , and the accuracy of our assessment of the probability of loss and range of potential loss ; the recoverability of our deferred tax assets ; the adequacy of our tax reserves to offset any potential tax liabilities , having the appropriate support for our income tax positions and the accuracy of our estimated tax rate ; our belief that the expiration of any tax holidays will not have a material impact on our financial statements or effective tax rate ; the impact of our intra-group asset transfers , and the geographical dispersion of our earnings and losses on our effective tax rate ; our belief that the estimates used in preparing our consolidated financial statements are reasonable ; our actions to vigorously and aggressively defend and protect our intellectual property on a worldwide basis ; our ability to obtain patents and intellectual property licenses and minimize the effects of litigation ; the level of risk we are exposed to for product liability claims or indemnification claims ; the effect of fluctuations in market interest rates on our income and or cash flows ; the effect of fluctuations in currency rates ; that we could increase our borrowings or seek additional equity or debt financing to maintain or expand our facilities , or to fund cash dividends , share repurchases , acquisitions or other corporate activities , and that the timing and amount of such financing requirements will depend on a number of factors ; our intention to satisfy the lesser of the principal amount or the conversion value of our debentures in cash ; our intention to invest substantially all of our foreign subsidiary earnings , as well as our capital in our foreign subsidiaries , indefinitely outside of the u.s. in those jurisdictions in which we would incur significant , additional costs upon repatriation of such amounts . changes to the taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings ; our belief that the effect the new tax laws will have on low-taxed income of foreign subsidiaries will have the most significant , adverse impact ; and our ability to collect accounts receivable . our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth in `` item 1a – risk factors , `` and elsewhere in this form 10-k . although we believe that the expectations reflected in our forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . you should not place undue reliance on these forward-looking statements . we disclaim any obligation to update the information contained in any forward-looking statement . 36 introduction the following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document , as well as with other sections of this annual report on form 10-k , including `` item 1 – business ; `` `` item 6 – selected financial data ; `` and `` item 8 – financial statements and supplementary data . story_separator_special_tag after the transaction price has been allocated , we recognize revenue when the performance obligation is satisfied . substantially all of the revenue generated from contracts with distributors is recognized at the time risk and title of the inventory transfers to the distributor . sales to our direct customers are generally governed by a purchase order and an order acknowledgment . sales to direct customers usually do not meet the definition of a contract , as defined by asc 606 , until shipment of the product occurs . generally , the transaction price associated with contracts with direct customers is set at the standalone selling price and is not variable . usually , there is only a single performance obligation in the contract , and therefore the entire transaction price is allocated to the single performance obligation . after the transaction price has been allocated , we recognize revenue when the performance obligation is satisfied . substantially all of the revenue generated from contracts with direct customers is recognized at the time risk and title of the inventory transfers to the customer . revenue generated from our licensees is governed by licensing agreements . our primary performance obligation related to these agreements is to provide the licensee the right to use the intellectual property . the final transaction price is determined by multiplying the usage of the license by the royalty , which is fixed in the licensing agreement . revenue is recognized as usage of the license occurs . business combinations all of our business combinations are accounted for at fair value under the acquisition method of accounting . under the acquisition method of accounting , ( i ) acquisition-related costs , except for those costs incurred to issue debt or equity securities , will be expensed in the period incurred ; ( ii ) non-controlling interests will be valued at fair value at the acquisition date ; ( iii ) in-process research and development will be recorded at fair value as an intangible asset at the acquisition date and amortized once the technology reaches technological feasibility ; ( iv ) restructuring costs associated with a business combination will be expensed subsequent to the acquisition date ; and ( v ) changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date will be recognized through income tax expense . the measurement of the fair value of assets acquired and liabilities assumed requires significant judgment . the valuation of intangible assets , in particular , requires that we use valuation techniques such as the income approach . the income approach includes the use of a discounted cash flow model , which includes discounted cash flow scenarios and requires the following significant estimates : revenue , expenses , capital spending and other costs , and discount rates based on the respective risks of the cash flows . under the acquisition method of accounting , the aggregate amount of consideration we pay for a company is allocated to net tangible assets and intangible assets based on their estimated fair values as of the acquisition date . the excess of the purchase price over the value of the net tangible assets and intangible assets is recorded to goodwill . on an annual basis , we test goodwill for impairment and through march 31 , 2020 , we have never recorded an impairment charge against our goodwill balance . 40 share-based compensation we measure at fair value and recognize compensation expense for all share-based payment awards , including grants of employee stock options , restricted stock units ( rsus ) and employee stock purchase rights , to be recognized in our financial statements based on their respective grant date fair values . we utilize rsus as our primary equity incentive compensation instrument for employees . share-based compensation cost is measured on the grant date based on the fair market value of our common stock discounted for expected future dividends and is recognized as expense on a straight-line basis over the requisite service periods . total share-based compensation expense recognized during the fiscal 2020 was $ 170.2 million , of which $ 149.3 million was reflected in operating expenses and $ 20.9 million was reflected in cost of sales . total share-based compensation included in our inventory balance was $ 14.4 million at march 31 , 2020 . if there are any modifications or cancellations of the underlying unvested securities , we may be required to accelerate , increase or cancel any remaining unearned share-based compensation expense . future share-based compensation expense and unearned share-based compensation will increase to the extent that we grant additional equity awards to employees or we assume unvested equity awards in connection with acquisitions . inventories inventories are valued at the lower of cost or net realizable value using the first-in , first-out method . we write down our inventory for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those we projected , additional inventory write-downs may be required . inventory impairment charges establish a new cost basis for inventory and charges are not subsequently reversed to income even if circumstances later suggest that increased carrying amounts are recoverable . in estimating our inventory obsolescence , we primarily evaluate estimates of demand over a 12-month period and record impairment charges for inventory on hand in excess of the estimated 12-month demand . estimates for projected 12-month demand are generally based on the average shipments of the prior three-month period , which are then annualized to adjust for any potential seasonality in our business . the estimated 12-month demand is compared to our most recently developed sales forecast to further reconcile the 12-month demand estimate . management reviews and adjusts the estimates as appropriate based on specific situations . for example , demand

cash flows fiscal year 2011 compared with fiscal year 2010 cash flows from operations increased $ 2.9 billion during the current fiscal year to $ 27.0 billion due mainly to increased revenue and cash collections from customers . cash used in financing decreased $ 4.9 billion to $ 8.4 billion due mainly to a $ 5.8 billion increase in proceeds from issuance of debt , net of repayments , offset in part by a $ 602 million increase in cash paid for dividends . cash used in investing increased $ 3.3 billion to $ 14.6 billion due to a $ 5.8 billion increase in purchases of investments , offset in part by a $ 2.5 billion increase in cash from securities lending . fiscal year 2010 compared with fiscal year 2009 cash flow from operations increased $ 5.0 billion , primarily due to payment of $ 4.1 billion to the internal revenue service in the prior year as a result of our settlement of the 2000-2003 audit examination along with increased cash received from customers in the current year . cash used for financing increased $ 5.8 billion , primarily due to a $ 5.6 35 part ii item 7 billion decrease in net cash proceeds from issuance and repayments of short-term and long-term debt . financing activities also included a $ 1.9 billion increase in cash used for common stock repurchases , which was offset in part by a $ 1.7 billion increase in cash received from common stock issued . cash used for investing decreased $ 4.5 billion due to a $ 3.3 billion decrease in cash used for combined investment purchases , sales , and maturities along with a $ 1.1 billion decrease in additions to property and equipment . debt short-term debt during fiscal year 2011 , we repaid $ 1.0 billion of commercial paper , leaving zero outstanding . on november 5 , 2010 , our $ 1.0 billion 364-day credit facility expired .

our belief that our existing level of inventory will allow us to maintain competitive lead times and provide strong delivery performance to our customers ; the effect that distributor and customer inventory holding patterns will have on us ; our belief that customers recognize our products and brand name and use distributors as an effective supply channel ; anticipating increased customer requirements to meet voluntary criteria related to the reduction or elimination of substances in our products ; our belief that our direct sales personnel combined with our distributors provide an effective means of reaching our customer base ; the accuracy of our estimates of the useful life and values of our property , assets and other liabilities ; our ability to increase the proprietary portion of our analog , interface , mixed signal and timing product lines and the effect of such an increase ; our belief that our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs ; the impact of any supply disruption we may experience ; our ability to effectively utilize our facilities at appropriate capacity levels and anticipated costs ; 35 that we adjust capacity utilization to respond to actual and anticipated business and industry-related conditions ; that manufacturing costs will be reduced by transition to advanced process technologies ; our ability to maintain manufacturing yields ; continuing our investments in new and enhanced products ; the cost effectiveness of using our own assembly and test operations ; our plans for operation of our fabrication facilities , including our plan to close our facility in santa clara , california ; the cost savings from re-purposing fab 5 for the manufacture of discrete and specialty products in addition to a lower volume of a diversified set of standard products and transferring the manufacture of certain higher volume products to other facilities ; our anticipated level of capital expenditures ; continuation and amount of quarterly cash dividends ; the sufficiency of our existing sources of liquidity to finance anticipated capital expenditures and otherwise meet our anticipated cash requirements , and the effects that our contractual obligations are expected to have on them ; the impact of seasonality on our business ; our belief that our it system compromise has not had a material adverse effect on our business or resulted in any material damage to us ; our expectation that we will continue to be the target of attacks on our data , attempts to breach our security and attempts to introduce malicious software into our it systems ; the accuracy of our estimates used in valuing employee equity awards ; that the resolution of legal actions will not have a material effect on our business , and the accuracy of our assessment of the probability of loss and range of potential loss ; the recoverability of our deferred tax assets ; the adequacy of our tax reserves to offset any potential tax liabilities , having the appropriate support for our income tax positions and the accuracy of our estimated tax rate ; our belief that the expiration of any tax holidays will not have a material impact on our financial statements or effective tax rate ; the impact of our intra-group asset transfers , and the geographical dispersion of our earnings and losses on our effective tax rate ; our belief that the estimates used in preparing our consolidated financial statements are reasonable ; our actions to vigorously and aggressively defend and protect our intellectual property on a worldwide basis ; our ability to obtain patents and intellectual property licenses and minimize the effects of litigation ; the level of risk we are exposed to for product liability claims or indemnification claims ; the effect of fluctuations in market interest rates on our income and or cash flows ; the effect of fluctuations in currency rates ; that we could increase our borrowings or seek additional equity or debt financing to maintain or expand our facilities , or to fund cash dividends , share repurchases , acquisitions or other corporate activities , and that the timing and amount of such financing requirements will depend on a number of factors ; our intention to satisfy the lesser of the principal amount or the conversion value of our debentures in cash ; our intention to invest substantially all of our foreign subsidiary earnings , as well as our capital in our foreign subsidiaries , indefinitely outside of the u.s. in those jurisdictions in which we would incur significant , additional costs upon repatriation of such amounts . changes to the taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings ; our belief that the effect the new tax laws will have on low-taxed income of foreign subsidiaries will have the most significant , adverse impact ; and our ability to collect accounts receivable . our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth in `` item 1a – risk factors , `` and elsewhere in this form 10-k . although we believe that the expectations reflected in our forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . you should not place undue reliance on these forward-looking statements . we disclaim any obligation to update the information contained in any forward-looking statement . 36 introduction the following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document , as well as with other sections of this annual report on form 10-k , including `` item 1 – business ; `` `` item 6 – selected financial data ; `` and `` item 8 – financial statements and supplementary data . story_separator_special_tag after the transaction price has been allocated , we recognize revenue when the performance obligation is satisfied . substantially all of the revenue generated from contracts with distributors is recognized at the time risk and title of the inventory transfers to the distributor . sales to our direct customers are generally governed by a purchase order and an order acknowledgment . sales to direct customers usually do not meet the definition of a contract , as defined by asc 606 , until shipment of the product occurs . generally , the transaction price associated with contracts with direct customers is set at the standalone selling price and is not variable . usually , there is only a single performance obligation in the contract , and therefore the entire transaction price is allocated to the single performance obligation . after the transaction price has been allocated , we recognize revenue when the performance obligation is satisfied . substantially all of the revenue generated from contracts with direct customers is recognized at the time risk and title of the inventory transfers to the customer . revenue generated from our licensees is governed by licensing agreements . our primary performance obligation related to these agreements is to provide the licensee the right to use the intellectual property . the final transaction price is determined by multiplying the usage of the license by the royalty , which is fixed in the licensing agreement . revenue is recognized as usage of the license occurs . business combinations all of our business combinations are accounted for at fair value under the acquisition method of accounting . under the acquisition method of accounting , ( i ) acquisition-related costs , except for those costs incurred to issue debt or equity securities , will be expensed in the period incurred ; ( ii ) non-controlling interests will be valued at fair value at the acquisition date ; ( iii ) in-process research and development will be recorded at fair value as an intangible asset at the acquisition date and amortized once the technology reaches technological feasibility ; ( iv ) restructuring costs associated with a business combination will be expensed subsequent to the acquisition date ; and ( v ) changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date will be recognized through income tax expense . the measurement of the fair value of assets acquired and liabilities assumed requires significant judgment . the valuation of intangible assets , in particular , requires that we use valuation techniques such as the income approach . the income approach includes the use of a discounted cash flow model , which includes discounted cash flow scenarios and requires the following significant estimates : revenue , expenses , capital spending and other costs , and discount rates based on the respective risks of the cash flows . under the acquisition method of accounting , the aggregate amount of consideration we pay for a company is allocated to net tangible assets and intangible assets based on their estimated fair values as of the acquisition date . the excess of the purchase price over the value of the net tangible assets and intangible assets is recorded to goodwill . on an annual basis , we test goodwill for impairment and through march 31 , 2020 , we have never recorded an impairment charge against our goodwill balance . 40 share-based compensation we measure at fair value and recognize compensation expense for all share-based payment awards , including grants of employee stock options , restricted stock units ( rsus ) and employee stock purchase rights , to be recognized in our financial statements based on their respective grant date fair values . we utilize rsus as our primary equity incentive compensation instrument for employees . share-based compensation cost is measured on the grant date based on the fair market value of our common stock discounted for expected future dividends and is recognized as expense on a straight-line basis over the requisite service periods . total share-based compensation expense recognized during the fiscal 2020 was $ 170.2 million , of which $ 149.3 million was reflected in operating expenses and $ 20.9 million was reflected in cost of sales . total share-based compensation included in our inventory balance was $ 14.4 million at march 31 , 2020 . if there are any modifications or cancellations of the underlying unvested securities , we may be required to accelerate , increase or cancel any remaining unearned share-based compensation expense . future share-based compensation expense and unearned share-based compensation will increase to the extent that we grant additional equity awards to employees or we assume unvested equity awards in connection with acquisitions . inventories inventories are valued at the lower of cost or net realizable value using the first-in , first-out method . we write down our inventory for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those we projected , additional inventory write-downs may be required . inventory impairment charges establish a new cost basis for inventory and charges are not subsequently reversed to income even if circumstances later suggest that increased carrying amounts are recoverable . in estimating our inventory obsolescence , we primarily evaluate estimates of demand over a 12-month period and record impairment charges for inventory on hand in excess of the estimated 12-month demand . estimates for projected 12-month demand are generally based on the average shipments of the prior three-month period , which are then annualized to adjust for any potential seasonality in our business . the estimated 12-month demand is compared to our most recently developed sales forecast to further reconcile the 12-month demand estimate . management reviews and adjusts the estimates as appropriate based on specific situations . for example , demand

. cash dividends paid per share were $ 1.465 , $ 1.457 and $ 1.449 during fiscal 2020 , 2019 and 2018 , respectively . total dividend payments amounted to $ 350.1 million , $ 344.4 million and $ 337.5 million during fiscal 2020 , 2019 and 2018 , respectively . a quarterly dividend of $ 0.3675 per share was declared on may 7 , 2020 and will be paid on june 4 , 2020 to stockholders of record as of may 21 , 2020 . we expect the aggregate cash dividend for june 2020 to be approximately $ 90.3 million . our board is free to change our dividend practices at any time and to increase or decrease the dividend paid , or not to pay a dividend on our common stock on the basis of our results of operations , financial condition , cash requirements and future prospects , and other factors deemed relevant by our board . our current intent is to provide for ongoing quarterly cash dividends depending upon market conditions , our results of operations , and potential changes in tax laws . we believe that our existing sources of liquidity combined with cash generated from operations and borrowings under our revolving credit facility will be sufficient to meet our currently anticipated cash requirements for at least the next 12 months . however , the semiconductor industry is capital intensive . in order to remain competitive , we must constantly evaluate the need to make significant investments in capital equipment for both production and research and development . we may increase our borrowings under our revolving credit facility or seek additional equity or debt financing from time to time to maintain or expand our wafer fabrication and product assembly and test facilities , for cash dividends , for share repurchases or for acquisitions or other purposes .

until their respective appointments , both doctors were associated with johns hopkins university , baltimore , maryland , as full-time residents . on december 1 , 2016 , dr. lough assigned the patent application as well as all related intellectual property to a newly-formed nevada corporation , polarityte , inc. ( “ polarity nv ” ) , and the company entered into an agreement and plan of reorganization ( the “ agreement ” ) with polarity nv and dr. lough . as a result , at closing , the patent application would be owned by the company without the need for further assignments or recordation with the patent trademark office . on april 7 , 2017 , the company issued 7,050 shares of its newly authorized series e preferred stock ( the “ series e preferred shares ” ) convertible into an aggregate of 7,050,000 shares of the company 's common stock with a fair value of approximately $ 104.7 million which is equal to 7,050,000 common shares times $ 14.85 ( the closing price of the company 's common stock as of april 7 , 2017 ) to dr. lough for the purchase of polarity nv 's assets . since the assets purchased were in-process research and development assets , the total purchase price was immediately expensed as research and development - intellectual property acquired since they have no alternative future use . polarityte , inc. is aiming to be the first company to deliver regenerative medicine into clinical practice through tissue engineering . subsequent to the acquisition , the company 's platform technology will allow it to regenerate a patient 's tissues using their own cells . research and development expenses . research and development expenses primarily represent employee related costs , including stock compensation , for research and development executives and staff , lab and office expenses and other overhead charges . research and development - intellectual property acquired . on april 7 , 2017 , as payment for the polarity nv asset acquisition , the company issued 7,050 shares of series e preferred stock convertible into an aggregate of 7,050,000 shares of the company 's common stock and with a fair value of approximately $ 104.7 million which is equal to 7,050,000 common shares times $ 14.85 ( the closing price of the company 's common stock as of april 7 , 2017 ) . since the assets purchased were in-process research and development assets , the total purchase price was immediately expensed as research and development - intellectual property acquired since they have no alternative future use . general and administrative expenses . general and administrative expenses primarily represent employee related costs , including stock compensation , for corporate executive and support staff , general office expenses , professional fees and various other overhead charges . professional fees , including legal and accounting expenses , typically represent one of the largest components of our general and administrative expenses . these fees are partially attributable to our required activities as a publicly traded company , such as sec filings , and corporate- and business-development initiatives . discontinued operations . on june 23 , 2017 , the company sold majesco entertainment company , a nevada corporation and wholly-owned subsidiary of the company ( “ majesco ” ) to zift interactive llc , a nevada limited liability company ( the “ purchaser ” ) pursuant to a purchase agreement ( the “ agreement ” ) . pursuant to the terms of the agreement , the company sold to the purchaser 100 % of the issued and outstanding shares of common stock of majesco , including all of the right , title and interest in and to majesco 's business of developing , publishing and distributing video game products through both retail distribution and mobile and online digital downloading . pursuant to the terms of the agreement , the company will receive total cash consideration of approximately $ 100,000 ( $ 5,000 upon signing the agreement and 19 additional monthly payments of $ 5,000 ) plus contingent consideration based on net revenues . income taxes . income taxes consist of our provisions for income taxes , as affected by our net operating loss carryforwards . future utilization of our net operating loss , or nol , carryforwards may be subject to a substantial annual limitation due to the “ change in ownership ” provisions of the internal revenue code . the annual limitation may result in the expiration of nol carryforwards before utilization . due to our history of losses , a valuation allowance sufficient to fully offset our nol and other deferred tax assets has been established under current accounting pronouncements , and this valuation allowance will be maintained unless sufficient positive evidence develops to support its reversal . in december 2017 , the federal government enacted numerous amendments to the internal revenue code of 1986 pursuant to an act known by the tax cuts and jobs act ( the “ tcja ” ) . the tcja may impact the company 's income tax expense ( benefit ) from continuing operations in future periods . the company has recorded a full valuation allowance on its net deferred tax assets and therefore any impact on the value of the company 's deferred tax assets will be offset by a change in the valuation allowance . critical accounting estimates our discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america , or gaap . story_separator_special_tag dividends are payable quarterly in arrears on the fifteenth ( 15th ) day of the next applicable quarter , to the record holders of the series f preferred stock on the last day of the fiscal quarter immediately preceding the dividend payment date in shares of common stock , calculated using the vwap of the common stock on the ninety ( 90 ) days immediately preceding the dividend record date ; provided , however , that the company may , at its option , pay dividends in cash or in a combination of common shares and cash . upon the liquidation , dissolution or winding up of the business of the company , whether voluntary or involuntary , each holder of preferred shares shall be entitled to receive , for each share thereof , out of assets of the company legally available therefor , a preferential amount in cash equal to ( and not more than ) $ 2,750. on the two ( 2 ) year anniversary of the initial issuance date , any share of series f preferred stock outstanding and not otherwise already converted , shall , at the option of the holder , either ( i ) automatically convert into common stock of the company at the conversion price then in effect or ( ii ) be repaid by the company based on the stated value of such outstanding shares of series f preferred stock . in addition , in the event that the company 's common stock attains a consolidated bid price of $ 45 or greater for any four ( 4 ) trading days during any eight ( 8 ) trading day period , the series f preferred stock shall be automatically converted to common stock , without any further action by the holder ( subject to the conversion limitation in the event that such conversion would result in such holder holding in excess of four and ninety-nine one-hundredths ( 4.99 % ) percent of the common stock of the company ) . the warrants issued in connection with the series f preferred stock are liabilities pursuant to asc 815. the warrant agreement provides for an adjustment to the number of common shares issuable under the warrant and or adjustment to the exercise price , including but not limited to , if : ( a ) the company issues shares of common stock as a dividend or distribution to holders of its common stock ; ( b ) the company subdivides or combines its common stock ( i.e . , stock split ) ; ( c ) adjustment of exercise price upon issuance of new securities at less than the exercise price . under asc 815 , warrants that provide for down-round exercise price protection are recognized as derivative liabilities . the conversion feature within the series f preferred stock is not clearly and closely related to the identified host instrument and , as such , is recognized as a derivative liability measured at fair value pursuant to asc 815. the initial fair value of the warrants and bifurcated embedded conversion feature , estimated to be approximately $ 4.3 million and $ 9.3 million , respectively , was deducted from the gross proceeds of the unit offering to arrive at the initial discounted carrying value of the series f preferred stock . the resulting discount to the aggregate stated value of the series f preferred stock of approximately $ 13.6 million will be recognized as accretion , similar to preferred stock dividends , over the two-year period prior to optional redemption by the holders . the company recognized accretion of the discount to the stated value of the series f preferred stock of approximately $ 369,000 in the year ended october 31 , 2017 as a reduction of additional paid-in capital and an increase in the carrying value of the series f preferred stock . the accretion is presented in the statement of operations as a deemed dividend , increasing net loss to arrive at net loss attributable to common stockholders . 46 preferred share conversion activity during the year ended october 31 , 2017 , 3,991,487 shares of convertible preferred stock series a , 6,512 shares of convertible preferred stock series b , 23,185 shares of convertible preferred stock series c and 129,665 shares of convertible preferred stock series d were converted into 1,590,631 shares of common stock . common stock on january 18 , 2017 , the company entered into separate exchange agreements ( each an “ exchange agreement ” ) with certain accredited investors ( the “ investors ” ) who purchased warrants to purchase shares of the company 's common stock ( the “ warrants ” ) pursuant to the prospectus dated april 13 , 2016. pursuant to the offering , the company issued 250,000 shares of the company 's common stock and warrants to purchase 187,500 shares of common stock ( taking into account the reverse split of the company 's common stock on a 1 for 6 basis effective with the nasdaq stock market llc on august 1 , 2016 ) . the common stock and warrants were offered by the company pursuant to an effective shelf registration statement . under the terms of the exchange agreement , each investor exchanged each warrant it purchased in the offering for 0.3 shares of common stock . accordingly , the company issued an aggregate of 56,250 shares of common stock in exchange for the return and cancellation of 187,500 warrants . 47 during the year ended october 31 , 2017 , certain employees exercised their options at a weighted-average exercise price of $ 4.84 in exchange for the company 's common stock for an aggregated amount of 268,847 shares . off-balance sheet arrangements as of october 31 , 2017 , we had no off-balance sheet arrangements . inflation our management currently believes that inflation has not had , and does not currently have , a material impact on continuing operations .

. cash dividends paid per share were $ 1.465 , $ 1.457 and $ 1.449 during fiscal 2020 , 2019 and 2018 , respectively . total dividend payments amounted to $ 350.1 million , $ 344.4 million and $ 337.5 million during fiscal 2020 , 2019 and 2018 , respectively . a quarterly dividend of $ 0.3675 per share was declared on may 7 , 2020 and will be paid on june 4 , 2020 to stockholders of record as of may 21 , 2020 . we expect the aggregate cash dividend for june 2020 to be approximately $ 90.3 million . our board is free to change our dividend practices at any time and to increase or decrease the dividend paid , or not to pay a dividend on our common stock on the basis of our results of operations , financial condition , cash requirements and future prospects , and other factors deemed relevant by our board . our current intent is to provide for ongoing quarterly cash dividends depending upon market conditions , our results of operations , and potential changes in tax laws . we believe that our existing sources of liquidity combined with cash generated from operations and borrowings under our revolving credit facility will be sufficient to meet our currently anticipated cash requirements for at least the next 12 months . however , the semiconductor industry is capital intensive . in order to remain competitive , we must constantly evaluate the need to make significant investments in capital equipment for both production and research and development . we may increase our borrowings under our revolving credit facility or seek additional equity or debt financing from time to time to maintain or expand our wafer fabrication and product assembly and test facilities , for cash dividends , for share repurchases or for acquisitions or other purposes .

until their respective appointments , both doctors were associated with johns hopkins university , baltimore , maryland , as full-time residents . on december 1 , 2016 , dr. lough assigned the patent application as well as all related intellectual property to a newly-formed nevada corporation , polarityte , inc. ( “ polarity nv ” ) , and the company entered into an agreement and plan of reorganization ( the “ agreement ” ) with polarity nv and dr. lough . as a result , at closing , the patent application would be owned by the company without the need for further assignments or recordation with the patent trademark office . on april 7 , 2017 , the company issued 7,050 shares of its newly authorized series e preferred stock ( the “ series e preferred shares ” ) convertible into an aggregate of 7,050,000 shares of the company 's common stock with a fair value of approximately $ 104.7 million which is equal to 7,050,000 common shares times $ 14.85 ( the closing price of the company 's common stock as of april 7 , 2017 ) to dr. lough for the purchase of polarity nv 's assets . since the assets purchased were in-process research and development assets , the total purchase price was immediately expensed as research and development - intellectual property acquired since they have no alternative future use . polarityte , inc. is aiming to be the first company to deliver regenerative medicine into clinical practice through tissue engineering . subsequent to the acquisition , the company 's platform technology will allow it to regenerate a patient 's tissues using their own cells . research and development expenses . research and development expenses primarily represent employee related costs , including stock compensation , for research and development executives and staff , lab and office expenses and other overhead charges . research and development - intellectual property acquired . on april 7 , 2017 , as payment for the polarity nv asset acquisition , the company issued 7,050 shares of series e preferred stock convertible into an aggregate of 7,050,000 shares of the company 's common stock and with a fair value of approximately $ 104.7 million which is equal to 7,050,000 common shares times $ 14.85 ( the closing price of the company 's common stock as of april 7 , 2017 ) . since the assets purchased were in-process research and development assets , the total purchase price was immediately expensed as research and development - intellectual property acquired since they have no alternative future use . general and administrative expenses . general and administrative expenses primarily represent employee related costs , including stock compensation , for corporate executive and support staff , general office expenses , professional fees and various other overhead charges . professional fees , including legal and accounting expenses , typically represent one of the largest components of our general and administrative expenses . these fees are partially attributable to our required activities as a publicly traded company , such as sec filings , and corporate- and business-development initiatives . discontinued operations . on june 23 , 2017 , the company sold majesco entertainment company , a nevada corporation and wholly-owned subsidiary of the company ( “ majesco ” ) to zift interactive llc , a nevada limited liability company ( the “ purchaser ” ) pursuant to a purchase agreement ( the “ agreement ” ) . pursuant to the terms of the agreement , the company sold to the purchaser 100 % of the issued and outstanding shares of common stock of majesco , including all of the right , title and interest in and to majesco 's business of developing , publishing and distributing video game products through both retail distribution and mobile and online digital downloading . pursuant to the terms of the agreement , the company will receive total cash consideration of approximately $ 100,000 ( $ 5,000 upon signing the agreement and 19 additional monthly payments of $ 5,000 ) plus contingent consideration based on net revenues . income taxes . income taxes consist of our provisions for income taxes , as affected by our net operating loss carryforwards . future utilization of our net operating loss , or nol , carryforwards may be subject to a substantial annual limitation due to the “ change in ownership ” provisions of the internal revenue code . the annual limitation may result in the expiration of nol carryforwards before utilization . due to our history of losses , a valuation allowance sufficient to fully offset our nol and other deferred tax assets has been established under current accounting pronouncements , and this valuation allowance will be maintained unless sufficient positive evidence develops to support its reversal . in december 2017 , the federal government enacted numerous amendments to the internal revenue code of 1986 pursuant to an act known by the tax cuts and jobs act ( the “ tcja ” ) . the tcja may impact the company 's income tax expense ( benefit ) from continuing operations in future periods . the company has recorded a full valuation allowance on its net deferred tax assets and therefore any impact on the value of the company 's deferred tax assets will be offset by a change in the valuation allowance . critical accounting estimates our discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america , or gaap . story_separator_special_tag dividends are payable quarterly in arrears on the fifteenth ( 15th ) day of the next applicable quarter , to the record holders of the series f preferred stock on the last day of the fiscal quarter immediately preceding the dividend payment date in shares of common stock , calculated using the vwap of the common stock on the ninety ( 90 ) days immediately preceding the dividend record date ; provided , however , that the company may , at its option , pay dividends in cash or in a combination of common shares and cash . upon the liquidation , dissolution or winding up of the business of the company , whether voluntary or involuntary , each holder of preferred shares shall be entitled to receive , for each share thereof , out of assets of the company legally available therefor , a preferential amount in cash equal to ( and not more than ) $ 2,750. on the two ( 2 ) year anniversary of the initial issuance date , any share of series f preferred stock outstanding and not otherwise already converted , shall , at the option of the holder , either ( i ) automatically convert into common stock of the company at the conversion price then in effect or ( ii ) be repaid by the company based on the stated value of such outstanding shares of series f preferred stock . in addition , in the event that the company 's common stock attains a consolidated bid price of $ 45 or greater for any four ( 4 ) trading days during any eight ( 8 ) trading day period , the series f preferred stock shall be automatically converted to common stock , without any further action by the holder ( subject to the conversion limitation in the event that such conversion would result in such holder holding in excess of four and ninety-nine one-hundredths ( 4.99 % ) percent of the common stock of the company ) . the warrants issued in connection with the series f preferred stock are liabilities pursuant to asc 815. the warrant agreement provides for an adjustment to the number of common shares issuable under the warrant and or adjustment to the exercise price , including but not limited to , if : ( a ) the company issues shares of common stock as a dividend or distribution to holders of its common stock ; ( b ) the company subdivides or combines its common stock ( i.e . , stock split ) ; ( c ) adjustment of exercise price upon issuance of new securities at less than the exercise price . under asc 815 , warrants that provide for down-round exercise price protection are recognized as derivative liabilities . the conversion feature within the series f preferred stock is not clearly and closely related to the identified host instrument and , as such , is recognized as a derivative liability measured at fair value pursuant to asc 815. the initial fair value of the warrants and bifurcated embedded conversion feature , estimated to be approximately $ 4.3 million and $ 9.3 million , respectively , was deducted from the gross proceeds of the unit offering to arrive at the initial discounted carrying value of the series f preferred stock . the resulting discount to the aggregate stated value of the series f preferred stock of approximately $ 13.6 million will be recognized as accretion , similar to preferred stock dividends , over the two-year period prior to optional redemption by the holders . the company recognized accretion of the discount to the stated value of the series f preferred stock of approximately $ 369,000 in the year ended october 31 , 2017 as a reduction of additional paid-in capital and an increase in the carrying value of the series f preferred stock . the accretion is presented in the statement of operations as a deemed dividend , increasing net loss to arrive at net loss attributable to common stockholders . 46 preferred share conversion activity during the year ended october 31 , 2017 , 3,991,487 shares of convertible preferred stock series a , 6,512 shares of convertible preferred stock series b , 23,185 shares of convertible preferred stock series c and 129,665 shares of convertible preferred stock series d were converted into 1,590,631 shares of common stock . common stock on january 18 , 2017 , the company entered into separate exchange agreements ( each an “ exchange agreement ” ) with certain accredited investors ( the “ investors ” ) who purchased warrants to purchase shares of the company 's common stock ( the “ warrants ” ) pursuant to the prospectus dated april 13 , 2016. pursuant to the offering , the company issued 250,000 shares of the company 's common stock and warrants to purchase 187,500 shares of common stock ( taking into account the reverse split of the company 's common stock on a 1 for 6 basis effective with the nasdaq stock market llc on august 1 , 2016 ) . the common stock and warrants were offered by the company pursuant to an effective shelf registration statement . under the terms of the exchange agreement , each investor exchanged each warrant it purchased in the offering for 0.3 shares of common stock . accordingly , the company issued an aggregate of 56,250 shares of common stock in exchange for the return and cancellation of 187,500 warrants . 47 during the year ended october 31 , 2017 , certain employees exercised their options at a weighted-average exercise price of $ 4.84 in exchange for the company 's common stock for an aggregated amount of 268,847 shares . off-balance sheet arrangements as of october 31 , 2017 , we had no off-balance sheet arrangements . inflation our management currently believes that inflation has not had , and does not currently have , a material impact on continuing operations .

liquidity and capital resources as of october 31 , 2017 , our cash and cash equivalents balance was $ 17.7 million and our working capital was approximately $ 2.5 million , compared to cash and equivalents of $ 6.5 million and working capital of $ 5.4 million at october 31 , 2016. as reflected in the consolidated financial statements , we had an accumulated deficit of approximately $ 259.0 million at october 31 , 2017 , a loss of approximately $ 130.5 million from continuing operations and approximately $ 7.6 million net cash used in continuing operating activities for the year ended october 31 , 2017. these factors raise substantial doubt about the company 's ability to continue as a going concern . we will continue to pursue fundraising opportunities that meet our long-term objectives , however , our cash position is not sufficient to support our operations through december 2018. the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the company be unable to continue as a going concern . 45 series e preferred shares on april 7 , 2017 , the company issued 7,050 shares of its newly authorized series e preferred stock ( the “ series e preferred shares ” ) convertible into an aggregate of 7,050,000 shares of the company 's common stock with a fair value of approximately $ 104.7 million which is equal to 7,050,000 common shares times $ 14.85 ( the closing price of the company 's common stock as of april 7 , 2017 ) to dr. lough for the purchase of the polarity nv 's assets . the preferred e shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such preferred e shares , plus all accrued and unpaid dividends , if any as of such date of determination , divided by the conversion price .

cargo revenue increased $ 123 million , or 11.0 % , in 2018 as compared to 2017 , primarily due to freight volume and higher yield in the atlantic and pacific markets . other operating revenue increased $ 150 million , or 6.8 % , in 2018 as compared to 2017 , primarily due to increased revenue related to mileageplus miles sales . 25 operating expense the table below includes data related to the company 's operating expense for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_8_th salaries and related costs increased $ 517 million , or 4.7 % , in 2018 as compared to 2017 , primarily due to higher pay rates , higher benefit expenses ( primarily health and pension costs ) , and a 0.7 % increase in average full-time employees . aircraft fuel expense increased $ 2.4 billion , or 34.6 % , in 2018 as compared to 2017 , primarily due to increased fuel prices and a 4.9 % increase in capacity . the table below presents the significant changes in aircraft fuel cost per gallon for the years ended december 31 ( in millions , except percentage changes and per gallon data ) : replace_table_token_9_th regional capacity purchase costs increased $ 369 million , or 16.5 % , in 2018 as compared to 2017 , primarily due to increased flying related to the company 's initiative to improve connectivity at its domestic hubs , as well as rate increases under various capacity purchase agreements ( `` cpas `` ) with regional carriers . landing fees and other rent increased $ 119 million , or 5.3 % , in 2018 as compared to 2017 , primarily due to increased rates and our capacity growth . depreciation and amortization increased $ 91 million , or 4.2 % , in 2018 as compared to 2017 , primarily due to additions of new and used aircraft , aircraft improvements and increases in information technology infrastructure and application development projects . aircraft maintenance materials and outside repairs decreased $ 89 million , or 4.8 % , in 2018 as compared to 2017 , primarily due to optimization of fleet retirement schedules and related maintenance costs for those aircraft and timing of certain maintenance events . distribution expenses increased $ 123 million , or 8.6 % , in 2018 as compared to 2017 , primarily due to higher credit card and travel agency booking fees as a result of the overall increase in passenger revenue . aircraft rent decreased $ 188 million , or 30.3 % , in 2018 as compared to 2017 , primarily due to the purchase of leased aircraft , conversion of certain operating leases to capital leases and lease term expirations . the table below presents special charges incurred by the company during the years ended december 31 ( in millions ) : 26 replace_table_token_10_th see note 14 to the financial statements included in part ii , item 8 of this report for additional information . other operating expenses increased $ 251 million , or 4.5 % , in 2018 as compared to 2017 , primarily due to an increase in purchased services related to our airport operations resulting from capacity growth , technology initiatives , facility projects , crew-related lodging and trucking and handling of cargo shipments . nonoperating income ( expense ) the following table illustrates the year-over-year dollar and percentage changes in the company 's nonoperating income ( expense ) for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_11_th interest expense increased $ 58 million , or 8.6 % , in 2018 as compared to 2017 , primarily due to debt issued for the acquisition of new aircraft and the conversion of certain operating leases to capital leases . interest income increased $ 44 million , or 77.2 % , in 2018 as compared to 2017 , primarily due to increased interest rates . miscellaneous , net decreased $ 25 million , or 24.8 % , in 2018 as compared to 2017 , primarily due to a decrease in pension benefit costs that was partially offset by an increase in foreign exchange losses and an increase in equity earnings from affiliates . 2017 compared to 2016 operating revenue the table below illustrates the year-over-year percentage change in the company 's operating revenues for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_12_th the table below presents selected passenger revenue and operating data of the company , broken out by geographic region , expressed as year-over-year changes : 27 increase ( decrease ) in 2017 from 2016 ( a ) : domestic atlantic pacific latin total passenger revenue ( in millions ) $ 885 $ 117 $ ( 144 ) $ 173 $ 1,031 passenger revenue 4.4 % 2.0 % ( 3.2 ) % 5.8 % 3.1 % average fare per passenger 0.2 % 1.5 % ( 0.1 ) % 4.0 % ( 0.3 ) % yield ( 0.3 ) % 1.1 % ( 2.4 ) % 4.1 % 0.2 % prasm ( 0.5 ) % 1.6 % ( 6.0 ) % 3.3 % ( 0.4 ) % passengers 4.2 % 0.5 % ( 3.1 ) % 1.7 % 3.4 % rpms ( traffic ) 4.7 % 0.9 % ( 0.9 ) % 1.6 % 2.8 % asms ( capacity ) 4.9 % 0.4 % 2.9 % 2.4 % 3.5 % passenger load factor ( points ) ( 0.2 ) 0.4 ( 3.0 ) ( 0.7 ) ( 0.5 ) ( a ) see part ii , item 6 , selected financial data , of this report for the definition of these statistics . passenger revenue increased $ 1.0 billion , or 3.1 % , in 2017 as compared to 2016 , primarily due to a 2.8 % increase in traffic . prasm decreased 0.4 % in 2017 as compared to 2016 . story_separator_special_tag at december 31 , 2018 , the company had $ 3.5 billion of floating rate debt and $ 27 million of fixed rate debt , with remaining terms of up to 12 years , that are subject to these increased cost provisions . in several financing transactions involving loans or leases from non-u.s. entities , with remaining terms of up to 12 years and an aggregate balance of $ 3.2 billion , the company bears the risk of any change in tax laws that would subject loan or lease payments thereunder to non-u.s. entities to withholding taxes , subject to customary exclusions . fuel consortia . united participates in numerous fuel consortia with other air carriers at major airports to reduce the costs of fuel distribution and storage . interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage . the consortia ( and in limited cases , the participating carriers ) have entered into long-term agreements to lease certain airport fuel storage and distribution facilities that are typically financed through tax-exempt bonds , either special facilities lease revenue bonds or general airport revenue bonds , issued by various local municipalities . in general , each consortium lease agreement requires the consortium to make lease payments in amounts sufficient to pay the maturing principal and interest payments on the bonds . as of december 31 , 2018 , approximately $ 1.7 billion principal amount of such bonds were secured by significant fuel facility leases in which united participates , as to which united and each of the signatory airlines has provided indirect guarantees of the debt . as of december 31 , 2018 , the company 's contingent exposure was approximately $ 164 million principal amount of such bonds based on its recent consortia participation . the company 's contingent exposure could increase if the participation of other air carriers decreases . the guarantees will expire when the tax-exempt bonds are paid in full , which ranges from 2022 to 2051 . the company did not record a liability at the time these indirect guarantees were made . critical accounting policies critical accounting policies are defined as those that are affected by significant judgments and uncertainties which potentially could result in materially different accounting under different assumptions and conditions . the company has prepared the financial statements in conformity with accounting principles generally accepted in the united states of america ( `` gaap `` ) , which requires management to make estimates and assumptions that affect the reported amounts in the financial statements . actual results could differ from those estimates under different assumptions or conditions . the company has identified the following critical accounting policies that impact the preparation of the financial statements . frequent flyer accounting . united 's mileageplus loyalty program builds customer loyalty by offering awards , benefits and services to program participants . members in this program earn miles for travel on united , united express , star alliance members and certain other airlines that participate in the program . members can also earn miles by purchasing the goods and services of our network of non-airline partners . we have contracts to sell miles to these partners with the terms extending from one to eight years . these partners include domestic and international credit card issuers , retail merchants , hotels , car rental companies and our participating airline partners . miles can be redeemed for free ( other than taxes and government imposed fees ) , discounted or upgraded air travel and non-travel awards . miles expire after 18 months of member account inactivity . miles earned in conjunction with travel . when frequent flyers earn miles for flights , the company recognizes a portion of the ticket sales as revenue when the travel occurs and defers a portion of the ticket sale representing the value of the related miles as a separate performance obligation . the company determines the estimated selling price of travel and miles as if each element is sold on a separate basis . the total consideration from each ticket sale is then allocated to each of these elements , individually , on a pro-rata basis . at the time of travel , the company records the portion allocated to the miles to frequent flyer deferred revenue on the company 's consolidated balance sheet and subsequently recognizes it into revenue when miles are redeemed for air travel and non-air travel awards . the company 's estimated selling price of miles is based on an equivalent ticket value less breakage , which incorporates the expected redemption of miles , as the best estimate of selling price for these miles . the equivalent ticket value is based on the prior 12 months ' weighted average equivalent ticket value of similar fares as those used to settle award redemptions while 34 taking into consideration such factors as redemption pattern , cabin class , loyalty status and geographic region . the estimated selling price of miles is adjusted by breakage that considers a number of factors , including redemption patterns of various customer groups . the company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns . the company 's estimate of the expected expiration of miles requires significant management judgment . current and future changes to expiration assumptions or to the expiration policy , or to program rules and program redemption opportunities , may result in material changes to the deferred revenue balance as well as recognized revenues from the program . for the portion of the outstanding miles that we estimate will not be redeemed , we recognize the associated value proportionally as the remaining miles are redeemed . co-brand agreement . united has a significant contract ( the `` co-brand agreement `` ) to sell mileageplus miles to its co-branded credit card partner chase bank usa ,

liquidity and capital resources as of october 31 , 2017 , our cash and cash equivalents balance was $ 17.7 million and our working capital was approximately $ 2.5 million , compared to cash and equivalents of $ 6.5 million and working capital of $ 5.4 million at october 31 , 2016. as reflected in the consolidated financial statements , we had an accumulated deficit of approximately $ 259.0 million at october 31 , 2017 , a loss of approximately $ 130.5 million from continuing operations and approximately $ 7.6 million net cash used in continuing operating activities for the year ended october 31 , 2017. these factors raise substantial doubt about the company 's ability to continue as a going concern . we will continue to pursue fundraising opportunities that meet our long-term objectives , however , our cash position is not sufficient to support our operations through december 2018. the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the company be unable to continue as a going concern . 45 series e preferred shares on april 7 , 2017 , the company issued 7,050 shares of its newly authorized series e preferred stock ( the “ series e preferred shares ” ) convertible into an aggregate of 7,050,000 shares of the company 's common stock with a fair value of approximately $ 104.7 million which is equal to 7,050,000 common shares times $ 14.85 ( the closing price of the company 's common stock as of april 7 , 2017 ) to dr. lough for the purchase of the polarity nv 's assets . the preferred e shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such preferred e shares , plus all accrued and unpaid dividends , if any as of such date of determination , divided by the conversion price .

cargo revenue increased $ 123 million , or 11.0 % , in 2018 as compared to 2017 , primarily due to freight volume and higher yield in the atlantic and pacific markets . other operating revenue increased $ 150 million , or 6.8 % , in 2018 as compared to 2017 , primarily due to increased revenue related to mileageplus miles sales . 25 operating expense the table below includes data related to the company 's operating expense for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_8_th salaries and related costs increased $ 517 million , or 4.7 % , in 2018 as compared to 2017 , primarily due to higher pay rates , higher benefit expenses ( primarily health and pension costs ) , and a 0.7 % increase in average full-time employees . aircraft fuel expense increased $ 2.4 billion , or 34.6 % , in 2018 as compared to 2017 , primarily due to increased fuel prices and a 4.9 % increase in capacity . the table below presents the significant changes in aircraft fuel cost per gallon for the years ended december 31 ( in millions , except percentage changes and per gallon data ) : replace_table_token_9_th regional capacity purchase costs increased $ 369 million , or 16.5 % , in 2018 as compared to 2017 , primarily due to increased flying related to the company 's initiative to improve connectivity at its domestic hubs , as well as rate increases under various capacity purchase agreements ( `` cpas `` ) with regional carriers . landing fees and other rent increased $ 119 million , or 5.3 % , in 2018 as compared to 2017 , primarily due to increased rates and our capacity growth . depreciation and amortization increased $ 91 million , or 4.2 % , in 2018 as compared to 2017 , primarily due to additions of new and used aircraft , aircraft improvements and increases in information technology infrastructure and application development projects . aircraft maintenance materials and outside repairs decreased $ 89 million , or 4.8 % , in 2018 as compared to 2017 , primarily due to optimization of fleet retirement schedules and related maintenance costs for those aircraft and timing of certain maintenance events . distribution expenses increased $ 123 million , or 8.6 % , in 2018 as compared to 2017 , primarily due to higher credit card and travel agency booking fees as a result of the overall increase in passenger revenue . aircraft rent decreased $ 188 million , or 30.3 % , in 2018 as compared to 2017 , primarily due to the purchase of leased aircraft , conversion of certain operating leases to capital leases and lease term expirations . the table below presents special charges incurred by the company during the years ended december 31 ( in millions ) : 26 replace_table_token_10_th see note 14 to the financial statements included in part ii , item 8 of this report for additional information . other operating expenses increased $ 251 million , or 4.5 % , in 2018 as compared to 2017 , primarily due to an increase in purchased services related to our airport operations resulting from capacity growth , technology initiatives , facility projects , crew-related lodging and trucking and handling of cargo shipments . nonoperating income ( expense ) the following table illustrates the year-over-year dollar and percentage changes in the company 's nonoperating income ( expense ) for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_11_th interest expense increased $ 58 million , or 8.6 % , in 2018 as compared to 2017 , primarily due to debt issued for the acquisition of new aircraft and the conversion of certain operating leases to capital leases . interest income increased $ 44 million , or 77.2 % , in 2018 as compared to 2017 , primarily due to increased interest rates . miscellaneous , net decreased $ 25 million , or 24.8 % , in 2018 as compared to 2017 , primarily due to a decrease in pension benefit costs that was partially offset by an increase in foreign exchange losses and an increase in equity earnings from affiliates . 2017 compared to 2016 operating revenue the table below illustrates the year-over-year percentage change in the company 's operating revenues for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_12_th the table below presents selected passenger revenue and operating data of the company , broken out by geographic region , expressed as year-over-year changes : 27 increase ( decrease ) in 2017 from 2016 ( a ) : domestic atlantic pacific latin total passenger revenue ( in millions ) $ 885 $ 117 $ ( 144 ) $ 173 $ 1,031 passenger revenue 4.4 % 2.0 % ( 3.2 ) % 5.8 % 3.1 % average fare per passenger 0.2 % 1.5 % ( 0.1 ) % 4.0 % ( 0.3 ) % yield ( 0.3 ) % 1.1 % ( 2.4 ) % 4.1 % 0.2 % prasm ( 0.5 ) % 1.6 % ( 6.0 ) % 3.3 % ( 0.4 ) % passengers 4.2 % 0.5 % ( 3.1 ) % 1.7 % 3.4 % rpms ( traffic ) 4.7 % 0.9 % ( 0.9 ) % 1.6 % 2.8 % asms ( capacity ) 4.9 % 0.4 % 2.9 % 2.4 % 3.5 % passenger load factor ( points ) ( 0.2 ) 0.4 ( 3.0 ) ( 0.7 ) ( 0.5 ) ( a ) see part ii , item 6 , selected financial data , of this report for the definition of these statistics . passenger revenue increased $ 1.0 billion , or 3.1 % , in 2017 as compared to 2016 , primarily due to a 2.8 % increase in traffic . prasm decreased 0.4 % in 2017 as compared to 2016 . story_separator_special_tag at december 31 , 2018 , the company had $ 3.5 billion of floating rate debt and $ 27 million of fixed rate debt , with remaining terms of up to 12 years , that are subject to these increased cost provisions . in several financing transactions involving loans or leases from non-u.s. entities , with remaining terms of up to 12 years and an aggregate balance of $ 3.2 billion , the company bears the risk of any change in tax laws that would subject loan or lease payments thereunder to non-u.s. entities to withholding taxes , subject to customary exclusions . fuel consortia . united participates in numerous fuel consortia with other air carriers at major airports to reduce the costs of fuel distribution and storage . interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage . the consortia ( and in limited cases , the participating carriers ) have entered into long-term agreements to lease certain airport fuel storage and distribution facilities that are typically financed through tax-exempt bonds , either special facilities lease revenue bonds or general airport revenue bonds , issued by various local municipalities . in general , each consortium lease agreement requires the consortium to make lease payments in amounts sufficient to pay the maturing principal and interest payments on the bonds . as of december 31 , 2018 , approximately $ 1.7 billion principal amount of such bonds were secured by significant fuel facility leases in which united participates , as to which united and each of the signatory airlines has provided indirect guarantees of the debt . as of december 31 , 2018 , the company 's contingent exposure was approximately $ 164 million principal amount of such bonds based on its recent consortia participation . the company 's contingent exposure could increase if the participation of other air carriers decreases . the guarantees will expire when the tax-exempt bonds are paid in full , which ranges from 2022 to 2051 . the company did not record a liability at the time these indirect guarantees were made . critical accounting policies critical accounting policies are defined as those that are affected by significant judgments and uncertainties which potentially could result in materially different accounting under different assumptions and conditions . the company has prepared the financial statements in conformity with accounting principles generally accepted in the united states of america ( `` gaap `` ) , which requires management to make estimates and assumptions that affect the reported amounts in the financial statements . actual results could differ from those estimates under different assumptions or conditions . the company has identified the following critical accounting policies that impact the preparation of the financial statements . frequent flyer accounting . united 's mileageplus loyalty program builds customer loyalty by offering awards , benefits and services to program participants . members in this program earn miles for travel on united , united express , star alliance members and certain other airlines that participate in the program . members can also earn miles by purchasing the goods and services of our network of non-airline partners . we have contracts to sell miles to these partners with the terms extending from one to eight years . these partners include domestic and international credit card issuers , retail merchants , hotels , car rental companies and our participating airline partners . miles can be redeemed for free ( other than taxes and government imposed fees ) , discounted or upgraded air travel and non-travel awards . miles expire after 18 months of member account inactivity . miles earned in conjunction with travel . when frequent flyers earn miles for flights , the company recognizes a portion of the ticket sales as revenue when the travel occurs and defers a portion of the ticket sale representing the value of the related miles as a separate performance obligation . the company determines the estimated selling price of travel and miles as if each element is sold on a separate basis . the total consideration from each ticket sale is then allocated to each of these elements , individually , on a pro-rata basis . at the time of travel , the company records the portion allocated to the miles to frequent flyer deferred revenue on the company 's consolidated balance sheet and subsequently recognizes it into revenue when miles are redeemed for air travel and non-air travel awards . the company 's estimated selling price of miles is based on an equivalent ticket value less breakage , which incorporates the expected redemption of miles , as the best estimate of selling price for these miles . the equivalent ticket value is based on the prior 12 months ' weighted average equivalent ticket value of similar fares as those used to settle award redemptions while 34 taking into consideration such factors as redemption pattern , cabin class , loyalty status and geographic region . the estimated selling price of miles is adjusted by breakage that considers a number of factors , including redemption patterns of various customer groups . the company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns . the company 's estimate of the expected expiration of miles requires significant management judgment . current and future changes to expiration assumptions or to the expiration policy , or to program rules and program redemption opportunities , may result in material changes to the deferred revenue balance as well as recognized revenues from the program . for the portion of the outstanding miles that we estimate will not be redeemed , we recognize the associated value proportionally as the remaining miles are redeemed . co-brand agreement . united has a significant contract ( the `` co-brand agreement `` ) to sell mileageplus miles to its co-branded credit card partner chase bank usa ,

debt and capital lease principal payments during the year ended december 31 , 2018 , the company made debt and capital lease principal payments of $ 1.9 billion . significant financing events in 2017 were as follows : share repurchases the company used $ 1.8 billion of cash to purchase approximately 27.8 million shares of its common stock during 2017 , completing its july 2016 repurchase authorization . in december 2017 , ual 's board of directors authorized a new $ 3.0 billion share repurchase program to acquire ual 's common stock . as of december 31 , 2017 , the company had approximately $ 3.0 billion remaining to purchase shares under its share repurchase program . debt issuances during 2017 , united received and recorded $ 1.8 billion of proceeds as debt related to enhanced equipment trust certificate ( `` eetc '' ) offerings created in 2016 and 2017 to finance the purchase of aircraft . in 2017 , ual issued , and united guaranteed , ( i ) $ 400 million aggregate principal amount of unsecured 4.25 % senior notes due october 1 , 2022 , and ( ii ) $ 300 million aggregate principal amount of unsecured 5 % senior notes due february 1 , 2024. in 2017 , united and ual , as borrower and guarantor , respectively , increased the term loan under the credit agreement by approximately $ 440 million . during 2017 , united borrowed approximately $ 497 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2017. debt and capital lease principal payments during the year ended december 31 , 2017 , the company made debt and capital lease principal payments of $ 1.0 billion .

however , we can not assure you that we will be successful in accomplishing any of these plans and , if we are unable to obtain adequate capital , we could be forced to cease operations . finally , the acquisition of the acueity assets may become a complement to our current business at some point in the future . we are not currently allocating human or financial resources to these assets , with the exception of approximately $ 50,000 for patent maintenance fees and application prosecution expenses related to the acueity asset purchase . following the launch of our four diagnostic tests in the u.s. , we will then begin to allocate human and financial resources to further develop and ultimately commercialize these medical devices . we intend to complete the steps necessary to begin marketing and selling these tools , such as re-establishment of the supply chain of component parts , securing manufacturers , performing test builds and commercial scale manufacturing , in late 2013. this asset purchase is not expected to have an impact on the development and commercialization timetables of our existing product lines . we can not , however , provide any assurances that delays related to the launch of our four diagnostic tests , independent of this asset purchase , would not delay the expected development of these diagnostic tools or that we will ultimately be successful selling these tools . on march 27 , 2013 we entered into a stock purchase agreement with aspire capital fund , llc , which provides that , upon the terms and subject to the conditions and limitations set forth therein , aspire is committed to purchase up to an aggregate of $ 30 million of shares of our common stock over the three-year term of the agreement . under the agreement , aspire purchased $ 1,000,000 of our common stock on march 27 , 2013 for $ 12 per share . before we can sell any additional shares under the agreement , we must register the shares and have the registration statement declared effective by the sec . revenue sources the commercialization of the forecyte test provides us with two revenue sources : ( i ) sales-based revenue from the sale of the masct system device and patient kits to distributors , physicians , breast health clinics , and mammography clinics and ( ii ) service , or use-based , revenue from the preparation and interpretation of the naf samples sent to our laboratory for analysis . the commercialization of the arguscyte test provides only laboratory service revenue . 41 commencing in december 2011 , we began to market the forecyte test to physicians , primarily obstetric-gynecologists , as well as breast health and mammography clinics , for use in conjunction with other health screening examinations , including annual physical examinations and regularly scheduled cervical pap smears and mammograms . we are establishing relationships with breast cancer centers to provide the arguscyte test to their patients . we plan to initially use regional specialty product distributors , with independent sale representatives specializing in women 's health , to commercialize the forecyte and arguscyte tests . as of december 31 , 2012 , we have entered an agreement with clarity women 's health , a division of diagnostic test group llc ( dtg ) ; however , we can not be certain that we will be able to build distributor relationships , including our relationship with dtg , adequately to address the national market . in addition to dr. quay , in april 2012 we hired a board-certified pathologist part-time to assist in the interpretation of the naf samples . commercial lease agreements on september 29 , 2010 , the company entered into a commercial lease agreement with complegen , inc. for laboratory space located in seattle , wa . the lease provides for monthly rent of $ 3,658 and a security deposit of $ 3,658. the lease terms are from september 29 , 2010 through march 31 , 2011 , at which time the lease has converted to month to month unless two months ' prior written notice of the intent to terminate the agreement is given . the monthly rent for the lease increased to $ 4,267 commencing january 2012. for the twelve months ended december 31 , 2012 , the company incurred $ 46,529 of rent expense for the lease . the lease was terminated in december 2012 , and the rental deposit was applied to the rent of the final month . on march 4 , 2011 , the company entered into a commercial lease agreement with sanders properties , llc for office space located in seattle , wa . the lease provides for monthly rent of $ 1,100 and a security deposit of $ 1,500. the lease terms are from april 1 , 2011 through march 31 , 2013. for the twelve months ended december 31 , 2012 , the company incurred $ 13,200 of rent expense for the lease . on july 9 , 2011 , the company entered into a commercial lease agreement with sanders properties , llc for additional office space located in seattle , wa . the lease provides for monthly rent of $ 600 and a security deposit of $ 1,200. the lease terms are from july 11 , 2011 through july 31 , 2012. for the twelve months ended december 31 , 2012 , the company incurred $ 4,200 of rent expense for the lease . this lease terminated on july 31 , 2012 and was not renewed . on september 27 , 2011 , the company entered into another commercial lease agreement with sanders properties , llc for additional office space located in seattle , wa . story_separator_special_tag total cost of revenue was $ 35,745 , primarily attributable to cost of diagnostic testing services performed , which consisted of $ 35,745 in payments to doctors for their time administering the forecyte testing service . since the inventory of masct system was recorded at zero net realizable value as a result of the lower of cost or market analysis performed at december 31 , 2011 , no corresponding cost of goods sold was recorded for the sales of masct system for the twelve months ended december 31 , 2012. gross profit was $ 439,657 for the diagnostic testing service and $ 6,440 for the product sales of masct system with no corresponding cost of goods sold . loss on reduction of inventory to lower of cost or market was $ 29,884 for the twelve months ended december 31 , 2012 , primarily due to write-off of parts purchased during the year for the assembly of masct system , which was determined at zero net realizable value as a result of lower of cost or market analysis performed at december 31 , 2012. our masct system is currently sold at a price substantially lower than its cost to encourage sales and because the masct system is currently manufactured by our suppliers only in small quantities . for these reasons , the manufacturing cost allocated to each inventory unit is high . for 2012 , total operating expenses were $ 5,485,243 , consisting of g & a expenses of $ 5,018,422 and selling expenses of $ 466,821 , which included $ 55,282 of cost of forecyte and arguscyte testing specimen collection kits that were immediately expensed upon purchase during the quarter . during the initial marketing phase , the company has decided to distribute the kits to customers at no cost and bundle them with the masct system and has not intended to deem the kits as a primary product line due to their nominal cost and value per unit . the selling expenses also included $ 266,698 in salaries and $ 114,822 in advertising . the g & a expenses consisted primarily of $ 350,914 in salaries and bonus expense , $ 1,072,992 in legal expense , $ 229,838 in consulting expense , $ 232,291 in accounting expense , $ 40,868 in travel expense , $ 86,489 in payroll taxes , $ 166,614 in professional fees , $ 84,624 in health insurance expense and $ 113,400 in business insurance . also included in g & a expense is $ 1,976,638 in research and development expense , consisting primarily of $ 645,901 in salaries and bonus expense , $ 246,950 in rent expense , $ 27,853 in laboratory supplies , $ 130,040 in masct system development , $ 244,203 in masct system service development , $ 489,778 in ductal lavage product development , $ 39,789 in ductal lavage service development and $ 34,649 in circulating tumor cells service development . 45 comparison of the twelve months ended december 31 , 2012 and 2011 revenue and cost of goods sold . for the twelve months ended december 31 , 2012 , we had total revenue of $ 481,842 , consisting of $ 6,440 product revenue from sales of masct systems and $ 475,402 diagnostic testing service revenue from our forecyte and arguscyte testing services performed . this compares to total revenue of $ 1,500 for the twelve months ended december 31 , 2011. total cost of goods sold was $ 5,164 and consisted of $ 4,158 in direct costs related to the production of the masct systems which were sold , and $ 1,006 in costs of goods sold for items expensed when purchased . since the inventory of masct system was recorded at zero net realizable value as a result of the lower of cost or market analysis performed at december 31 , 2011 , no corresponding cost of goods sold was recorded for the sales of masct system for the twelve months ended december 31 , 2012. gross profit for the twelve months ended december 31 , 2012 was $ 416,213 for the diagnostic testing service and $ 6,440 for the product sales of masct system with no corresponding cost of goods sold . this compares to gross profit of ( $ 95,690 ) for the twelve months ended december 31 , 2011. loss on reduction of inventory to lower of cost or market was $ 29,884 for the twelve months ended december 31 , 2012 , primarily due to write-off of parts purchased during the year for the assembly of masct system which was determined at zero net realizable value as a result of lower of cost or market analysis at december 31 , 2011 and december 31 , 2012. our masct system is currently sold at a price substantially lower than its cost to encourage sales and because the masct system is currently manufactured by our suppliers only in small quantities . for these reasons , the manufacturing cost allocated to each inventory unit is high . as discussed below , we expect that our r & d and g & a expenses will continue to increase in the foreseeable future , and that if we successfully launch the masct system and our related laboratory service offerings , we would also begin to incur sales and marketing expenses as we build a regional , and ultimately national , sales force . we may limit our fixed sales and marketing costs initially by using third party distributors and employing temporary workers or those who are compensated on a commission basis . however , we expect our expenditures to increase significantly in future periods . operating expenses . total operating expenses were $ 5,485,243 for the twelve months ended december 31 , 2012 , consisting of g & a expenses of $ 5,018,422 and selling expenses of $ 466,821 , which included $ 55,282 of cost of forecyte and arguscyte testing specimen collection kits that were immediately expensed upon purchase

debt and capital lease principal payments during the year ended december 31 , 2018 , the company made debt and capital lease principal payments of $ 1.9 billion . significant financing events in 2017 were as follows : share repurchases the company used $ 1.8 billion of cash to purchase approximately 27.8 million shares of its common stock during 2017 , completing its july 2016 repurchase authorization . in december 2017 , ual 's board of directors authorized a new $ 3.0 billion share repurchase program to acquire ual 's common stock . as of december 31 , 2017 , the company had approximately $ 3.0 billion remaining to purchase shares under its share repurchase program . debt issuances during 2017 , united received and recorded $ 1.8 billion of proceeds as debt related to enhanced equipment trust certificate ( `` eetc '' ) offerings created in 2016 and 2017 to finance the purchase of aircraft . in 2017 , ual issued , and united guaranteed , ( i ) $ 400 million aggregate principal amount of unsecured 4.25 % senior notes due october 1 , 2022 , and ( ii ) $ 300 million aggregate principal amount of unsecured 5 % senior notes due february 1 , 2024. in 2017 , united and ual , as borrower and guarantor , respectively , increased the term loan under the credit agreement by approximately $ 440 million . during 2017 , united borrowed approximately $ 497 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2017. debt and capital lease principal payments during the year ended december 31 , 2017 , the company made debt and capital lease principal payments of $ 1.0 billion .

however , we can not assure you that we will be successful in accomplishing any of these plans and , if we are unable to obtain adequate capital , we could be forced to cease operations . finally , the acquisition of the acueity assets may become a complement to our current business at some point in the future . we are not currently allocating human or financial resources to these assets , with the exception of approximately $ 50,000 for patent maintenance fees and application prosecution expenses related to the acueity asset purchase . following the launch of our four diagnostic tests in the u.s. , we will then begin to allocate human and financial resources to further develop and ultimately commercialize these medical devices . we intend to complete the steps necessary to begin marketing and selling these tools , such as re-establishment of the supply chain of component parts , securing manufacturers , performing test builds and commercial scale manufacturing , in late 2013. this asset purchase is not expected to have an impact on the development and commercialization timetables of our existing product lines . we can not , however , provide any assurances that delays related to the launch of our four diagnostic tests , independent of this asset purchase , would not delay the expected development of these diagnostic tools or that we will ultimately be successful selling these tools . on march 27 , 2013 we entered into a stock purchase agreement with aspire capital fund , llc , which provides that , upon the terms and subject to the conditions and limitations set forth therein , aspire is committed to purchase up to an aggregate of $ 30 million of shares of our common stock over the three-year term of the agreement . under the agreement , aspire purchased $ 1,000,000 of our common stock on march 27 , 2013 for $ 12 per share . before we can sell any additional shares under the agreement , we must register the shares and have the registration statement declared effective by the sec . revenue sources the commercialization of the forecyte test provides us with two revenue sources : ( i ) sales-based revenue from the sale of the masct system device and patient kits to distributors , physicians , breast health clinics , and mammography clinics and ( ii ) service , or use-based , revenue from the preparation and interpretation of the naf samples sent to our laboratory for analysis . the commercialization of the arguscyte test provides only laboratory service revenue . 41 commencing in december 2011 , we began to market the forecyte test to physicians , primarily obstetric-gynecologists , as well as breast health and mammography clinics , for use in conjunction with other health screening examinations , including annual physical examinations and regularly scheduled cervical pap smears and mammograms . we are establishing relationships with breast cancer centers to provide the arguscyte test to their patients . we plan to initially use regional specialty product distributors , with independent sale representatives specializing in women 's health , to commercialize the forecyte and arguscyte tests . as of december 31 , 2012 , we have entered an agreement with clarity women 's health , a division of diagnostic test group llc ( dtg ) ; however , we can not be certain that we will be able to build distributor relationships , including our relationship with dtg , adequately to address the national market . in addition to dr. quay , in april 2012 we hired a board-certified pathologist part-time to assist in the interpretation of the naf samples . commercial lease agreements on september 29 , 2010 , the company entered into a commercial lease agreement with complegen , inc. for laboratory space located in seattle , wa . the lease provides for monthly rent of $ 3,658 and a security deposit of $ 3,658. the lease terms are from september 29 , 2010 through march 31 , 2011 , at which time the lease has converted to month to month unless two months ' prior written notice of the intent to terminate the agreement is given . the monthly rent for the lease increased to $ 4,267 commencing january 2012. for the twelve months ended december 31 , 2012 , the company incurred $ 46,529 of rent expense for the lease . the lease was terminated in december 2012 , and the rental deposit was applied to the rent of the final month . on march 4 , 2011 , the company entered into a commercial lease agreement with sanders properties , llc for office space located in seattle , wa . the lease provides for monthly rent of $ 1,100 and a security deposit of $ 1,500. the lease terms are from april 1 , 2011 through march 31 , 2013. for the twelve months ended december 31 , 2012 , the company incurred $ 13,200 of rent expense for the lease . on july 9 , 2011 , the company entered into a commercial lease agreement with sanders properties , llc for additional office space located in seattle , wa . the lease provides for monthly rent of $ 600 and a security deposit of $ 1,200. the lease terms are from july 11 , 2011 through july 31 , 2012. for the twelve months ended december 31 , 2012 , the company incurred $ 4,200 of rent expense for the lease . this lease terminated on july 31 , 2012 and was not renewed . on september 27 , 2011 , the company entered into another commercial lease agreement with sanders properties , llc for additional office space located in seattle , wa . story_separator_special_tag total cost of revenue was $ 35,745 , primarily attributable to cost of diagnostic testing services performed , which consisted of $ 35,745 in payments to doctors for their time administering the forecyte testing service . since the inventory of masct system was recorded at zero net realizable value as a result of the lower of cost or market analysis performed at december 31 , 2011 , no corresponding cost of goods sold was recorded for the sales of masct system for the twelve months ended december 31 , 2012. gross profit was $ 439,657 for the diagnostic testing service and $ 6,440 for the product sales of masct system with no corresponding cost of goods sold . loss on reduction of inventory to lower of cost or market was $ 29,884 for the twelve months ended december 31 , 2012 , primarily due to write-off of parts purchased during the year for the assembly of masct system , which was determined at zero net realizable value as a result of lower of cost or market analysis performed at december 31 , 2012. our masct system is currently sold at a price substantially lower than its cost to encourage sales and because the masct system is currently manufactured by our suppliers only in small quantities . for these reasons , the manufacturing cost allocated to each inventory unit is high . for 2012 , total operating expenses were $ 5,485,243 , consisting of g & a expenses of $ 5,018,422 and selling expenses of $ 466,821 , which included $ 55,282 of cost of forecyte and arguscyte testing specimen collection kits that were immediately expensed upon purchase during the quarter . during the initial marketing phase , the company has decided to distribute the kits to customers at no cost and bundle them with the masct system and has not intended to deem the kits as a primary product line due to their nominal cost and value per unit . the selling expenses also included $ 266,698 in salaries and $ 114,822 in advertising . the g & a expenses consisted primarily of $ 350,914 in salaries and bonus expense , $ 1,072,992 in legal expense , $ 229,838 in consulting expense , $ 232,291 in accounting expense , $ 40,868 in travel expense , $ 86,489 in payroll taxes , $ 166,614 in professional fees , $ 84,624 in health insurance expense and $ 113,400 in business insurance . also included in g & a expense is $ 1,976,638 in research and development expense , consisting primarily of $ 645,901 in salaries and bonus expense , $ 246,950 in rent expense , $ 27,853 in laboratory supplies , $ 130,040 in masct system development , $ 244,203 in masct system service development , $ 489,778 in ductal lavage product development , $ 39,789 in ductal lavage service development and $ 34,649 in circulating tumor cells service development . 45 comparison of the twelve months ended december 31 , 2012 and 2011 revenue and cost of goods sold . for the twelve months ended december 31 , 2012 , we had total revenue of $ 481,842 , consisting of $ 6,440 product revenue from sales of masct systems and $ 475,402 diagnostic testing service revenue from our forecyte and arguscyte testing services performed . this compares to total revenue of $ 1,500 for the twelve months ended december 31 , 2011. total cost of goods sold was $ 5,164 and consisted of $ 4,158 in direct costs related to the production of the masct systems which were sold , and $ 1,006 in costs of goods sold for items expensed when purchased . since the inventory of masct system was recorded at zero net realizable value as a result of the lower of cost or market analysis performed at december 31 , 2011 , no corresponding cost of goods sold was recorded for the sales of masct system for the twelve months ended december 31 , 2012. gross profit for the twelve months ended december 31 , 2012 was $ 416,213 for the diagnostic testing service and $ 6,440 for the product sales of masct system with no corresponding cost of goods sold . this compares to gross profit of ( $ 95,690 ) for the twelve months ended december 31 , 2011. loss on reduction of inventory to lower of cost or market was $ 29,884 for the twelve months ended december 31 , 2012 , primarily due to write-off of parts purchased during the year for the assembly of masct system which was determined at zero net realizable value as a result of lower of cost or market analysis at december 31 , 2011 and december 31 , 2012. our masct system is currently sold at a price substantially lower than its cost to encourage sales and because the masct system is currently manufactured by our suppliers only in small quantities . for these reasons , the manufacturing cost allocated to each inventory unit is high . as discussed below , we expect that our r & d and g & a expenses will continue to increase in the foreseeable future , and that if we successfully launch the masct system and our related laboratory service offerings , we would also begin to incur sales and marketing expenses as we build a regional , and ultimately national , sales force . we may limit our fixed sales and marketing costs initially by using third party distributors and employing temporary workers or those who are compensated on a commission basis . however , we expect our expenditures to increase significantly in future periods . operating expenses . total operating expenses were $ 5,485,243 for the twelve months ended december 31 , 2012 , consisting of g & a expenses of $ 5,018,422 and selling expenses of $ 466,821 , which included $ 55,282 of cost of forecyte and arguscyte testing specimen collection kits that were immediately expensed upon purchase

liquidity and capital resources we have a history of operating losses as we have focused our efforts on raising capital and building the masct system . the report of our independent auditors issued on our consolidated financial statements as of and for the years ended december 31 , 2012 and 2011 expresses substantial doubt about our ability to continue as a going concern . in 2011 , we were successful in raising net proceeds of $ 5.7 million through a private placement in order to fund the growth of our operations and product development . in november 2012 we were successful in our initial public offering and raising net proceeds of approximately $ 3.5 million . our ability to continue as a going concern is dependent on our obtaining additional adequate capital to fund additional operating losses until we become profitable . if we are unable to obtain adequate capital , we could be forced to cease operations . on march 27 , 2013 we entered into a stock purchase agreement with aspire capital fund , llc , which provides that , upon the terms and subject to the conditions and limitations set forth therein , aspire is committed to purchase up to an aggregate of $ 30 million of shares of our common stock over the three-year term of the agreement . under the agreement , aspire purchased $ 1,000,000 of our common stock on march 27 , 2013 for $ 12 per share . before we can sell any additional shares under the agreement , we must register the shares and have the registration statement declared effective by the sec . cash flows for the twelve months ended december 31 , 2012 , we incurred a net loss of $ 5,079,851. net cash used in operating activities was $ 3,899,964 , net cash used in investing activities was $ 134,582 and net cash provided by financing activities was $ 3,848,922. during the twelve months ended december 31 , 2012 we repaid $ 1,000,000 that we previously drew on our bank line of credit .

2 refund ordered by the isrs rulings for amounts collected prior to the last rate case , after which recoveries of related authorized revenues became part of base rates that went into effect in april 2018 . the second component relates to an estimate of $ 8 . 0 for revenues associated with the june 2018 isrs filing that was approved by the mopsc in september 2018. the after-tax impact of the provision reduced net income by $ 9.3 , or $ 0.18 per diluted share . additional isrs revenues are currently under appeal related to the january 2019 isrs filings with annual authorized revenue of $ 12.4. the estimated amount earned in fiscal year 2019 under this isrs order was $ 4.6. additionally , in future periods spire missouri will evaluate the need for an adjustment to the provision based upon new information and further developments . gas utility - spire alabama spire alabama is the largest natural gas distribution utility in the state of alabama and is regulated by the apsc . spire alabama 's service territory is located in central and northern alabama . among the cities served by spire alabama are birmingham , the center of the largest metropolitan area in the state , and montgomery , the state capital . spire alabama purchases natural gas through interstate and intrastate suppliers and distributes the purchased gas through its distribution facilities for sale to residential , commercial and industrial customers and other end-users of natural gas . spire alabama also provides transportation services to large industrial and commercial customers located on its distribution system . these transportation customers , using spire alabama as their agent or acting on their own , purchase gas directly from marketers or suppliers and arrange for delivery of the gas into the spire alabama distribution system . spire alabama charges a fee to transport such customer-owned gas through its distribution system to the customers ' facilities . gas utility - spire energysouth spire gulf and spire mississippi are utilities engaged in the purchase , retail distribution and sale of natural gas to approximately 100,000 customers in southern alabama and south-central mississippi . spire gulf is regulated by the apsc , and spire mississippi is regulated by the mspsc . gas marketing spire marketing inc. is engaged in the marketing of natural gas and related activities on a non-regulated basis and is reported in the gas marketing segment . spire marketing markets natural gas across the central and southern u.s. it holds firm transportation and storage contracts in order to effectively manage its transactions with counterparties , which primarily include producers , municipalities , electric and gas utility companies , and large commercial and industrial customers . other other components of the company 's consolidated information include : unallocated corporate items , including certain debt and associated interest costs ; spire stl pipeline , a subsidiary of spire which has constructed and , as of november 2019 , operates a 65-mile ferc-regulated pipeline to deliver natural gas into eastern missouri ; spire storage , a subsidiary of spire providing physical natural gas storage services ; and spire 's subsidiaries engaged in the operation of a propane pipeline , the compression of natural gas , and risk management , among other activities . 28 business evaluation factors based on the nature of the business of the company and its subsidiaries , as well as current economic conditions , management focuses on several key variables in evaluating the financial condition and results of operations and managing the business . for the gas utility segment , these include : the utilities ' ability to recover from their customers the costs of purchasing and distributing natural gas ; the impact of weather and other factors , such as customer conservation , on revenues and expenses ; changes in the regulatory environment at the federal , state , and local levels , as well as decisions by regulators , that impact the utilities ' ability to earn the authorized rate of return in each of the service territories they serve ; the utilities ' ability to access credit markets and maintain working capital sufficient to meet operating requirements ; the effect of natural gas price volatility on the business ; and the ability to manage costs , integrate and standardize operations , and upgrade infrastructure . in the gas marketing segment , these include : the risks of competition ; fluctuations in natural gas prices ; the changing flow and availability of natural gas ; new national infrastructure projects ; the ability to procure firm transportation and storage services at reasonable rates ; credit and or capital market access ; counterparty risks ; and the effect of natural gas price volatility on the business . further information regarding how management seeks to manage these key variables is discussed below . gas utility the utilities seek to provide reliable natural gas services at a reasonable cost , while maintaining and building secure and dependable infrastructures . the utilities ' strategies focus on improving both performance and the ability to recover their authorized distribution costs and rates of return . the utilities ' distribution costs are the essential , primarily fixed , expenditures they must incur to operate and maintain more than 58,000 miles of mains and services comprising their natural gas distribution systems and related storage facilities . the utilities ' distribution costs include wages and employee benefit costs , depreciation and maintenance expenses , and other regulated utility operating expenses , excluding natural and propane gas expense . distribution costs are considered in the rate-making process , and recovery of these types of costs is included in revenues generated through the utilities ' tariff rates . spire missouri 's tariff rates are approved by the mopsc , whereas spire alabama 's tariff rates are approved by the apsc . spire gulf and spire mississippi have tariff rates that are approved by the apsc and mspsc , respectively . story_separator_special_tag replace_table_token_9_th replace_table_token_10_th replace_table_token_11_th consolidated spire 's operating revenues for the twelve months ended september 30 , 2019 were $ 12.6 lower than the same period in the prior year . operating revenues decreased by $ 27.6 at the gas utility segment and were $ 12.1 higher in the gas marketing segment . the gas utility decrease was due principally to lower gas cost recoveries , rate case tcja customer givebacks , impacts at spire missouri relating to isrs rulings , and weather/volumetric impacts ( net of volume mitigation ) that were only partly offset by missouri rate design changes , higher isrs , and favorable spire alabama rate stabilization and equalization ( rse ) renewal and giveback . the gas marketing increase was primarily due to higher volumes that offset the impact of slightly lower pricing . 35 spire 's contribution margin increased $ 17.9 compared with the same twelve -month period last year . the growth in contribution margin was primarily attributable to the gas utility segment , up $ 19.6 , with the missouri utilities up $ 11.0 and spire alabama up $ 7.0 , with remaining growth from the utilities of spire energysouth . gas marketing 's contribution margin was down $ 5.7 , reflecting a decline in basis differentials that was only partly offset by higher volumes combined with geographic expansion . depreciation and amortization expenses were higher in the gas utility segment , driven principally by continued infrastructure investment in both the missouri utilities and spire alabama . gas utility operation and maintenance ( “ o & m ” ) expenses were lower in the current year driven primarily by the missouri rate case write-offs in the prior year . these fluctuations are described in more detail below . gas utility operating revenues – gas utility operating revenues for fiscal 2019 decreased $ 27.6 compared to fiscal 2018 , and was attributable to the following factors : missouri utilities and spire alabama – lower pga/gsa gas cost recoveries $ ( 30.2 ) missouri utilities and spire alabama – rate case tcja customer giveback ( 24.3 ) missouri utilities and spire alabama – volumetric usage ( 12.4 ) missouri utilities – provision for isrs rulings ( 12.2 ) missouri utilities – 2018 rate case resets 32.2 missouri utilities – higher isrs 8.7 spire alabama – rse : net renewal and giveback 4.6 customer growth 2.7 all other factors 3.3 total variation $ ( 27.6 ) as shown in the table above , the decrease in revenues was driven primarily by a $ 30.2 reduction in gas cost recoveries , rate case tcja customer givebacks totaling $ 24.3 , $ 12.4 attributable to volumetric usage , and a $ 12.2 impact due to isrs rulings . these impacts were only partly offset by an increase of $ 32.2 relating to the rate design changes at spire missouri , an increase in isrs of $ 8.7 , a $ 4.6 increase relating to spire alabama 's rse renewal and giveback , and $ 2.7 attributable to customer growth . contribution margin – gas utility contribution margin was $ 967.1 for fiscal 2019 , a $ 19.6 increase over the same period last year . the increase was attributable to the following factors : replace_table_token_12_th the increase was primarily attributable to the $ 32.2 increase resulting from the 2018 missouri rate cases resets . contribution margin also benefited from $ 8.7 higher isrs charges , $ 5.1 due to volumes and colder weather in the current year ( net of weather mitigation ) , a $ 4.6 increase relating to spire alabama 's rse renewal and giveback , and $ 2.7 attributable to customer growth . these positive impacts were only partly offset by rate case tcja customer givebacks totaling $ 24.3 from both spire missouri and spire alabama , and $ 12.2 relating to isrs rulings against spire missouri . 36 operating expenses – gas utility o & m expenses for the twelve months ended september 30 , 2019 decreased $ 8.0 from last year . removing last year 's $ 38.4 of missouri rate case write-offs , and the $ 19.6 net year-over-year increase due to the transfer of mix of service and non-service postretirement benefits costs to other income and expense , o & m increased $ 10.8. of this increase , $ 9 . 0 relates to higher employee benefits and energy efficiency costs that resulted from the 2018 missouri rate case s . depreciation and amortization expenses for the twelve months ended september 30 , 2019 increased $ 12.4 from the same period last year principally the result of continued infrastructure capital spending , with $ 8.7 of the increase attributable to spire missouri and $ 3.0 attributable to spire alabama . gas marketing operating revenues – gas marketing operating revenue for the year ended september 30 , 2019 increased $ 12.1 from the prior year . the variance in revenues reflects the effect of a $ 9.3 favorable mark-to-market adjustment on derivatives combined with higher total volumes , partly offset by the impact of marginally lower general pricing levels . average commodity pricing for the year ended september 30 , 2019 was approximately $ 2.670/mmbtu versus approximately $ 2.681/mmbtu for fiscal 2018 , a decrease of $ 0.011/mmbtu . contribution margin – gas marketing contribution margin was $ 35.6 for fiscal 2019 , a $ 5.7 decrease compared to the same period last year . this reflects geographic expansion that created additional opportunities to optimize the segment 's supply , transportation and storage portfolio that was more than offset by a return to more normal market conditions , reflected in the narrowed basis differentials in the current year . other other operating revenue increased $ 5.0 for the year ended september 30 , 2019 compared to 2018 , driven principally by gas storage revenues and slightly higher reinsurance premiums . other operating expenses were $ 1.3 higher than the prior year primarily due

liquidity and capital resources we have a history of operating losses as we have focused our efforts on raising capital and building the masct system . the report of our independent auditors issued on our consolidated financial statements as of and for the years ended december 31 , 2012 and 2011 expresses substantial doubt about our ability to continue as a going concern . in 2011 , we were successful in raising net proceeds of $ 5.7 million through a private placement in order to fund the growth of our operations and product development . in november 2012 we were successful in our initial public offering and raising net proceeds of approximately $ 3.5 million . our ability to continue as a going concern is dependent on our obtaining additional adequate capital to fund additional operating losses until we become profitable . if we are unable to obtain adequate capital , we could be forced to cease operations . on march 27 , 2013 we entered into a stock purchase agreement with aspire capital fund , llc , which provides that , upon the terms and subject to the conditions and limitations set forth therein , aspire is committed to purchase up to an aggregate of $ 30 million of shares of our common stock over the three-year term of the agreement . under the agreement , aspire purchased $ 1,000,000 of our common stock on march 27 , 2013 for $ 12 per share . before we can sell any additional shares under the agreement , we must register the shares and have the registration statement declared effective by the sec . cash flows for the twelve months ended december 31 , 2012 , we incurred a net loss of $ 5,079,851. net cash used in operating activities was $ 3,899,964 , net cash used in investing activities was $ 134,582 and net cash provided by financing activities was $ 3,848,922. during the twelve months ended december 31 , 2012 we repaid $ 1,000,000 that we previously drew on our bank line of credit .

2 refund ordered by the isrs rulings for amounts collected prior to the last rate case , after which recoveries of related authorized revenues became part of base rates that went into effect in april 2018 . the second component relates to an estimate of $ 8 . 0 for revenues associated with the june 2018 isrs filing that was approved by the mopsc in september 2018. the after-tax impact of the provision reduced net income by $ 9.3 , or $ 0.18 per diluted share . additional isrs revenues are currently under appeal related to the january 2019 isrs filings with annual authorized revenue of $ 12.4. the estimated amount earned in fiscal year 2019 under this isrs order was $ 4.6. additionally , in future periods spire missouri will evaluate the need for an adjustment to the provision based upon new information and further developments . gas utility - spire alabama spire alabama is the largest natural gas distribution utility in the state of alabama and is regulated by the apsc . spire alabama 's service territory is located in central and northern alabama . among the cities served by spire alabama are birmingham , the center of the largest metropolitan area in the state , and montgomery , the state capital . spire alabama purchases natural gas through interstate and intrastate suppliers and distributes the purchased gas through its distribution facilities for sale to residential , commercial and industrial customers and other end-users of natural gas . spire alabama also provides transportation services to large industrial and commercial customers located on its distribution system . these transportation customers , using spire alabama as their agent or acting on their own , purchase gas directly from marketers or suppliers and arrange for delivery of the gas into the spire alabama distribution system . spire alabama charges a fee to transport such customer-owned gas through its distribution system to the customers ' facilities . gas utility - spire energysouth spire gulf and spire mississippi are utilities engaged in the purchase , retail distribution and sale of natural gas to approximately 100,000 customers in southern alabama and south-central mississippi . spire gulf is regulated by the apsc , and spire mississippi is regulated by the mspsc . gas marketing spire marketing inc. is engaged in the marketing of natural gas and related activities on a non-regulated basis and is reported in the gas marketing segment . spire marketing markets natural gas across the central and southern u.s. it holds firm transportation and storage contracts in order to effectively manage its transactions with counterparties , which primarily include producers , municipalities , electric and gas utility companies , and large commercial and industrial customers . other other components of the company 's consolidated information include : unallocated corporate items , including certain debt and associated interest costs ; spire stl pipeline , a subsidiary of spire which has constructed and , as of november 2019 , operates a 65-mile ferc-regulated pipeline to deliver natural gas into eastern missouri ; spire storage , a subsidiary of spire providing physical natural gas storage services ; and spire 's subsidiaries engaged in the operation of a propane pipeline , the compression of natural gas , and risk management , among other activities . 28 business evaluation factors based on the nature of the business of the company and its subsidiaries , as well as current economic conditions , management focuses on several key variables in evaluating the financial condition and results of operations and managing the business . for the gas utility segment , these include : the utilities ' ability to recover from their customers the costs of purchasing and distributing natural gas ; the impact of weather and other factors , such as customer conservation , on revenues and expenses ; changes in the regulatory environment at the federal , state , and local levels , as well as decisions by regulators , that impact the utilities ' ability to earn the authorized rate of return in each of the service territories they serve ; the utilities ' ability to access credit markets and maintain working capital sufficient to meet operating requirements ; the effect of natural gas price volatility on the business ; and the ability to manage costs , integrate and standardize operations , and upgrade infrastructure . in the gas marketing segment , these include : the risks of competition ; fluctuations in natural gas prices ; the changing flow and availability of natural gas ; new national infrastructure projects ; the ability to procure firm transportation and storage services at reasonable rates ; credit and or capital market access ; counterparty risks ; and the effect of natural gas price volatility on the business . further information regarding how management seeks to manage these key variables is discussed below . gas utility the utilities seek to provide reliable natural gas services at a reasonable cost , while maintaining and building secure and dependable infrastructures . the utilities ' strategies focus on improving both performance and the ability to recover their authorized distribution costs and rates of return . the utilities ' distribution costs are the essential , primarily fixed , expenditures they must incur to operate and maintain more than 58,000 miles of mains and services comprising their natural gas distribution systems and related storage facilities . the utilities ' distribution costs include wages and employee benefit costs , depreciation and maintenance expenses , and other regulated utility operating expenses , excluding natural and propane gas expense . distribution costs are considered in the rate-making process , and recovery of these types of costs is included in revenues generated through the utilities ' tariff rates . spire missouri 's tariff rates are approved by the mopsc , whereas spire alabama 's tariff rates are approved by the apsc . spire gulf and spire mississippi have tariff rates that are approved by the apsc and mspsc , respectively . story_separator_special_tag replace_table_token_9_th replace_table_token_10_th replace_table_token_11_th consolidated spire 's operating revenues for the twelve months ended september 30 , 2019 were $ 12.6 lower than the same period in the prior year . operating revenues decreased by $ 27.6 at the gas utility segment and were $ 12.1 higher in the gas marketing segment . the gas utility decrease was due principally to lower gas cost recoveries , rate case tcja customer givebacks , impacts at spire missouri relating to isrs rulings , and weather/volumetric impacts ( net of volume mitigation ) that were only partly offset by missouri rate design changes , higher isrs , and favorable spire alabama rate stabilization and equalization ( rse ) renewal and giveback . the gas marketing increase was primarily due to higher volumes that offset the impact of slightly lower pricing . 35 spire 's contribution margin increased $ 17.9 compared with the same twelve -month period last year . the growth in contribution margin was primarily attributable to the gas utility segment , up $ 19.6 , with the missouri utilities up $ 11.0 and spire alabama up $ 7.0 , with remaining growth from the utilities of spire energysouth . gas marketing 's contribution margin was down $ 5.7 , reflecting a decline in basis differentials that was only partly offset by higher volumes combined with geographic expansion . depreciation and amortization expenses were higher in the gas utility segment , driven principally by continued infrastructure investment in both the missouri utilities and spire alabama . gas utility operation and maintenance ( “ o & m ” ) expenses were lower in the current year driven primarily by the missouri rate case write-offs in the prior year . these fluctuations are described in more detail below . gas utility operating revenues – gas utility operating revenues for fiscal 2019 decreased $ 27.6 compared to fiscal 2018 , and was attributable to the following factors : missouri utilities and spire alabama – lower pga/gsa gas cost recoveries $ ( 30.2 ) missouri utilities and spire alabama – rate case tcja customer giveback ( 24.3 ) missouri utilities and spire alabama – volumetric usage ( 12.4 ) missouri utilities – provision for isrs rulings ( 12.2 ) missouri utilities – 2018 rate case resets 32.2 missouri utilities – higher isrs 8.7 spire alabama – rse : net renewal and giveback 4.6 customer growth 2.7 all other factors 3.3 total variation $ ( 27.6 ) as shown in the table above , the decrease in revenues was driven primarily by a $ 30.2 reduction in gas cost recoveries , rate case tcja customer givebacks totaling $ 24.3 , $ 12.4 attributable to volumetric usage , and a $ 12.2 impact due to isrs rulings . these impacts were only partly offset by an increase of $ 32.2 relating to the rate design changes at spire missouri , an increase in isrs of $ 8.7 , a $ 4.6 increase relating to spire alabama 's rse renewal and giveback , and $ 2.7 attributable to customer growth . contribution margin – gas utility contribution margin was $ 967.1 for fiscal 2019 , a $ 19.6 increase over the same period last year . the increase was attributable to the following factors : replace_table_token_12_th the increase was primarily attributable to the $ 32.2 increase resulting from the 2018 missouri rate cases resets . contribution margin also benefited from $ 8.7 higher isrs charges , $ 5.1 due to volumes and colder weather in the current year ( net of weather mitigation ) , a $ 4.6 increase relating to spire alabama 's rse renewal and giveback , and $ 2.7 attributable to customer growth . these positive impacts were only partly offset by rate case tcja customer givebacks totaling $ 24.3 from both spire missouri and spire alabama , and $ 12.2 relating to isrs rulings against spire missouri . 36 operating expenses – gas utility o & m expenses for the twelve months ended september 30 , 2019 decreased $ 8.0 from last year . removing last year 's $ 38.4 of missouri rate case write-offs , and the $ 19.6 net year-over-year increase due to the transfer of mix of service and non-service postretirement benefits costs to other income and expense , o & m increased $ 10.8. of this increase , $ 9 . 0 relates to higher employee benefits and energy efficiency costs that resulted from the 2018 missouri rate case s . depreciation and amortization expenses for the twelve months ended september 30 , 2019 increased $ 12.4 from the same period last year principally the result of continued infrastructure capital spending , with $ 8.7 of the increase attributable to spire missouri and $ 3.0 attributable to spire alabama . gas marketing operating revenues – gas marketing operating revenue for the year ended september 30 , 2019 increased $ 12.1 from the prior year . the variance in revenues reflects the effect of a $ 9.3 favorable mark-to-market adjustment on derivatives combined with higher total volumes , partly offset by the impact of marginally lower general pricing levels . average commodity pricing for the year ended september 30 , 2019 was approximately $ 2.670/mmbtu versus approximately $ 2.681/mmbtu for fiscal 2018 , a decrease of $ 0.011/mmbtu . contribution margin – gas marketing contribution margin was $ 35.6 for fiscal 2019 , a $ 5.7 decrease compared to the same period last year . this reflects geographic expansion that created additional opportunities to optimize the segment 's supply , transportation and storage portfolio that was more than offset by a return to more normal market conditions , reflected in the narrowed basis differentials in the current year . other other operating revenue increased $ 5.0 for the year ended september 30 , 2019 compared to 2018 , driven principally by gas storage revenues and slightly higher reinsurance premiums . other operating expenses were $ 1.3 higher than the prior year primarily due

cash and cash equivalents bank deposits were used to support working capital needs of the business . spire had no temporary cash investments as of september 30 , 2019 or 2018. due to lower yields available to spire on short-term investments , the company elected to provide all of spire missouri 's and spire alabama 's short-term funding through intercompany lending during the past fiscal year . short-term debt the utilities ' short-term borrowing requirements typically peak during the colder months , while most of the company 's other needs are less seasonal . these short-term cash requirements can be met through the sale of commercial paper or through the use of a revolving credit facility . for information about these resources , see note 7 , notes payable and credit agreements , of the notes to financial statements in item 8 and “ interest rate risk ” under “ market risk ” below . long-term debt and equity at september 30 , 2019 , including the current portion but excluding unamortized discounts and debt issuance costs , spire had long-term debt totaling $ 2,137.0 , of which $ 930.0 was issued by spire missouri , $ 415.0 was issued by spire alabama , and $ 102.0 was issued by other subsidiaries . for more information about long-term debt , see note 6 of the notes to financial statements in item 8 and “ interest rate risk ” under “ market risk ” below .

lower-than-expected energy commodity prices would be somewhat mitigated by certain of our cash flow streams that are substantially insulated from short-term changes in commodity prices as follows : firm demand and capacity reservation transportation revenues under long-term contracts from our gas pipelines ; fee-based revenues from certain gathering and processing services in our midstream businesses . we believe we have , or have access to , the financial resources and liquidity necessary to meet our requirements for capital and investment expenditures , dividends and distributions , working capital , and tax and 65 debt payments while maintaining a sufficient level of liquidity . in particular , we note the following assumptions for 2012 : we expect capital and investment expenditures to total between $ 3.4 billion and $ 3.8 billion in 2012. of this total , maintenance capital expenditures , which are generally considered nondiscretionary and include expenditures to meet legal and regulatory requirements , to maintain and or extend the operating capacity and useful lives of our assets , and to complete certain well connections , are expected to total between $ 520 million and $ 600 million . expansion capital expenditures , which are generally more discretionary to fund projects in order to grow our business are expected to total between $ 2.88 billion and $ 3.2 billion . see results of operations – segments , williams partners and midstream canada & olefins for discussions describing the general nature of these expenditures ; we expect to pay total cash dividends of approximately $ 1.09 per common share , an increase of 41 percent over 2011 levels . we expect to increase our dividend quarterly through paying out substantially all of the cash distributions , net of applicable taxes , interest and costs , we receive from wpz ; we expect to fund capital and investment expenditures , debt payments , dividends , and working capital requirements primarily through cash flow from operations , cash and cash equivalents on hand , utilization of our revolving credit facilities , and proceeds from debt issuances and sales of equity securities as needed . based on a range of market assumptions , we currently estimate our cash flow from operations will be between $ 1.85 billion and $ 2.325 billion in 2012 ; we expect to maintain consolidated liquidity ( which includes liquidity at wpz ) of at least $ 1 billion from cash and cash equivalents and unused revolving credit facilities ; we expect wpz to fund its $ 325 million of current debt maturities with a new debt issuance ; in january 2012 , wpz completed an equity issuance of 7 million common units representing limited partner interests in it at a price of $ 62.81 per unit . in february 2012 , the underwriters exercised their option to purchase an additional 1.05 million common units for $ 62.81 per unit , with expected settlement on february 28 , 2012 ; on february 17 , 2012 , williams partners completed the acquisition of 100 percent of the ownership interests in certain entities from delphi midstream partners , llc in exchange for $ 325 million in cash , net of cash acquired in the transaction and subject to certain closing adjustments , and approximately 7.5 million wpz common units . potential risks associated with our planned levels of liquidity and the planned capital and investment expenditures discussed above include : sustained reductions in energy commodity prices from the range of current expectations ; lower than expected distributions , including incentive distribution rights , from wpz . wpz 's liquidity could also be impacted by a lack of adequate access to capital markets to fund its growth ; lower than expected levels of cash flow from operations from midstream canada & olefins . liquidity based on our forecasted levels of cash flow from operations and other sources of liquidity , we expect to have sufficient liquidity to manage our businesses in 2012. our internal and external sources of consolidated liquidity include cash generated from our operations , cash and cash equivalents on hand , and our credit facilities . additional sources of liquidity , if needed , include bank financings , proceeds from the issuance of long-term debt and equity securities , and proceeds from asset sales . these sources are available to us at the parent level and are expected to be available to certain of our subsidiaries , particularly equity and debt issuances from wpz . wpz is expected to be self-funding through its cash flows from operations , use of its credit facility , and its access to capital markets . wpz makes cash distributions to us in accordance with the partnership agreement , which considers our level of ownership and incentive distribution rights . our ability to raise funds in the capital markets will be impacted by our financial condition , interest rates , market conditions , and industry conditions . 66 replace_table_token_16_th ( 1 ) includes $ 467 million of cash and cash equivalents that is being held by certain subsidiary and international operations and is not considered available for general corporate purposes . the remainder of our story_separator_special_tag wpz 's new $ 2 billion unsecured credit facility at its inception in june 2011 ; $ 150 million paid to retire wpz 's senior unsecured notes that matured in june 2011 ; we paid $ 457 million of quarterly dividends on common stock for the year ended december 31 , 2011 ; $ 425 million in net borrowings and payments related to wpz 's revolving credit facility in 2011 . story_separator_special_tag during 2011 , we contributed $ 60 million to our tax-qualified pension plans . in addition to these contributions , a portion of the excess contributions was used to meet the minimum contribution requirements . during 2012 , we expect to contribute approximately $ 70 million to our tax-qualified pension plans and use excess amounts to satisfy minimum contribution requirements . additionally , estimated future minimum funding requirements may vary significantly from historical requirements if actual results differ significantly from estimated results for assumptions such as returns on plan assets , interest rates , retirement rates , mortality , and other significant assumptions or by changes to current legislation and regulations . ( 4 ) we have not included income tax liabilities in the table above . see note 5 of notes to consolidated financial statements for a discussion of income taxes , including our contingent tax liability reserves . effects of inflation our operations have historically not been materially affected by inflation . approximately 58 percent of our gross property , plant , and equipment is comprised of our interstate gas pipelines . these assets are subject to regulation , which limits recovery to historical cost . while amounts in excess of historical cost are not recoverable under current ferc practices , we anticipate being allowed to recover and earn a return based on increased actual cost incurred to replace existing assets . cost-based regulation , along with competition and other market factors , may limit our ability to recover such increased costs . for the remainder of our business , operating costs are influenced to a greater extent by both competition for specialized services and specific price changes in crude oil and natural gas and related commodities than by changes in general inflation . crude oil , natural gas , and ngl prices are particularly sensitive to the organization of the petroleum exporting countries ( opec ) production levels and or the market perceptions concerning the supply and demand balance in the near future , as well as general economic conditions . however , our exposure to certain of these price changes is reduced through the use of hedging instruments and the fee-based nature of certain of our services . environmental we are a participant in certain environmental activities in various stages including assessment studies , cleanup operations and or remedial processes at certain sites , some of which we currently do not own ( see note 16 of notes to consolidated financial statements ) . we are monitoring these sites in a coordinated effort with other potentially responsible parties , the u.s. environmental protection agency ( epa ) , or other governmental authorities . we are jointly and severally liable along with unrelated third parties in some of these activities and solely responsible in others . current estimates of the most likely costs of such activities are approximately $ 47 million , all of which are included in accrued liabilities and regulatory liabilities , deferred income and other on the consolidated balance sheet at december 31 , 2011. we will seek recovery of approximately $ 10 million of these accrued costs through future natural gas transmission rates . the remainder of these costs will be funded 71 from operations . during 2011 , we paid approximately $ 8 million for cleanup and or remediation and monitoring activities . we expect to pay approximately $ 10 million in 2012 for these activities . estimates of the most likely costs of cleanup are generally based on completed assessment studies , preliminary results of studies or our experience with other similar cleanup operations . at december 31 , 2011 , certain assessment studies were still in process for which the ultimate outcome may yield significantly different estimates of most likely costs . therefore , the actual costs incurred will depend on the final amount , type , and extent of contamination discovered at these sites , the final cleanup standards mandated by the epa or other governmental authorities , and other factors . we are also subject to the federal clean air act ( act ) and to the federal clean air act amendments of 1990 ( 1990 amendments ) , which added significantly to the existing requirements established by the act . pursuant to requirements of the 1990 amendments and epa rules designed to mitigate the migration of ground-level ozone , we have installed air pollution controls on existing sources at certain facilities in order to reduce ozone emissions . in march 2008 , the epa promulgated a new , lower national ambient air quality standard ( naaqs ) for ground-level ozone . within two years , the epa was expected to designate new eight-hour ozone nonattainment areas . however , in september 2009 , the epa announced it would reconsider the 2008 naaqs for ground level ozone to ensure that the standards were clearly grounded in science and were protective of both public health and the environment . as a result , the epa delayed designation of new eight-hour ozone nonattainment areas under the 2008 standards until the reconsideration is complete . in january 2010 , the epa proposed to further reduce the ground-level ozone naaqs from the march 2008 levels . in september 2011 , the epa announced it would not move forward with the proposed 2010 ozone naaqs . instead , the epa will implement the 2008 ozone naaqs that was stayed during the reconsideration process . the epa is expected to designate ozone nonattainment areas under the 2008 naaqs in second quarter 2012 and we are unable at this time to estimate the cost of additions that may be required to meet this new regulation . however , designation of new eight-hour ozone nonattainment areas are expected to result in additional federal and state regulatory actions that will likely impact our operations and increase the cost of additions to property , plant and equipment — net on the consolidated balance sheet . additionally , in

cash and cash equivalents bank deposits were used to support working capital needs of the business . spire had no temporary cash investments as of september 30 , 2019 or 2018. due to lower yields available to spire on short-term investments , the company elected to provide all of spire missouri 's and spire alabama 's short-term funding through intercompany lending during the past fiscal year . short-term debt the utilities ' short-term borrowing requirements typically peak during the colder months , while most of the company 's other needs are less seasonal . these short-term cash requirements can be met through the sale of commercial paper or through the use of a revolving credit facility . for information about these resources , see note 7 , notes payable and credit agreements , of the notes to financial statements in item 8 and “ interest rate risk ” under “ market risk ” below . long-term debt and equity at september 30 , 2019 , including the current portion but excluding unamortized discounts and debt issuance costs , spire had long-term debt totaling $ 2,137.0 , of which $ 930.0 was issued by spire missouri , $ 415.0 was issued by spire alabama , and $ 102.0 was issued by other subsidiaries . for more information about long-term debt , see note 6 of the notes to financial statements in item 8 and “ interest rate risk ” under “ market risk ” below .

lower-than-expected energy commodity prices would be somewhat mitigated by certain of our cash flow streams that are substantially insulated from short-term changes in commodity prices as follows : firm demand and capacity reservation transportation revenues under long-term contracts from our gas pipelines ; fee-based revenues from certain gathering and processing services in our midstream businesses . we believe we have , or have access to , the financial resources and liquidity necessary to meet our requirements for capital and investment expenditures , dividends and distributions , working capital , and tax and 65 debt payments while maintaining a sufficient level of liquidity . in particular , we note the following assumptions for 2012 : we expect capital and investment expenditures to total between $ 3.4 billion and $ 3.8 billion in 2012. of this total , maintenance capital expenditures , which are generally considered nondiscretionary and include expenditures to meet legal and regulatory requirements , to maintain and or extend the operating capacity and useful lives of our assets , and to complete certain well connections , are expected to total between $ 520 million and $ 600 million . expansion capital expenditures , which are generally more discretionary to fund projects in order to grow our business are expected to total between $ 2.88 billion and $ 3.2 billion . see results of operations – segments , williams partners and midstream canada & olefins for discussions describing the general nature of these expenditures ; we expect to pay total cash dividends of approximately $ 1.09 per common share , an increase of 41 percent over 2011 levels . we expect to increase our dividend quarterly through paying out substantially all of the cash distributions , net of applicable taxes , interest and costs , we receive from wpz ; we expect to fund capital and investment expenditures , debt payments , dividends , and working capital requirements primarily through cash flow from operations , cash and cash equivalents on hand , utilization of our revolving credit facilities , and proceeds from debt issuances and sales of equity securities as needed . based on a range of market assumptions , we currently estimate our cash flow from operations will be between $ 1.85 billion and $ 2.325 billion in 2012 ; we expect to maintain consolidated liquidity ( which includes liquidity at wpz ) of at least $ 1 billion from cash and cash equivalents and unused revolving credit facilities ; we expect wpz to fund its $ 325 million of current debt maturities with a new debt issuance ; in january 2012 , wpz completed an equity issuance of 7 million common units representing limited partner interests in it at a price of $ 62.81 per unit . in february 2012 , the underwriters exercised their option to purchase an additional 1.05 million common units for $ 62.81 per unit , with expected settlement on february 28 , 2012 ; on february 17 , 2012 , williams partners completed the acquisition of 100 percent of the ownership interests in certain entities from delphi midstream partners , llc in exchange for $ 325 million in cash , net of cash acquired in the transaction and subject to certain closing adjustments , and approximately 7.5 million wpz common units . potential risks associated with our planned levels of liquidity and the planned capital and investment expenditures discussed above include : sustained reductions in energy commodity prices from the range of current expectations ; lower than expected distributions , including incentive distribution rights , from wpz . wpz 's liquidity could also be impacted by a lack of adequate access to capital markets to fund its growth ; lower than expected levels of cash flow from operations from midstream canada & olefins . liquidity based on our forecasted levels of cash flow from operations and other sources of liquidity , we expect to have sufficient liquidity to manage our businesses in 2012. our internal and external sources of consolidated liquidity include cash generated from our operations , cash and cash equivalents on hand , and our credit facilities . additional sources of liquidity , if needed , include bank financings , proceeds from the issuance of long-term debt and equity securities , and proceeds from asset sales . these sources are available to us at the parent level and are expected to be available to certain of our subsidiaries , particularly equity and debt issuances from wpz . wpz is expected to be self-funding through its cash flows from operations , use of its credit facility , and its access to capital markets . wpz makes cash distributions to us in accordance with the partnership agreement , which considers our level of ownership and incentive distribution rights . our ability to raise funds in the capital markets will be impacted by our financial condition , interest rates , market conditions , and industry conditions . 66 replace_table_token_16_th ( 1 ) includes $ 467 million of cash and cash equivalents that is being held by certain subsidiary and international operations and is not considered available for general corporate purposes . the remainder of our story_separator_special_tag wpz 's new $ 2 billion unsecured credit facility at its inception in june 2011 ; $ 150 million paid to retire wpz 's senior unsecured notes that matured in june 2011 ; we paid $ 457 million of quarterly dividends on common stock for the year ended december 31 , 2011 ; $ 425 million in net borrowings and payments related to wpz 's revolving credit facility in 2011 . story_separator_special_tag during 2011 , we contributed $ 60 million to our tax-qualified pension plans . in addition to these contributions , a portion of the excess contributions was used to meet the minimum contribution requirements . during 2012 , we expect to contribute approximately $ 70 million to our tax-qualified pension plans and use excess amounts to satisfy minimum contribution requirements . additionally , estimated future minimum funding requirements may vary significantly from historical requirements if actual results differ significantly from estimated results for assumptions such as returns on plan assets , interest rates , retirement rates , mortality , and other significant assumptions or by changes to current legislation and regulations . ( 4 ) we have not included income tax liabilities in the table above . see note 5 of notes to consolidated financial statements for a discussion of income taxes , including our contingent tax liability reserves . effects of inflation our operations have historically not been materially affected by inflation . approximately 58 percent of our gross property , plant , and equipment is comprised of our interstate gas pipelines . these assets are subject to regulation , which limits recovery to historical cost . while amounts in excess of historical cost are not recoverable under current ferc practices , we anticipate being allowed to recover and earn a return based on increased actual cost incurred to replace existing assets . cost-based regulation , along with competition and other market factors , may limit our ability to recover such increased costs . for the remainder of our business , operating costs are influenced to a greater extent by both competition for specialized services and specific price changes in crude oil and natural gas and related commodities than by changes in general inflation . crude oil , natural gas , and ngl prices are particularly sensitive to the organization of the petroleum exporting countries ( opec ) production levels and or the market perceptions concerning the supply and demand balance in the near future , as well as general economic conditions . however , our exposure to certain of these price changes is reduced through the use of hedging instruments and the fee-based nature of certain of our services . environmental we are a participant in certain environmental activities in various stages including assessment studies , cleanup operations and or remedial processes at certain sites , some of which we currently do not own ( see note 16 of notes to consolidated financial statements ) . we are monitoring these sites in a coordinated effort with other potentially responsible parties , the u.s. environmental protection agency ( epa ) , or other governmental authorities . we are jointly and severally liable along with unrelated third parties in some of these activities and solely responsible in others . current estimates of the most likely costs of such activities are approximately $ 47 million , all of which are included in accrued liabilities and regulatory liabilities , deferred income and other on the consolidated balance sheet at december 31 , 2011. we will seek recovery of approximately $ 10 million of these accrued costs through future natural gas transmission rates . the remainder of these costs will be funded 71 from operations . during 2011 , we paid approximately $ 8 million for cleanup and or remediation and monitoring activities . we expect to pay approximately $ 10 million in 2012 for these activities . estimates of the most likely costs of cleanup are generally based on completed assessment studies , preliminary results of studies or our experience with other similar cleanup operations . at december 31 , 2011 , certain assessment studies were still in process for which the ultimate outcome may yield significantly different estimates of most likely costs . therefore , the actual costs incurred will depend on the final amount , type , and extent of contamination discovered at these sites , the final cleanup standards mandated by the epa or other governmental authorities , and other factors . we are also subject to the federal clean air act ( act ) and to the federal clean air act amendments of 1990 ( 1990 amendments ) , which added significantly to the existing requirements established by the act . pursuant to requirements of the 1990 amendments and epa rules designed to mitigate the migration of ground-level ozone , we have installed air pollution controls on existing sources at certain facilities in order to reduce ozone emissions . in march 2008 , the epa promulgated a new , lower national ambient air quality standard ( naaqs ) for ground-level ozone . within two years , the epa was expected to designate new eight-hour ozone nonattainment areas . however , in september 2009 , the epa announced it would reconsider the 2008 naaqs for ground level ozone to ensure that the standards were clearly grounded in science and were protective of both public health and the environment . as a result , the epa delayed designation of new eight-hour ozone nonattainment areas under the 2008 standards until the reconsideration is complete . in january 2010 , the epa proposed to further reduce the ground-level ozone naaqs from the march 2008 levels . in september 2011 , the epa announced it would not move forward with the proposed 2010 ozone naaqs . instead , the epa will implement the 2008 ozone naaqs that was stayed during the reconsideration process . the epa is expected to designate ozone nonattainment areas under the 2008 naaqs in second quarter 2012 and we are unable at this time to estimate the cost of additions that may be required to meet this new regulation . however , designation of new eight-hour ozone nonattainment areas are expected to result in additional federal and state regulatory actions that will likely impact our operations and increase the cost of additions to property , plant and equipment — net on the consolidated balance sheet . additionally , in

cash and cash equivalents is primarily held in government-backed instruments . ( 2 ) in june 2011 , we replaced our existing $ 900 million unsecured revolving credit facility agreement that was scheduled to expire in may 2012 with a new $ 900 million five-year senior unsecured revolving credit facility agreement . at december 31 , 2011 , we are in compliance with the financial covenants associated with this new credit facility agreement ( see note 11 of notes to consolidated financial statements ) . ( 3 ) in june 2011 , wpz replaced its existing $ 1.75 billion unsecured revolving credit facility agreement that was scheduled to expire in february 2013 with a new $ 2 billion five-year senior unsecured revolving credit facility agreement . at december 31 , 2011 , wpz is in compliance with the financial covenants associated with this new credit facility agreement . this credit facility is only available to wpz , transco and northwest pipeline as co-borrowers ( see note 11 of notes to consolidated financial statements ) . in addition to the credit facilities listed above , we have issued letters of credit totaling $ 21 million as of december 31 , 2011 , under certain bilateral bank agreements . wpz filed a shelf registration statement as a well-known , seasoned issuer in february 2012 that allows it to issue an unlimited amount of registered debt and limited partnership unit securities . at the parent-company level , we filed a shelf registration statement as a well-known , seasoned issuer in may 2009 that allows us to issue an unlimited amount of registered debt and equity securities . as described in note 11 of notes to consolidated financial statements , we have determined that we have net assets that are technically considered restricted in accordance with rule 4-08 ( e ) of regulation s-x of the securities and exchange commission in excess of 25 percent of our consolidated net assets .

in addition , the parties agreed to dismiss with prejudice the lawsuit commenced by got in january 2014. operating leases the company leases office facilities and office , lab and factory equipment under operating story_separator_special_tag introduction the following discussion should be read in conjunction with the financial statements and notes thereto . our fiscal year ends december 31. this document contains certain forward-looking statements including , among others , anticipated trends in our financial condition and results of operations and our business strategy . these forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties . ( see part i , item 1a , `` risk factors `` ) . actual results could differ materially from these forward-looking statements . important factors to consider in evaluating such forward-looking statements include ( i ) changes in external factors or in our internal budgeting process which might impact trends in our results of operations ; ( ii ) unanticipated working capital or other cash requirements ; ( iii ) changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the industries in which we operate ; and ( iv ) various competitive market factors that may prevent us from competing successfully in the marketplace . overview we design , manufacture and supply miniature displays , which we refer to as oled-on-silicon-microdisplays , and microdisplay modules for virtual imaging , primarily for incorporation into the products of other manufacturers . microdisplays are typically smaller than many postage stamps , but when viewed through a magnifier they can contain all of the information appearing on a high-resolution personal computer screen . our microdisplays use organic light emitting diodes , or oleds , which emit light themselves when a current is passed through the device . our technology permits oleds to be coated onto silicon chips to produce high resolution oled-on-silicon microdisplays . we believe that our oled-on-silicon microdisplays offer a number of advantages in near to the eye applications over other current microdisplay technologies , including lower power requirements , less weight , fast video speed without flicker , and wider viewing angles . in addition , many computer and video electronic system functions can be built directly into the oled-on-silicon microdisplay , resulting in compact systems with lower expected overall system costs relative to alternate microdisplay technologies . we have devoted significant resources to the development and commercial launch of our oled microdisplay products into military , industrial and medical applications world-wide . first sales of our svga+ microdisplay began in may 2001 and we launched the svga-3d microdisplay in february 2002. in 2008 the sxga microdisplay became our first digital display , and in 2011 we introduced the vga oled-xl , our lowest powered microdisplay , and the wuxga oled-xl which exceeds 1080p hd resolution . as of january 31 , 2015 and 2014 , we had a backlog of approximately $ 8.5 and $ 13.4 mil lion , respectively , in products ordered for delivery through december 31 , 2015 and 2014 , respectively . this backlog consists of non-binding purchase orders and purchase agreements . these products are being applied or considered for near-eye and headset applications in products such as thermal imagers , night vision goggles , entertainment headsets , handheld internet and telecommunication appliances , viewfinders , and wearable computers to be manufactured by original equipment manufacturer ( oem ) customers . in addition to marketing oled-on-silicon microdisplays as components , we also offer microdisplays as an integrated package , which we call microviewer that includes a compact lens for viewing the microdisplay and electronic interfaces to convert the signal from our customer 's product into a viewable image on the microdisplay . we have also expanded our design and production activities to include display/optical subsystem assemblies for both military and commercial end-use products . we have developed a strong intellectual property portfolio that includes patents , manufacturing know-how and unique proprietary technologies to create high performance oled-on-silicon microdisplays and related optical systems . we believe our technology , intellectual property portfolio and position in the marketplace , gives us a leadership position in oled and oled-on-silicon microdisplay technology . we are one of only a few companies in the world to market and produce significant quantities of high resolution full-color small molecule oled-on-silicon microdisplays . in first quarter 2014 , emagin received a notification to stop shipments to three of its customers regarding a possible wire bonding problem in some of our microdisplays shipped to these customers . this issue resulted in a delay of shipments to these customers which impacted revenue for 2014. shipments to two of the three customers resumed in 2014. we are working with the third customer currently and expect to resume shipments to this customer in 2015. also in 2014 , emagin was awarded and began work on several new r & d contracts that will result in significant additional revenue beginning in 2014 and continuing in 2015 and 2016. the awards total over $ 7 million . there are three government programs : 1 ) to improve the backplane ; 2 ) to increase the brightness of the oled display and 3 ) the mantech program , which was awarded to increase the efficiency of the oled microdisplay manufacturing process . these r & d contracts are on schedule . initial design work was completed for the improved backplane project . preliminary tests to fabricate very low voltage , high brightness , oled devices show encouraging results . story_separator_special_tag accordingly , we increased our deferred tax asset to $ 8.8 million by recording a $ 0.7 million reduction of our deferred tax asset valuation allowance and recorded a corresponding tax benefit of $ 0.7 million . in 2013 , we had an operating loss and a projected cumulative loss through 2014 thus it was more likely than not that any of our deferred tax assets would be realized therefore , we recorded a full valuation allowance and income tax expense of $ 8.9 million . in 2014 , we incurred an operating loss and have a cumulative loss therefore it is more likely than not that none of our deferred tax assets will be realized and therefore , we maintained a full valuation allowance against our deferred tax assets . our effective income tax rate was an expense of 0 % and 171 % , respectively , in 2014 and 2013. the year over year change in our effective tax rate was primarily due to the recognition of a full valuation allowance on our deferred tax asset in 2013. results of operations the following table presents certain financial data as a percentage of total revenue for the periods indicated . our historical operating results are not necessarily indicative of the results for any future period . consolidated statements of operations data : replace_table_token_4_th year ended december 31 , 2014 compared to year ended december 31 , 2013 revenues replace_table_token_5_th revenues decreased approximately $ 2.3 million to a total of approximately $ 26.0 million for the year ended december 31 , 2014 from approximately $ 28.0 million for the year ended december 31 , 2013 , an 8 % decrease . in 2014 , product revenue decreased as there was an 18 % decrease in the number of displays sold offset by an 11 % increase in the average selling price as compared to 2013. contract revenue was relatively unchanged year over year . 24 cost of goods sold replace_table_token_6_th cost of goods sold is comprised of costs of product revenue and contract revenue . cost of product revenue includes materials , labor and manufacturing overhead related to our products . cost of contract revenue includes direct and allocated indirect costs associated with performance on contracts . cost of goods sold for the year ended december 31 , 2014 was approximately $ 18.3 million as compared to approximately $ 19.6 million for the year ended december 31 , 2013 , a decrease of approximately $ 1.2 million . cost of goods sold as a percentage of revenues was 71 % for the year ended december 31 , 2014 up from 70 % for the year ended december 31 , 2013 which is a result of a higher cost per display in 2014 , partially offset by a higher average selling price . depreciation increased $ 0.3 million due to the installation of new equipment . the following table outlines product , contract and total gross profit and related gross margins for the years ended december 31 , 2014 and 2013 ( dollars in thousands ) : replace_table_token_7_th in 2014 , total gross profit decreased approximately $ 1.0 million or 12 % . product revenue gross profit decreased approximately $ 1.1 million . gross margin was 29 % for the year ended december 31 , 2014 down slightly from 30 % for the year ended december 31 , 2013. product gross margin decreased from 29 % in 2013 to 28 % in 2014 due to a higher cost per display , partially offset by a higher average selling price in 2014. contract gross margin increased from 41 % in 2013 to 43 % in 2014. contract gross margin is dependent upon the mix of internal versus external third party costs , with the external third party costs causing a lower gross margin and reducing the contract gross profit . 25 operating expenses replace_table_token_8_th research and development expenses research and development expenses include salaries , development materials and other costs specifically allocated to the development of new microdisplay products , oled materials and subsystems . research and development expenses for the year ended december 31 , 2014 were approximately $ 4.5 million as compared to approximately $ 5.0 million for the year ended december 31 , 2013 , a decrease of approximately $ 0.5 million . the decrease in company-funded r & d expenses is due to expense being allocated to external funded contracts and lower non-cash compensation expense . selling , general and administrative expenses selling , general and administrative expenses consist principally of personnel costs , professional services fees , as well as other marketing , general corporate and administrative expenses . selling , general and administrative expenses for the years ended december 31 , 2014 were approximately $ 8.1 million as compared to approximately $ 8.6 million for the year ended december 31 , 2013 , a decrease of approximately $ 0.5 million . for the year ended december 31 , 2014 as compared to 2013 , there was a decrease in non-cash compensation and personnel costs offset by an increase in bad debt expense . other income ( expense ) other income ( expense ) , net consists primarily of interest income earned on investments , interest expense , and gain or loss on sale of assets . for the years ended december 31 , 2014 and 2013 , interest expense net of capitalization was $ 28 thousand and $ 31 thousand , respectively . we have no debt upon which we are incurring interest expense ; however , we pay fees to keep our line of credit available . other income for the years ended december 31 , 2014 and 2013 was $ 22 thousand and $ 50 thousand , respectively , with the majority of change related to a decrease in interest income earned on investments . income tax expense ( benefit ) for the years ended december 31 , 2014 and 2013 , income tax

cash and cash equivalents is primarily held in government-backed instruments . ( 2 ) in june 2011 , we replaced our existing $ 900 million unsecured revolving credit facility agreement that was scheduled to expire in may 2012 with a new $ 900 million five-year senior unsecured revolving credit facility agreement . at december 31 , 2011 , we are in compliance with the financial covenants associated with this new credit facility agreement ( see note 11 of notes to consolidated financial statements ) . ( 3 ) in june 2011 , wpz replaced its existing $ 1.75 billion unsecured revolving credit facility agreement that was scheduled to expire in february 2013 with a new $ 2 billion five-year senior unsecured revolving credit facility agreement . at december 31 , 2011 , wpz is in compliance with the financial covenants associated with this new credit facility agreement . this credit facility is only available to wpz , transco and northwest pipeline as co-borrowers ( see note 11 of notes to consolidated financial statements ) . in addition to the credit facilities listed above , we have issued letters of credit totaling $ 21 million as of december 31 , 2011 , under certain bilateral bank agreements . wpz filed a shelf registration statement as a well-known , seasoned issuer in february 2012 that allows it to issue an unlimited amount of registered debt and limited partnership unit securities . at the parent-company level , we filed a shelf registration statement as a well-known , seasoned issuer in may 2009 that allows us to issue an unlimited amount of registered debt and equity securities . as described in note 11 of notes to consolidated financial statements , we have determined that we have net assets that are technically considered restricted in accordance with rule 4-08 ( e ) of regulation s-x of the securities and exchange commission in excess of 25 percent of our consolidated net assets .

in addition , the parties agreed to dismiss with prejudice the lawsuit commenced by got in january 2014. operating leases the company leases office facilities and office , lab and factory equipment under operating story_separator_special_tag introduction the following discussion should be read in conjunction with the financial statements and notes thereto . our fiscal year ends december 31. this document contains certain forward-looking statements including , among others , anticipated trends in our financial condition and results of operations and our business strategy . these forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties . ( see part i , item 1a , `` risk factors `` ) . actual results could differ materially from these forward-looking statements . important factors to consider in evaluating such forward-looking statements include ( i ) changes in external factors or in our internal budgeting process which might impact trends in our results of operations ; ( ii ) unanticipated working capital or other cash requirements ; ( iii ) changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the industries in which we operate ; and ( iv ) various competitive market factors that may prevent us from competing successfully in the marketplace . overview we design , manufacture and supply miniature displays , which we refer to as oled-on-silicon-microdisplays , and microdisplay modules for virtual imaging , primarily for incorporation into the products of other manufacturers . microdisplays are typically smaller than many postage stamps , but when viewed through a magnifier they can contain all of the information appearing on a high-resolution personal computer screen . our microdisplays use organic light emitting diodes , or oleds , which emit light themselves when a current is passed through the device . our technology permits oleds to be coated onto silicon chips to produce high resolution oled-on-silicon microdisplays . we believe that our oled-on-silicon microdisplays offer a number of advantages in near to the eye applications over other current microdisplay technologies , including lower power requirements , less weight , fast video speed without flicker , and wider viewing angles . in addition , many computer and video electronic system functions can be built directly into the oled-on-silicon microdisplay , resulting in compact systems with lower expected overall system costs relative to alternate microdisplay technologies . we have devoted significant resources to the development and commercial launch of our oled microdisplay products into military , industrial and medical applications world-wide . first sales of our svga+ microdisplay began in may 2001 and we launched the svga-3d microdisplay in february 2002. in 2008 the sxga microdisplay became our first digital display , and in 2011 we introduced the vga oled-xl , our lowest powered microdisplay , and the wuxga oled-xl which exceeds 1080p hd resolution . as of january 31 , 2015 and 2014 , we had a backlog of approximately $ 8.5 and $ 13.4 mil lion , respectively , in products ordered for delivery through december 31 , 2015 and 2014 , respectively . this backlog consists of non-binding purchase orders and purchase agreements . these products are being applied or considered for near-eye and headset applications in products such as thermal imagers , night vision goggles , entertainment headsets , handheld internet and telecommunication appliances , viewfinders , and wearable computers to be manufactured by original equipment manufacturer ( oem ) customers . in addition to marketing oled-on-silicon microdisplays as components , we also offer microdisplays as an integrated package , which we call microviewer that includes a compact lens for viewing the microdisplay and electronic interfaces to convert the signal from our customer 's product into a viewable image on the microdisplay . we have also expanded our design and production activities to include display/optical subsystem assemblies for both military and commercial end-use products . we have developed a strong intellectual property portfolio that includes patents , manufacturing know-how and unique proprietary technologies to create high performance oled-on-silicon microdisplays and related optical systems . we believe our technology , intellectual property portfolio and position in the marketplace , gives us a leadership position in oled and oled-on-silicon microdisplay technology . we are one of only a few companies in the world to market and produce significant quantities of high resolution full-color small molecule oled-on-silicon microdisplays . in first quarter 2014 , emagin received a notification to stop shipments to three of its customers regarding a possible wire bonding problem in some of our microdisplays shipped to these customers . this issue resulted in a delay of shipments to these customers which impacted revenue for 2014. shipments to two of the three customers resumed in 2014. we are working with the third customer currently and expect to resume shipments to this customer in 2015. also in 2014 , emagin was awarded and began work on several new r & d contracts that will result in significant additional revenue beginning in 2014 and continuing in 2015 and 2016. the awards total over $ 7 million . there are three government programs : 1 ) to improve the backplane ; 2 ) to increase the brightness of the oled display and 3 ) the mantech program , which was awarded to increase the efficiency of the oled microdisplay manufacturing process . these r & d contracts are on schedule . initial design work was completed for the improved backplane project . preliminary tests to fabricate very low voltage , high brightness , oled devices show encouraging results . story_separator_special_tag accordingly , we increased our deferred tax asset to $ 8.8 million by recording a $ 0.7 million reduction of our deferred tax asset valuation allowance and recorded a corresponding tax benefit of $ 0.7 million . in 2013 , we had an operating loss and a projected cumulative loss through 2014 thus it was more likely than not that any of our deferred tax assets would be realized therefore , we recorded a full valuation allowance and income tax expense of $ 8.9 million . in 2014 , we incurred an operating loss and have a cumulative loss therefore it is more likely than not that none of our deferred tax assets will be realized and therefore , we maintained a full valuation allowance against our deferred tax assets . our effective income tax rate was an expense of 0 % and 171 % , respectively , in 2014 and 2013. the year over year change in our effective tax rate was primarily due to the recognition of a full valuation allowance on our deferred tax asset in 2013. results of operations the following table presents certain financial data as a percentage of total revenue for the periods indicated . our historical operating results are not necessarily indicative of the results for any future period . consolidated statements of operations data : replace_table_token_4_th year ended december 31 , 2014 compared to year ended december 31 , 2013 revenues replace_table_token_5_th revenues decreased approximately $ 2.3 million to a total of approximately $ 26.0 million for the year ended december 31 , 2014 from approximately $ 28.0 million for the year ended december 31 , 2013 , an 8 % decrease . in 2014 , product revenue decreased as there was an 18 % decrease in the number of displays sold offset by an 11 % increase in the average selling price as compared to 2013. contract revenue was relatively unchanged year over year . 24 cost of goods sold replace_table_token_6_th cost of goods sold is comprised of costs of product revenue and contract revenue . cost of product revenue includes materials , labor and manufacturing overhead related to our products . cost of contract revenue includes direct and allocated indirect costs associated with performance on contracts . cost of goods sold for the year ended december 31 , 2014 was approximately $ 18.3 million as compared to approximately $ 19.6 million for the year ended december 31 , 2013 , a decrease of approximately $ 1.2 million . cost of goods sold as a percentage of revenues was 71 % for the year ended december 31 , 2014 up from 70 % for the year ended december 31 , 2013 which is a result of a higher cost per display in 2014 , partially offset by a higher average selling price . depreciation increased $ 0.3 million due to the installation of new equipment . the following table outlines product , contract and total gross profit and related gross margins for the years ended december 31 , 2014 and 2013 ( dollars in thousands ) : replace_table_token_7_th in 2014 , total gross profit decreased approximately $ 1.0 million or 12 % . product revenue gross profit decreased approximately $ 1.1 million . gross margin was 29 % for the year ended december 31 , 2014 down slightly from 30 % for the year ended december 31 , 2013. product gross margin decreased from 29 % in 2013 to 28 % in 2014 due to a higher cost per display , partially offset by a higher average selling price in 2014. contract gross margin increased from 41 % in 2013 to 43 % in 2014. contract gross margin is dependent upon the mix of internal versus external third party costs , with the external third party costs causing a lower gross margin and reducing the contract gross profit . 25 operating expenses replace_table_token_8_th research and development expenses research and development expenses include salaries , development materials and other costs specifically allocated to the development of new microdisplay products , oled materials and subsystems . research and development expenses for the year ended december 31 , 2014 were approximately $ 4.5 million as compared to approximately $ 5.0 million for the year ended december 31 , 2013 , a decrease of approximately $ 0.5 million . the decrease in company-funded r & d expenses is due to expense being allocated to external funded contracts and lower non-cash compensation expense . selling , general and administrative expenses selling , general and administrative expenses consist principally of personnel costs , professional services fees , as well as other marketing , general corporate and administrative expenses . selling , general and administrative expenses for the years ended december 31 , 2014 were approximately $ 8.1 million as compared to approximately $ 8.6 million for the year ended december 31 , 2013 , a decrease of approximately $ 0.5 million . for the year ended december 31 , 2014 as compared to 2013 , there was a decrease in non-cash compensation and personnel costs offset by an increase in bad debt expense . other income ( expense ) other income ( expense ) , net consists primarily of interest income earned on investments , interest expense , and gain or loss on sale of assets . for the years ended december 31 , 2014 and 2013 , interest expense net of capitalization was $ 28 thousand and $ 31 thousand , respectively . we have no debt upon which we are incurring interest expense ; however , we pay fees to keep our line of credit available . other income for the years ended december 31 , 2014 and 2013 was $ 22 thousand and $ 50 thousand , respectively , with the majority of change related to a decrease in interest income earned on investments . income tax expense ( benefit ) for the years ended december 31 , 2014 and 2013 , income tax

liquidity and capital resources as of december 31 , 2014 , we had approximately $ 6.0 million of cash , cash equivalents , and investments as compared to $ 11.0 million at december 31 , 2013. as of december 31 , 2014 , we had approximately $ 5.3 million of cash and cash equivalents as compared to $ 4.0 million as of december 31 , 2013 , an increase of $ 1.3 million . the increase in cash was primarily due to cash provided by investing and financing activities of $ 6.0 million offset by cash used in operating activities of approximately $ 4.7 million . for the year ended december 31 , 2014 , operating activities used $ 4.7 million in cash , which was attributable to our net loss of approximately $ 5.3 million and the change in operating assets and liabilities of $ 2.4 million offset by approximately $ 3.0 million from the net non-cash expenses . for the year ended december 31 , 2013 , operating activities used $ 0.8 million in cash , which was attributable to our net loss of approximately $ 14.1 million offset by approximately $ 11.8 million from the net non-cash expenses and the change in operating assets and liabilities of $ 1.5 million . for the year ended december 31 , 2014 , investing activities provided approximately $ 4.6 million in cash of which approximately $ 6.3 million was from net investments maturing offset by approximately $ 1.5 million of equipment purchases primarily for upgrading our production line and $ 0.2 million to purchase intangible assets .

on february 28 , 2014 , our wholly-owned subsidiary , monroe capital corporation sbic , lp ( “ mrcc sbic ” ) , a delaware limited partnership , received a license from the small business administration ( “ sba ” ) to operate as a small business investment company ( “ sbic ” ) under section 301 ( c ) of the small business investment act of 1958. mrcc sbic commenced operations on september 16 , 2013. see “ sba debentures ” below for more information . on september 12 , 2018 , we closed a public offering of $ 69.0 million in aggregate principal amount of senior unsecured notes ( “ 2023 notes ” ) . the 2023 notes will mature on october 31 , 2023. see “ 2023 notes ” below for more information . investment income we generate interest income on the debt investments in portfolio company investments that we originate or acquire . our debt investments , whether in the form of senior secured , unitranche secured or junior secured debt , typically have an initial term of three to seven years and bear interest at a fixed or floating rate . in some instances we receive payments on our debt investment based on scheduled amortization of the outstanding balances . in addition , we receive repayments of some of our debt investments prior to their scheduled maturity date . in some cases , our investments provide for deferred interest of payment-in-kind ( “ pik ” ) interest . in addition , we may generate revenue in the form of commitment , origination , amendment , structuring or due diligence fees , fees for providing managerial assistance and consulting fees . loan origination fees , original issue discount and market discount or premium are capitalized , and we accrete or amortize such amounts as interest income . we record prepayment premiums and prepayment gains ( losses ) on loans as interest income . as the frequency or volume of the repayments which trigger these prepayment premiums and prepayment gains ( losses ) may fluctuate significantly from period to period , the associated interest income recorded may also fluctuate significantly from period to period , the associated interest income recorded may also fluctuate significantly from period to period . interest and fee income is recorded on the accrual basis to the extent we expect to collect such amounts . interest income is accrued based upon the outstanding principal amount and contractual terms of debt and preferred equity investments . interest is accrued on a daily basis . all other income is recorded into income when earned . we record fees on loans based on the determination of whether the fee is considered a yield enhancement or payment for a service . if the fee is considered a yield enhancement associated with a funding of cash on a loan , the fee is generally deferred and recognized into interest income using the effective interest method if captured in the cost basis or using the straight-line method if the loan is unfunded and therefore there is no cost basis . if the fee is not considered a yield enhancement because a service was provided , and the fee is payment for that service , the fee is deemed earned and recognized as fee income in the period the service has been completed . 49 dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected . dividend income on common equity securities is recorded on the record date for private portfolio companies . each distribution received from limited liability company ( “ llc ” ) and limited partnership ( “ lp ” ) investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital . generally , we will not record distributions from equity investments in llcs and lps as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the llc or lp prior to the distribution . distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment . the frequency and volume of the distributions on common equity securities and llc and lp investments may fluctuate significantly from period to period . expenses our primary operating expenses include the payment of fees to monroe capital bdc advisors , llc ( “ mc advisors ” ) under the investment advisory and management agreement ( management and incentive fees ) , and the payment of fees to monroe capital management advisors , llc ( “ mc management ” ) for our allocable portion of overhead and other expenses under the administration agreement and other operating costs . see note 6 to our consolidated financial statements and “ related party transactions ” below for additional information on our investment advisory and management agreement and administration agreement . our expenses also include interest expense on our various forms of indebtedness . we bear all other out-of-pocket costs and expenses of our operations and transactions . net gain ( loss ) we recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment without regard to unrealized gains or losses previously recognized . we record current period changes in fair value of investments , secured borrowings , foreign currency and other transactions within net change in unrealized gain ( loss ) in the consolidated statements of operations . story_separator_special_tag based on the weighted average shares of common stock outstanding for the years ended december 31 , 2018 , 2017 and 2016 , our per share net increase in net assets resulting from operations was $ 0.29 , $ 0.65 and $ 1.68 , respectively . the $ 6.4 million decrease during the year ended december 31 , 2018 , is primarily the result of an increase in net mark-to-market losses on investments in the portfolio , partially offset by an increase in net investment income primarily due to portfolio growth and the incentive fee limitation . the $ 12.2 million decrease during the year ended december 31 , 2017 , is primarily the result of an increase in net unrealized mark-to-market losses on investments in the portfolio , partially offset by an increase in net investment income due to portfolio growth . liquidity and capital resources as of december 31 , 2018 , we had $ 3.7 million in cash , $ 14.0 million in cash at mrcc sbic , $ 136.0 million of total debt outstanding on our revolving credit facility , $ 69.0 million in 2023 notes and $ 115.0 million in outstanding sba debentures . we had $ 64.0 million available for additional borrowings on our revolving credit facility . see “ borrowings ” below for additional information . cash flows for the year ended december 31 , 2018 , we experienced a net increase in cash and restricted cash of $ 10.5 million . during the same period we used $ 55.1 million in operating activities , primarily as a result of purchases of portfolio investments , partially offset by sales of and principal repayments on portfolio investments . during the same period , we generated $ 65.7 million from financing activities , primarily as a result of proceeds from our 2023 notes ( net of deferred financing cost payments ) and net borrowings on our revolving credit facility , partially offset by distributions to stockholders . for the year ended december 31 , 2017 , we experienced a net decrease in cash and restricted cash of $ 1.1 million . during the same period we used $ 69.6 million in operating activities , primarily as a result of purchases of portfolio investments , partially offset by sales of and principal repayments on portfolio investments . during the same period , we generated $ 68.4 million from financing activities , primarily as a result of net proceeds from capital raises and sba debenture borrowings , partially offset by net repayments on our revolving credit facility and distributions to stockholders . for the year ended december 31 , 2016 , we experienced a net decrease in cash and restricted cash of $ 5.5 million . during the same period we used $ 51.9 million in operating activities , primarily as a result of purchases of portfolio investments , partially offset by sales of and principal repayments on portfolio investments . during the same year , we generated $ 46.3 million from financing activities , principally from net proceeds from our capital raises during the period , net borrowings on our revolving credit facility and sba debenture borrowings , partially offset by distributions to stockholders and decreases in secured borrowings . story_separator_special_tag under the revolving credit facility is subject to availability under a defined borrowing base , which varies based on portfolio characteristics and certain eligibility criteria and concentration limits , as well as required valuation methodologies . we may make draws under the revolving credit facility to make or purchase additional investments through december 2019 and for general working capital purposes until the maturity date of the revolving credit facility . borrowings under the revolving credit facility bear interest , at our election , at an annual rate of libor ( one-month , two-month , three-month or six-month at our discretion based on the term of the borrowing ) plus 2.75 % or at a daily rate equal to 1.75 % per annum plus the greater of the prime interest rate , the federal funds rate plus 0.5 % or libor plus 1.0 % . in addition to the stated interest rate on borrowings under the revolving credit facility , we are required to pay a fee of 0.5 % per annum on any unused portion of the revolving credit facility if the unused portion of the facility is less than 65 % of the then available maximum borrowing or a fee of 1.0 % per annum on any unused portion of the revolving credit facility if the unused portion of the facility is greater than or equal to 65 % of the then available maximum borrowing . as of december 31 , 2018 and 2017 , the outstanding borrowings were accruing at a weighted average interest rate of 5.0 % and 4.4 % , respectively . the weighted average interest rate of the revolving credit facility borrowings ( excluding debt issuance costs ) for the years ended december 31 , 2018 , 2017 and 2016 was 4.7 % , 4.2 % and 3.6 % , respectively . the weighted average fee rate on the unused portion of the revolving credit facility for the years ended december 31 , 2018 , 2017 and 2016 was 0.6 % , 0.5 % and 0.5 % , respectively . 56 our ability to borrow under the revolving credit facility is subject to availability under the borrowing base , which permits us to borrow up to 70 % of the fair market value of our portfolio company investments depending on the type of the investment we hold and whether the investment is quoted . our ability to borrow is also subject to certain concentration limits , and our continued compliance with the representations , warranties and covenants given by us under the facility . the revolving credit facility contains certain financial and restrictive covenants , including , but not limited to , our maintenance of : ( 1 ) a

liquidity and capital resources as of december 31 , 2014 , we had approximately $ 6.0 million of cash , cash equivalents , and investments as compared to $ 11.0 million at december 31 , 2013. as of december 31 , 2014 , we had approximately $ 5.3 million of cash and cash equivalents as compared to $ 4.0 million as of december 31 , 2013 , an increase of $ 1.3 million . the increase in cash was primarily due to cash provided by investing and financing activities of $ 6.0 million offset by cash used in operating activities of approximately $ 4.7 million . for the year ended december 31 , 2014 , operating activities used $ 4.7 million in cash , which was attributable to our net loss of approximately $ 5.3 million and the change in operating assets and liabilities of $ 2.4 million offset by approximately $ 3.0 million from the net non-cash expenses . for the year ended december 31 , 2013 , operating activities used $ 0.8 million in cash , which was attributable to our net loss of approximately $ 14.1 million offset by approximately $ 11.8 million from the net non-cash expenses and the change in operating assets and liabilities of $ 1.5 million . for the year ended december 31 , 2014 , investing activities provided approximately $ 4.6 million in cash of which approximately $ 6.3 million was from net investments maturing offset by approximately $ 1.5 million of equipment purchases primarily for upgrading our production line and $ 0.2 million to purchase intangible assets .

on february 28 , 2014 , our wholly-owned subsidiary , monroe capital corporation sbic , lp ( “ mrcc sbic ” ) , a delaware limited partnership , received a license from the small business administration ( “ sba ” ) to operate as a small business investment company ( “ sbic ” ) under section 301 ( c ) of the small business investment act of 1958. mrcc sbic commenced operations on september 16 , 2013. see “ sba debentures ” below for more information . on september 12 , 2018 , we closed a public offering of $ 69.0 million in aggregate principal amount of senior unsecured notes ( “ 2023 notes ” ) . the 2023 notes will mature on october 31 , 2023. see “ 2023 notes ” below for more information . investment income we generate interest income on the debt investments in portfolio company investments that we originate or acquire . our debt investments , whether in the form of senior secured , unitranche secured or junior secured debt , typically have an initial term of three to seven years and bear interest at a fixed or floating rate . in some instances we receive payments on our debt investment based on scheduled amortization of the outstanding balances . in addition , we receive repayments of some of our debt investments prior to their scheduled maturity date . in some cases , our investments provide for deferred interest of payment-in-kind ( “ pik ” ) interest . in addition , we may generate revenue in the form of commitment , origination , amendment , structuring or due diligence fees , fees for providing managerial assistance and consulting fees . loan origination fees , original issue discount and market discount or premium are capitalized , and we accrete or amortize such amounts as interest income . we record prepayment premiums and prepayment gains ( losses ) on loans as interest income . as the frequency or volume of the repayments which trigger these prepayment premiums and prepayment gains ( losses ) may fluctuate significantly from period to period , the associated interest income recorded may also fluctuate significantly from period to period , the associated interest income recorded may also fluctuate significantly from period to period . interest and fee income is recorded on the accrual basis to the extent we expect to collect such amounts . interest income is accrued based upon the outstanding principal amount and contractual terms of debt and preferred equity investments . interest is accrued on a daily basis . all other income is recorded into income when earned . we record fees on loans based on the determination of whether the fee is considered a yield enhancement or payment for a service . if the fee is considered a yield enhancement associated with a funding of cash on a loan , the fee is generally deferred and recognized into interest income using the effective interest method if captured in the cost basis or using the straight-line method if the loan is unfunded and therefore there is no cost basis . if the fee is not considered a yield enhancement because a service was provided , and the fee is payment for that service , the fee is deemed earned and recognized as fee income in the period the service has been completed . 49 dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected . dividend income on common equity securities is recorded on the record date for private portfolio companies . each distribution received from limited liability company ( “ llc ” ) and limited partnership ( “ lp ” ) investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital . generally , we will not record distributions from equity investments in llcs and lps as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the llc or lp prior to the distribution . distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment . the frequency and volume of the distributions on common equity securities and llc and lp investments may fluctuate significantly from period to period . expenses our primary operating expenses include the payment of fees to monroe capital bdc advisors , llc ( “ mc advisors ” ) under the investment advisory and management agreement ( management and incentive fees ) , and the payment of fees to monroe capital management advisors , llc ( “ mc management ” ) for our allocable portion of overhead and other expenses under the administration agreement and other operating costs . see note 6 to our consolidated financial statements and “ related party transactions ” below for additional information on our investment advisory and management agreement and administration agreement . our expenses also include interest expense on our various forms of indebtedness . we bear all other out-of-pocket costs and expenses of our operations and transactions . net gain ( loss ) we recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment without regard to unrealized gains or losses previously recognized . we record current period changes in fair value of investments , secured borrowings , foreign currency and other transactions within net change in unrealized gain ( loss ) in the consolidated statements of operations . story_separator_special_tag based on the weighted average shares of common stock outstanding for the years ended december 31 , 2018 , 2017 and 2016 , our per share net increase in net assets resulting from operations was $ 0.29 , $ 0.65 and $ 1.68 , respectively . the $ 6.4 million decrease during the year ended december 31 , 2018 , is primarily the result of an increase in net mark-to-market losses on investments in the portfolio , partially offset by an increase in net investment income primarily due to portfolio growth and the incentive fee limitation . the $ 12.2 million decrease during the year ended december 31 , 2017 , is primarily the result of an increase in net unrealized mark-to-market losses on investments in the portfolio , partially offset by an increase in net investment income due to portfolio growth . liquidity and capital resources as of december 31 , 2018 , we had $ 3.7 million in cash , $ 14.0 million in cash at mrcc sbic , $ 136.0 million of total debt outstanding on our revolving credit facility , $ 69.0 million in 2023 notes and $ 115.0 million in outstanding sba debentures . we had $ 64.0 million available for additional borrowings on our revolving credit facility . see “ borrowings ” below for additional information . cash flows for the year ended december 31 , 2018 , we experienced a net increase in cash and restricted cash of $ 10.5 million . during the same period we used $ 55.1 million in operating activities , primarily as a result of purchases of portfolio investments , partially offset by sales of and principal repayments on portfolio investments . during the same period , we generated $ 65.7 million from financing activities , primarily as a result of proceeds from our 2023 notes ( net of deferred financing cost payments ) and net borrowings on our revolving credit facility , partially offset by distributions to stockholders . for the year ended december 31 , 2017 , we experienced a net decrease in cash and restricted cash of $ 1.1 million . during the same period we used $ 69.6 million in operating activities , primarily as a result of purchases of portfolio investments , partially offset by sales of and principal repayments on portfolio investments . during the same period , we generated $ 68.4 million from financing activities , primarily as a result of net proceeds from capital raises and sba debenture borrowings , partially offset by net repayments on our revolving credit facility and distributions to stockholders . for the year ended december 31 , 2016 , we experienced a net decrease in cash and restricted cash of $ 5.5 million . during the same period we used $ 51.9 million in operating activities , primarily as a result of purchases of portfolio investments , partially offset by sales of and principal repayments on portfolio investments . during the same year , we generated $ 46.3 million from financing activities , principally from net proceeds from our capital raises during the period , net borrowings on our revolving credit facility and sba debenture borrowings , partially offset by distributions to stockholders and decreases in secured borrowings . story_separator_special_tag under the revolving credit facility is subject to availability under a defined borrowing base , which varies based on portfolio characteristics and certain eligibility criteria and concentration limits , as well as required valuation methodologies . we may make draws under the revolving credit facility to make or purchase additional investments through december 2019 and for general working capital purposes until the maturity date of the revolving credit facility . borrowings under the revolving credit facility bear interest , at our election , at an annual rate of libor ( one-month , two-month , three-month or six-month at our discretion based on the term of the borrowing ) plus 2.75 % or at a daily rate equal to 1.75 % per annum plus the greater of the prime interest rate , the federal funds rate plus 0.5 % or libor plus 1.0 % . in addition to the stated interest rate on borrowings under the revolving credit facility , we are required to pay a fee of 0.5 % per annum on any unused portion of the revolving credit facility if the unused portion of the facility is less than 65 % of the then available maximum borrowing or a fee of 1.0 % per annum on any unused portion of the revolving credit facility if the unused portion of the facility is greater than or equal to 65 % of the then available maximum borrowing . as of december 31 , 2018 and 2017 , the outstanding borrowings were accruing at a weighted average interest rate of 5.0 % and 4.4 % , respectively . the weighted average interest rate of the revolving credit facility borrowings ( excluding debt issuance costs ) for the years ended december 31 , 2018 , 2017 and 2016 was 4.7 % , 4.2 % and 3.6 % , respectively . the weighted average fee rate on the unused portion of the revolving credit facility for the years ended december 31 , 2018 , 2017 and 2016 was 0.6 % , 0.5 % and 0.5 % , respectively . 56 our ability to borrow under the revolving credit facility is subject to availability under the borrowing base , which permits us to borrow up to 70 % of the fair market value of our portfolio company investments depending on the type of the investment we hold and whether the investment is quoted . our ability to borrow is also subject to certain concentration limits , and our continued compliance with the representations , warranties and covenants given by us under the facility . the revolving credit facility contains certain financial and restrictive covenants , including , but not limited to , our maintenance of : ( 1 ) a

capital resources as a bdc , we distribute substantially all of our net income to our stockholders and have an ongoing need to raise additional capital for investment purposes . we intend to generate additional cash primarily from future offerings of securities , future borrowings and cash flows from operations , including income earned from investments in our portfolio companies . on both a short-term and long-term basis , our primary use of funds will be to invest in portfolio companies and make cash distributions to our stockholders . 55 as a bdc , we are generally not permitted to issue and sell our common stock at a price below net asset value per share . we may , however , sell our common stock , or warrants , options or rights to acquire our common stock , at a price below the then-current net asset value per share of our common stock if our board , including independent directors , determines that such sale is in the best interests of us and our stockholders , and if our stockholders have approved such sales . on june 20 , 2018 , our stockholders voted to allow us to sell or otherwise issue common stock at a price below net asset value per share for a period of one year , subject to certain limitations . as of december 31 , 2018 and 2017 , we had 20,444,564 and 20,239,957 shares outstanding , respectively . on june 24 , 2015 , our stockholders approved a proposal to authorize us to issue warrants , options or rights to subscribe to , convert to , or purchase our common stock in one or more offerings . this is a standing authorization and does not require annual re-approval by our stockholders . on march 27 , 2018 , our board approved the application of the modified asset coverage requirements set forth in section 61 ( a ) ( 2 ) of the 1940 act . on june 20 , 2018 , our stockholders approved a proposal to accelerate the effective date of the modified asset coverage requirements .

on december 31 , 2019 , we divested substantially all of the assets relating to vilex 's adult product offerings to a wholly-owned subsidiary of squadron capital llc ( `` squadron `` ) in exchange for a $ 25.0 million reduction in a term note owed to squadron in connection with the initial acquisition . as part of the sale , we also executed an exclusive license arrangement with squadron providing for perpetual access to certain intellectual property and a mutual distribution agreement . on march 9 , 2020 , we purchased all the issued and outstanding membership interest of telos partners , llc ( `` telos `` ) for $ 3.3 million in total consideration . telos is a boutique regulatory consulting firm formed in colorado . on april 1 , 2020 , we purchased all the issued and outstanding membership interest of apifix , ltd. ( `` apifix `` ) for ( a ) $ 2.0 million in cash , and ( b ) 934,783 shares of the company 's common stock , $ 0.00025 par value per share , representing approximately $ 35.0 million ( based on a closing share price of $ 37.63 on april 1 , 2020. apifix , a corporation organized under the laws of israel , has developed a minimally invasive deformity correction system for patients with adolescent idiopathic scoliosis ( `` apifix system `` ) . in addition , we have also agreed to pay as part of the purchase price the following anniversary payments , subject to certain limitations and adjustments : ( i ) approximately $ 13.0 million on the second anniversary of the closing date , provided that such payment will be paid earlier if 150 clinical procedures using the apifix system are completed in the united states before such anniversary date , ( ii ) $ 8.0 million on the third anniversary of the closing date ; and ( iii ) $ 9.0 million on the fourth anniversary of the closing date . in addition , to the extent that the product of our revenues from the apifix system for the twelve months ended june 30 , 2024 multiplied by 2.25 exceeds the anniversary payments actually made for the third and fourth years , we have agreed to pay the selling shareholders a system sales payment in the amount of such excess . the anniversary payments and system sales payment may each be made in cash or cash and common stock . on june 10 , 2020 , we purchased certain intellectual property assets from band-lok , llc , a north carolina limited liability company ( `` band-lok `` ) , related to its tether clamp and implantation system ( `` tether clamp system `` ) for approximately $ 3.4 million in total consideration . we use the tether clamp system in connection with our bandloc 5.5/6.0 system . we were previously the sole licensee of the purchased assets under a license agreement with band-lok . we market and sell our products internationally in 44 countries through independent stocking distributors and sales agencies . our independent stocking distributors manage the billing relationship with each hospital in their respective territories and are responsible for servicing the product needs of their surgeon customers . in 2017 , we began to supplement our international stocking distributors with sales agencies using direct sales programs in the united kingdom , ireland , australia and new zealand where we sell directly to the hospitals . we began selling direct to canada in september 2018 , belgium and the netherlands in january 2019 , italy in march 2020 and germany , switzerland and austria in january 2021. additionally , in march 2019 , we established an operating company in the netherlands in order to enhance our operations in europe . in these markets , we work through sales agencies that are paid a commission , similar to our u.s. sales model . these arrangements have generated an increase in revenue and gross margin . for the years ended december 31 , 2020 , 2019 and 2018 , international sales accounted for approximately 11 % , 24 % and 24 % of our revenue , respectively . we believe there are significant opportunities for us to strengthen our position in u.s. and international markets by increasing investments in consigned implant and instrument sets , strengthening our global sales and distribution infrastructure and expanding our product offering . we have grown our revenue from approximately $ 10.2 million for the year ended december 31 , 2011 to $ 71.1 million for the year ended december 31 , 2020. the average annual growth rate for the company exceeded 20 % from 2009 through 2019 , partially obtained through strategic acquisitions . for the years ended december 31 , 74 2020 , 2019 and 2018 , our revenue was $ 71.1 million , $ 72.6 million and $ 57.6 million , respectively , and our net loss was $ 32.9 million , $ 13.7 million and $ 12.0 million , respectively . our net loss for the year ended december 31 , 2018 included $ 2.0 million of non-cash accelerated vesting of restricted stock compensation expense related to our october 2017 ipo . impact of covid-19 on our business a novel strain of the coronavirus disease ( `` covid-19 `` ) was first identified in wuhan , china in december 2019 , and the related outbreak was subsequently declared a pandemic by the world health organization and a national emergency by the president of the united states . as a result of the pandemic , we have experienced significant business disruption . for example , in order to meet the demand for covid-19-related hospitalizations , various governments , governmental agencies and hospital administrators required certain hospitals to postpone some elective procedures . story_separator_special_tag depreciation and amortization expenses increased $ 3.4 million , or 74 % , from $ 4.6 million for the year ended december 31 , 2019 to $ 8.0 million for the year ended december 31 , 2020. the increase was primarily due to the amortization on intangible assets acquired through the orthex , telos and apifix acquisitions and the purchase of the band-lok intellectual property and increased investments in consigned surgical instrument sets . research and development expenses research and development expenses decreased $ 0.4 million , or 8 % , from $ 5.7 million for the year ended december 31 , 2019 to $ 5.3 million for the year ended december 31 , 2020. the decrease was driven by a reduced investment in research and development project expenses as a result of the sales decline related to the covid-19 pandemic . total other expenses total other expenses increased $ 3.3 million , or 92 % , from $ 3.6 million for the year ended december 31 , 2018 to $ 6.9 million for the year ended december 31 , 2020. the increase in other expense is due to the fair value adjustment of $ 3.5 million related to the apifix contingent consideration payment . 79 comparison of the years ended december 31 , 2019 and 2018 the following table sets for the our results of operations for the years ended december 31 , 2019 and 2018 : replace_table_token_6_th revenue the following tables set forth our revenue by geography and product category for the years ended december 31 , 2019 and 2018 : replace_table_token_7_th replace_table_token_8_th revenue increased $ 15.0 million , or 26 % , from $ 57.6 million for the year ended december 31 , 2018 to $ 72.6 million for the year ended december 31 , 2019. the increase was due primarily to trauma and deformity sales growth of $ 9.7 million , or 24 % , primarily driven by sales of our pediatric nailing platform | femur , pediplate , and orthex hexapod system , and scoliosis sales growth of $ 4.8 million , or 29 % , primarily driven by sales of our response tm and other licensed products . nearly all of the increase in each of the trauma and deformity and scoliosis categories was due to the increase in unit volume sold and not a result of price changes . cost of revenue and gross margin cost of revenue was $ 17.9 million and $ 14.9 million for the years ended december 31 , 2019 and 2018 , respectively . gross margin was 75 % for the year ended december 31 , 2019 and 74 % for the year ended december 31 , 2018. the increase in gross margin was due primarily to a decrease in cost of goods sold related to the addition of sales agents in our international markets along with increase sales . sales and marketing expenses sales and marketing expenses increased $ 4.7 million , or 18 % , from $ 26.6 million for the year ended december 31 , 2018 to $ 31.3 million for the year ended december 31 , 2019. the increase was due primarily to increased sales commission expenses , driven by the increase in unit volume sold , and marketing expenses . 80 general and administrative expenses general and administrative expenses increased $ 5.7 million , or 27 % , from $ 20.9 million for the year ended december 31 , 2018 to $ 26.7 million for the year ended december 31 , 2019. the increase was due primarily to the addition of personnel and resources to support the growth of our business as well as increased quality and regulatory resources and consultants to comply with new fda and eu regulatory requirements . depreciation and amortization expenses increased $ 1.7 million , or 59 % , from $ 2.9 million for the year ended december 31 , 2018 to $ 4.6 million for the year ended december 31 , 2019. the increase was primarily due to prior increased investments in consigned surgical instrument sets and amortization on intangible licenses . we also purchased $ 13.2 million in amortizable intangibles associated with the acquisition of orthex on june 4 , 2019 , which increased amortization expense in the current year . research and development expenses research and development expenses increased $ 1.0 million , or 21 % , from $ 4.7 million for the year ended december 31 , 2018 to $ 5.7 million for the year ended december 31 , 2019. the increase was due to the addition of personnel to support our product pipeline and the growth of our business . other expenses other expenses were $ 3.6 million for each of the years ended december 31 , 2019 and 2018 , respectively . the expense in both of these periods consisted primarily of interest expense on long-term debt . liquidity and capital resources we have incurred operating losses since inception and negative cash flows from operating activities of $ 18.4 million , $ 17.8 million and $ 15.6 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 161.8 million . we anticipate that our losses will continue in the near term as we continue to expand our product portfolio and invest in additional consigned implant and instrument sets to support our expansion into existing and new markets . since inception , we have funded our operations primarily with proceeds from the sales of our common and preferred stock , convertible securities and debt , as well as through sales of our products . as of december 31 , 2020 we had cash , cash equivalents and restricted cash of $ 30.1 million and short-term investments of $ 55.1 million . we believe our existing cash and cash equivalents , amounts available under the loan agreement , cash receipts from sales of our

capital resources as a bdc , we distribute substantially all of our net income to our stockholders and have an ongoing need to raise additional capital for investment purposes . we intend to generate additional cash primarily from future offerings of securities , future borrowings and cash flows from operations , including income earned from investments in our portfolio companies . on both a short-term and long-term basis , our primary use of funds will be to invest in portfolio companies and make cash distributions to our stockholders . 55 as a bdc , we are generally not permitted to issue and sell our common stock at a price below net asset value per share . we may , however , sell our common stock , or warrants , options or rights to acquire our common stock , at a price below the then-current net asset value per share of our common stock if our board , including independent directors , determines that such sale is in the best interests of us and our stockholders , and if our stockholders have approved such sales . on june 20 , 2018 , our stockholders voted to allow us to sell or otherwise issue common stock at a price below net asset value per share for a period of one year , subject to certain limitations . as of december 31 , 2018 and 2017 , we had 20,444,564 and 20,239,957 shares outstanding , respectively . on june 24 , 2015 , our stockholders approved a proposal to authorize us to issue warrants , options or rights to subscribe to , convert to , or purchase our common stock in one or more offerings . this is a standing authorization and does not require annual re-approval by our stockholders . on march 27 , 2018 , our board approved the application of the modified asset coverage requirements set forth in section 61 ( a ) ( 2 ) of the 1940 act . on june 20 , 2018 , our stockholders approved a proposal to accelerate the effective date of the modified asset coverage requirements .

on december 31 , 2019 , we divested substantially all of the assets relating to vilex 's adult product offerings to a wholly-owned subsidiary of squadron capital llc ( `` squadron `` ) in exchange for a $ 25.0 million reduction in a term note owed to squadron in connection with the initial acquisition . as part of the sale , we also executed an exclusive license arrangement with squadron providing for perpetual access to certain intellectual property and a mutual distribution agreement . on march 9 , 2020 , we purchased all the issued and outstanding membership interest of telos partners , llc ( `` telos `` ) for $ 3.3 million in total consideration . telos is a boutique regulatory consulting firm formed in colorado . on april 1 , 2020 , we purchased all the issued and outstanding membership interest of apifix , ltd. ( `` apifix `` ) for ( a ) $ 2.0 million in cash , and ( b ) 934,783 shares of the company 's common stock , $ 0.00025 par value per share , representing approximately $ 35.0 million ( based on a closing share price of $ 37.63 on april 1 , 2020. apifix , a corporation organized under the laws of israel , has developed a minimally invasive deformity correction system for patients with adolescent idiopathic scoliosis ( `` apifix system `` ) . in addition , we have also agreed to pay as part of the purchase price the following anniversary payments , subject to certain limitations and adjustments : ( i ) approximately $ 13.0 million on the second anniversary of the closing date , provided that such payment will be paid earlier if 150 clinical procedures using the apifix system are completed in the united states before such anniversary date , ( ii ) $ 8.0 million on the third anniversary of the closing date ; and ( iii ) $ 9.0 million on the fourth anniversary of the closing date . in addition , to the extent that the product of our revenues from the apifix system for the twelve months ended june 30 , 2024 multiplied by 2.25 exceeds the anniversary payments actually made for the third and fourth years , we have agreed to pay the selling shareholders a system sales payment in the amount of such excess . the anniversary payments and system sales payment may each be made in cash or cash and common stock . on june 10 , 2020 , we purchased certain intellectual property assets from band-lok , llc , a north carolina limited liability company ( `` band-lok `` ) , related to its tether clamp and implantation system ( `` tether clamp system `` ) for approximately $ 3.4 million in total consideration . we use the tether clamp system in connection with our bandloc 5.5/6.0 system . we were previously the sole licensee of the purchased assets under a license agreement with band-lok . we market and sell our products internationally in 44 countries through independent stocking distributors and sales agencies . our independent stocking distributors manage the billing relationship with each hospital in their respective territories and are responsible for servicing the product needs of their surgeon customers . in 2017 , we began to supplement our international stocking distributors with sales agencies using direct sales programs in the united kingdom , ireland , australia and new zealand where we sell directly to the hospitals . we began selling direct to canada in september 2018 , belgium and the netherlands in january 2019 , italy in march 2020 and germany , switzerland and austria in january 2021. additionally , in march 2019 , we established an operating company in the netherlands in order to enhance our operations in europe . in these markets , we work through sales agencies that are paid a commission , similar to our u.s. sales model . these arrangements have generated an increase in revenue and gross margin . for the years ended december 31 , 2020 , 2019 and 2018 , international sales accounted for approximately 11 % , 24 % and 24 % of our revenue , respectively . we believe there are significant opportunities for us to strengthen our position in u.s. and international markets by increasing investments in consigned implant and instrument sets , strengthening our global sales and distribution infrastructure and expanding our product offering . we have grown our revenue from approximately $ 10.2 million for the year ended december 31 , 2011 to $ 71.1 million for the year ended december 31 , 2020. the average annual growth rate for the company exceeded 20 % from 2009 through 2019 , partially obtained through strategic acquisitions . for the years ended december 31 , 74 2020 , 2019 and 2018 , our revenue was $ 71.1 million , $ 72.6 million and $ 57.6 million , respectively , and our net loss was $ 32.9 million , $ 13.7 million and $ 12.0 million , respectively . our net loss for the year ended december 31 , 2018 included $ 2.0 million of non-cash accelerated vesting of restricted stock compensation expense related to our october 2017 ipo . impact of covid-19 on our business a novel strain of the coronavirus disease ( `` covid-19 `` ) was first identified in wuhan , china in december 2019 , and the related outbreak was subsequently declared a pandemic by the world health organization and a national emergency by the president of the united states . as a result of the pandemic , we have experienced significant business disruption . for example , in order to meet the demand for covid-19-related hospitalizations , various governments , governmental agencies and hospital administrators required certain hospitals to postpone some elective procedures . story_separator_special_tag depreciation and amortization expenses increased $ 3.4 million , or 74 % , from $ 4.6 million for the year ended december 31 , 2019 to $ 8.0 million for the year ended december 31 , 2020. the increase was primarily due to the amortization on intangible assets acquired through the orthex , telos and apifix acquisitions and the purchase of the band-lok intellectual property and increased investments in consigned surgical instrument sets . research and development expenses research and development expenses decreased $ 0.4 million , or 8 % , from $ 5.7 million for the year ended december 31 , 2019 to $ 5.3 million for the year ended december 31 , 2020. the decrease was driven by a reduced investment in research and development project expenses as a result of the sales decline related to the covid-19 pandemic . total other expenses total other expenses increased $ 3.3 million , or 92 % , from $ 3.6 million for the year ended december 31 , 2018 to $ 6.9 million for the year ended december 31 , 2020. the increase in other expense is due to the fair value adjustment of $ 3.5 million related to the apifix contingent consideration payment . 79 comparison of the years ended december 31 , 2019 and 2018 the following table sets for the our results of operations for the years ended december 31 , 2019 and 2018 : replace_table_token_6_th revenue the following tables set forth our revenue by geography and product category for the years ended december 31 , 2019 and 2018 : replace_table_token_7_th replace_table_token_8_th revenue increased $ 15.0 million , or 26 % , from $ 57.6 million for the year ended december 31 , 2018 to $ 72.6 million for the year ended december 31 , 2019. the increase was due primarily to trauma and deformity sales growth of $ 9.7 million , or 24 % , primarily driven by sales of our pediatric nailing platform | femur , pediplate , and orthex hexapod system , and scoliosis sales growth of $ 4.8 million , or 29 % , primarily driven by sales of our response tm and other licensed products . nearly all of the increase in each of the trauma and deformity and scoliosis categories was due to the increase in unit volume sold and not a result of price changes . cost of revenue and gross margin cost of revenue was $ 17.9 million and $ 14.9 million for the years ended december 31 , 2019 and 2018 , respectively . gross margin was 75 % for the year ended december 31 , 2019 and 74 % for the year ended december 31 , 2018. the increase in gross margin was due primarily to a decrease in cost of goods sold related to the addition of sales agents in our international markets along with increase sales . sales and marketing expenses sales and marketing expenses increased $ 4.7 million , or 18 % , from $ 26.6 million for the year ended december 31 , 2018 to $ 31.3 million for the year ended december 31 , 2019. the increase was due primarily to increased sales commission expenses , driven by the increase in unit volume sold , and marketing expenses . 80 general and administrative expenses general and administrative expenses increased $ 5.7 million , or 27 % , from $ 20.9 million for the year ended december 31 , 2018 to $ 26.7 million for the year ended december 31 , 2019. the increase was due primarily to the addition of personnel and resources to support the growth of our business as well as increased quality and regulatory resources and consultants to comply with new fda and eu regulatory requirements . depreciation and amortization expenses increased $ 1.7 million , or 59 % , from $ 2.9 million for the year ended december 31 , 2018 to $ 4.6 million for the year ended december 31 , 2019. the increase was primarily due to prior increased investments in consigned surgical instrument sets and amortization on intangible licenses . we also purchased $ 13.2 million in amortizable intangibles associated with the acquisition of orthex on june 4 , 2019 , which increased amortization expense in the current year . research and development expenses research and development expenses increased $ 1.0 million , or 21 % , from $ 4.7 million for the year ended december 31 , 2018 to $ 5.7 million for the year ended december 31 , 2019. the increase was due to the addition of personnel to support our product pipeline and the growth of our business . other expenses other expenses were $ 3.6 million for each of the years ended december 31 , 2019 and 2018 , respectively . the expense in both of these periods consisted primarily of interest expense on long-term debt . liquidity and capital resources we have incurred operating losses since inception and negative cash flows from operating activities of $ 18.4 million , $ 17.8 million and $ 15.6 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 161.8 million . we anticipate that our losses will continue in the near term as we continue to expand our product portfolio and invest in additional consigned implant and instrument sets to support our expansion into existing and new markets . since inception , we have funded our operations primarily with proceeds from the sales of our common and preferred stock , convertible securities and debt , as well as through sales of our products . as of december 31 , 2020 we had cash , cash equivalents and restricted cash of $ 30.1 million and short-term investments of $ 55.1 million . we believe our existing cash and cash equivalents , amounts available under the loan agreement , cash receipts from sales of our

cash used in operating activities net cash used in operating activities was $ 18.4 million , $ 17.8 million and $ 15.6 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . the primary use of this cash was to fund our operations related to the development and commercialization of our products in each of these years . net cash used for working capital was $ ( 5.0 ) million , $ ( 11.4 ) million and $ ( 9.6 ) million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . during 2020 , we increased inventory by $ 12.1 million as we deployed additional inventory , including $ 1.6 million due to the repurchase of inventory from a stocking distributor in germany , austria and switzerland that we converted to a sales agency , and accounts receivable increased by $ 0.5 million . these uses of cash for working capital were offset by our legal settlement accrual of $ 6.3 million and an increase in accounts payable of $ 3.1 million as we purchased inventory on account for deployment into the field . during 2019 , we increased inventory by $ 9.8 million as we deployed additional inventory and accounts receivable increased by $ 5.8 million as our sales increased . during 2018 , we increased inventory by $ 4.8 million as we deployed additional inventory following our ipo and accounts receivable increased by $ 3.8 million as our sales increased . we had a net loss of $ 32.9 million , $ 13.7 million and $ 12.0 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively , which drove a difference in the use of operating cash between the periods . our net loss for the year ended december 31 , 2018 included a $ 2.0 million non-cash expense associated with the accelerated vesting of our restricted stock related to our ipo . cash used in investing activities net cash used in investing activities was $ 69.8 million , $ 61.9 million and $ 6.0 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively .

provided below is a reconciliation of net ( loss ) income to ebitda and to adjusted ebitda for fiscal years ended january 28 , 2012 , january 29 , 2011 and january 30 , 2010 : 18 replace_table_token_5_th basis of the presentation net sales consist of store sales and layaway fees , net of returns by customers . cost of sales consists of the cost of products we sell and associated freight costs . selling , general and administrative expenses are comprised of store costs , including payroll and occupancy costs , corporate and distribution center costs and advertising costs . we operate on a 52- or 53-week fiscal year , which ends on the saturday closest to january 31. each of our fiscal quarters consists of four 13-week periods , with an extra week added to the fourth quarter every five to six years . the years ended january 28 , 2012 , january 29 , 2011 , january 30 , 2010 , january 31 , 2009 , and february 2 , 2008 are referred to as fiscal 2011 , 2010 , 2009 , 2008 and 2007 , respectively . each of these five fiscal years is comprised of 52 weeks . fiscal 2012 will be a 53-week year ending on february 2 , 2013. based on historical sales results in late january and early february , the 53 rd week is expected to reflect sales that are higher than our annual weekly average ; however , incremental profits for such week may be negligible because that week has historically had high levels of markdowns . results of operations the following discussion of our financial performance is based on the consolidated financial statements set forth in the financial pages of this report . the nature of our business is seasonal . historically , sales in the first and fourth quarters have been higher than sales achieved in the second and third quarters of the fiscal year . expenses and , to a greater extent , operating income , vary by quarter . results of a period shorter than a full year may not be indicative of results expected for the entire year . furthermore , the seasonal nature of our business may affect comparisons between periods . 19 net sales and additional operating data the following table sets forth , for the periods indicated , selected consolidated statement of operations data expressed both in dollars and as a percentage of net sales : replace_table_token_6_th the following table provides information , for the years indicated , about the number of total stores open at the beginning of the year , stores opened and closed during each year , total stores open at the end of each year and comparable store sales for the years : replace_table_token_7_th ( 1 ) stores included in the comparable store sales calculation for any year are those stores that were opened prior to the beginning of the preceding fiscal year and were still open at the end of such year . relocated stores and expanded stores are included in the comparable store sales results . 20 fiscal 2011 compared to fiscal 2010 net sales . net sales increased $ 18.3 million , or 2.9 % , to $ 640.8 million in fiscal 2011 from $ 622.5 million in fiscal 2010. the increase in net sales was due primarily to 55 new store openings in fiscal 2011 and 60 new store openings in fiscal 2010 for which there was not a full year of sales in fiscal 2010 , partially offset by an 8.3 % decrease in comparable store sales and the closing of five stores in fiscal 2011 and two stores in fiscal 2010. the 55 stores opened in fiscal 2011 accounted for $ 39.7 million of the increase in sales and the 60 stores opened in fiscal 2010 accounted for $ 28.3 million of the increase , while the sales decrease in the 396 comparable stores totaled $ 47.4 million and the closed stores had the effect of reducing sales by $ 2.3 million . comparable stores include locations that have been relocated or expanded . there were 14 stores relocated or expanded in fiscal 2011 and 13 stores relocated or expanded in fiscal 2010. sales in these comparable relocated and expanded stores increased 1.4 % in fiscal 2011 , while sales in all other comparable stores decreased 9.1 % . the 8.3 % overall decrease in comparable store sales was reflected primarily in a 6.9 % decline in customer transactions , with the remainder being due to a lower average customer purchase . sales were impacted by a challenging economic environment for our core customer , stiff price competition and a fashion cycle where many of the urban brands that have historically been strong performers for us fell out of favor . in addition , we believe we did not react to these challenges as well or as quickly as we could have . ultimately , we commenced a process of reducing our prices and rebalancing our merchandise mix more towards non-branded merchandise in order to better serve our customers . while we started to see an improvement in customer traffic late in the year , albeit at a lower average ticket , it was not enough to turn comparable store sales positive . comparable store sales changes by major merchandise class were as follows : home +8 % ; accessories +1 % ; children 's -8 % ; women 's -11 % and men 's -13 % . gross profit . story_separator_special_tag we believe the following critical accounting policies describe the more significant judgments and estimates used in the preparation of the consolidated financial statements : inventory inventory is stated at the lower of cost ( first-in , first-out basis ) or market as determined by the retail inventory method for store inventory and the average cost method for distribution center inventory . under the retail inventory method , the cost of inventory is determined by calculating a cost-to-retail ratio and applying it to the retail value of inventory . inherent in the retail inventory calculation are certain significant management judgments and estimates , including , among others , merchandise markups , markdowns and shrinkage , which impact the ending inventory valuation at cost as well as resulting gross margins . merchandise markdowns are reflected in the inventory valuation when the price of an item is lowered in the stores . as a result , we believe the retail inventory method results in a more conservative inventory valuation than other accounting methods . we estimate and record an allowance for shrinkage for the period between the last physical count and the balance sheet date . the estimate of shrinkage can be affected by changes in actual shrinkage trends . inventory shrinkage as a percentage of sales has ranged from 0.9 % to 1.1 % during fiscal years 2009 through 2011. the allowance for estimated inventory shrinkage was $ 2.0 million and $ 1.9 million as of january 28 , 2012 and january 29 , 2011 , respectively . many retailers have arrangements with vendors that provide for rebates and allowances under certain conditions , which ultimately affect the value of the inventory . we do not generally enter into such arrangements with our vendors . there were no material changes in the estimates or assumptions related to the valuation of inventory during fiscal 2011. property and equipment , net we have a significant investment in property and equipment stated at cost less accumulated depreciation and amortization . depreciation and amortization are computed using the straight-line method over the lesser of the estimated useful lives ( primarily three to five years for computer equipment and furniture , fixtures and equipment , five years for leasehold improvements , seven years for major purchased software systems , and fifteen to twenty years for buildings and building improvements ) of the related assets or the relevant lease term . any reduction in these estimated useful lives would result in a higher annual depreciation expense for the related assets . there were no material changes in the estimates or assumptions related to the valuation and classification of property and equipment during fiscal 2011. impairment of long-lived assets we continually evaluate whether events and changes in circumstances warrant revised estimates of the useful lives or recognition of an impairment loss for long-lived assets . if facts and circumstances indicate that a long-lived asset may be impaired , the carrying value is reviewed . if this review indicates that the carrying value of the asset will not be recovered as determined based on projected undiscounted cash flows related to the asset over its remaining life , the carrying value of the asset is reduced to its estimated fair value . non-cash impairment losses related to leasehold improvements and fixtures and equipment at underperforming stores totaled $ 5.1 million , $ 0.2 million and $ 0.1 million in fiscal 2011 , 2010 and 2009 , respectively . there were no changes in our impairment loss methodology in fiscal 2011 ; however , impairment losses were significantly higher in the year due to changes in estimates of future store cash flows resulting from declining comparable store sales and gross margin . as of january 28 , 2012 there are an additional 31 stores with asset carrying values totaling $ 5.1 million that will require close monitoring in the future . impairment losses in the future are dependent on a number of factors such as site selection and general economic trends on a localized , regional , or national basis , and 25 thus could be significantly different from historical results . to the extent our estimates for net sales , gross profit and store expenses are not realized , future assessments of recoverability could result in impairment charges . insurance liabilities we are largely self-insured for workers ' compensation costs and employee medical claims . our self-insurance liabilities are based on the total estimated costs of claims filed and estimates of claims incurred but not reported , less amounts paid against such claims . we use current and historical claims data , together with information from actuarial studies , in developing our estimates . the insurance liabilities we record are primarily influenced by the frequency and severity of claims and the company 's growth . if the underlying facts and circumstances related to the claims change , then we may be required to record more or less expense which could be material in relation to our results of operations . our self-insurance liabilities totaled $ 2.2 million ( $ 1.7 million current and $ 0.5 million noncurrent ) as of january 28 , 2012 and $ 1.9 million ( $ 1.3 million current and $ 0.6 million noncurrent ) as of january 29 , 2011. there were no material changes in the estimates or assumptions related to insurance liabilities during fiscal 2011. operating leases we lease all of our store properties and account for the leases as operating leases . many lease agreements contain tenant improvement allowances , rent holidays , rent escalation clauses and or contingent rent provisions . for purposes of recognizing incentives and minimum rent expense on a straight-line basis over the terms of the leases , we use the date of initial possession to begin amortization , which is generally when we enter the space and begin to make improvements in preparation of intended use . for scheduled rent escalation clauses during the lease terms or for

cash used in operating activities net cash used in operating activities was $ 18.4 million , $ 17.8 million and $ 15.6 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . the primary use of this cash was to fund our operations related to the development and commercialization of our products in each of these years . net cash used for working capital was $ ( 5.0 ) million , $ ( 11.4 ) million and $ ( 9.6 ) million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . during 2020 , we increased inventory by $ 12.1 million as we deployed additional inventory , including $ 1.6 million due to the repurchase of inventory from a stocking distributor in germany , austria and switzerland that we converted to a sales agency , and accounts receivable increased by $ 0.5 million . these uses of cash for working capital were offset by our legal settlement accrual of $ 6.3 million and an increase in accounts payable of $ 3.1 million as we purchased inventory on account for deployment into the field . during 2019 , we increased inventory by $ 9.8 million as we deployed additional inventory and accounts receivable increased by $ 5.8 million as our sales increased . during 2018 , we increased inventory by $ 4.8 million as we deployed additional inventory following our ipo and accounts receivable increased by $ 3.8 million as our sales increased . we had a net loss of $ 32.9 million , $ 13.7 million and $ 12.0 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively , which drove a difference in the use of operating cash between the periods . our net loss for the year ended december 31 , 2018 included a $ 2.0 million non-cash expense associated with the accelerated vesting of our restricted stock related to our ipo . cash used in investing activities net cash used in investing activities was $ 69.8 million , $ 61.9 million and $ 6.0 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively .

provided below is a reconciliation of net ( loss ) income to ebitda and to adjusted ebitda for fiscal years ended january 28 , 2012 , january 29 , 2011 and january 30 , 2010 : 18 replace_table_token_5_th basis of the presentation net sales consist of store sales and layaway fees , net of returns by customers . cost of sales consists of the cost of products we sell and associated freight costs . selling , general and administrative expenses are comprised of store costs , including payroll and occupancy costs , corporate and distribution center costs and advertising costs . we operate on a 52- or 53-week fiscal year , which ends on the saturday closest to january 31. each of our fiscal quarters consists of four 13-week periods , with an extra week added to the fourth quarter every five to six years . the years ended january 28 , 2012 , january 29 , 2011 , january 30 , 2010 , january 31 , 2009 , and february 2 , 2008 are referred to as fiscal 2011 , 2010 , 2009 , 2008 and 2007 , respectively . each of these five fiscal years is comprised of 52 weeks . fiscal 2012 will be a 53-week year ending on february 2 , 2013. based on historical sales results in late january and early february , the 53 rd week is expected to reflect sales that are higher than our annual weekly average ; however , incremental profits for such week may be negligible because that week has historically had high levels of markdowns . results of operations the following discussion of our financial performance is based on the consolidated financial statements set forth in the financial pages of this report . the nature of our business is seasonal . historically , sales in the first and fourth quarters have been higher than sales achieved in the second and third quarters of the fiscal year . expenses and , to a greater extent , operating income , vary by quarter . results of a period shorter than a full year may not be indicative of results expected for the entire year . furthermore , the seasonal nature of our business may affect comparisons between periods . 19 net sales and additional operating data the following table sets forth , for the periods indicated , selected consolidated statement of operations data expressed both in dollars and as a percentage of net sales : replace_table_token_6_th the following table provides information , for the years indicated , about the number of total stores open at the beginning of the year , stores opened and closed during each year , total stores open at the end of each year and comparable store sales for the years : replace_table_token_7_th ( 1 ) stores included in the comparable store sales calculation for any year are those stores that were opened prior to the beginning of the preceding fiscal year and were still open at the end of such year . relocated stores and expanded stores are included in the comparable store sales results . 20 fiscal 2011 compared to fiscal 2010 net sales . net sales increased $ 18.3 million , or 2.9 % , to $ 640.8 million in fiscal 2011 from $ 622.5 million in fiscal 2010. the increase in net sales was due primarily to 55 new store openings in fiscal 2011 and 60 new store openings in fiscal 2010 for which there was not a full year of sales in fiscal 2010 , partially offset by an 8.3 % decrease in comparable store sales and the closing of five stores in fiscal 2011 and two stores in fiscal 2010. the 55 stores opened in fiscal 2011 accounted for $ 39.7 million of the increase in sales and the 60 stores opened in fiscal 2010 accounted for $ 28.3 million of the increase , while the sales decrease in the 396 comparable stores totaled $ 47.4 million and the closed stores had the effect of reducing sales by $ 2.3 million . comparable stores include locations that have been relocated or expanded . there were 14 stores relocated or expanded in fiscal 2011 and 13 stores relocated or expanded in fiscal 2010. sales in these comparable relocated and expanded stores increased 1.4 % in fiscal 2011 , while sales in all other comparable stores decreased 9.1 % . the 8.3 % overall decrease in comparable store sales was reflected primarily in a 6.9 % decline in customer transactions , with the remainder being due to a lower average customer purchase . sales were impacted by a challenging economic environment for our core customer , stiff price competition and a fashion cycle where many of the urban brands that have historically been strong performers for us fell out of favor . in addition , we believe we did not react to these challenges as well or as quickly as we could have . ultimately , we commenced a process of reducing our prices and rebalancing our merchandise mix more towards non-branded merchandise in order to better serve our customers . while we started to see an improvement in customer traffic late in the year , albeit at a lower average ticket , it was not enough to turn comparable store sales positive . comparable store sales changes by major merchandise class were as follows : home +8 % ; accessories +1 % ; children 's -8 % ; women 's -11 % and men 's -13 % . gross profit . story_separator_special_tag we believe the following critical accounting policies describe the more significant judgments and estimates used in the preparation of the consolidated financial statements : inventory inventory is stated at the lower of cost ( first-in , first-out basis ) or market as determined by the retail inventory method for store inventory and the average cost method for distribution center inventory . under the retail inventory method , the cost of inventory is determined by calculating a cost-to-retail ratio and applying it to the retail value of inventory . inherent in the retail inventory calculation are certain significant management judgments and estimates , including , among others , merchandise markups , markdowns and shrinkage , which impact the ending inventory valuation at cost as well as resulting gross margins . merchandise markdowns are reflected in the inventory valuation when the price of an item is lowered in the stores . as a result , we believe the retail inventory method results in a more conservative inventory valuation than other accounting methods . we estimate and record an allowance for shrinkage for the period between the last physical count and the balance sheet date . the estimate of shrinkage can be affected by changes in actual shrinkage trends . inventory shrinkage as a percentage of sales has ranged from 0.9 % to 1.1 % during fiscal years 2009 through 2011. the allowance for estimated inventory shrinkage was $ 2.0 million and $ 1.9 million as of january 28 , 2012 and january 29 , 2011 , respectively . many retailers have arrangements with vendors that provide for rebates and allowances under certain conditions , which ultimately affect the value of the inventory . we do not generally enter into such arrangements with our vendors . there were no material changes in the estimates or assumptions related to the valuation of inventory during fiscal 2011. property and equipment , net we have a significant investment in property and equipment stated at cost less accumulated depreciation and amortization . depreciation and amortization are computed using the straight-line method over the lesser of the estimated useful lives ( primarily three to five years for computer equipment and furniture , fixtures and equipment , five years for leasehold improvements , seven years for major purchased software systems , and fifteen to twenty years for buildings and building improvements ) of the related assets or the relevant lease term . any reduction in these estimated useful lives would result in a higher annual depreciation expense for the related assets . there were no material changes in the estimates or assumptions related to the valuation and classification of property and equipment during fiscal 2011. impairment of long-lived assets we continually evaluate whether events and changes in circumstances warrant revised estimates of the useful lives or recognition of an impairment loss for long-lived assets . if facts and circumstances indicate that a long-lived asset may be impaired , the carrying value is reviewed . if this review indicates that the carrying value of the asset will not be recovered as determined based on projected undiscounted cash flows related to the asset over its remaining life , the carrying value of the asset is reduced to its estimated fair value . non-cash impairment losses related to leasehold improvements and fixtures and equipment at underperforming stores totaled $ 5.1 million , $ 0.2 million and $ 0.1 million in fiscal 2011 , 2010 and 2009 , respectively . there were no changes in our impairment loss methodology in fiscal 2011 ; however , impairment losses were significantly higher in the year due to changes in estimates of future store cash flows resulting from declining comparable store sales and gross margin . as of january 28 , 2012 there are an additional 31 stores with asset carrying values totaling $ 5.1 million that will require close monitoring in the future . impairment losses in the future are dependent on a number of factors such as site selection and general economic trends on a localized , regional , or national basis , and 25 thus could be significantly different from historical results . to the extent our estimates for net sales , gross profit and store expenses are not realized , future assessments of recoverability could result in impairment charges . insurance liabilities we are largely self-insured for workers ' compensation costs and employee medical claims . our self-insurance liabilities are based on the total estimated costs of claims filed and estimates of claims incurred but not reported , less amounts paid against such claims . we use current and historical claims data , together with information from actuarial studies , in developing our estimates . the insurance liabilities we record are primarily influenced by the frequency and severity of claims and the company 's growth . if the underlying facts and circumstances related to the claims change , then we may be required to record more or less expense which could be material in relation to our results of operations . our self-insurance liabilities totaled $ 2.2 million ( $ 1.7 million current and $ 0.5 million noncurrent ) as of january 28 , 2012 and $ 1.9 million ( $ 1.3 million current and $ 0.6 million noncurrent ) as of january 29 , 2011. there were no material changes in the estimates or assumptions related to insurance liabilities during fiscal 2011. operating leases we lease all of our store properties and account for the leases as operating leases . many lease agreements contain tenant improvement allowances , rent holidays , rent escalation clauses and or contingent rent provisions . for purposes of recognizing incentives and minimum rent expense on a straight-line basis over the terms of the leases , we use the date of initial possession to begin amortization , which is generally when we enter the space and begin to make improvements in preparation of intended use . for scheduled rent escalation clauses during the lease terms or for

cash flows fiscal 2011 compared to fiscal 2010 as of january 28 , 2012 , we had total cash and cash equivalents of $ 42.0 million , compared with $ 69.2 million as of january 29 , 2011. the most significant factors in the decrease in our cash and cash equivalents position during fiscal 2011 were capital expenditures and purchases of investment securities , partially offset by positive cash flow from operating activities . inventory represented 41.8 % of our total assets as of january 28 , 2012 , compared with 39.6 % as of january 29 , 2011. management 's ability to manage our inventory can have a significant impact on our cash flows from operations during a given interim period or fiscal 22 year . in addition , inventory purchases can be seasonal in nature , such as the purchase of warm-weather or christmas-related merchandise . cash flows provided by operating activities . net cash provided by operating activities was $ 22.1 million in fiscal 2011 compared with $ 24.3 million in fiscal 2010. net loss , adjusted for noncash expenses such as depreciation and amortization , asset impairment , deferred income taxes , loss on disposal of property and equipment , and stock-based compensation expense , provided cash of $ 24.2 million ( compared with $ 44.7 million in fiscal 2010 from net income , adjusted for noncash expenses ) . other significant sources of cash provided by operating activities included an increase in accounts payable , accrued expenses and other long-term liabilities , and accrued compensation . accounts payable increased $ 11.0 million ( compared with $ 5.2 million in fiscal 2010 ) .

44 on july 23 , 2020 , the company sold a land parcel at the circle point property in denver , colorado for $ 6.5 million , resulting in an aggregate gain of $ 1.3 million net of disposal-related costs and taxes paid by our taxable reit subsidiary , which has been classified as net gain on sale of real estate property in the consolidated statements of operations . indebtedness at december 31 , 2020 , we had approximately $ 75.0 million outstanding under the company 's unsecured credit facility ( the “ unsecured credit facility ” ) and a $ 7.0 million letter of credit to satisfy escrow requirements for a mortgage lender . for additional information regarding these mortgage loans , the unsecured credit facility , including the company 's five-year $ 50 million term loan thereunder ( the “ term loan ” ) and the related five-year interest rate swap for a notional amount of $ 50 million to which the company is a party ( the “ interest rate swap ” ) , please refer to “ liquidity and capital resources ” below . revenue base as of december 31 , 2020 , we owned 25 properties comprised of 65 office buildings with a total of approximately 5.8 million square feet of net rentable area ( “ nra ” ) . as of december 31 , 2020 , our properties were approximately 90.5 % leased . office leases historically , most leases for our properties have been on a full-service gross or net lease basis , and we expect to continue to use such leases in the future . a full-service gross lease generally has a base year expense “ stop ” , whereby we pay a stated amount of expenses as part of the rent payment while future increases ( above the base year stop ) in property operating expenses are billed to the tenant based on such tenant 's proportionate square footage in the property . the property operating expenses are reflected in operating expenses ; however , only the increased property operating expenses above the base year stop recovered from tenants are reflected as tenant recoveries in our statements of operations . in a triple net lease , the tenant is typically responsible for all property taxes and operating expenses . as such , the base rent payment does not include any operating expenses , but rather all such expenses are billed to or paid by the tenant . the full amount of the expenses for this lease type is reflected in operating expenses , and the reimbursement is reflected in tenant recoveries . all tenants in the lake vista pointe , 2525 mckinnon , sorrento mesa and canyon park properties have triple net leases . certain tenants at amberglen , superior pointe , florida research park , circle point , the quad , cascade station and denver tech have leases on a triple net basis . we are also a lessor for a fee simple ground lease at the amberglen property . all of our remaining leases are full-service gross leases . factors that may influence our operating results and financial condition covid-19 during the first quarter of 2020 , the world health organization declared the covid-19 outbreak a pandemic . there have been mandates from international , federal , state and local authorities requiring forced closures of businesses and other facilities , and most of the markets in which our buildings are located have been or are subject to some form of pandemic-related restrictions . these forced closures and restrictions have had a material adverse effect on the global economy and the regional u.s. economies in which we operate , including negatively impacting some of our tenants ' ability to pay their rent . all of our buildings are open and continue to operate . we have adopted new policies and procedures to incorporate best practices for the safety of our tenants , our vendors and our employees . however , the usage of 45 our assets in 2020 was significantly lower than normal . usage of our assets in the near future depends on the duration of the pandemic , the implementation of covid-19 vaccines and corporate and individual decisions regarding return to usage of office space , which is impossible to estimate . we continue to closely monitor the impact of the covid-19 pandemic on all aspects of our business and geographies . while we did not experience any significant disruptions during the year ended december 31 , 2020 , as a result of covid-19 or governmental or tenant actions in response thereto , the company granted rent relief to nine tenants comprising approximately 1.1 % of the company 's occupied nra , most often in the form of a rent deferral or rent abatement . subsequent to december 31 , 2020 , the company granted additional rent abatements to four tenants who previously received relief , which combined comprises approximately 0.1 % of the company 's occupied nra and an immaterial amount of rental revenue . although the rent deferrals and rent abatements granted to date did not have a material impact on our rental revenue , the long-term impact of the pandemic on our tenants and the world-wide economy is uncertain and impossible to estimate , and will depend on the scope , severity and duration of the pandemic . we believe that some of the industries most impacted by covid-19 are coworking , retail , restaurant and café , travel and accommodation , live event related and energy . we generally have limited exposure to these industries , with these sectors comprising approximately 3 % of our portfolio by square footage . however , the impact of covid-19 extends to all sectors of the u.s. economy and as such , we expect that tenants outside of these select industries will also face significant challenges . story_separator_special_tag asu 2021-01 clarifies the scope of topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in topic 848. asu 2020-04 and asu 2021-01 can be applied as of the beginning of the interim period that includes march 12 , 2020 , however , the guidance will only be available for optional use through december 31 , 2022. the new standard applies prospectively to contract modifications and hedging relationships and may be elected over time as reference rate reform activities occur . the company has not yet adopted the standard and continues to evaluate the impact of asu 2020-04 and asu 2021-01 on its consolidated financial statements and may elect optional expedients in future periods as reference rate reform activities occur . on april 10 , 2020 , the financial accounting standards board ( the “ fasb ” ) issued a staff q & a to respond to some frequently asked questions about accounting for rent relief related to the effects of the covid-19 pandemic . consequently , for rent relief related to the effects of the covid-19 pandemic , an entity will not be required to analyze each contract to determine whether enforceable rights and obligations for abatements exist in the contract and can elect to apply or not apply the lease modification guidance to those contracts . entities may make the elections for any lessor-provided rent relief related to the effects of the covid-19 pandemic ( e.g . , deferrals of lease payments , reduced future lease payments , etc . ) as long as the rent relief does not result in a substantial increase in the rights of the lessor or the obligations of the lessee . to date , the company granted rent relief to certain tenants , most often in the form of a rent deferral or rent abatement . for rent relief granted that did not result in a substantial increase in the rights of the lessor or the obligations of the lessee , the company elected to not apply the lease modification guidance and instead account for the rent relief as though the enforceable rights and obligations for the relief existed in the original contract . for rent relief granted that resulted in a substantial increase in the rights of the lessor or the obligations of the lessee , the company applied the lease modification guidance to the applicable contracts . results of operations comparison of year ended december 31 , 2020 to year ended december 31 , 2019 rental and other revenues . revenue includes net rental income , including parking , signage and other income , as well as the recovery of operating costs and property taxes from tenants . rental and other revenues increased $ 4.5 million , or 3 % , to $ 160.8 million for the year ended december 31 , 2020 compared to 50 $ 156.3 million for the year ended december 31 , 2019. of this increase , the acquisitions of 7601 tech , cascade station and canyon park contributed increases of $ 4.0 million , $ 1.7 million , and $ 1.3 million , respectively . revenue increased by $ 1.2 million at our dtc crossroads property within the denver tech portfolio and by $ 0.9 million at our sorrento mesa property due to significant leasing transactions during the year , which lifted occupancy and rental income . revenue from the cherry creek property also increased by $ 0.7 million , as it benefited from a lease termination fee payment during the year ended december 31 , 2020. partially offsetting these increases , rental revenue decreased at 190 office center and pima center by $ 0.4 million and $ 0.6 million , respectively , due to a decrease in occupancy during the year ended december 31 , 2020. revenue during the year ended december 31 , 2019 also benefited from a one-time payment of $ 2.6 million received as consideration for the assignment of a purchase contract . the assignment fee originated through our administrative services relationship . revenues during the year ended december 31 , 2020 were further impacted due to the sale of the logan tower property in december 2019 and the plaza 25 property in february 2019 , which decreased overall revenue by $ 1.2 and $ 0.2 million , respectively , for the year ended december 31 , 2020. the remaining properties ' rental and other revenues were relatively unchanged in comparison to the year ended december 31 , 2019. operating expenses total operating expenses . total operating expenses consist of property operating expenses , general and administrative expenses and depreciation and amortization . total operating expenses increased by $ 1.9 million , or 1 % , to $ 129.4 million for the year ended december 31 , 2020 , from $ 127.5 million for the year ended december 31 , 2019. total operating expenses increased by $ 2.8 million , $ 1.2 million and $ 0.8 million , respectively , from the acquisitions of 7601 tech , cascade station and canyon park properties . partially offsetting these increases , total operating expenses decreased by $ 1.2 million , and $ 0.2 million , respectively , due to the sale of the logan tower and plaza 25 properties . operating expenses at our camelback square and 5090 n. 40 th street properties decreased by $ 0.6 million and $ 0.5 million , respectively , due to higher depreciation and amortization expenses as a result of the full depreciation of certain assets during the year ended december 31 , 2019. general and administrative expenses decreased by $ 0.4 million in the year ended december 31 , 2020 primarily due to $ 1.1 million of one-time expenses incurred as a result of the assignment fee income earned during the year ended december 31 , 2019 , which was partially offset by higher payroll and stock-based compensation costs for the year ended december 31 ,

cash flows fiscal 2011 compared to fiscal 2010 as of january 28 , 2012 , we had total cash and cash equivalents of $ 42.0 million , compared with $ 69.2 million as of january 29 , 2011. the most significant factors in the decrease in our cash and cash equivalents position during fiscal 2011 were capital expenditures and purchases of investment securities , partially offset by positive cash flow from operating activities . inventory represented 41.8 % of our total assets as of january 28 , 2012 , compared with 39.6 % as of january 29 , 2011. management 's ability to manage our inventory can have a significant impact on our cash flows from operations during a given interim period or fiscal 22 year . in addition , inventory purchases can be seasonal in nature , such as the purchase of warm-weather or christmas-related merchandise . cash flows provided by operating activities . net cash provided by operating activities was $ 22.1 million in fiscal 2011 compared with $ 24.3 million in fiscal 2010. net loss , adjusted for noncash expenses such as depreciation and amortization , asset impairment , deferred income taxes , loss on disposal of property and equipment , and stock-based compensation expense , provided cash of $ 24.2 million ( compared with $ 44.7 million in fiscal 2010 from net income , adjusted for noncash expenses ) . other significant sources of cash provided by operating activities included an increase in accounts payable , accrued expenses and other long-term liabilities , and accrued compensation . accounts payable increased $ 11.0 million ( compared with $ 5.2 million in fiscal 2010 ) .

44 on july 23 , 2020 , the company sold a land parcel at the circle point property in denver , colorado for $ 6.5 million , resulting in an aggregate gain of $ 1.3 million net of disposal-related costs and taxes paid by our taxable reit subsidiary , which has been classified as net gain on sale of real estate property in the consolidated statements of operations . indebtedness at december 31 , 2020 , we had approximately $ 75.0 million outstanding under the company 's unsecured credit facility ( the “ unsecured credit facility ” ) and a $ 7.0 million letter of credit to satisfy escrow requirements for a mortgage lender . for additional information regarding these mortgage loans , the unsecured credit facility , including the company 's five-year $ 50 million term loan thereunder ( the “ term loan ” ) and the related five-year interest rate swap for a notional amount of $ 50 million to which the company is a party ( the “ interest rate swap ” ) , please refer to “ liquidity and capital resources ” below . revenue base as of december 31 , 2020 , we owned 25 properties comprised of 65 office buildings with a total of approximately 5.8 million square feet of net rentable area ( “ nra ” ) . as of december 31 , 2020 , our properties were approximately 90.5 % leased . office leases historically , most leases for our properties have been on a full-service gross or net lease basis , and we expect to continue to use such leases in the future . a full-service gross lease generally has a base year expense “ stop ” , whereby we pay a stated amount of expenses as part of the rent payment while future increases ( above the base year stop ) in property operating expenses are billed to the tenant based on such tenant 's proportionate square footage in the property . the property operating expenses are reflected in operating expenses ; however , only the increased property operating expenses above the base year stop recovered from tenants are reflected as tenant recoveries in our statements of operations . in a triple net lease , the tenant is typically responsible for all property taxes and operating expenses . as such , the base rent payment does not include any operating expenses , but rather all such expenses are billed to or paid by the tenant . the full amount of the expenses for this lease type is reflected in operating expenses , and the reimbursement is reflected in tenant recoveries . all tenants in the lake vista pointe , 2525 mckinnon , sorrento mesa and canyon park properties have triple net leases . certain tenants at amberglen , superior pointe , florida research park , circle point , the quad , cascade station and denver tech have leases on a triple net basis . we are also a lessor for a fee simple ground lease at the amberglen property . all of our remaining leases are full-service gross leases . factors that may influence our operating results and financial condition covid-19 during the first quarter of 2020 , the world health organization declared the covid-19 outbreak a pandemic . there have been mandates from international , federal , state and local authorities requiring forced closures of businesses and other facilities , and most of the markets in which our buildings are located have been or are subject to some form of pandemic-related restrictions . these forced closures and restrictions have had a material adverse effect on the global economy and the regional u.s. economies in which we operate , including negatively impacting some of our tenants ' ability to pay their rent . all of our buildings are open and continue to operate . we have adopted new policies and procedures to incorporate best practices for the safety of our tenants , our vendors and our employees . however , the usage of 45 our assets in 2020 was significantly lower than normal . usage of our assets in the near future depends on the duration of the pandemic , the implementation of covid-19 vaccines and corporate and individual decisions regarding return to usage of office space , which is impossible to estimate . we continue to closely monitor the impact of the covid-19 pandemic on all aspects of our business and geographies . while we did not experience any significant disruptions during the year ended december 31 , 2020 , as a result of covid-19 or governmental or tenant actions in response thereto , the company granted rent relief to nine tenants comprising approximately 1.1 % of the company 's occupied nra , most often in the form of a rent deferral or rent abatement . subsequent to december 31 , 2020 , the company granted additional rent abatements to four tenants who previously received relief , which combined comprises approximately 0.1 % of the company 's occupied nra and an immaterial amount of rental revenue . although the rent deferrals and rent abatements granted to date did not have a material impact on our rental revenue , the long-term impact of the pandemic on our tenants and the world-wide economy is uncertain and impossible to estimate , and will depend on the scope , severity and duration of the pandemic . we believe that some of the industries most impacted by covid-19 are coworking , retail , restaurant and café , travel and accommodation , live event related and energy . we generally have limited exposure to these industries , with these sectors comprising approximately 3 % of our portfolio by square footage . however , the impact of covid-19 extends to all sectors of the u.s. economy and as such , we expect that tenants outside of these select industries will also face significant challenges . story_separator_special_tag asu 2021-01 clarifies the scope of topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in topic 848. asu 2020-04 and asu 2021-01 can be applied as of the beginning of the interim period that includes march 12 , 2020 , however , the guidance will only be available for optional use through december 31 , 2022. the new standard applies prospectively to contract modifications and hedging relationships and may be elected over time as reference rate reform activities occur . the company has not yet adopted the standard and continues to evaluate the impact of asu 2020-04 and asu 2021-01 on its consolidated financial statements and may elect optional expedients in future periods as reference rate reform activities occur . on april 10 , 2020 , the financial accounting standards board ( the “ fasb ” ) issued a staff q & a to respond to some frequently asked questions about accounting for rent relief related to the effects of the covid-19 pandemic . consequently , for rent relief related to the effects of the covid-19 pandemic , an entity will not be required to analyze each contract to determine whether enforceable rights and obligations for abatements exist in the contract and can elect to apply or not apply the lease modification guidance to those contracts . entities may make the elections for any lessor-provided rent relief related to the effects of the covid-19 pandemic ( e.g . , deferrals of lease payments , reduced future lease payments , etc . ) as long as the rent relief does not result in a substantial increase in the rights of the lessor or the obligations of the lessee . to date , the company granted rent relief to certain tenants , most often in the form of a rent deferral or rent abatement . for rent relief granted that did not result in a substantial increase in the rights of the lessor or the obligations of the lessee , the company elected to not apply the lease modification guidance and instead account for the rent relief as though the enforceable rights and obligations for the relief existed in the original contract . for rent relief granted that resulted in a substantial increase in the rights of the lessor or the obligations of the lessee , the company applied the lease modification guidance to the applicable contracts . results of operations comparison of year ended december 31 , 2020 to year ended december 31 , 2019 rental and other revenues . revenue includes net rental income , including parking , signage and other income , as well as the recovery of operating costs and property taxes from tenants . rental and other revenues increased $ 4.5 million , or 3 % , to $ 160.8 million for the year ended december 31 , 2020 compared to 50 $ 156.3 million for the year ended december 31 , 2019. of this increase , the acquisitions of 7601 tech , cascade station and canyon park contributed increases of $ 4.0 million , $ 1.7 million , and $ 1.3 million , respectively . revenue increased by $ 1.2 million at our dtc crossroads property within the denver tech portfolio and by $ 0.9 million at our sorrento mesa property due to significant leasing transactions during the year , which lifted occupancy and rental income . revenue from the cherry creek property also increased by $ 0.7 million , as it benefited from a lease termination fee payment during the year ended december 31 , 2020. partially offsetting these increases , rental revenue decreased at 190 office center and pima center by $ 0.4 million and $ 0.6 million , respectively , due to a decrease in occupancy during the year ended december 31 , 2020. revenue during the year ended december 31 , 2019 also benefited from a one-time payment of $ 2.6 million received as consideration for the assignment of a purchase contract . the assignment fee originated through our administrative services relationship . revenues during the year ended december 31 , 2020 were further impacted due to the sale of the logan tower property in december 2019 and the plaza 25 property in february 2019 , which decreased overall revenue by $ 1.2 and $ 0.2 million , respectively , for the year ended december 31 , 2020. the remaining properties ' rental and other revenues were relatively unchanged in comparison to the year ended december 31 , 2019. operating expenses total operating expenses . total operating expenses consist of property operating expenses , general and administrative expenses and depreciation and amortization . total operating expenses increased by $ 1.9 million , or 1 % , to $ 129.4 million for the year ended december 31 , 2020 , from $ 127.5 million for the year ended december 31 , 2019. total operating expenses increased by $ 2.8 million , $ 1.2 million and $ 0.8 million , respectively , from the acquisitions of 7601 tech , cascade station and canyon park properties . partially offsetting these increases , total operating expenses decreased by $ 1.2 million , and $ 0.2 million , respectively , due to the sale of the logan tower and plaza 25 properties . operating expenses at our camelback square and 5090 n. 40 th street properties decreased by $ 0.6 million and $ 0.5 million , respectively , due to higher depreciation and amortization expenses as a result of the full depreciation of certain assets during the year ended december 31 , 2019. general and administrative expenses decreased by $ 0.4 million in the year ended december 31 , 2020 primarily due to $ 1.1 million of one-time expenses incurred as a result of the assignment fee income earned during the year ended december 31 , 2019 , which was partially offset by higher payroll and stock-based compensation costs for the year ended december 31 ,

cash flows comparison of period ended december 31 , 2020 to period ended december 31 , 2019 cash , cash equivalents and restricted cash were $ 46.0 million and $ 87.5 million as of december 31 , 2020 and december 31 , 2019 , respectively . cash flow from operating activities . net cash provided by operating activities increased by $ 10.4 million to $ 59.9 million for the year ended december 31 , 2020 compared to $ 49.5 million for the year ended december 31 , 2019. the increase was primarily attributable to increased operating cash flows from acquired properties and changes in working capital . cash flow to investing activities . net cash used in investing activities decreased by $ 54.1 million to $ 27.8 million for the year ended december 31 , 2020 compared to $ 81.9 million for the year ended december 31 , 2019. the decrease in cash used in investing activities was primarily due to no acquisitions of real estate and lower proceeds from the sale of real estate during the year ended december 31 , 2020. cash flow to financing activities . net cash used in financing activities increased by $ 160.5 million to $ 73.7 million for the year ended december 31 , 2020 compared to $ 86.8 million provided by financing activities for the year ended december 31 , 2019. the increase in cash used in financing activities was primarily due to repurchases of our common stock and no proceeds from sale of our common stock for the year ended december 31 , 2020. the increase was partially offset by higher net proceeds from our unsecured credit facility borrowings in 2020 compared to 2019. liquidity and capital resources analysis of liquidity and capital resources we had approximately $ 25.3 million of cash and cash equivalents and $ 20.6 million of restricted cash as of december 31 , 2020 .

below is a brief description of our significant business relationships and collaborations and related license agreements that expand our pipeline and provide us with certain rights to existing and potential new products and technologies . novartis in november 2009 , we entered into a collaboration and license agreement with novartis . under the terms of the agreement , novartis received exclusive development and commercialization rights outside of the united states to our jak inhibitor ruxolitinib and certain back‑up compounds for hematologic and oncology indications , including all hematological malignancies , solid tumors and myeloproliferative diseases . we retained exclusive development and commercialization rights to jakafi ( ruxolitinib ) in the united states and in certain other indications . novartis also received worldwide exclusive development and commercialization rights to our c‑met inhibitor compound capmatinib and certain back‑up compounds in all indications . we retained options to co‑develop and to co‑promote capmatinib in the united states . under this agreement , we received an upfront payment and immediate milestone payment totaling $ 210.0 million and were initially eligible to receive additional payments of up to approximately $ 1.2 billion if defined development and commercialization milestones are achieved . in 2016 , 2015 , and 2014 , we received $ 45.0 million , $ 65.0 million , and $ 92.0 million , respectively , in milestone payments under this agreement . we are also eligible to receive tiered , double‑digit royalties ranging from the upper‑teens to the mid‑twenties on future ruxolitinib net sales outside of the united states , and tiered , worldwide royalties on future capmatinib net sales that range from 12 % to 14 % . in addition , novartis has received reimbursement and pricing approval for ruxolitinib in a specified number of countries , and we are now obligated to pay to novartis tiered royalties in the low single digits on future ruxolitinib net sales within the united states . during the years ended december 31 , 2016 , 2015 and 2014 , such royalties payable to novartis on net sales within the united states totaled $ 36.8 million , $ 24.4 million and $ 2.2 million , respectively , and are reflected in cost of product revenues on the consolidated statements of operations . each company is responsible for costs relating to the development and commercialization of ruxolitinib in its respective territories , with costs of collaborative studies shared equally . novartis is also responsible for all costs relating to the development and commercialization of capmatinib . jakafi is sold outside of the united states by novartis under the name jakavi . for the years ended december 31 , 2016 , 2015 and 2014 , we recorded $ 110.7 million , $ 74.8 million and $ 49.0 million , respectively , of product royalty revenues related to novartis net sales of jakavi . in april 2016 , we amended this agreement to provide that novartis has exclusive research , development and commercialization rights outside of the united states to ruxolitinib ( excluding topical formulations ) in the graft-versus-host-disease ( “ gvhd ” ) field . under this amendment , we received a $ 5.0 million payment in exchange for the development and commercialization rights to ruxolitinib in gvhd outside of the united states and became eligible to receive up to $ 75.0 million of additional potential development and regulatory milestones relating to gvhd . 55 the novartis agreement will continue on a program‑by‑program basis until novartis has no royalty payment obligations with respect to such program or , if earlier , the termination of the agreement or any program in accordance with the terms of the agreement . royalties are payable by novartis on a product‑by‑product and country‑by‑country basis until the latest to occur of ( 1 ) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country , ( 2 ) the expiration of regulatory exclusivity for the licensed product in such country and ( 3 ) a specified period from first commercial sale in such country of the licensed product by novartis or its affiliates or sublicensees . the agreement may be terminated in its entirety or on a program‑by‑program basis by novartis for convenience . the agreement may also be terminated by either party under certain other circumstances , including material breach . lilly in december 2009 , we entered into a license , development and commercialization agreement with lilly . under the terms of the agreement , lilly received exclusive worldwide development and commercialization rights to baricitinib and certain back‑up compounds for inflammatory and autoimmune diseases . we received an initial payment of $ 90.0 million , and were initially eligible to receive additional payments of up to $ 665.0 million based on the achievement of defined development , regulatory and commercialization milestones . in 2016 , we received $ 55.0 million in milestone payments under this agreement . in february 2017 , the european commission approved baricitinib for the treatment of moderate to severe active rheumatoid arthritis in adult patients and we will record a $ 65.0 million regulatory milestone payment in the first quarter of 2017. we are entitled to a $ 100.0 million milestone payment upon regulatory approval of baricitinib for the treatment of adults with moderate to severely active rheumatoid arthritis by the fda , which we expect to occur in 2017. we retained options to co-develop our jak1/jak2 inhibitors with lilly on a compound-by-compound and indication-by-indication basis . lilly is responsible for all costs relating to the development and commercialization of the compounds unless we elect to co-develop any compounds or indications . if we elect to co-develop any compounds and or indications , we would be responsible for funding 30 % of the associated future global development costs from the initiation of a phase iib trial through regulatory approval , including post-launch studies required by a regulatory authority . story_separator_special_tag we received a $ 3.0 million milestone payment from pfizer in 2010 . 59 ariad pharmaceuticals ( luxembourg ) s.a.r.l . acquisition in june 2016 , we completed the acquisition and acquired all of the outstanding shares of ariad pharmaceuticals ( luxembourg ) s.a.r.l . , since renamed incyte biosciences ( luxembourg ) s.à.r.l . , in exchange for an upfront payment of $ 147.5 million , including customary working capital adjustments . we obtained an exclusive license to develop and commercialize iclusig in europe and other select countries . ariad will be eligible to receive from us tiered royalties on net sales of iclusig in our territory and up to $ 135.0 million in potential future oncology development and regulatory approval milestone payments , together with additional milestone payments for non-oncology indications , if approved , in our territory . under our agreement with ariad , we have agreed to fund a portion of the ongoing clinical development of iclusig through cost-sharing payments of up to $ 7.0 million in each of 2016 and 2017. our license agreement with ariad contains a limited buy-back option for the acquirer of ariad to reacquire the rights to iclusig in exchange for repayment to us of our initial purchase price and any milestone payments and development costs previously paid by us to ariad , together with an additional payment based upon the last 12 months of iclusig sales booked by us . we would also be eligible to receive royalties of between 20 % to 25 % from an ariad acquirer on future sales of iclusig in our territory . critical accounting policies and significant estimates the preparation of financial statements requires us to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on‑going basis , we evaluate our estimates . we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances , the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from those estimates under different assumptions or conditions . we believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements : · revenue recognition ; · research and development costs ; · stock compensation ; · convertible debt accounting ; · income taxes ; · business combinations ; and · contingent consideration . revenue recognition . revenues are recognized when ( 1 ) persuasive evidence of an arrangement exists , ( 2 ) delivery has occurred or services have been rendered , ( 3 ) the price is fixed or determinable and ( 4 ) collectability is reasonably assured . revenues are deferred for fees received before earned or until no further obligations exist . we exercise judgment in determining that collectability is reasonably assured or that services have been delivered in accordance with the arrangement . we assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment . we assess collectability based primarily on the customer 's payment history and on the creditworthiness of the customer . 60 product revenues our product revenues consist of u.s. sales of jakafi and european sales of iclusig . product revenues are recognized once we meet all four revenue recognition criteria described above . in november 2011 , we began shipping jakafi to our customers in the u.s. , which include specialty pharmacies and wholesalers . in june 2016 , we acquired the right to and began shipping iclusig to our customers in the european union and certain other jurisdictions , which include retail pharmacies , hospital pharmacies and distributors . we recognize revenues for product received by our customers net of allowances for customer credits , including estimated rebates , chargebacks , discounts , returns , distribution service fees , patient assistance programs , and government rebates , such as medicare part d coverage gap reimbursements in the u.s. product shipping and handling costs are included in cost of product revenues . customer credits : our customers are offered various forms of consideration , including allowances , service fees and prompt payment discounts . we expect our customers will earn prompt payment discounts and , therefore , we deduct the full amount of these discounts from total product sales when revenues are recognized . service fees are also deducted from total product sales as they are earned . rebates and discounts : allowances for rebates include mandated discounts under the medicaid drug rebate program in the u.s. and mandated discounts in europe in markets where government-sponsored healthcare systems are the primary payers for healthcare . rebate amounts are based upon contractual agreements or legal requirements with public sector benefit providers . rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers . the accrual for rebates is based on statutory discount rates and expected utilization as well as historical data we have accumulated since product launch . our estimates for expected utilization of rebates are based on data received from our customers . rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter 's activity , plus an accrual balance for known prior quarters ' unpaid rebates . if actual future rebates vary from estimates , we may need to adjust prior period accruals , which would affect revenue in the period of adjustment . chargebacks : chargebacks are discounts that occur when certain contracted customers , which currently consist primarily

cash flows comparison of period ended december 31 , 2020 to period ended december 31 , 2019 cash , cash equivalents and restricted cash were $ 46.0 million and $ 87.5 million as of december 31 , 2020 and december 31 , 2019 , respectively . cash flow from operating activities . net cash provided by operating activities increased by $ 10.4 million to $ 59.9 million for the year ended december 31 , 2020 compared to $ 49.5 million for the year ended december 31 , 2019. the increase was primarily attributable to increased operating cash flows from acquired properties and changes in working capital . cash flow to investing activities . net cash used in investing activities decreased by $ 54.1 million to $ 27.8 million for the year ended december 31 , 2020 compared to $ 81.9 million for the year ended december 31 , 2019. the decrease in cash used in investing activities was primarily due to no acquisitions of real estate and lower proceeds from the sale of real estate during the year ended december 31 , 2020. cash flow to financing activities . net cash used in financing activities increased by $ 160.5 million to $ 73.7 million for the year ended december 31 , 2020 compared to $ 86.8 million provided by financing activities for the year ended december 31 , 2019. the increase in cash used in financing activities was primarily due to repurchases of our common stock and no proceeds from sale of our common stock for the year ended december 31 , 2020. the increase was partially offset by higher net proceeds from our unsecured credit facility borrowings in 2020 compared to 2019. liquidity and capital resources analysis of liquidity and capital resources we had approximately $ 25.3 million of cash and cash equivalents and $ 20.6 million of restricted cash as of december 31 , 2020 .

below is a brief description of our significant business relationships and collaborations and related license agreements that expand our pipeline and provide us with certain rights to existing and potential new products and technologies . novartis in november 2009 , we entered into a collaboration and license agreement with novartis . under the terms of the agreement , novartis received exclusive development and commercialization rights outside of the united states to our jak inhibitor ruxolitinib and certain back‑up compounds for hematologic and oncology indications , including all hematological malignancies , solid tumors and myeloproliferative diseases . we retained exclusive development and commercialization rights to jakafi ( ruxolitinib ) in the united states and in certain other indications . novartis also received worldwide exclusive development and commercialization rights to our c‑met inhibitor compound capmatinib and certain back‑up compounds in all indications . we retained options to co‑develop and to co‑promote capmatinib in the united states . under this agreement , we received an upfront payment and immediate milestone payment totaling $ 210.0 million and were initially eligible to receive additional payments of up to approximately $ 1.2 billion if defined development and commercialization milestones are achieved . in 2016 , 2015 , and 2014 , we received $ 45.0 million , $ 65.0 million , and $ 92.0 million , respectively , in milestone payments under this agreement . we are also eligible to receive tiered , double‑digit royalties ranging from the upper‑teens to the mid‑twenties on future ruxolitinib net sales outside of the united states , and tiered , worldwide royalties on future capmatinib net sales that range from 12 % to 14 % . in addition , novartis has received reimbursement and pricing approval for ruxolitinib in a specified number of countries , and we are now obligated to pay to novartis tiered royalties in the low single digits on future ruxolitinib net sales within the united states . during the years ended december 31 , 2016 , 2015 and 2014 , such royalties payable to novartis on net sales within the united states totaled $ 36.8 million , $ 24.4 million and $ 2.2 million , respectively , and are reflected in cost of product revenues on the consolidated statements of operations . each company is responsible for costs relating to the development and commercialization of ruxolitinib in its respective territories , with costs of collaborative studies shared equally . novartis is also responsible for all costs relating to the development and commercialization of capmatinib . jakafi is sold outside of the united states by novartis under the name jakavi . for the years ended december 31 , 2016 , 2015 and 2014 , we recorded $ 110.7 million , $ 74.8 million and $ 49.0 million , respectively , of product royalty revenues related to novartis net sales of jakavi . in april 2016 , we amended this agreement to provide that novartis has exclusive research , development and commercialization rights outside of the united states to ruxolitinib ( excluding topical formulations ) in the graft-versus-host-disease ( “ gvhd ” ) field . under this amendment , we received a $ 5.0 million payment in exchange for the development and commercialization rights to ruxolitinib in gvhd outside of the united states and became eligible to receive up to $ 75.0 million of additional potential development and regulatory milestones relating to gvhd . 55 the novartis agreement will continue on a program‑by‑program basis until novartis has no royalty payment obligations with respect to such program or , if earlier , the termination of the agreement or any program in accordance with the terms of the agreement . royalties are payable by novartis on a product‑by‑product and country‑by‑country basis until the latest to occur of ( 1 ) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country , ( 2 ) the expiration of regulatory exclusivity for the licensed product in such country and ( 3 ) a specified period from first commercial sale in such country of the licensed product by novartis or its affiliates or sublicensees . the agreement may be terminated in its entirety or on a program‑by‑program basis by novartis for convenience . the agreement may also be terminated by either party under certain other circumstances , including material breach . lilly in december 2009 , we entered into a license , development and commercialization agreement with lilly . under the terms of the agreement , lilly received exclusive worldwide development and commercialization rights to baricitinib and certain back‑up compounds for inflammatory and autoimmune diseases . we received an initial payment of $ 90.0 million , and were initially eligible to receive additional payments of up to $ 665.0 million based on the achievement of defined development , regulatory and commercialization milestones . in 2016 , we received $ 55.0 million in milestone payments under this agreement . in february 2017 , the european commission approved baricitinib for the treatment of moderate to severe active rheumatoid arthritis in adult patients and we will record a $ 65.0 million regulatory milestone payment in the first quarter of 2017. we are entitled to a $ 100.0 million milestone payment upon regulatory approval of baricitinib for the treatment of adults with moderate to severely active rheumatoid arthritis by the fda , which we expect to occur in 2017. we retained options to co-develop our jak1/jak2 inhibitors with lilly on a compound-by-compound and indication-by-indication basis . lilly is responsible for all costs relating to the development and commercialization of the compounds unless we elect to co-develop any compounds or indications . if we elect to co-develop any compounds and or indications , we would be responsible for funding 30 % of the associated future global development costs from the initiation of a phase iib trial through regulatory approval , including post-launch studies required by a regulatory authority . story_separator_special_tag we received a $ 3.0 million milestone payment from pfizer in 2010 . 59 ariad pharmaceuticals ( luxembourg ) s.a.r.l . acquisition in june 2016 , we completed the acquisition and acquired all of the outstanding shares of ariad pharmaceuticals ( luxembourg ) s.a.r.l . , since renamed incyte biosciences ( luxembourg ) s.à.r.l . , in exchange for an upfront payment of $ 147.5 million , including customary working capital adjustments . we obtained an exclusive license to develop and commercialize iclusig in europe and other select countries . ariad will be eligible to receive from us tiered royalties on net sales of iclusig in our territory and up to $ 135.0 million in potential future oncology development and regulatory approval milestone payments , together with additional milestone payments for non-oncology indications , if approved , in our territory . under our agreement with ariad , we have agreed to fund a portion of the ongoing clinical development of iclusig through cost-sharing payments of up to $ 7.0 million in each of 2016 and 2017. our license agreement with ariad contains a limited buy-back option for the acquirer of ariad to reacquire the rights to iclusig in exchange for repayment to us of our initial purchase price and any milestone payments and development costs previously paid by us to ariad , together with an additional payment based upon the last 12 months of iclusig sales booked by us . we would also be eligible to receive royalties of between 20 % to 25 % from an ariad acquirer on future sales of iclusig in our territory . critical accounting policies and significant estimates the preparation of financial statements requires us to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on‑going basis , we evaluate our estimates . we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances , the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from those estimates under different assumptions or conditions . we believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements : · revenue recognition ; · research and development costs ; · stock compensation ; · convertible debt accounting ; · income taxes ; · business combinations ; and · contingent consideration . revenue recognition . revenues are recognized when ( 1 ) persuasive evidence of an arrangement exists , ( 2 ) delivery has occurred or services have been rendered , ( 3 ) the price is fixed or determinable and ( 4 ) collectability is reasonably assured . revenues are deferred for fees received before earned or until no further obligations exist . we exercise judgment in determining that collectability is reasonably assured or that services have been delivered in accordance with the arrangement . we assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment . we assess collectability based primarily on the customer 's payment history and on the creditworthiness of the customer . 60 product revenues our product revenues consist of u.s. sales of jakafi and european sales of iclusig . product revenues are recognized once we meet all four revenue recognition criteria described above . in november 2011 , we began shipping jakafi to our customers in the u.s. , which include specialty pharmacies and wholesalers . in june 2016 , we acquired the right to and began shipping iclusig to our customers in the european union and certain other jurisdictions , which include retail pharmacies , hospital pharmacies and distributors . we recognize revenues for product received by our customers net of allowances for customer credits , including estimated rebates , chargebacks , discounts , returns , distribution service fees , patient assistance programs , and government rebates , such as medicare part d coverage gap reimbursements in the u.s. product shipping and handling costs are included in cost of product revenues . customer credits : our customers are offered various forms of consideration , including allowances , service fees and prompt payment discounts . we expect our customers will earn prompt payment discounts and , therefore , we deduct the full amount of these discounts from total product sales when revenues are recognized . service fees are also deducted from total product sales as they are earned . rebates and discounts : allowances for rebates include mandated discounts under the medicaid drug rebate program in the u.s. and mandated discounts in europe in markets where government-sponsored healthcare systems are the primary payers for healthcare . rebate amounts are based upon contractual agreements or legal requirements with public sector benefit providers . rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers . the accrual for rebates is based on statutory discount rates and expected utilization as well as historical data we have accumulated since product launch . our estimates for expected utilization of rebates are based on data received from our customers . rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter 's activity , plus an accrual balance for known prior quarters ' unpaid rebates . if actual future rebates vary from estimates , we may need to adjust prior period accruals , which would affect revenue in the period of adjustment . chargebacks : chargebacks are discounts that occur when certain contracted customers , which currently consist primarily

liquidity and capital resources replace_table_token_12_th sources and uses of cash . we had net losses from inception in 1991 through 1996 and in 1999 through december 31 , 2014. because of those losses , we had an accumulated deficit of $ 1.7 billion as of december 31 , 2016. we have funded our research and development operations through sales of equity securities , the issuance of convertible notes , cash received from customers , and collaborative arrangements . at december 31 , 2016 , we had available cash , cash equivalents and marketable securities of $ 808.5 million . our cash and marketable securities balances are held in a variety of interest‑bearing instruments , 73 including money market accounts , corporate debt securities and u.s. government securities . available cash is invested in accordance with our investment policy 's primary objectives of liquidity , safety of principal and diversity of investments . cash provided by operating activities . the $ 218.3 million increase in cash provided by operating activities from 2015 to 2016 was due primarily to net income in 2016 which was driven in part by the recognition of milestones from novartis of $ 45.0 million and eli lilly of $ 55.0 million , increased non‑cash depreciation and amortization and changes in working capital . the $ 60.2 million increase in cash provided by operating activities from 2014 to 2015 was due primarily to net income and changes in working capital . cash used in investing activities . our investing activities , other than purchases , sales and maturities of marketable securities , have consisted predominantly of capital expenditures , cash used to acquire the ariad business and sales and purchases of long‑term investments .

we also intend to seek regional partnerships for the development and commercialization of afrezza in foreign jurisdictions where there are appropriate commercial opportunities . our business is subject to significant risks , including but not limited to our ability to successfully commercialize and manufacture sufficient quantities of arezza and the risks inherent in our ongoing clinical trials and the regulatory approval process for our product candidates . additional significant risks also include the results of our research and development efforts , competition from other products and technologies and uncertainties associated with obtaining and enforcing patent rights . research and development expenses historically our research and development expenses have consisted mainly of costs associated with research and development of our product candidates , including associated clinical trials , and manufacturing process development . this includes the salaries , benefits and stock-based compensation of research and development personnel , raw materials , laboratory supplies and materials , facility costs , costs for consultants and related contract research , licensing fees , and depreciation of equipment . we track research and development costs by the type of cost incurred . we partially offset research and development expenses with the recognition of estimated amounts receivable from the state of connecticut pursuant to a program under which we can exchange qualified research and development income tax credits for cash . 46 our research and development staff conducts our internal research and development activities , which include research , product development , clinical development , manufacturing process development and related activities . this staff is located in our facilities in valencia , california and danbury , connecticut . we expense research and development costs as we incur them . general and administrative expenses our general and administrative expenses are driven by salaries , benefits and stock-based compensation for administrative , finance , business development , human resources , legal and information systems support personnel . in addition , general and administrative expenses include professional service fees and business insurance costs . product manufacturing expenses product manufacturing expenses represent under-absorbed labor and overhead and inventory write-offs , which are expensed in the period in which they are incurred rather than as a portion of the inventory cost . critical accounting policies we have based our discussion and analysis of our financial condition and results of operations 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 amounts of assets , liabilities and expenses . we evaluate our estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making estimates of expenses such as stock option expenses and judgments about the carrying values of assets and liabilities . actual results may differ from these estimates under different assumptions or conditions . the significant accounting policies that are critical to the judgments and estimates used in the preparation of our financial statements are described in more detail below . license and collaboration agreements pursuant to the sanofi license agreement , we granted to sanofi exclusive , worldwide licenses to certain of our patents , trademarks and know-how for the development and commercialization of afrezza . the terms of the sanofi license agreement provide for consideration to us in the form of a non-refundable up-front payment , product sales , manufacturing , regulatory and sales milestone payments and profit and loss sharing . on january 4 , 2016 , we received written notice from sanofi of its election to terminate in its entirety the sanofi license agreement , effective either on april 4 , 2016 or july 4 , 2016 depending on the permitted basis for termination . we analyze consideration received under the provisions of asc 605 , revenue recognition , to determine whether the consideration , or a portion thereof , could be recognized as revenue . asc 605 provides that revenue is recognized when there is persuasive evidence that an arrangement exists , delivery has occurred or services have been rendered , the price is fixed or determinable and collection is reasonably assured . in arrangements involving the delivery of more than one element , each required deliverable is evaluated to determine whether it qualifies as a separate unit of accounting . this determination is generally based on whether the deliverable has “stand-alone value” to the customer . the arrangement 's consideration that is fixed and determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable . the estimated selling price of each deliverable is determined using the following hierarchy of values : ( i ) vendor-specific objective evidence of fair value , ( ii ) third-party evidence of selling price and ( iii ) best estimate of selling price ( besp ) . the besp reflects our best estimate of what the selling price would be if the deliverable was regularly sold by us on a stand-alone basis . in general , the consideration allocated to each unit of accounting is recognized as the related goods or services are delivered , limited to the consideration that is not contingent upon future deliverables . the assessment of multiple element arrangements requires judgment in order to determine the appropriate units of accounting and the points in time that , or periods over which , revenue should be recognized . as of 47 december 31 , 2015 , we did not have the ability to estimate the amount of costs that would potentially be incurred under the loss sharing provision of the sanofi license agreement , and accordingly we believe the fixed and determinable fee requirement for revenue recognition was not met . story_separator_special_tag 51 research and development expenses the following table provides a comparison of the research and development expense categories for the years ended december 31 , 2015 and 2014 ( dollars in thousands ) : replace_table_token_3_th the decrease in research and development expenses of $ 70.6 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 was primarily due to a decrease of $ 36.0 million in manufacturing process development expenses resulting from the shift to commercial production of afrezza of $ 30.8 million and decreased expenses of $ 0.7 million following the completion of restructuring activities in early 2015. the decrease is also attributable to a $ 19.3 million decrease in stock-based compensation expense compared to 2014 as a result of a non-recurring modification of the settlement terms ( the “modification” ) of certain performance-based restricted stock units and the achievement of performance-based grants in 2014 and the first quarter of 2015. the modification resulted in the reclassification of these performance grants from equity awards to liability awards , which required re-measurement on the modification date and resulted in incremental stock-based compensation expense . further , the reductions in research and development expenses was also driven by a decrease in clinical trial related expenses of $ 16.0 million primarily resulting from the completion of the affinity trials of $ 11.1 million and decreased personnel costs related to restructuring of $ 9.0 million . we anticipate that our overall research and development expenses will decrease in 2016 compared to 2015 due to the focus on the transition of the afrezza rights in 2016 and minimal incremental cost associated with our development pipeline . general and administrative expenses the following table provides a comparison of the general and administrative expense categories for the years ended december 31 , 2015 and 2014 ( dollars in thousands ) : replace_table_token_4_th the decrease in general and administrative expenses of $ 38.4 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 was primarily due to decreased stock-based compensation expense of $ 20.6 million , resulting from the modification and achievement of performance-based grants in 2014 and the first quarter of 2015 , as described above . additionally , the decrease is also attributable to professional fees of $ 13.8 million related to the sanofi license agreement incurred in the third quarter of 2014 and decreased expenses of $ 3.2 million following the completion of restructuring activities and decreased personnel costs in early 2015. we expect general and administrative expenses to remain relatively flat in 2016 as compared to 2015 due to restructuring measures in 2015 offset by an increase in professional fees related to the sanofi termination . we expect to have sales and marketing expenses in 2016 due to termination of the sanofi license agreement and the transition of sales and marketing efforts to us in 2016 . 52 product manufacturing expenses product manufacturing expenses were $ 67.4 million for the year ended december 31 , 2015 , resulting from product manufacturing costs associated with afrezza product sales , which can not be capitalized due to excess capacity . we had no product manufacturing expense for the year ended december 31 , 2014 , as pre-commercial manufacturing costs associated with afrezza were accounted for as research and development expenses . product manufacturing expenses represent under-absorbed labor and overhead of $ 21.4 million and inventory write-offs of 36.1 million , which are expensed in the period in which they are incurred . although the sanofi license agreement will terminate in the second quarter of 2016 , we expect our 2016 production of afrezza to be relatively consistent with production levels in 2015 , primarily as a result of existing customer demand . with the exception of the inventory write-off , we expect product manufacturing expense to remain relatively flat in 2016 compared to 2015. property and equipment impairment property and equipment impairment increased $ 140.4 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the property and equipment impairment was to reduce the carrying amount of our real property and machinery and equipment to fair value based on our impairment assessment in the fourth quarter of 2015. loss on purchase commitments loss on purchase commitments increased $ 66.2 million for the year ended december 31 , 2015 compared to the year end 2014. the loss on purchase commitments was related to the loss on future purchase commitments resulting from our assessment of excess inventory as a result of lower than expected sales of afrezza as well as a lower of cost or market adjustment due to estimated conversion costs in excess of our estimated selling price of afrezza . other income ( expense ) other income for the year ended december 31 , 2015 was $ 1.4 million resulting from the relief of an accrual for potential expenses associated with the sale of intellectual property related to oncology in 2014 , which was subsequently resolved without payment in the first quarter of 2015. for the year ended december 31 , 2014 , other income was $ 1.7 million resulting from the sale of intellectual property related to oncology in the third quarter of 2014 in the amount of $ 7.9 million , partially offset by a $ 6.4 million non-cash charge recognized upon the conversion of 2019 notes into equity . story_separator_special_tag principal amount of 2019 notes bearing interest at 9.75 % per annum , $ 5.0 million of which is due and payable in july 2016 , $ 15.0 million of which is due and payable in july 2017 , $ 15.0 million of which is due and payable in july 2018 and $ 25.0 million of which is due and payable in july and december 2019 ; $ 20.0 million principal amount of tranche b notes bearing interest at 8.75 % per annum , $ 5.0 million of

liquidity and capital resources replace_table_token_12_th sources and uses of cash . we had net losses from inception in 1991 through 1996 and in 1999 through december 31 , 2014. because of those losses , we had an accumulated deficit of $ 1.7 billion as of december 31 , 2016. we have funded our research and development operations through sales of equity securities , the issuance of convertible notes , cash received from customers , and collaborative arrangements . at december 31 , 2016 , we had available cash , cash equivalents and marketable securities of $ 808.5 million . our cash and marketable securities balances are held in a variety of interest‑bearing instruments , 73 including money market accounts , corporate debt securities and u.s. government securities . available cash is invested in accordance with our investment policy 's primary objectives of liquidity , safety of principal and diversity of investments . cash provided by operating activities . the $ 218.3 million increase in cash provided by operating activities from 2015 to 2016 was due primarily to net income in 2016 which was driven in part by the recognition of milestones from novartis of $ 45.0 million and eli lilly of $ 55.0 million , increased non‑cash depreciation and amortization and changes in working capital . the $ 60.2 million increase in cash provided by operating activities from 2014 to 2015 was due primarily to net income and changes in working capital . cash used in investing activities . our investing activities , other than purchases , sales and maturities of marketable securities , have consisted predominantly of capital expenditures , cash used to acquire the ariad business and sales and purchases of long‑term investments .

we also intend to seek regional partnerships for the development and commercialization of afrezza in foreign jurisdictions where there are appropriate commercial opportunities . our business is subject to significant risks , including but not limited to our ability to successfully commercialize and manufacture sufficient quantities of arezza and the risks inherent in our ongoing clinical trials and the regulatory approval process for our product candidates . additional significant risks also include the results of our research and development efforts , competition from other products and technologies and uncertainties associated with obtaining and enforcing patent rights . research and development expenses historically our research and development expenses have consisted mainly of costs associated with research and development of our product candidates , including associated clinical trials , and manufacturing process development . this includes the salaries , benefits and stock-based compensation of research and development personnel , raw materials , laboratory supplies and materials , facility costs , costs for consultants and related contract research , licensing fees , and depreciation of equipment . we track research and development costs by the type of cost incurred . we partially offset research and development expenses with the recognition of estimated amounts receivable from the state of connecticut pursuant to a program under which we can exchange qualified research and development income tax credits for cash . 46 our research and development staff conducts our internal research and development activities , which include research , product development , clinical development , manufacturing process development and related activities . this staff is located in our facilities in valencia , california and danbury , connecticut . we expense research and development costs as we incur them . general and administrative expenses our general and administrative expenses are driven by salaries , benefits and stock-based compensation for administrative , finance , business development , human resources , legal and information systems support personnel . in addition , general and administrative expenses include professional service fees and business insurance costs . product manufacturing expenses product manufacturing expenses represent under-absorbed labor and overhead and inventory write-offs , which are expensed in the period in which they are incurred rather than as a portion of the inventory cost . critical accounting policies we have based our discussion and analysis of our financial condition and results of operations 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 amounts of assets , liabilities and expenses . we evaluate our estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making estimates of expenses such as stock option expenses and judgments about the carrying values of assets and liabilities . actual results may differ from these estimates under different assumptions or conditions . the significant accounting policies that are critical to the judgments and estimates used in the preparation of our financial statements are described in more detail below . license and collaboration agreements pursuant to the sanofi license agreement , we granted to sanofi exclusive , worldwide licenses to certain of our patents , trademarks and know-how for the development and commercialization of afrezza . the terms of the sanofi license agreement provide for consideration to us in the form of a non-refundable up-front payment , product sales , manufacturing , regulatory and sales milestone payments and profit and loss sharing . on january 4 , 2016 , we received written notice from sanofi of its election to terminate in its entirety the sanofi license agreement , effective either on april 4 , 2016 or july 4 , 2016 depending on the permitted basis for termination . we analyze consideration received under the provisions of asc 605 , revenue recognition , to determine whether the consideration , or a portion thereof , could be recognized as revenue . asc 605 provides that revenue is recognized when there is persuasive evidence that an arrangement exists , delivery has occurred or services have been rendered , the price is fixed or determinable and collection is reasonably assured . in arrangements involving the delivery of more than one element , each required deliverable is evaluated to determine whether it qualifies as a separate unit of accounting . this determination is generally based on whether the deliverable has “stand-alone value” to the customer . the arrangement 's consideration that is fixed and determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable . the estimated selling price of each deliverable is determined using the following hierarchy of values : ( i ) vendor-specific objective evidence of fair value , ( ii ) third-party evidence of selling price and ( iii ) best estimate of selling price ( besp ) . the besp reflects our best estimate of what the selling price would be if the deliverable was regularly sold by us on a stand-alone basis . in general , the consideration allocated to each unit of accounting is recognized as the related goods or services are delivered , limited to the consideration that is not contingent upon future deliverables . the assessment of multiple element arrangements requires judgment in order to determine the appropriate units of accounting and the points in time that , or periods over which , revenue should be recognized . as of 47 december 31 , 2015 , we did not have the ability to estimate the amount of costs that would potentially be incurred under the loss sharing provision of the sanofi license agreement , and accordingly we believe the fixed and determinable fee requirement for revenue recognition was not met . story_separator_special_tag 51 research and development expenses the following table provides a comparison of the research and development expense categories for the years ended december 31 , 2015 and 2014 ( dollars in thousands ) : replace_table_token_3_th the decrease in research and development expenses of $ 70.6 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 was primarily due to a decrease of $ 36.0 million in manufacturing process development expenses resulting from the shift to commercial production of afrezza of $ 30.8 million and decreased expenses of $ 0.7 million following the completion of restructuring activities in early 2015. the decrease is also attributable to a $ 19.3 million decrease in stock-based compensation expense compared to 2014 as a result of a non-recurring modification of the settlement terms ( the “modification” ) of certain performance-based restricted stock units and the achievement of performance-based grants in 2014 and the first quarter of 2015. the modification resulted in the reclassification of these performance grants from equity awards to liability awards , which required re-measurement on the modification date and resulted in incremental stock-based compensation expense . further , the reductions in research and development expenses was also driven by a decrease in clinical trial related expenses of $ 16.0 million primarily resulting from the completion of the affinity trials of $ 11.1 million and decreased personnel costs related to restructuring of $ 9.0 million . we anticipate that our overall research and development expenses will decrease in 2016 compared to 2015 due to the focus on the transition of the afrezza rights in 2016 and minimal incremental cost associated with our development pipeline . general and administrative expenses the following table provides a comparison of the general and administrative expense categories for the years ended december 31 , 2015 and 2014 ( dollars in thousands ) : replace_table_token_4_th the decrease in general and administrative expenses of $ 38.4 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 was primarily due to decreased stock-based compensation expense of $ 20.6 million , resulting from the modification and achievement of performance-based grants in 2014 and the first quarter of 2015 , as described above . additionally , the decrease is also attributable to professional fees of $ 13.8 million related to the sanofi license agreement incurred in the third quarter of 2014 and decreased expenses of $ 3.2 million following the completion of restructuring activities and decreased personnel costs in early 2015. we expect general and administrative expenses to remain relatively flat in 2016 as compared to 2015 due to restructuring measures in 2015 offset by an increase in professional fees related to the sanofi termination . we expect to have sales and marketing expenses in 2016 due to termination of the sanofi license agreement and the transition of sales and marketing efforts to us in 2016 . 52 product manufacturing expenses product manufacturing expenses were $ 67.4 million for the year ended december 31 , 2015 , resulting from product manufacturing costs associated with afrezza product sales , which can not be capitalized due to excess capacity . we had no product manufacturing expense for the year ended december 31 , 2014 , as pre-commercial manufacturing costs associated with afrezza were accounted for as research and development expenses . product manufacturing expenses represent under-absorbed labor and overhead of $ 21.4 million and inventory write-offs of 36.1 million , which are expensed in the period in which they are incurred . although the sanofi license agreement will terminate in the second quarter of 2016 , we expect our 2016 production of afrezza to be relatively consistent with production levels in 2015 , primarily as a result of existing customer demand . with the exception of the inventory write-off , we expect product manufacturing expense to remain relatively flat in 2016 compared to 2015. property and equipment impairment property and equipment impairment increased $ 140.4 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the property and equipment impairment was to reduce the carrying amount of our real property and machinery and equipment to fair value based on our impairment assessment in the fourth quarter of 2015. loss on purchase commitments loss on purchase commitments increased $ 66.2 million for the year ended december 31 , 2015 compared to the year end 2014. the loss on purchase commitments was related to the loss on future purchase commitments resulting from our assessment of excess inventory as a result of lower than expected sales of afrezza as well as a lower of cost or market adjustment due to estimated conversion costs in excess of our estimated selling price of afrezza . other income ( expense ) other income for the year ended december 31 , 2015 was $ 1.4 million resulting from the relief of an accrual for potential expenses associated with the sale of intellectual property related to oncology in 2014 , which was subsequently resolved without payment in the first quarter of 2015. for the year ended december 31 , 2014 , other income was $ 1.7 million resulting from the sale of intellectual property related to oncology in the third quarter of 2014 in the amount of $ 7.9 million , partially offset by a $ 6.4 million non-cash charge recognized upon the conversion of 2019 notes into equity . story_separator_special_tag principal amount of 2019 notes bearing interest at 9.75 % per annum , $ 5.0 million of which is due and payable in july 2016 , $ 15.0 million of which is due and payable in july 2017 , $ 15.0 million of which is due and payable in july 2018 and $ 25.0 million of which is due and payable in july and december 2019 ; $ 20.0 million principal amount of tranche b notes bearing interest at 8.75 % per annum , $ 5.0 million of

loss on extinguishment of debt loss on extinguishment of debt increased $ 1.0 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the loss on extinguishment is due to the settlement of the 2015 notes through payment of cash and issuance of new debt . interest income and expense interest expense increased $ 3.7 million from $ 20.4 million for the year ended december 31 , 2014 to $ 24.1 million for the year ended december 31 , 2015. the increase was primarily due to $ 5.8 million interest expense associated with the milestone payment resulting from the achievement and re-measurement of the second milestone under the milestone agreement in the first quarter of 2015 compared to the $ 1.9 million interest expense from the payment of the first milestone in 2014. the increase was also due to an increase of $ 1.7 million related to the sanofi loan facility and $ 0.8 million in interest for 2018 notes , which was offset by a decrease in interest expense of $ 2.7 million resulting from the maturity of 2015 notes . years ended december 31 , 2014 and 2013 revenues during the years ended december 31 , 2014 and 2013 , we did not recognize any revenue .

limitations on the effectiveness of internal controls our management , including our chief executive officer and our chief financial officer , does not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors or all fraud . any control system , no matter how well designed and operated , can provide only reasonable , not absolute , assurance that the control system 's objectives will be met . the design of a control system must reflect the fact that there are resource constraints , and the benefits of controls must be considered relative to their costs . further , because of the inherent limitations in all control systems , no evaluation of controls can provide absolute assurance that misstatements , due to error or fraud will not occur or that all control issues and instances of fraud , if any , within the company have been detected . these inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns may occur because of simple error or mistake . controls can also be circumvented by the individual acts of some persons , by collusion of two or more people , or by management override of controls . the design of any system of controls is based in part on certain assumptions about the likelihood of future events , and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions . projections of any evaluation of controls effectiveness to future periods are subject to risk . item 9b . other information none 11 part iii item 10. directors , executive officers and corporate governance the following information sets forth the names , ages , and positions of our current directors and executive officers as of december 31 , 2013. name age position ( s ) and office ( s ) held david lester 56 chief operating officer , secretary , treasurer and director david a. harrell 48 chairman , chief executive officer , chief strategic officer and director terence j. hamilton 48 director and vp of sales set forth below is a brief description of the background and business experience of each of our current executive officers and directors . david lester mr. lester is a business veteran whom has accumulated over thirty years of executive experience in the areas of business , marketing , sales , operations , technology , and leadership . prior to accepting his new role with us , mr. lester held the title of director , consumer & industrial products marketing for deloitte llp . during his tenure at deloitte , he established deloitte as a leader through innovative programs and strategic partnerships . prior to deloitte , he worked with sun microsystems as director , industry strategy & marketing , and manufacturing industries . david lester has worked with governor tommy thompson , former secretary of health & human services , on health care reform and cost control ; partnered with governor tom ridge , former head of homeland security on defending cyber security initiatives ; and as a active participant within the national association of manufacturers and the manufacturing institute worked with former michigan governor john engler , now president of the national association of manufacturers , on challenges inhibiting the competitiveness of manufacturers like health care reform , trade policy , renewable energy , business tax reform , and sustainability . david a. harrell mr. harrell founded the company in january of 2006 and has served as our president and chief executive officer . he became a director when the company changed from a limited liability to a corporation in 2007. mr. harrell was the vice story_separator_special_tag forward-looking statements certain statements , other than purely historical information , including estimates , projections , statements relating to our business plans , objectives , and expected operating results , and the assumptions upon which those statements are based , are “ forward-looking statements . ” these forward-looking statements generally are identified by the words “ believes , ” “ project , ” “ expects , ” “ anticipates , ” “ estimates , ” “ intends , ” “ strategy , ” “ plan , ” “ may , ” “ will , ” “ would , ” “ will be , ” “ will continue , ” “ will likely result , ” and similar expressions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements . our ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include , but are not limited to : changes in economic conditions , legislative/regulatory changes , availability of capital , interest rates , competition , and generally accepted accounting principles . these risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . results of operations for the years ended december 31 , 2013 and 2012 revenues our total revenue reported for year ended december 31 , 2013 was $ 4,957,016 , an increase from $ 1,989,086 from the prior year . our increased revenue for the year ended december 31 , 2013 as compared with the prior year is a result of the continued viability of our samplemd solution and the setup and integration fees for pharmaceutical manufacturers whom are participating within this offering . the bulk of our revenue for the year ended december 31 , 2013 came mainly from our core samplemd solutions as opposed to our new consulting business . we expect revenues to increase on our consulting business for 2014. operating expenses operating expenses increased to $ story_separator_special_tag limitations on the effectiveness of internal controls our management , including our chief executive officer and our chief financial officer , does not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors or all fraud . any control system , no matter how well designed and operated , can provide only reasonable , not absolute , assurance that the control system 's objectives will be met . the design of a control system must reflect the fact that there are resource constraints , and the benefits of controls must be considered relative to their costs . further , because of the inherent limitations in all control systems , no evaluation of controls can provide absolute assurance that misstatements , due to error or fraud will not occur or that all control issues and instances of fraud , if any , within the company have been detected . these inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns may occur because of simple error or mistake . controls can also be circumvented by the individual acts of some persons , by collusion of two or more people , or by management override of controls . the design of any system of controls is based in part on certain assumptions about the likelihood of future events , and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions . projections of any evaluation of controls effectiveness to future periods are subject to risk . item 9b . other information none 11 part iii item 10. directors , executive officers and corporate governance the following information sets forth the names , ages , and positions of our current directors and executive officers as of december 31 , 2013. name age position ( s ) and office ( s ) held david lester 56 chief operating officer , secretary , treasurer and director david a. harrell 48 chairman , chief executive officer , chief strategic officer and director terence j. hamilton 48 director and vp of sales set forth below is a brief description of the background and business experience of each of our current executive officers and directors . david lester mr. lester is a business veteran whom has accumulated over thirty years of executive experience in the areas of business , marketing , sales , operations , technology , and leadership . prior to accepting his new role with us , mr. lester held the title of director , consumer & industrial products marketing for deloitte llp . during his tenure at deloitte , he established deloitte as a leader through innovative programs and strategic partnerships . prior to deloitte , he worked with sun microsystems as director , industry strategy & marketing , and manufacturing industries . david lester has worked with governor tommy thompson , former secretary of health & human services , on health care reform and cost control ; partnered with governor tom ridge , former head of homeland security on defending cyber security initiatives ; and as a active participant within the national association of manufacturers and the manufacturing institute worked with former michigan governor john engler , now president of the national association of manufacturers , on challenges inhibiting the competitiveness of manufacturers like health care reform , trade policy , renewable energy , business tax reform , and sustainability . david a. harrell mr. harrell founded the company in january of 2006 and has served as our president and chief executive officer . he became a director when the company changed from a limited liability to a corporation in 2007. mr. harrell was the vice story_separator_special_tag forward-looking statements certain statements , other than purely historical information , including estimates , projections , statements relating to our business plans , objectives , and expected operating results , and the assumptions upon which those statements are based , are “ forward-looking statements . ” these forward-looking statements generally are identified by the words “ believes , ” “ project , ” “ expects , ” “ anticipates , ” “ estimates , ” “ intends , ” “ strategy , ” “ plan , ” “ may , ” “ will , ” “ would , ” “ will be , ” “ will continue , ” “ will likely result , ” and similar expressions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements . our ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include , but are not limited to : changes in economic conditions , legislative/regulatory changes , availability of capital , interest rates , competition , and generally accepted accounting principles . these risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . results of operations for the years ended december 31 , 2013 and 2012 revenues our total revenue reported for year ended december 31 , 2013 was $ 4,957,016 , an increase from $ 1,989,086 from the prior year . our increased revenue for the year ended december 31 , 2013 as compared with the prior year is a result of the continued viability of our samplemd solution and the setup and integration fees for pharmaceutical manufacturers whom are participating within this offering . the bulk of our revenue for the year ended december 31 , 2013 came mainly from our core samplemd solutions as opposed to our new consulting business . we expect revenues to increase on our consulting business for 2014. operating expenses operating expenses increased to $

loss on extinguishment of debt loss on extinguishment of debt increased $ 1.0 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the loss on extinguishment is due to the settlement of the 2015 notes through payment of cash and issuance of new debt . interest income and expense interest expense increased $ 3.7 million from $ 20.4 million for the year ended december 31 , 2014 to $ 24.1 million for the year ended december 31 , 2015. the increase was primarily due to $ 5.8 million interest expense associated with the milestone payment resulting from the achievement and re-measurement of the second milestone under the milestone agreement in the first quarter of 2015 compared to the $ 1.9 million interest expense from the payment of the first milestone in 2014. the increase was also due to an increase of $ 1.7 million related to the sanofi loan facility and $ 0.8 million in interest for 2018 notes , which was offset by a decrease in interest expense of $ 2.7 million resulting from the maturity of 2015 notes . years ended december 31 , 2014 and 2013 revenues during the years ended december 31 , 2014 and 2013 , we did not recognize any revenue .

limitations on the effectiveness of internal controls our management , including our chief executive officer and our chief financial officer , does not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors or all fraud . any control system , no matter how well designed and operated , can provide only reasonable , not absolute , assurance that the control system 's objectives will be met . the design of a control system must reflect the fact that there are resource constraints , and the benefits of controls must be considered relative to their costs . further , because of the inherent limitations in all control systems , no evaluation of controls can provide absolute assurance that misstatements , due to error or fraud will not occur or that all control issues and instances of fraud , if any , within the company have been detected . these inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns may occur because of simple error or mistake . controls can also be circumvented by the individual acts of some persons , by collusion of two or more people , or by management override of controls . the design of any system of controls is based in part on certain assumptions about the likelihood of future events , and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions . projections of any evaluation of controls effectiveness to future periods are subject to risk . item 9b . other information none 11 part iii item 10. directors , executive officers and corporate governance the following information sets forth the names , ages , and positions of our current directors and executive officers as of december 31 , 2013. name age position ( s ) and office ( s ) held david lester 56 chief operating officer , secretary , treasurer and director david a. harrell 48 chairman , chief executive officer , chief strategic officer and director terence j. hamilton 48 director and vp of sales set forth below is a brief description of the background and business experience of each of our current executive officers and directors . david lester mr. lester is a business veteran whom has accumulated over thirty years of executive experience in the areas of business , marketing , sales , operations , technology , and leadership . prior to accepting his new role with us , mr. lester held the title of director , consumer & industrial products marketing for deloitte llp . during his tenure at deloitte , he established deloitte as a leader through innovative programs and strategic partnerships . prior to deloitte , he worked with sun microsystems as director , industry strategy & marketing , and manufacturing industries . david lester has worked with governor tommy thompson , former secretary of health & human services , on health care reform and cost control ; partnered with governor tom ridge , former head of homeland security on defending cyber security initiatives ; and as a active participant within the national association of manufacturers and the manufacturing institute worked with former michigan governor john engler , now president of the national association of manufacturers , on challenges inhibiting the competitiveness of manufacturers like health care reform , trade policy , renewable energy , business tax reform , and sustainability . david a. harrell mr. harrell founded the company in january of 2006 and has served as our president and chief executive officer . he became a director when the company changed from a limited liability to a corporation in 2007. mr. harrell was the vice story_separator_special_tag forward-looking statements certain statements , other than purely historical information , including estimates , projections , statements relating to our business plans , objectives , and expected operating results , and the assumptions upon which those statements are based , are “ forward-looking statements . ” these forward-looking statements generally are identified by the words “ believes , ” “ project , ” “ expects , ” “ anticipates , ” “ estimates , ” “ intends , ” “ strategy , ” “ plan , ” “ may , ” “ will , ” “ would , ” “ will be , ” “ will continue , ” “ will likely result , ” and similar expressions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements . our ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include , but are not limited to : changes in economic conditions , legislative/regulatory changes , availability of capital , interest rates , competition , and generally accepted accounting principles . these risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . results of operations for the years ended december 31 , 2013 and 2012 revenues our total revenue reported for year ended december 31 , 2013 was $ 4,957,016 , an increase from $ 1,989,086 from the prior year . our increased revenue for the year ended december 31 , 2013 as compared with the prior year is a result of the continued viability of our samplemd solution and the setup and integration fees for pharmaceutical manufacturers whom are participating within this offering . the bulk of our revenue for the year ended december 31 , 2013 came mainly from our core samplemd solutions as opposed to our new consulting business . we expect revenues to increase on our consulting business for 2014. operating expenses operating expenses increased to $ story_separator_special_tag limitations on the effectiveness of internal controls our management , including our chief executive officer and our chief financial officer , does not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors or all fraud . any control system , no matter how well designed and operated , can provide only reasonable , not absolute , assurance that the control system 's objectives will be met . the design of a control system must reflect the fact that there are resource constraints , and the benefits of controls must be considered relative to their costs . further , because of the inherent limitations in all control systems , no evaluation of controls can provide absolute assurance that misstatements , due to error or fraud will not occur or that all control issues and instances of fraud , if any , within the company have been detected . these inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns may occur because of simple error or mistake . controls can also be circumvented by the individual acts of some persons , by collusion of two or more people , or by management override of controls . the design of any system of controls is based in part on certain assumptions about the likelihood of future events , and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions . projections of any evaluation of controls effectiveness to future periods are subject to risk . item 9b . other information none 11 part iii item 10. directors , executive officers and corporate governance the following information sets forth the names , ages , and positions of our current directors and executive officers as of december 31 , 2013. name age position ( s ) and office ( s ) held david lester 56 chief operating officer , secretary , treasurer and director david a. harrell 48 chairman , chief executive officer , chief strategic officer and director terence j. hamilton 48 director and vp of sales set forth below is a brief description of the background and business experience of each of our current executive officers and directors . david lester mr. lester is a business veteran whom has accumulated over thirty years of executive experience in the areas of business , marketing , sales , operations , technology , and leadership . prior to accepting his new role with us , mr. lester held the title of director , consumer & industrial products marketing for deloitte llp . during his tenure at deloitte , he established deloitte as a leader through innovative programs and strategic partnerships . prior to deloitte , he worked with sun microsystems as director , industry strategy & marketing , and manufacturing industries . david lester has worked with governor tommy thompson , former secretary of health & human services , on health care reform and cost control ; partnered with governor tom ridge , former head of homeland security on defending cyber security initiatives ; and as a active participant within the national association of manufacturers and the manufacturing institute worked with former michigan governor john engler , now president of the national association of manufacturers , on challenges inhibiting the competitiveness of manufacturers like health care reform , trade policy , renewable energy , business tax reform , and sustainability . david a. harrell mr. harrell founded the company in january of 2006 and has served as our president and chief executive officer . he became a director when the company changed from a limited liability to a corporation in 2007. mr. harrell was the vice story_separator_special_tag forward-looking statements certain statements , other than purely historical information , including estimates , projections , statements relating to our business plans , objectives , and expected operating results , and the assumptions upon which those statements are based , are “ forward-looking statements . ” these forward-looking statements generally are identified by the words “ believes , ” “ project , ” “ expects , ” “ anticipates , ” “ estimates , ” “ intends , ” “ strategy , ” “ plan , ” “ may , ” “ will , ” “ would , ” “ will be , ” “ will continue , ” “ will likely result , ” and similar expressions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements . our ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include , but are not limited to : changes in economic conditions , legislative/regulatory changes , availability of capital , interest rates , competition , and generally accepted accounting principles . these risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . results of operations for the years ended december 31 , 2013 and 2012 revenues our total revenue reported for year ended december 31 , 2013 was $ 4,957,016 , an increase from $ 1,989,086 from the prior year . our increased revenue for the year ended december 31 , 2013 as compared with the prior year is a result of the continued viability of our samplemd solution and the setup and integration fees for pharmaceutical manufacturers whom are participating within this offering . the bulk of our revenue for the year ended december 31 , 2013 came mainly from our core samplemd solutions as opposed to our new consulting business . we expect revenues to increase on our consulting business for 2014. operating expenses operating expenses increased to $

liquidity and capital resources as of december 31 , 2013 , we had total current assets of $ 2,696,978 and total assets in the amount of $ 4,008,020. our total current liabilities as of december 31 , 2013 were $ 1,968,652. we had working capital of $ 728,326 as of december 31 , 2013. operating activities provided $ 1,132,628 in cash for the year ended december 31 , 2013. our revenue share payable of $ 1,103,084 , stock-based compensation of $ 399,092 , net income of $ 215,847 and depreciation and amortization of $ 193,791 were the primary components of our positive operating cash flow , offset mainly by accounts receivable of $ 950,166. investing activities used $ 298,648 during the year ended december 31 , 2013 largely as a result of patent rights and website development costs . on march 17 , 2014 , we entered into a securities purchase agreement with accredited investors pursuant to which we sold an aggregate of 8,333,333 shares of our common stock , par value $ 0.001 per share , for $ 1.20 per share , or gross proceeds of $ 10,000,000. we used $ 6,000,000 of the proceeds to exercise our optionto redeem vicis capital master fund 's holdings in our company .

we have received gross proceeds of $ 226.0 million from public equity offerings of our common stock ( including our june 2018 initial public offering ( `` ipo `` ) and our february 2019 , february 2020 and june 2020 offerings ) , $ 104.9 million from sales of our preferred stock , $ 86.3 million from our june 2020 convertible notes offering and $ 60.0 million from the amended and restated loan and security agreement ( as amended , the `` amended loan agreement `` ) , of which $ 20 million was repaid in june 2020. in august 2019 , we filed a shelf registration statement on form s-3 with the u.s. securities and exchange commission ( `` sec `` ) , which covers the offering , issuance and sale by us of up to an aggregate of $ 250.0 million of our common stock , preferred stock , debt securities , warrants and or units , which we refer to as the `` shelf `` . we simultaneously entered into a sales agreement with jefferies llc , as sales agent , to provide for the offering , issuance and sale by us of up to $ 50.0 million of our common stock from time to time in at-the-market offerings under the shelf . 90 in february 2020 , we completed an equity offering and sold 10,299,769 shares of common stock , including 1,299,769 shares pursuant to the underwriters ' option to purchase additional shares of common stock . net proceeds from the offering were $ 39.9 million . in june 2020 , we completed a public notes offering and sold $ 86.3 million aggregate principal amount of 5.00 % convertible senior notes , including $ 11.3 million pursuant to the underwriters ' option to purchase additional notes which was exercised in full in july 2020. concurrent with the public notes offering , in june 2020 we completed an equity offering and sold 8,510,000 shares of common stock , including 1,110,000 shares pursuant to the underwriters ' option to purchase additional shares of common stock which also was exercised in full in july 2020. gross proceeds from the equity offering were $ 23.1 million . net proceeds from both june 2020 offerings were $ 102.8 million . there currently remains $ 96.1 million available for future offerings under the shelf . during the second half of 2020 , $ 39.1 million in principal amount of convertible notes were converted into 13,171,791 shares of the company 's common stock . as of december 31 , 2020 , the outstanding balance of convertible notes was $ 47.2 million . in october 2020 , we entered into a fourth amendment to the amended loan agreement , which provided for an additional $ 3.5 million term loan which was drawn in november 2020. as of december 31 , 2020 , the outstanding balance under the amended loan agreement was $ 43.5 million . for the years ended december 31 , 2020 and 2019 , we reported net losses of $ 91.1 million and $ 125.6 million , respectively . we have not been profitable since inception , and , as of december 31 , 2020 , our accumulated deficit was $ 337.4 million . in the near term , we expect to continue to incur significant expenses , operating losses and net losses as we : < continue our marketing and selling efforts related to commercialization of gvoke ; < continue our research and development efforts ; < seek regulatory approval for new product candidates and product enhancements ; and < continue to operate as a public company . we began our field launch of gvoke in january 2020 and have not yet generated significant product revenue from sales of gvoke . we may continue to seek public equity and debt financing to meet our capital requirements . there can be no assurance that such funding may be available to us on acceptable terms , or at all , or that we will be able to commercialize our product candidates , if approved . in addition , we may not be profitable even if we commercialize any of our product candidates . impact of covid-19 the current novel coronavirus ( “ covid-19 ” ) pandemic has presented a substantial public health and economic challenge around the world and has impacted our business operations , employees , patients and communities as well as the global economy and financial markets . the covid-19 pandemic continues to evolve and to date has led to the implementation of various responses , including government-imposed quarantines , stay-at-home orders , travel restrictions , mandated business closures and other public health safety measures . to date , we and our suppliers and third-party manufacturing partners have been able to continue to supply our products to our patients and currently do not anticipate any interruptions in supply . our third-party contract manufacturing partners continue to operate at or near normal levels , with enhanced safety measures intended to prevent the spread of the virus . while we currently do not anticipate any interruptions in our manufacturing process , it is possible that the covid-19 pandemic and response efforts may have an impact in the future on our third-party suppliers and contract manufacturing partners ' ability to supply and or manufacture our products . we believe that customer demand for gvoke has been adversely impacted by the covid-19 pandemic due to the disruption the pandemic has caused in patients ' normal access to healthcare as well as our sales and marketing personnel 's access to customers . initially , we suspended in-person interactions by our sales and marketing personnel in healthcare settings . we are engaging with these customers remotely , via webinar programs and virtual meetings , as we seek to continue to support healthcare professionals and patient care . story_separator_special_tag 96 critical accounting policies and use of estimates and assumptions our management 's discussion and analysis of our financial condition and results of operations on our financial statements have been prepared in accordance with generally accepted accounting principles ( `` gaap `` ) in the united states . the preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including , among others , those related to revenue recognition , clinical trial expenses and stock-based compensation . we base our estimates on historical experience and on various other factors we believe to be appropriate under the circumstances . actual results may differ from these estimates under different assumptions or conditions . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . our significant accounting policies are more fully described in note 2 , `` summary of significant accounting policies . `` revenue recognition we apply the guidance in asc 606 to all contracts with customers within the scope of the standard . we sell our product , gvoke , which is available in two presentations , a pre-filled syringe ( gvoke pfs ) and an auto-injector ( gvoke hypopen ) , primarily to pharmaceutical wholesalers . these wholesalers then resell our products to their customers , such as retail pharmacies . in addition , we enter into arrangements with payors , group purchasing organizations , and healthcare providers that provide for government-mandated or privately negotiated rebates , chargebacks and discounts related to our products . we currently sell gvoke in the u.s. only . revenue is recognized when our customer ( e.g . , a wholesaler ) obtains control of promised goods or services , which is when our obligations under the terms of our contract with the customer are satisfied , based on the consideration we expect to receive in exchange for those goods or services . the estimated net sales price is generally based on a list or fixed price less estimates of variable consideration ( e.g . , patient copay assistance , prompt payment and other discounts , payor rebates , chargebacks , service fees and product returns ) . the estimates of variable consideration are subject to a constraint such that some or all of the estimated amount of variable consideration will only be included in the transaction price to the extent that it is probable that a significant reversal of revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved . estimating variable consideration and the related constraint requires the use of significant management judgment and other market data . net sales represent gross product sales less estimated allowances for patient copay assistance programs , prompt payment and other discounts , payor rebates , chargebacks , service fees , and product returns , all of which are recorded at the time of sale to the pharmaceutical wholesalers or other customer . we apply significant judgments and estimates in determining some of these allowances . if actual results differ from our estimates , we will be required to make adjustments to these allowances in the future . patient copay assistance program we offer a savings program to commercially insured patients under which the cost of a prescription to a patient is discounted . we reimburse pharmacies for this discount through a third-party vendor . we record an accrual to reduce gross sales for the estimated copay on units sold to wholesalers and other customers . the estimate is based on estimated percentages of products that will be prescribed to qualified patients , expected patient utilization of the discount program , average assistance paid based on reporting from the third-party vendor as well as industry data and levels of inventory in the distribution channel . accrued copay fees are recorded as a reduction of revenue and included in accrued trade discounts and rebates on the consolidated balance sheets . prompt payment discounts as an incentive for prompt payment , we offer a discount to most customers . we expect that all eligible customers will comply with the contractual terms to earn the discount and , therefore , we accrue the discount on all eligible sales . we record the discount as an allowance against trade accounts receivable on the consolidated balance sheets and as a reduction of revenue . commercial rebates we contract with certain private payor organizations , primarily insurance companies and pharmacy benefits managers , to provide rebates with respect to utilization of gvoke and contracted formulary status . we accrue estimated rebates based on contract rates , estimated percentages of products that will be prescribed to qualified patients and estimated levels of inventory 97 in the distribution channel and record the rebate as a reduction of revenue . accrued commercial rebates are included in accrued trade discounts and rebates on the consolidated balance sheets . government rebates we participate in certain federal and state government rebate programs such as the medicaid drug rebate program , tricare retail refunds program , and medicare part d program . we accrue estimated rebates based on estimated percentages of product sold to qualified patients , estimated rebate percentages and estimated levels of inventory in the distribution channel that will be prescribed to qualified patients and record the rebates as a reduction of revenue . accrued government rebates are included in accrued trade discounts and rebates on the consolidated balance sheets . chargebacks we have arrangements with certain commercial and government entities that allow them to buy our products directly from wholesalers at specific prices . these entities purchase products through

liquidity and capital resources as of december 31 , 2013 , we had total current assets of $ 2,696,978 and total assets in the amount of $ 4,008,020. our total current liabilities as of december 31 , 2013 were $ 1,968,652. we had working capital of $ 728,326 as of december 31 , 2013. operating activities provided $ 1,132,628 in cash for the year ended december 31 , 2013. our revenue share payable of $ 1,103,084 , stock-based compensation of $ 399,092 , net income of $ 215,847 and depreciation and amortization of $ 193,791 were the primary components of our positive operating cash flow , offset mainly by accounts receivable of $ 950,166. investing activities used $ 298,648 during the year ended december 31 , 2013 largely as a result of patent rights and website development costs . on march 17 , 2014 , we entered into a securities purchase agreement with accredited investors pursuant to which we sold an aggregate of 8,333,333 shares of our common stock , par value $ 0.001 per share , for $ 1.20 per share , or gross proceeds of $ 10,000,000. we used $ 6,000,000 of the proceeds to exercise our optionto redeem vicis capital master fund 's holdings in our company .

we have received gross proceeds of $ 226.0 million from public equity offerings of our common stock ( including our june 2018 initial public offering ( `` ipo `` ) and our february 2019 , february 2020 and june 2020 offerings ) , $ 104.9 million from sales of our preferred stock , $ 86.3 million from our june 2020 convertible notes offering and $ 60.0 million from the amended and restated loan and security agreement ( as amended , the `` amended loan agreement `` ) , of which $ 20 million was repaid in june 2020. in august 2019 , we filed a shelf registration statement on form s-3 with the u.s. securities and exchange commission ( `` sec `` ) , which covers the offering , issuance and sale by us of up to an aggregate of $ 250.0 million of our common stock , preferred stock , debt securities , warrants and or units , which we refer to as the `` shelf `` . we simultaneously entered into a sales agreement with jefferies llc , as sales agent , to provide for the offering , issuance and sale by us of up to $ 50.0 million of our common stock from time to time in at-the-market offerings under the shelf . 90 in february 2020 , we completed an equity offering and sold 10,299,769 shares of common stock , including 1,299,769 shares pursuant to the underwriters ' option to purchase additional shares of common stock . net proceeds from the offering were $ 39.9 million . in june 2020 , we completed a public notes offering and sold $ 86.3 million aggregate principal amount of 5.00 % convertible senior notes , including $ 11.3 million pursuant to the underwriters ' option to purchase additional notes which was exercised in full in july 2020. concurrent with the public notes offering , in june 2020 we completed an equity offering and sold 8,510,000 shares of common stock , including 1,110,000 shares pursuant to the underwriters ' option to purchase additional shares of common stock which also was exercised in full in july 2020. gross proceeds from the equity offering were $ 23.1 million . net proceeds from both june 2020 offerings were $ 102.8 million . there currently remains $ 96.1 million available for future offerings under the shelf . during the second half of 2020 , $ 39.1 million in principal amount of convertible notes were converted into 13,171,791 shares of the company 's common stock . as of december 31 , 2020 , the outstanding balance of convertible notes was $ 47.2 million . in october 2020 , we entered into a fourth amendment to the amended loan agreement , which provided for an additional $ 3.5 million term loan which was drawn in november 2020. as of december 31 , 2020 , the outstanding balance under the amended loan agreement was $ 43.5 million . for the years ended december 31 , 2020 and 2019 , we reported net losses of $ 91.1 million and $ 125.6 million , respectively . we have not been profitable since inception , and , as of december 31 , 2020 , our accumulated deficit was $ 337.4 million . in the near term , we expect to continue to incur significant expenses , operating losses and net losses as we : < continue our marketing and selling efforts related to commercialization of gvoke ; < continue our research and development efforts ; < seek regulatory approval for new product candidates and product enhancements ; and < continue to operate as a public company . we began our field launch of gvoke in january 2020 and have not yet generated significant product revenue from sales of gvoke . we may continue to seek public equity and debt financing to meet our capital requirements . there can be no assurance that such funding may be available to us on acceptable terms , or at all , or that we will be able to commercialize our product candidates , if approved . in addition , we may not be profitable even if we commercialize any of our product candidates . impact of covid-19 the current novel coronavirus ( “ covid-19 ” ) pandemic has presented a substantial public health and economic challenge around the world and has impacted our business operations , employees , patients and communities as well as the global economy and financial markets . the covid-19 pandemic continues to evolve and to date has led to the implementation of various responses , including government-imposed quarantines , stay-at-home orders , travel restrictions , mandated business closures and other public health safety measures . to date , we and our suppliers and third-party manufacturing partners have been able to continue to supply our products to our patients and currently do not anticipate any interruptions in supply . our third-party contract manufacturing partners continue to operate at or near normal levels , with enhanced safety measures intended to prevent the spread of the virus . while we currently do not anticipate any interruptions in our manufacturing process , it is possible that the covid-19 pandemic and response efforts may have an impact in the future on our third-party suppliers and contract manufacturing partners ' ability to supply and or manufacture our products . we believe that customer demand for gvoke has been adversely impacted by the covid-19 pandemic due to the disruption the pandemic has caused in patients ' normal access to healthcare as well as our sales and marketing personnel 's access to customers . initially , we suspended in-person interactions by our sales and marketing personnel in healthcare settings . we are engaging with these customers remotely , via webinar programs and virtual meetings , as we seek to continue to support healthcare professionals and patient care . story_separator_special_tag 96 critical accounting policies and use of estimates and assumptions our management 's discussion and analysis of our financial condition and results of operations on our financial statements have been prepared in accordance with generally accepted accounting principles ( `` gaap `` ) in the united states . the preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including , among others , those related to revenue recognition , clinical trial expenses and stock-based compensation . we base our estimates on historical experience and on various other factors we believe to be appropriate under the circumstances . actual results may differ from these estimates under different assumptions or conditions . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . our significant accounting policies are more fully described in note 2 , `` summary of significant accounting policies . `` revenue recognition we apply the guidance in asc 606 to all contracts with customers within the scope of the standard . we sell our product , gvoke , which is available in two presentations , a pre-filled syringe ( gvoke pfs ) and an auto-injector ( gvoke hypopen ) , primarily to pharmaceutical wholesalers . these wholesalers then resell our products to their customers , such as retail pharmacies . in addition , we enter into arrangements with payors , group purchasing organizations , and healthcare providers that provide for government-mandated or privately negotiated rebates , chargebacks and discounts related to our products . we currently sell gvoke in the u.s. only . revenue is recognized when our customer ( e.g . , a wholesaler ) obtains control of promised goods or services , which is when our obligations under the terms of our contract with the customer are satisfied , based on the consideration we expect to receive in exchange for those goods or services . the estimated net sales price is generally based on a list or fixed price less estimates of variable consideration ( e.g . , patient copay assistance , prompt payment and other discounts , payor rebates , chargebacks , service fees and product returns ) . the estimates of variable consideration are subject to a constraint such that some or all of the estimated amount of variable consideration will only be included in the transaction price to the extent that it is probable that a significant reversal of revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved . estimating variable consideration and the related constraint requires the use of significant management judgment and other market data . net sales represent gross product sales less estimated allowances for patient copay assistance programs , prompt payment and other discounts , payor rebates , chargebacks , service fees , and product returns , all of which are recorded at the time of sale to the pharmaceutical wholesalers or other customer . we apply significant judgments and estimates in determining some of these allowances . if actual results differ from our estimates , we will be required to make adjustments to these allowances in the future . patient copay assistance program we offer a savings program to commercially insured patients under which the cost of a prescription to a patient is discounted . we reimburse pharmacies for this discount through a third-party vendor . we record an accrual to reduce gross sales for the estimated copay on units sold to wholesalers and other customers . the estimate is based on estimated percentages of products that will be prescribed to qualified patients , expected patient utilization of the discount program , average assistance paid based on reporting from the third-party vendor as well as industry data and levels of inventory in the distribution channel . accrued copay fees are recorded as a reduction of revenue and included in accrued trade discounts and rebates on the consolidated balance sheets . prompt payment discounts as an incentive for prompt payment , we offer a discount to most customers . we expect that all eligible customers will comply with the contractual terms to earn the discount and , therefore , we accrue the discount on all eligible sales . we record the discount as an allowance against trade accounts receivable on the consolidated balance sheets and as a reduction of revenue . commercial rebates we contract with certain private payor organizations , primarily insurance companies and pharmacy benefits managers , to provide rebates with respect to utilization of gvoke and contracted formulary status . we accrue estimated rebates based on contract rates , estimated percentages of products that will be prescribed to qualified patients and estimated levels of inventory 97 in the distribution channel and record the rebate as a reduction of revenue . accrued commercial rebates are included in accrued trade discounts and rebates on the consolidated balance sheets . government rebates we participate in certain federal and state government rebate programs such as the medicaid drug rebate program , tricare retail refunds program , and medicare part d program . we accrue estimated rebates based on estimated percentages of product sold to qualified patients , estimated rebate percentages and estimated levels of inventory in the distribution channel that will be prescribed to qualified patients and record the rebates as a reduction of revenue . accrued government rebates are included in accrued trade discounts and rebates on the consolidated balance sheets . chargebacks we have arrangements with certain commercial and government entities that allow them to buy our products directly from wholesalers at specific prices . these entities purchase products through

liquidity and capital resources our primary uses of cash are to fund costs related to the manufacturing , marketing and selling of gvoke , the research and development of our product candidates , general and administrative expenses and working capital requirements . historically , we have funded our operations primarily through private placements of convertible preferred stock , public equity offerings of common stock , and issuance of debt . in june 2018 , we completed our ipo of 6,555,000 shares of our common stock at a price of $ 15.00 per share for aggregate net proceeds of $ 88.9 million after deducting underwriting discounts and commissions as well as other equity offering expenses . in february 2019 , we completed an equity offering and sold an aggregate of 5,996,775 shares of common stock at a price of $ 10.00 per share . net proceeds from this equity offering were $ 55.5 million after deducting underwriting discounts and commissions as well as other equity offering expenses . in september 2019 , we entered into the amended loan agreement that provides for term loans of up to an aggregate of $ 85.0 million , of which $ 60.0 million was drawn in september 2019 and of which $ 20.0 million was repaid in june 2020. we become eligible to draw the second tranche of $ 15.0 million and the third tranche of $ 10.0 million if certain revenue targets are achieved prior to march 31 , 2021 and june 30 , 2021 , respectively . we currently do not anticipate that such milestones will be achieved . in august 2019 , we filed a shelf registration statement on form s-3 with the sec , which covers the offering , issuance and sale by us of up to an aggregate of $ 250.0 million of our common stock , preferred stock , debt securities , warrants and or units , which we refer to as the `` shelf '' .

the number of op units in the operating partnership beneficially owned by bpg is equivalent to the number of outstanding shares of bpg 's common stock , and the entitlement of all op units to quarterly distributions and payments in liquidation is substantially the same as those of bpg 's common stockholders . our primary objective is to maximize total returns to bpg 's stockholders through a combination of growth and value-creation at the asset level supported by stable cash flows . we seek to achieve this through ownership of a large , high quality , diversified portfolio of primarily grocery-anchored community and neighborhood shopping centers and by creating meaningful noi growth from this portfolio . we expect that the major drivers of this growth will be a combination of occupancy increases across both our anchor and small shop space , positive rent spreads from below-market in-place rents and significant near-term lease rollover , annual contractual rent increases across the portfolio and the realization of embedded anchor space repositioning / redevelopment opportunities . we expect the following set of core competencies to position us to execute on our growth strategies : - 35 - anchor space repositioning / redevelopment expertise - we have been a top redeveloper over the past decade , according to chain store age magazine , having completed anchor space repositioning / redevelopment projects totaling approximately $ 1 billion since january 1 , 2003. expansive retailer relationships - we believe that given the scale of our asset base and our nationwide footprint , we have a competitive advantage in supporting the growth plans of the nation 's largest retailers . we believe that we are the largest landlord by gross leasable area ( “ gla ” ) to kroger and tjx companies , as well as a key landlord to all major grocers and most major retail category leaders . we believe that our strong relationships with leading retailers affords us insight into their strategies and priority access to their expansion plans , enabling us to efficiently provide these retailers with space in multiple locations . fully-integrated operating platform - we operate with a fully-integrated , comprehensive platform both leveraging our national presence and demonstrating our commitment to a regional and local presence . we provide our tenants with personalized service through our network of three regional offices in atlanta , chicago and philadelphia , as well as via 12 leasing and property management satellite offices throughout the country . we believe that this strategy enables us to obtain critical market intelligence and to benefit from the regional and local expertise of our workforce . experienced management - senior members of our management team are experienced real estate operators with deep industry expertise and retailer relationships and have an average of 24 years of experience in the real estate industry and an average tenure of 15 years with the operating partnership . factors that may influence our future results we derive our revenues primarily from rents ( including percentage rents based on tenants ' sales levels ) and expense reimbursements due to us from tenants under existing leases at each of our properties . expense reimbursements consist of payments made by tenants to us under contractual lease obligations for their proportional share of the property 's operating expenses , insurance and real estate taxes and certain capital expenditures related to maintenance of the properties . the amount of rental income and expense reimbursements we receive is primarily dependent on our ability to maintain or increase rental rates and on our ability to lease available space , including renewing expiring leases . factors that could affect our rental income include : ( 1 ) changes in national , regional or local economic climates ; ( 2 ) local conditions , including an oversupply of space in , or a reduction in demand for , properties similar to those in our portfolio ; ( 3 ) the attractiveness of properties in our portfolio to our tenants ; ( 4 ) the financial stability of tenants , including the ability of tenants to pay rents ; ( 5 ) in the case of percentage rents , our tenants ' sales volumes ; ( 6 ) competition from other available properties ; ( 7 ) changes in market rental rates ; and ( 8 ) changes in the regional demographics of our properties . our operating expenses include property-related costs , including repairs and maintenance , roof repair , landscaping , parking lot repair , snow removal , utilities , property insurance costs , security , ground rent expense related to ground lease payments for which we are the lessee and various other property related costs . increases in our operating expenses , to the extent they are not offset by revenue increases , impact our overall performance . for a further discussion of these and other factors that could impact our future results , performance or transactions , see item 1a . “ risk factors . ” initial public offering and ipo property transfers on november 4 , 2013 , bpg completed an ipo in which it sold 47.4 million shares of common stock , at an ipo price of $ 20.00 per share . we received net proceeds from the sale of shares in the ipo of $ 893.9 million after deducting $ 54.9 million in underwriting discounts , expenses and transaction costs . of the total proceeds received , $ 824.7 million was used to pay down amounts outstanding under our unsecured credit facility ( see attached financial statements for additional information ) . in connection with the ipo , we acquired interests in the acquired properties from certain investment funds affiliated with blackstone in exchange for 15.9 million op units in the operating partnership having a value equivalent to the value of the acquired properties . story_separator_special_tag in connection with the ipo , based on the terms of these awards , all of such awards granted to our employees vested . in exchange for the vested incentive awards , the holders received vested operating partnership units . at the time of the ipo , we recorded $ 6.1 million of additional management fee income and additional compensation expense based upon the fair value of the operating partnership units issued at the date of grant . operating expenses ( in thousands ) replace_table_token_16_th operating costs the decrease in operating costs for 2013 of $ 2.4 million , as compared to the corresponding period in 2012 , was due to decreased snow removal costs , decreased tenant related legal costs and decreased insurance costs partially offset by an increase in repairs and maintenance expenses . real estate taxes the increase in real estate taxes for 2013 of $ 13.3 million , as compared to the corresponding period in 2012 , was primarily due to increased assessments at certain properties , primarily in california , illinois , texas and new york , partially offset by decreases in assessments due to successful appeals of assessed values . depreciation and amortization the decrease in depreciation and amortization for 2013 of $ 50.0 million , as compared to the corresponding period in 2012 , was primarily due to tenant lease expirations and lease terminations associated with tenant improvements and - 42 - in-place lease value intangible assets , partially offset by $ 7.4 million of depreciation and amortization recorded in connection with the acquired properties . provision for doubtful accounts the decrease in the provision for doubtful accounts of $ 0.6 million for 2013 , as compared to 2012 , was primarily due to improving market conditions and operating environment of our tenants . the provision for doubtful accounts as a percentage of total revenues decreased from 1.06 % for 2012 to 0.95 % for 2013. impairment of real estate assets during 2013 , we recognized a $ 1.5 million impairment on the disposal of one land parcel . no impairments were recognized on real estate properties during 2012. general and administrative the increase in general and administrative costs for 2013 of $ 32.1 million , as compared to the corresponding period in 2012 , primarily due to ( i ) $ 36.1 million increased stock-based compensation expense recorded in connection with the ipo partially offset by a $ 1.8 million decrease in personnel related expenses due to reductions in staff and $ 1.3 million decrease in professional fees . other income and expenses ( in thousands ) replace_table_token_17_th dividends and interest dividends and interest remained approximately the same for 2013 as compared to the corresponding period in 2012. interest expense interest expense decreased by $ 33.0 million for 2013 , as compared to the corresponding period in 2012 , primarily due to the 2013 repayment of $ 2.6 billion of secured mortgage and term loans with a weighted-average interest rate of 5.69 % which decreased interest expense by approximately $ 50.0 million , partially offset by $ 16.2 million of interest expense on our unsecured credit facility which we entered into in july 2013. the 2013 secured mortgage and term loan repayments were financed primarily from proceeds of our unsecured credit facility which had a weighted average of 2.4 % as of december 31 , 2013. during 2013 , our debt obligations , net decreased by $ 518.0 million primarily due to a portion of our ipo proceeds being used to repay outstanding borrowings under the revolving portion of the unsecured credit facility partially offset by debt assumed from the acquired properties . gain on sales of real estate assets and acquisition of joint venture interest during 2013 , we disposed of two land parcels for aggregate proceeds of $ 1.4 million resulting in an aggregate gain of $ 1.1 million . in addition , we purchased the remaining 70 % interest in a shopping center held through an unconsolidated joint venture resulting in a gain of $ 1.1 million on the step-up of the original 30 % interest . during 2012 , we sold one land parcel and two buildings for aggregate net proceeds of $ 1.4 million . - 43 - gain ( loss ) on extinguishment of debt , net during 2013 , we recognized $ 20.0 million of losses on extinguishment of debt , net , net resulting from the write-offs of unamortized debt issuance costs and premium/discounts associated with repayments of certain of our debt obligations . other other increased by $ 10.5 million for 2013 , as compared to the corresponding period in 2012 , primarily due to $ 6.0 million of expenses related to our ipo . equity in income of unconsolidated joint ventures ( in thousands ) replace_table_token_18_th equity in income of unconsolidated joint ventures increased by $ 0.5 million for 2013 , as compared to corresponding period in 2012 , primarily due to increased operating performance of certain of our unconsolidated joint ventures . during 2012 , we recognized provisions for impairment associated with certain of our unconsolidated joint venture investments due to the operating performance of these unconsolidated joint ventures . discontinued operations ( in thousands ) replace_table_token_19_th income from discontinued operations results from discontinued operations include the results from : ( i ) 34 shopping centers , including 33 non-core properties disposed of during 2014 , ( ii ) 18 shopping centers disposed of in 2013 ; and ( iii ) 19 shopping centers and one retail building disposed of during 2012. gain on disposition of operating properties during 2013 , the gain on disposition of operating properties was attributable to the sale of four shopping centers for aggregate proceeds of $ 12.4 million . in connection with the sale of shopping centers in 2012 , we recognized a gain of $ 5.4 million . impairment of real estate assets held for sale during 2013 , as a result of our

liquidity and capital resources our primary uses of cash are to fund costs related to the manufacturing , marketing and selling of gvoke , the research and development of our product candidates , general and administrative expenses and working capital requirements . historically , we have funded our operations primarily through private placements of convertible preferred stock , public equity offerings of common stock , and issuance of debt . in june 2018 , we completed our ipo of 6,555,000 shares of our common stock at a price of $ 15.00 per share for aggregate net proceeds of $ 88.9 million after deducting underwriting discounts and commissions as well as other equity offering expenses . in february 2019 , we completed an equity offering and sold an aggregate of 5,996,775 shares of common stock at a price of $ 10.00 per share . net proceeds from this equity offering were $ 55.5 million after deducting underwriting discounts and commissions as well as other equity offering expenses . in september 2019 , we entered into the amended loan agreement that provides for term loans of up to an aggregate of $ 85.0 million , of which $ 60.0 million was drawn in september 2019 and of which $ 20.0 million was repaid in june 2020. we become eligible to draw the second tranche of $ 15.0 million and the third tranche of $ 10.0 million if certain revenue targets are achieved prior to march 31 , 2021 and june 30 , 2021 , respectively . we currently do not anticipate that such milestones will be achieved . in august 2019 , we filed a shelf registration statement on form s-3 with the sec , which covers the offering , issuance and sale by us of up to an aggregate of $ 250.0 million of our common stock , preferred stock , debt securities , warrants and or units , which we refer to as the `` shelf '' .

the number of op units in the operating partnership beneficially owned by bpg is equivalent to the number of outstanding shares of bpg 's common stock , and the entitlement of all op units to quarterly distributions and payments in liquidation is substantially the same as those of bpg 's common stockholders . our primary objective is to maximize total returns to bpg 's stockholders through a combination of growth and value-creation at the asset level supported by stable cash flows . we seek to achieve this through ownership of a large , high quality , diversified portfolio of primarily grocery-anchored community and neighborhood shopping centers and by creating meaningful noi growth from this portfolio . we expect that the major drivers of this growth will be a combination of occupancy increases across both our anchor and small shop space , positive rent spreads from below-market in-place rents and significant near-term lease rollover , annual contractual rent increases across the portfolio and the realization of embedded anchor space repositioning / redevelopment opportunities . we expect the following set of core competencies to position us to execute on our growth strategies : - 35 - anchor space repositioning / redevelopment expertise - we have been a top redeveloper over the past decade , according to chain store age magazine , having completed anchor space repositioning / redevelopment projects totaling approximately $ 1 billion since january 1 , 2003. expansive retailer relationships - we believe that given the scale of our asset base and our nationwide footprint , we have a competitive advantage in supporting the growth plans of the nation 's largest retailers . we believe that we are the largest landlord by gross leasable area ( “ gla ” ) to kroger and tjx companies , as well as a key landlord to all major grocers and most major retail category leaders . we believe that our strong relationships with leading retailers affords us insight into their strategies and priority access to their expansion plans , enabling us to efficiently provide these retailers with space in multiple locations . fully-integrated operating platform - we operate with a fully-integrated , comprehensive platform both leveraging our national presence and demonstrating our commitment to a regional and local presence . we provide our tenants with personalized service through our network of three regional offices in atlanta , chicago and philadelphia , as well as via 12 leasing and property management satellite offices throughout the country . we believe that this strategy enables us to obtain critical market intelligence and to benefit from the regional and local expertise of our workforce . experienced management - senior members of our management team are experienced real estate operators with deep industry expertise and retailer relationships and have an average of 24 years of experience in the real estate industry and an average tenure of 15 years with the operating partnership . factors that may influence our future results we derive our revenues primarily from rents ( including percentage rents based on tenants ' sales levels ) and expense reimbursements due to us from tenants under existing leases at each of our properties . expense reimbursements consist of payments made by tenants to us under contractual lease obligations for their proportional share of the property 's operating expenses , insurance and real estate taxes and certain capital expenditures related to maintenance of the properties . the amount of rental income and expense reimbursements we receive is primarily dependent on our ability to maintain or increase rental rates and on our ability to lease available space , including renewing expiring leases . factors that could affect our rental income include : ( 1 ) changes in national , regional or local economic climates ; ( 2 ) local conditions , including an oversupply of space in , or a reduction in demand for , properties similar to those in our portfolio ; ( 3 ) the attractiveness of properties in our portfolio to our tenants ; ( 4 ) the financial stability of tenants , including the ability of tenants to pay rents ; ( 5 ) in the case of percentage rents , our tenants ' sales volumes ; ( 6 ) competition from other available properties ; ( 7 ) changes in market rental rates ; and ( 8 ) changes in the regional demographics of our properties . our operating expenses include property-related costs , including repairs and maintenance , roof repair , landscaping , parking lot repair , snow removal , utilities , property insurance costs , security , ground rent expense related to ground lease payments for which we are the lessee and various other property related costs . increases in our operating expenses , to the extent they are not offset by revenue increases , impact our overall performance . for a further discussion of these and other factors that could impact our future results , performance or transactions , see item 1a . “ risk factors . ” initial public offering and ipo property transfers on november 4 , 2013 , bpg completed an ipo in which it sold 47.4 million shares of common stock , at an ipo price of $ 20.00 per share . we received net proceeds from the sale of shares in the ipo of $ 893.9 million after deducting $ 54.9 million in underwriting discounts , expenses and transaction costs . of the total proceeds received , $ 824.7 million was used to pay down amounts outstanding under our unsecured credit facility ( see attached financial statements for additional information ) . in connection with the ipo , we acquired interests in the acquired properties from certain investment funds affiliated with blackstone in exchange for 15.9 million op units in the operating partnership having a value equivalent to the value of the acquired properties . story_separator_special_tag in connection with the ipo , based on the terms of these awards , all of such awards granted to our employees vested . in exchange for the vested incentive awards , the holders received vested operating partnership units . at the time of the ipo , we recorded $ 6.1 million of additional management fee income and additional compensation expense based upon the fair value of the operating partnership units issued at the date of grant . operating expenses ( in thousands ) replace_table_token_16_th operating costs the decrease in operating costs for 2013 of $ 2.4 million , as compared to the corresponding period in 2012 , was due to decreased snow removal costs , decreased tenant related legal costs and decreased insurance costs partially offset by an increase in repairs and maintenance expenses . real estate taxes the increase in real estate taxes for 2013 of $ 13.3 million , as compared to the corresponding period in 2012 , was primarily due to increased assessments at certain properties , primarily in california , illinois , texas and new york , partially offset by decreases in assessments due to successful appeals of assessed values . depreciation and amortization the decrease in depreciation and amortization for 2013 of $ 50.0 million , as compared to the corresponding period in 2012 , was primarily due to tenant lease expirations and lease terminations associated with tenant improvements and - 42 - in-place lease value intangible assets , partially offset by $ 7.4 million of depreciation and amortization recorded in connection with the acquired properties . provision for doubtful accounts the decrease in the provision for doubtful accounts of $ 0.6 million for 2013 , as compared to 2012 , was primarily due to improving market conditions and operating environment of our tenants . the provision for doubtful accounts as a percentage of total revenues decreased from 1.06 % for 2012 to 0.95 % for 2013. impairment of real estate assets during 2013 , we recognized a $ 1.5 million impairment on the disposal of one land parcel . no impairments were recognized on real estate properties during 2012. general and administrative the increase in general and administrative costs for 2013 of $ 32.1 million , as compared to the corresponding period in 2012 , primarily due to ( i ) $ 36.1 million increased stock-based compensation expense recorded in connection with the ipo partially offset by a $ 1.8 million decrease in personnel related expenses due to reductions in staff and $ 1.3 million decrease in professional fees . other income and expenses ( in thousands ) replace_table_token_17_th dividends and interest dividends and interest remained approximately the same for 2013 as compared to the corresponding period in 2012. interest expense interest expense decreased by $ 33.0 million for 2013 , as compared to the corresponding period in 2012 , primarily due to the 2013 repayment of $ 2.6 billion of secured mortgage and term loans with a weighted-average interest rate of 5.69 % which decreased interest expense by approximately $ 50.0 million , partially offset by $ 16.2 million of interest expense on our unsecured credit facility which we entered into in july 2013. the 2013 secured mortgage and term loan repayments were financed primarily from proceeds of our unsecured credit facility which had a weighted average of 2.4 % as of december 31 , 2013. during 2013 , our debt obligations , net decreased by $ 518.0 million primarily due to a portion of our ipo proceeds being used to repay outstanding borrowings under the revolving portion of the unsecured credit facility partially offset by debt assumed from the acquired properties . gain on sales of real estate assets and acquisition of joint venture interest during 2013 , we disposed of two land parcels for aggregate proceeds of $ 1.4 million resulting in an aggregate gain of $ 1.1 million . in addition , we purchased the remaining 70 % interest in a shopping center held through an unconsolidated joint venture resulting in a gain of $ 1.1 million on the step-up of the original 30 % interest . during 2012 , we sold one land parcel and two buildings for aggregate net proceeds of $ 1.4 million . - 43 - gain ( loss ) on extinguishment of debt , net during 2013 , we recognized $ 20.0 million of losses on extinguishment of debt , net , net resulting from the write-offs of unamortized debt issuance costs and premium/discounts associated with repayments of certain of our debt obligations . other other increased by $ 10.5 million for 2013 , as compared to the corresponding period in 2012 , primarily due to $ 6.0 million of expenses related to our ipo . equity in income of unconsolidated joint ventures ( in thousands ) replace_table_token_18_th equity in income of unconsolidated joint ventures increased by $ 0.5 million for 2013 , as compared to corresponding period in 2012 , primarily due to increased operating performance of certain of our unconsolidated joint ventures . during 2012 , we recognized provisions for impairment associated with certain of our unconsolidated joint venture investments due to the operating performance of these unconsolidated joint ventures . discontinued operations ( in thousands ) replace_table_token_19_th income from discontinued operations results from discontinued operations include the results from : ( i ) 34 shopping centers , including 33 non-core properties disposed of during 2014 , ( ii ) 18 shopping centers disposed of in 2013 ; and ( iii ) 19 shopping centers and one retail building disposed of during 2012. gain on disposition of operating properties during 2013 , the gain on disposition of operating properties was attributable to the sale of four shopping centers for aggregate proceeds of $ 12.4 million . in connection with the sale of shopping centers in 2012 , we recognized a gain of $ 5.4 million . impairment of real estate assets held for sale during 2013 , as a result of our

debt transactions on march 18 , 2014 , the operating partnership entered into an unsecured $ 600.0 million term loan ( the “ term loan ” ) which matures on march 18 , 2019. the obligations under the term loan were guaranteed by both bpg sub and brixmor op gp llc , the general partner of the operating partnership , ( together , the “ parent guarantors ” ) . in february 2015 , the term loan was amended to terminate the guarantees and release and discharge the parent guarantors from their respective obligations under the guarantees . the term loan bears interest , at the operating partnership 's option , at a rate equal to a margin over either ( a ) a base rate determined by reference to the highest of ( 1 ) the administrative agent 's prime lending rate , ( 2 ) the federal funds effective rate plus half of 1 % , and ( 3 ) the libor rate that would be payable on such day for a libor rate loan with a one-month interest period plus 1 % or ( b ) a libor rate determined by reference to the bba libor rate for the interest period relevant to a particular borrowing . the margin associated with the term loan is based on a total leverage based grid and ranges from 0.35 % to 0.75 % , for base rate loans , and 1.35 % to 1.75 % for libor rate loans . the margin on the term loan was 1.40 % as of december 31 , 2014. pursuant to the terms of the term loan , the company among other things is subject to maintenance of various financial covenants . the company is currently in compliance with these covenants . proceeds from the term loan were used to repay outstanding borrowings on the company 's unsecured credit facility .

37 significant developments during the year ended december 31 , 2019 investments during the year ended december 31 , 2019 , within our core portfolio we invested in twelve properties aggregating $ 185.9 million , inclusive of transaction costs , as follows : on january 24 , 2019 , our unconsolidated renaissance portfolio venture acquired fund iii 's 3104 m street property located in washington , d.c. for $ 10.7 million ( note 4 ) for which our share was $ 2.1 million as discussed further below . on march 15 , march 27 , may 29 , july 30 and november 8 , 2019 , we acquired five retail condominiums located in the soho section of new york city for a total of $ 87.0 million referred to as the “ soho acquisitions ” with an aggregate purchase price of approximately $ 122.0 million ( note 2 ) . on may 2 , 2019 , we entered into a ground lease ( note 11 ) on a development property in washington , d.c. referred to as “ 1238 wisconsin avenue . ” on september 11 , 2019 , we acquired two buildings in chicago , illinois , referred to as “ 849 and 912 w. armitage ” for a total of $ 7.8 million ( note 2 ) . on october 25 , 2019 , we acquired a retail building in los angeles , california , referred to as “ 8436-8452 melrose place ” for $ 48.7 million ( note 2 ) . on december 9 , 2019 , we acquired a master lease position on a building in the soho section of new york city , referred to as “ 565 broadway ” for $ 28.8 million ( note 11 ) . on december 11 , 2019 , we acquired a building in chicago , illinois , referred to as “ 907 w. armitage ” for $ 2.9 million ( note 2 ) . during the year ended december 31 , 2019 , within our fund portfolio we invested in eight properties aggregating $ 328.5 million as follows : on march 19 , 2019 , fund v 's unconsolidated venture ( note 4 ) acquired a suburban shopping center in riverdale , utah for $ 48.5 million , referred to as “ family center at riverdale , ” of which fund v 's share was $ 43.7 million . on april 30 , 2019 , fund v 's unconsolidated venture ( note 4 ) acquired a suburban shopping center in vernon , connecticut for $ 36.7 million , referred to as “ tri-city plaza , ” of which fund v 's share was $ 33.0 million on may 1 , 2019 , fund iv acquired a leasehold interest ( note 11 ) in a retail and parking condominium in a building in new york , new york for $ 10.5 million , referred to as “ 110 university place . ” on may 6 , 2019 , fund v acquired a suburban shopping center ( note 2 ) in palm coast , florida for $ 36.6 million , referred to as “ palm coast landing . ” on june 21 , 2019 , fund v acquired a suburban shopping center ( note 2 ) in lincoln , rhode island for $ 54.3 million , referred to as “ lincoln commons . ” on august 2 , fund v acquired a suburban shopping center ( note 2 ) in virginia beach , virginia for $ 87.0 million , referred to as “ landstown commons . ” on august 21 , fund v 's unconsolidated venture ( note 4 ) acquired two suburban shopping centers in frederick county , maryland for a total of $ 54.9 million , referred to as the “ frederick county acquisitions , ” for which fund v 's share was $ 49.4 million . dispositions on october 28 , 2019 , we sold our pacesetter park shopping center for $ 22.6 million ( note 2 ) and recognized a gain on the sale of this property of $ 16.8 million . during the year ended december 31 , 2019 , we made four consolidated property dispositions and sold three condominium units ( note 2 ) from our fund portfolio for gross proceeds totaling $ 86.8 million as follows : on january 24 , 2019 , a venture in which fund iii holds an 80 % interest sold its 3104 m street property to an unconsolidated venture ( note 4 ) , in which the core portfolio holds a 20 % interest , for $ 10.5 million . the acquiring venture assumed the property 's mortgage in the amount of $ 4.7 million . on july 24 , 2019 , fund iv sold its consolidated jfk plaza property for $ 7.8 million ( note 2 ) . on august 22 , 2019 , fund iii sold its consolidated nostrand avenue property for $ 27.7 million ( note 2 ) . on may 17 , september 23 , and november 7 , 2019 , fund iv sold three consolidated residential condominium units for a total of $ 8.8 million ( note 2 ) . 38 on september 27 , 2019 fund iv sold its consolidated 938 w. north avenue property for $ 32.0 million ( note 2 ) . the funds recognized a net aggregate gain on the sales of these consolidated properties of $ 13.6 million and our share was $ 2.9 million , net of noncontrolling interests . story_separator_special_tag financing activities our financing activities provided $ 275.3 million more cash during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , primarily from ( i ) $ 145.5 million more cash received from the sale of common shares , ( ii ) $ 114.1 million more cash provided from contributions from noncontrolling interests , ( iii ) $ 55.1 million less cash used to repurchase common shares , and ( iv ) $ 40.9 million more cash provided from net borrowings . these sources of cash were partially offset by $ 69.8 million more cash used in distributions to noncontrolling interests and $ 5.0 million more cash used in dividends paid to common shareholders . 46 contractual obligations the following table summarizes : ( i ) principal and interest obligations under mortgage and other notes , ( ii ) rents due under non-cancelable operating and capital leases , which includes ground leases at seven of our properties and the lease for our corporate office and ( iii ) construction commitments as of december 31 , 2019 ( in millions ) : replace_table_token_22_th ( a ) in conjunction with the development of our core portfolio and fund properties , we have entered into construction commitments with general contractors . we intend to fund these requirements with existing liquidity . off-balance sheet arrangements we have the following investments made through joint ventures for the purpose of investing in operating properties . we account for these investments using the equity method of accounting . as such , our financial statements reflect our investment and our share of income and loss from , but not the individual assets and liabilities , of these joint ventures . see note 4 in the notes to consolidated financial statements , for a discussion of our unconsolidated investments . the operating partnership 's pro-rata share of unconsolidated non-recourse debt related to those investments is as follows ( dollars in millions ) : replace_table_token_23_th ( a ) effective interest rates incorporate the effect of interest rate swaps and caps that were in effect at december 31 , 2019 , where applicable . 47 critical accounting policies 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 u.s. gaap . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . we base our estimates on historical experience and assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect the significant judgments and estimates used by us in the preparation of our consolidated financial statements . valuation of properties on a quarterly basis , we review the carrying value of properties held for use and for sale as well as our development properties . we perform an impairment analysis by calculating and reviewing net operating income on a property-by-property basis . we evaluate leasing projections and perform other analyses to conclude whether an asset is impaired . we record impairment losses and reduce the carrying value of properties when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts . in cases where we do not expect to recover our carrying costs on properties held for use , we reduce our carrying cost to fair value . for properties held for sale , we reduce our carrying value to the fair value less costs to sell . see note 8 of the notes to the consolidated financial statements for a discussion of impairments recognized during the periods presented . investments in and advances to unconsolidated joint ventures we periodically review our investment in unconsolidated joint ventures for other than temporary declines in market value . an impairment charge is recorded for a decline that is considered to be other-than-temporary as a reduction in the carrying value of the investment . no impairment charges related to our investment in unconsolidated joint ventures were recognized for the years ended december 31 , 2019 , 2018 and 2017. bad debts we assess the collectability of our accounts receivable related to tenant revenues . we first apply the guidance under asc topic 842 “ leases ” ( “ asc 842 ” ) in assessing our rents receivable : if collection of rents under specific operating leases is not probable , then we recognize the lesser of that lease 's rental income on a straight-line basis or cash received , plus variable rents as earned . once this initial assessment is completed , we apply a general reserve , as provided under asc 450-20 , if applicable . rents receivable at december 31 , 2019 and 2018 are shown net of an allowance for doubtful accounts of $ 11.4 million and $ 7.9 million , respectively . if the financial condition of our tenants were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . real estate real estate assets are stated at cost less accumulated depreciation . expenditures for acquisition , development , construction and improvement of properties , as well as significant renovations are capitalized . interest costs are capitalized until construction is substantially complete . construction in progress includes costs for significant property expansion and development . depreciation is computed on the straight-line basis over estimated useful lives of 40 years for buildings , the shorter of the useful life or lease term for tenant improvements and five years for furniture , fixtures and equipment . expenditures for maintenance and

debt transactions on march 18 , 2014 , the operating partnership entered into an unsecured $ 600.0 million term loan ( the “ term loan ” ) which matures on march 18 , 2019. the obligations under the term loan were guaranteed by both bpg sub and brixmor op gp llc , the general partner of the operating partnership , ( together , the “ parent guarantors ” ) . in february 2015 , the term loan was amended to terminate the guarantees and release and discharge the parent guarantors from their respective obligations under the guarantees . the term loan bears interest , at the operating partnership 's option , at a rate equal to a margin over either ( a ) a base rate determined by reference to the highest of ( 1 ) the administrative agent 's prime lending rate , ( 2 ) the federal funds effective rate plus half of 1 % , and ( 3 ) the libor rate that would be payable on such day for a libor rate loan with a one-month interest period plus 1 % or ( b ) a libor rate determined by reference to the bba libor rate for the interest period relevant to a particular borrowing . the margin associated with the term loan is based on a total leverage based grid and ranges from 0.35 % to 0.75 % , for base rate loans , and 1.35 % to 1.75 % for libor rate loans . the margin on the term loan was 1.40 % as of december 31 , 2014. pursuant to the terms of the term loan , the company among other things is subject to maintenance of various financial covenants . the company is currently in compliance with these covenants . proceeds from the term loan were used to repay outstanding borrowings on the company 's unsecured credit facility .

37 significant developments during the year ended december 31 , 2019 investments during the year ended december 31 , 2019 , within our core portfolio we invested in twelve properties aggregating $ 185.9 million , inclusive of transaction costs , as follows : on january 24 , 2019 , our unconsolidated renaissance portfolio venture acquired fund iii 's 3104 m street property located in washington , d.c. for $ 10.7 million ( note 4 ) for which our share was $ 2.1 million as discussed further below . on march 15 , march 27 , may 29 , july 30 and november 8 , 2019 , we acquired five retail condominiums located in the soho section of new york city for a total of $ 87.0 million referred to as the “ soho acquisitions ” with an aggregate purchase price of approximately $ 122.0 million ( note 2 ) . on may 2 , 2019 , we entered into a ground lease ( note 11 ) on a development property in washington , d.c. referred to as “ 1238 wisconsin avenue . ” on september 11 , 2019 , we acquired two buildings in chicago , illinois , referred to as “ 849 and 912 w. armitage ” for a total of $ 7.8 million ( note 2 ) . on october 25 , 2019 , we acquired a retail building in los angeles , california , referred to as “ 8436-8452 melrose place ” for $ 48.7 million ( note 2 ) . on december 9 , 2019 , we acquired a master lease position on a building in the soho section of new york city , referred to as “ 565 broadway ” for $ 28.8 million ( note 11 ) . on december 11 , 2019 , we acquired a building in chicago , illinois , referred to as “ 907 w. armitage ” for $ 2.9 million ( note 2 ) . during the year ended december 31 , 2019 , within our fund portfolio we invested in eight properties aggregating $ 328.5 million as follows : on march 19 , 2019 , fund v 's unconsolidated venture ( note 4 ) acquired a suburban shopping center in riverdale , utah for $ 48.5 million , referred to as “ family center at riverdale , ” of which fund v 's share was $ 43.7 million . on april 30 , 2019 , fund v 's unconsolidated venture ( note 4 ) acquired a suburban shopping center in vernon , connecticut for $ 36.7 million , referred to as “ tri-city plaza , ” of which fund v 's share was $ 33.0 million on may 1 , 2019 , fund iv acquired a leasehold interest ( note 11 ) in a retail and parking condominium in a building in new york , new york for $ 10.5 million , referred to as “ 110 university place . ” on may 6 , 2019 , fund v acquired a suburban shopping center ( note 2 ) in palm coast , florida for $ 36.6 million , referred to as “ palm coast landing . ” on june 21 , 2019 , fund v acquired a suburban shopping center ( note 2 ) in lincoln , rhode island for $ 54.3 million , referred to as “ lincoln commons . ” on august 2 , fund v acquired a suburban shopping center ( note 2 ) in virginia beach , virginia for $ 87.0 million , referred to as “ landstown commons . ” on august 21 , fund v 's unconsolidated venture ( note 4 ) acquired two suburban shopping centers in frederick county , maryland for a total of $ 54.9 million , referred to as the “ frederick county acquisitions , ” for which fund v 's share was $ 49.4 million . dispositions on october 28 , 2019 , we sold our pacesetter park shopping center for $ 22.6 million ( note 2 ) and recognized a gain on the sale of this property of $ 16.8 million . during the year ended december 31 , 2019 , we made four consolidated property dispositions and sold three condominium units ( note 2 ) from our fund portfolio for gross proceeds totaling $ 86.8 million as follows : on january 24 , 2019 , a venture in which fund iii holds an 80 % interest sold its 3104 m street property to an unconsolidated venture ( note 4 ) , in which the core portfolio holds a 20 % interest , for $ 10.5 million . the acquiring venture assumed the property 's mortgage in the amount of $ 4.7 million . on july 24 , 2019 , fund iv sold its consolidated jfk plaza property for $ 7.8 million ( note 2 ) . on august 22 , 2019 , fund iii sold its consolidated nostrand avenue property for $ 27.7 million ( note 2 ) . on may 17 , september 23 , and november 7 , 2019 , fund iv sold three consolidated residential condominium units for a total of $ 8.8 million ( note 2 ) . 38 on september 27 , 2019 fund iv sold its consolidated 938 w. north avenue property for $ 32.0 million ( note 2 ) . the funds recognized a net aggregate gain on the sales of these consolidated properties of $ 13.6 million and our share was $ 2.9 million , net of noncontrolling interests . story_separator_special_tag financing activities our financing activities provided $ 275.3 million more cash during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , primarily from ( i ) $ 145.5 million more cash received from the sale of common shares , ( ii ) $ 114.1 million more cash provided from contributions from noncontrolling interests , ( iii ) $ 55.1 million less cash used to repurchase common shares , and ( iv ) $ 40.9 million more cash provided from net borrowings . these sources of cash were partially offset by $ 69.8 million more cash used in distributions to noncontrolling interests and $ 5.0 million more cash used in dividends paid to common shareholders . 46 contractual obligations the following table summarizes : ( i ) principal and interest obligations under mortgage and other notes , ( ii ) rents due under non-cancelable operating and capital leases , which includes ground leases at seven of our properties and the lease for our corporate office and ( iii ) construction commitments as of december 31 , 2019 ( in millions ) : replace_table_token_22_th ( a ) in conjunction with the development of our core portfolio and fund properties , we have entered into construction commitments with general contractors . we intend to fund these requirements with existing liquidity . off-balance sheet arrangements we have the following investments made through joint ventures for the purpose of investing in operating properties . we account for these investments using the equity method of accounting . as such , our financial statements reflect our investment and our share of income and loss from , but not the individual assets and liabilities , of these joint ventures . see note 4 in the notes to consolidated financial statements , for a discussion of our unconsolidated investments . the operating partnership 's pro-rata share of unconsolidated non-recourse debt related to those investments is as follows ( dollars in millions ) : replace_table_token_23_th ( a ) effective interest rates incorporate the effect of interest rate swaps and caps that were in effect at december 31 , 2019 , where applicable . 47 critical accounting policies 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 u.s. gaap . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . we base our estimates on historical experience and assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect the significant judgments and estimates used by us in the preparation of our consolidated financial statements . valuation of properties on a quarterly basis , we review the carrying value of properties held for use and for sale as well as our development properties . we perform an impairment analysis by calculating and reviewing net operating income on a property-by-property basis . we evaluate leasing projections and perform other analyses to conclude whether an asset is impaired . we record impairment losses and reduce the carrying value of properties when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts . in cases where we do not expect to recover our carrying costs on properties held for use , we reduce our carrying cost to fair value . for properties held for sale , we reduce our carrying value to the fair value less costs to sell . see note 8 of the notes to the consolidated financial statements for a discussion of impairments recognized during the periods presented . investments in and advances to unconsolidated joint ventures we periodically review our investment in unconsolidated joint ventures for other than temporary declines in market value . an impairment charge is recorded for a decline that is considered to be other-than-temporary as a reduction in the carrying value of the investment . no impairment charges related to our investment in unconsolidated joint ventures were recognized for the years ended december 31 , 2019 , 2018 and 2017. bad debts we assess the collectability of our accounts receivable related to tenant revenues . we first apply the guidance under asc topic 842 “ leases ” ( “ asc 842 ” ) in assessing our rents receivable : if collection of rents under specific operating leases is not probable , then we recognize the lesser of that lease 's rental income on a straight-line basis or cash received , plus variable rents as earned . once this initial assessment is completed , we apply a general reserve , as provided under asc 450-20 , if applicable . rents receivable at december 31 , 2019 and 2018 are shown net of an allowance for doubtful accounts of $ 11.4 million and $ 7.9 million , respectively . if the financial condition of our tenants were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . real estate real estate assets are stated at cost less accumulated depreciation . expenditures for acquisition , development , construction and improvement of properties , as well as significant renovations are capitalized . interest costs are capitalized until construction is substantially complete . construction in progress includes costs for significant property expansion and development . depreciation is computed on the straight-line basis over estimated useful lives of 40 years for buildings , the shorter of the useful life or lease term for tenant improvements and five years for furniture , fixtures and equipment . expenditures for maintenance and

liquidity and capital resources uses of liquidity and cash requirements our principal uses of liquidity are ( i ) distributions to our shareholders and op unit holders , ( ii ) investments which include the funding of our capital committed to the funds and property acquisitions and development/re-tenanting activities within our core portfolio , ( iii ) distributions to our fund investors , ( iv ) debt service and loan repayments and ( v ) share repurchases . distributions in order to qualify as a reit for federal income tax purposes , we must currently distribute at least 90 % of our taxable income to our shareholders . during the year ended december 31 , 2019 , we paid dividends and distributions on our common shares , common op units and preferred op units totaling $ 101.0 million . investments in real estate as previously discussed , during the year ended december 31 , 2019 , within our core and fund portfolios we invested in 20 new properties aggregating $ 514.4 million ( note 2 , note 4 , note 11 ) . for activity subsequent to december 31 , 2019 , see note 17 . structured financing investment during the year ended december 31 , 2019 , we advanced an additional $ 4.3 million on a note receivable and provided seller financing for $ 13.5 million ( note 3 ) . capital commitments during the year ended december 31 , 2019 , we made capital contributions aggregating $ 32.8 million to our funds . at december 31 , 2019 , our share of the remaining capital commitments to our funds aggregated $ 86.1 million as follows : $ 3.3 million to fund iii . fund iii was launched in may 2007 with total committed capital of $ 450.0 million of which our original share was $ 89.6 million . during 2015 , we acquired an additional interest , which had an original capital commitment of $ 20.9 million . $ 21.2 million to fund iv . fund iv was launched in may 2012 with total committed capital of $ 530.0 million of which our original share was $ 122.5 million .

in april 2018 , we entered into an agreement with weekengo , a start-up company in germany . weekengo uses new technology to promote vacation packages . we invested $ 3.0 million in weekengo for a 25 % ownership interest . see `` note 1 : summary of significant accounting policies `` to the accompanying consolidated financial statements for further information . we have three operating segments based on geographic regions : asia pacific , europe and north america . asia pacific consists of our operations in australia , china , hong kong , japan , taiwan , and southeast asia . europe consists of our operations in france , germany , spain , and the u.k. north america consists of our operations in canada and the u.s. for the year ended december 31 , 2018 , asia pacific operations were 7 % of revenues , european operations were 32 % of revenues and north american op erations were 61 % of our total revenues . financial information with respect to our business segments and certain financial information about geographic areas appears in note 10 to the accompanying consolidated financial statements . when evaluating the financial condition and operating performance of the company , management focuses on financial and non-financial indicators such as growth in the number of members to the company 's newsletters , operating margin , growth in revenues in the absolute and relative to the growth in reach of the company 's publications measured as revenue per member and revenue per employee as a measure of productivity . how we generate revenues our revenues are advertising revenues , consisting primarily of listing fees paid by travel , entertainment and local businesses to advertise their offers on travelzoo 's media properties . listing fees are based on audience reach , placement , number of listings , number of impressions , number of clicks , number of referrals , or percentage of the face value of vouchers sold . insertion orders are typically for periods between one month and twelve months and are not automatically renewed . merchant agreements for local deals and getaway advertisers are typically for twelve months and are not automatically renewed . we have two separate groups of our advertising products : travel and local . our travel category of revenue includes the publishing revenue for negotiated high-quality deals from travel companies , such as hotels , airlines , cruises or car rentals and includes products such as top 20 , the travelzoo website , newsflash , travelzoo network as well as getaway vouchers . the revenues generated from these products are based upon a fee for number of e-mails delivered to our audience , a fee for clicks delivered to the advertisers , a fee for placement of the advertising on our website or a fee based on a percentage of the face value of vouchers sold , hotel booking stays or other items sold . we recognize revenue upon delivery of the e-mails , delivery of the clicks , over the period of placement of the advertising , upon hotel booking stays and upon the sale of the vouchers or other items sold . our local category of revenue includes the publishing revenue for negotiated high-quality deals from local businesses , such as restaurants , spas , shows , and other activities and includes local deals vouchers and entertainment offers ( vouchers and direct bookings ) . the revenues generated from these products are based upon a percentage of the face value of vouchers or items sold or a fee for clicks delivered to the advertisers . we recognize revenue upon the sale of the vouchers , when we receive notification of the direct bookings or upon delivery of the clicks . the company earns a fee for acting as an agent in these 33 transactions , which is recorded on a net basis and is included in revenue upon completion of the voucher sale . certain merchant contracts in foreign locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon expiration , which we recognize as revenue based upon estimates at the time of sale . trends in our business our ability to generate revenues in the future depends on numerous factors such as our ability to sell more advertising to existing and new advertisers , our ability to increase our audience reach and advertising rates , our ability to have sufficient supply of hotels offered at competitive rates , and our ability to develop and launch new products . our current revenue model primarily depends on advertising fees paid primarily by travel , entertainment and local businesses . a number of factors can influence whether current and new advertisers decide to advertise their offers with us . we have been impacted and expect to continue to be impacted by external factors such as the shift from offline to online advertising , the relative condition of the economy , competition and the introduction of new methods of advertising , and the decline in consumer demand for vouchers . a number of factors will have impact on our revenue , such as the reduction in spending by travel intermediaries due to their focus on improving profitability , the trend towards mobile usage by consumers , the willingness of consumers to purchase the deals we advertise , and the willingness of certain competitors to grow their business unprofitably . in addition , we have been impacted and expect to continue to be impacted by internal factors such as introduction of new advertising products , hiring and relying on key employees for the continued maintenance and growth of our business and ensuring our advertising products continue to attract the audience that advertisers desire . existing advertisers may shift from one advertising service ( e.g . top 20 ) to another ( e.g . local deals and getaway ) . story_separator_special_tag million and $ 58.4 million for 2018 , 2017 and 2016 , respectively . advertising expenses accounted for 14 % , 15 % and 18 % , respectively , of total sales and marketing expenses and consisted primarily of online advertising , which we refer to as traffic acquisition cost and member acquisition costs . the goal of our advertising was to acquire new members for our e-mail products , increase the traffic to our websites and increase brand awareness . sales and marketing expenses increased $ 1.2 million in 2018 compared to 2017 . the increase was primarily due to a $ 1.2 million increase in trade , commerce and brand marketing expenses and a $ 688,000 increase in salary , employee and contractor related expenses offset partially by a $ 659,000 decrease in member acquisition costs . sales and marketing expenses decreased $ 1.1 million in 2017 compared to 2016 . the decrease was primarily due to a $ 1.2 million decrease in member acquisition costs and a $ 415,000 decrease in salary and employee related expenses , offset partially by a $ 301,000 increase in facility costs and $ 285,000 increase in marketing costs . product development product development expenses consist primarily of salary and related expenses for software development staff , fees for professional services , software maintenance and amortization and facilities costs . product development expenses were $ 9.0 million , $ 9.2 million and $ 9.1 million for 2018 , 2017 and 2016 , respectively . product development expenses decreased $ 231,000 in 2018 compared to 2017 . the decrease was primarily due to $ 204,000 decrease in salary and employee related expenses . product development expenses decreased $ 128,000 in 2017 compared to 2016 . the increase was primarily due to an increase in professional services related in part to our continuous enhancement to our website . 39 general and administrative general and administrative expenses consist primarily of salary and related expenses for administrative and executive staff , fees for professional services , rent , bad debt expense , amortization of intangible assets , and general office expense . general and administrative expenses were $ 23.3 million , $ 22.6 million and $ 22.7 million for 2018 , 2017 and 2016 , respectively . general and administrative expenses increased $ 746,000 in 2018 compared to 2017 primarily due to increase in salary and employee related expenses . general and administrative expenses decreased $ 139,000 in 2017 compared to 2016 . the decrease was primarily due to a $ 548,000 decrease in professional services expenses related to various outside services , offset partially by a $ 435,000 increase in salary and employee related expenses . other income ( loss ) other income ( loss ) consisted primarily of foreign exchange transactions gains and losses , our share of investment gains and losses and amortization of basis differences , interest income earned on cash , cash equivalents and restricted cash as well as interest expense . other income ( loss ) was $ 48,000 , $ 173,000 and ( $ 187,000 ) for 2018 , 2017 and 2016 , respectively . other income decreased $ 125,000 from 2017 to 2018 primarily due to our share of investment losses and amortization of basis differences from weekengo in 2018. other income ( loss ) increased $ 360,000 from 2016 to 2017 primarily due to foreign exchange transaction gains in 2017. income taxes on december 22 , 2017 , the u.s. government enacted the tax cuts and jobs act ( the “ tax act ” ) . the tax act includes significant changes to the u.s. corporate income tax system including : a federal corporate rate reduction from 35 % to 21 % ; limitations on the deductibility of interest expense and executive compensation ; creation of new minimum taxes such as the base erosion anti-abuse tax ( “ beat ” ) and global intangible low taxed income ( “ gilti ” ) tax ; and the transition of u.s. international taxation from a worldwide tax system to a modified territorial tax system , which will result in a one time u.s. tax liability on those earnings which have not previously been repatriated to the u.s. ( the “ transition tax ” ) . in connection with the company 's initial analysis of the impact of the tax act , the company has recorded a provisional estimate of discrete net tax expense of $ 508,000 for the period ended december 31 , 2017. this discrete expense consists of provisional estimates of zero net expense for the transition tax , $ 173,000 net benefit for the decrease in the company 's deferred tax liability on unremitted foreign earnings , and $ 681,000 net expense for remeasurement of the company 's deferred tax assets/liabilities for the corporate rate reduction . during the year ended december 31 , 2018 , we completed our accounting for the income tax effects of the tax act . we did not recognize any additional discrete net tax expense in addition to the provisional amounts recorded at december 31 , 2017 for the enactment-date effects of the tax act , for a total of $ 508,000 of discrete net tax expense . our income is generally taxed in the u.s. , canada and u.k. our income tax provision reflects federal , state and country statutory rates applicable to our worldwide income , adjusted to take into account expenses that are treated as having no recognizable tax benefit . income tax expense was $ 3.6 million , $ 3.1 million and $ 4.0 million for 2018 , 2017 and 2016 , respectively . our effective tax rate was 44 % , 66 % , and 40 % for 2018 , 2017 and 2016 , respectively . our effective tax rate decreased for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to the change in the federal

liquidity and capital resources uses of liquidity and cash requirements our principal uses of liquidity are ( i ) distributions to our shareholders and op unit holders , ( ii ) investments which include the funding of our capital committed to the funds and property acquisitions and development/re-tenanting activities within our core portfolio , ( iii ) distributions to our fund investors , ( iv ) debt service and loan repayments and ( v ) share repurchases . distributions in order to qualify as a reit for federal income tax purposes , we must currently distribute at least 90 % of our taxable income to our shareholders . during the year ended december 31 , 2019 , we paid dividends and distributions on our common shares , common op units and preferred op units totaling $ 101.0 million . investments in real estate as previously discussed , during the year ended december 31 , 2019 , within our core and fund portfolios we invested in 20 new properties aggregating $ 514.4 million ( note 2 , note 4 , note 11 ) . for activity subsequent to december 31 , 2019 , see note 17 . structured financing investment during the year ended december 31 , 2019 , we advanced an additional $ 4.3 million on a note receivable and provided seller financing for $ 13.5 million ( note 3 ) . capital commitments during the year ended december 31 , 2019 , we made capital contributions aggregating $ 32.8 million to our funds . at december 31 , 2019 , our share of the remaining capital commitments to our funds aggregated $ 86.1 million as follows : $ 3.3 million to fund iii . fund iii was launched in may 2007 with total committed capital of $ 450.0 million of which our original share was $ 89.6 million . during 2015 , we acquired an additional interest , which had an original capital commitment of $ 20.9 million . $ 21.2 million to fund iv . fund iv was launched in may 2012 with total committed capital of $ 530.0 million of which our original share was $ 122.5 million .

in april 2018 , we entered into an agreement with weekengo , a start-up company in germany . weekengo uses new technology to promote vacation packages . we invested $ 3.0 million in weekengo for a 25 % ownership interest . see `` note 1 : summary of significant accounting policies `` to the accompanying consolidated financial statements for further information . we have three operating segments based on geographic regions : asia pacific , europe and north america . asia pacific consists of our operations in australia , china , hong kong , japan , taiwan , and southeast asia . europe consists of our operations in france , germany , spain , and the u.k. north america consists of our operations in canada and the u.s. for the year ended december 31 , 2018 , asia pacific operations were 7 % of revenues , european operations were 32 % of revenues and north american op erations were 61 % of our total revenues . financial information with respect to our business segments and certain financial information about geographic areas appears in note 10 to the accompanying consolidated financial statements . when evaluating the financial condition and operating performance of the company , management focuses on financial and non-financial indicators such as growth in the number of members to the company 's newsletters , operating margin , growth in revenues in the absolute and relative to the growth in reach of the company 's publications measured as revenue per member and revenue per employee as a measure of productivity . how we generate revenues our revenues are advertising revenues , consisting primarily of listing fees paid by travel , entertainment and local businesses to advertise their offers on travelzoo 's media properties . listing fees are based on audience reach , placement , number of listings , number of impressions , number of clicks , number of referrals , or percentage of the face value of vouchers sold . insertion orders are typically for periods between one month and twelve months and are not automatically renewed . merchant agreements for local deals and getaway advertisers are typically for twelve months and are not automatically renewed . we have two separate groups of our advertising products : travel and local . our travel category of revenue includes the publishing revenue for negotiated high-quality deals from travel companies , such as hotels , airlines , cruises or car rentals and includes products such as top 20 , the travelzoo website , newsflash , travelzoo network as well as getaway vouchers . the revenues generated from these products are based upon a fee for number of e-mails delivered to our audience , a fee for clicks delivered to the advertisers , a fee for placement of the advertising on our website or a fee based on a percentage of the face value of vouchers sold , hotel booking stays or other items sold . we recognize revenue upon delivery of the e-mails , delivery of the clicks , over the period of placement of the advertising , upon hotel booking stays and upon the sale of the vouchers or other items sold . our local category of revenue includes the publishing revenue for negotiated high-quality deals from local businesses , such as restaurants , spas , shows , and other activities and includes local deals vouchers and entertainment offers ( vouchers and direct bookings ) . the revenues generated from these products are based upon a percentage of the face value of vouchers or items sold or a fee for clicks delivered to the advertisers . we recognize revenue upon the sale of the vouchers , when we receive notification of the direct bookings or upon delivery of the clicks . the company earns a fee for acting as an agent in these 33 transactions , which is recorded on a net basis and is included in revenue upon completion of the voucher sale . certain merchant contracts in foreign locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon expiration , which we recognize as revenue based upon estimates at the time of sale . trends in our business our ability to generate revenues in the future depends on numerous factors such as our ability to sell more advertising to existing and new advertisers , our ability to increase our audience reach and advertising rates , our ability to have sufficient supply of hotels offered at competitive rates , and our ability to develop and launch new products . our current revenue model primarily depends on advertising fees paid primarily by travel , entertainment and local businesses . a number of factors can influence whether current and new advertisers decide to advertise their offers with us . we have been impacted and expect to continue to be impacted by external factors such as the shift from offline to online advertising , the relative condition of the economy , competition and the introduction of new methods of advertising , and the decline in consumer demand for vouchers . a number of factors will have impact on our revenue , such as the reduction in spending by travel intermediaries due to their focus on improving profitability , the trend towards mobile usage by consumers , the willingness of consumers to purchase the deals we advertise , and the willingness of certain competitors to grow their business unprofitably . in addition , we have been impacted and expect to continue to be impacted by internal factors such as introduction of new advertising products , hiring and relying on key employees for the continued maintenance and growth of our business and ensuring our advertising products continue to attract the audience that advertisers desire . existing advertisers may shift from one advertising service ( e.g . top 20 ) to another ( e.g . local deals and getaway ) . story_separator_special_tag million and $ 58.4 million for 2018 , 2017 and 2016 , respectively . advertising expenses accounted for 14 % , 15 % and 18 % , respectively , of total sales and marketing expenses and consisted primarily of online advertising , which we refer to as traffic acquisition cost and member acquisition costs . the goal of our advertising was to acquire new members for our e-mail products , increase the traffic to our websites and increase brand awareness . sales and marketing expenses increased $ 1.2 million in 2018 compared to 2017 . the increase was primarily due to a $ 1.2 million increase in trade , commerce and brand marketing expenses and a $ 688,000 increase in salary , employee and contractor related expenses offset partially by a $ 659,000 decrease in member acquisition costs . sales and marketing expenses decreased $ 1.1 million in 2017 compared to 2016 . the decrease was primarily due to a $ 1.2 million decrease in member acquisition costs and a $ 415,000 decrease in salary and employee related expenses , offset partially by a $ 301,000 increase in facility costs and $ 285,000 increase in marketing costs . product development product development expenses consist primarily of salary and related expenses for software development staff , fees for professional services , software maintenance and amortization and facilities costs . product development expenses were $ 9.0 million , $ 9.2 million and $ 9.1 million for 2018 , 2017 and 2016 , respectively . product development expenses decreased $ 231,000 in 2018 compared to 2017 . the decrease was primarily due to $ 204,000 decrease in salary and employee related expenses . product development expenses decreased $ 128,000 in 2017 compared to 2016 . the increase was primarily due to an increase in professional services related in part to our continuous enhancement to our website . 39 general and administrative general and administrative expenses consist primarily of salary and related expenses for administrative and executive staff , fees for professional services , rent , bad debt expense , amortization of intangible assets , and general office expense . general and administrative expenses were $ 23.3 million , $ 22.6 million and $ 22.7 million for 2018 , 2017 and 2016 , respectively . general and administrative expenses increased $ 746,000 in 2018 compared to 2017 primarily due to increase in salary and employee related expenses . general and administrative expenses decreased $ 139,000 in 2017 compared to 2016 . the decrease was primarily due to a $ 548,000 decrease in professional services expenses related to various outside services , offset partially by a $ 435,000 increase in salary and employee related expenses . other income ( loss ) other income ( loss ) consisted primarily of foreign exchange transactions gains and losses , our share of investment gains and losses and amortization of basis differences , interest income earned on cash , cash equivalents and restricted cash as well as interest expense . other income ( loss ) was $ 48,000 , $ 173,000 and ( $ 187,000 ) for 2018 , 2017 and 2016 , respectively . other income decreased $ 125,000 from 2017 to 2018 primarily due to our share of investment losses and amortization of basis differences from weekengo in 2018. other income ( loss ) increased $ 360,000 from 2016 to 2017 primarily due to foreign exchange transaction gains in 2017. income taxes on december 22 , 2017 , the u.s. government enacted the tax cuts and jobs act ( the “ tax act ” ) . the tax act includes significant changes to the u.s. corporate income tax system including : a federal corporate rate reduction from 35 % to 21 % ; limitations on the deductibility of interest expense and executive compensation ; creation of new minimum taxes such as the base erosion anti-abuse tax ( “ beat ” ) and global intangible low taxed income ( “ gilti ” ) tax ; and the transition of u.s. international taxation from a worldwide tax system to a modified territorial tax system , which will result in a one time u.s. tax liability on those earnings which have not previously been repatriated to the u.s. ( the “ transition tax ” ) . in connection with the company 's initial analysis of the impact of the tax act , the company has recorded a provisional estimate of discrete net tax expense of $ 508,000 for the period ended december 31 , 2017. this discrete expense consists of provisional estimates of zero net expense for the transition tax , $ 173,000 net benefit for the decrease in the company 's deferred tax liability on unremitted foreign earnings , and $ 681,000 net expense for remeasurement of the company 's deferred tax assets/liabilities for the corporate rate reduction . during the year ended december 31 , 2018 , we completed our accounting for the income tax effects of the tax act . we did not recognize any additional discrete net tax expense in addition to the provisional amounts recorded at december 31 , 2017 for the enactment-date effects of the tax act , for a total of $ 508,000 of discrete net tax expense . our income is generally taxed in the u.s. , canada and u.k. our income tax provision reflects federal , state and country statutory rates applicable to our worldwide income , adjusted to take into account expenses that are treated as having no recognizable tax benefit . income tax expense was $ 3.6 million , $ 3.1 million and $ 4.0 million for 2018 , 2017 and 2016 , respectively . our effective tax rate was 44 % , 66 % , and 40 % for 2018 , 2017 and 2016 , respectively . our effective tax rate decreased for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to the change in the federal

liquidity and capital resources as of december 31 , 2018 , we had $ 18.0 million in cash and cash equivalents , of which $ 12.9 million was held outside the u.s. in certain of our foreign operations . if these assets are distributed to the u.s. , we may be subject to additional u.s. taxes in certain circumstances . cash and cash equivalents decreased from $ 22.6 million as of december 31 , 2017 primarily as a result of cash used for repurchases of our common stock and our equity investment in weekengo . we expect that cash on hand will be sufficient to provide for working capital needs for at least the next twelve months . replace_table_token_11_th net cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities . net cash provided by operating activities was $ 5.3 million for 2018 , which consisted of a net income of $ 4.7 million , adjustments for non-cash items of $ 2.5 million , offset partially a $ 1.9 million decrease in cash from changes in operating assets and liabilities . a dj ustments for non-cash items primarily consisted of a $ 1.8 million of depreciation and amortization expense on property and equipment and a $ 915,000 of stock-based compensation expense . the decrease in cash from changes in operating assets and liabilities primarily consisted of a $ 1.5 million increase in accounts receivable . net cash provided by operating activities was $ 2.1 million for 2017 , which consisted of a net income of $ 3.5 million , adjustments for non-cash items of $ 265,000 , offset partially a $ 1.7 million decrease in cash from changes in operating assets and liabilities . a dj ustments for non-cash items primarily consisted of the $ 2.9 million discontinued operations gain on the sale of the fly.com domain name , offset by $ 2.1 million of depreciation and amortization expense on property and equipment and $ 1.0 million of stock-based compensation expense .

historically , initial demand for our hospitality services has been driven by our customers ' capital spending programs related to the construction and development of oil sands and coal mines and associated infrastructure , as well as the exploration for oil and natural gas . long-term demand for our services has been driven by continued development and expansion of natural resource production and operation of oil sands and mining facilities . in general , industry capital spending programs are based on the outlook for commodity prices , economic growth , global commodity supply/demand dynamics and estimates of resource production . as a result , demand for our hospitality services is largely sensitive to expected commodity prices , principally related to oil , met coal and iron ore. 47 in canada , wcs crude is the benchmark price for our oil sands customers . pricing for wcs is driven by several factors , including the underlying price for wti crude , the availability of transportation infrastructure ( consisting of pipelines and crude by railcar ) and recent actions by the alberta provincial government to limit oil production from the province . historically , wcs has traded at a discount to wti , creating a “ wcs differential , ” due to transportation costs and limited capacity to move canadian heavy oil production to refineries , primarily along the u.s. gulf coast . the wcs differential has varied depending on the extent of transportation capacity availability . during the first quarter of 2016 , global oil prices dropped to their lowest levels in over ten years due to concerns over global oil demand , global crude inventory levels , worldwide economic growth and price cutting by major oil producing countries , such as saudi arabia . increasing global supply , including increased u.s. shale oil production , also negatively impacted pricing . although prices began to increase in 2016 and continued to increase through the third quarter of 2018 due to global oil production cuts rebalancing supply/demand dynamics , oil prices decreased again during the fourth quarter of 2018 as opec oil production ramped up once again despite more concerns of decreasing global oil demand . in the first half of 2019 , positive oil price trends are primarily related to opec oil production falling faster than the markets expected , leading to a more positive oil environment throughout the first half of the year . oil prices have fallen since early summer due to continued demand growth volatility and fear of a global economic slowdown . in addition , global health concerns , including the outbreak of pandemic or contagious disease , such as the recent coronavirus , have recently reduced prices for oil , as well as met coal and iron ore , because of reduced global and national economic demand . wcs prices in the fourth quarter of 2019 averaged $ 37.94 per barrel compared to a low of $ 20.26 in the first quarter of 2016 and a high of $ 49.93 in the second quarter of 2018. the wcs differential increased from $ 15.75 per barrel at the end of the fourth quarter of 2018 to $ 22.49 at the end of the fourth quarter 2019. on december 2 , 2018 , the government of alberta announced it would mandate temporary curtailments of the province 's oil production and has extended the curtailment through 2020. this curtailment initially resulted in a narrowing wcs differential in december 2018 , which increased in 2019 before narrowing again in the first quarter of 2020. as of february 21 , 2020 , the wti price was $ 53.30 and the wcs price was $ 36.64 , resulting in a wcs differential of $ 16.66 . there remains a risk that prices for canadian oil sands crude oil related products could deteriorate for an extended period of time , and the discount between wcs crude prices and wti crude prices could continue to widen . the depressed price levels through the first quarter of 2016 negatively impacted exploration , development , maintenance and production spending and activity by canadian operators and , therefore , demand for our hospitality services . although we have seen an increase in oil prices since late 2016 and through 2019 , we are not expecting significant improvement in customer activity in the near-term , partially due to the volatility in the wcs differential discussed above . the current outlook for expansionary projects in canada is primarily related to proposed pipeline and in-situ oil sands projects . however , continued uncertainty and commodity price volatility and regulatory complications could cause our canadian oil sands and pipeline customers to delay expansionary and maintenance spending and defer additional investments in their oil sands assets . additionally , if oil prices decline , the resulting impact could negatively affect the value of our long-lived assets , including goodwill . our sitka lodge supports the british columbia lng market and related pipeline projects . from a macroeconomic standpoint , global lng imports set a record in 2018 , reaching 308 million tonnes per annum , up from 284 million tonnes per annum in 2017 , reinforcing the need for the global lng industry to expand access to natural gas . evolving government energy policies around the world have amplified support for cleaner energy supply , creating more opportunities for natural gas and lng . accordingly , the current view is additional investment in lng supply will be needed to meet the expected long-term lng demand growth . currently , western canada does not have any operational lng export facilities . story_separator_special_tag as of june 30 , 2019. we recorded pre-tax impairment expense of $ 28.7 million in the first quarter of 2018 associated with long-lived assets in our canadian segment . please see note 4 - impairment charges to the notes to the consolidated financial statements included in item 8 of this annual report for further discussion . operating loss . operating loss decreased $ 39.0 million , or 44 % , in 2019 compared to 2018 primarily due to increased activity levels in certain canadian and australian markets and lower impairment , sg & a and depreciation and amortization expenses . interest expense and income , net . net interest expense increased $ 0.5 million , or 2 % , in 2019 compared to 2018 , primarily related to higher average debt levels and higher interest rates on term loan and revolving credit facility borrowings during 2019 compared to 2018 , partially offset by the 2018 write-off of $ 0.7 million of debt issuance costs associated with our credit agreement . other income . other income increased $ 5.7 million , or 349 % , in 2019 compared to 2018 , primarily due to $ 2.6 million of other income for proceeds received in 2019 from a property damage and business interruption insurance claim related to the closure of a lodge in 2018 for maintenance-related operational issues . in addition , a higher gain on sale of assets in 2019 53 compared to 2018 was related to the sale of a village in australia and related $ 2.2 million release of an aro liability assumed by the buyer in 2019 . income tax benefit . our income tax benefit for 2019 totaled $ 10.7 million , or 15.5 % of pretax loss , compared to a benefit of $ 31.4 million , or 27.7 % of pretax loss for 2018. our effective tax rate for 2019 was lower than the canadian combined federal and provincial statutory rate of 26.5 % , primarily due to the canadian goodwill impairment of $ 19.9 million and a release of a valuation allowance of $ 2.3 million against the net deferred tax assets in australia due to the action acquisition . this was partially offset by pre-tax losses in australia and the u.s. for which no tax benefit was recorded . as a result , a valuation allowance of $ 3.2 million was established against net deferred tax assets in the u.s. and australia . our effective tax rate for 2018 was higher than the canadian ( combined federal and provincial ) statutory rate of 27 % , primarily due to the release of a valuation allowance of $ 4.9 million against the net deferred tax assets in canada due to canada no longer being considered a loss jurisdiction . this was partially offset by pre-tax losses in australia and the u.s. for which no tax benefit was recorded . as a result , a valuation allowance of $ 4.6 million was established against net deferred tax assets in the u.s. and australia . dividends attributable to preferred shares . we recorded dividends attributable to preferred shares of $ 49.6 million in 2018 primarily resulting from a beneficial conversion factor associated with the preferred shares issued as part of the noralta acquisition . please see note 20 – preferred shares to the notes to the consolidated financial statements included in item 8 of this annual report for further discussion . other comprehensive income ( loss ) . other comprehensive income increased $ 51.1 million in 2019 compared to 2018 primarily as a result of foreign currency translation adjustments due to changes in the canadian and australian dollar exchange rates compared to the u.s. dollar . the canadian dollar exchange rate compared to the u.s. dollar increased 5 % in 2019 compared to a 9 % decrease in 2018 . the australian dollar exchange rate compared to the u.s. dollar was flat in 2019 compared to an 10 % decrease in 2018 . 54 segment results of operations – canadian segment replace_table_token_12_th ( 1 ) includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented . ( 2 ) includes revenues related to mobile camps for the periods presented . ( 3 ) includes revenues related to food service , laundry and water and wastewater treatment services for the periods presented . ( 4 ) includes revenues related to modular construction and manufacturing services for the periods presented . ( 5 ) average daily rate is based on billed rooms and accommodation revenue . ( 6 ) billed rooms represents total billed days for the periods presented . our canadian segment reported revenues in 2019 that were $ 29.6 million , or 10 % , higher than 2018 . the weakening of the average exchange rates for the canadian dollar relative to the u.s. dollar by 2 % in 2019 compared to 2018 resulted in a $ 7.4 million period-over-period decrease in revenues . excluding the impact of the weaker canadian exchange rates , the segment experienced a 13 % increase in revenues . this increase was driven by higher room demand at our sitka lodge related to a lng project and the noralta acquisition in the second quarter of 2018 , partially offset by lower room demand during 2019 from major customers in our core oil sands lodges . this lower room demand was related to a reduced impact of large customer turnaround projects and the continued impact of provincially imposed oil production curtailments . additionally , revenue was favorably impacted by increased food service and other services activity due to a new contract with an oil sands customer . our canadian segment cost of sales and services increased $ 12.4 million , or 5 % , in 2019 compared to 2018 . the weakening of the average exchange rates for the canadian dollar relative to the u.s. dollar by 2 % in 2019 compared to 2018 resulted

liquidity and capital resources as of december 31 , 2018 , we had $ 18.0 million in cash and cash equivalents , of which $ 12.9 million was held outside the u.s. in certain of our foreign operations . if these assets are distributed to the u.s. , we may be subject to additional u.s. taxes in certain circumstances . cash and cash equivalents decreased from $ 22.6 million as of december 31 , 2017 primarily as a result of cash used for repurchases of our common stock and our equity investment in weekengo . we expect that cash on hand will be sufficient to provide for working capital needs for at least the next twelve months . replace_table_token_11_th net cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities . net cash provided by operating activities was $ 5.3 million for 2018 , which consisted of a net income of $ 4.7 million , adjustments for non-cash items of $ 2.5 million , offset partially a $ 1.9 million decrease in cash from changes in operating assets and liabilities . a dj ustments for non-cash items primarily consisted of a $ 1.8 million of depreciation and amortization expense on property and equipment and a $ 915,000 of stock-based compensation expense . the decrease in cash from changes in operating assets and liabilities primarily consisted of a $ 1.5 million increase in accounts receivable . net cash provided by operating activities was $ 2.1 million for 2017 , which consisted of a net income of $ 3.5 million , adjustments for non-cash items of $ 265,000 , offset partially a $ 1.7 million decrease in cash from changes in operating assets and liabilities . a dj ustments for non-cash items primarily consisted of the $ 2.9 million discontinued operations gain on the sale of the fly.com domain name , offset by $ 2.1 million of depreciation and amortization expense on property and equipment and $ 1.0 million of stock-based compensation expense .

historically , initial demand for our hospitality services has been driven by our customers ' capital spending programs related to the construction and development of oil sands and coal mines and associated infrastructure , as well as the exploration for oil and natural gas . long-term demand for our services has been driven by continued development and expansion of natural resource production and operation of oil sands and mining facilities . in general , industry capital spending programs are based on the outlook for commodity prices , economic growth , global commodity supply/demand dynamics and estimates of resource production . as a result , demand for our hospitality services is largely sensitive to expected commodity prices , principally related to oil , met coal and iron ore. 47 in canada , wcs crude is the benchmark price for our oil sands customers . pricing for wcs is driven by several factors , including the underlying price for wti crude , the availability of transportation infrastructure ( consisting of pipelines and crude by railcar ) and recent actions by the alberta provincial government to limit oil production from the province . historically , wcs has traded at a discount to wti , creating a “ wcs differential , ” due to transportation costs and limited capacity to move canadian heavy oil production to refineries , primarily along the u.s. gulf coast . the wcs differential has varied depending on the extent of transportation capacity availability . during the first quarter of 2016 , global oil prices dropped to their lowest levels in over ten years due to concerns over global oil demand , global crude inventory levels , worldwide economic growth and price cutting by major oil producing countries , such as saudi arabia . increasing global supply , including increased u.s. shale oil production , also negatively impacted pricing . although prices began to increase in 2016 and continued to increase through the third quarter of 2018 due to global oil production cuts rebalancing supply/demand dynamics , oil prices decreased again during the fourth quarter of 2018 as opec oil production ramped up once again despite more concerns of decreasing global oil demand . in the first half of 2019 , positive oil price trends are primarily related to opec oil production falling faster than the markets expected , leading to a more positive oil environment throughout the first half of the year . oil prices have fallen since early summer due to continued demand growth volatility and fear of a global economic slowdown . in addition , global health concerns , including the outbreak of pandemic or contagious disease , such as the recent coronavirus , have recently reduced prices for oil , as well as met coal and iron ore , because of reduced global and national economic demand . wcs prices in the fourth quarter of 2019 averaged $ 37.94 per barrel compared to a low of $ 20.26 in the first quarter of 2016 and a high of $ 49.93 in the second quarter of 2018. the wcs differential increased from $ 15.75 per barrel at the end of the fourth quarter of 2018 to $ 22.49 at the end of the fourth quarter 2019. on december 2 , 2018 , the government of alberta announced it would mandate temporary curtailments of the province 's oil production and has extended the curtailment through 2020. this curtailment initially resulted in a narrowing wcs differential in december 2018 , which increased in 2019 before narrowing again in the first quarter of 2020. as of february 21 , 2020 , the wti price was $ 53.30 and the wcs price was $ 36.64 , resulting in a wcs differential of $ 16.66 . there remains a risk that prices for canadian oil sands crude oil related products could deteriorate for an extended period of time , and the discount between wcs crude prices and wti crude prices could continue to widen . the depressed price levels through the first quarter of 2016 negatively impacted exploration , development , maintenance and production spending and activity by canadian operators and , therefore , demand for our hospitality services . although we have seen an increase in oil prices since late 2016 and through 2019 , we are not expecting significant improvement in customer activity in the near-term , partially due to the volatility in the wcs differential discussed above . the current outlook for expansionary projects in canada is primarily related to proposed pipeline and in-situ oil sands projects . however , continued uncertainty and commodity price volatility and regulatory complications could cause our canadian oil sands and pipeline customers to delay expansionary and maintenance spending and defer additional investments in their oil sands assets . additionally , if oil prices decline , the resulting impact could negatively affect the value of our long-lived assets , including goodwill . our sitka lodge supports the british columbia lng market and related pipeline projects . from a macroeconomic standpoint , global lng imports set a record in 2018 , reaching 308 million tonnes per annum , up from 284 million tonnes per annum in 2017 , reinforcing the need for the global lng industry to expand access to natural gas . evolving government energy policies around the world have amplified support for cleaner energy supply , creating more opportunities for natural gas and lng . accordingly , the current view is additional investment in lng supply will be needed to meet the expected long-term lng demand growth . currently , western canada does not have any operational lng export facilities . story_separator_special_tag as of june 30 , 2019. we recorded pre-tax impairment expense of $ 28.7 million in the first quarter of 2018 associated with long-lived assets in our canadian segment . please see note 4 - impairment charges to the notes to the consolidated financial statements included in item 8 of this annual report for further discussion . operating loss . operating loss decreased $ 39.0 million , or 44 % , in 2019 compared to 2018 primarily due to increased activity levels in certain canadian and australian markets and lower impairment , sg & a and depreciation and amortization expenses . interest expense and income , net . net interest expense increased $ 0.5 million , or 2 % , in 2019 compared to 2018 , primarily related to higher average debt levels and higher interest rates on term loan and revolving credit facility borrowings during 2019 compared to 2018 , partially offset by the 2018 write-off of $ 0.7 million of debt issuance costs associated with our credit agreement . other income . other income increased $ 5.7 million , or 349 % , in 2019 compared to 2018 , primarily due to $ 2.6 million of other income for proceeds received in 2019 from a property damage and business interruption insurance claim related to the closure of a lodge in 2018 for maintenance-related operational issues . in addition , a higher gain on sale of assets in 2019 53 compared to 2018 was related to the sale of a village in australia and related $ 2.2 million release of an aro liability assumed by the buyer in 2019 . income tax benefit . our income tax benefit for 2019 totaled $ 10.7 million , or 15.5 % of pretax loss , compared to a benefit of $ 31.4 million , or 27.7 % of pretax loss for 2018. our effective tax rate for 2019 was lower than the canadian combined federal and provincial statutory rate of 26.5 % , primarily due to the canadian goodwill impairment of $ 19.9 million and a release of a valuation allowance of $ 2.3 million against the net deferred tax assets in australia due to the action acquisition . this was partially offset by pre-tax losses in australia and the u.s. for which no tax benefit was recorded . as a result , a valuation allowance of $ 3.2 million was established against net deferred tax assets in the u.s. and australia . our effective tax rate for 2018 was higher than the canadian ( combined federal and provincial ) statutory rate of 27 % , primarily due to the release of a valuation allowance of $ 4.9 million against the net deferred tax assets in canada due to canada no longer being considered a loss jurisdiction . this was partially offset by pre-tax losses in australia and the u.s. for which no tax benefit was recorded . as a result , a valuation allowance of $ 4.6 million was established against net deferred tax assets in the u.s. and australia . dividends attributable to preferred shares . we recorded dividends attributable to preferred shares of $ 49.6 million in 2018 primarily resulting from a beneficial conversion factor associated with the preferred shares issued as part of the noralta acquisition . please see note 20 – preferred shares to the notes to the consolidated financial statements included in item 8 of this annual report for further discussion . other comprehensive income ( loss ) . other comprehensive income increased $ 51.1 million in 2019 compared to 2018 primarily as a result of foreign currency translation adjustments due to changes in the canadian and australian dollar exchange rates compared to the u.s. dollar . the canadian dollar exchange rate compared to the u.s. dollar increased 5 % in 2019 compared to a 9 % decrease in 2018 . the australian dollar exchange rate compared to the u.s. dollar was flat in 2019 compared to an 10 % decrease in 2018 . 54 segment results of operations – canadian segment replace_table_token_12_th ( 1 ) includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented . ( 2 ) includes revenues related to mobile camps for the periods presented . ( 3 ) includes revenues related to food service , laundry and water and wastewater treatment services for the periods presented . ( 4 ) includes revenues related to modular construction and manufacturing services for the periods presented . ( 5 ) average daily rate is based on billed rooms and accommodation revenue . ( 6 ) billed rooms represents total billed days for the periods presented . our canadian segment reported revenues in 2019 that were $ 29.6 million , or 10 % , higher than 2018 . the weakening of the average exchange rates for the canadian dollar relative to the u.s. dollar by 2 % in 2019 compared to 2018 resulted in a $ 7.4 million period-over-period decrease in revenues . excluding the impact of the weaker canadian exchange rates , the segment experienced a 13 % increase in revenues . this increase was driven by higher room demand at our sitka lodge related to a lng project and the noralta acquisition in the second quarter of 2018 , partially offset by lower room demand during 2019 from major customers in our core oil sands lodges . this lower room demand was related to a reduced impact of large customer turnaround projects and the continued impact of provincially imposed oil production curtailments . additionally , revenue was favorably impacted by increased food service and other services activity due to a new contract with an oil sands customer . our canadian segment cost of sales and services increased $ 12.4 million , or 5 % , in 2019 compared to 2018 . the weakening of the average exchange rates for the canadian dollar relative to the u.s. dollar by 2 % in 2019 compared to 2018 resulted

cash totaling $ 74.5 million was provided by operations during 2019 compared to $ 54.4 million provided by operations during 2018 . the increase in operating cash flow in 2019 compared to 2018 was primarily due to increased earnings in certain canadian and australian markets , partially offset by higher cash used by working capital . net cash used by changes in operating assets and liabilities was $ 14.3 million during 2019 compared to $ 1.6 million during 2018 . the increase in cash used in 2019 compared to 2018 was primarily the result of increased accounts receivable balances in canada , offset by increased accounts payable . cash was used in investing activities during 2019 and 2018 in the amounts of $ 38.6 million and $ 181.9 million , respectively . the decrease in cash used in investing activities in 2019 compared to 2018 was primarily due to $ 161.4 million to fund the noralta acquisition and $ 23.8 million to fund the acadian acres asset acquisition in 2018. this compares to $ 16.9 million to fund the action acquisition in 2019 . capital expenditures totaled $ 29.8 million and $ 17.1 million during 2019 and 2018 , respectively . the increase in capital expenditures in 2019 was related primarily to the expansion of the sitka lodge . capital expenditures in 2018 consisted primarily of routine maintenance capital expenditures . we expect our capital expenditures for 2020 , exclusive of any business acquisitions , to be in the range of $ 18.0 million to $ 22.0 million , which excludes any unannounced and uncommitted projects , the spending for which is contingent on obtaining customer contracts . whether planned expenditures will actually be spent in 2020 depends on industry conditions , project approvals and schedules , customer room commitments and project and construction timing . we expect to fund these capital expenditures with available cash , cash flow from operations and revolving credit borrowings under our credit agreement .

these declines were partially offset by higher tire unit volume , primarily in asia pacific . goodyear net income in 2015 was $ 307 million , compared to goodyear net income of $ 2,452 million in 2014 , and goodyear net income available to common shareholders was $ 307 million , or $ 1.12 per diluted share , compared to goodyear net income available to common shareholders of $ 2,445 million , or $ 8.78 per diluted share , in 2014 . the decrease in goodyear net income in 2015 compared to 2014 was primarily driven by an increase in income tax expense in 2015 as a result of the reversal of the valuation allowance on our u.s. deferred tax assets in the fourth quarter of 2014 and the loss on the deconsolidation of our venezuelan subsidiary , partially offset by the improvement in segment operating income and other ( income ) expense . other ( income ) expense in 2015 included increased royalty income due to the termination of a licensing agreement associated with the sale of our former engineered products business , the gain on the dissolution of the global alliance with sri and a benefit in general and product liability — discontinued products from the recovery of past costs from an asbestos insurer and changes in assumptions for probable insurance recoveries for asbestos claims . 22 our total segment operating income for 2015 was $ 2,022 million , compared to $ 1,712 million in 2014 . the $ 310 million , or 18.1 % , increase in segment operating income was due primarily to a decline in raw material costs of $ 594 million , which more than offset the impact of higher conversion costs of $ 149 million , unfavorable foreign currency translation of $ 145 million and higher selling , administrative and general expense ( `` sag `` ) of $ 70 million . segment operating income also benefited by an improvement in volume of $ 74 million . refer to `` results of operations — segment information ” for additional information . in order to drive future growth and address the volatile economic environment , we remain focused on our key strategies : continuing to focus on market-back product development ; taking a selective approach to the market , targeting profitable segments where we have competitive advantages ; improving our manufacturing efficiency and creating an advantaged supply chain focused on reducing our total delivered costs , optimizing working capital levels and delivering best in industry customer service ; focusing on cash flow to provide funding for our capital allocation plan described below ; and building top talent and teams . on february 9 , 2016 , we announced a $ 650 million increase in our share repurchase program , bringing the total authorized amount under that program to $ 1.1 billion . additionally , effective december 1 , 2015 , we increased the quarterly cash dividend on our common stock from $ 0.06 per share to $ 0.07 per share . our capital allocation plan also provides for capital expenditures , debt repayments and pension funding , and restructuring payments . refer to “ liquidity and capital resources — overview ” for additional information . pension and benefit plans at december 31 , 2015 , our unfunded global pension liability was $ 642 million , compared to $ 714 million at december 31 , 2014. as a result of the deconsolidation of our venezuelan subsidiary , the december 31 , 2015 unfunded global pension liability excludes $ 80 million of pension liabilities related to our venezuela pension plan . the unfunded global pension liability of $ 714 million at december 31 , 2014 included $ 43 million related to venezuela . our u.s. pension strategy includes the accelerated funding of pension plans in conjunction with significantly reducing exposure in the investment portfolio of those plans to future equity market movements . the fixed income investments held for these plans are designed to offset the subsequent impact of discount rate movements on the plans ' benefit obligations so that the funded status remains stable . the strategy also provides for the opportunistic settling of pension obligations when conditions warrant . during 2013 and 2014 , we contributed $ 2,035 million to fully fund our u.s. pension plans . consistent with our pension strategy , we transitioned those plans ' asset allocations to a portfolio of substantially all fixed income securities designed to offset subsequent changes in discount rates . as a result of the full funding of our hourly u.s. pension plans in 2014 , the pension benefits for hourly associates were frozen in 2014 , and these associates now receive company contributions to a defined contribution plan . our salaried u.s. pension plans were previously frozen . during 2015 , we completed programs to offer lump sums over a limited time to certain former employees in our u.s. pension plans . payments of $ 190 million related to this offer were made from existing plan assets to approximately 7,000 former employees who elected to receive a lump sum . as a result , total lump sum payments from these plans exceeded annual service and interest cost in 2015 ; therefore , we recognized a pre-tax corporate pension settlement charge of $ 137 million in the fourth quarter of 2015. these actions continue to provide stability to our funded status , improve our earnings and operating cash flow , and provide greater transparency to our underlying tire business . story_separator_special_tag other ( income ) expense also included financing fees and financial instruments expense of $ 111 million in 2015 , increasing $ 34 million from $ 77 million in 2014 . financing fees and financial instruments expense consists of the amortization of deferred financing fees , commitment fees and charges incurred in connection with financing transactions . financing fees in 2015 included a charge of $ 57 million ( $ 35 million after-tax and minority ) primarily related to a $ 41 million redemption premium and $ 14 million of expense for the write-off of deferred financing fees and unamortized discount related to the redemption of the $ 1.0 billion 8.25 % senior notes due 2020. other ( income ) expense in 2015 also included net gains on asset sales of $ 71 million ( $ 60 million after-tax and minority ) compared to net gains on asset sales of $ 3 million ( $ 4 million after-tax and minority ) in 2014. net gains on asset sales in 2015 included a net gain of $ 48 million ( $ 38 million after-tax and minority ) related to the dissolution of the global alliance with sri and a gain of $ 30 million ( $ 32 million after-tax and minority ) on the sale of our investment in shares of sri . refer to the note to the consolidated financial statements no . 5 , dissolution of global alliance with sumitomo rubber industries . net gains on asset sales in 2015 also included losses of $ 14 million in emea , primarily related to the sales of certain sub-saharan africa retail businesses . other ( income ) expense in 2015 and 2014 included charges of $ 4 million ( $ 4 million after-tax and minority ) and $ 22 million ( $ 22 million after-tax and minority ) , respectively , for labor claims related to a previously closed facility in greece . other ( income ) expense in 2014 also included charges of $ 16 million ( $ 16 million after-tax and minority ) related to a government investigation involving our compliance with the u.s. foreign corrupt practices act in certain countries in africa . for further information , refer to the note to the consolidated financial statements no . 4 , other ( income ) expense . income taxes income tax expense in 2015 was $ 232 million on income before income taxes of $ 608 million . for 2014 , income tax benefit was $ 1,834 million on income before income taxes of $ 687 million . the increase in income taxes for 2015 compared to 2014 was primarily due to the reversal of the tax valuation allowance on our net u.s. deferred tax assets in the fourth quarter of 2014. income tax expense for 2015 included discrete net tax benefits of $ 18 million ( $ 18 million after minority interest ) , due primarily to a $ 9 million benefit from the conclusion of non-u.s. tax claims and an $ 8 million benefit from the release of a valuation allowance related to u.s. state deferred tax assets . income tax benefit in 2014 was favorably impacted by $ 1,980 million ( $ 1,981 million after minority interest ) of discrete tax adjustments , including a benefit of $ 2,179 million from the december 31 , 2014 release of substantially all of the valuation allowance on our net u.s. deferred tax assets as discussed further below , partially offset by charges of $ 131 million to record deferred taxes on certain undistributed earnings of certain foreign subsidiaries . the 2014 income tax benefit also included charges of $ 37 million to establish valuation allowances on the net deferred tax assets of our venezuelan and brazilian subsidiaries , due to continuing operating losses and currency devaluations in venezuela , a charge of $ 9 million to establish a valuation allowance on the net deferred tax assets of a luxembourg subsidiary , and a charge of $ 11 million due to an enacted law change in chile . in 2015 , in addition to the items noted above , the difference between our effective tax rate and the u.s. statutory rate was primarily due to certain of our foreign subsidiaries continuing to maintain a full valuation allowance against their net deferred tax assets , the realization of $ 55 million of u.s. tax credits as a result of certain subsidiary dividend payments and legislation enacted in the fourth quarter of 2015 and $ 69 million of tax benefits related to the deconsolidation of our venezuelan subsidiary . at december 31 , 2015 , our valuation allowance on certain of our u.s. federal , state and local deferred tax assets was $ 98 million and our valuation allowance on our foreign deferred tax assets was $ 523 million . 27 our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of our net deferred tax assets . each reporting period we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize these existing deferred tax assets . if recent positive evidence provided by the profitability in certain emea subsidiaries continues , it will provide us the opportunity to apply greater significance to our forecasts in assessing the need for a valuation allowance . we believe it is reasonably possible that sufficient positive evidence required to release all , or a portion , of these valuation allowances will exist within the next twelve months . this may result in a reduction of the valuation allowance and one-time tax benefit of up to $ 275 million ( $ 275 million after minority interest ) . for further information , refer to the note to the consolidated financial statements no . 6 , income taxes . minority shareholders ' net income minority shareholders ' net income was $ 69

cash totaling $ 74.5 million was provided by operations during 2019 compared to $ 54.4 million provided by operations during 2018 . the increase in operating cash flow in 2019 compared to 2018 was primarily due to increased earnings in certain canadian and australian markets , partially offset by higher cash used by working capital . net cash used by changes in operating assets and liabilities was $ 14.3 million during 2019 compared to $ 1.6 million during 2018 . the increase in cash used in 2019 compared to 2018 was primarily the result of increased accounts receivable balances in canada , offset by increased accounts payable . cash was used in investing activities during 2019 and 2018 in the amounts of $ 38.6 million and $ 181.9 million , respectively . the decrease in cash used in investing activities in 2019 compared to 2018 was primarily due to $ 161.4 million to fund the noralta acquisition and $ 23.8 million to fund the acadian acres asset acquisition in 2018. this compares to $ 16.9 million to fund the action acquisition in 2019 . capital expenditures totaled $ 29.8 million and $ 17.1 million during 2019 and 2018 , respectively . the increase in capital expenditures in 2019 was related primarily to the expansion of the sitka lodge . capital expenditures in 2018 consisted primarily of routine maintenance capital expenditures . we expect our capital expenditures for 2020 , exclusive of any business acquisitions , to be in the range of $ 18.0 million to $ 22.0 million , which excludes any unannounced and uncommitted projects , the spending for which is contingent on obtaining customer contracts . whether planned expenditures will actually be spent in 2020 depends on industry conditions , project approvals and schedules , customer room commitments and project and construction timing . we expect to fund these capital expenditures with available cash , cash flow from operations and revolving credit borrowings under our credit agreement .

these declines were partially offset by higher tire unit volume , primarily in asia pacific . goodyear net income in 2015 was $ 307 million , compared to goodyear net income of $ 2,452 million in 2014 , and goodyear net income available to common shareholders was $ 307 million , or $ 1.12 per diluted share , compared to goodyear net income available to common shareholders of $ 2,445 million , or $ 8.78 per diluted share , in 2014 . the decrease in goodyear net income in 2015 compared to 2014 was primarily driven by an increase in income tax expense in 2015 as a result of the reversal of the valuation allowance on our u.s. deferred tax assets in the fourth quarter of 2014 and the loss on the deconsolidation of our venezuelan subsidiary , partially offset by the improvement in segment operating income and other ( income ) expense . other ( income ) expense in 2015 included increased royalty income due to the termination of a licensing agreement associated with the sale of our former engineered products business , the gain on the dissolution of the global alliance with sri and a benefit in general and product liability — discontinued products from the recovery of past costs from an asbestos insurer and changes in assumptions for probable insurance recoveries for asbestos claims . 22 our total segment operating income for 2015 was $ 2,022 million , compared to $ 1,712 million in 2014 . the $ 310 million , or 18.1 % , increase in segment operating income was due primarily to a decline in raw material costs of $ 594 million , which more than offset the impact of higher conversion costs of $ 149 million , unfavorable foreign currency translation of $ 145 million and higher selling , administrative and general expense ( `` sag `` ) of $ 70 million . segment operating income also benefited by an improvement in volume of $ 74 million . refer to `` results of operations — segment information ” for additional information . in order to drive future growth and address the volatile economic environment , we remain focused on our key strategies : continuing to focus on market-back product development ; taking a selective approach to the market , targeting profitable segments where we have competitive advantages ; improving our manufacturing efficiency and creating an advantaged supply chain focused on reducing our total delivered costs , optimizing working capital levels and delivering best in industry customer service ; focusing on cash flow to provide funding for our capital allocation plan described below ; and building top talent and teams . on february 9 , 2016 , we announced a $ 650 million increase in our share repurchase program , bringing the total authorized amount under that program to $ 1.1 billion . additionally , effective december 1 , 2015 , we increased the quarterly cash dividend on our common stock from $ 0.06 per share to $ 0.07 per share . our capital allocation plan also provides for capital expenditures , debt repayments and pension funding , and restructuring payments . refer to “ liquidity and capital resources — overview ” for additional information . pension and benefit plans at december 31 , 2015 , our unfunded global pension liability was $ 642 million , compared to $ 714 million at december 31 , 2014. as a result of the deconsolidation of our venezuelan subsidiary , the december 31 , 2015 unfunded global pension liability excludes $ 80 million of pension liabilities related to our venezuela pension plan . the unfunded global pension liability of $ 714 million at december 31 , 2014 included $ 43 million related to venezuela . our u.s. pension strategy includes the accelerated funding of pension plans in conjunction with significantly reducing exposure in the investment portfolio of those plans to future equity market movements . the fixed income investments held for these plans are designed to offset the subsequent impact of discount rate movements on the plans ' benefit obligations so that the funded status remains stable . the strategy also provides for the opportunistic settling of pension obligations when conditions warrant . during 2013 and 2014 , we contributed $ 2,035 million to fully fund our u.s. pension plans . consistent with our pension strategy , we transitioned those plans ' asset allocations to a portfolio of substantially all fixed income securities designed to offset subsequent changes in discount rates . as a result of the full funding of our hourly u.s. pension plans in 2014 , the pension benefits for hourly associates were frozen in 2014 , and these associates now receive company contributions to a defined contribution plan . our salaried u.s. pension plans were previously frozen . during 2015 , we completed programs to offer lump sums over a limited time to certain former employees in our u.s. pension plans . payments of $ 190 million related to this offer were made from existing plan assets to approximately 7,000 former employees who elected to receive a lump sum . as a result , total lump sum payments from these plans exceeded annual service and interest cost in 2015 ; therefore , we recognized a pre-tax corporate pension settlement charge of $ 137 million in the fourth quarter of 2015. these actions continue to provide stability to our funded status , improve our earnings and operating cash flow , and provide greater transparency to our underlying tire business . story_separator_special_tag other ( income ) expense also included financing fees and financial instruments expense of $ 111 million in 2015 , increasing $ 34 million from $ 77 million in 2014 . financing fees and financial instruments expense consists of the amortization of deferred financing fees , commitment fees and charges incurred in connection with financing transactions . financing fees in 2015 included a charge of $ 57 million ( $ 35 million after-tax and minority ) primarily related to a $ 41 million redemption premium and $ 14 million of expense for the write-off of deferred financing fees and unamortized discount related to the redemption of the $ 1.0 billion 8.25 % senior notes due 2020. other ( income ) expense in 2015 also included net gains on asset sales of $ 71 million ( $ 60 million after-tax and minority ) compared to net gains on asset sales of $ 3 million ( $ 4 million after-tax and minority ) in 2014. net gains on asset sales in 2015 included a net gain of $ 48 million ( $ 38 million after-tax and minority ) related to the dissolution of the global alliance with sri and a gain of $ 30 million ( $ 32 million after-tax and minority ) on the sale of our investment in shares of sri . refer to the note to the consolidated financial statements no . 5 , dissolution of global alliance with sumitomo rubber industries . net gains on asset sales in 2015 also included losses of $ 14 million in emea , primarily related to the sales of certain sub-saharan africa retail businesses . other ( income ) expense in 2015 and 2014 included charges of $ 4 million ( $ 4 million after-tax and minority ) and $ 22 million ( $ 22 million after-tax and minority ) , respectively , for labor claims related to a previously closed facility in greece . other ( income ) expense in 2014 also included charges of $ 16 million ( $ 16 million after-tax and minority ) related to a government investigation involving our compliance with the u.s. foreign corrupt practices act in certain countries in africa . for further information , refer to the note to the consolidated financial statements no . 4 , other ( income ) expense . income taxes income tax expense in 2015 was $ 232 million on income before income taxes of $ 608 million . for 2014 , income tax benefit was $ 1,834 million on income before income taxes of $ 687 million . the increase in income taxes for 2015 compared to 2014 was primarily due to the reversal of the tax valuation allowance on our net u.s. deferred tax assets in the fourth quarter of 2014. income tax expense for 2015 included discrete net tax benefits of $ 18 million ( $ 18 million after minority interest ) , due primarily to a $ 9 million benefit from the conclusion of non-u.s. tax claims and an $ 8 million benefit from the release of a valuation allowance related to u.s. state deferred tax assets . income tax benefit in 2014 was favorably impacted by $ 1,980 million ( $ 1,981 million after minority interest ) of discrete tax adjustments , including a benefit of $ 2,179 million from the december 31 , 2014 release of substantially all of the valuation allowance on our net u.s. deferred tax assets as discussed further below , partially offset by charges of $ 131 million to record deferred taxes on certain undistributed earnings of certain foreign subsidiaries . the 2014 income tax benefit also included charges of $ 37 million to establish valuation allowances on the net deferred tax assets of our venezuelan and brazilian subsidiaries , due to continuing operating losses and currency devaluations in venezuela , a charge of $ 9 million to establish a valuation allowance on the net deferred tax assets of a luxembourg subsidiary , and a charge of $ 11 million due to an enacted law change in chile . in 2015 , in addition to the items noted above , the difference between our effective tax rate and the u.s. statutory rate was primarily due to certain of our foreign subsidiaries continuing to maintain a full valuation allowance against their net deferred tax assets , the realization of $ 55 million of u.s. tax credits as a result of certain subsidiary dividend payments and legislation enacted in the fourth quarter of 2015 and $ 69 million of tax benefits related to the deconsolidation of our venezuelan subsidiary . at december 31 , 2015 , our valuation allowance on certain of our u.s. federal , state and local deferred tax assets was $ 98 million and our valuation allowance on our foreign deferred tax assets was $ 523 million . 27 our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of our net deferred tax assets . each reporting period we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize these existing deferred tax assets . if recent positive evidence provided by the profitability in certain emea subsidiaries continues , it will provide us the opportunity to apply greater significance to our forecasts in assessing the need for a valuation allowance . we believe it is reasonably possible that sufficient positive evidence required to release all , or a portion , of these valuation allowances will exist within the next twelve months . this may result in a reduction of the valuation allowance and one-time tax benefit of up to $ 275 million ( $ 275 million after minority interest ) . for further information , refer to the note to the consolidated financial statements no . 6 , income taxes . minority shareholders ' net income minority shareholders ' net income was $ 69

cash position at december 31 , 2015 , significant concentrations of cash and cash equivalents held by our international subsidiaries included the following amounts : $ 513 million or 35 % in europe , middle east and africa , primarily belgium ( $ 517 million or 24 % at december 31 , 2014 ) , $ 415 million or 28 % in asia , primarily china , india and australia ( $ 462 million or 21 % at december 31 , 2014 ) , and $ 114 million or 8 % in latin america , primarily brazil ( $ 409 million or 19 % at december 31 , 2014 , which primarily related to venezuela and brazil ) . operating activities net cash provided by operating activities was $ 1,687 million in 2015 , compared to $ 340 million in 2014 and $ 938 million in 2013 . the increase in cash provided by operating activities in 2015 versus 2014 was primarily due to decreased pension contributions and direct payments of $ 1,235 million . in 2014 , we made discretionary contributions of $ 907 million to fully fund our hourly u.s. pension plans . the decrease in cash provided by operating activities in 2014 versus 2013 was primarily due to working capital being neither a source nor use of cash in 2014 , versus a source of cash of $ 415 million in 2013 , and higher pension contributions of $ 176 million . pension contributions in both 2014 and 2013 were primarily due to discretionary contributions of $ 907 million and $ 834 million , respectively , to fully fund our u.s. pension plans . investing activities net cash used in investing activities was $ 1,262 million in 2015 , compared to $ 851 million in 2014 and $ 1,136 million in 2013 . capital expenditures were $ 983 million in 2015 , compared to $ 923 million in 2014 and $ 1,168 million in 2013 .

to market , commercialize and achieve market acceptance for apf530 or other future product candidates ; our ability to establish collaborations for our technology , apf530 and other future product candidates ; our estimates for future performance ; our estimates regarding our capital requirements and our needs for and ability to obtain additional financing ; and other risks and uncertainties identified in our filings with the securities and exchange commission . we caution investors that forward-looking statements reflect our analysis only on their stated date . we do not intend to update them except as required by law . overview we are a specialty pharmaceutical company focused on developing pharmaceutical products using our proprietary biochronomer polymer-based drug delivery technology . the biochronomer technology consists of bioerodible polymers designed to release drugs over a defined period of time . our primary focus is on our lead product candidate , apf530 , which is being developed for the prevention of chemotherapy-induced nausea and vomiting ( cinv ) . apf530 utilizes our biochronomer technology and is a long-acting formulation of granisetron . in may 2009 , we filed a new drug application ( nda ) with the u.s. food and drug administration ( fda ) seeking approval for apf530 . during 2008 , we completed a pivotal phase 3 clinical trial for apf530 which was the basis for the application . since receiving the complete response letter in march 2010 , we have been working to address the issues raised by the fda . we met with the fda in february and march 2011 to clarify the work needed to resubmit the nda . based on our discussions with the fda and our assessment of the work remaining , we expect to resubmit the apf530 nda in mid-2012 . we intend to seek a collaborative arrangement to commercialize apf530 or anticipate obtaining additional funding and resources that would be required to launch apf530 without a partner . we previously submitted investigational new drug ( ind ) applications for two product candidates , apf112 and apf580 . since 2009 , further development of these product candidates has been deferred in order to focus both managerial and financial resources on the development of apf530 . we are currently evaluating applications of our biochronomer delivery technology , including apf112 and apf580 , to determine potential pipeline candidates following the possible approval of apf530 . critical accounting policies and estimates our accounting policies are more fully described in note 2 of the financial statements included in item 8 of this annual report on form 10-k. the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires our management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . actual results could differ significantly from those estimates . we believe the following policies to be critical to understanding our financial condition , results of operations and expectations for 2012. these policies require management to make significant estimates , assumptions and judgments about matters that are inherently uncertain . 45 revenue recognition our revenue arrangements with multiple deliverables are divided into separate units of accounting if certain criteria are met , including whether the delivered item has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items . the consideration we receive is allocated among the separate units based on their respective fair values , and the applicable revenue recognition criteria are considered separately for each of the separate units . for revenue arrangements entered into after june 15 , 2010 , management 's estimate of the selling price is considered when fair value is not determinable . advance payments received in excess of amounts earned are classified as deferred revenue until earned . milestones are recorded as revenue upon achievement of the milestone . contract revenue we have licensing agreements that generally provide for a non-refundable license fee . the license agreements provide for us to earn future revenue through royalty payments . these non-refundable license fees are generally initially reported as deferred revenue and recognized as revenue over an appropriate period , depending on the license . revenue recognized from deferred license fees is classified as contract revenue in our statements of operations . contract revenue also relates to research and development arrangements that generally provide for us to invoice research and development fees based on full-time equivalent hours for each project . revenue from these arrangements is recognized as the related development services are rendered . this revenue approximates the costs incurred . clinical trial accruals our expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and clinical research organizations that conduct and manage clinical trials on our behalf . since the invoicing related to these services does not always coincide with our financial statement close process , we must estimate the level of services performed and fees incurred in determining the accrued clinical trial costs . the financial terms of these agreements are subject to negotiation and vary from contract to contract , which may result in uneven payment flows . payments under the contracts depend on factors such as the successful enrollment of patients or achievement of certain events or the completion of portions of the clinical trial or similar conditions . expenses related to clinical trials generally are accrued based on the level of patient enrollment and services performed by the clinical research organization or related service provider according to the protocol . story_separator_special_tag in general , biopharmaceutical development involves a series of steps , beginning with identification of a product candidate and includes proof-of-concept in animals and phase 1 , 2 and 3 clinical studies in humans . each step of this process is typically more expensive than the previous one , so success in development results in increasing expenditures . we previously submitted ind applications for two product candidates , apf112 and apf580 . since 2009 , further development of these product candidates has been deferred in order to focus both managerial and financial resources on the development of apf530 . we are currently evaluating applications of our biochronomer delivery technology , including apf112 and apf580 , to determine potential pipeline candidates following the approval of apf530 . 48 the major components of research and development expenses were as follows ( in thousands ) : replace_table_token_8_th internal research and development costs consist of employee salaries and benefits , including stock-based compensation , laboratory supplies , depreciation and allocation of overhead . external general technology development costs include expenditures on polymer development and manufacturing , which are performed on our behalf by third parties . general and administrative general and administrative expenses decreased in 2011 by $ 0.5 million , or 12 % , compared to 2010. the net decrease in the fiscal year 2011 was primarily due to compensation expense incurred in the prior year related to the resignation of our former chief executive officer , which was partially offset by higher professional fees and consultant costs . general and administrative expense for the year 2012 is expected to be higher as compared to 2011 due to increased support activities related to the nda submission to the fda . general and administrative expenses increased in 2010 by $ 0.3 million , or 7 % , compared to 2009. the net increase in the fiscal year 2010 included compensation expense related to the resignation of our chief executive officer , which was partially offset by lower expense resulting from the cost containment measures associated with our headcount reductions and outside services . general and administrative expenses consist of primarily salaries and related expenses , professional fees , directors ' fees , investor relations costs , insurance expense and related overhead cost allocation . other income ( expense ) interest expense , net of $ 373,000 for the year ended december 31 , 2011 consists primarily of interest expense , debt issuance costs and amortization of debt discount related to the april 2011 convertible note financing . the gain on sale of royalty interest of $ 2.5 million represents a milestone payment we received in january 2010 from an affiliate of the paul royalty fund . the payment represents a final milestone payment that became due to us in january 2010 under an agreement that we entered into effective october 1 , 2005 to sell our royalty rights to retin-a micro ® and carac ® . other income of $ 0.2 million represents a non-taxable grant from the united states government under the qualifying therapeutics discovery project ( qtdp ) program . since the qtdp grant is not considered an integral part of our ongoing operations and the research and development costs were expended in a prior year , we have reported the amount as other income in the statement of operations . 49 discontinued operations on july 25 , 2000 , we completed the sale of certain technology rights for our topical pharmaceutical and cosmeceutical product lines and associated assets , referred to as our cosmeceutical and toiletry business , to rp scherer corporation ( rp scherer ) , a subsidiary of cardinal health , inc. we received $ 25.0 million at the closing of the transaction . under the terms of the agreement with rp scherer , we guaranteed a minimum gross profit percentage on rp scherer 's combined sales of products to ortho dermatologics ( ortho ) and dermik laboratories , inc. ( dermik ) ( gross profit guaranty ) . in july 2011 , valeant pharmaceuticals announced it was acquiring both ortho and dermik and these agreements have since been assigned to valeant . the guaranty period initially commenced on july 1 , 2000 and was to end on the earlier of july 1 , 2010 or the end of two consecutive guaranty periods where the combined gross profit on sales to ortho and dermik equals or exceeds the guaranteed gross profit ( two period test ) . the gross profit guaranty expense totaled $ 0.9 million for the first seven guaranty years and in those years profits did not meet the two period test . effective march 2007 , in conjunction with a sale of assets by rp scherer 's successor company to an amcol international subsidiary ( amcol ) , we signed a new agreement with amcol to provide continuity of product supply to ortho and dermik . this new agreement potentially extends the gross profit guaranty period an additional two years to july 1 , 2013 , unless it is terminated earlier with the two period test . amcol has indicated that its costs differ from those it charged historically to the rp scherer successor company to produce the products . we have not paid any gross profit guaranty amount asserted by amcol and have requested documentation from amcol to substantiate actual costs . until we receive confirmation of these amounts , we have accrued the full amount amcol represents it is currently owed . as there is no minimum amount of gross profit guaranty due , no accrual for the guaranty is estimable for future years . a liability of $ 1.1 million related to the current amount due under the gross profit guaranty is included in accrued disposition costs as of december 31 , 2011 , although we have not paid this amount to date due to our inability to substantiate the amounts claimed by amcol . as of the date of filing of this

cash position at december 31 , 2015 , significant concentrations of cash and cash equivalents held by our international subsidiaries included the following amounts : $ 513 million or 35 % in europe , middle east and africa , primarily belgium ( $ 517 million or 24 % at december 31 , 2014 ) , $ 415 million or 28 % in asia , primarily china , india and australia ( $ 462 million or 21 % at december 31 , 2014 ) , and $ 114 million or 8 % in latin america , primarily brazil ( $ 409 million or 19 % at december 31 , 2014 , which primarily related to venezuela and brazil ) . operating activities net cash provided by operating activities was $ 1,687 million in 2015 , compared to $ 340 million in 2014 and $ 938 million in 2013 . the increase in cash provided by operating activities in 2015 versus 2014 was primarily due to decreased pension contributions and direct payments of $ 1,235 million . in 2014 , we made discretionary contributions of $ 907 million to fully fund our hourly u.s. pension plans . the decrease in cash provided by operating activities in 2014 versus 2013 was primarily due to working capital being neither a source nor use of cash in 2014 , versus a source of cash of $ 415 million in 2013 , and higher pension contributions of $ 176 million . pension contributions in both 2014 and 2013 were primarily due to discretionary contributions of $ 907 million and $ 834 million , respectively , to fully fund our u.s. pension plans . investing activities net cash used in investing activities was $ 1,262 million in 2015 , compared to $ 851 million in 2014 and $ 1,136 million in 2013 . capital expenditures were $ 983 million in 2015 , compared to $ 923 million in 2014 and $ 1,168 million in 2013 .

to market , commercialize and achieve market acceptance for apf530 or other future product candidates ; our ability to establish collaborations for our technology , apf530 and other future product candidates ; our estimates for future performance ; our estimates regarding our capital requirements and our needs for and ability to obtain additional financing ; and other risks and uncertainties identified in our filings with the securities and exchange commission . we caution investors that forward-looking statements reflect our analysis only on their stated date . we do not intend to update them except as required by law . overview we are a specialty pharmaceutical company focused on developing pharmaceutical products using our proprietary biochronomer polymer-based drug delivery technology . the biochronomer technology consists of bioerodible polymers designed to release drugs over a defined period of time . our primary focus is on our lead product candidate , apf530 , which is being developed for the prevention of chemotherapy-induced nausea and vomiting ( cinv ) . apf530 utilizes our biochronomer technology and is a long-acting formulation of granisetron . in may 2009 , we filed a new drug application ( nda ) with the u.s. food and drug administration ( fda ) seeking approval for apf530 . during 2008 , we completed a pivotal phase 3 clinical trial for apf530 which was the basis for the application . since receiving the complete response letter in march 2010 , we have been working to address the issues raised by the fda . we met with the fda in february and march 2011 to clarify the work needed to resubmit the nda . based on our discussions with the fda and our assessment of the work remaining , we expect to resubmit the apf530 nda in mid-2012 . we intend to seek a collaborative arrangement to commercialize apf530 or anticipate obtaining additional funding and resources that would be required to launch apf530 without a partner . we previously submitted investigational new drug ( ind ) applications for two product candidates , apf112 and apf580 . since 2009 , further development of these product candidates has been deferred in order to focus both managerial and financial resources on the development of apf530 . we are currently evaluating applications of our biochronomer delivery technology , including apf112 and apf580 , to determine potential pipeline candidates following the possible approval of apf530 . critical accounting policies and estimates our accounting policies are more fully described in note 2 of the financial statements included in item 8 of this annual report on form 10-k. the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires our management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . actual results could differ significantly from those estimates . we believe the following policies to be critical to understanding our financial condition , results of operations and expectations for 2012. these policies require management to make significant estimates , assumptions and judgments about matters that are inherently uncertain . 45 revenue recognition our revenue arrangements with multiple deliverables are divided into separate units of accounting if certain criteria are met , including whether the delivered item has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items . the consideration we receive is allocated among the separate units based on their respective fair values , and the applicable revenue recognition criteria are considered separately for each of the separate units . for revenue arrangements entered into after june 15 , 2010 , management 's estimate of the selling price is considered when fair value is not determinable . advance payments received in excess of amounts earned are classified as deferred revenue until earned . milestones are recorded as revenue upon achievement of the milestone . contract revenue we have licensing agreements that generally provide for a non-refundable license fee . the license agreements provide for us to earn future revenue through royalty payments . these non-refundable license fees are generally initially reported as deferred revenue and recognized as revenue over an appropriate period , depending on the license . revenue recognized from deferred license fees is classified as contract revenue in our statements of operations . contract revenue also relates to research and development arrangements that generally provide for us to invoice research and development fees based on full-time equivalent hours for each project . revenue from these arrangements is recognized as the related development services are rendered . this revenue approximates the costs incurred . clinical trial accruals our expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and clinical research organizations that conduct and manage clinical trials on our behalf . since the invoicing related to these services does not always coincide with our financial statement close process , we must estimate the level of services performed and fees incurred in determining the accrued clinical trial costs . the financial terms of these agreements are subject to negotiation and vary from contract to contract , which may result in uneven payment flows . payments under the contracts depend on factors such as the successful enrollment of patients or achievement of certain events or the completion of portions of the clinical trial or similar conditions . expenses related to clinical trials generally are accrued based on the level of patient enrollment and services performed by the clinical research organization or related service provider according to the protocol . story_separator_special_tag in general , biopharmaceutical development involves a series of steps , beginning with identification of a product candidate and includes proof-of-concept in animals and phase 1 , 2 and 3 clinical studies in humans . each step of this process is typically more expensive than the previous one , so success in development results in increasing expenditures . we previously submitted ind applications for two product candidates , apf112 and apf580 . since 2009 , further development of these product candidates has been deferred in order to focus both managerial and financial resources on the development of apf530 . we are currently evaluating applications of our biochronomer delivery technology , including apf112 and apf580 , to determine potential pipeline candidates following the approval of apf530 . 48 the major components of research and development expenses were as follows ( in thousands ) : replace_table_token_8_th internal research and development costs consist of employee salaries and benefits , including stock-based compensation , laboratory supplies , depreciation and allocation of overhead . external general technology development costs include expenditures on polymer development and manufacturing , which are performed on our behalf by third parties . general and administrative general and administrative expenses decreased in 2011 by $ 0.5 million , or 12 % , compared to 2010. the net decrease in the fiscal year 2011 was primarily due to compensation expense incurred in the prior year related to the resignation of our former chief executive officer , which was partially offset by higher professional fees and consultant costs . general and administrative expense for the year 2012 is expected to be higher as compared to 2011 due to increased support activities related to the nda submission to the fda . general and administrative expenses increased in 2010 by $ 0.3 million , or 7 % , compared to 2009. the net increase in the fiscal year 2010 included compensation expense related to the resignation of our chief executive officer , which was partially offset by lower expense resulting from the cost containment measures associated with our headcount reductions and outside services . general and administrative expenses consist of primarily salaries and related expenses , professional fees , directors ' fees , investor relations costs , insurance expense and related overhead cost allocation . other income ( expense ) interest expense , net of $ 373,000 for the year ended december 31 , 2011 consists primarily of interest expense , debt issuance costs and amortization of debt discount related to the april 2011 convertible note financing . the gain on sale of royalty interest of $ 2.5 million represents a milestone payment we received in january 2010 from an affiliate of the paul royalty fund . the payment represents a final milestone payment that became due to us in january 2010 under an agreement that we entered into effective october 1 , 2005 to sell our royalty rights to retin-a micro ® and carac ® . other income of $ 0.2 million represents a non-taxable grant from the united states government under the qualifying therapeutics discovery project ( qtdp ) program . since the qtdp grant is not considered an integral part of our ongoing operations and the research and development costs were expended in a prior year , we have reported the amount as other income in the statement of operations . 49 discontinued operations on july 25 , 2000 , we completed the sale of certain technology rights for our topical pharmaceutical and cosmeceutical product lines and associated assets , referred to as our cosmeceutical and toiletry business , to rp scherer corporation ( rp scherer ) , a subsidiary of cardinal health , inc. we received $ 25.0 million at the closing of the transaction . under the terms of the agreement with rp scherer , we guaranteed a minimum gross profit percentage on rp scherer 's combined sales of products to ortho dermatologics ( ortho ) and dermik laboratories , inc. ( dermik ) ( gross profit guaranty ) . in july 2011 , valeant pharmaceuticals announced it was acquiring both ortho and dermik and these agreements have since been assigned to valeant . the guaranty period initially commenced on july 1 , 2000 and was to end on the earlier of july 1 , 2010 or the end of two consecutive guaranty periods where the combined gross profit on sales to ortho and dermik equals or exceeds the guaranteed gross profit ( two period test ) . the gross profit guaranty expense totaled $ 0.9 million for the first seven guaranty years and in those years profits did not meet the two period test . effective march 2007 , in conjunction with a sale of assets by rp scherer 's successor company to an amcol international subsidiary ( amcol ) , we signed a new agreement with amcol to provide continuity of product supply to ortho and dermik . this new agreement potentially extends the gross profit guaranty period an additional two years to july 1 , 2013 , unless it is terminated earlier with the two period test . amcol has indicated that its costs differ from those it charged historically to the rp scherer successor company to produce the products . we have not paid any gross profit guaranty amount asserted by amcol and have requested documentation from amcol to substantiate actual costs . until we receive confirmation of these amounts , we have accrued the full amount amcol represents it is currently owed . as there is no minimum amount of gross profit guaranty due , no accrual for the guaranty is estimable for future years . a liability of $ 1.1 million related to the current amount due under the gross profit guaranty is included in accrued disposition costs as of december 31 , 2011 , although we have not paid this amount to date due to our inability to substantiate the amounts claimed by amcol . as of the date of filing of this

liquidity and capital resources we had cash and cash equivalents of $ 18.0 million at december 31 , 2011. cash and cash equivalents increased by $ 15.9 million at december 31 , 2011 , as compared to 2010 , primarily due to $ 24.1 million of net cash proceeds from our convertible note and equity financings , which were offset by $ 8.2 million of cash used in operations and capital expenditures for the year ended december 31 , 2011 . 50 net cash used in continuing operating activities for the year ended december 31 , 2011 was $ 7.7 million , compared to net cash used of $ 5.5 million for the year ended 2010. the $ 2.2 million increase in cash used in continuing operating activities was primarily due to the receipt of a $ 2.5 million milestone payment from an affiliate of the paul royalty fund in the prior year period . net cash used in continuing operating activities for the year ended december 31 , 2010 was $ 5.5 million , compared to net cash used of $ 11.0 million for the year ended 2009. the decrease in cash used in continuing operating activities for the year ended december 31 , 2010 , as compared to 2009 , was primarily due to the $ 2.7 million decrease in net loss for the fiscal year 2010 , a $ 0.7 million decrease from non-cash changes primarily related to the stock-based compensation expense and a $ 2.2 million change in operating assets and liabilities . net cash provided by ( used in ) investing activities was ( $ 0.5 million ) , ( $ 0.1 million ) and $ 0.6 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . the net cash used in investing activities in 2011 and 2010 was due to purchases of equipment .

compared to 2018 , our revenues increased by $ 304.9 million , or 30 % , to $ 1.3 billion for the year ended december 31 , 2019. the increase was primarily related to the significant growth in active diners , which increased from 17.7 million as of december 31 , 2018 to 22.6 million at the end of december 31 , 2019 , driving an increase in daily average grubs to 492,300 during the year ended december 31 , 2019 from 435,900 daily average grubs during 2018. we processed $ 5.9 billion in gross food sales in 2019 , a 17 % increase from the $ 5.1 billion in 2018. the growth in active diners and daily average grubs was due to increased product and brand awareness largely as a result of marketing efforts and word-of-mouth referrals , better restaurant choices for diners in our markets , technology and product improvements to drive more orders . in addition , revenue increased during the year ended december 31 , 2019 compared to 2018 due to an increase in our average commission rates , the full year impact of the levelup and tapingo acquisitions and a higher average order size . net income ( loss ) decreased by $ 97.0 million to a loss of $ 18.6 million or $ 0.20 per diluted share during the year ended december 31 , 2019 compared to 2018. the decrease was primarily driven by investments to grow our marketplace , including the expansion of the delivery network and increased marketing to generate organic growth . additionally , compensation expense , payment processing costs and certain other expenses increased as a result of organic growth in the business and order volume . during the year ended december 31 , 2019 , we issued $ 500.0 million in aggregate principal amount of 5.500 % senior notes due july 1 , 2027 ( “ senior notes ” ) . we used $ 323.0 million of the net proceeds from the senior notes to prepay and extinguish the term loan facility portion of our existing credit facility and $ 17.3 million to pay down the outstanding balance of the revolving loan under our existing credit facility . we entered into an amended and restated credit agreement on february 6 , 2019 which provides for aggregate revolving loans up to $ 225 million , of which there were no outstanding borrowings as of december 31 , 2019. see part ii , item 8 , note 10 , debt , for additional details . key business metrics to analyze our business performance , determine financial forecasts and help develop long-term strategic plans , we review key business metrics which include transactions placed on the platform where the company provides marketing services to generate orders . the platform excludes transactions where the company exclusively provides technology or fulfillment services . the following key business metrics are reviewed : active diners . we count active diners as the number of unique diner accounts from which an order has been placed in the past twelve months through our platform . diner accounts from which an order has been placed on one of our websites or one of our mobile applications are included in our active diner metrics . active diners is an important metric for us because the number of diners 28 using our platform is a key revenue driver and a valuable measure of the size of our engaged diner community . some of our diners could have more than one account if they were to set up multiple accounts using a different e-mail address for each account . as a result , it is possible that our active diners metric may count certain diners more than once during any given period . daily average grubs . we count daily average grubs as the number of orders placed on our platform divided by the number of days for a given period . daily average grubs is an important metric for us because the number of orders processed on our platform is a key revenue driver and , in conjunction with the number of active diners , a valuable measure of diner activity on our platform for a given period . gross food sales . we calculate gross food sales as the total value of food , beverages , taxes , prepaid gratuities , and any diner-paid fees processed through our platform . we include all revenue generating orders placed on our platform in this metric . gross food sales is an important metric for us because the total volume of food sales transacted through our platform is a key revenue driver . because we act as an agent of the merchant in the transaction , revenues are recognized on a net basis for our commissions from the transaction , which are a percentage of the total gross food sales for such transaction . our key business metrics are as follows for the periods presented : replace_table_token_3_th we experienced growth across all of our key business metrics , active diners , daily average grubs and gross food sales , during the periods presented . 2019 compared to 2018 the company experienced growth across all of its key business metrics during the year ended december 31 , 2019 as compared to the prior year . growth in all metrics was primarily attributable to increased product and brand awareness by diners largely as a result of marketing efforts and word-of-mouth referrals , better restaurant choices for diners in our markets and technology and product improvements . for discussion related to 2018 key business metrics compared to 2017 , refer to the section titled “ operations review ” in part ii , item 7 , “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the year ended december 31 , 2018 ( “ 2018 form 10-k ” ) . story_separator_special_tag we have not experienced any loss or lack of access to our invested cash , cash equivalents or short-term investments ; however , such access could be adversely impacted by conditions in the financial markets in the future . we believe that our existing cash , cash equivalents , short term investments and borrowings available under the credit facility will be sufficient to meet our working capital requirements for at least the next twelve months . however , our liquidity assumptions may prove to be incorrect , and we could utilize our available financial resources sooner than currently expected . our future capital requirements and the adequacy of available funds will depend on many factors , including those set forth in part i , item 1a , “ risk factors ” of this annual report on form 10-k. if we are unable to obtain needed additional funds , we will have to reduce operating costs , which could impair our growth prospects and could otherwise negatively impact our business . 34 for most orders , diners use a credit card to pay for their meal when the order is placed . for these transactions , we collect the total amount of the diner 's order net of payment processing fees from the payment processor and remit the net proceeds to the restaurant less commission and other fees . outstanding credit card receivables are generally settled with the payment processors within two to four business days . we generally accumulate funds and remit the net proceeds to the restaurant partners on at least a monthly basis . restaurant partners have different contractual arrangements with us regarding payment frequency . they may be paid bi-weekly , weekly , monthly or , in some cases , more frequently when requested by the restaurant . we generally hold accumulated funds prior to remittance to the restaurants in a non-interest bearing operating bank account that is used to fund daily operations , including the liability to the restaurants . however , the company is not restricted from earning investment income on these funds under its restaurant contract terms and has made short term investments of proceeds in excess of our restaurant liability as described above . non-partnered restaurants are paid at the time of the order . seasonal fluctuations in our business may also affect the timing of cash flows . in metropolitan markets , we generally experience a relative increase in diner activity from september to april and a relative decrease in diner activity from may to august . in addition , we benefit from increased order volume in our campus markets when school is in session and experience a decrease in order volume when school is not in session , during summer breaks and other vacation periods . diner activity can also be impacted by colder or more inclement weather , which typically increases order volume , and warmer or sunny weather , which typically decreases order volume . these changes in diner activity and order volume have a direct impact on operating cash flows . while we expect this seasonal cash flow pattern to continue , changes in our business model could affect the timing or seasonal nature of our cash flows . on june 10 , 2019 , our wholly-owned subsidiary , grubhub holdings inc. , issued $ 500.0 million in aggregate principal amount of 5.500 % senior notes due july 1 , 2027 ( “ senior notes ” ) . interest is payable on the senior notes semi-annually on january and july of each year , beginning on january 1 , 2020. the first interest payment of $ 15.4 million was made in december 2019. the net proceeds from the sale of the senior notes were $ 494.4 million after deducting the initial purchasers ' discount and offering expenses . we used $ 323.0 million of the proceeds from the senior notes offering to prepay and extinguish the term loan facility portion of our existing credit facility and $ 17.3 million to pay down the outstanding balance of the revolving loan under the existing credit facility . the remaining proceeds will be used for general corporate purposes . the senior notes are guaranteed on a senior unsecured basis by the company and each of our existing and future wholly owned domestic restricted subsidiaries that guarantees the credit facility or that guarantees certain of our other indebtedness or indebtedness of a guarantor . we have the option to redeem all or a portion of the senior notes at various redemption or make-whole prices per the terms of indenture pursuant to which the senior notes were issued . in addition , we will be obligated to make an offer to repurchase the senior notes upon the occurrence of a change of control triggering event ( as defined in the indenture ) . see note 10 , debt , for additional details . on february 6 , 2019 , we entered into an amended and restated agreement which provides , among other things , for aggregate revolving loans up to $ 225 million and provided for term loans in an aggregate principal amount of $ 325 million ( the “ credit agreement ” ) . the $ 325 million term loan portion of the credit agreement was extinguished on june 10 , 2019. in addition to the $ 225 million aggregate undrawn revolving loans under the credit agreement as of december 31 , 2019 , we may incur up to $ 250 million of incremental revolving or term loans pursuant to the terms and conditions of the credit agreement . the credit facility under the credit agreement will be available until february 5 , 2024. the credit agreement amended and restated our prior $ 350 million credit facility , which was due to expire on october 9 , 2022 ( the “ previous credit agreement ” ) . see part ii , item 8 , note 10 , debt , for additional details

liquidity and capital resources we had cash and cash equivalents of $ 18.0 million at december 31 , 2011. cash and cash equivalents increased by $ 15.9 million at december 31 , 2011 , as compared to 2010 , primarily due to $ 24.1 million of net cash proceeds from our convertible note and equity financings , which were offset by $ 8.2 million of cash used in operations and capital expenditures for the year ended december 31 , 2011 . 50 net cash used in continuing operating activities for the year ended december 31 , 2011 was $ 7.7 million , compared to net cash used of $ 5.5 million for the year ended 2010. the $ 2.2 million increase in cash used in continuing operating activities was primarily due to the receipt of a $ 2.5 million milestone payment from an affiliate of the paul royalty fund in the prior year period . net cash used in continuing operating activities for the year ended december 31 , 2010 was $ 5.5 million , compared to net cash used of $ 11.0 million for the year ended 2009. the decrease in cash used in continuing operating activities for the year ended december 31 , 2010 , as compared to 2009 , was primarily due to the $ 2.7 million decrease in net loss for the fiscal year 2010 , a $ 0.7 million decrease from non-cash changes primarily related to the stock-based compensation expense and a $ 2.2 million change in operating assets and liabilities . net cash provided by ( used in ) investing activities was ( $ 0.5 million ) , ( $ 0.1 million ) and $ 0.6 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . the net cash used in investing activities in 2011 and 2010 was due to purchases of equipment .

compared to 2018 , our revenues increased by $ 304.9 million , or 30 % , to $ 1.3 billion for the year ended december 31 , 2019. the increase was primarily related to the significant growth in active diners , which increased from 17.7 million as of december 31 , 2018 to 22.6 million at the end of december 31 , 2019 , driving an increase in daily average grubs to 492,300 during the year ended december 31 , 2019 from 435,900 daily average grubs during 2018. we processed $ 5.9 billion in gross food sales in 2019 , a 17 % increase from the $ 5.1 billion in 2018. the growth in active diners and daily average grubs was due to increased product and brand awareness largely as a result of marketing efforts and word-of-mouth referrals , better restaurant choices for diners in our markets , technology and product improvements to drive more orders . in addition , revenue increased during the year ended december 31 , 2019 compared to 2018 due to an increase in our average commission rates , the full year impact of the levelup and tapingo acquisitions and a higher average order size . net income ( loss ) decreased by $ 97.0 million to a loss of $ 18.6 million or $ 0.20 per diluted share during the year ended december 31 , 2019 compared to 2018. the decrease was primarily driven by investments to grow our marketplace , including the expansion of the delivery network and increased marketing to generate organic growth . additionally , compensation expense , payment processing costs and certain other expenses increased as a result of organic growth in the business and order volume . during the year ended december 31 , 2019 , we issued $ 500.0 million in aggregate principal amount of 5.500 % senior notes due july 1 , 2027 ( “ senior notes ” ) . we used $ 323.0 million of the net proceeds from the senior notes to prepay and extinguish the term loan facility portion of our existing credit facility and $ 17.3 million to pay down the outstanding balance of the revolving loan under our existing credit facility . we entered into an amended and restated credit agreement on february 6 , 2019 which provides for aggregate revolving loans up to $ 225 million , of which there were no outstanding borrowings as of december 31 , 2019. see part ii , item 8 , note 10 , debt , for additional details . key business metrics to analyze our business performance , determine financial forecasts and help develop long-term strategic plans , we review key business metrics which include transactions placed on the platform where the company provides marketing services to generate orders . the platform excludes transactions where the company exclusively provides technology or fulfillment services . the following key business metrics are reviewed : active diners . we count active diners as the number of unique diner accounts from which an order has been placed in the past twelve months through our platform . diner accounts from which an order has been placed on one of our websites or one of our mobile applications are included in our active diner metrics . active diners is an important metric for us because the number of diners 28 using our platform is a key revenue driver and a valuable measure of the size of our engaged diner community . some of our diners could have more than one account if they were to set up multiple accounts using a different e-mail address for each account . as a result , it is possible that our active diners metric may count certain diners more than once during any given period . daily average grubs . we count daily average grubs as the number of orders placed on our platform divided by the number of days for a given period . daily average grubs is an important metric for us because the number of orders processed on our platform is a key revenue driver and , in conjunction with the number of active diners , a valuable measure of diner activity on our platform for a given period . gross food sales . we calculate gross food sales as the total value of food , beverages , taxes , prepaid gratuities , and any diner-paid fees processed through our platform . we include all revenue generating orders placed on our platform in this metric . gross food sales is an important metric for us because the total volume of food sales transacted through our platform is a key revenue driver . because we act as an agent of the merchant in the transaction , revenues are recognized on a net basis for our commissions from the transaction , which are a percentage of the total gross food sales for such transaction . our key business metrics are as follows for the periods presented : replace_table_token_3_th we experienced growth across all of our key business metrics , active diners , daily average grubs and gross food sales , during the periods presented . 2019 compared to 2018 the company experienced growth across all of its key business metrics during the year ended december 31 , 2019 as compared to the prior year . growth in all metrics was primarily attributable to increased product and brand awareness by diners largely as a result of marketing efforts and word-of-mouth referrals , better restaurant choices for diners in our markets and technology and product improvements . for discussion related to 2018 key business metrics compared to 2017 , refer to the section titled “ operations review ” in part ii , item 7 , “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the year ended december 31 , 2018 ( “ 2018 form 10-k ” ) . story_separator_special_tag we have not experienced any loss or lack of access to our invested cash , cash equivalents or short-term investments ; however , such access could be adversely impacted by conditions in the financial markets in the future . we believe that our existing cash , cash equivalents , short term investments and borrowings available under the credit facility will be sufficient to meet our working capital requirements for at least the next twelve months . however , our liquidity assumptions may prove to be incorrect , and we could utilize our available financial resources sooner than currently expected . our future capital requirements and the adequacy of available funds will depend on many factors , including those set forth in part i , item 1a , “ risk factors ” of this annual report on form 10-k. if we are unable to obtain needed additional funds , we will have to reduce operating costs , which could impair our growth prospects and could otherwise negatively impact our business . 34 for most orders , diners use a credit card to pay for their meal when the order is placed . for these transactions , we collect the total amount of the diner 's order net of payment processing fees from the payment processor and remit the net proceeds to the restaurant less commission and other fees . outstanding credit card receivables are generally settled with the payment processors within two to four business days . we generally accumulate funds and remit the net proceeds to the restaurant partners on at least a monthly basis . restaurant partners have different contractual arrangements with us regarding payment frequency . they may be paid bi-weekly , weekly , monthly or , in some cases , more frequently when requested by the restaurant . we generally hold accumulated funds prior to remittance to the restaurants in a non-interest bearing operating bank account that is used to fund daily operations , including the liability to the restaurants . however , the company is not restricted from earning investment income on these funds under its restaurant contract terms and has made short term investments of proceeds in excess of our restaurant liability as described above . non-partnered restaurants are paid at the time of the order . seasonal fluctuations in our business may also affect the timing of cash flows . in metropolitan markets , we generally experience a relative increase in diner activity from september to april and a relative decrease in diner activity from may to august . in addition , we benefit from increased order volume in our campus markets when school is in session and experience a decrease in order volume when school is not in session , during summer breaks and other vacation periods . diner activity can also be impacted by colder or more inclement weather , which typically increases order volume , and warmer or sunny weather , which typically decreases order volume . these changes in diner activity and order volume have a direct impact on operating cash flows . while we expect this seasonal cash flow pattern to continue , changes in our business model could affect the timing or seasonal nature of our cash flows . on june 10 , 2019 , our wholly-owned subsidiary , grubhub holdings inc. , issued $ 500.0 million in aggregate principal amount of 5.500 % senior notes due july 1 , 2027 ( “ senior notes ” ) . interest is payable on the senior notes semi-annually on january and july of each year , beginning on january 1 , 2020. the first interest payment of $ 15.4 million was made in december 2019. the net proceeds from the sale of the senior notes were $ 494.4 million after deducting the initial purchasers ' discount and offering expenses . we used $ 323.0 million of the proceeds from the senior notes offering to prepay and extinguish the term loan facility portion of our existing credit facility and $ 17.3 million to pay down the outstanding balance of the revolving loan under the existing credit facility . the remaining proceeds will be used for general corporate purposes . the senior notes are guaranteed on a senior unsecured basis by the company and each of our existing and future wholly owned domestic restricted subsidiaries that guarantees the credit facility or that guarantees certain of our other indebtedness or indebtedness of a guarantor . we have the option to redeem all or a portion of the senior notes at various redemption or make-whole prices per the terms of indenture pursuant to which the senior notes were issued . in addition , we will be obligated to make an offer to repurchase the senior notes upon the occurrence of a change of control triggering event ( as defined in the indenture ) . see note 10 , debt , for additional details . on february 6 , 2019 , we entered into an amended and restated agreement which provides , among other things , for aggregate revolving loans up to $ 225 million and provided for term loans in an aggregate principal amount of $ 325 million ( the “ credit agreement ” ) . the $ 325 million term loan portion of the credit agreement was extinguished on june 10 , 2019. in addition to the $ 225 million aggregate undrawn revolving loans under the credit agreement as of december 31 , 2019 , we may incur up to $ 250 million of incremental revolving or term loans pursuant to the terms and conditions of the credit agreement . the credit facility under the credit agreement will be available until february 5 , 2024. the credit agreement amended and restated our prior $ 350 million credit facility , which was due to expire on october 9 , 2022 ( the “ previous credit agreement ” ) . see part ii , item 8 , note 10 , debt , for additional details

cash flows provided by financing activities our financing activities during the periods presented consisted primarily of proceeds from the issuance of long-term debt , proceeds from the issuance of common stock , repayments of borrowings under the credit agreement , and taxes paid related to the net settlement of stock-based compensation awards . for the year ended december 31 , 2019 , net cash provided by financing activities was $ 129.3 million compared to $ 346.7 million for the year ended december 31 , 2018. the decrease in net cash provided by financing activities was primarily related to the issuance of common stock of $ 200.0 million in the prior year , an increase in repayments of long-term debt , net of proceeds , of $ 10.4 million , a decrease in proceeds from exercises of stock options of $ 9.7 million and debt issuance costs of $ 9.1 million in 2019 , partially offset by a decrease in taxes paid related to the net settlement of stock-based compensation awards of $ 11.8 million as compared to the prior year . for the year ended december 31 , 2018 , net cash provided by financing activities was $ 346.7 million compared to $ 178.1 million for the year ended december 31 , 2017. the increase in net cash provided by financing activities was primarily related to $ 200.0 million in proceeds received from the issuance of our common stock to yum restaurant services group , llc ( see part ii , item 8 , note 13 , stockholders ' equity ) and $ 22.0 million in additional proceeds received from borrowings under the credit facility in 2018. these increases were partially offset by the increase in repayments of borrowings under the credit facility of $ 28.1 million during the year ended december 31 , 2018 and an increase of

we incurred net losses of $ 16,647,687 and $ 8,065,072 for the years ended december 31 , 2018 and december 31 , 2017 , respectively . these losses have resulted principally from costs incurred in connection with investigating and developing our product candidates , research and development activities and general and administrative costs associated with our operations . as of december 31 , 2018 , we had an accumulated deficit of $ 32,273,787 and cash and cash equivalents of $ 1,940,265. for the foreseeable future , we expect to continue to incur losses , which will increase significantly from historical levels as we expand our product development activities , commercialize them if they do not require u.s. food and drug administration 's center for veterinary medicine , or fda-cvm , pre-market approval , seek regulatory approvals for our product candidates where required from the fda-cvm or the united states department of agriculture center for veterinary biologics , or the usda-cvb . for further information on the regulatory , business and product pipeline , please see the “ business ” section of this annual report on form 10-k. for further information on the risk factors , please see the “ risk factors ” section of this annual report on form 10-k. - 36 - revenue we do not have any products approved for sale , have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future . if our development efforts result in clinical success and regulatory approval or collaboration agreements with third parties for any of our product candidates , we may generate revenue from those product candidates . operating expenses the majority of our operating expenses to date have been for the general and administrative activities related to general business activities , capital market activities and stock-based compensation , and research and development activities related to our lead product candidates . research and development expense all costs of research and development are expensed in the period in which they are incurred . research and development costs primarily consist of salaries and related expenses for personnel , stock-based compensation expense , fees paid to consultants , outside service providers , professional services , travel costs and materials used in clinical trials and research and development . we have a point-of-care biosensor platform , zm-024 , we are developing for diagnosis and treatment management of disorders such as thyroid and adrenal disorders , a point-of-care diagnostic platform , zm-020 , for the detection of pathogens in urine and fecal samples , and a non-invasive diagnostic assay or blood test , zm-017 , that we are developing as an aid for veterinarians in diagnosing cancer in canines . we have four drug product candidates in development . our lead drug product candidate is zm-007 , an oral suspension formulation of metronidazole targeting the treatment of acute diarrhea in small dog breeds and puppies under nine pounds or four kilograms . our second drug product candidate is zm-012 , a novel tablet formulation of metronidazole , most commonly known as flagyl® , its human pharmaceutical brand name , and a complementary formulation to zm-007 , targeting the treatment of acute diarrhea in larger dogs . our third drug product candidate is zm-006 , a transdermal gel formulation of methimazole , most commonly known as tapazole® , its human pharmaceutical brand name , and felimazole® , its feline pharmaceutical brand name , targeting hyperthyroidism in cats . our fourth drug product candidate is zm-011 , a transdermal gel formulation of fluoxetine , most commonly known as prozac® , its human pharmaceutical brand name . general and administrative expense general and administrative expense consists primarily of personnel costs , including salaries , related benefits and stock-based compensation for employees , consultants and directors . general and administrative expenses also include rent and other facilities costs and professional and consulting fees for legal , accounting , tax services and other general business services . professional fees professional fees include attorney 's fees , accounting fees and consulting fees incurred in connection with product investigation and analysis , regulatory analysis , government relations , audit , securities offerings , investor relations , and general corporate and intellectual property advice . income taxes as of december 31 , 2018 , we had net operating loss carryforwards for federal and state income tax purposes of $ 11,522,620 and non-capital loss carryforwards for canada of approximately $ 13,353,870 , which will begin to expire in fiscal year 2036. we have evaluated the factors bearing upon the realizability of our deferred tax assets , which are comprised principally of net operating loss carryforwards and non-capital loss carryforwards . we concluded that , due to the uncertainty of realizing any tax benefits as of december 31 , 2018 , a valuation allowance was necessary to fully offset our deferred tax assets . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or u.s. gaap . the preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , and revenue , costs and expenses and related disclosures during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including those described below . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . story_separator_special_tag stock options and warrants to purchase our common shares issued during the period were not included in the computation of diluted eps , as the effect would be anti-dilutive . comprehensive loss we follow asc topic 220. this statement establishes standards for reporting and display of comprehensive ( loss ) income and its components . comprehensive loss is net loss plus certain items that are recorded directly to shareholders ' equity . we currently have no other comprehensive loss items . results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 our results of operations for the year ended december 31 , 2018 and december 31 , 2017 are as follows : replace_table_token_1_th - 39 - revenue we did not generate any revenue during the years ended december 31 , 2018 and december 31 , 2017. research and development research and development expense for the year ended december 31 , 2018 was $ 10,317,153 compared to $ 2,751,326 for the year ended december 31 , 2017 , an increase of $ 7,565,827 or 275 % . the increase was primarily due to the licensing fees of $ 5,413,158 paid pursuant to a development and supply agreement with qorvo biotechnologies , llc as part of our development of zm-024 , and licensing fees of $ 1,738,513 paid pursuant to our development , commercialization and exclusive distribution agreement with seraph biosciences , inc. as part of our development of zm-020 . in 2017 we paid licensing fees of $ 480,131 pursuant to our license and supply agreement with celsee , inc. as part of our development of zm-017 . research and development expenses also increased in 2018 as a result of a higher level of third-party expenses relating to the development of our product candidate developments and the addition of full-time employees . as a result , year over year license fees increased $ 6,671,540 , contracted outsourced activities increased $ 923,084 , and salaries increased $ 72,219 , while consulting expenses decreased $ 111,375. we expect that our r & d expenditures in 2019 will be significantly higher than in 2018 , due to work related to verification and validation of zm-024 , zm-020 and zm-017 , the initiation of pilot and pivotal studies related to our four inads , as well as additional diagnostic developments and technologies . general and administrative general and administrative expense for the year ended december 31 , 2018 was $ 4,521,349 , compared to $ 3,946,270 for the year ended december 31 , 2017 , an increase of $ 575,079 or 15 % . the increase in general and administrative expense was primarily due to increased regulatory expense of $ 297,607 as we incurred additional costs as part of our nyse american listing and related sec filings , and an increase in office expense of $ 165,551 due to the relocation of offices . salaries , bonus and benefits decreased $ 110,179 , but after adjusting for the decrease in share-based compensation expense of $ 842,391 , salaries , bonus and benefits increased $ 732,212 due to the addition of personnel including a chief commercial officer , a vice president of sales and severance to a former officer of the company . we expect that general and administrative expense will increase in 2019 and future periods as we increase our level of activity . professional fees professional fees for the year ended december 31 , 2018 were $ 1,534,977 compared to $ 1,294,044 for the year ended december 31 , 2017 , an increase of $ 240,933 or 19 % . the increase was primarily due to increased expenses resulting from our company being subject to u.s. securities law reporting for a full year and the filing of several registration statements . professional fees for the 2017 period consisted primarily of consulting fees incurred in connection with our initial u.s registration statement and expenses incurred to list our common shares on the nyse american and fundraising efforts . net loss our net loss for the year ended december 31 , 2018 was $ 16,647,687 , or $ 0.18 per share , compared with a net loss of $ 8,065,072 , or $ 0.09 per share , for the year ended december 31 , 2017 , an increase of $ 8,582,615 or 106 % . the net loss in each period was attributed to the matters described above . we expect to continue to record net losses in future periods until such time as we have sufficient revenue from our product candidates to offset our operating expenses . story_separator_special_tag on terms or in amounts sufficient to meet our needs or at all . the availability of equity or debt financing will be affected by , among other things , the results of our research and development activities , our ability to obtain regulatory approvals , market acceptance of any products for which we receive marketing approval , conditions in the capital markets generally and in the veterinary products industry , strategic alliance agreements and other relevant commercial considerations . we also entered into an at-the-market equity offering sales agreement with cantor fitzgerald & co. , effective as of december 20 , 2018 , under which zomedica may sell pursuant to the universal shelf registration statement common shares in the united states only , from time to time , for up to $ 50.0 million in aggregate sales proceeds in `` at the market `` transactions . if we raise additional funds by issuing equity securities , our existing security holders will likely experience dilution , and the incurring of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict operations . in the event that we are unable to obtain sufficient capital to meet our working capital requirements , we may be required to change or curtail current or planned operations in order to conserve cash until

cash flows provided by financing activities our financing activities during the periods presented consisted primarily of proceeds from the issuance of long-term debt , proceeds from the issuance of common stock , repayments of borrowings under the credit agreement , and taxes paid related to the net settlement of stock-based compensation awards . for the year ended december 31 , 2019 , net cash provided by financing activities was $ 129.3 million compared to $ 346.7 million for the year ended december 31 , 2018. the decrease in net cash provided by financing activities was primarily related to the issuance of common stock of $ 200.0 million in the prior year , an increase in repayments of long-term debt , net of proceeds , of $ 10.4 million , a decrease in proceeds from exercises of stock options of $ 9.7 million and debt issuance costs of $ 9.1 million in 2019 , partially offset by a decrease in taxes paid related to the net settlement of stock-based compensation awards of $ 11.8 million as compared to the prior year . for the year ended december 31 , 2018 , net cash provided by financing activities was $ 346.7 million compared to $ 178.1 million for the year ended december 31 , 2017. the increase in net cash provided by financing activities was primarily related to $ 200.0 million in proceeds received from the issuance of our common stock to yum restaurant services group , llc ( see part ii , item 8 , note 13 , stockholders ' equity ) and $ 22.0 million in additional proceeds received from borrowings under the credit facility in 2018. these increases were partially offset by the increase in repayments of borrowings under the credit facility of $ 28.1 million during the year ended december 31 , 2018 and an increase of

we incurred net losses of $ 16,647,687 and $ 8,065,072 for the years ended december 31 , 2018 and december 31 , 2017 , respectively . these losses have resulted principally from costs incurred in connection with investigating and developing our product candidates , research and development activities and general and administrative costs associated with our operations . as of december 31 , 2018 , we had an accumulated deficit of $ 32,273,787 and cash and cash equivalents of $ 1,940,265. for the foreseeable future , we expect to continue to incur losses , which will increase significantly from historical levels as we expand our product development activities , commercialize them if they do not require u.s. food and drug administration 's center for veterinary medicine , or fda-cvm , pre-market approval , seek regulatory approvals for our product candidates where required from the fda-cvm or the united states department of agriculture center for veterinary biologics , or the usda-cvb . for further information on the regulatory , business and product pipeline , please see the “ business ” section of this annual report on form 10-k. for further information on the risk factors , please see the “ risk factors ” section of this annual report on form 10-k. - 36 - revenue we do not have any products approved for sale , have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future . if our development efforts result in clinical success and regulatory approval or collaboration agreements with third parties for any of our product candidates , we may generate revenue from those product candidates . operating expenses the majority of our operating expenses to date have been for the general and administrative activities related to general business activities , capital market activities and stock-based compensation , and research and development activities related to our lead product candidates . research and development expense all costs of research and development are expensed in the period in which they are incurred . research and development costs primarily consist of salaries and related expenses for personnel , stock-based compensation expense , fees paid to consultants , outside service providers , professional services , travel costs and materials used in clinical trials and research and development . we have a point-of-care biosensor platform , zm-024 , we are developing for diagnosis and treatment management of disorders such as thyroid and adrenal disorders , a point-of-care diagnostic platform , zm-020 , for the detection of pathogens in urine and fecal samples , and a non-invasive diagnostic assay or blood test , zm-017 , that we are developing as an aid for veterinarians in diagnosing cancer in canines . we have four drug product candidates in development . our lead drug product candidate is zm-007 , an oral suspension formulation of metronidazole targeting the treatment of acute diarrhea in small dog breeds and puppies under nine pounds or four kilograms . our second drug product candidate is zm-012 , a novel tablet formulation of metronidazole , most commonly known as flagyl® , its human pharmaceutical brand name , and a complementary formulation to zm-007 , targeting the treatment of acute diarrhea in larger dogs . our third drug product candidate is zm-006 , a transdermal gel formulation of methimazole , most commonly known as tapazole® , its human pharmaceutical brand name , and felimazole® , its feline pharmaceutical brand name , targeting hyperthyroidism in cats . our fourth drug product candidate is zm-011 , a transdermal gel formulation of fluoxetine , most commonly known as prozac® , its human pharmaceutical brand name . general and administrative expense general and administrative expense consists primarily of personnel costs , including salaries , related benefits and stock-based compensation for employees , consultants and directors . general and administrative expenses also include rent and other facilities costs and professional and consulting fees for legal , accounting , tax services and other general business services . professional fees professional fees include attorney 's fees , accounting fees and consulting fees incurred in connection with product investigation and analysis , regulatory analysis , government relations , audit , securities offerings , investor relations , and general corporate and intellectual property advice . income taxes as of december 31 , 2018 , we had net operating loss carryforwards for federal and state income tax purposes of $ 11,522,620 and non-capital loss carryforwards for canada of approximately $ 13,353,870 , which will begin to expire in fiscal year 2036. we have evaluated the factors bearing upon the realizability of our deferred tax assets , which are comprised principally of net operating loss carryforwards and non-capital loss carryforwards . we concluded that , due to the uncertainty of realizing any tax benefits as of december 31 , 2018 , a valuation allowance was necessary to fully offset our deferred tax assets . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or u.s. gaap . the preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , and revenue , costs and expenses and related disclosures during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including those described below . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . story_separator_special_tag stock options and warrants to purchase our common shares issued during the period were not included in the computation of diluted eps , as the effect would be anti-dilutive . comprehensive loss we follow asc topic 220. this statement establishes standards for reporting and display of comprehensive ( loss ) income and its components . comprehensive loss is net loss plus certain items that are recorded directly to shareholders ' equity . we currently have no other comprehensive loss items . results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 our results of operations for the year ended december 31 , 2018 and december 31 , 2017 are as follows : replace_table_token_1_th - 39 - revenue we did not generate any revenue during the years ended december 31 , 2018 and december 31 , 2017. research and development research and development expense for the year ended december 31 , 2018 was $ 10,317,153 compared to $ 2,751,326 for the year ended december 31 , 2017 , an increase of $ 7,565,827 or 275 % . the increase was primarily due to the licensing fees of $ 5,413,158 paid pursuant to a development and supply agreement with qorvo biotechnologies , llc as part of our development of zm-024 , and licensing fees of $ 1,738,513 paid pursuant to our development , commercialization and exclusive distribution agreement with seraph biosciences , inc. as part of our development of zm-020 . in 2017 we paid licensing fees of $ 480,131 pursuant to our license and supply agreement with celsee , inc. as part of our development of zm-017 . research and development expenses also increased in 2018 as a result of a higher level of third-party expenses relating to the development of our product candidate developments and the addition of full-time employees . as a result , year over year license fees increased $ 6,671,540 , contracted outsourced activities increased $ 923,084 , and salaries increased $ 72,219 , while consulting expenses decreased $ 111,375. we expect that our r & d expenditures in 2019 will be significantly higher than in 2018 , due to work related to verification and validation of zm-024 , zm-020 and zm-017 , the initiation of pilot and pivotal studies related to our four inads , as well as additional diagnostic developments and technologies . general and administrative general and administrative expense for the year ended december 31 , 2018 was $ 4,521,349 , compared to $ 3,946,270 for the year ended december 31 , 2017 , an increase of $ 575,079 or 15 % . the increase in general and administrative expense was primarily due to increased regulatory expense of $ 297,607 as we incurred additional costs as part of our nyse american listing and related sec filings , and an increase in office expense of $ 165,551 due to the relocation of offices . salaries , bonus and benefits decreased $ 110,179 , but after adjusting for the decrease in share-based compensation expense of $ 842,391 , salaries , bonus and benefits increased $ 732,212 due to the addition of personnel including a chief commercial officer , a vice president of sales and severance to a former officer of the company . we expect that general and administrative expense will increase in 2019 and future periods as we increase our level of activity . professional fees professional fees for the year ended december 31 , 2018 were $ 1,534,977 compared to $ 1,294,044 for the year ended december 31 , 2017 , an increase of $ 240,933 or 19 % . the increase was primarily due to increased expenses resulting from our company being subject to u.s. securities law reporting for a full year and the filing of several registration statements . professional fees for the 2017 period consisted primarily of consulting fees incurred in connection with our initial u.s registration statement and expenses incurred to list our common shares on the nyse american and fundraising efforts . net loss our net loss for the year ended december 31 , 2018 was $ 16,647,687 , or $ 0.18 per share , compared with a net loss of $ 8,065,072 , or $ 0.09 per share , for the year ended december 31 , 2017 , an increase of $ 8,582,615 or 106 % . the net loss in each period was attributed to the matters described above . we expect to continue to record net losses in future periods until such time as we have sufficient revenue from our product candidates to offset our operating expenses . story_separator_special_tag on terms or in amounts sufficient to meet our needs or at all . the availability of equity or debt financing will be affected by , among other things , the results of our research and development activities , our ability to obtain regulatory approvals , market acceptance of any products for which we receive marketing approval , conditions in the capital markets generally and in the veterinary products industry , strategic alliance agreements and other relevant commercial considerations . we also entered into an at-the-market equity offering sales agreement with cantor fitzgerald & co. , effective as of december 20 , 2018 , under which zomedica may sell pursuant to the universal shelf registration statement common shares in the united states only , from time to time , for up to $ 50.0 million in aggregate sales proceeds in `` at the market `` transactions . if we raise additional funds by issuing equity securities , our existing security holders will likely experience dilution , and the incurring of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict operations . in the event that we are unable to obtain sufficient capital to meet our working capital requirements , we may be required to change or curtail current or planned operations in order to conserve cash until

cash flows year ended december 31 , 2018 compared to year ended december 31 , 2017 the following table shows a summary of our cash flows for the periods set forth below : replace_table_token_2_th - 40 - operating activities net cash used in operating activities for the year ended december 31 , 2018 was $ 11,147,528 , compared to $ 7,093,017 for the year ended december 31 , 2017 , an increase of $ 4,054,511 or 57 % . the increase resulted primarily from our net loss of $ 16,647,687 for the year ended december 31 , 2018 , compared to our net loss of $ 8,065,072 for the year ended december 31 , 2017. the largest uses of cash resulted primarily from an increase in salaries , bonus and benefits as we had 27 employees at december 31 , 2018 compared to 20 employees at december 31 , 2017. other increases include prepaid expenses and deposits which increased by $ 1,956,344 resulting primarily from the prepayment of rent in an amount of $ 1,269,073 for additional office space , and an increase in licensing fees of $ 1,000,000. the increase was also partially due to increased regulatory costs , insurance and professional fees , and reporting costs associated with being subject to u.s. securities law reporting obligations for a full year . net cash used in operating activities for the year ended december 31 , 2017 was $ 7,093,017 , which resulted primarily from our net loss of $ 8,065,072. the largest uses of cash resulted primarily from increases in employee salaries , bonus and benefits , as well as licensing fees of $ 500,000 , professional fees and consulting expenses related to the preparation of our initial u.s registration statement , work on our application to list our common shares on the nyse american , and an increase in the current portion of the prepaid expenses and deposits .

eto 2019 senior notes offering and redemption in january 2019 , eto issued $ 750 million aggregate principal amount of 4.50 % senior notes due 2024 , $ 1.50 billion aggregate principal amount of 5.25 % senior notes due 2029 and $ 1.75 billion aggregate principal amount of 6.25 % senior notes due 2049 . the $ 3.96 billion net proceeds from the offering were used to repay in full et 's outstanding senior secured term loan , to redeem outstanding senior notes , to repay a portion of the borrowings under the partnership 's revolving credit facility and for general partnership purposes . energy transfer merger in october 2018 , we completed the merger of eto with a wholly-owned subsidiary of et in a unit-for-unit exchange ( the “ energy transfer merger ” ) . in connection with the transaction , eto unitholders ( other than et and its subsidiaries ) received 1.28 common units of et for each common unit of eto they owned . immediately prior to the closing of the energy transfer merger , the following also occurred : the idrs in eto were converted into 1,168,205,710 eto common units ; and the general partner interest in eto was converted to a non-economic general partner interest and eto issued 18,448,341 eto common units to etp gp . immediately prior to the closing of the energy transfer merger discussed in “ item 8. financial statements and supplementary data , ” et contributed the following to eto : 2,263,158 common units representing limited partner interests in sunoco lp to eto in exchange for 2,874,275 eto common units ; 100 percent of the limited liability company interests in sunoco gp llc , the sole general partner of sunoco lp , and all of the idrs in sunoco lp , to eto in exchange for 42,812,389 eto common units ; 12,466,912 common units representing limited partner interests in usac and 100 percent of the limited liability company interests in usa compression gp , llc , the general partner of usac , to eto in exchange for 16,134,903 eto common units ; and a 100 percent limited liability company interest in lake charles lng and a 60 percent limited liability company interest in each of energy transfer lng export , llc , et crude oil terminals , llc and etc illinois llc ( collectively , “ lake charles lng and other ” ) to eto in exchange for 37,557,815 eto common units . permian gulf coast pipeline joint venture in september 2018 , eto , magellan midstream partners , l.p. , mplx lp and delek us holdings , inc. announced that they have received sufficient commitments to proceed with plans to construct a new 30 -inch diameter common carrier pipeline , the permian gulf coast ( “ pgc ” ) pipeline , to transport crude oil from the permian basin to the texas gulf coast region . the 600 -mile pgc pipeline system is expected to be operational in mid-2020 with multiple texas origins . the pipeline system will have the strategic capability to transport crude oil to eto 's nederland , texas terminal for ultimate delivery through its distribution system . the project is subject to receipt of customary regulatory and board approvals of the respective entities , and the transaction structure for this project has not been finalized . eto series d preferred units issuance in july 2018 , eto issued 17.8 million of its 7.625 % series d preferred units ( liquidation preference of $ 25 per unit ) resulting in total gross proceeds of $ 445 million . the proceeds were used to repay amounts outstanding under eto 's revolving credit facility and for general partnership purposes . eto 2018 senior notes offering and redemption in june 2018 , eto issued $ 500 million aggregate principal amount of 4.20 % senior notes due 2023 , $ 1.00 billion aggregate principal amount of 4.95 % senior notes due 2028 , $ 500 million aggregate principal amount of 5.80 % senior notes due 2038 and 74 $ 1.00 billion aggregate principal amount of 6.00 % senior notes due 2048 . the $ 2.96 billion net proceeds from the offering were used to redeem outstanding senior notes , to repay borrowings outstanding under eto 's revolving credit facility and for general partnership purposes . old ocean joint venture formation in may 2018 , eto and enterprise products partners l.p. announced the formation of a joint venture to resume service on the old ocean natural gas pipeline . the 24 -inch diameter pipeline resumed service in may 2018 and eto is the operator . additionally , both parties completed the expansion of their jointly owned north texas 36 -inch pipeline that provides more capacity for deliveries from west texas into the old ocean pipeline . acquisition of hpc eto previously owned a 49.99 % interest in hpc , which owns rigs . in april 2018 , eto acquired the remaining 50.01 % interest in hpc . prior to april 2018 , hpc was reflected as an unconsolidated affiliate in eto 's financial statements ; beginning in april 2018 , rigs is reflected as a wholly-owned subsidiary in eto 's financial statements . eto series c preferred units issuance in april 2018 , eto issued 18 million of its 7.375 % series c preferred units ( liquidation preference of $ 25 per unit ) resulting in total gross proceeds of $ 450 million . the proceeds were used to repay amounts outstanding under eto 's revolving credit facility and for general partnership purposes . cdm contribution on april 2 , 2018 , et acquired a controlling interest in usac , a publicly traded partnership that provides compression services in the united states . story_separator_special_tag 6. this information will be used by the ferc in its next five year review of the liquids pipeline index to generate the index level to be effective july 1 , 2021 , thereby including the effect of the revised policy statement and the tax act in the determination of indexed rates prospectively , effective july 1 , 2021. the ferc 's establishment of a just and reasonable rate , including the determination of the appropriate liquids pipeline index , is based on many components , and tax related changes will affect two such components , the allowance for income taxes and the amount for accumulated deferred income taxes , while other pipeline costs also will continue to affect the ferc 's determination of the appropriate pipeline index . accordingly , depending on the ferc 's application of its indexing rate methodology for the next five year term of index rates , the revised policy statement and tax effects related to the tax act may impact our revenues associated with any transportation services we may provide pursuant to cost of service based rates in the future , including indexed rates . trends and outlook we continue to evaluate and execute strategies to enhance unitholder value through growth , as well as the integration and optimization of our diversified asset portfolio . we intend to target a minimum distribution coverage ratio of 1.50x , thereby promoting a prudent balance between distribution rate increases and enhanced financial flexibility and strength while maintaining our investment grade ratings . we anticipate significant earnings growth in 2019 from the completion of our project backlog . we also continue to seek asset optimization opportunities through strategic transactions among us and our subsidiaries and or affiliates , and we expect to continue to evaluate and execute on such opportunities . as we have in the past , we will evaluate growth projects and acquisitions as such opportunities may be identified in the future , and we believe that the current capital markets are conducive to funding such future projects . with respect to commodity prices , natural gas prices have remained comparatively low during most of the last twelve months as associated gas from shale oil resources has provided additional supply to the market , while united states consumption has been relatively flat . this supports natural gas export projects to mexico as well as lng exports . consequently , the gulf coast will likely be the fastest-growing demand market for united states natural gas . unlike natural gas , crude oil prices are influenced more by international markets than by domestic resources and technological advances . prices have rebounded significantly from 2016 lows , signaling united states crude and ngl production should continue to grow rapidly , particularly in the permian basin and bakken shale , while domestic consumption falls . energy exports from the united states are continuing to grow as a result , providing strong spreads from north dakota and west texas to the gulf coast . results of operations we report segment adjusted ebitda as a measure of segment performance . we define segment adjusted ebitda as earnings before interest , taxes , depreciation , depletion , amortization and other non-cash items , such as non-cash compensation expense , gains and losses on disposals of assets , the allowance for equity funds used during construction , unrealized gains and losses on commodity risk management activities , non-cash impairment charges , losses on extinguishments of debt and other non-operating income or expense items . unrealized gains and losses on commodity risk management activities include unrealized gains and losses on commodity derivatives and inventory fair value adjustments ( excluding lower of cost or market adjustments ) . segment adjusted ebitda reflects amounts for unconsolidated affiliates based on the partnership 's proportionate ownership . adjusted ebitda is a non-gaap measure . although we include segment adjusted ebitda in this report , we have not included an analysis of the consolidated measure , adjusted ebitda . we have included a total of segment adjusted ebitda for all segments , which is reconciled to the gaap measure of net income in the consolidated results sections that follow . 78 year ended december 31 , 2018 compared to the year ended december 31 , 2017 consolidated results replace_table_token_7_th see the detailed discussion of segment adjusted ebitda below . depreciation , depletion and amortization . depreciation , depletion and amortization expense increased primarily due to additional depreciation from assets recently placed in service and recent acquisitions . interest expense , net . interest expense increased primarily due to the following : an increase of $ 121 million recognized by eto primarily related to an increase in long-term debt , including additional senior note issuances and borrowings under our revolving credit facilities ; and an increase of $ 78 million due to the acquisition of usac on april 2 , 2018 ; partially offset by a decrease of $ 65 million recognized by sunoco lp primarily due to the repayment in full of its term loan and lower interest rates on its senior notes as a result of sunoco lp 's january 23 , 2018 issuance of senior notes which paid off in full sunoco lp 's previously outstanding senior notes which had higher interest rates . impairment losses . during the year ended december 31 , 2018 , the partnership recognized goodwill impairments of $ 378 million and asset impairments of $ 4 million related to its midstream operations and asset impairments of $ 9 million related to its crude 79 operations idle leased assets . sunoco lp recognized a $ 30 million indefinite-lived intangible impairment related to its contractual rights . usac recognized a $ 9 million fixed asset impairment related to certain idle compressor assets . during the year ended december 31 , 2017 , the partnership recorded impairments to goodwill associated with the compression business of $ 223 million , the entity that owns the general partner

cash flows year ended december 31 , 2018 compared to year ended december 31 , 2017 the following table shows a summary of our cash flows for the periods set forth below : replace_table_token_2_th - 40 - operating activities net cash used in operating activities for the year ended december 31 , 2018 was $ 11,147,528 , compared to $ 7,093,017 for the year ended december 31 , 2017 , an increase of $ 4,054,511 or 57 % . the increase resulted primarily from our net loss of $ 16,647,687 for the year ended december 31 , 2018 , compared to our net loss of $ 8,065,072 for the year ended december 31 , 2017. the largest uses of cash resulted primarily from an increase in salaries , bonus and benefits as we had 27 employees at december 31 , 2018 compared to 20 employees at december 31 , 2017. other increases include prepaid expenses and deposits which increased by $ 1,956,344 resulting primarily from the prepayment of rent in an amount of $ 1,269,073 for additional office space , and an increase in licensing fees of $ 1,000,000. the increase was also partially due to increased regulatory costs , insurance and professional fees , and reporting costs associated with being subject to u.s. securities law reporting obligations for a full year . net cash used in operating activities for the year ended december 31 , 2017 was $ 7,093,017 , which resulted primarily from our net loss of $ 8,065,072. the largest uses of cash resulted primarily from increases in employee salaries , bonus and benefits , as well as licensing fees of $ 500,000 , professional fees and consulting expenses related to the preparation of our initial u.s registration statement , work on our application to list our common shares on the nyse american , and an increase in the current portion of the prepaid expenses and deposits .

eto 2019 senior notes offering and redemption in january 2019 , eto issued $ 750 million aggregate principal amount of 4.50 % senior notes due 2024 , $ 1.50 billion aggregate principal amount of 5.25 % senior notes due 2029 and $ 1.75 billion aggregate principal amount of 6.25 % senior notes due 2049 . the $ 3.96 billion net proceeds from the offering were used to repay in full et 's outstanding senior secured term loan , to redeem outstanding senior notes , to repay a portion of the borrowings under the partnership 's revolving credit facility and for general partnership purposes . energy transfer merger in october 2018 , we completed the merger of eto with a wholly-owned subsidiary of et in a unit-for-unit exchange ( the “ energy transfer merger ” ) . in connection with the transaction , eto unitholders ( other than et and its subsidiaries ) received 1.28 common units of et for each common unit of eto they owned . immediately prior to the closing of the energy transfer merger , the following also occurred : the idrs in eto were converted into 1,168,205,710 eto common units ; and the general partner interest in eto was converted to a non-economic general partner interest and eto issued 18,448,341 eto common units to etp gp . immediately prior to the closing of the energy transfer merger discussed in “ item 8. financial statements and supplementary data , ” et contributed the following to eto : 2,263,158 common units representing limited partner interests in sunoco lp to eto in exchange for 2,874,275 eto common units ; 100 percent of the limited liability company interests in sunoco gp llc , the sole general partner of sunoco lp , and all of the idrs in sunoco lp , to eto in exchange for 42,812,389 eto common units ; 12,466,912 common units representing limited partner interests in usac and 100 percent of the limited liability company interests in usa compression gp , llc , the general partner of usac , to eto in exchange for 16,134,903 eto common units ; and a 100 percent limited liability company interest in lake charles lng and a 60 percent limited liability company interest in each of energy transfer lng export , llc , et crude oil terminals , llc and etc illinois llc ( collectively , “ lake charles lng and other ” ) to eto in exchange for 37,557,815 eto common units . permian gulf coast pipeline joint venture in september 2018 , eto , magellan midstream partners , l.p. , mplx lp and delek us holdings , inc. announced that they have received sufficient commitments to proceed with plans to construct a new 30 -inch diameter common carrier pipeline , the permian gulf coast ( “ pgc ” ) pipeline , to transport crude oil from the permian basin to the texas gulf coast region . the 600 -mile pgc pipeline system is expected to be operational in mid-2020 with multiple texas origins . the pipeline system will have the strategic capability to transport crude oil to eto 's nederland , texas terminal for ultimate delivery through its distribution system . the project is subject to receipt of customary regulatory and board approvals of the respective entities , and the transaction structure for this project has not been finalized . eto series d preferred units issuance in july 2018 , eto issued 17.8 million of its 7.625 % series d preferred units ( liquidation preference of $ 25 per unit ) resulting in total gross proceeds of $ 445 million . the proceeds were used to repay amounts outstanding under eto 's revolving credit facility and for general partnership purposes . eto 2018 senior notes offering and redemption in june 2018 , eto issued $ 500 million aggregate principal amount of 4.20 % senior notes due 2023 , $ 1.00 billion aggregate principal amount of 4.95 % senior notes due 2028 , $ 500 million aggregate principal amount of 5.80 % senior notes due 2038 and 74 $ 1.00 billion aggregate principal amount of 6.00 % senior notes due 2048 . the $ 2.96 billion net proceeds from the offering were used to redeem outstanding senior notes , to repay borrowings outstanding under eto 's revolving credit facility and for general partnership purposes . old ocean joint venture formation in may 2018 , eto and enterprise products partners l.p. announced the formation of a joint venture to resume service on the old ocean natural gas pipeline . the 24 -inch diameter pipeline resumed service in may 2018 and eto is the operator . additionally , both parties completed the expansion of their jointly owned north texas 36 -inch pipeline that provides more capacity for deliveries from west texas into the old ocean pipeline . acquisition of hpc eto previously owned a 49.99 % interest in hpc , which owns rigs . in april 2018 , eto acquired the remaining 50.01 % interest in hpc . prior to april 2018 , hpc was reflected as an unconsolidated affiliate in eto 's financial statements ; beginning in april 2018 , rigs is reflected as a wholly-owned subsidiary in eto 's financial statements . eto series c preferred units issuance in april 2018 , eto issued 18 million of its 7.375 % series c preferred units ( liquidation preference of $ 25 per unit ) resulting in total gross proceeds of $ 450 million . the proceeds were used to repay amounts outstanding under eto 's revolving credit facility and for general partnership purposes . cdm contribution on april 2 , 2018 , et acquired a controlling interest in usac , a publicly traded partnership that provides compression services in the united states . story_separator_special_tag 6. this information will be used by the ferc in its next five year review of the liquids pipeline index to generate the index level to be effective july 1 , 2021 , thereby including the effect of the revised policy statement and the tax act in the determination of indexed rates prospectively , effective july 1 , 2021. the ferc 's establishment of a just and reasonable rate , including the determination of the appropriate liquids pipeline index , is based on many components , and tax related changes will affect two such components , the allowance for income taxes and the amount for accumulated deferred income taxes , while other pipeline costs also will continue to affect the ferc 's determination of the appropriate pipeline index . accordingly , depending on the ferc 's application of its indexing rate methodology for the next five year term of index rates , the revised policy statement and tax effects related to the tax act may impact our revenues associated with any transportation services we may provide pursuant to cost of service based rates in the future , including indexed rates . trends and outlook we continue to evaluate and execute strategies to enhance unitholder value through growth , as well as the integration and optimization of our diversified asset portfolio . we intend to target a minimum distribution coverage ratio of 1.50x , thereby promoting a prudent balance between distribution rate increases and enhanced financial flexibility and strength while maintaining our investment grade ratings . we anticipate significant earnings growth in 2019 from the completion of our project backlog . we also continue to seek asset optimization opportunities through strategic transactions among us and our subsidiaries and or affiliates , and we expect to continue to evaluate and execute on such opportunities . as we have in the past , we will evaluate growth projects and acquisitions as such opportunities may be identified in the future , and we believe that the current capital markets are conducive to funding such future projects . with respect to commodity prices , natural gas prices have remained comparatively low during most of the last twelve months as associated gas from shale oil resources has provided additional supply to the market , while united states consumption has been relatively flat . this supports natural gas export projects to mexico as well as lng exports . consequently , the gulf coast will likely be the fastest-growing demand market for united states natural gas . unlike natural gas , crude oil prices are influenced more by international markets than by domestic resources and technological advances . prices have rebounded significantly from 2016 lows , signaling united states crude and ngl production should continue to grow rapidly , particularly in the permian basin and bakken shale , while domestic consumption falls . energy exports from the united states are continuing to grow as a result , providing strong spreads from north dakota and west texas to the gulf coast . results of operations we report segment adjusted ebitda as a measure of segment performance . we define segment adjusted ebitda as earnings before interest , taxes , depreciation , depletion , amortization and other non-cash items , such as non-cash compensation expense , gains and losses on disposals of assets , the allowance for equity funds used during construction , unrealized gains and losses on commodity risk management activities , non-cash impairment charges , losses on extinguishments of debt and other non-operating income or expense items . unrealized gains and losses on commodity risk management activities include unrealized gains and losses on commodity derivatives and inventory fair value adjustments ( excluding lower of cost or market adjustments ) . segment adjusted ebitda reflects amounts for unconsolidated affiliates based on the partnership 's proportionate ownership . adjusted ebitda is a non-gaap measure . although we include segment adjusted ebitda in this report , we have not included an analysis of the consolidated measure , adjusted ebitda . we have included a total of segment adjusted ebitda for all segments , which is reconciled to the gaap measure of net income in the consolidated results sections that follow . 78 year ended december 31 , 2018 compared to the year ended december 31 , 2017 consolidated results replace_table_token_7_th see the detailed discussion of segment adjusted ebitda below . depreciation , depletion and amortization . depreciation , depletion and amortization expense increased primarily due to additional depreciation from assets recently placed in service and recent acquisitions . interest expense , net . interest expense increased primarily due to the following : an increase of $ 121 million recognized by eto primarily related to an increase in long-term debt , including additional senior note issuances and borrowings under our revolving credit facilities ; and an increase of $ 78 million due to the acquisition of usac on april 2 , 2018 ; partially offset by a decrease of $ 65 million recognized by sunoco lp primarily due to the repayment in full of its term loan and lower interest rates on its senior notes as a result of sunoco lp 's january 23 , 2018 issuance of senior notes which paid off in full sunoco lp 's previously outstanding senior notes which had higher interest rates . impairment losses . during the year ended december 31 , 2018 , the partnership recognized goodwill impairments of $ 378 million and asset impairments of $ 4 million related to its midstream operations and asset impairments of $ 9 million related to its crude 79 operations idle leased assets . sunoco lp recognized a $ 30 million indefinite-lived intangible impairment related to its contractual rights . usac recognized a $ 9 million fixed asset impairment related to certain idle compressor assets . during the year ended december 31 , 2017 , the partnership recorded impairments to goodwill associated with the compression business of $ 223 million , the entity that owns the general partner

cash used in investing activities in 2018 of $ 7.08 billion was comprised primarily of capital expenditures of $ 7.30 billion ( excluding the allowance for equity funds used during construction and net of contributions in aid of construction costs ) . we recorded a net increase in cash of $ 461 million related to the usac acquisition . we paid net cash for acquisitions of $ 429 million . year ended december 31 , 2017 cash used in investing activities in 2017 of $ 5.61 billion was comprised primarily of capital expenditures of $ 8.41 billion ( excluding the allowance for equity funds used during construction and net of contributions in aid of construction costs ) . we paid net cash for acquisitions of $ 583 million , including the acquisition of penntex noncontrolling interest . we received $ 3.48 billion in proceeds from sale of interests in bakken pipeline and rover pipeline . year ended december 31 , 2016 cash used in investing activities in 2016 of $ 8.98 billion was comprised primarily of capital expenditures of $ 7.70 billion ( excluding the allowance for equity funds used during construction and net of contributions in aid of construction costs ) . we paid net cash for acquisitions of $ 1.40 billion . 102 the following is a summary of the partnership 's capital expenditures ( including only our proportionate share of the bakken , rover and bayou bridge pipeline projects and net of contributions in aid of construction costs ) by period : replace_table_token_35_th ( 1 ) amounts related to usac capital expenditures ( net of contributions in aid of construction costs ) for 2018 are subsequent to the close of the cdm contribution on april 2 , 2018 as discussed in “ recent developments. ” ( 2 ) amounts related to sunoco lp 's capital expenditures include capital expenditures related to discontinued operations . financing activities changes in cash flows from financing activities between periods primarily result from changes in the levels of borrowings and equity issuances , which are primarily used to fund acquisitions and growth capital expenditures .

as of december 31 , 2017 , the company was the 19th largest domestic bank holding company in terms of deposits and is included in the standard and poor 's ( “ s & p ” ) 500 and nasdaq financial 100 indices . at december 31 , 2017 , the company had banking operations through 433 domestic branches in eleven western states . additionally , the company currently has , and continues to develop its digital delivery capabilities . revenues and profits are primarily derived from commercial customers and the company also emphasizes mortgage banking , wealth management , municipal finance , and brokerage services . the company is consistently ranked among the best banks in the country to work with by its small and middle-market customers , as measured by the greenwich associates annual survey . since the awards inception in 2009 , only three other u.s. banks have consistently received as many greenwich excellence awards as zions bancorporation . the company consistently wins awards for the best bank within its geography . examples include the best bank awards given by local newspapers , business journals , or similar publications in nevada , arizona , and california : orange county ( four consecutive years ) and san diego county ( seven consecutive years ) . the long-term strategy of the company is driven by key factors that include : ◦ continuing to execute on our community bank business model by doing business on a “ local ” basis , with significant local decision making for customer-facing elements of our business including product offerings , marketing , and pricing . we believe this provides a meaningful competitive advantage and an opportunity for growth over larger national banks whose loan and deposit products are often homogeneous . we are actively 31 engaged in community events and charitable efforts designed to give back to the people within our communities . in 2017 , we believe this local , customized approach led to a strong showing with commercial customers as reflected in the greenwich awards referenced earlier , as well as a growth rate of loans that exceeded the domestic commercial banks ' rate by approximately three percentage points . ◦ achieving even greater efficiencies than currently reflected in our financial statements . we have improved the financial performance of the company significantly during the past three years and we intend to continue to do so by creating value through the adoption of common practices , automation , and simplification of all of our front , middle and back-office processes . ◦ we expect to achieve continued growth of revenue ( net interest income plus noninterest income ) in excess of noninterest expense—so-called positive operating leverage—which should result in annual ppnr growth in the high single digit rate and further improvement to the efficiency ratio . ◦ improving profitability ratios . improved operating efficiency coupled with low credit costs as experienced in 2017 should lead to improved profitability ratios , such as the return on assets and equity . we expect to maintain or increase the return of shareholders ' equity due to stronger earnings and a lower risk profile than seen in stress testing results just a few years ago . ◦ maintaining a strong approach to risk management , having meaningfully improved our operational , credit , and financial risk management in the past several years . ◦ striving to be a “ top employer of choice , ” which means employees view zions bancorporation as one of the best places to work and grow . we believe our scale gives us superior access to capital markets , more robust treasury management , and other product capabilities than smaller community banks . looking forward for the next several years , we believe that digital delivery of products , including mobile banking , online banking and having a core processing system that is robust and prevents outages , is critical to remaining competitive . as such , we are investing a substantial amount to upgrade and replace systems and applications . during the past several years we have taken significant actions to improve the company 's risk profile , which include : ◦ the reduction of an above-average concentration in cre commitments , and within cre , the concentration of land development commitments declined from more than 70 % of total risk-based capital in 2007 , to less than 5 % at december 31 , 2017 ; ◦ numerous changes made to the credit administration organization and processes to facilitate improved data collection on loans and monitoring of potential default and loss risk ; ◦ the higher-risk portfolio of collateralized debt obligation securities were sold and replaced with government and government agency securities ; ◦ a significant increase in the on-balance sheet storehouse of liquidity with the purchase of moderate duration securities with limited duration extension risk ; i.e . , management has generally purchased securities that within the context of a rising interest rate environment would not experience interest rate related losses ; ◦ the addition of five members of the board of directors ; ◦ the replacement and upgrade of management information and accounting systems to allow for a more complete view of the company 's risks and opportunities ; ◦ the ongoing evaluation and classification of all known risks into approximately sixty unique risk categories , which are regularly monitored and reported in a process that flows from line-level employees through executive management to the board of directors ; ◦ the streamlining or elimination of redundant or inefficient processes , and the reduction of unnecessary complexity in product types ; with the improvement in the risk profile , along with improving profitability , the company 's capital stress test results have markedly improved within the past few years , and as such , we have increased the return of capital to shareholders including increasing the common dividend from $ 0.16 per share in 2014 to $ 0.44 per story_separator_special_tag although we consider a wide variety of sources when determining our fu nding needs , we benefit from access to deposits from a significant number of small to mid-sized business customers , which provide us with a low cost of funds and have a positive impact on our nim . including wholesale borrowings , the rate paid on interest-bearing liabilities increased 8 bps primarily due to borrowings increasing as a percentage of liabilities during 2017. the average balance of long-term debt decreased $ 286 million compared with 2016 , and although the average rate increased 61 bps in the current year , because remaining debt was at a higher average rate than the rate on debt that matured and was available to be called ; overall interest expense thereon decreased $ 13 million . as mentioned previously , the company has used short-term fhlb borrowings to fund some of its balance sheet growth . average short-term debt grew $ 3.6 billion and the rate paid increased 78 bps . further changes in short-term borrowings will be driven by balancing changes in deposits and loans as we do not foresee significant increases in investment security balances . the spread on average interest-bearing funds was 3.27 % and 3.23 % for 2017 and 2016 , respectively . the spread on average interest-bearing funds for these periods was affected by the same factors that had an impact on the nim . we expect the mix of interest-earning assets to continue to change over the next several quarters due to solid consumer loan growth , accompanied by moderate growth in cre term loans , and non-oil and gas-related commercial and industrial loans . we anticipate this growth will be partially offset by continued modest reduction in the nre portfolio . interest rate spreads and margin are impacted by the mix of assets we hold , the composition of our loan and securities portfolios and the type of funding used . assuming no additional increases in the federal funds rate , we expect the yield on the securities portfolio to increase slightly , as the cash flow from the portfolio is redeployed into securities with yields that are slightly accretive to the overall portfolio . we expect the yield of the loan portfolio to increase somewhat due to the effects of rising interest rates in late 2017 , partially offset by a continued modest change in the mix of the portfolio ( increasing concentration in lower-yielding residential mortgages ) , as well as reduced income from higher-yielding loans purchased from the fdic in 2009 . 37 our estimates of the company 's interest rate risk position are highly dependent upon a number of assumptions regarding the repricing behavior of various deposit and loan types in response to changes in both short-term and long-term interest rates , balance sheet composition , and other modeling assumptions , as well as the actions of competitors and customers in response to those changes . in addition , our modeled projections for noninterest-bearing demand deposits , which are a substantial portion of our deposit balances , are particularly reliant on assumptions for which there is little historical experience due to the prolonged period of very low interest rates . further detail on interest rate risk is discussed in “ interest rate and market risk management ” on page 68 . refer to the “ liquidity risk management ” section beginning on page 72 for more information on how we manage liquidity risk . net interest margin and interest rate spreads in 2016 vs. 2015 the nim was 3.37 % and 3.19 % for 2016 and 2015 , respectively . market trends and competitive pricing led to generally flat or lower yields across loans and investments in 2016 compared with 2015. these yield adjustments were offset by changes in the company 's asset mix , which in 2016 became less concentrated in lower-yielding money market investments , and more focused on higher-yielding agency securities and loans . further contributing to the improvement was a decline in the company 's cost of funds , due to higher amounts of noninterest-bearing deposits and tender offers , early calls and maturities of higher-rate debt , including the remaining trust preferred securities . average interest-earning assets increased $ 1.8 billion from 2015 , with rates improving 12 bps . average interest-bearing liabilities increased $ 769 million and rates decreased 11 bps over the same period . our average loan portfolio was $ 1.9 billion higher during 2016 , compared with 2015 , although the average interest rate earned on the loan portfolio was 8 bps lower than it was in 2015 due to competitive pricing pressure and depressed interest rates . the larger average loan base generated an additional $ 45 million of taxable-equivalent interest income during the year . the largest average growth in 2016 was in the cre portfolio , which also saw the average yield decline by 22 bps . the decline in loan yields occurred as new loans were originated or existing loans reset or were modified . see “ interest rate and market risk management ” on page 68 for further information regarding our interest rate sensitivity . during 2016 we continued to purchase u.s. agency pass-through securities in order to alter the mix of our interest-earning assets that began in the second half of 2014. the average balance of afs securities for 2016 increased by $ 4.4 billion or 84 % , compared with 2015 , and the average yield was flat at 1.93 % . average balances of money market investments over the same period declined $ 4.6 billion , with an average yield during 2016 of 0.59 % . this asset movement had the largest impact on the improvement in nim during 2016. average noninterest-bearing demand deposits provided us with low cost funding and comprised 44.4 % of average total deposits for 2016 , compared with 43.9 % for 2015. average interest-bearing deposit balances increased by 3

cash used in investing activities in 2018 of $ 7.08 billion was comprised primarily of capital expenditures of $ 7.30 billion ( excluding the allowance for equity funds used during construction and net of contributions in aid of construction costs ) . we recorded a net increase in cash of $ 461 million related to the usac acquisition . we paid net cash for acquisitions of $ 429 million . year ended december 31 , 2017 cash used in investing activities in 2017 of $ 5.61 billion was comprised primarily of capital expenditures of $ 8.41 billion ( excluding the allowance for equity funds used during construction and net of contributions in aid of construction costs ) . we paid net cash for acquisitions of $ 583 million , including the acquisition of penntex noncontrolling interest . we received $ 3.48 billion in proceeds from sale of interests in bakken pipeline and rover pipeline . year ended december 31 , 2016 cash used in investing activities in 2016 of $ 8.98 billion was comprised primarily of capital expenditures of $ 7.70 billion ( excluding the allowance for equity funds used during construction and net of contributions in aid of construction costs ) . we paid net cash for acquisitions of $ 1.40 billion . 102 the following is a summary of the partnership 's capital expenditures ( including only our proportionate share of the bakken , rover and bayou bridge pipeline projects and net of contributions in aid of construction costs ) by period : replace_table_token_35_th ( 1 ) amounts related to usac capital expenditures ( net of contributions in aid of construction costs ) for 2018 are subsequent to the close of the cdm contribution on april 2 , 2018 as discussed in “ recent developments. ” ( 2 ) amounts related to sunoco lp 's capital expenditures include capital expenditures related to discontinued operations . financing activities changes in cash flows from financing activities between periods primarily result from changes in the levels of borrowings and equity issuances , which are primarily used to fund acquisitions and growth capital expenditures .

as of december 31 , 2017 , the company was the 19th largest domestic bank holding company in terms of deposits and is included in the standard and poor 's ( “ s & p ” ) 500 and nasdaq financial 100 indices . at december 31 , 2017 , the company had banking operations through 433 domestic branches in eleven western states . additionally , the company currently has , and continues to develop its digital delivery capabilities . revenues and profits are primarily derived from commercial customers and the company also emphasizes mortgage banking , wealth management , municipal finance , and brokerage services . the company is consistently ranked among the best banks in the country to work with by its small and middle-market customers , as measured by the greenwich associates annual survey . since the awards inception in 2009 , only three other u.s. banks have consistently received as many greenwich excellence awards as zions bancorporation . the company consistently wins awards for the best bank within its geography . examples include the best bank awards given by local newspapers , business journals , or similar publications in nevada , arizona , and california : orange county ( four consecutive years ) and san diego county ( seven consecutive years ) . the long-term strategy of the company is driven by key factors that include : ◦ continuing to execute on our community bank business model by doing business on a “ local ” basis , with significant local decision making for customer-facing elements of our business including product offerings , marketing , and pricing . we believe this provides a meaningful competitive advantage and an opportunity for growth over larger national banks whose loan and deposit products are often homogeneous . we are actively 31 engaged in community events and charitable efforts designed to give back to the people within our communities . in 2017 , we believe this local , customized approach led to a strong showing with commercial customers as reflected in the greenwich awards referenced earlier , as well as a growth rate of loans that exceeded the domestic commercial banks ' rate by approximately three percentage points . ◦ achieving even greater efficiencies than currently reflected in our financial statements . we have improved the financial performance of the company significantly during the past three years and we intend to continue to do so by creating value through the adoption of common practices , automation , and simplification of all of our front , middle and back-office processes . ◦ we expect to achieve continued growth of revenue ( net interest income plus noninterest income ) in excess of noninterest expense—so-called positive operating leverage—which should result in annual ppnr growth in the high single digit rate and further improvement to the efficiency ratio . ◦ improving profitability ratios . improved operating efficiency coupled with low credit costs as experienced in 2017 should lead to improved profitability ratios , such as the return on assets and equity . we expect to maintain or increase the return of shareholders ' equity due to stronger earnings and a lower risk profile than seen in stress testing results just a few years ago . ◦ maintaining a strong approach to risk management , having meaningfully improved our operational , credit , and financial risk management in the past several years . ◦ striving to be a “ top employer of choice , ” which means employees view zions bancorporation as one of the best places to work and grow . we believe our scale gives us superior access to capital markets , more robust treasury management , and other product capabilities than smaller community banks . looking forward for the next several years , we believe that digital delivery of products , including mobile banking , online banking and having a core processing system that is robust and prevents outages , is critical to remaining competitive . as such , we are investing a substantial amount to upgrade and replace systems and applications . during the past several years we have taken significant actions to improve the company 's risk profile , which include : ◦ the reduction of an above-average concentration in cre commitments , and within cre , the concentration of land development commitments declined from more than 70 % of total risk-based capital in 2007 , to less than 5 % at december 31 , 2017 ; ◦ numerous changes made to the credit administration organization and processes to facilitate improved data collection on loans and monitoring of potential default and loss risk ; ◦ the higher-risk portfolio of collateralized debt obligation securities were sold and replaced with government and government agency securities ; ◦ a significant increase in the on-balance sheet storehouse of liquidity with the purchase of moderate duration securities with limited duration extension risk ; i.e . , management has generally purchased securities that within the context of a rising interest rate environment would not experience interest rate related losses ; ◦ the addition of five members of the board of directors ; ◦ the replacement and upgrade of management information and accounting systems to allow for a more complete view of the company 's risks and opportunities ; ◦ the ongoing evaluation and classification of all known risks into approximately sixty unique risk categories , which are regularly monitored and reported in a process that flows from line-level employees through executive management to the board of directors ; ◦ the streamlining or elimination of redundant or inefficient processes , and the reduction of unnecessary complexity in product types ; with the improvement in the risk profile , along with improving profitability , the company 's capital stress test results have markedly improved within the past few years , and as such , we have increased the return of capital to shareholders including increasing the common dividend from $ 0.16 per share in 2014 to $ 0.44 per story_separator_special_tag although we consider a wide variety of sources when determining our fu nding needs , we benefit from access to deposits from a significant number of small to mid-sized business customers , which provide us with a low cost of funds and have a positive impact on our nim . including wholesale borrowings , the rate paid on interest-bearing liabilities increased 8 bps primarily due to borrowings increasing as a percentage of liabilities during 2017. the average balance of long-term debt decreased $ 286 million compared with 2016 , and although the average rate increased 61 bps in the current year , because remaining debt was at a higher average rate than the rate on debt that matured and was available to be called ; overall interest expense thereon decreased $ 13 million . as mentioned previously , the company has used short-term fhlb borrowings to fund some of its balance sheet growth . average short-term debt grew $ 3.6 billion and the rate paid increased 78 bps . further changes in short-term borrowings will be driven by balancing changes in deposits and loans as we do not foresee significant increases in investment security balances . the spread on average interest-bearing funds was 3.27 % and 3.23 % for 2017 and 2016 , respectively . the spread on average interest-bearing funds for these periods was affected by the same factors that had an impact on the nim . we expect the mix of interest-earning assets to continue to change over the next several quarters due to solid consumer loan growth , accompanied by moderate growth in cre term loans , and non-oil and gas-related commercial and industrial loans . we anticipate this growth will be partially offset by continued modest reduction in the nre portfolio . interest rate spreads and margin are impacted by the mix of assets we hold , the composition of our loan and securities portfolios and the type of funding used . assuming no additional increases in the federal funds rate , we expect the yield on the securities portfolio to increase slightly , as the cash flow from the portfolio is redeployed into securities with yields that are slightly accretive to the overall portfolio . we expect the yield of the loan portfolio to increase somewhat due to the effects of rising interest rates in late 2017 , partially offset by a continued modest change in the mix of the portfolio ( increasing concentration in lower-yielding residential mortgages ) , as well as reduced income from higher-yielding loans purchased from the fdic in 2009 . 37 our estimates of the company 's interest rate risk position are highly dependent upon a number of assumptions regarding the repricing behavior of various deposit and loan types in response to changes in both short-term and long-term interest rates , balance sheet composition , and other modeling assumptions , as well as the actions of competitors and customers in response to those changes . in addition , our modeled projections for noninterest-bearing demand deposits , which are a substantial portion of our deposit balances , are particularly reliant on assumptions for which there is little historical experience due to the prolonged period of very low interest rates . further detail on interest rate risk is discussed in “ interest rate and market risk management ” on page 68 . refer to the “ liquidity risk management ” section beginning on page 72 for more information on how we manage liquidity risk . net interest margin and interest rate spreads in 2016 vs. 2015 the nim was 3.37 % and 3.19 % for 2016 and 2015 , respectively . market trends and competitive pricing led to generally flat or lower yields across loans and investments in 2016 compared with 2015. these yield adjustments were offset by changes in the company 's asset mix , which in 2016 became less concentrated in lower-yielding money market investments , and more focused on higher-yielding agency securities and loans . further contributing to the improvement was a decline in the company 's cost of funds , due to higher amounts of noninterest-bearing deposits and tender offers , early calls and maturities of higher-rate debt , including the remaining trust preferred securities . average interest-earning assets increased $ 1.8 billion from 2015 , with rates improving 12 bps . average interest-bearing liabilities increased $ 769 million and rates decreased 11 bps over the same period . our average loan portfolio was $ 1.9 billion higher during 2016 , compared with 2015 , although the average interest rate earned on the loan portfolio was 8 bps lower than it was in 2015 due to competitive pricing pressure and depressed interest rates . the larger average loan base generated an additional $ 45 million of taxable-equivalent interest income during the year . the largest average growth in 2016 was in the cre portfolio , which also saw the average yield decline by 22 bps . the decline in loan yields occurred as new loans were originated or existing loans reset or were modified . see “ interest rate and market risk management ” on page 68 for further information regarding our interest rate sensitivity . during 2016 we continued to purchase u.s. agency pass-through securities in order to alter the mix of our interest-earning assets that began in the second half of 2014. the average balance of afs securities for 2016 increased by $ 4.4 billion or 84 % , compared with 2015 , and the average yield was flat at 1.93 % . average balances of money market investments over the same period declined $ 4.6 billion , with an average yield during 2016 of 0.59 % . this asset movement had the largest impact on the improvement in nim during 2016. average noninterest-bearing demand deposits provided us with low cost funding and comprised 44.4 % of average total deposits for 2016 , compared with 43.9 % for 2015. average interest-bearing deposit balances increased by 3

liquidity management actions consolidated cash , interest-bearing deposits held as investments , and security resell agreements at the parent and its subsidiaries decreased to $ 1.6 billion at december 31 , 2017 from $ 2.5 billion at december 31 , 2016 . the $ 0.9 billion decrease during 2017 resulted primarily from ( 1 ) net loan originations and purchases , ( 2 ) an increase in investment securities , ( 3 ) a net decrease in deposits , ( 4 ) repurchase of our common stock , ( 5 ) repayment of our long-term debt , ( 6 ) repurchase and redemption of our preferred stock , and ( 7 ) dividends on common and preferred stock . these decreases were partially offset by short-term fhlb borrowings and net cash provided by operating activities . during 2017 our htm and afs investment securities increased by $ 1.7 billion . this increase was primarily due to purchases of short-to-medium duration agency guaranteed mortgage-backed securities . prior to the second quarter of 2017 , we were adding to our investment portfolio during the past couple of years to increase our hqla position in light of the new lcr rules and more broadly , to manage balance sheet liquidity more effectively . however , during the second through the fourth quarters of 2017 , our htm and afs investment securities decreased by $ 490 million , and we expect the size of the investment portfolio to be generally stable during the next several quarters .

north american sales for the year ended december 31 , 2011 included $ 60.4 million of general monitors sales compared to $ 12.1 million in the year ended december 31 , 2010. during the year ended december 31 , 2011 , we saw growing demand in oil and gas and other core industrial markets , resulting in higher shipments of instruments ( excluding general monitors ) , head protection and fall protection , up $ 11.8 million , $ 6.0 million and $ 5.2 million , respectively . sales of the advanced combat helmet ( ach ) were $ 27.2 million higher in the current year , as we continued to ship on the current contract . net sales of our european segment were $ 286.8 million for the year ended december 31 , 2011 , an increase of $ 35.7 million , or 14 % , from $ 251.1 million for the year ended december 31 , 2010. net sales in the european segment included $ 25.8 million of general monitor sales for the year ended december 31 , 2011 , compared to $ 4.2 million in the year ended december 31 , 2010. excluding general monitors , local currency sales in europe decreased $ 1.0 million for the year ended december 31 , 2011. the decrease occurred primarily in western europe where local currency sales were down $ 8.6 million reflecting lower shipments of gas masks , fire helmets and ballistic helmets , partially offset by higher shipments of scbas and instruments . lower local currency sales in western europe were partially offset by a $ 7.6 million increase in sales in eastern europe and the middle east due to higher shipments of scbas , instruments and ballistic helmets to the fire service , industrial and military markets . favorable translation effects of stronger european currencies , particularly the euro , increased current year european segment sales , when stated in u.s. dollars , by approximately $ 15.1 million . net sales of our international segment were $ 325.3 million for the year ended december 31 , 2011 , an increase of $ 63.8 million , or 24 % , compared to $ 261.5 million for the year ended december 31 , 2010. local currency sales in the international segment increased $ 49.1 million during the year ended december 31 , 2011. the increase in sales was due to strong demand in the mining , fire service and core industrial markets . the sales increase was most notably related to increased shipments of scba 's , head eye and face protection and gas detection products , which increased by $ 9.3 million , $ 13.4 million and $ 8.9 million , respectively . sales growth was fueled mainly by market growth in latin america and china . currency translation effects increased international segment sales , when stated in u.s. dollars , by $ 14.7 million , reflecting a strengthening of the australian dollar , south african rand and brazilian real . cost of products sold . cost of products sold was $ 703.0 million for the year ended december 31 , 2011 , an increase of $ 96.5 million , or 16 % , from $ 606.5 million for the year ended december 31 , 2010. the increase was driven by higher sales . cost of products sold as a percentage of sales was 59.9 % in the year ended december 31 , 2011 compared to 62.1 % in 2010. lower cost of products sold as a percentage of sales in the current year was due to control over manufacturing cost and the addition of general monitors . cost of products sold and operating expenses include net periodic pension benefit costs and credits . pension credits , combined with pension costs , resulted in net pension credits for the year ended december 31 , 2011 of $ 5.0 million , of which credits of $ 4.0 million , $ 0.2 million and $ 0.8 million were included in cost 23 of products sold , selling , general and administrative expenses and research and development expenses , respectively . pension credits , combined with pension costs , resulted in net pension credits for the year ended december 31 , 2010 of $ 7.3 million , of which credits of $ 5.3 million , $ 1.0 million and $ 1.0 million were included in cost of products sold , selling , general and administrative expenses and research and development expenses , respectively . future net pension credits can be volatile depending on the future performance of plan assets , changes in actuarial assumptions regarding such factors as the selection of discount rates and rates of return on plan assets , changes in the amortization levels of actuarial gains and losses , plan amendments affecting benefit pay-out levels , and profile changes in the participant populations being valued . changes in any of these factors could cause net pension credits to change . to the extent net pension credits decline in the future , our net income would be adversely affected . gross profit . gross profit for the year ended december 31 , 2011 was $ 470.2 million , an increase of $ 100.1 million , or 27 % , from $ 370.1 million for the year ended december 31 , 2010. the ratio of gross profit to sales was 40.1 % in 2011 compared to 37.9 % in 2010. the higher gross profit ratio in 2011 was primarily related to improved pricing , control over manufacturing costs , and the addition of general monitors . selling , general and administrative expenses . story_separator_special_tag 27 international segment net income for the year ended december 31 , 2010 was $ 15.8 million , an increase of $ 9.1 million , or 136 % , from $ 6.7 million for the year ended december 31 , 2009. higher net income was primarily related to improved sales and gross profits , partially offset by higher selling expenses . reconciling items for the year ended december 31 , 2010 reported a net loss of $ 16.9 million , an increase of $ 5.2 million , or 44 % , compared to a net loss of $ 11.7 million for the year ended december 31 , 2009. the higher loss in 2010 was primarily due to expenses related to the acquisition of general monitors and incremental interest expense . story_separator_special_tag expect to generate sufficient operating cash flow to make payments against this amount each year . to the extent that a balance remains when the facility matures in 2016 , we expect to refinance the remaining balance through new borrowing facilities . we expect to make net contributions of $ 4.1 million to our pension plans in 2012 . 29 we have purchase commitments for materials , supplies , services and property , plant and equipment as part of our ordinary conduct of business . we categorize the product liability losses that we experience into two main categories , single incident and cumulative trauma . single incident product liability claims are discrete incidents that are typically known to us when they occur and involve observable injuries and , therefore , more quantifiable damages . therefore , we maintain a reserve for single incident product liability claims based on expected settlement costs for pending claims and an estimate of costs for unreported claims derived from experience , sales volumes and other relevant information . our reserve for single incident product liability claims was $ 4.7 million and $ 5.2 million at december 31 , 2011 and 2010 , respectively . single incident product liability expense during the years ended december 31 , 2011 , 2010 and 2009 was $ 1.5 million , $ 0.2 million and $ 0.5 million , respectively . we evaluate our single incident product liability exposures on an ongoing basis and make adjustments to the reserve as new information becomes available . cumulative trauma product liability claims involve exposures to harmful substances ( e.g . , silica , asbestos and coal dust ) that occurred many years ago and may have developed over long periods of time into diseases such as silicosis , asbestosis or coal worker 's pneumoconiosis . we are presently named as a defendant in 2,321 lawsuits in which plaintiffs allege to have contracted certain cumulative trauma diseases related to exposure to silica , asbestos , and or coal dust . these lawsuits mainly involve respiratory protection products allegedly manufactured and sold by us . we are unable to estimate total damages sought in these lawsuits as they generally do not specify the injuries alleged or the amount of damages sought , and potentially involve multiple defendants . cumulative trauma product liability litigation is difficult to predict . in our experience , until late in a lawsuit , we can not reasonably determine whether it is probable that any given cumulative trauma lawsuit will ultimately result in a liability . this uncertainty is caused by many factors , including the following : cumulative trauma complaints generally do not provide information sufficient to determine if a loss is probable ; cumulative trauma litigation is inherently unpredictable and information is often insufficient to determine if a lawsuit will develop into an actively litigated case ; and even when a case is actively litigated , it is often difficult to determine if the lawsuit will be dismissed or otherwise resolved until late in the lawsuit . moreover , even once it is probable that such a lawsuit will result in a loss , it is difficult to reasonably estimate the amount of actual loss that will be incurred . these amounts are highly variable and turn on a case-by-case analysis of the relevant facts , which are often not learned until late in the lawsuit . because of these factors , we can not reliably determine our potential liability for such claims until late in the lawsuit . we , therefore , do not record cumulative trauma product liability losses when a lawsuit is filed , but rather , when we learn sufficient information to determine that it is probable that we will incur a loss and the amount of loss can be reasonably estimated . we record expenses for defense costs associated with open cumulative trauma product liability lawsuits as incurred . we can not estimate any amount or range of possible losses related to resolving pending and future cumulative trauma product liability claims that we may face because of the factors described above . as new information about cumulative trauma product liability cases and future developments becomes available , we reassess our potential exposures . a summary of cumulative trauma product liability claims activity follows : replace_table_token_10_th 30 with some common contract exclusions , we maintain insurance for cumulative trauma product liability claims . we have purchased insurance policies from over 20 different insurance carriers that provide coverage for cumulative trauma product liability losses and related defense costs . in the normal course of business , we make payments to settle product liability claims and for related defense costs . we record receivables for the amounts that are covered by insurance . the available limits of these policies are many times our recorded insurance receivable balance . various factors could affect the timing and amount of recovery of our insurance receivables , including the outcome of negotiations with insurers , legal proceedings with respect to product liability insurance coverage and the extent to which insurers may become insolvent in the future . our insurance receivables at december 31 , 2011 and 2010 totaled $

liquidity management actions consolidated cash , interest-bearing deposits held as investments , and security resell agreements at the parent and its subsidiaries decreased to $ 1.6 billion at december 31 , 2017 from $ 2.5 billion at december 31 , 2016 . the $ 0.9 billion decrease during 2017 resulted primarily from ( 1 ) net loan originations and purchases , ( 2 ) an increase in investment securities , ( 3 ) a net decrease in deposits , ( 4 ) repurchase of our common stock , ( 5 ) repayment of our long-term debt , ( 6 ) repurchase and redemption of our preferred stock , and ( 7 ) dividends on common and preferred stock . these decreases were partially offset by short-term fhlb borrowings and net cash provided by operating activities . during 2017 our htm and afs investment securities increased by $ 1.7 billion . this increase was primarily due to purchases of short-to-medium duration agency guaranteed mortgage-backed securities . prior to the second quarter of 2017 , we were adding to our investment portfolio during the past couple of years to increase our hqla position in light of the new lcr rules and more broadly , to manage balance sheet liquidity more effectively . however , during the second through the fourth quarters of 2017 , our htm and afs investment securities decreased by $ 490 million , and we expect the size of the investment portfolio to be generally stable during the next several quarters .

north american sales for the year ended december 31 , 2011 included $ 60.4 million of general monitors sales compared to $ 12.1 million in the year ended december 31 , 2010. during the year ended december 31 , 2011 , we saw growing demand in oil and gas and other core industrial markets , resulting in higher shipments of instruments ( excluding general monitors ) , head protection and fall protection , up $ 11.8 million , $ 6.0 million and $ 5.2 million , respectively . sales of the advanced combat helmet ( ach ) were $ 27.2 million higher in the current year , as we continued to ship on the current contract . net sales of our european segment were $ 286.8 million for the year ended december 31 , 2011 , an increase of $ 35.7 million , or 14 % , from $ 251.1 million for the year ended december 31 , 2010. net sales in the european segment included $ 25.8 million of general monitor sales for the year ended december 31 , 2011 , compared to $ 4.2 million in the year ended december 31 , 2010. excluding general monitors , local currency sales in europe decreased $ 1.0 million for the year ended december 31 , 2011. the decrease occurred primarily in western europe where local currency sales were down $ 8.6 million reflecting lower shipments of gas masks , fire helmets and ballistic helmets , partially offset by higher shipments of scbas and instruments . lower local currency sales in western europe were partially offset by a $ 7.6 million increase in sales in eastern europe and the middle east due to higher shipments of scbas , instruments and ballistic helmets to the fire service , industrial and military markets . favorable translation effects of stronger european currencies , particularly the euro , increased current year european segment sales , when stated in u.s. dollars , by approximately $ 15.1 million . net sales of our international segment were $ 325.3 million for the year ended december 31 , 2011 , an increase of $ 63.8 million , or 24 % , compared to $ 261.5 million for the year ended december 31 , 2010. local currency sales in the international segment increased $ 49.1 million during the year ended december 31 , 2011. the increase in sales was due to strong demand in the mining , fire service and core industrial markets . the sales increase was most notably related to increased shipments of scba 's , head eye and face protection and gas detection products , which increased by $ 9.3 million , $ 13.4 million and $ 8.9 million , respectively . sales growth was fueled mainly by market growth in latin america and china . currency translation effects increased international segment sales , when stated in u.s. dollars , by $ 14.7 million , reflecting a strengthening of the australian dollar , south african rand and brazilian real . cost of products sold . cost of products sold was $ 703.0 million for the year ended december 31 , 2011 , an increase of $ 96.5 million , or 16 % , from $ 606.5 million for the year ended december 31 , 2010. the increase was driven by higher sales . cost of products sold as a percentage of sales was 59.9 % in the year ended december 31 , 2011 compared to 62.1 % in 2010. lower cost of products sold as a percentage of sales in the current year was due to control over manufacturing cost and the addition of general monitors . cost of products sold and operating expenses include net periodic pension benefit costs and credits . pension credits , combined with pension costs , resulted in net pension credits for the year ended december 31 , 2011 of $ 5.0 million , of which credits of $ 4.0 million , $ 0.2 million and $ 0.8 million were included in cost 23 of products sold , selling , general and administrative expenses and research and development expenses , respectively . pension credits , combined with pension costs , resulted in net pension credits for the year ended december 31 , 2010 of $ 7.3 million , of which credits of $ 5.3 million , $ 1.0 million and $ 1.0 million were included in cost of products sold , selling , general and administrative expenses and research and development expenses , respectively . future net pension credits can be volatile depending on the future performance of plan assets , changes in actuarial assumptions regarding such factors as the selection of discount rates and rates of return on plan assets , changes in the amortization levels of actuarial gains and losses , plan amendments affecting benefit pay-out levels , and profile changes in the participant populations being valued . changes in any of these factors could cause net pension credits to change . to the extent net pension credits decline in the future , our net income would be adversely affected . gross profit . gross profit for the year ended december 31 , 2011 was $ 470.2 million , an increase of $ 100.1 million , or 27 % , from $ 370.1 million for the year ended december 31 , 2010. the ratio of gross profit to sales was 40.1 % in 2011 compared to 37.9 % in 2010. the higher gross profit ratio in 2011 was primarily related to improved pricing , control over manufacturing costs , and the addition of general monitors . selling , general and administrative expenses . story_separator_special_tag 27 international segment net income for the year ended december 31 , 2010 was $ 15.8 million , an increase of $ 9.1 million , or 136 % , from $ 6.7 million for the year ended december 31 , 2009. higher net income was primarily related to improved sales and gross profits , partially offset by higher selling expenses . reconciling items for the year ended december 31 , 2010 reported a net loss of $ 16.9 million , an increase of $ 5.2 million , or 44 % , compared to a net loss of $ 11.7 million for the year ended december 31 , 2009. the higher loss in 2010 was primarily due to expenses related to the acquisition of general monitors and incremental interest expense . story_separator_special_tag expect to generate sufficient operating cash flow to make payments against this amount each year . to the extent that a balance remains when the facility matures in 2016 , we expect to refinance the remaining balance through new borrowing facilities . we expect to make net contributions of $ 4.1 million to our pension plans in 2012 . 29 we have purchase commitments for materials , supplies , services and property , plant and equipment as part of our ordinary conduct of business . we categorize the product liability losses that we experience into two main categories , single incident and cumulative trauma . single incident product liability claims are discrete incidents that are typically known to us when they occur and involve observable injuries and , therefore , more quantifiable damages . therefore , we maintain a reserve for single incident product liability claims based on expected settlement costs for pending claims and an estimate of costs for unreported claims derived from experience , sales volumes and other relevant information . our reserve for single incident product liability claims was $ 4.7 million and $ 5.2 million at december 31 , 2011 and 2010 , respectively . single incident product liability expense during the years ended december 31 , 2011 , 2010 and 2009 was $ 1.5 million , $ 0.2 million and $ 0.5 million , respectively . we evaluate our single incident product liability exposures on an ongoing basis and make adjustments to the reserve as new information becomes available . cumulative trauma product liability claims involve exposures to harmful substances ( e.g . , silica , asbestos and coal dust ) that occurred many years ago and may have developed over long periods of time into diseases such as silicosis , asbestosis or coal worker 's pneumoconiosis . we are presently named as a defendant in 2,321 lawsuits in which plaintiffs allege to have contracted certain cumulative trauma diseases related to exposure to silica , asbestos , and or coal dust . these lawsuits mainly involve respiratory protection products allegedly manufactured and sold by us . we are unable to estimate total damages sought in these lawsuits as they generally do not specify the injuries alleged or the amount of damages sought , and potentially involve multiple defendants . cumulative trauma product liability litigation is difficult to predict . in our experience , until late in a lawsuit , we can not reasonably determine whether it is probable that any given cumulative trauma lawsuit will ultimately result in a liability . this uncertainty is caused by many factors , including the following : cumulative trauma complaints generally do not provide information sufficient to determine if a loss is probable ; cumulative trauma litigation is inherently unpredictable and information is often insufficient to determine if a lawsuit will develop into an actively litigated case ; and even when a case is actively litigated , it is often difficult to determine if the lawsuit will be dismissed or otherwise resolved until late in the lawsuit . moreover , even once it is probable that such a lawsuit will result in a loss , it is difficult to reasonably estimate the amount of actual loss that will be incurred . these amounts are highly variable and turn on a case-by-case analysis of the relevant facts , which are often not learned until late in the lawsuit . because of these factors , we can not reliably determine our potential liability for such claims until late in the lawsuit . we , therefore , do not record cumulative trauma product liability losses when a lawsuit is filed , but rather , when we learn sufficient information to determine that it is probable that we will incur a loss and the amount of loss can be reasonably estimated . we record expenses for defense costs associated with open cumulative trauma product liability lawsuits as incurred . we can not estimate any amount or range of possible losses related to resolving pending and future cumulative trauma product liability claims that we may face because of the factors described above . as new information about cumulative trauma product liability cases and future developments becomes available , we reassess our potential exposures . a summary of cumulative trauma product liability claims activity follows : replace_table_token_10_th 30 with some common contract exclusions , we maintain insurance for cumulative trauma product liability claims . we have purchased insurance policies from over 20 different insurance carriers that provide coverage for cumulative trauma product liability losses and related defense costs . in the normal course of business , we make payments to settle product liability claims and for related defense costs . we record receivables for the amounts that are covered by insurance . the available limits of these policies are many times our recorded insurance receivable balance . various factors could affect the timing and amount of recovery of our insurance receivables , including the outcome of negotiations with insurers , legal proceedings with respect to product liability insurance coverage and the extent to which insurers may become insolvent in the future . our insurance receivables at december 31 , 2011 and 2010 totaled $

liquidity and capital resources our main source of liquidity is operating cash flows , supplemented by borrowings to fund working capital requirements and significant transactions . our principal liquidity requirements are for working capital , capital expenditures , principal and interest payments on debt and acquisitions . approximately half of our long-term debt is at fixed interest rates with manageable repayment schedules through 2021. the remainder of our long-term debt is at variable rates on an unsecured revolving credit facility that is due in 2016. substantially all of our borrowings originate in the u.s. , which has limited our exposure to non-u.s. credit markets and to currency exchange rate fluctuations . in november 2011 , we amended the unsecured senior revolving credit facility that we entered into in 2010 to increase the facility from $ 250.0 million to $ 300.0 million and extend the term of the facility until november 2016. the amended credit agreement provides for borrowings up to $ 300.0 million and is subject to certain commitment fees . loans made under the senior revolving credit facility bear interest at a variable rate . loan proceeds may be used for general corporate purposes , including working capital , permitted acquisitions , capital expenditures and repayment of existing indebtedness . the credit agreement also provides for an uncommitted incremental facility that permits us , subject to certain conditions , to request an increase in the senior credit facility of up to $ 50.0 million . at december 31 , 2011 , $ 130.0 million of the $ 300.0 million senior revolving credit facility was unused . during 2010 , we issued $ 100.0 million in unsecured 4.00 % series a senior notes . these notes mature in october 2021 and are payable in five annual installments of $ 20.0 million , commencing in october 2017. interest is payable quarterly . incremental borrowing in 2010 and 2011 was primarily related to our acquisition of general monitors in october 2010. during 2011 , we reduced borrowings on the senior revolving credit facility by $ 25.0 million .

personnel costs are the most significant component of operating expenses and consist of salaries , benefits , stock-based compensation and sales commissions . sales and marketing . sales and marketing expense consists primarily of personnel costs , including salary , employee benefits and stock-based compensation for personnel employed in sales , marketing , customer service , medical education and training , as well as investments in surgeon training programs , industry events and other promotional activities . in addition , our sales and marketing expense includes sales commissions and bonuses , generally based on a percentage of sales , to our sales managers , direct sales representatives and independent sales representatives . recruiting , training and retaining productive sales representatives and educating surgeons about the benefits of our products are required to generate and grow revenue . we expect sales and marketing expense to increase as we build up our sales and support personnel and expand our marketing efforts . our sales and marketing expense may fluctuate from period to period due to the seasonality of our revenue and the timing and extent of our expenses . research and development . research and development expense consists primarily of personnel costs , including salary , employee benefits and stock-based compensation for personnel employed in research and development , regulatory and clinical areas . research and development expense also includes costs associated with product design , product refinement and improvement efforts before and after receipt of regulatory clearance , development of prototypes , testing , clinical study programs and regulatory activities , contractors and consultants , and equipment and software to support our development . as our revenue increases , we will also incur additional expense for revenue share payments to our past and present scientific advisory board members , including one of our past directors . we expect research and development expense to increase in absolute dollars as we develop new products to expand our product pipeline , add research and development personnel and conduct clinical activities . general and administrative . general and administrative expense consists primarily of personnel costs , including salary , employee benefits and stock-based compensation for our administrative personnel that support our general operations , including executive management , general legal and intellectual property , finance and accounting , information technology and human resources personnel . general and administrative expense also includes outside legal costs associated with intellectual property and general legal matters , financial audit fees , insurance , fees for other consulting services , depreciation expense , long-lived asset impairment charges , freight , facilities expense , allocation of manufacturing training costs , and severance expense . we expect our general and administrative expense will increase in absolute dollars as we increase our headcount and expand our infrastructure to support growth in our business and our operations as a public company . as our revenue increases we also will 66 incur additional expenses for freight . our general and administrative expense may fluctuate from period to period due to the timing and extent of the expenses . total other income ( expenses ) , net total other income ( expenses ) , net consists primarily of interest expense and amortization of debt discount associated with our term loans outstanding during the year , debt extinguishment loss , and gains ( losses ) from foreign currency transactions . the effect of exchange rates on our foreign currency-denominated asset and liability balances are recorded as foreign currency translation adjustments in the consolidated statements of comprehensive loss . income tax provision income tax provision consists primarily of a provision for income taxes in foreign jurisdictions in which we conduct business . we maintain a full valuation allowance for deferred tax assets including net operating loss carryforwards and research and development credits and other tax credits . 67 consolidated results of operations comparison of the years ended december 31 , 2020 and 2019 the following table sets forth our results of operations expressed as dollar amounts , percentage of total revenue and year-over-year change ( in thousands ) : replace_table_token_1_th product revenue . product revenue was $ 58.5 million for the year ended december 31 , 2020 compared to $ 76.6 million for the year ended december 31 , 2019 , a decrease of $ 18.1 million or 24 % . we believe the decline is primarily due to the postponement of elective surgeries as a result of the covid-19 pandemic . the following table sets forth , for the periods indicated , our product revenue by geography expressed as u.s. dollar amounts , percentage of product revenue and year-over-year change ( in thousands ) : replace_table_token_2_th product revenue in the united states was generated through our direct sales force and independent sales representatives . product revenue outside the united states was generated through our direct sales force and distributors . the percentage of product revenue generated in the united states was 87 % for the year ended december 31 , 2020 compared to 88 % for the year ended december 31 , 2019. united states product revenue decreased $ 16.4 million to $ 50.7 million or 24 % year over year . we believe the decline in revenue inside the united states was primarily due to the postponement of elective surgeries due to the covid-19 pandemic . germany product revenue decreased $ 1.1 million to $ 6.5 million , or 14 % year over year 68 on a reported basis and 16 % on a constant currency basis . rest of world product revenue decreased $ 0.6 million to $ 1.3 million , or 33 % year-over-year on a reported basis and 34 % on a constant currency basis , we believe primarily due to restrictions of elective surgeries in the uk related to the covid-19 pandemic . the impact of covid-19 is affecting all geographies . royalty and licensing revenue . story_separator_special_tag at december 31 , 2020 , we had an accumulated deficit of $ 528.4 million . in january 2017 , we filed a shelf registration statement on form s-3 , which was declared effective by the sec on may 9 , 2017 , or the 2017 shelf registration statement . the 2017 shelf registration statement allows us to sell from time to time up to $ 200 million of common stock , preferred stock , debt securities , warrants , or units comprised of any combination of these securities , for our own account in one or more offerings . on may 10 , 2017 , we filed with the sec a prospectus supplement , pursuant to which we could issue and sell up to $ 50 million of our common stock and entered into an equity distribution agreement with canaccord genuity llc ( formerly canaccord genuity inc. ) or canaccord , pursuant to which canaccord agreed to sell shares of our common stock from time to time , as our agent in an “ at-the-market ” , or atm , offering as defined in rule 415 promulgated under the u.s. securities act of 1933 , as amended , or the securities act . we are not obligated to sell any number of shares under the distribution agreement . on august 4 , 2020 , we and canaccord mutually agreed to terminate the distribution agreement , and as of that date , we had sold 2,663,000 shares under the distribution agreement resulting in net proceeds of $ 4.4 million . on march 23 , 2020 , we filed a new shelf registration statement on form s-3 or the new shelf registration statement , which was declared effective by the sec on august 5 , 2020. under the new shelf registration statement , we will be permitted to sell from time to time up to $ 200 million of common stock , preferred stock , debt securities , warrants , or units comprised of any combination of these securities , for its own account in one or more offerings . the new shelf registration statement is intended to provide us flexibility to conduct sales of our registered securities , subject to market conditions and our future capital needs . on august 5 , 2020 , we filed with the sec a prospectus supplement , for the sale and issuance of up to $ 25 million of its common stock and entered into an at-the-market issuance sales agreement , or the sales agreement , with cowen and company , llc , or cowen , pursuant to which we may offer and sell shares of the our common stock to or through cowen , acting as agent and or principal , from time to time in an “ at-the-market ” offering as defined in rule 415 promulgated under the securities act of 1933 , as amended , including without limitation sales made by means of ordinary brokers ' transactions on the nasdaq capital market or otherwise at market prices prevailing at the time of sale , in block transactions , or as otherwise directed by us . cowen will use commercially reasonable efforts to sell the common stock from time to time , based upon instructions from us ( including any price , time or size limits or other customary parameters or conditions we may impose ) . we will pay cowen a commission of up to 3.0 % of the gross sales proceeds of any common stock sold through cowen under the sales agreement , and we also provided cowen with customary indemnification rights . the shares of common stock being offered pursuant to the sales agreement will be offered and sold pursuant to the new shelf registration statement . we are not obligated to make any sales of common stock under the sales agreement . the offering of shares of common stock pursuant to the sales agreement will terminate upon the earlier of ( i ) the sale of all common stock subject to the sales agreement or ( ii ) termination of the sales agreement in accordance with its terms . as of december 31 , 2020 , we had not sold any shares under the sales agreement . on december 17 , 2018 , we entered into a stock purchase agreement , or the `` stock purchase agreement , `` with lincoln park capital , or `` lpc . `` upon entering into the stock purchase agreement , we sold 1,921,968 shares of common stock for $ 1.0 million to lpc , representing a premium of 110 % to the previous day 's closing price . additionally , as consideration for lpc 's commitment to purchase shares of common stock under the lpc agreement , we issued 354,430 shares to lpc . we have the right at our sole discretion to sell to lpc up to $ 20.0 million worth of shares over a 36-month period subject to the terms of the stock purchase agreement . we will control the timing of any sales to lpc and lpc will be obligated to make purchases of our common stock upon receipt of requests from us in accordance with the terms of the stock purchase agreement . there are no upper limits to the price per share lpc may pay to purchase the up to $ 20.0 million worth of common stock subject to the stock purchase agreement , and the purchase price of the shares will be based on the then prevailing market prices of our shares at the time of each sale to lpc as described in the stock purchase agreement , provided that lpc will not be obligated to make purchases of our common stock pursuant to receipt of a request from us on any business day on which the last closing trade price of our common stock on the nasdaq capital market ( or alternative 70 national exchange in accordance with the stock purchase agreement ) is

liquidity and capital resources our main source of liquidity is operating cash flows , supplemented by borrowings to fund working capital requirements and significant transactions . our principal liquidity requirements are for working capital , capital expenditures , principal and interest payments on debt and acquisitions . approximately half of our long-term debt is at fixed interest rates with manageable repayment schedules through 2021. the remainder of our long-term debt is at variable rates on an unsecured revolving credit facility that is due in 2016. substantially all of our borrowings originate in the u.s. , which has limited our exposure to non-u.s. credit markets and to currency exchange rate fluctuations . in november 2011 , we amended the unsecured senior revolving credit facility that we entered into in 2010 to increase the facility from $ 250.0 million to $ 300.0 million and extend the term of the facility until november 2016. the amended credit agreement provides for borrowings up to $ 300.0 million and is subject to certain commitment fees . loans made under the senior revolving credit facility bear interest at a variable rate . loan proceeds may be used for general corporate purposes , including working capital , permitted acquisitions , capital expenditures and repayment of existing indebtedness . the credit agreement also provides for an uncommitted incremental facility that permits us , subject to certain conditions , to request an increase in the senior credit facility of up to $ 50.0 million . at december 31 , 2011 , $ 130.0 million of the $ 300.0 million senior revolving credit facility was unused . during 2010 , we issued $ 100.0 million in unsecured 4.00 % series a senior notes . these notes mature in october 2021 and are payable in five annual installments of $ 20.0 million , commencing in october 2017. interest is payable quarterly . incremental borrowing in 2010 and 2011 was primarily related to our acquisition of general monitors in october 2010. during 2011 , we reduced borrowings on the senior revolving credit facility by $ 25.0 million .

personnel costs are the most significant component of operating expenses and consist of salaries , benefits , stock-based compensation and sales commissions . sales and marketing . sales and marketing expense consists primarily of personnel costs , including salary , employee benefits and stock-based compensation for personnel employed in sales , marketing , customer service , medical education and training , as well as investments in surgeon training programs , industry events and other promotional activities . in addition , our sales and marketing expense includes sales commissions and bonuses , generally based on a percentage of sales , to our sales managers , direct sales representatives and independent sales representatives . recruiting , training and retaining productive sales representatives and educating surgeons about the benefits of our products are required to generate and grow revenue . we expect sales and marketing expense to increase as we build up our sales and support personnel and expand our marketing efforts . our sales and marketing expense may fluctuate from period to period due to the seasonality of our revenue and the timing and extent of our expenses . research and development . research and development expense consists primarily of personnel costs , including salary , employee benefits and stock-based compensation for personnel employed in research and development , regulatory and clinical areas . research and development expense also includes costs associated with product design , product refinement and improvement efforts before and after receipt of regulatory clearance , development of prototypes , testing , clinical study programs and regulatory activities , contractors and consultants , and equipment and software to support our development . as our revenue increases , we will also incur additional expense for revenue share payments to our past and present scientific advisory board members , including one of our past directors . we expect research and development expense to increase in absolute dollars as we develop new products to expand our product pipeline , add research and development personnel and conduct clinical activities . general and administrative . general and administrative expense consists primarily of personnel costs , including salary , employee benefits and stock-based compensation for our administrative personnel that support our general operations , including executive management , general legal and intellectual property , finance and accounting , information technology and human resources personnel . general and administrative expense also includes outside legal costs associated with intellectual property and general legal matters , financial audit fees , insurance , fees for other consulting services , depreciation expense , long-lived asset impairment charges , freight , facilities expense , allocation of manufacturing training costs , and severance expense . we expect our general and administrative expense will increase in absolute dollars as we increase our headcount and expand our infrastructure to support growth in our business and our operations as a public company . as our revenue increases we also will 66 incur additional expenses for freight . our general and administrative expense may fluctuate from period to period due to the timing and extent of the expenses . total other income ( expenses ) , net total other income ( expenses ) , net consists primarily of interest expense and amortization of debt discount associated with our term loans outstanding during the year , debt extinguishment loss , and gains ( losses ) from foreign currency transactions . the effect of exchange rates on our foreign currency-denominated asset and liability balances are recorded as foreign currency translation adjustments in the consolidated statements of comprehensive loss . income tax provision income tax provision consists primarily of a provision for income taxes in foreign jurisdictions in which we conduct business . we maintain a full valuation allowance for deferred tax assets including net operating loss carryforwards and research and development credits and other tax credits . 67 consolidated results of operations comparison of the years ended december 31 , 2020 and 2019 the following table sets forth our results of operations expressed as dollar amounts , percentage of total revenue and year-over-year change ( in thousands ) : replace_table_token_1_th product revenue . product revenue was $ 58.5 million for the year ended december 31 , 2020 compared to $ 76.6 million for the year ended december 31 , 2019 , a decrease of $ 18.1 million or 24 % . we believe the decline is primarily due to the postponement of elective surgeries as a result of the covid-19 pandemic . the following table sets forth , for the periods indicated , our product revenue by geography expressed as u.s. dollar amounts , percentage of product revenue and year-over-year change ( in thousands ) : replace_table_token_2_th product revenue in the united states was generated through our direct sales force and independent sales representatives . product revenue outside the united states was generated through our direct sales force and distributors . the percentage of product revenue generated in the united states was 87 % for the year ended december 31 , 2020 compared to 88 % for the year ended december 31 , 2019. united states product revenue decreased $ 16.4 million to $ 50.7 million or 24 % year over year . we believe the decline in revenue inside the united states was primarily due to the postponement of elective surgeries due to the covid-19 pandemic . germany product revenue decreased $ 1.1 million to $ 6.5 million , or 14 % year over year 68 on a reported basis and 16 % on a constant currency basis . rest of world product revenue decreased $ 0.6 million to $ 1.3 million , or 33 % year-over-year on a reported basis and 34 % on a constant currency basis , we believe primarily due to restrictions of elective surgeries in the uk related to the covid-19 pandemic . the impact of covid-19 is affecting all geographies . royalty and licensing revenue . story_separator_special_tag at december 31 , 2020 , we had an accumulated deficit of $ 528.4 million . in january 2017 , we filed a shelf registration statement on form s-3 , which was declared effective by the sec on may 9 , 2017 , or the 2017 shelf registration statement . the 2017 shelf registration statement allows us to sell from time to time up to $ 200 million of common stock , preferred stock , debt securities , warrants , or units comprised of any combination of these securities , for our own account in one or more offerings . on may 10 , 2017 , we filed with the sec a prospectus supplement , pursuant to which we could issue and sell up to $ 50 million of our common stock and entered into an equity distribution agreement with canaccord genuity llc ( formerly canaccord genuity inc. ) or canaccord , pursuant to which canaccord agreed to sell shares of our common stock from time to time , as our agent in an “ at-the-market ” , or atm , offering as defined in rule 415 promulgated under the u.s. securities act of 1933 , as amended , or the securities act . we are not obligated to sell any number of shares under the distribution agreement . on august 4 , 2020 , we and canaccord mutually agreed to terminate the distribution agreement , and as of that date , we had sold 2,663,000 shares under the distribution agreement resulting in net proceeds of $ 4.4 million . on march 23 , 2020 , we filed a new shelf registration statement on form s-3 or the new shelf registration statement , which was declared effective by the sec on august 5 , 2020. under the new shelf registration statement , we will be permitted to sell from time to time up to $ 200 million of common stock , preferred stock , debt securities , warrants , or units comprised of any combination of these securities , for its own account in one or more offerings . the new shelf registration statement is intended to provide us flexibility to conduct sales of our registered securities , subject to market conditions and our future capital needs . on august 5 , 2020 , we filed with the sec a prospectus supplement , for the sale and issuance of up to $ 25 million of its common stock and entered into an at-the-market issuance sales agreement , or the sales agreement , with cowen and company , llc , or cowen , pursuant to which we may offer and sell shares of the our common stock to or through cowen , acting as agent and or principal , from time to time in an “ at-the-market ” offering as defined in rule 415 promulgated under the securities act of 1933 , as amended , including without limitation sales made by means of ordinary brokers ' transactions on the nasdaq capital market or otherwise at market prices prevailing at the time of sale , in block transactions , or as otherwise directed by us . cowen will use commercially reasonable efforts to sell the common stock from time to time , based upon instructions from us ( including any price , time or size limits or other customary parameters or conditions we may impose ) . we will pay cowen a commission of up to 3.0 % of the gross sales proceeds of any common stock sold through cowen under the sales agreement , and we also provided cowen with customary indemnification rights . the shares of common stock being offered pursuant to the sales agreement will be offered and sold pursuant to the new shelf registration statement . we are not obligated to make any sales of common stock under the sales agreement . the offering of shares of common stock pursuant to the sales agreement will terminate upon the earlier of ( i ) the sale of all common stock subject to the sales agreement or ( ii ) termination of the sales agreement in accordance with its terms . as of december 31 , 2020 , we had not sold any shares under the sales agreement . on december 17 , 2018 , we entered into a stock purchase agreement , or the `` stock purchase agreement , `` with lincoln park capital , or `` lpc . `` upon entering into the stock purchase agreement , we sold 1,921,968 shares of common stock for $ 1.0 million to lpc , representing a premium of 110 % to the previous day 's closing price . additionally , as consideration for lpc 's commitment to purchase shares of common stock under the lpc agreement , we issued 354,430 shares to lpc . we have the right at our sole discretion to sell to lpc up to $ 20.0 million worth of shares over a 36-month period subject to the terms of the stock purchase agreement . we will control the timing of any sales to lpc and lpc will be obligated to make purchases of our common stock upon receipt of requests from us in accordance with the terms of the stock purchase agreement . there are no upper limits to the price per share lpc may pay to purchase the up to $ 20.0 million worth of common stock subject to the stock purchase agreement , and the purchase price of the shares will be based on the then prevailing market prices of our shares at the time of each sale to lpc as described in the stock purchase agreement , provided that lpc will not be obligated to make purchases of our common stock pursuant to receipt of a request from us on any business day on which the last closing trade price of our common stock on the nasdaq capital market ( or alternative 70 national exchange in accordance with the stock purchase agreement ) is

cash flows the following table sets forth a summary of our cash flows for the periods indicated , as well as the year-over-year change ( in thousands ) : replace_table_token_3_th net cash used in operating activities . net cash used in operating activities was $ 18.3 million for the year ended december 31 , 2020 and $ 2.8 million for the year ended december 31 , 2019 , an increase of $ 15.5 million . these amounts primarily reflect net losses of $ 24.3 million for the year ended december 31 , 2020 and $ 28.5 million for the year ended december 31 , 2019. the increase in net cash used in operating activities for the year ended december 31 , 2020 was affected by a decrease in accounts payable , accrued expenses and other liabilities of $ 4.8 million , a decrease in contract liability of $ 10.0 million and advances for research and development of $ 4.5 73 million under the asset purchase agreement with stryker , a decrease in inventory of $ 2.0 million , and a decrease in prepaid and other assets of $ 2.1 million , partially offset by an increase in royalty and licensing receivable of $ 1.1 million . non-cash reconciling items include an increase in unrealized foreign exchange income/loss of $ 3.8 million , partially offset by a decrease from loss from debt extinguishment of $ 1.1 million . net cash ( used in ) provided by investing activities . net cash used in investing activities was $ 3.2 million for the year ended december 31 , 2020 compared to $ 4.3 million cash provided by investing activities for the year ended december 31 , 2019 , a decrease of $ 7.6 million .

the primary endpoint in the study is the percentage of patients in each arm that maintain sua control below 6.0 mg/dl , for at least 80 % of the time during months three and six . we plan to commence the phase 3 clinical program in sel-212 in the second half of 2020. we will require additional resources to complete the planned phase 3 clinical program for sel-212 . we expect our clinical and , if approved , marketing strategy for sel-212 to initially focus on the estimated 160,000 patients in the united states with chronic refractory gout , and to focus on those patients that are being treated by rheumatologists . gene therapy 76 in august 2019 , we entered into a feasibility study and license agreement with askbio , the askbio collaboration agreement , pursuant to which we and askbio will conduct proof of concept studies to potentially validate the use of our immtor platform in conjunction with an aav gene therapy to mitigate the formation of neutralizing anti-aav capsid antibodies , which currently precludes redosing . the initial product candidate being developed under this collaboration is gene therapy for mma which can cause severe developmental defects and premature death as a result of an accumulation of toxic metabolites . we previously conducted preclinical studies for this product candidate based on sel-302 and will leverage that previous work within the collaboration . if the proof of concept studies are successful , we will proceed with a collaboration to pursue the development and commercialization of aav gene therapy product candidates utilizing immtor for the treatment of certain agreed serious rare and orphan genetic diseases . we plan to enter the clinic under this collaboration in 2020. additionally , in december 2019 we entered into the askbio license agreement which provides askbio with exclusive worldwide rights to our immtor platform to research , develop and commercialize certain aav-gene therapy products targeting the gaa gene , or derivatives thereof , to treat pompe disease . in september 2018 , we announced a collaboration with the european consortium , curecn , for an immtor+aav gene therapy combination product candidate in crigler-najjar syndrome , a rare genetic disorder characterized by an inability to properly convert and clear bilirubin from the body . we expect the curecn consortium to obtain scientific advice from the german drug regulatory authority in 2020. in december 2016 , we entered into the spark license agreement which provides spark with exclusive worldwide rights to our immtor platform to research , develop and commercialize gene therapies for factor viii , an essential blood clotting protein relevant to the treatment of hemophilia a. our proprietary gene therapy product candidate , sel-313 , is being developed to treat otc deficiency and is currently in preclinical development . financial operations overview financial operations to date , we have financed our operations primarily through the public offering and private placements of our securities , funding received from research grants and collaboration arrangements and our credit facility . we do not have any products approved for sale and have not generated any product sales . all of our revenue to date has been collaboration and grant revenue . since inception , we have incurred significant operating losses . we incurred net losses of $ 55.4 million and $ 65.3 million for the years ended december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 335.8 million . we expect to continue to incur significant expenses and operating losses for at least the next several years as we : - conduct additional clinical trials for sel‑212 ; - continue the research and development of our other product candidates as well as product candidates that we may be developing jointly with collaboration partners ; - seek to enhance our immtor platform and discover and develop additional product candidates ; - seek to enter into collaboration , licensing and other agreements , including , but not limited to research and development , and or commercialization agreements ; - seek regulatory approvals for any product candidates that successfully complete clinical trials ; - potentially establish a sales , marketing and distribution infrastructure and scales‑up external manufacturing capabilities to commercialize any products for which we may obtain regulatory approval ; - maintain , expand and protect our intellectual property portfolio , including through licensing arrangements ; and - add clinical , scientific , operational , financial and management information systems and personnel , including personnel to support our product development and potential future commercialization efforts and to support our operations as a public company . until such time , if ever , as we can generate substantial product revenues , we expect to finance our cash needs through a combination of equity offerings , debt financings , license and collaboration agreements , and research grants . we may be unable to raise capital when needed or on reasonable terms , if at all , which would force us to delay , limit , reduce or terminate our product development or future commercialization efforts . we will need to generate significant revenues to achieve profitability , and we may never do so . 77 we will require additional external sources of capital to complete the planned phase 3 clinical program for sel-212 . under the terms of our exclusive patent license agreement with the massachusetts institute of technology , or the mit license , mit may terminate the mit license if we fail to meet a diligence obligation , including the initiation of a phase 3 clinical trial by a specified date in the fourth quarter of 2019. on december 13 , 2019 , we entered into the fourth amendment , which we refer to as the mit amendment , to the exclusive patent license agreement by and between us and the massachusetts institute of technology , or the mit agreement . story_separator_special_tag if the achievement of a milestone is considered a direct result of our efforts to satisfy a performance obligation or transfer a distinct good or service and the receipt of the payment is based upon the achievement of the milestone , the associated milestone value is allocated to that distinct good or service . if the milestone payment is not specifically related to our effort to satisfy a performance obligation or transfer a distinct good or service , the amount is allocated to all performance obligations using the relative standalone selling price method . we also evaluate the milestones to determine whether they are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method . if it is probable that a significant revenue reversal would not occur , the associated milestone value is included in the transaction price to be allocated , otherwise , such amounts are constrained and excluded from the transaction price . at the end of each subsequent reporting period , we re-evaluate the probability of achievement of such development milestones and any related constraint , and if necessary , adjusts our estimate of the transaction price . any such adjustments to the transaction price are allocated to the performance obligations on the same basis as at contract inception . amounts allocated to a satisfied performance obligation shall be recognized as revenue , or as a reduction of revenue , in the period in which the transaction price changes . manufacturing supply services : arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the customer 's discretion are evaluated to determine if they are distinct and optional . for optional services that are distinct , we assess if they are priced at a discount , and therefore , provide a material right to the licensee to be accounted for as separate performance obligations . royalties : for arrangements that include sales-based royalties , including milestone payments based on the level of sales , and the license is deemed to be the predominant item to which the royalties relate , we will recognize revenue at the later of ( i ) when the related sales occur , or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied ( or partially satisfied ) in accordance with the royalty recognition constraint . warrant liabilities in december 2019 , we issued common warrants in connection with the 2019 purchase agreement . pursuant to the terms of these common warrants , we could be required to settle the common warrants in cash in the event of certain acquisitions of the company and , as a result , the common warrants are required to be measured at fair value and reported as a liability on the balance sheet . we recorded the fair value of the common warrants of $ 40.7 million upon issuance using the black-scholes valuation model , and are required to revalue the common warrants at each reporting date with any changes in fair value recorded on our statement of operations . inputs used to determine estimated fair value of the common warrant liabilities include the estimated fair value of the underlying stock at the valuation date , the estimated term of the warrants , risk-free interest rates , expected dividends and the expected volatility of the underlying stock . as of december 31 , 2019 , the fair value of the common warrants of $ 41.5 million was recorded as a long-term liability on our balance sheet , which resulted in a change in fair value of $ 0.9 million for the year ended december 31 , 2019 . additionally , we allocated $ 1.2 million of the transaction costs associated with the 2019 purchase agreement to financing expense on our statement of operations . the remaining $ 3.2 million of transaction costs were offset against the proceeds allocated to our common stock and pre-funded warrants . stock‑based compensation we account for all stock‑based compensation granted to employees and non‑employees using a fair value method . stock‑based compensation is measured at the grant date fair value using the black‑scholes option pricing model and is recognized over the requisite service period of the awards , usually the vesting period , on a straight‑line basis , net of estimated forfeitures . we 81 reduce recorded stock‑based compensation for estimated forfeitures . to the extent that actual forfeitures differ from management 's estimates , the differences are recorded as a cumulative adjustment in the period the estimates were adjusted . stock‑based compensation expense recognized in the consolidated financial statements is based on awards that are ultimately expected to vest . emerging growth company status the jumpstart our business startups act of 2012 , or the jobs act , permits an ‘ ‘ emerging growth company `` such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies . we have irrevocably elected not to avail ourselves of this exemption and , therefore , we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . smaller reporting company we qualify as a “ smaller reporting company ” under the rules of the securities act and the exchange act . as a result , in addition to the exemptions available to us as an “ emerging growth company , ” we may choose to take advantage of certain scaled disclosure requirements available specifically to smaller reporting companies . additionally , even if we cease to be an emerging growth company as noted above , as long as we continue to be a smaller reporting company , we may continue to rely on the reduced

cash flows the following table sets forth a summary of our cash flows for the periods indicated , as well as the year-over-year change ( in thousands ) : replace_table_token_3_th net cash used in operating activities . net cash used in operating activities was $ 18.3 million for the year ended december 31 , 2020 and $ 2.8 million for the year ended december 31 , 2019 , an increase of $ 15.5 million . these amounts primarily reflect net losses of $ 24.3 million for the year ended december 31 , 2020 and $ 28.5 million for the year ended december 31 , 2019. the increase in net cash used in operating activities for the year ended december 31 , 2020 was affected by a decrease in accounts payable , accrued expenses and other liabilities of $ 4.8 million , a decrease in contract liability of $ 10.0 million and advances for research and development of $ 4.5 73 million under the asset purchase agreement with stryker , a decrease in inventory of $ 2.0 million , and a decrease in prepaid and other assets of $ 2.1 million , partially offset by an increase in royalty and licensing receivable of $ 1.1 million . non-cash reconciling items include an increase in unrealized foreign exchange income/loss of $ 3.8 million , partially offset by a decrease from loss from debt extinguishment of $ 1.1 million . net cash ( used in ) provided by investing activities . net cash used in investing activities was $ 3.2 million for the year ended december 31 , 2020 compared to $ 4.3 million cash provided by investing activities for the year ended december 31 , 2019 , a decrease of $ 7.6 million .

the primary endpoint in the study is the percentage of patients in each arm that maintain sua control below 6.0 mg/dl , for at least 80 % of the time during months three and six . we plan to commence the phase 3 clinical program in sel-212 in the second half of 2020. we will require additional resources to complete the planned phase 3 clinical program for sel-212 . we expect our clinical and , if approved , marketing strategy for sel-212 to initially focus on the estimated 160,000 patients in the united states with chronic refractory gout , and to focus on those patients that are being treated by rheumatologists . gene therapy 76 in august 2019 , we entered into a feasibility study and license agreement with askbio , the askbio collaboration agreement , pursuant to which we and askbio will conduct proof of concept studies to potentially validate the use of our immtor platform in conjunction with an aav gene therapy to mitigate the formation of neutralizing anti-aav capsid antibodies , which currently precludes redosing . the initial product candidate being developed under this collaboration is gene therapy for mma which can cause severe developmental defects and premature death as a result of an accumulation of toxic metabolites . we previously conducted preclinical studies for this product candidate based on sel-302 and will leverage that previous work within the collaboration . if the proof of concept studies are successful , we will proceed with a collaboration to pursue the development and commercialization of aav gene therapy product candidates utilizing immtor for the treatment of certain agreed serious rare and orphan genetic diseases . we plan to enter the clinic under this collaboration in 2020. additionally , in december 2019 we entered into the askbio license agreement which provides askbio with exclusive worldwide rights to our immtor platform to research , develop and commercialize certain aav-gene therapy products targeting the gaa gene , or derivatives thereof , to treat pompe disease . in september 2018 , we announced a collaboration with the european consortium , curecn , for an immtor+aav gene therapy combination product candidate in crigler-najjar syndrome , a rare genetic disorder characterized by an inability to properly convert and clear bilirubin from the body . we expect the curecn consortium to obtain scientific advice from the german drug regulatory authority in 2020. in december 2016 , we entered into the spark license agreement which provides spark with exclusive worldwide rights to our immtor platform to research , develop and commercialize gene therapies for factor viii , an essential blood clotting protein relevant to the treatment of hemophilia a. our proprietary gene therapy product candidate , sel-313 , is being developed to treat otc deficiency and is currently in preclinical development . financial operations overview financial operations to date , we have financed our operations primarily through the public offering and private placements of our securities , funding received from research grants and collaboration arrangements and our credit facility . we do not have any products approved for sale and have not generated any product sales . all of our revenue to date has been collaboration and grant revenue . since inception , we have incurred significant operating losses . we incurred net losses of $ 55.4 million and $ 65.3 million for the years ended december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 335.8 million . we expect to continue to incur significant expenses and operating losses for at least the next several years as we : - conduct additional clinical trials for sel‑212 ; - continue the research and development of our other product candidates as well as product candidates that we may be developing jointly with collaboration partners ; - seek to enhance our immtor platform and discover and develop additional product candidates ; - seek to enter into collaboration , licensing and other agreements , including , but not limited to research and development , and or commercialization agreements ; - seek regulatory approvals for any product candidates that successfully complete clinical trials ; - potentially establish a sales , marketing and distribution infrastructure and scales‑up external manufacturing capabilities to commercialize any products for which we may obtain regulatory approval ; - maintain , expand and protect our intellectual property portfolio , including through licensing arrangements ; and - add clinical , scientific , operational , financial and management information systems and personnel , including personnel to support our product development and potential future commercialization efforts and to support our operations as a public company . until such time , if ever , as we can generate substantial product revenues , we expect to finance our cash needs through a combination of equity offerings , debt financings , license and collaboration agreements , and research grants . we may be unable to raise capital when needed or on reasonable terms , if at all , which would force us to delay , limit , reduce or terminate our product development or future commercialization efforts . we will need to generate significant revenues to achieve profitability , and we may never do so . 77 we will require additional external sources of capital to complete the planned phase 3 clinical program for sel-212 . under the terms of our exclusive patent license agreement with the massachusetts institute of technology , or the mit license , mit may terminate the mit license if we fail to meet a diligence obligation , including the initiation of a phase 3 clinical trial by a specified date in the fourth quarter of 2019. on december 13 , 2019 , we entered into the fourth amendment , which we refer to as the mit amendment , to the exclusive patent license agreement by and between us and the massachusetts institute of technology , or the mit agreement . story_separator_special_tag if the achievement of a milestone is considered a direct result of our efforts to satisfy a performance obligation or transfer a distinct good or service and the receipt of the payment is based upon the achievement of the milestone , the associated milestone value is allocated to that distinct good or service . if the milestone payment is not specifically related to our effort to satisfy a performance obligation or transfer a distinct good or service , the amount is allocated to all performance obligations using the relative standalone selling price method . we also evaluate the milestones to determine whether they are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method . if it is probable that a significant revenue reversal would not occur , the associated milestone value is included in the transaction price to be allocated , otherwise , such amounts are constrained and excluded from the transaction price . at the end of each subsequent reporting period , we re-evaluate the probability of achievement of such development milestones and any related constraint , and if necessary , adjusts our estimate of the transaction price . any such adjustments to the transaction price are allocated to the performance obligations on the same basis as at contract inception . amounts allocated to a satisfied performance obligation shall be recognized as revenue , or as a reduction of revenue , in the period in which the transaction price changes . manufacturing supply services : arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the customer 's discretion are evaluated to determine if they are distinct and optional . for optional services that are distinct , we assess if they are priced at a discount , and therefore , provide a material right to the licensee to be accounted for as separate performance obligations . royalties : for arrangements that include sales-based royalties , including milestone payments based on the level of sales , and the license is deemed to be the predominant item to which the royalties relate , we will recognize revenue at the later of ( i ) when the related sales occur , or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied ( or partially satisfied ) in accordance with the royalty recognition constraint . warrant liabilities in december 2019 , we issued common warrants in connection with the 2019 purchase agreement . pursuant to the terms of these common warrants , we could be required to settle the common warrants in cash in the event of certain acquisitions of the company and , as a result , the common warrants are required to be measured at fair value and reported as a liability on the balance sheet . we recorded the fair value of the common warrants of $ 40.7 million upon issuance using the black-scholes valuation model , and are required to revalue the common warrants at each reporting date with any changes in fair value recorded on our statement of operations . inputs used to determine estimated fair value of the common warrant liabilities include the estimated fair value of the underlying stock at the valuation date , the estimated term of the warrants , risk-free interest rates , expected dividends and the expected volatility of the underlying stock . as of december 31 , 2019 , the fair value of the common warrants of $ 41.5 million was recorded as a long-term liability on our balance sheet , which resulted in a change in fair value of $ 0.9 million for the year ended december 31 , 2019 . additionally , we allocated $ 1.2 million of the transaction costs associated with the 2019 purchase agreement to financing expense on our statement of operations . the remaining $ 3.2 million of transaction costs were offset against the proceeds allocated to our common stock and pre-funded warrants . stock‑based compensation we account for all stock‑based compensation granted to employees and non‑employees using a fair value method . stock‑based compensation is measured at the grant date fair value using the black‑scholes option pricing model and is recognized over the requisite service period of the awards , usually the vesting period , on a straight‑line basis , net of estimated forfeitures . we 81 reduce recorded stock‑based compensation for estimated forfeitures . to the extent that actual forfeitures differ from management 's estimates , the differences are recorded as a cumulative adjustment in the period the estimates were adjusted . stock‑based compensation expense recognized in the consolidated financial statements is based on awards that are ultimately expected to vest . emerging growth company status the jumpstart our business startups act of 2012 , or the jobs act , permits an ‘ ‘ emerging growth company `` such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies . we have irrevocably elected not to avail ourselves of this exemption and , therefore , we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . smaller reporting company we qualify as a “ smaller reporting company ” under the rules of the securities act and the exchange act . as a result , in addition to the exemptions available to us as an “ emerging growth company , ” we may choose to take advantage of certain scaled disclosure requirements available specifically to smaller reporting companies . additionally , even if we cease to be an emerging growth company as noted above , as long as we continue to be a smaller reporting company , we may continue to rely on the reduced

liquidity and capital resources since our inception , we have incurred recurring net losses . we expect that we will continue to incur losses and that such losses will increase for the foreseeable future . we expect that our research and development and general and administrative expenses will continue to increase and , as a result , we will need additional capital to fund our operations , which we may raise through a combination of equity offerings , debt financings , third‑party funding and other collaborations and strategic alliances . from our inception through december 31 , 2019 , we have raised an aggregate of $ 416.0 million to fund our operations , which includes $ 118.5 million from the sale of preferred stock , $ 11.1 million in government grant funding , $ 25.3 million from borrowings under our credit facility , $ 46.3 million from our collaborations and license agreements , $ 64.5 million in combined net proceeds from our initial public offering $ 118.4 million in combined net proceeds from private placements of our common stock in june 2017 and august and december 2019 , $ 30.9 million from an underwritten follow-on offering of our common stock in january 2019 , and $ 1.0 million in aggregate net proceeds from `` at-the-market '' offerings of our common stock in 2019. collaborations on december 17 , 2019 , we entered into the askbio license agreement .

we continue to respond to expected near-term decreases in capital spending by our customers by reducing our own discretionary and capital spending . we have adjusted the level of our workforce , based on expected near-term work in our facilities . as we work through existing backlog , depending on the duration of the downturn , we may need to make additional reductions in labor commensurate with the level of fabrication activity . we have recently undertaken additional efforts to reduce our overall cost structure and will continue to pursue opportunities to eliminate unnecessary spending . we continually evaluate opportunities to dispose of assets that are not expected to provide sufficient long-term value . in addition , our recent acquisition of leevac , as further discussed below , has provided assets and operations that are complementary to our existing marine fabrication business , at an attractive value . the transaction provides us with more diversified product offerings and adds approximately $ 112.0 million in additional backlog . 23 from a marketing perspective , we are increasing our focus on obtaining marine fabrication and repair work , certain petrochemical plant work , alternative energy fabrication projects , and other projects that are less susceptible to fluctuations in oil prices . we believe that our strong balance sheet , levels of cash , and access to capital provides us with the strength to persevere throughout this cycle . leevac acquisition on january 1 , 2016 , we acquired substantially all of the assets and assumed certain specified liabilities of leevac shipyards , l.l.c . and its affiliates ( `` leevac `` ) . the purchase price for the acquisition was $ 20.0 million , subject to a working capital adjustment whereby we received at closing a dollar for dollar reduction for the assumption of certain net liabilities of leevac and settlement payments from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition . after taking into account these adjustments , we received approximately $ 1.6 million in cash at closing and added approximately $ 112.0 million of incremental contract backlog primarily for four new build construction projects to be delivered in 2016 and 2017. strategically , the acquisition expands our marine fabrication and repair and maintenance presence in the gulf south market and further diversifies our fabrication capabilities . backlog our backlog is based on management 's estimate of the direct labor hours required to complete , and the remaining revenue to be recognized with respect to those projects a customer has authorized us to begin work or purchase materials or services pursuant to written contracts , letters of intent or other forms of authorization . as engineering and design plans are finalized or changes to existing plans are made , management 's estimate of the direct labor hours required to complete a project and the price of a project at completion is likely to change . all projects currently included in our backlog generally are subject to suspension , termination , or a reduction in scope at the option of the customer , although the customer is generally required to pay us for work performed and materials purchased through the date of termination , suspension , or reduction in scope . in addition , customers have the ability to delay the execution of projects . a comparison of our backlog as of december 31 , 2015 , september 30 , 2015 and as of december 31 , 2014 is as follows ( amounts in thousands , except for percentages ) : replace_table_token_6_th 24 1 ) backlog as of december 31 , 2015 includes commitments received through february 19 , 2016. we exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict . our backlog also includes approximately $ 112.0 million of new build construction that was acquired in the leevac acquisition on january 1 , 2016. our amount of backlog that was acquired in the leevac acquisition does not include any adjustments that could arise from purchase price accounting which has not been finalized . because purchase price accounting could result in different market values of the backlog acquired , the value assigned to the leevac backlog acquired in the leevac acquisition could potentially impact future margin , however , it is not expected to impact future cash flow . 2 ) projects for our five largest customers consist of the following : ( i ) tendon support buoys for a deepwater gulf of mexico project for one customer , which commenced in the fourth quarter of 2015 and will be completed during the fourth quarter of 2016 ; ( ii ) two large multi-purpose service vessels for one customer , which commenced in the first quarter of 2014 and will be completed during the first quarter of 2017 ; ( iii ) two large petroleum supply vessels for one customer , which commenced in the second quarter of 2013 and will be completed during the first quarter of 2017 ; ( iv ) one jacket and piles for a foreign customer , which commenced in the third quarter of 2015 and will be completed during the fourth quarter of 2016 ; and ( v ) offshore support and construction services related to a deepwater gulf of mexico project which commenced in the fourth quarter of 2015 and will be completed in the fourth quarter of 2016 . 3 ) the timing of our recognition of the revenue backlog as presented above is based on management estimates of the application of the direct labor hours during the current projected timelines to complete the projects in our backlog . certain factors and circumstances , as mentioned above , could cause changes in the period when the backlog is recognized as revenue . story_separator_special_tag comparison of the years ended december 31 , 2014 and 2013 ( in thousands , except for percentages ) : replace_table_token_8_th revenues - for the twelve-month period ended december 31 , 2014 , our revenue was $ 506.6 million compared to $ 608.3 million for the twelve-month period ended december 31 , 2013 , a decrease of 16.7 % . the following factors contributed to the decrease in revenues for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 : pass-through costs , as a percentage of revenue , for the twelve-month period ended december 31 , 2014 were 48.2 % compared to 58.5 % for the twelve-month period ended december 31 , 2013 ; and overall decreased levels of activity as a result of the completion of topsides for two large deepwater customers in 2013 , and a spar hull for a large deepwater customer in the first quarter of 2014. a decrease in pass-through costs for the twelve months ended december 31 , 2014 primarily relates to higher levels of sub-contracted service costs on our major deepwater projects in 2013. pass-through costs , as described in note 2 in the notes to consolidated financial statements , are included in revenue , but have no impact on the gross profit recognized for that particular period . the decrease in revenue was offset by lower estimated contract losses of $ 6.6 million for december 31 , 2014 compared to $ 30.8 million for december 31 , 2013. gross profit - for the twelve-month periods ended december 31 , 2014 and 2013 , gross profit was $ 44.6 million ( 8.8 % of revenue ) and $ 23.7 million ( 3.9 % of revenue ) , respectively . factors contributing to the overall increase in gross profit for the twelve-month period ended december 31 , 2014 compared to the twelve-month period ended december 31 , 2013 include : 29 lower contract losses of $ 6.6 million during the twelve month period ended december 31 , 2014 compared to $ 30.8 million during the twelve-month period ended december 31 , 2013 ; a return to traditional jacket and smaller topside shallow water projects during 2014 as compared to 2013 ; and a higher level of offshore commissioning and hook-up activity performed on a time and material basis . both the offshore connection and hook-up work and execution of the 2014 shallow water projects garnered higher profit margins as compared to our mix of projects performed during 2013 , primarily due to ( i ) certain project improvement initiatives undertaken in 2014 , and ( ii ) the fact that we historically have been able to more effectively control costs associated with these projects as compared to larger , more complex deepwater projects . general and administrative expenses - our general and administrative expenses were $ 17.4 million for the twelve-month period ended december 31 , 2014 compared to $ 11.6 million for the twelve-month period ended december 31 , 2013. factors that contributed to the increase in general and administrative expenses for the twelve months ended december 31 , 2014 include : a net increase of $ 2.7 million in bad debt expense ; bad debt expense for 2014 included a $ 3.6 million increase in the fourth quarter related to negotiations of an outstanding contract receivable balance with a customer for a deepwater hull project completed during the first quarter of 2014. at december 31 , 2013 , the company included an allowance for bad debt in the amount of $ 0.9 million in connection with a vessel upgrade and outfitting project . increases in expenses related to the relocation of our corporate headquarters to houston , texas and hiring of additional corporate staff members to support operations ; the addition of three consultants to assist with the marketing efforts for assets held for sale and potential flng opportunities ; and increases in expenses associated with an increase in the numbers of directors serving on our board . asset impairment - as further discussed in “ assets held for sale , ” under critical accounting policies above , as of december 31 , 2014 , management determined that its previous estimate of $ 13.5 million for the fair value of assets held for sale had declined to $ 10.3 million . as a result , we included in general and administrative expenses in our income statement for the year ended december 31 , 2014 an impairment charge of $ 3.2 million . interest expenses - we had net interest expense of $ 24,000 for the twelve-month period ended december 31 , 2014 compared to net interest expense of $ 234,000 for the twelve-month period ended december 31 , 2013. net interest expense for the period ended december 31 , 2014 was lower as a result of decreased borrowings on the line of credit . other expenses - we had other expenses of $ 99,000 for the twelve-month period ended december 31 , 2014 , compared to other expenses of $ 337,000 for the twelve-month period ended december 31 , 2013. other expenses for both periods primarily represent losses on sales of miscellaneous equipment . income taxes - our effective income tax rate was 35.7 % for the twelve-month period ended december 31 , 2014 , compared to 37.3 % for the twelve-month period ended december 31 , 2013. the decrease in the effective rate for the period ended december 31 , 2014 is a result of ( a ) lower effective state income tax rate ; and ( b ) the fact that we were able to fully utilized net operating losses in 2014 , allowing the company to take the qualified production activities income deduction ( section 199 ) for taxable earnings in excess of net operating losses for the year ended december 31 , 2014. story_separator_special_tag with fabrication projects , capital expenditures and payment of dividends to our shareholders . we experienced

liquidity and capital resources since our inception , we have incurred recurring net losses . we expect that we will continue to incur losses and that such losses will increase for the foreseeable future . we expect that our research and development and general and administrative expenses will continue to increase and , as a result , we will need additional capital to fund our operations , which we may raise through a combination of equity offerings , debt financings , third‑party funding and other collaborations and strategic alliances . from our inception through december 31 , 2019 , we have raised an aggregate of $ 416.0 million to fund our operations , which includes $ 118.5 million from the sale of preferred stock , $ 11.1 million in government grant funding , $ 25.3 million from borrowings under our credit facility , $ 46.3 million from our collaborations and license agreements , $ 64.5 million in combined net proceeds from our initial public offering $ 118.4 million in combined net proceeds from private placements of our common stock in june 2017 and august and december 2019 , $ 30.9 million from an underwritten follow-on offering of our common stock in january 2019 , and $ 1.0 million in aggregate net proceeds from `` at-the-market '' offerings of our common stock in 2019. collaborations on december 17 , 2019 , we entered into the askbio license agreement .

we continue to respond to expected near-term decreases in capital spending by our customers by reducing our own discretionary and capital spending . we have adjusted the level of our workforce , based on expected near-term work in our facilities . as we work through existing backlog , depending on the duration of the downturn , we may need to make additional reductions in labor commensurate with the level of fabrication activity . we have recently undertaken additional efforts to reduce our overall cost structure and will continue to pursue opportunities to eliminate unnecessary spending . we continually evaluate opportunities to dispose of assets that are not expected to provide sufficient long-term value . in addition , our recent acquisition of leevac , as further discussed below , has provided assets and operations that are complementary to our existing marine fabrication business , at an attractive value . the transaction provides us with more diversified product offerings and adds approximately $ 112.0 million in additional backlog . 23 from a marketing perspective , we are increasing our focus on obtaining marine fabrication and repair work , certain petrochemical plant work , alternative energy fabrication projects , and other projects that are less susceptible to fluctuations in oil prices . we believe that our strong balance sheet , levels of cash , and access to capital provides us with the strength to persevere throughout this cycle . leevac acquisition on january 1 , 2016 , we acquired substantially all of the assets and assumed certain specified liabilities of leevac shipyards , l.l.c . and its affiliates ( `` leevac `` ) . the purchase price for the acquisition was $ 20.0 million , subject to a working capital adjustment whereby we received at closing a dollar for dollar reduction for the assumption of certain net liabilities of leevac and settlement payments from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition . after taking into account these adjustments , we received approximately $ 1.6 million in cash at closing and added approximately $ 112.0 million of incremental contract backlog primarily for four new build construction projects to be delivered in 2016 and 2017. strategically , the acquisition expands our marine fabrication and repair and maintenance presence in the gulf south market and further diversifies our fabrication capabilities . backlog our backlog is based on management 's estimate of the direct labor hours required to complete , and the remaining revenue to be recognized with respect to those projects a customer has authorized us to begin work or purchase materials or services pursuant to written contracts , letters of intent or other forms of authorization . as engineering and design plans are finalized or changes to existing plans are made , management 's estimate of the direct labor hours required to complete a project and the price of a project at completion is likely to change . all projects currently included in our backlog generally are subject to suspension , termination , or a reduction in scope at the option of the customer , although the customer is generally required to pay us for work performed and materials purchased through the date of termination , suspension , or reduction in scope . in addition , customers have the ability to delay the execution of projects . a comparison of our backlog as of december 31 , 2015 , september 30 , 2015 and as of december 31 , 2014 is as follows ( amounts in thousands , except for percentages ) : replace_table_token_6_th 24 1 ) backlog as of december 31 , 2015 includes commitments received through february 19 , 2016. we exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict . our backlog also includes approximately $ 112.0 million of new build construction that was acquired in the leevac acquisition on january 1 , 2016. our amount of backlog that was acquired in the leevac acquisition does not include any adjustments that could arise from purchase price accounting which has not been finalized . because purchase price accounting could result in different market values of the backlog acquired , the value assigned to the leevac backlog acquired in the leevac acquisition could potentially impact future margin , however , it is not expected to impact future cash flow . 2 ) projects for our five largest customers consist of the following : ( i ) tendon support buoys for a deepwater gulf of mexico project for one customer , which commenced in the fourth quarter of 2015 and will be completed during the fourth quarter of 2016 ; ( ii ) two large multi-purpose service vessels for one customer , which commenced in the first quarter of 2014 and will be completed during the first quarter of 2017 ; ( iii ) two large petroleum supply vessels for one customer , which commenced in the second quarter of 2013 and will be completed during the first quarter of 2017 ; ( iv ) one jacket and piles for a foreign customer , which commenced in the third quarter of 2015 and will be completed during the fourth quarter of 2016 ; and ( v ) offshore support and construction services related to a deepwater gulf of mexico project which commenced in the fourth quarter of 2015 and will be completed in the fourth quarter of 2016 . 3 ) the timing of our recognition of the revenue backlog as presented above is based on management estimates of the application of the direct labor hours during the current projected timelines to complete the projects in our backlog . certain factors and circumstances , as mentioned above , could cause changes in the period when the backlog is recognized as revenue . story_separator_special_tag comparison of the years ended december 31 , 2014 and 2013 ( in thousands , except for percentages ) : replace_table_token_8_th revenues - for the twelve-month period ended december 31 , 2014 , our revenue was $ 506.6 million compared to $ 608.3 million for the twelve-month period ended december 31 , 2013 , a decrease of 16.7 % . the following factors contributed to the decrease in revenues for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 : pass-through costs , as a percentage of revenue , for the twelve-month period ended december 31 , 2014 were 48.2 % compared to 58.5 % for the twelve-month period ended december 31 , 2013 ; and overall decreased levels of activity as a result of the completion of topsides for two large deepwater customers in 2013 , and a spar hull for a large deepwater customer in the first quarter of 2014. a decrease in pass-through costs for the twelve months ended december 31 , 2014 primarily relates to higher levels of sub-contracted service costs on our major deepwater projects in 2013. pass-through costs , as described in note 2 in the notes to consolidated financial statements , are included in revenue , but have no impact on the gross profit recognized for that particular period . the decrease in revenue was offset by lower estimated contract losses of $ 6.6 million for december 31 , 2014 compared to $ 30.8 million for december 31 , 2013. gross profit - for the twelve-month periods ended december 31 , 2014 and 2013 , gross profit was $ 44.6 million ( 8.8 % of revenue ) and $ 23.7 million ( 3.9 % of revenue ) , respectively . factors contributing to the overall increase in gross profit for the twelve-month period ended december 31 , 2014 compared to the twelve-month period ended december 31 , 2013 include : 29 lower contract losses of $ 6.6 million during the twelve month period ended december 31 , 2014 compared to $ 30.8 million during the twelve-month period ended december 31 , 2013 ; a return to traditional jacket and smaller topside shallow water projects during 2014 as compared to 2013 ; and a higher level of offshore commissioning and hook-up activity performed on a time and material basis . both the offshore connection and hook-up work and execution of the 2014 shallow water projects garnered higher profit margins as compared to our mix of projects performed during 2013 , primarily due to ( i ) certain project improvement initiatives undertaken in 2014 , and ( ii ) the fact that we historically have been able to more effectively control costs associated with these projects as compared to larger , more complex deepwater projects . general and administrative expenses - our general and administrative expenses were $ 17.4 million for the twelve-month period ended december 31 , 2014 compared to $ 11.6 million for the twelve-month period ended december 31 , 2013. factors that contributed to the increase in general and administrative expenses for the twelve months ended december 31 , 2014 include : a net increase of $ 2.7 million in bad debt expense ; bad debt expense for 2014 included a $ 3.6 million increase in the fourth quarter related to negotiations of an outstanding contract receivable balance with a customer for a deepwater hull project completed during the first quarter of 2014. at december 31 , 2013 , the company included an allowance for bad debt in the amount of $ 0.9 million in connection with a vessel upgrade and outfitting project . increases in expenses related to the relocation of our corporate headquarters to houston , texas and hiring of additional corporate staff members to support operations ; the addition of three consultants to assist with the marketing efforts for assets held for sale and potential flng opportunities ; and increases in expenses associated with an increase in the numbers of directors serving on our board . asset impairment - as further discussed in “ assets held for sale , ” under critical accounting policies above , as of december 31 , 2014 , management determined that its previous estimate of $ 13.5 million for the fair value of assets held for sale had declined to $ 10.3 million . as a result , we included in general and administrative expenses in our income statement for the year ended december 31 , 2014 an impairment charge of $ 3.2 million . interest expenses - we had net interest expense of $ 24,000 for the twelve-month period ended december 31 , 2014 compared to net interest expense of $ 234,000 for the twelve-month period ended december 31 , 2013. net interest expense for the period ended december 31 , 2014 was lower as a result of decreased borrowings on the line of credit . other expenses - we had other expenses of $ 99,000 for the twelve-month period ended december 31 , 2014 , compared to other expenses of $ 337,000 for the twelve-month period ended december 31 , 2013. other expenses for both periods primarily represent losses on sales of miscellaneous equipment . income taxes - our effective income tax rate was 35.7 % for the twelve-month period ended december 31 , 2014 , compared to 37.3 % for the twelve-month period ended december 31 , 2013. the decrease in the effective rate for the period ended december 31 , 2014 is a result of ( a ) lower effective state income tax rate ; and ( b ) the fact that we were able to fully utilized net operating losses in 2014 , allowing the company to take the qualified production activities income deduction ( section 199 ) for taxable earnings in excess of net operating losses for the year ended december 31 , 2014. story_separator_special_tag with fabrication projects , capital expenditures and payment of dividends to our shareholders . we experienced

liquidity and capital resources historically , we have funded our business activities through cash generated from operations . at december 31 , 2015 cash and cash equivalents totaled $ 34.8 million , compared to $ 36.1 million at december 31 , 2014 with no borrowings outstanding under our credit facility . working capital was $ 78.0 million and our ratio of current assets to current liabilities was 3.1 to 1 at december 31 , 2015. our primary source of cash for the year ended december 31 , 2015 , was the collection of accounts receivable along with a reduction in costs associated with lower activity levels . at december 31 , 2015 , our contracts receivable balance was $ 47.0 million . we have subsequently collected $ 28.4 million through february 19 , 2016. during 2015 , we recorded contract losses of $ 24.5 million related to a decrease in the contract price due to final weight re-measurements and our inability to recover certain costs on disputed change orders related to a large deepwater project which was recently delivered . we are currently in negotiations with this customer concerning disputed change orders and no amounts with respect to these disputed change orders are included in contract revenues at december 31 , 2015. our intention is to resolve the disputed cost amounts and finalize the change orders with our customer as quickly as possible ; however , we can give no assurance that these negotiations will conclude in the near term or at all or that we will recover any of these contract 30 losses from our customer .

bag grades , papers for directories , paperback books and other commercial applications represent less than 15 % of our shipments . we sell our specialty papers almost exclusively in north america , where demand is largely tied to consumer spending and advertising . we operate seven pulp mills , five in the u.s. and two in canada , with total capacity of 1.7 million metric tons , or approximately 11 % of total north american capacity , making us the third largest pulp producer in north america . approximately 80 % of our virgin pulp capacity is softwood-based , including : northern bleached softwood kraft pulp ( or “ nbsk ” ) , southern bleached softwood kraft pulp ( or “ sbsk ” ) and fluff pulp . we are also a competitive producer of northern bleached hardwood kraft pulp ( or “ nbhk ” ) and southern bleached hardwood kraft pulp ( or “ sbhk ” ) , and a leading producer of recycled bleached kraft pulp ( or “ rbk ” ) . our market pulp - the pulp we produce but do not consume internally - is used to make a range of consumer products , like tissue , packaging , specialty paper products , diapers and other absorbent products . approximately 26 % of our 2014 market pulp shipments were exported outside of north america , including significant exports to europe , asia and latin america . in 2014 , we shipped 1.5 billion board feet of construction-grade lumber and 100 million board feet of remanufactured wood products within north america , mostly on the east coast . our sawmills produce dimension spruce-pine-fir ( or “ spf ” ) lumber and provide wood chips to our pulp and paper mills in canada as well as wood residue that we use as fuel in our power cogeneration assets and other operations . we also operate two remanufactured wood products facilities in canada that produce bed frame components , finger joints and furring strips , and two engineered wood products facilities in canada that produce i-joists for the construction industry . in 2014 , we also launched a wood pellet plant in thunder bay , ontario , which has a ten-year agreement to supply the local power utility with 45,000 metric tons of pellets annually . replace_table_token_6_th strategy & recent highlights our corporate strategy includes , on the one hand , a gradual retreat from certain paper grades , and on the other , using our strong financial position to act on opportunities to diversify and grow . that strategy is based on three core themes : operational excellence , disciplined use of capital and strategic initiatives . operational excellence we aim to improve our performance and margins by : leveraging our lower-cost position ; maintaining a stringent focus on reducing costs and optimizing our diversified asset base ; maximizing the benefits of our access to virgin fiber and managing our exposure to volatile recycled fiber ; and pursuing our strategy of managing production and inventory levels and focusing production at our most profitable and lower-cost facilities and machines . we compete today as a leading , lower-cost north american producer , thanks to aggressive cost reductions and mill optimization . we believe we have one of the lowest selling , general and administrative expenses ( or “ sg & a ” ) to sales ratio in the forest product industry . 22 we have reduced a number of positions at mill sites since 2012 , without affecting operating capacity , which has significantly lowered our labor costs . we worked with our unionized employees and their union leaders toward the mutually beneficial renewal of our u.s. and canadian pulp and paper collective agreements earlier this year . by working together with the shared goals of resolute 's long-term success , we helped to reinforce our position as a financially strong and reliable supplier for our customers . maintaining our lower-cost position is a core focus of our daily environment : we challenge ourselves to optimize assets , to lower our costs and to improve our efficiency . today we operate only our best facilities and most competitive machines . disciplined use of capital we make capital management a priority . building on our focus to reduce manufacturing costs , we will continue our efforts to decrease overhead and spend our capital in a disciplined , strategic and focused manner , concentrated on our most successful sites . maintaining our strong financial position and financial flexibility is one of our primary financial goals . in 2013 , we refinanced the remaining balance of our senior secured notes with 5.875 % senior unsecured notes due 2023 ( the “ 2023 notes ” ) . in addition to adding five years to maturity , the refinancing reduced our annual cash interest burden by $ 16 million and improves our financial flexibility . in 2014 , we modified our u.s. other postretirement benefit ( or “ opeb ” ) plans to encourage greater participation in a medicare exchange program . in addition to securing high-quality healthcare for participants , this modification , along with similar initiatives undertaken since mid-2013 , helped to reduce our u.s. opeb liability on the balance sheet from $ 250 million to $ 77 million as of december 31 , 2014. furthermore , in 2015 , we expect that our opeb expense will be $ 26 million lower than in 2012 , as a result of these amendments . strategic initiatives we believe in taking an opportunistic approach to strategic initiatives , pursuing only those that reduce our cost position , improve our product diversification , provide synergies or allow us to expand into future growth markets . we anticipate continued consolidation in the paper and forest products industry , as we and our competitors continue to explore ways to increase efficiencies and grow into more favorable markets . story_separator_special_tag we recorded a $ 524 million income tax provision in 2013 , on a loss before income taxes of $ 115 million , compared to an expected income tax benefit of $ 40 million based on the u.s. federal statutory income tax rate of 35 % . the difference largely reflects a net valuation allowance increase of $ 572 million , most of which relates to a charge recorded to establish a full valuation allowance against our net u.s. deferred income tax assets . some of our canadian subsidiaries , including our principal canadian operating subsidiary , use the u.s. dollar as functional currency but determine taxable income in canadian dollars . this can cause frequent and substantial variations to our effective tax rate when compared to the weighted-average of both domestic and foreign statutory tax rates . this is because we compute the foreign exchange component of the income tax provision of our canadian subsidiaries on a different basis than in our consolidated financial statements . due to the unpredictability of foreign exchange rates , we are unable to estimate the impact of future changes in exchange rates on our effective tax rate . q4 of 2014 vs. q4 of 2013 operating ( loss ) income variance analysis sales our sales were $ 95 million lower , or 8 % , this quarter , at $ 1,055 million . including the effect of currency , overall pricing fell by $ 23 million because of a 5 % drop in the average transaction price for newsprint and 3 % for specialty papers , offset only in part by a 3 % improvement in the average transaction price of market pulp . the overall volume was also lower , reflecting a 16 % reduction in market pulp shipments , 6 % in specialty papers and 3 % in newsprint ; wood products shipments were 10 million board feet , or 3 % , higher . the lower pulp shipments reflect greater internal consumption , the production slowback in rbk and a shipment delay at year-end . 33 cost of sales , excluding depreciation , amortization and distribution costs cos improved by $ 83 million in the quarter because of the lower volume and the weaker canadian dollar , as a significant portion of our production capacity is based in canada . excluding these impacts , manufacturing costs were $ 12 million lower , reflecting : asset optimization initiatives ( $ 14 million ) ; lower pension and opeb expenses ( $ 8 million ) ; and the recognition of additional tax credits in connection with infrastructure investments ( $ 7 million ) ; offset in part by : higher wood costs and lower contribution from cogeneration facilities ( $ 7 million ) ; a favorable power adjustment in the year-ago period ( $ 4 million ) ; and asset preservation costs at our closed fort frances facility and additional stores inventory write-downs in connection with mill closures , as well as higher start-up costs ( $ 4 million ) . distribution costs after removing the effect of lower volume , distribution costs were $ 3 million higher because of warehousing and freight costs in the specialty papers segment and an increase in the average length of haul in the specialty papers and market pulp segment , partly offset by lower fuel surcharges . selling , general & administrative expenses sg & a was $ 3 million lower in the quarter , primarily because of a group insurance refund . closure costs , impairment and other related charges closure costs , impairment and other related charges were $ 131 million in the fourth quarter of 2014 , reflecting : $ 57 million of accelerated depreciation , $ 9 million for severance and other termination benefits and $ 8 million for other closure costs , including environmental remediation obligations , in connection with the permanent closure of our iroquois falls , ontario , mill in the fourth quarter ; $ 32 million of accelerated depreciation and $ 4 million for other closure costs in connection with the permanent closure of our laurentide , québec , mill ; and $ 4 million of idling and cleaning costs as well as severance charges at our fort frances mill ; by comparison , we recorded $ 33 million in the same period in 2013 , reflecting costs and charges related to the extended market-related outage at the remaining paper machine in fort frances and the impairment of our recycling assets . net loss variance analysis net loss was $ 109 million in the fourth quarter of 2014 , or $ 1.15 per share , compared to a net loss of $ 3 million , or $ 0.03 per share , in the year-ago period . other expense , net we recorded other expense , net , of $ 25 million in the quarter , compared to other expense , net , of $ 20 million in the year-ago period . this quarter included an $ 18 million non-cash loss on translation of canadian dollar net monetary assets and an $ 11 million write-down of our investment in ponderay newsprint company . the $ 20 million other expense , net , in the year-ago period included a $ 15 million non-cash loss on the translation of canadian dollar net monetary assets . income taxes we recorded an income tax benefit of $ 22 million in the fourth quarter of 2014 , on a loss before income taxes of $ 130 million , compared to an expected income tax benefit of $ 45 million based on the u.s. federal statutory income tax rate of 35 % . the difference reflects the unfavorable effects of foreign exchange related items and a net increase in valuation allowances , primarily related to our u.s. operations , where we no longer recognize deferred income tax assets , partly offset by a tax benefit 34 recognized on the reversal of our valuation allowance

liquidity and capital resources historically , we have funded our business activities through cash generated from operations . at december 31 , 2015 cash and cash equivalents totaled $ 34.8 million , compared to $ 36.1 million at december 31 , 2014 with no borrowings outstanding under our credit facility . working capital was $ 78.0 million and our ratio of current assets to current liabilities was 3.1 to 1 at december 31 , 2015. our primary source of cash for the year ended december 31 , 2015 , was the collection of accounts receivable along with a reduction in costs associated with lower activity levels . at december 31 , 2015 , our contracts receivable balance was $ 47.0 million . we have subsequently collected $ 28.4 million through february 19 , 2016. during 2015 , we recorded contract losses of $ 24.5 million related to a decrease in the contract price due to final weight re-measurements and our inability to recover certain costs on disputed change orders related to a large deepwater project which was recently delivered . we are currently in negotiations with this customer concerning disputed change orders and no amounts with respect to these disputed change orders are included in contract revenues at december 31 , 2015. our intention is to resolve the disputed cost amounts and finalize the change orders with our customer as quickly as possible ; however , we can give no assurance that these negotiations will conclude in the near term or at all or that we will recover any of these contract 30 losses from our customer .

bag grades , papers for directories , paperback books and other commercial applications represent less than 15 % of our shipments . we sell our specialty papers almost exclusively in north america , where demand is largely tied to consumer spending and advertising . we operate seven pulp mills , five in the u.s. and two in canada , with total capacity of 1.7 million metric tons , or approximately 11 % of total north american capacity , making us the third largest pulp producer in north america . approximately 80 % of our virgin pulp capacity is softwood-based , including : northern bleached softwood kraft pulp ( or “ nbsk ” ) , southern bleached softwood kraft pulp ( or “ sbsk ” ) and fluff pulp . we are also a competitive producer of northern bleached hardwood kraft pulp ( or “ nbhk ” ) and southern bleached hardwood kraft pulp ( or “ sbhk ” ) , and a leading producer of recycled bleached kraft pulp ( or “ rbk ” ) . our market pulp - the pulp we produce but do not consume internally - is used to make a range of consumer products , like tissue , packaging , specialty paper products , diapers and other absorbent products . approximately 26 % of our 2014 market pulp shipments were exported outside of north america , including significant exports to europe , asia and latin america . in 2014 , we shipped 1.5 billion board feet of construction-grade lumber and 100 million board feet of remanufactured wood products within north america , mostly on the east coast . our sawmills produce dimension spruce-pine-fir ( or “ spf ” ) lumber and provide wood chips to our pulp and paper mills in canada as well as wood residue that we use as fuel in our power cogeneration assets and other operations . we also operate two remanufactured wood products facilities in canada that produce bed frame components , finger joints and furring strips , and two engineered wood products facilities in canada that produce i-joists for the construction industry . in 2014 , we also launched a wood pellet plant in thunder bay , ontario , which has a ten-year agreement to supply the local power utility with 45,000 metric tons of pellets annually . replace_table_token_6_th strategy & recent highlights our corporate strategy includes , on the one hand , a gradual retreat from certain paper grades , and on the other , using our strong financial position to act on opportunities to diversify and grow . that strategy is based on three core themes : operational excellence , disciplined use of capital and strategic initiatives . operational excellence we aim to improve our performance and margins by : leveraging our lower-cost position ; maintaining a stringent focus on reducing costs and optimizing our diversified asset base ; maximizing the benefits of our access to virgin fiber and managing our exposure to volatile recycled fiber ; and pursuing our strategy of managing production and inventory levels and focusing production at our most profitable and lower-cost facilities and machines . we compete today as a leading , lower-cost north american producer , thanks to aggressive cost reductions and mill optimization . we believe we have one of the lowest selling , general and administrative expenses ( or “ sg & a ” ) to sales ratio in the forest product industry . 22 we have reduced a number of positions at mill sites since 2012 , without affecting operating capacity , which has significantly lowered our labor costs . we worked with our unionized employees and their union leaders toward the mutually beneficial renewal of our u.s. and canadian pulp and paper collective agreements earlier this year . by working together with the shared goals of resolute 's long-term success , we helped to reinforce our position as a financially strong and reliable supplier for our customers . maintaining our lower-cost position is a core focus of our daily environment : we challenge ourselves to optimize assets , to lower our costs and to improve our efficiency . today we operate only our best facilities and most competitive machines . disciplined use of capital we make capital management a priority . building on our focus to reduce manufacturing costs , we will continue our efforts to decrease overhead and spend our capital in a disciplined , strategic and focused manner , concentrated on our most successful sites . maintaining our strong financial position and financial flexibility is one of our primary financial goals . in 2013 , we refinanced the remaining balance of our senior secured notes with 5.875 % senior unsecured notes due 2023 ( the “ 2023 notes ” ) . in addition to adding five years to maturity , the refinancing reduced our annual cash interest burden by $ 16 million and improves our financial flexibility . in 2014 , we modified our u.s. other postretirement benefit ( or “ opeb ” ) plans to encourage greater participation in a medicare exchange program . in addition to securing high-quality healthcare for participants , this modification , along with similar initiatives undertaken since mid-2013 , helped to reduce our u.s. opeb liability on the balance sheet from $ 250 million to $ 77 million as of december 31 , 2014. furthermore , in 2015 , we expect that our opeb expense will be $ 26 million lower than in 2012 , as a result of these amendments . strategic initiatives we believe in taking an opportunistic approach to strategic initiatives , pursuing only those that reduce our cost position , improve our product diversification , provide synergies or allow us to expand into future growth markets . we anticipate continued consolidation in the paper and forest products industry , as we and our competitors continue to explore ways to increase efficiencies and grow into more favorable markets . story_separator_special_tag we recorded a $ 524 million income tax provision in 2013 , on a loss before income taxes of $ 115 million , compared to an expected income tax benefit of $ 40 million based on the u.s. federal statutory income tax rate of 35 % . the difference largely reflects a net valuation allowance increase of $ 572 million , most of which relates to a charge recorded to establish a full valuation allowance against our net u.s. deferred income tax assets . some of our canadian subsidiaries , including our principal canadian operating subsidiary , use the u.s. dollar as functional currency but determine taxable income in canadian dollars . this can cause frequent and substantial variations to our effective tax rate when compared to the weighted-average of both domestic and foreign statutory tax rates . this is because we compute the foreign exchange component of the income tax provision of our canadian subsidiaries on a different basis than in our consolidated financial statements . due to the unpredictability of foreign exchange rates , we are unable to estimate the impact of future changes in exchange rates on our effective tax rate . q4 of 2014 vs. q4 of 2013 operating ( loss ) income variance analysis sales our sales were $ 95 million lower , or 8 % , this quarter , at $ 1,055 million . including the effect of currency , overall pricing fell by $ 23 million because of a 5 % drop in the average transaction price for newsprint and 3 % for specialty papers , offset only in part by a 3 % improvement in the average transaction price of market pulp . the overall volume was also lower , reflecting a 16 % reduction in market pulp shipments , 6 % in specialty papers and 3 % in newsprint ; wood products shipments were 10 million board feet , or 3 % , higher . the lower pulp shipments reflect greater internal consumption , the production slowback in rbk and a shipment delay at year-end . 33 cost of sales , excluding depreciation , amortization and distribution costs cos improved by $ 83 million in the quarter because of the lower volume and the weaker canadian dollar , as a significant portion of our production capacity is based in canada . excluding these impacts , manufacturing costs were $ 12 million lower , reflecting : asset optimization initiatives ( $ 14 million ) ; lower pension and opeb expenses ( $ 8 million ) ; and the recognition of additional tax credits in connection with infrastructure investments ( $ 7 million ) ; offset in part by : higher wood costs and lower contribution from cogeneration facilities ( $ 7 million ) ; a favorable power adjustment in the year-ago period ( $ 4 million ) ; and asset preservation costs at our closed fort frances facility and additional stores inventory write-downs in connection with mill closures , as well as higher start-up costs ( $ 4 million ) . distribution costs after removing the effect of lower volume , distribution costs were $ 3 million higher because of warehousing and freight costs in the specialty papers segment and an increase in the average length of haul in the specialty papers and market pulp segment , partly offset by lower fuel surcharges . selling , general & administrative expenses sg & a was $ 3 million lower in the quarter , primarily because of a group insurance refund . closure costs , impairment and other related charges closure costs , impairment and other related charges were $ 131 million in the fourth quarter of 2014 , reflecting : $ 57 million of accelerated depreciation , $ 9 million for severance and other termination benefits and $ 8 million for other closure costs , including environmental remediation obligations , in connection with the permanent closure of our iroquois falls , ontario , mill in the fourth quarter ; $ 32 million of accelerated depreciation and $ 4 million for other closure costs in connection with the permanent closure of our laurentide , québec , mill ; and $ 4 million of idling and cleaning costs as well as severance charges at our fort frances mill ; by comparison , we recorded $ 33 million in the same period in 2013 , reflecting costs and charges related to the extended market-related outage at the remaining paper machine in fort frances and the impairment of our recycling assets . net loss variance analysis net loss was $ 109 million in the fourth quarter of 2014 , or $ 1.15 per share , compared to a net loss of $ 3 million , or $ 0.03 per share , in the year-ago period . other expense , net we recorded other expense , net , of $ 25 million in the quarter , compared to other expense , net , of $ 20 million in the year-ago period . this quarter included an $ 18 million non-cash loss on translation of canadian dollar net monetary assets and an $ 11 million write-down of our investment in ponderay newsprint company . the $ 20 million other expense , net , in the year-ago period included a $ 15 million non-cash loss on the translation of canadian dollar net monetary assets . income taxes we recorded an income tax benefit of $ 22 million in the fourth quarter of 2014 , on a loss before income taxes of $ 130 million , compared to an expected income tax benefit of $ 45 million based on the u.s. federal statutory income tax rate of 35 % . the difference reflects the unfavorable effects of foreign exchange related items and a net increase in valuation allowances , primarily related to our u.s. operations , where we no longer recognize deferred income tax assets , partly offset by a tax benefit 34 recognized on the reversal of our valuation allowance

cash used in investing activities we used $ 151 million in investing activities in 2013 , $ 76 million higher than in 2012. other than the $ 8 million decrease in cash invested in fixed assets , the difference is almost entirely due to net favorable items in 2012 , including : a decrease in restricted cash due to the release of a tax indemnity given in connection with the sale of our interest in manicouagan power company in 2009 ( $ 76 million ) ; and the proceeds from disposition of timberlands in nova scotia ( $ 24 million ) ; partially offset by : the cash portion of the consideration paid for the acquisition of fibrek ( $ 24 million , net of cash acquired ) . 59 cash provided by ( used in ) financing activities financing activities provided $ 4 million in 2013 , compared to a use of $ 297 in 2012 , for a $ 301 million difference . in 2013 , we received proceeds of $ 594 million in connection with the issuance of the 2023 notes , which we used to repurchase $ 501 million of the outstanding 2018 notes and to pay $ 84 million as a tender offer premium . we also paid financing and credit facility fees of $ 9 million . we also received an $ 8 million payment from our former joint venture partner in cnc in connection with our acquisition of their interest . in 2012 , we paid $ 27 million in cash as part of the consideration to acquire shares of the noncontrolling interest in fibrek , we repaid its debt ( $ 112 million ) , we repurchased 5.6 million of our own shares under our share repurchase program ( $ 67 million ) and we redeemed $ 85 million of our 2018 notes .

we finance the purchase of aircraft and our business with available cash balances , internally generated funds , including through aircraft sales and trading activities and debt financings . our debt financing strategy is focused on raising unsecured debt in the global bank and debt capital markets , with a limited utilization of government guaranteed export credit or other forms of secured financing . in 2019 , we issued approximately $ 3.2 billion in senior unsecured notes bearing interest at fixed rates ranging from 2.25 % to 4.25 % with one note bearing interest at a floating rate of three-month libor plus 0.67 % , with maturities ranging from 2021 to 2029. in addition , we increased our unsecured revolving credit facility capacity to approximately $ 5.8 billion , representing a 27.9 % increase from 2018 and extended the final maturity date to may 5 , 2023 bearing interest at a floating rate of libor plus 1.05 % . we ended 2019 with total 49 debt outstanding , net of discounts and issuance costs , of $ 13.6 billion , of which 88.4 % was at a fixed rate and 96.6 % of which was unsecured . as of december 31 , 2019 , our composite cost of funds was 3.34 % . in 2019 , total revenues increased by 20.1 % to $ 2.0 billion , compared to 2018. the increase in our total revenues is primarily due to the $ 3.0 billion increase in the net book value of our operating lease portfolio and an increase in our aircraft sales , trading and other activity . during the year ended december 31 , 2019 , our net income available to common stockholders was $ 575.2 million compared to $ 510.8 million for the year ended december 31 , 2018. our diluted earnings per share for the full year 2019 was $ 5.09 compared to $ 4.60 for the full year 2018. the increase in net income available to common stockholders in 2019 as compared to 2018 was primarily due to the continued growth of our fleet and an increase in our aircraft sales , trading and other activity , partially offset by increases in our interest expense and selling , general and administrative expenses . our adjusted net income before income taxes excludes the effects of certain non-cash items , one-time or non-recurring items that are not expected to continue in the future and certain other items . our adjusted net income before income taxes for the year ended december 31 , 2019 was $ 781.2 million or $ 6.91 per diluted share , compared to $ 690.3 million , or $ 6.20 per diluted share for the year ended december 31 , 2018. the increase in our adjusted net income before income taxes was principally driven by the continued growth of our fleet and an increase in our aircraft sales , trading and other activity , partially offset by increases in our interest expense and selling , general and administrative expenses . adjusted net income before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by u.s. generally accepted accounting principles ( “ gaap ” ) . see note 3 in “ item 6. selected financial data ” of this annual report on form 10-k for a discussion of adjusted net income before income taxes and adjusted diluted earnings per share before income taxes as non-gaap measures and a reconciliation of these measures to net income available to common stockholders . our fleet we have continued to build one of the world 's youngest operating lease portfolios , including some of the most fuel-efficient commercial jet transport aircraft . our fleet , based on net book value , increased by 19.1 % , to $ 18.7 billion as of december 31 , 2019 , compared to $ 15.7 billion as of december 31 , 2018. during the year ended december 31 , 2019 , we took delivery of 53 aircraft from our new order pipeline , purchased two incremental aircraft in the secondary market and sold 30 aircraft and transferred eight aircraft from our operating lease portfolio to flight equipment held for sale , which is included in other assets on the consolidated balance sheet , ending the year with a total of 292 aircraft in our operating lease portfolio . the weighted average fleet age and weighted average remaining lease term of our operating lease portfolio as of december 31 , 2019 were 3.5 years and 7.2 years , respectively . we also managed 83 aircraft as of december 31 , 2019 . ​ 50 portfolio metrics of our fleet as of december 31 , 2019 and 2018 are as follows : replace_table_token_13_th ( 1 ) weighted-average fleet age and remaining lease term calculated based on net book value of our operating lease portfolio . ( 2 ) as of december 31 , 2019 , we transferred eight aircraft to flight equipment held for sale which is included in other assets on the consolidated balance sheet . all of these aircraft are excluded from the owned fleet count and included in our managed fleet count . ( 3 ) as of december 31 , 2019 , we had options to acquire up to 45 boeing 737-8 max aircraft and up to 25 airbus a220 aircraft . as of december 31 , 2018 , we had options to acquire up to five airbus a350-1000 aircraft and 45 boeing 737-8 max aircraft . story_separator_special_tag these events of default are subject to a number of important exceptions and qualifications set forth in the purchase agreements . unsecured term financings from time to time , we enter into unsecured term facilities . during 2019 , we entered into three unsecured term facilities aggregating $ 205.0 million comprised of ( i ) a $ 80.0 million term facility with a term of one year and bearing interest at a floating rate of libor plus 1.00 % ; ( ii ) a $ 75.0 million term facility with a term of three years and bearing interest at a floating rate of three-month libor plus 1.00 % ; ( iii ) a $ 50.0 million term facility with a term of one year and bearing interest at a floating rate of libor plus 1.00 % . during 2019 , we also entered into agreements to increase ( a ) our $ 518.0 million term facility by $ 82.0 million to an aggregate principal amount of $ 600.0 million , with a term of four years and bearing interest at a floating rate of libor plus 1.125 % and ( b ) our $ 5.4 million term facility by $ 19.6 million to an aggregate principal amount of $ 25.0 million with the term of such facility extended four years and bearing interest at a fixed rate of 3.00 % . the outstanding balance on our unsecured term facilities as of december 31 , 2019 was $ 883.1 million , bearing interest at fixed rates ranging from 2.75 % to 3.50 % and five facilities bearing interest at floating rates ranging from libor plus 0.95 % to libor plus 1.125 % . as of december 31 , 2019 , the remaining maturities of all unsecured term facilities ranged from approximately 0.09 years to approximately 4.75 years . as of december 31 , 2018 , the outstanding balance on our unsecured term facilities was $ 607.3 million . unsecured revolving credit facilities we have a senior unsecured revolving credit facility governed by a second amended and restated credit agreement , dated may 5 , 2014 ( as amended , modified and supplemented thereafter ) , with jp morgan chase bank , n.a . , as administrative agent , and the lenders from time to time party thereto . as of december 31 , 2019 , the unsecured revolving credit facility provides us with financing capacity of up to $ 5.8 billion subject to the terms and conditions set forth therein . lenders hold revolving commitments totaling approximately $ 5.5 billion that mature on may 5 , 2023 , commitments totaling $ 245.0 million that mature on may 5 , 2022 , commitments totaling $ 5.0 million that mature on may 5 , 2021 , and commitments totaling $ 92.7 million that mature on may 5 , 2020. as of december 31 , 2019 , borrowings under the unsecured revolving credit facility will generally bear interest at either ( i ) libor plus a margin of 1.05 % per year or ( ii ) an alternative base rate plus a margin of 0.05 % per year , subject , in each case , to increases or decreases based on declines in the credit ratings for our debt . we are required to pay a facility fee of 0.20 % per year ( also subject to increases or decreases based on declines in the credit ratings for our debt ) in respect of total commitments under the unsecured revolving credit facility . borrowings under the unsecured revolving credit facility are used to finance our working capital needs in the ordinary course of business and for other general corporate purposes . the total amount outstanding under our unsecured revolving credit facility was $ 20.0 million and $ 602.0 million as of december 31 , 2019 and december 31 , 2018 , respectively . the unsecured revolving credit facility provides for certain covenants , including covenants that limit our subsidiaries ' ability to incur , create , or assume certain unsecured indebtedness , and our subsidiaries ' abilities to engage 58 in certain mergers , consolidations , and asset sales . the unsecured revolving credit facility also requires us to comply with certain financial maintenance covenants ( measured at the end of each fiscal quarter ) including a maximum consolidated leverage ratio , minimum consolidated shareholders ' equity , and minimum consolidated unencumbered assets , as well as an interest coverage test that will be suspended when the unsecured revolving credit facility or certain of our other indebtedness is rated investment grade ( as defined in the unsecured revolving credit facility ) . as of december 31 , 2019 , such investment grade rating as defined in the unsecured revolving credit facility was achieved . we believe , as of december 31 , 2019 , we were in compliance in all material respects with all covenants contained in our unsecured revolving credit facility . in addition , the unsecured revolving credit facility contains customary events of default . in the case of an event of default , the lenders may terminate the commitments under the unsecured revolving credit facility and require immediate repayment of all outstanding borrowings and the cash collateralization of all outstanding letters of credit . such termination and acceleration will occur automatically in the event of certain bankruptcy events . these provisions are subject to a number of important exceptions and qualifications set forth in the credit agreement governing the unsecured revolving credit facility . during the year ended december 31 , 2019 , we entered into an uncommitted unsecured revolving credit facility with a total borrowing capacity of $ 175.0 million and a maturity date of october 18 , 2020 , bearing interest at a rate of libor plus 0.75 % . as of december 31 , 2019 , there were no outstanding amounts related to the uncommitted unsecured revolving credit facility . in january 2020 , we entered into an

cash used in investing activities we used $ 151 million in investing activities in 2013 , $ 76 million higher than in 2012. other than the $ 8 million decrease in cash invested in fixed assets , the difference is almost entirely due to net favorable items in 2012 , including : a decrease in restricted cash due to the release of a tax indemnity given in connection with the sale of our interest in manicouagan power company in 2009 ( $ 76 million ) ; and the proceeds from disposition of timberlands in nova scotia ( $ 24 million ) ; partially offset by : the cash portion of the consideration paid for the acquisition of fibrek ( $ 24 million , net of cash acquired ) . 59 cash provided by ( used in ) financing activities financing activities provided $ 4 million in 2013 , compared to a use of $ 297 in 2012 , for a $ 301 million difference . in 2013 , we received proceeds of $ 594 million in connection with the issuance of the 2023 notes , which we used to repurchase $ 501 million of the outstanding 2018 notes and to pay $ 84 million as a tender offer premium . we also paid financing and credit facility fees of $ 9 million . we also received an $ 8 million payment from our former joint venture partner in cnc in connection with our acquisition of their interest . in 2012 , we paid $ 27 million in cash as part of the consideration to acquire shares of the noncontrolling interest in fibrek , we repaid its debt ( $ 112 million ) , we repurchased 5.6 million of our own shares under our share repurchase program ( $ 67 million ) and we redeemed $ 85 million of our 2018 notes .

we finance the purchase of aircraft and our business with available cash balances , internally generated funds , including through aircraft sales and trading activities and debt financings . our debt financing strategy is focused on raising unsecured debt in the global bank and debt capital markets , with a limited utilization of government guaranteed export credit or other forms of secured financing . in 2019 , we issued approximately $ 3.2 billion in senior unsecured notes bearing interest at fixed rates ranging from 2.25 % to 4.25 % with one note bearing interest at a floating rate of three-month libor plus 0.67 % , with maturities ranging from 2021 to 2029. in addition , we increased our unsecured revolving credit facility capacity to approximately $ 5.8 billion , representing a 27.9 % increase from 2018 and extended the final maturity date to may 5 , 2023 bearing interest at a floating rate of libor plus 1.05 % . we ended 2019 with total 49 debt outstanding , net of discounts and issuance costs , of $ 13.6 billion , of which 88.4 % was at a fixed rate and 96.6 % of which was unsecured . as of december 31 , 2019 , our composite cost of funds was 3.34 % . in 2019 , total revenues increased by 20.1 % to $ 2.0 billion , compared to 2018. the increase in our total revenues is primarily due to the $ 3.0 billion increase in the net book value of our operating lease portfolio and an increase in our aircraft sales , trading and other activity . during the year ended december 31 , 2019 , our net income available to common stockholders was $ 575.2 million compared to $ 510.8 million for the year ended december 31 , 2018. our diluted earnings per share for the full year 2019 was $ 5.09 compared to $ 4.60 for the full year 2018. the increase in net income available to common stockholders in 2019 as compared to 2018 was primarily due to the continued growth of our fleet and an increase in our aircraft sales , trading and other activity , partially offset by increases in our interest expense and selling , general and administrative expenses . our adjusted net income before income taxes excludes the effects of certain non-cash items , one-time or non-recurring items that are not expected to continue in the future and certain other items . our adjusted net income before income taxes for the year ended december 31 , 2019 was $ 781.2 million or $ 6.91 per diluted share , compared to $ 690.3 million , or $ 6.20 per diluted share for the year ended december 31 , 2018. the increase in our adjusted net income before income taxes was principally driven by the continued growth of our fleet and an increase in our aircraft sales , trading and other activity , partially offset by increases in our interest expense and selling , general and administrative expenses . adjusted net income before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by u.s. generally accepted accounting principles ( “ gaap ” ) . see note 3 in “ item 6. selected financial data ” of this annual report on form 10-k for a discussion of adjusted net income before income taxes and adjusted diluted earnings per share before income taxes as non-gaap measures and a reconciliation of these measures to net income available to common stockholders . our fleet we have continued to build one of the world 's youngest operating lease portfolios , including some of the most fuel-efficient commercial jet transport aircraft . our fleet , based on net book value , increased by 19.1 % , to $ 18.7 billion as of december 31 , 2019 , compared to $ 15.7 billion as of december 31 , 2018. during the year ended december 31 , 2019 , we took delivery of 53 aircraft from our new order pipeline , purchased two incremental aircraft in the secondary market and sold 30 aircraft and transferred eight aircraft from our operating lease portfolio to flight equipment held for sale , which is included in other assets on the consolidated balance sheet , ending the year with a total of 292 aircraft in our operating lease portfolio . the weighted average fleet age and weighted average remaining lease term of our operating lease portfolio as of december 31 , 2019 were 3.5 years and 7.2 years , respectively . we also managed 83 aircraft as of december 31 , 2019 . ​ 50 portfolio metrics of our fleet as of december 31 , 2019 and 2018 are as follows : replace_table_token_13_th ( 1 ) weighted-average fleet age and remaining lease term calculated based on net book value of our operating lease portfolio . ( 2 ) as of december 31 , 2019 , we transferred eight aircraft to flight equipment held for sale which is included in other assets on the consolidated balance sheet . all of these aircraft are excluded from the owned fleet count and included in our managed fleet count . ( 3 ) as of december 31 , 2019 , we had options to acquire up to 45 boeing 737-8 max aircraft and up to 25 airbus a220 aircraft . as of december 31 , 2018 , we had options to acquire up to five airbus a350-1000 aircraft and 45 boeing 737-8 max aircraft . story_separator_special_tag these events of default are subject to a number of important exceptions and qualifications set forth in the purchase agreements . unsecured term financings from time to time , we enter into unsecured term facilities . during 2019 , we entered into three unsecured term facilities aggregating $ 205.0 million comprised of ( i ) a $ 80.0 million term facility with a term of one year and bearing interest at a floating rate of libor plus 1.00 % ; ( ii ) a $ 75.0 million term facility with a term of three years and bearing interest at a floating rate of three-month libor plus 1.00 % ; ( iii ) a $ 50.0 million term facility with a term of one year and bearing interest at a floating rate of libor plus 1.00 % . during 2019 , we also entered into agreements to increase ( a ) our $ 518.0 million term facility by $ 82.0 million to an aggregate principal amount of $ 600.0 million , with a term of four years and bearing interest at a floating rate of libor plus 1.125 % and ( b ) our $ 5.4 million term facility by $ 19.6 million to an aggregate principal amount of $ 25.0 million with the term of such facility extended four years and bearing interest at a fixed rate of 3.00 % . the outstanding balance on our unsecured term facilities as of december 31 , 2019 was $ 883.1 million , bearing interest at fixed rates ranging from 2.75 % to 3.50 % and five facilities bearing interest at floating rates ranging from libor plus 0.95 % to libor plus 1.125 % . as of december 31 , 2019 , the remaining maturities of all unsecured term facilities ranged from approximately 0.09 years to approximately 4.75 years . as of december 31 , 2018 , the outstanding balance on our unsecured term facilities was $ 607.3 million . unsecured revolving credit facilities we have a senior unsecured revolving credit facility governed by a second amended and restated credit agreement , dated may 5 , 2014 ( as amended , modified and supplemented thereafter ) , with jp morgan chase bank , n.a . , as administrative agent , and the lenders from time to time party thereto . as of december 31 , 2019 , the unsecured revolving credit facility provides us with financing capacity of up to $ 5.8 billion subject to the terms and conditions set forth therein . lenders hold revolving commitments totaling approximately $ 5.5 billion that mature on may 5 , 2023 , commitments totaling $ 245.0 million that mature on may 5 , 2022 , commitments totaling $ 5.0 million that mature on may 5 , 2021 , and commitments totaling $ 92.7 million that mature on may 5 , 2020. as of december 31 , 2019 , borrowings under the unsecured revolving credit facility will generally bear interest at either ( i ) libor plus a margin of 1.05 % per year or ( ii ) an alternative base rate plus a margin of 0.05 % per year , subject , in each case , to increases or decreases based on declines in the credit ratings for our debt . we are required to pay a facility fee of 0.20 % per year ( also subject to increases or decreases based on declines in the credit ratings for our debt ) in respect of total commitments under the unsecured revolving credit facility . borrowings under the unsecured revolving credit facility are used to finance our working capital needs in the ordinary course of business and for other general corporate purposes . the total amount outstanding under our unsecured revolving credit facility was $ 20.0 million and $ 602.0 million as of december 31 , 2019 and december 31 , 2018 , respectively . the unsecured revolving credit facility provides for certain covenants , including covenants that limit our subsidiaries ' ability to incur , create , or assume certain unsecured indebtedness , and our subsidiaries ' abilities to engage 58 in certain mergers , consolidations , and asset sales . the unsecured revolving credit facility also requires us to comply with certain financial maintenance covenants ( measured at the end of each fiscal quarter ) including a maximum consolidated leverage ratio , minimum consolidated shareholders ' equity , and minimum consolidated unencumbered assets , as well as an interest coverage test that will be suspended when the unsecured revolving credit facility or certain of our other indebtedness is rated investment grade ( as defined in the unsecured revolving credit facility ) . as of december 31 , 2019 , such investment grade rating as defined in the unsecured revolving credit facility was achieved . we believe , as of december 31 , 2019 , we were in compliance in all material respects with all covenants contained in our unsecured revolving credit facility . in addition , the unsecured revolving credit facility contains customary events of default . in the case of an event of default , the lenders may terminate the commitments under the unsecured revolving credit facility and require immediate repayment of all outstanding borrowings and the cash collateralization of all outstanding letters of credit . such termination and acceleration will occur automatically in the event of certain bankruptcy events . these provisions are subject to a number of important exceptions and qualifications set forth in the credit agreement governing the unsecured revolving credit facility . during the year ended december 31 , 2019 , we entered into an uncommitted unsecured revolving credit facility with a total borrowing capacity of $ 175.0 million and a maturity date of october 18 , 2020 , bearing interest at a rate of libor plus 0.75 % . as of december 31 , 2019 , there were no outstanding amounts related to the uncommitted unsecured revolving credit facility . in january 2020 , we entered into an

liquidity and capital resources overview we finance the purchase of aircraft and our business with available cash balances , internally generated funds , including through aircraft sales and trading activity , and debt financings . we have structured ourselves with the goal to maintain investment-grade credit metrics and our debt financing strategy has focused on funding our business on an unsecured basis . unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to another . we ended 2019 with total debt outstanding , net of discounts and issuance costs , of $ 13.6 billion compared to $ 11.5 billion in 2018. our unsecured debt outstanding increased to $ 13.3 billion as of december 31 , 2019 from $ 11.3 billion as of december 31 , 2018. our unsecured debt as a percentage of total debt increased to 96.6 % as of december 31 , 2019 from 96.5 % as of december 31 , 2018. we increased our cash flows from operations by 11.0 % or $ 138.4 million to $ 1.4 billion in 2019 , as compared to $ 1.3 billion in 2018. our cash flows from operations increased primarily because of the continued growth of our fleet . our cash flow used in investing activities was $ 3.8 billion for the year ended december 31 , 2019 , which resulted primarily from the purchase of aircraft , partially offset by proceeds from our aircraft sales and trading activity . our cash flow provided by financing activities was $ 2.5 billion for the year ended december 31 , 2019 , which resulted primarily from the net proceeds received from the issuance of our unsecured notes and the issuance of preferred stock in 2019 , partially offset by the repayment of outstanding debt . we ended 2019 with available liquidity of $ 6.3 billion which is comprised of unrestricted cash of $ 317.5 million and undrawn balances under our unsecured revolving credit facilities of $ 6.0 billion .

million , or $ 1.46 per share with cash flows from operations of $ 173.9 million . we had capital investments of $ 136.3 million in 2011 and ended the year with $ 176.8 million of cash and investments with no debt outstanding . our production volumes of potash and trio ® increased to a combined 954,000 tons in 2011 from 886,000 in 2010 as we increased production towards full operating levels throughout 2010. our production volumes of potash increased to 813,000 tons in 2011 from 727,000 tons in 2010 , while trio ® production volumes decreased to 141,000 tons in 41 2011 from 159,000 tons in 2010. potash in 2011 , we sold 793,000 tons of potash as compared to 810,000 tons in 2010. during the first six months of 2011 , strong commodity markets provided an opportunity for improved farmer economics , which in turn increased demand for potash , resulting in higher potash prices . however , our sales of potash in 2011 were impacted by poor weather conditions such as , persistent high water levels in certain customer locations along the missouri river and the continued drought conditions in texas and nearby states . during the fourth quarter of 2011 , we saw what we believe is a short-term decrease in farmer demand for fertilizer and believe farmer buying decisions were affected by macro factors including uncertainty around global economic stability , a focus on purchases of seed and equipment , and a desire to defer the purchase of certain fertilizer inputs until the spring of 2012. the improvement in potash pricing began in the fall of 2010 and accelerated through the second quarter of 2011 , as crop economics for u.s. farmers remained solid . most crop prices moved up significantly during the second half of 2010 and remained favorable in 2011 due to continued tight stock-to-use ratios and strong demand for grains worldwide . revisions in crop yields by the united states department of agriculture ( `` usda `` ) have resulted in predictions of slightly increased world grain stocks from 463.0 million metric tons to 471.9 million metric tons for 2011 , however , this increase is still well below the 2009 levels of 491.6 million metric tons . while it appears corn crop yields in 2011 in the united states were lower than in 2010 as a result of challenging regional weather conditions , including those described above , current crop economics across a broad spectrum of agricultural commodities remain favorable to the farmer thereby incentivizing fertilizer demand . in the last half of the fourth quarter of 2011 , we saw prices of other nutrients fall , which has historically suggested a decrease in potash prices . however , the prices of nitrogen and phosphate rebounded early in 2012 and seem to have now stabilized . we have observed mid-west farmers actively applying nitrogen products well into january , which typically is a positive precursor to strong phosphate and potassium application . we expect dealers will take a conservative approach in their crop nutrient purchases through the first half of 2012 and attempt to manage inventories by timing purchases so that they minimize working capital risk of holding inventory . in order to be able to expand our marketing reach into the agricultural sector and build in flexibility to our production capacity , we are investing in additional granulation capacity , having completed new compaction facilities in wendover in 2011 and in moab in 2010. further , we are entering the permitting phase for the expansion of our granulation capacity at our north plant in carlsbad . additional compaction capacity in carlsbad should further enhance our marketing flexibility . industrial demand for our standard‑sized potash increased in 2011 over 2010 , as we sold 23 percent more tons into the industrial market compared to a year ago . this increase in sales volume has resulted from an increase in the rig count from december 2010 of approximately 19 percent in the geographic regions primarily served by our facilities with the continued expansion of drilling and fracture stimulation work in profitable oil and liquids rich natural gas development activity . we expect industrial demand for our standard-sized product will correlate over the long-term with oil and gas pricing , drilling , and well completion activities . we believe that potash is the most effective clay-swelling inhibitor available , and we are marketing potash as the drilling fluid additive of choice in our traditional industrial market . the percentage of our sales in the agricultural and feed markets stayed relatively consistent from 2010 to 2011 , but we did see a slight increase in our industrial sales volumes of standard product . with the increase in our granulation capacity , we now have the ability to market our products based on a relative margin comparison between standard and granular demand into the associated end markets . our potash sales mix was approximately as follows for the indicated periods . replace_table_token_15_th over the long-term , we believe that domestic consumption of fertilizers will remain at historical averages as the replacement of potassium in the soils is critical to continued high-yield agricultural production and the demands placed on soils for plant nutrition . this view is supported by data generated by fertecon limited , a fertilizer industry consultant , showing that over the past 25 years the domestic consumption for potash has averaged approximately 9.2 million tons with annual volatility of approximately 9 percent . these results have occurred through historical periods of low and high agricultural commodity prices , variability in oil and gas drilling , negative farmer margins , and a variety of other macro- 42 economic factors . trio ® the most significant activity related to our trio ® operations was the substantial completion of the dense media separation plant that occurred in december 2011. this new plant is designed to improve the recovery of our langbeinite to approximately 50 percent . story_separator_special_tag our effective income tax rates are impacted primarily by changes in the underlying tax rates in jurisdictions in which we are subject to income tax and permanent differences between book and tax income for the period , including the benefit associated with the estimated effect of the domestic production activities deduction . our federal and state income tax returns are subject to examination by federal and state tax authorities . as described more fully below , the decrease in effective tax rate in 2011 was primarily a function of adjusting the tax rate applied to our deferred tax asset to reflect the anticipated blended state income tax rates for the company . the tax basis of the assets and liabilities transferred to us pursuant to the exchange agreement at the time of the ipo was , in the aggregate , equal to mining 's adjusted tax basis in the assets as of the date of the exchange , increased by the amount of taxable gain recognized by mining in connection with the transactions occurring at the time of the ipo . therefore , the net tax basis in the assets and liabilities transferred to us is significantly higher than the book basis in the same assets and liabilities . the basis difference between book and tax generated a net deferred tax asset for us at the time of the transaction . the net deferred tax asset recorded as of the date of exchange was approximately $ 358 million , with a corresponding increase to additional paid-in capital . the majority of our deferred tax asset was assigned to mineral properties , and the anticipated use of percentage depletion to reduce our taxable income , relative to book income , is expected to provide full realization of this asset over time . as of december 31 , 2011 , the net deferred tax asset has been reduced to approximately $ 220.6 million , primarily through utilization of percentage depletion and placing bonus depreciation approved assets into service in 2010 and 2011. we have evaluated our deferred tax assets to determine if the need for a valuation allowance exists , and we have concluded that no material valuation allowances are necessary . we base this conclusion on the expectation that future taxable income should allow us to fully realize these deferred tax assets . on september 27 , 2010 , the small business jobs act of 2010 was enacted and , on december 17 , 2010 , the tax relief , unemployment insurance reauthorization , and jobs creation act of 2010 became law . each of these laws provides for additional tax depreciation ( i.e . “ bonus depreciation ” ) for qualifying property in the year the asset is placed in service . the combination of these laws provides for 50 percent bonus depreciation on qualifying assets placed in service after december 31 , 2009 , through september 8 , 2010 ; 100 percent bonus depreciation on qualifying assets placed in service after september 8 , 2010 , through december 31 , 2011 ; and 50 percent bonus depreciation on qualifying assets placed in service after december 31 , 2011 , through december 31 , 2012. the impact of these changes in tax depreciation contributes significantly to a resulting current and deferred tax expense ( benefit ) . for the year ended december 31 , 2011 , the total tax expense was $ 65.9 million . total tax expense for the year ended december 31 , 2011 , was comprised of $ 16.9 million of current income tax expense and $ 49.0 million of deferred income tax expense . for the year ended december 31 , 2010 , the total tax expense was $ 29.8 million . for 2010 , total tax expense was comprised of $ 0.9 million of current income tax benefit and $ 30.7 million of deferred income tax expense . our current tax expense for these periods is less than our total tax expense in large part due to the impacts of accelerated tax bonus depreciation and the utilization of percentage depletion . we are required to evaluate our deferred tax assets and liabilities each reporting period using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax liability or asset is expected to be settled or realized . the estimated statutory income tax rates that are applied to our current and deferred income tax calculations are impacted most significantly by the states in which we do business . changing business conditions for normal business transactions and operations , as well as changes to state tax rate and apportionment laws , potentially alter our apportionment of income among the states for income tax purposes . these changes in apportionment laws result in changes in the calculation of our current and deferred income taxes , including the valuation of our deferred tax assets and liabilities . the effects of any such changes are recorded in the period of the adjustment . such adjustments can increase or decrease the net deferred tax asset on the balance sheet and impact the corresponding deferred tax benefit or deferred tax expense on the income statement . a decrease of our blended state tax rate decreases the value of our deferred tax asset , resulting in additional deferred tax expense being recorded in the income statement . conversely , an increase in our blended state income tax rate would increase the value of the deferred tax asset , resulting in an increase in our deferred tax benefit . because of the magnitude of the temporary differences between book and tax bases in our assets , relatively small changes in the blended state tax rate may have a pronounced impact on the value of the net deferred tax asset . as of december 31 , 2011 , our estimate of our blended state tax rate increased , resulting in an increase of the value of the

liquidity and capital resources overview we finance the purchase of aircraft and our business with available cash balances , internally generated funds , including through aircraft sales and trading activity , and debt financings . we have structured ourselves with the goal to maintain investment-grade credit metrics and our debt financing strategy has focused on funding our business on an unsecured basis . unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to another . we ended 2019 with total debt outstanding , net of discounts and issuance costs , of $ 13.6 billion compared to $ 11.5 billion in 2018. our unsecured debt outstanding increased to $ 13.3 billion as of december 31 , 2019 from $ 11.3 billion as of december 31 , 2018. our unsecured debt as a percentage of total debt increased to 96.6 % as of december 31 , 2019 from 96.5 % as of december 31 , 2018. we increased our cash flows from operations by 11.0 % or $ 138.4 million to $ 1.4 billion in 2019 , as compared to $ 1.3 billion in 2018. our cash flows from operations increased primarily because of the continued growth of our fleet . our cash flow used in investing activities was $ 3.8 billion for the year ended december 31 , 2019 , which resulted primarily from the purchase of aircraft , partially offset by proceeds from our aircraft sales and trading activity . our cash flow provided by financing activities was $ 2.5 billion for the year ended december 31 , 2019 , which resulted primarily from the net proceeds received from the issuance of our unsecured notes and the issuance of preferred stock in 2019 , partially offset by the repayment of outstanding debt . we ended 2019 with available liquidity of $ 6.3 billion which is comprised of unrestricted cash of $ 317.5 million and undrawn balances under our unsecured revolving credit facilities of $ 6.0 billion .

million , or $ 1.46 per share with cash flows from operations of $ 173.9 million . we had capital investments of $ 136.3 million in 2011 and ended the year with $ 176.8 million of cash and investments with no debt outstanding . our production volumes of potash and trio ® increased to a combined 954,000 tons in 2011 from 886,000 in 2010 as we increased production towards full operating levels throughout 2010. our production volumes of potash increased to 813,000 tons in 2011 from 727,000 tons in 2010 , while trio ® production volumes decreased to 141,000 tons in 41 2011 from 159,000 tons in 2010. potash in 2011 , we sold 793,000 tons of potash as compared to 810,000 tons in 2010. during the first six months of 2011 , strong commodity markets provided an opportunity for improved farmer economics , which in turn increased demand for potash , resulting in higher potash prices . however , our sales of potash in 2011 were impacted by poor weather conditions such as , persistent high water levels in certain customer locations along the missouri river and the continued drought conditions in texas and nearby states . during the fourth quarter of 2011 , we saw what we believe is a short-term decrease in farmer demand for fertilizer and believe farmer buying decisions were affected by macro factors including uncertainty around global economic stability , a focus on purchases of seed and equipment , and a desire to defer the purchase of certain fertilizer inputs until the spring of 2012. the improvement in potash pricing began in the fall of 2010 and accelerated through the second quarter of 2011 , as crop economics for u.s. farmers remained solid . most crop prices moved up significantly during the second half of 2010 and remained favorable in 2011 due to continued tight stock-to-use ratios and strong demand for grains worldwide . revisions in crop yields by the united states department of agriculture ( `` usda `` ) have resulted in predictions of slightly increased world grain stocks from 463.0 million metric tons to 471.9 million metric tons for 2011 , however , this increase is still well below the 2009 levels of 491.6 million metric tons . while it appears corn crop yields in 2011 in the united states were lower than in 2010 as a result of challenging regional weather conditions , including those described above , current crop economics across a broad spectrum of agricultural commodities remain favorable to the farmer thereby incentivizing fertilizer demand . in the last half of the fourth quarter of 2011 , we saw prices of other nutrients fall , which has historically suggested a decrease in potash prices . however , the prices of nitrogen and phosphate rebounded early in 2012 and seem to have now stabilized . we have observed mid-west farmers actively applying nitrogen products well into january , which typically is a positive precursor to strong phosphate and potassium application . we expect dealers will take a conservative approach in their crop nutrient purchases through the first half of 2012 and attempt to manage inventories by timing purchases so that they minimize working capital risk of holding inventory . in order to be able to expand our marketing reach into the agricultural sector and build in flexibility to our production capacity , we are investing in additional granulation capacity , having completed new compaction facilities in wendover in 2011 and in moab in 2010. further , we are entering the permitting phase for the expansion of our granulation capacity at our north plant in carlsbad . additional compaction capacity in carlsbad should further enhance our marketing flexibility . industrial demand for our standard‑sized potash increased in 2011 over 2010 , as we sold 23 percent more tons into the industrial market compared to a year ago . this increase in sales volume has resulted from an increase in the rig count from december 2010 of approximately 19 percent in the geographic regions primarily served by our facilities with the continued expansion of drilling and fracture stimulation work in profitable oil and liquids rich natural gas development activity . we expect industrial demand for our standard-sized product will correlate over the long-term with oil and gas pricing , drilling , and well completion activities . we believe that potash is the most effective clay-swelling inhibitor available , and we are marketing potash as the drilling fluid additive of choice in our traditional industrial market . the percentage of our sales in the agricultural and feed markets stayed relatively consistent from 2010 to 2011 , but we did see a slight increase in our industrial sales volumes of standard product . with the increase in our granulation capacity , we now have the ability to market our products based on a relative margin comparison between standard and granular demand into the associated end markets . our potash sales mix was approximately as follows for the indicated periods . replace_table_token_15_th over the long-term , we believe that domestic consumption of fertilizers will remain at historical averages as the replacement of potassium in the soils is critical to continued high-yield agricultural production and the demands placed on soils for plant nutrition . this view is supported by data generated by fertecon limited , a fertilizer industry consultant , showing that over the past 25 years the domestic consumption for potash has averaged approximately 9.2 million tons with annual volatility of approximately 9 percent . these results have occurred through historical periods of low and high agricultural commodity prices , variability in oil and gas drilling , negative farmer margins , and a variety of other macro- 42 economic factors . trio ® the most significant activity related to our trio ® operations was the substantial completion of the dense media separation plant that occurred in december 2011. this new plant is designed to improve the recovery of our langbeinite to approximately 50 percent . story_separator_special_tag our effective income tax rates are impacted primarily by changes in the underlying tax rates in jurisdictions in which we are subject to income tax and permanent differences between book and tax income for the period , including the benefit associated with the estimated effect of the domestic production activities deduction . our federal and state income tax returns are subject to examination by federal and state tax authorities . as described more fully below , the decrease in effective tax rate in 2011 was primarily a function of adjusting the tax rate applied to our deferred tax asset to reflect the anticipated blended state income tax rates for the company . the tax basis of the assets and liabilities transferred to us pursuant to the exchange agreement at the time of the ipo was , in the aggregate , equal to mining 's adjusted tax basis in the assets as of the date of the exchange , increased by the amount of taxable gain recognized by mining in connection with the transactions occurring at the time of the ipo . therefore , the net tax basis in the assets and liabilities transferred to us is significantly higher than the book basis in the same assets and liabilities . the basis difference between book and tax generated a net deferred tax asset for us at the time of the transaction . the net deferred tax asset recorded as of the date of exchange was approximately $ 358 million , with a corresponding increase to additional paid-in capital . the majority of our deferred tax asset was assigned to mineral properties , and the anticipated use of percentage depletion to reduce our taxable income , relative to book income , is expected to provide full realization of this asset over time . as of december 31 , 2011 , the net deferred tax asset has been reduced to approximately $ 220.6 million , primarily through utilization of percentage depletion and placing bonus depreciation approved assets into service in 2010 and 2011. we have evaluated our deferred tax assets to determine if the need for a valuation allowance exists , and we have concluded that no material valuation allowances are necessary . we base this conclusion on the expectation that future taxable income should allow us to fully realize these deferred tax assets . on september 27 , 2010 , the small business jobs act of 2010 was enacted and , on december 17 , 2010 , the tax relief , unemployment insurance reauthorization , and jobs creation act of 2010 became law . each of these laws provides for additional tax depreciation ( i.e . “ bonus depreciation ” ) for qualifying property in the year the asset is placed in service . the combination of these laws provides for 50 percent bonus depreciation on qualifying assets placed in service after december 31 , 2009 , through september 8 , 2010 ; 100 percent bonus depreciation on qualifying assets placed in service after september 8 , 2010 , through december 31 , 2011 ; and 50 percent bonus depreciation on qualifying assets placed in service after december 31 , 2011 , through december 31 , 2012. the impact of these changes in tax depreciation contributes significantly to a resulting current and deferred tax expense ( benefit ) . for the year ended december 31 , 2011 , the total tax expense was $ 65.9 million . total tax expense for the year ended december 31 , 2011 , was comprised of $ 16.9 million of current income tax expense and $ 49.0 million of deferred income tax expense . for the year ended december 31 , 2010 , the total tax expense was $ 29.8 million . for 2010 , total tax expense was comprised of $ 0.9 million of current income tax benefit and $ 30.7 million of deferred income tax expense . our current tax expense for these periods is less than our total tax expense in large part due to the impacts of accelerated tax bonus depreciation and the utilization of percentage depletion . we are required to evaluate our deferred tax assets and liabilities each reporting period using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax liability or asset is expected to be settled or realized . the estimated statutory income tax rates that are applied to our current and deferred income tax calculations are impacted most significantly by the states in which we do business . changing business conditions for normal business transactions and operations , as well as changes to state tax rate and apportionment laws , potentially alter our apportionment of income among the states for income tax purposes . these changes in apportionment laws result in changes in the calculation of our current and deferred income taxes , including the valuation of our deferred tax assets and liabilities . the effects of any such changes are recorded in the period of the adjustment . such adjustments can increase or decrease the net deferred tax asset on the balance sheet and impact the corresponding deferred tax benefit or deferred tax expense on the income statement . a decrease of our blended state tax rate decreases the value of our deferred tax asset , resulting in additional deferred tax expense being recorded in the income statement . conversely , an increase in our blended state income tax rate would increase the value of the deferred tax asset , resulting in an increase in our deferred tax benefit . because of the magnitude of the temporary differences between book and tax bases in our assets , relatively small changes in the blended state tax rate may have a pronounced impact on the value of the net deferred tax asset . as of december 31 , 2011 , our estimate of our blended state tax rate increased , resulting in an increase of the value of the

liquidity and capital resources as of december 31 , 2011 , we had cash , cash equivalents , and investments of $ 176.8 million , we had no debt , and we had $ 250.0 million available under our unsecured credit facility . the $ 176.8 million was made up of : $ 0.8 million in cash ; 50 $ 72.6 million in cash equivalent investments , consisting of money market accounts or certificates of deposit with banking institutions that we believe are financially sound ; $ 97.2 million and $ 6.2 million invested in short and long-term investments , respectively , comprised of certificates of deposit investments of $ 2.5 million and corporate debt securities of $ 100.9 million . there were no losses on our cash , cash equivalents and investments during 2011. our operations are primarily funded from cash on hand and cash generated by operations , and , if necessary , we have the ability to borrow under our senior credit facility . for the foreseeable future , we believe that our cash , cash equivalents , and investment balances , cash flow from operations , and available borrowings under our senior credit facility will be sufficient to fund our operations , our working capital requirements , and our presently planned capital investments . replace_table_token_18_th operating activities total cash provided by operating activities increased by $ 50.6 million in 2011 compared to 2010 primarily due to higher net income , driven by higher average net realized sales prices for both potash and trio ® .

major components of the difference between the increase in non-fuel revenues approved in the order and pnm 's request , include : a roe of 9.575 % , compared to the 10.5 % requested by pnm inclusion of the january 2016 purchase of the assets underlying three leases of capacity , totaling 64.1 mw , of pvngs unit 2 ( note 7 ) at an initial rate base value of $ 83.7 million , compared to pnm 's request for recovery of the fair market value purchase price of $ 163.3 million ; and disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 mw was being leased by pnm , which costs totaled $ 43.8 million when the order was issued disallowance of the recovery of any future contributions for pvngs decommissioning costs related to the 64.1 mw of capacity in pvngs unit 2 purchased in january 2016 and the 114.6 mw of the leased capacity in pvngs units 1 and 2 that were extended for eight years beginning january 15 , 2015 and 2016 ( note 7 ) disallowance of recovery of the costs associated with converting sjgs units 1 and 4 to bdt , which is required by the nsr permit for sjgs ( note 16 ) , but allows recovery of avoided operating and maintenance expenses of $ 0.3 million annually related to bdt ; pnm 's share of the costs of installing the bdt equipment was $ 52.3 million , $ 40.0 million of which pnm requested be included in rate base in the nm 2015 rate case disallowance of recovery of $ 4.5 million of amounts recorded as regulatory assets and deferred charges the order continued the renewable energy rider and approved certain aspects of pnm 's proposals regarding rate design , but did not approve certain other rate design proposals or pnm 's request for a revenue decoupling pilot program . the order also proposed changes in the methods of recovering certain costs through pnm 's fppac and renewable energy rider . the order credited retail customers with 100 % of the new mexico jurisdictional portion of revenues from “ refined coal ” ( a third-party pre-treatment process ) at sjgs . the order approved pnm 's proposals for revised depreciation rates ( with certain exceptions ) , and the ratemaking treatment of the “ prepaid pension asset . ” on september 30 , 2016 , pnm filed a notice of appeal with the nm supreme court regarding the order in the nm 2015 rate case . on october 26 , 2016 , pnm filed a statement of issues related to its appeal with the nm supreme court , which stated pnm is appealing the nmprc 's determination that pnm was imprudent in the actions taken to purchase the previously leased 64.1 mw of capacity in pvngs unit 2 , extending the leases for 114.6 mw of capacity of pvngs units 1 and 2 , and installing bdt equipment on sjgs units 1 and 4. specifically , pnm 's statement indicated it is appealing the following elements of the nmprc 's order : disallowance of recovery of the full fair market value purchase price of the 64.1 mw of capacity in pvngs unit 2 purchased in january 2016 disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 mw of capacity was leased by pnm disallowance of recovery of future contributions for pvngs decommissioning attributable to 64.1 mw of purchased capacity and the 114.6 mw of capacity under the extended leases disallowance of recovery of the costs of converting sjgs units 1 and 4 to bdt nee , nmiec , and abcwua filed notices of cross appeal to pnm 's appeal . the issues that are being appealed by the various cross-appellants are : the nmprc allowing pnm to recover the costs of the lease extensions for the 114.6 mw of pvngs units 1 and 2 and any of the purchase price for the 64.1 mw in pvngs unit 2 the nmprc allowing pnm to recover the costs incurred under the new coal supply contract for four corners the revised method to collect pnm 's fuel and purchased power costs under the fppac the final rate design the nmprc allowing pnm to include the “ prepaid pension asset ” in rate base nee subsequently filed a motion for a partial stay of the order at the nm supreme court , which was denied . the nm supreme court stated that the court 's intent was to request that pnm reimburse ratepayers for any amount overcharged should the cross-appellants prevail on the merits . on february 17 , 2017 , pnm filed its brief in chief , and pursuant to the court 's rules , the briefing schedule was completed on july 21 , 2017. oral argument at the nm supreme court was held on october 30 , 2017. although appeals of regulatory actions of the nmprc have a priority at the nm supreme court under new mexico law , there is no required time frame for the court to act on the appeals . a - 31 pnm evaluated the accounting consequences of the order in the nm 2015 rate case and the likelihood of being successful on the issues it is appealing in the nm supreme court as required under gaap . the evaluation indicated it is reasonably possible that pnm will be successful on the issues it is appealing . if the nm supreme court rules in pnm 's favor on some or all of the issues , those issues would be remanded back to the nmprc for further action . pnm originally estimated that it would take a minimum of 15 months , from the date pnm filed its appeal , for the nm supreme court to render a decision and for the nmprc to take action on any remanded issues . story_separator_special_tag although the settlement agreement negatively impacted results of operations in 2017 , pnm mitigated these impacts through market sales of power that would have been sold to nec , reductions in fuel and transmission expenses , and other measures . pnm 's nm a - 34 2016 rate case discussed above reflects a reallocation of costs among regulatory jurisdictions reflecting the termination of the contract to serve nec . delivering above industry-average earnings and dividend growth pnmr 's strategic goal to deliver above industry-average earnings and dividend growth enables investors to realize the value of their investment in the company 's business . pnmr 's current target is 6 % earnings growth for the period 2018 through 2021. earnings growth is based on ongoing earnings , which is a non-gaap financial measure that excludes from gaap earnings certain non-recurring , infrequent , and other items that are not indicative of fundamental changes in the earnings capacity of the company 's operations . pnmr uses ongoing earnings to evaluate the operations of the company and to establish goals , including those used for certain aspects of incentive compensation , for management and employees . pnmr targets a dividend payout ratio of 50 % to 60 % of its ongoing earnings . pnmr expects to provide above industry-average dividend growth in the near-term and to manage the payout ratio to meet its long-term target . the board will continue to evaluate the dividend on an annual basis , considering sustainability and growth , capital planning , and industry standards . the board approved the following increases in the indicated annual common stock dividend : replace_table_token_12_th maintaining solid investment grade credit ratings the company is committed to maintaining solid investment grade credit ratings in order to reduce the cost of debt financing and to help ensure access to credit markets , when required . see the subheading liquidity included in the full discussion of liquidity and capital resources below for the specific credit ratings for pnmr , pnm , and tnmp . currently , all of the credit ratings issued by both moody 's and s & p on the company 's debt are investment grade . in june 2017 , moody 's changed the outlook for pnmr and pnm from stable to positive while maintaining a stable outlook for tnmp . in january 2018 , s & p changed the outlook for pnmr , pnm , and tnmp from stable to negative . business and strategic focus pnmr strives to create enduring value for customers , communities , and shareholders . pnmr 's strategy and decision-making are focused on safely providing reliable , affordable , and environmentally responsible power . the company works closely with customers , stakeholders , legislators , and regulators to ensure that resource plans and infrastructure investments benefit from robust public dialogue and balance the diverse needs of our communities . equally important is the focus of pnmr 's utilities on customer satisfaction and community engagement . reliable and affordable power pnmr and its utilities are aware of the important roles they play in enhancing economic vitality in their service territories . management believes that maintaining strong and modern electric infrastructure is critical to ensuring reliability and supporting economic growth . when contemplating expanding or relocating their operations , businesses consider energy affordability and reliability to be important factors . pnm and tnmp strive to balance service affordability with infrastructure investment to maintain a high level of electric reliability and to deliver a superior customer experience . investing in pnm 's and tnmp 's infrastructure is critical to ensuring reliability and meeting future energy needs . both utilities have long-established records of providing customers with reliable electric service . utility plant and strategic investments utility plant investments – during the 2015 to 2017 period , pnm and tnmp together invested $ 1,552.0 million in utility plant , including substations , power plants , nuclear fuel , and transmission and distribution systems . pnm completed the 40 mw natural gas-fired la luz peaking generating station located near belen , new mexico in december 2015. pnm also completed installation of sncr and bdt equipment on sjgs units 1 and 4 in early 2016 and the addition of 40 mw of pnm-owned solar a - 35 pv facilities in 2015. in addition , on january 15 , 2016 , pnm completed the $ 163.3 million acquisition of 64.1 mw of capacity in pvngs unit 2 that had previously been leased to pnm . strategic investments – in 2017 , pnmr development and aep onsite partners created nm renewable development , llc ( “ nmrd ” ) to pursue the acquisition , development , and ownership of renewable energy generation projects , primarily in the state of new mexico . abundant renewable resources , large tracts of affordable land , and strong government and community support make new mexico a favorable location for renewable generation . new mexico has the 2 nd highest technical potential of the 48 contiguous states for utility scale solar photovoltaics as noted in 2015 by the national renewable energy laboratory , while new mexico is 6 th for technical potential for land-based wind . pnmr development and aep onsite partners each have a 50 % ownership interest in nmrd . through nmrd , pnmr anticipates being able to provide additional renewable generation solutions to customers within and surrounding its regulated jurisdictions through partnering with a subsidiary of one of the united states ' largest electric utilities . the formation of this joint venture provides a more efficient use of pnmr 's capital to support new renewable investment opportunities while maintaining the necessary capital to support investments required by pnm 's regulated jurisdictions . nmrd 's current renewable energy capacity under contract is 31.8 mw . this includes 11.8 mw of solar pv facilities currently in operation , consisting of 10 mw required to supply energy to a new data center in pnm 's service territory ( note

liquidity and capital resources as of december 31 , 2011 , we had cash , cash equivalents , and investments of $ 176.8 million , we had no debt , and we had $ 250.0 million available under our unsecured credit facility . the $ 176.8 million was made up of : $ 0.8 million in cash ; 50 $ 72.6 million in cash equivalent investments , consisting of money market accounts or certificates of deposit with banking institutions that we believe are financially sound ; $ 97.2 million and $ 6.2 million invested in short and long-term investments , respectively , comprised of certificates of deposit investments of $ 2.5 million and corporate debt securities of $ 100.9 million . there were no losses on our cash , cash equivalents and investments during 2011. our operations are primarily funded from cash on hand and cash generated by operations , and , if necessary , we have the ability to borrow under our senior credit facility . for the foreseeable future , we believe that our cash , cash equivalents , and investment balances , cash flow from operations , and available borrowings under our senior credit facility will be sufficient to fund our operations , our working capital requirements , and our presently planned capital investments . replace_table_token_18_th operating activities total cash provided by operating activities increased by $ 50.6 million in 2011 compared to 2010 primarily due to higher net income , driven by higher average net realized sales prices for both potash and trio ® .

major components of the difference between the increase in non-fuel revenues approved in the order and pnm 's request , include : a roe of 9.575 % , compared to the 10.5 % requested by pnm inclusion of the january 2016 purchase of the assets underlying three leases of capacity , totaling 64.1 mw , of pvngs unit 2 ( note 7 ) at an initial rate base value of $ 83.7 million , compared to pnm 's request for recovery of the fair market value purchase price of $ 163.3 million ; and disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 mw was being leased by pnm , which costs totaled $ 43.8 million when the order was issued disallowance of the recovery of any future contributions for pvngs decommissioning costs related to the 64.1 mw of capacity in pvngs unit 2 purchased in january 2016 and the 114.6 mw of the leased capacity in pvngs units 1 and 2 that were extended for eight years beginning january 15 , 2015 and 2016 ( note 7 ) disallowance of recovery of the costs associated with converting sjgs units 1 and 4 to bdt , which is required by the nsr permit for sjgs ( note 16 ) , but allows recovery of avoided operating and maintenance expenses of $ 0.3 million annually related to bdt ; pnm 's share of the costs of installing the bdt equipment was $ 52.3 million , $ 40.0 million of which pnm requested be included in rate base in the nm 2015 rate case disallowance of recovery of $ 4.5 million of amounts recorded as regulatory assets and deferred charges the order continued the renewable energy rider and approved certain aspects of pnm 's proposals regarding rate design , but did not approve certain other rate design proposals or pnm 's request for a revenue decoupling pilot program . the order also proposed changes in the methods of recovering certain costs through pnm 's fppac and renewable energy rider . the order credited retail customers with 100 % of the new mexico jurisdictional portion of revenues from “ refined coal ” ( a third-party pre-treatment process ) at sjgs . the order approved pnm 's proposals for revised depreciation rates ( with certain exceptions ) , and the ratemaking treatment of the “ prepaid pension asset . ” on september 30 , 2016 , pnm filed a notice of appeal with the nm supreme court regarding the order in the nm 2015 rate case . on october 26 , 2016 , pnm filed a statement of issues related to its appeal with the nm supreme court , which stated pnm is appealing the nmprc 's determination that pnm was imprudent in the actions taken to purchase the previously leased 64.1 mw of capacity in pvngs unit 2 , extending the leases for 114.6 mw of capacity of pvngs units 1 and 2 , and installing bdt equipment on sjgs units 1 and 4. specifically , pnm 's statement indicated it is appealing the following elements of the nmprc 's order : disallowance of recovery of the full fair market value purchase price of the 64.1 mw of capacity in pvngs unit 2 purchased in january 2016 disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 mw of capacity was leased by pnm disallowance of recovery of future contributions for pvngs decommissioning attributable to 64.1 mw of purchased capacity and the 114.6 mw of capacity under the extended leases disallowance of recovery of the costs of converting sjgs units 1 and 4 to bdt nee , nmiec , and abcwua filed notices of cross appeal to pnm 's appeal . the issues that are being appealed by the various cross-appellants are : the nmprc allowing pnm to recover the costs of the lease extensions for the 114.6 mw of pvngs units 1 and 2 and any of the purchase price for the 64.1 mw in pvngs unit 2 the nmprc allowing pnm to recover the costs incurred under the new coal supply contract for four corners the revised method to collect pnm 's fuel and purchased power costs under the fppac the final rate design the nmprc allowing pnm to include the “ prepaid pension asset ” in rate base nee subsequently filed a motion for a partial stay of the order at the nm supreme court , which was denied . the nm supreme court stated that the court 's intent was to request that pnm reimburse ratepayers for any amount overcharged should the cross-appellants prevail on the merits . on february 17 , 2017 , pnm filed its brief in chief , and pursuant to the court 's rules , the briefing schedule was completed on july 21 , 2017. oral argument at the nm supreme court was held on october 30 , 2017. although appeals of regulatory actions of the nmprc have a priority at the nm supreme court under new mexico law , there is no required time frame for the court to act on the appeals . a - 31 pnm evaluated the accounting consequences of the order in the nm 2015 rate case and the likelihood of being successful on the issues it is appealing in the nm supreme court as required under gaap . the evaluation indicated it is reasonably possible that pnm will be successful on the issues it is appealing . if the nm supreme court rules in pnm 's favor on some or all of the issues , those issues would be remanded back to the nmprc for further action . pnm originally estimated that it would take a minimum of 15 months , from the date pnm filed its appeal , for the nm supreme court to render a decision and for the nmprc to take action on any remanded issues . story_separator_special_tag although the settlement agreement negatively impacted results of operations in 2017 , pnm mitigated these impacts through market sales of power that would have been sold to nec , reductions in fuel and transmission expenses , and other measures . pnm 's nm a - 34 2016 rate case discussed above reflects a reallocation of costs among regulatory jurisdictions reflecting the termination of the contract to serve nec . delivering above industry-average earnings and dividend growth pnmr 's strategic goal to deliver above industry-average earnings and dividend growth enables investors to realize the value of their investment in the company 's business . pnmr 's current target is 6 % earnings growth for the period 2018 through 2021. earnings growth is based on ongoing earnings , which is a non-gaap financial measure that excludes from gaap earnings certain non-recurring , infrequent , and other items that are not indicative of fundamental changes in the earnings capacity of the company 's operations . pnmr uses ongoing earnings to evaluate the operations of the company and to establish goals , including those used for certain aspects of incentive compensation , for management and employees . pnmr targets a dividend payout ratio of 50 % to 60 % of its ongoing earnings . pnmr expects to provide above industry-average dividend growth in the near-term and to manage the payout ratio to meet its long-term target . the board will continue to evaluate the dividend on an annual basis , considering sustainability and growth , capital planning , and industry standards . the board approved the following increases in the indicated annual common stock dividend : replace_table_token_12_th maintaining solid investment grade credit ratings the company is committed to maintaining solid investment grade credit ratings in order to reduce the cost of debt financing and to help ensure access to credit markets , when required . see the subheading liquidity included in the full discussion of liquidity and capital resources below for the specific credit ratings for pnmr , pnm , and tnmp . currently , all of the credit ratings issued by both moody 's and s & p on the company 's debt are investment grade . in june 2017 , moody 's changed the outlook for pnmr and pnm from stable to positive while maintaining a stable outlook for tnmp . in january 2018 , s & p changed the outlook for pnmr , pnm , and tnmp from stable to negative . business and strategic focus pnmr strives to create enduring value for customers , communities , and shareholders . pnmr 's strategy and decision-making are focused on safely providing reliable , affordable , and environmentally responsible power . the company works closely with customers , stakeholders , legislators , and regulators to ensure that resource plans and infrastructure investments benefit from robust public dialogue and balance the diverse needs of our communities . equally important is the focus of pnmr 's utilities on customer satisfaction and community engagement . reliable and affordable power pnmr and its utilities are aware of the important roles they play in enhancing economic vitality in their service territories . management believes that maintaining strong and modern electric infrastructure is critical to ensuring reliability and supporting economic growth . when contemplating expanding or relocating their operations , businesses consider energy affordability and reliability to be important factors . pnm and tnmp strive to balance service affordability with infrastructure investment to maintain a high level of electric reliability and to deliver a superior customer experience . investing in pnm 's and tnmp 's infrastructure is critical to ensuring reliability and meeting future energy needs . both utilities have long-established records of providing customers with reliable electric service . utility plant and strategic investments utility plant investments – during the 2015 to 2017 period , pnm and tnmp together invested $ 1,552.0 million in utility plant , including substations , power plants , nuclear fuel , and transmission and distribution systems . pnm completed the 40 mw natural gas-fired la luz peaking generating station located near belen , new mexico in december 2015. pnm also completed installation of sncr and bdt equipment on sjgs units 1 and 4 in early 2016 and the addition of 40 mw of pnm-owned solar a - 35 pv facilities in 2015. in addition , on january 15 , 2016 , pnm completed the $ 163.3 million acquisition of 64.1 mw of capacity in pvngs unit 2 that had previously been leased to pnm . strategic investments – in 2017 , pnmr development and aep onsite partners created nm renewable development , llc ( “ nmrd ” ) to pursue the acquisition , development , and ownership of renewable energy generation projects , primarily in the state of new mexico . abundant renewable resources , large tracts of affordable land , and strong government and community support make new mexico a favorable location for renewable generation . new mexico has the 2 nd highest technical potential of the 48 contiguous states for utility scale solar photovoltaics as noted in 2015 by the national renewable energy laboratory , while new mexico is 6 th for technical potential for land-based wind . pnmr development and aep onsite partners each have a 50 % ownership interest in nmrd . through nmrd , pnmr anticipates being able to provide additional renewable generation solutions to customers within and surrounding its regulated jurisdictions through partnering with a subsidiary of one of the united states ' largest electric utilities . the formation of this joint venture provides a more efficient use of pnmr 's capital to support new renewable investment opportunities while maintaining the necessary capital to support investments required by pnm 's regulated jurisdictions . nmrd 's current renewable energy capacity under contract is 31.8 mw . this includes 11.8 mw of solar pv facilities currently in operation , consisting of 10 mw required to supply energy to a new data center in pnm 's service territory ( note

cash flow from financing activities the changes in pnmr 's cash flows from financing activities include : in 2015 , pnmr borrowed $ 150.0 million under the pnmr 2015 term loan agreement and repaid $ 118.8 million of 9.25 % senior unsecured notes with the proceeds ; pnmr also increased its borrowings under the pnmr term loan agreement from $ 100.0 million to $ 150.0 million in 2015 , pnm issued $ 250.0 million aggregate principal amount of its 3.850 % senior unsecured notes and repaid a $ 175.0 million term loan with the proceeds ; pnm also drew the remaining capacity of $ 25.0 million under the $ 125.0 million pnm multi-draw term loan in 2016 , pnmr borrowed $ 100.0 million under the pnmr one-year term loan ( included in short-term borrowings ) and $ 100.0 million under the pnmr two-year loan and repaid the pnmr term loan agreement with the proceeds in 2016 , pnm borrowed $ 175.0 million under the pnm 2016 term loan agreement and repaid the pnm multi-draw term loan with the proceeds nm capital received net proceeds of $ 122.5 million under the $ 125.0 million btmu term loan agreement in 2016 and utilized the proceeds to provide funds for the westmoreland loan ; in accordance with the btmu term loan agreement , nm capital made principal payments of $ 42.1 million in 2017 and $ 32.8 million in 2016 in 2017 , pnm borrowed $ 200.0 million under the pnm 2017 term loan agreement and repaid the pnm 2016 term loan agreement with the proceeds pnm successfully remarketed pcrbs of $ 57.0 million in 2017 , $ 146.0 million in 2016 , and $ 39.3 million in 2015 tnmp issued $ 60.0 million of 3.22 % first mortgage bonds in 2017 and $ 60.0 million of 3.53 % first mortgage bonds in 2016 a - 58 short-term borrowings increased $ 18.3 million in 2017 compared to an increase of $ 86.5 million in 2016 and an increase of $ 95.0 million in 2015 , resulting in a net decrease in cash flows from financing activities of $ 68.2 million in 2017 and $ 8.5 million in 2016 in 2017 , pnm had

of operating systems ; performance and valuation of our investments , including the impact of realized losses ( including other-than-temporary impairment charges ) ; our ability to identify products and markets in which we can compete effectively against competitors with greater market share , higher ratings , greater financial resources and stronger brand recognition ; our ability to generate sufficient liquidity to meet our debt service obligations and other cash needs ; changes in capital deployment opportunities ; our ability to maintain effective controls over financial reporting ; our ability to continue to recruit and retain productive agents and distribution partners ; customer response to new products , distribution channels and marketing initiatives ; our ability to maintain the financial strength ratings of cno and our insurance company subsidiaries as well as the impact of our ratings on our business , our ability to access capital , and the cost of capital ; regulatory changes or actions , including : those relating to regulation of the financial affairs of our insurance companies , such as the calculation of risk-based capital and minimum capital requirements , and payment of dividends and surplus debenture interest to us ; regulation of the sale , underwriting and pricing of products ; and health care regulation affecting health insurance products ; changes in the federal income tax laws and regulations which may affect or eliminate the relative tax advantages of some of our products or affect the value of our deferred tax assets ; availability and effectiveness of reinsurance arrangements , as well as the impact of any defaults or failure of reinsurers to perform ; the performance of third party service providers and potential difficulties arising from outsourcing arrangements ; the growth rate of sales , collected premiums , annuity deposits and assets ; interruption in telecommunication , information technology or other operational systems or failure to maintain the security , confidentiality or privacy of sensitive data on such systems ; events of terrorism , cyber attacks , natural disasters or other catastrophic events , including losses from a disease pandemic ; ineffectiveness of risk management policies and procedures in identifying , monitoring and managing risks ; and the risk factors or uncertainties listed from time to time in our filings with the sec . other factors and assumptions not identified above are also relevant to the forward-looking statements , and if they prove incorrect , could also cause actual results to differ materially from those projected . all written or oral forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement . our forward-looking statements speak only as of the date made . we assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results , future events or developments , changes in assumptions or changes in other factors affecting the forward-looking statements . the reporting of rbc measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing , advertising or promotional activities . 48 overview we are a holding company for a group of insurance companies operating throughout the united states that develop , market and administer health insurance , annuity , individual life insurance and other insurance products . we focus on serving the senior and middle-income markets , which we believe are attractive , underserved , high growth markets . we sell our products through three distribution channels : career agents , independent producers ( some of whom sell one or more of our product lines exclusively ) and direct marketing . we measure segment performance by excluding the loss related to reinsurance transaction , net realized investment gains ( losses ) , fair value changes in embedded derivative liabilities ( net of related amortization ) , fair value changes related to the agent deferred compensation plan , loss on extinguishment of debt , income taxes and other non-operating items consisting primarily of earnings attributable to vies ( `` pre-tax operating earnings `` ) because we believe that this performance measure is a better indicator of the ongoing business and trends in our business . our primary investment focus is on investment income to support our liabilities for insurance products as opposed to the generation of net realized investment gains ( losses ) , and a long-term focus is necessary to maintain profitability over the life of the business . the loss related to reinsurance transaction , net realized investment gains ( losses ) , fair value changes in embedded derivative liabilities ( net of related amortization ) , fair value changes related to the agent deferred compensation plan , loss on extinguishment of debt , and other non-operating items consisting primarily of earnings attributable to vies depend on market conditions or represent unusual items that do not necessarily relate to the underlying business of our segments . net realized investment gains ( losses ) and fair value changes in embedded derivative liabilities ( net of related amortization ) may affect future earnings levels since our underlying business is long-term in nature and changes in our investment portfolio may impact our ability to earn the assumed interest rates needed to maintain the profitability of our business . the company 's insurance segments are described below : bankers life , which underwrites , markets and distributes medicare supplement insurance , interest-sensitive life insurance , traditional life insurance , fixed annuities and long-term care insurance products to the middle-income senior market through a dedicated field force of career agents , financial and investment advisors , and sales managers supported by a network of community-based sales offices . the bankers life segment includes primarily the business of bankers life . story_separator_special_tag present value of future profits and deferred acquisition costs in conjunction with the implementation of fresh start accounting , we eliminated the historical balances of our predecessor 's deferred acquisition costs and the present value of future profits and replaced them with the present value of future profits as calculated on the effective date . the value assigned to the right to receive future cash flows from contracts existing at the effective date is referred to as the present value of future profits . the balance of this account is amortized , evaluated for recovery , and adjusted for the impact of unrealized gains ( losses ) in the same manner as the deferred acquisition costs described below . we expect to amortize the balance of the present value of future profits as of december 31 , 2019 as follows : 11 percent in 2020 , 9 percent in 2021 , 8 percent in 2022 , 7 percent in 2023 and 7 percent in 2024 . deferred acquisition costs represent incremental direct costs related to the successful acquisition of new or renewal insurance contracts . for interest-sensitive life or annuity products , we amortize these costs in relation to the estimated gross profits using the interest rate credited to the underlying policies . for other products , we generally amortize these costs in relation to future anticipated premium revenue using the projected investment earnings rate . insurance acquisition costs are amortized to expense over the lives of the underlying policies in relation to future anticipated premiums or gross profits . the insurance acquisition costs for policies other than interest-sensitive life and annuity products are amortized with interest ( using the projected investment earnings rate ) over the estimated premium-paying period of the policies , in a manner which recognizes amortization expense in proportion to each year 's premium income . the insurance acquisition costs for interest-sensitive life and annuity products are amortized with interest ( using the interest rate credited to the underlying policy ) in proportion to estimated gross profits . the interest , mortality , morbidity and persistency assumptions used to amortize insurance acquisition costs are consistent with those assumptions used to estimate liabilities for insurance products . for interest-sensitive life and annuity products , these assumptions are reviewed on a regular basis . when actual profits or our current best estimates of future profits are different from previous estimates , we adjust cumulative amortization of insurance acquisition costs to maintain amortization expense as a constant percentage of gross profits over the entire life of the policies . when we realize a gain or loss on investments backing our interest-sensitive life or annuity products , we adjust the amortization of insurance acquisition costs to reflect the change in estimated gross profits from the products due to the gain or loss realized and the effect on future investment yields . we increased ( decreased ) amortization expense for such changes by $ .6 million , $ ( .4 ) million and $ 1.0 million during the years ended december 31 , 2019 , 2018 and 2017 , respectively . we also adjust 55 insurance acquisition costs for the change in amortization that would have been recorded if fixed maturity securities , available for sale , had been sold at their stated aggregate fair value and the proceeds reinvested at current yields . such adjustments are commonly referred to as `` shadow adjustments `` and may include adjustments to : ( i ) deferred acquisition costs ; ( ii ) the present value of future profits ; ( iii ) loss recognition reserves ; and ( iv ) income taxes . we include the impact of this adjustment in accumulated other comprehensive income ( loss ) within shareholders ' equity . the total pre-tax impact of such adjustments on accumulated other comprehensive income was a decrease of $ 343.3 million at december 31 , 2019 ( including $ 135.5 million for premium deficiencies that would exist on certain blocks of business if unrealized gains on the assets backing such products had been realized and the proceeds from our sales of such assets were invested at then current yields ) . the total pre-tax impact of such adjustments on accumulated other comprehensive income at december 31 , 2018 was a decrease of $ 45.3 million ( including $ 2.5 million for premium deficiencies that would exist on certain blocks of business if unrealized gains on the assets backing such products had been realized and the proceeds from our sales of such assets were invested at then current yields ) . at december 31 , 2019 , the balance of insurance acquisition costs was $ 1.5 billion . the recoverability of this amount is dependent on the future profitability of the related business . each year , we evaluate the recoverability of the unamortized balance of insurance acquisition costs . these evaluations are performed to determine whether estimates of the present value of future cash flows , in combination with the related liability for insurance products , will support the unamortized balance . these future cash flows are based on our best estimate of future premium income , less benefits and expenses . the present value of these cash flows , plus the related balance of liabilities for insurance products , is then compared with the unamortized balance of insurance acquisition costs . in the event of a deficiency , such amount would be charged to amortization expense . if the deficiency exceeds the balance of insurance acquisition costs , a premium deficiency reserve is established for the excess . the determination of future cash flows involves significant judgment . revisions to the assumptions which determine such cash flows could have a significant adverse effect on our results of operations and financial position . the long-term care business in the long-term care in run-off segment is not expected to generate significant future profits . while we expect the long-term care business in

cash flow from financing activities the changes in pnmr 's cash flows from financing activities include : in 2015 , pnmr borrowed $ 150.0 million under the pnmr 2015 term loan agreement and repaid $ 118.8 million of 9.25 % senior unsecured notes with the proceeds ; pnmr also increased its borrowings under the pnmr term loan agreement from $ 100.0 million to $ 150.0 million in 2015 , pnm issued $ 250.0 million aggregate principal amount of its 3.850 % senior unsecured notes and repaid a $ 175.0 million term loan with the proceeds ; pnm also drew the remaining capacity of $ 25.0 million under the $ 125.0 million pnm multi-draw term loan in 2016 , pnmr borrowed $ 100.0 million under the pnmr one-year term loan ( included in short-term borrowings ) and $ 100.0 million under the pnmr two-year loan and repaid the pnmr term loan agreement with the proceeds in 2016 , pnm borrowed $ 175.0 million under the pnm 2016 term loan agreement and repaid the pnm multi-draw term loan with the proceeds nm capital received net proceeds of $ 122.5 million under the $ 125.0 million btmu term loan agreement in 2016 and utilized the proceeds to provide funds for the westmoreland loan ; in accordance with the btmu term loan agreement , nm capital made principal payments of $ 42.1 million in 2017 and $ 32.8 million in 2016 in 2017 , pnm borrowed $ 200.0 million under the pnm 2017 term loan agreement and repaid the pnm 2016 term loan agreement with the proceeds pnm successfully remarketed pcrbs of $ 57.0 million in 2017 , $ 146.0 million in 2016 , and $ 39.3 million in 2015 tnmp issued $ 60.0 million of 3.22 % first mortgage bonds in 2017 and $ 60.0 million of 3.53 % first mortgage bonds in 2016 a - 58 short-term borrowings increased $ 18.3 million in 2017 compared to an increase of $ 86.5 million in 2016 and an increase of $ 95.0 million in 2015 , resulting in a net decrease in cash flows from financing activities of $ 68.2 million in 2017 and $ 8.5 million in 2016 in 2017 , pnm had

of operating systems ; performance and valuation of our investments , including the impact of realized losses ( including other-than-temporary impairment charges ) ; our ability to identify products and markets in which we can compete effectively against competitors with greater market share , higher ratings , greater financial resources and stronger brand recognition ; our ability to generate sufficient liquidity to meet our debt service obligations and other cash needs ; changes in capital deployment opportunities ; our ability to maintain effective controls over financial reporting ; our ability to continue to recruit and retain productive agents and distribution partners ; customer response to new products , distribution channels and marketing initiatives ; our ability to maintain the financial strength ratings of cno and our insurance company subsidiaries as well as the impact of our ratings on our business , our ability to access capital , and the cost of capital ; regulatory changes or actions , including : those relating to regulation of the financial affairs of our insurance companies , such as the calculation of risk-based capital and minimum capital requirements , and payment of dividends and surplus debenture interest to us ; regulation of the sale , underwriting and pricing of products ; and health care regulation affecting health insurance products ; changes in the federal income tax laws and regulations which may affect or eliminate the relative tax advantages of some of our products or affect the value of our deferred tax assets ; availability and effectiveness of reinsurance arrangements , as well as the impact of any defaults or failure of reinsurers to perform ; the performance of third party service providers and potential difficulties arising from outsourcing arrangements ; the growth rate of sales , collected premiums , annuity deposits and assets ; interruption in telecommunication , information technology or other operational systems or failure to maintain the security , confidentiality or privacy of sensitive data on such systems ; events of terrorism , cyber attacks , natural disasters or other catastrophic events , including losses from a disease pandemic ; ineffectiveness of risk management policies and procedures in identifying , monitoring and managing risks ; and the risk factors or uncertainties listed from time to time in our filings with the sec . other factors and assumptions not identified above are also relevant to the forward-looking statements , and if they prove incorrect , could also cause actual results to differ materially from those projected . all written or oral forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement . our forward-looking statements speak only as of the date made . we assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results , future events or developments , changes in assumptions or changes in other factors affecting the forward-looking statements . the reporting of rbc measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing , advertising or promotional activities . 48 overview we are a holding company for a group of insurance companies operating throughout the united states that develop , market and administer health insurance , annuity , individual life insurance and other insurance products . we focus on serving the senior and middle-income markets , which we believe are attractive , underserved , high growth markets . we sell our products through three distribution channels : career agents , independent producers ( some of whom sell one or more of our product lines exclusively ) and direct marketing . we measure segment performance by excluding the loss related to reinsurance transaction , net realized investment gains ( losses ) , fair value changes in embedded derivative liabilities ( net of related amortization ) , fair value changes related to the agent deferred compensation plan , loss on extinguishment of debt , income taxes and other non-operating items consisting primarily of earnings attributable to vies ( `` pre-tax operating earnings `` ) because we believe that this performance measure is a better indicator of the ongoing business and trends in our business . our primary investment focus is on investment income to support our liabilities for insurance products as opposed to the generation of net realized investment gains ( losses ) , and a long-term focus is necessary to maintain profitability over the life of the business . the loss related to reinsurance transaction , net realized investment gains ( losses ) , fair value changes in embedded derivative liabilities ( net of related amortization ) , fair value changes related to the agent deferred compensation plan , loss on extinguishment of debt , and other non-operating items consisting primarily of earnings attributable to vies depend on market conditions or represent unusual items that do not necessarily relate to the underlying business of our segments . net realized investment gains ( losses ) and fair value changes in embedded derivative liabilities ( net of related amortization ) may affect future earnings levels since our underlying business is long-term in nature and changes in our investment portfolio may impact our ability to earn the assumed interest rates needed to maintain the profitability of our business . the company 's insurance segments are described below : bankers life , which underwrites , markets and distributes medicare supplement insurance , interest-sensitive life insurance , traditional life insurance , fixed annuities and long-term care insurance products to the middle-income senior market through a dedicated field force of career agents , financial and investment advisors , and sales managers supported by a network of community-based sales offices . the bankers life segment includes primarily the business of bankers life . story_separator_special_tag present value of future profits and deferred acquisition costs in conjunction with the implementation of fresh start accounting , we eliminated the historical balances of our predecessor 's deferred acquisition costs and the present value of future profits and replaced them with the present value of future profits as calculated on the effective date . the value assigned to the right to receive future cash flows from contracts existing at the effective date is referred to as the present value of future profits . the balance of this account is amortized , evaluated for recovery , and adjusted for the impact of unrealized gains ( losses ) in the same manner as the deferred acquisition costs described below . we expect to amortize the balance of the present value of future profits as of december 31 , 2019 as follows : 11 percent in 2020 , 9 percent in 2021 , 8 percent in 2022 , 7 percent in 2023 and 7 percent in 2024 . deferred acquisition costs represent incremental direct costs related to the successful acquisition of new or renewal insurance contracts . for interest-sensitive life or annuity products , we amortize these costs in relation to the estimated gross profits using the interest rate credited to the underlying policies . for other products , we generally amortize these costs in relation to future anticipated premium revenue using the projected investment earnings rate . insurance acquisition costs are amortized to expense over the lives of the underlying policies in relation to future anticipated premiums or gross profits . the insurance acquisition costs for policies other than interest-sensitive life and annuity products are amortized with interest ( using the projected investment earnings rate ) over the estimated premium-paying period of the policies , in a manner which recognizes amortization expense in proportion to each year 's premium income . the insurance acquisition costs for interest-sensitive life and annuity products are amortized with interest ( using the interest rate credited to the underlying policy ) in proportion to estimated gross profits . the interest , mortality , morbidity and persistency assumptions used to amortize insurance acquisition costs are consistent with those assumptions used to estimate liabilities for insurance products . for interest-sensitive life and annuity products , these assumptions are reviewed on a regular basis . when actual profits or our current best estimates of future profits are different from previous estimates , we adjust cumulative amortization of insurance acquisition costs to maintain amortization expense as a constant percentage of gross profits over the entire life of the policies . when we realize a gain or loss on investments backing our interest-sensitive life or annuity products , we adjust the amortization of insurance acquisition costs to reflect the change in estimated gross profits from the products due to the gain or loss realized and the effect on future investment yields . we increased ( decreased ) amortization expense for such changes by $ .6 million , $ ( .4 ) million and $ 1.0 million during the years ended december 31 , 2019 , 2018 and 2017 , respectively . we also adjust 55 insurance acquisition costs for the change in amortization that would have been recorded if fixed maturity securities , available for sale , had been sold at their stated aggregate fair value and the proceeds reinvested at current yields . such adjustments are commonly referred to as `` shadow adjustments `` and may include adjustments to : ( i ) deferred acquisition costs ; ( ii ) the present value of future profits ; ( iii ) loss recognition reserves ; and ( iv ) income taxes . we include the impact of this adjustment in accumulated other comprehensive income ( loss ) within shareholders ' equity . the total pre-tax impact of such adjustments on accumulated other comprehensive income was a decrease of $ 343.3 million at december 31 , 2019 ( including $ 135.5 million for premium deficiencies that would exist on certain blocks of business if unrealized gains on the assets backing such products had been realized and the proceeds from our sales of such assets were invested at then current yields ) . the total pre-tax impact of such adjustments on accumulated other comprehensive income at december 31 , 2018 was a decrease of $ 45.3 million ( including $ 2.5 million for premium deficiencies that would exist on certain blocks of business if unrealized gains on the assets backing such products had been realized and the proceeds from our sales of such assets were invested at then current yields ) . at december 31 , 2019 , the balance of insurance acquisition costs was $ 1.5 billion . the recoverability of this amount is dependent on the future profitability of the related business . each year , we evaluate the recoverability of the unamortized balance of insurance acquisition costs . these evaluations are performed to determine whether estimates of the present value of future cash flows , in combination with the related liability for insurance products , will support the unamortized balance . these future cash flows are based on our best estimate of future premium income , less benefits and expenses . the present value of these cash flows , plus the related balance of liabilities for insurance products , is then compared with the unamortized balance of insurance acquisition costs . in the event of a deficiency , such amount would be charged to amortization expense . if the deficiency exceeds the balance of insurance acquisition costs , a premium deficiency reserve is established for the excess . the determination of future cash flows involves significant judgment . revisions to the assumptions which determine such cash flows could have a significant adverse effect on our results of operations and financial position . the long-term care business in the long-term care in run-off segment is not expected to generate significant future profits . while we expect the long-term care business in

interest expense on corporate debt was $ 52.4 million , $ 48.0 million and $ 46.5 million in 2019 , 2018 and 2017 , respectively . our average corporate debt outstanding was $ 966.1 million in 2019 and $ 925.0 million in both 2018 and 2017 . the average interest rate on our debt was 5.1 percent , 4.8 percent and 4.8 percent in 2019 , 2018 and 2017 , respectively . average corporate debt outstanding and the average interest rate were impacted by the debt refinancing transaction completed in june 2019 ( as further discussed in the note to the consolidated financial statements entitled `` notes payable - direct corporate obligations '' ) along with the mix of interest rates on the related outstanding borrowings . net investment income on general investment portfolio fluctuates based on the amount and type of invested assets in the corporate operations segment . net investment income on other special-purpose portfolios includes the income ( loss ) from : ( i ) investments related to deferred compensation plans held in a rabbi trust ( which is offset by amounts included in other operating costs and expenses as the investment results are allocated to participants ' account balances ) ; ( ii ) trading account activities ; and ( iii ) income ( loss ) from company-owned life insurance ( `` coli '' ) equal to the difference between the return on these investments ( representing the change in value of the underlying investments ) and our overall portfolio yield . coli is utilized as an investment vehicle to fund bankers life 's agent deferred compensation plan .

our management believes that given current facts and circumstances , it is unlikely that applying any other reasonable judgments or estimate methodologies would have caused a material change in our results of operations , financial position or liquidity for the periods presented in this report . asset impairment the company reviews its long-lived assets including finite-lived intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable . in performing the review for recoverability , the company estimates the future cash flows expected to result from the use of the asset and its eventual disposition . if the sum of the expected future cash flows ( undiscounted and without interest charges ) is less than the carrying amount of the asset , an impairment loss is recognized as the excess of the carrying amount over the fair value . otherwise , an impairment loss is not recognized . management estimates the fair value and the estimated future cash flows expected . any changes in these estimates could impact whether there was impairment and the amount of the impairment . there were no impairments during the year ended december 31 , 2016. during the year ended december 31 , 2015 , management recorded a $ 2 thousand impairment for a patent within the power and electromechanical segment as the company chose not to continue pursuit of the related patent grants and a $ 2 thousand impairment of its capitalized website costs for its japan site after choosing to translate its u.s.-based website into japanese . during the year ended december 31 , 2014 , management identified an indefinite-lived intangible technology rights asset for which its expected life was reduced and an impairment of $ 32 thousand was recorded . indefinite-lived intangibles and goodwill assets the company accounts for business combinations under the acquisition method of accounting in accordance with asc 805 , `` business combinations , `` where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values . the purchase price is allocated using the information currently available , and may be adjusted , up to one year from acquisition date , after obtaining more information regarding , among other things , asset valuations , liabilities assumed and revisions to preliminary estimates . the purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill . the company tests for indefinite-lived intangibles and goodwill impairment in the second quarter of each year and whenever events or circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable . the company 's qualitative assessment of impairment for indefinite-lived assets at may 31 , 2016 , followed the guidance in asc 350-30-35-18a and 18b . the company performed a qualitative and quantitative analysis of goodwill and a qualitative analysis of its indefinite-lived intangibles at may 31 , 2016 , and determined there was no impairment of indefinite-lived intangibles and goodwill . 30 cui global has adopted asu 2011-08 , which simplifies how an entity is required to test goodwill for impairment . the asu allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test . under this asu , cui global is not required to calculate the fair value of a reporting unit unless the entity determines , based on a qualitative assessment , that it is more likely than not that its fair value is less than its carrying amount . the asu includes a number of factors to consider in conducting the qualitative assessment . we adopted asu 2011-08 during the year ended december 31 , 2013. the adoption of asu 2011-08 did not have an impact on our consolidated financial statements . the company tests for goodwill impairment in the second quarter of each year and whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable . as detailed in asc 350-20-35-3a , in performing its testing for goodwill , management completes a qualitative analysis to determine whether it was more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill . to complete this review , management follows the steps in asc 350-20-35-3c to evaluate the fair values of the intangibles and goodwill and considers all known events and circumstances that might trigger an impairment of goodwill . in 2016 , 2015 and 2014 , the analysis , determined that there was no impairment necessary to goodwill . through these reviews , management concluded that there were no events or circumstances that triggered an impairment ( and there was no expectation that a reporting unit or a significant portion of a reporting unit would be sold or otherwise disposed of in the following year ) , therefore , no further analysis was necessary to prepare for goodwill impairment beyond the steps in 350-20-35-3c in accordance with asu 2011-08. on a periodic basis , we will also perform a quantitative analysis of goodwill impairment and in 2016 , in addition to the qualitative analysis , we performed a quantitative analysis of goodwill impairment . no impairment of goodwill was required . stock-based compensation the company accounts for stock-based compensation using fasb accounting standards codification no . 718 ( ‘ ‘ fasb asc 718 `` ) , ‘ ‘ compensation – stock compensation . `` fasb codification no . 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related vesting period . story_separator_special_tag in addition , the agreement calls for an earn-out/royalty payment of two percent of the gross sales ( for specific , identified customers ) over a period of three years from the closing date , up to a maximum of $ 0.3 million that may or may not be paid to the seller within 90 days of each calendar year-end , depending on performance by the identified customer ( s ) . the final adjusted purchase price for the acquisition of tectrol was $ 4.5 million , which included the present value of $ 0.3 million of royalties to be paid on future sales , which was recorded as $ 0.2 million of contingent consideration and had a balance of $ 0.1 million at december 31 , 2016 . 34 financing activities see , above , the section entitled recent sales of unregistered securities for a complete listing of all securities transactions . during the year ended december 31 , 2016 , the company issued payments of $ 41 thousand against capital leases of motor vehicles and equipment and $ 85 thousand against the mortgage note payable . also in 2016 , the company issued payment of $ 59 thousand toward the contingent liability associated with the tectrol acquisition . during the year ended december 31 , 2015 , the company issued payments of $ 32 thousand against capital leases of motor vehicles and equipment and $ 81 thousand against the mortgage note payable . during the year ended december 31 , 2014 , the company issued payments of $ 0.1 million against capital leases of motor vehicles and equipment and $ 77 thousand against the mortgage note payable . cui global may raise additional capital needed to fund the further development and marketing of its products as well as payment of its debt obligations . financing activities – related party activity during 2016 , 2015 and 2014 , $ 0.3 million , $ 0.3 million , and $ 0.3 million , respectively in interest payments were made in relation to the promissory notes issued to related party , ied , inc. the promissory note terms include a due date of may 15 , 2020 and an interest rate of 5 % per annum , with interest payable monthly and the principal due as a balloon payment at maturity . please see note 9. notes payable and note 13. related party transactions for further discussion of these transactions . recap of liquidity and capital resources during the year ended december 31 , 2016 , the company continued to invest in orbital gas systems north america in houston while the cui-canada operation was more fully integrated into the company 's power and electromechanical segment . as expected in the year following two major additions , cash usage was still more than what it will be when the businesses are fully mature , but improved over the year ended december 31 , 2015 , when the company invested for future growth with the acquisition of its canada operations in the power and electromechanical segment , the startup of its orbital gas systems north america operations in the energy segment along with the investment in the new orbital u.k. facility . the net cash used in operating activities decreased to $ 0.8 million from $ 6.4 million in 2015 with much of that due to decreases in working capital requirements since integrating in and starting the two new operations during the prior year . the wells fargo mortgage promissory note has a balance at december 31 , 2016 of $ 3.4 million due , of which $ 89 thousand is the current portion . the wells fargo promissory note has an interest rate of 2 % above libor , payable over ten years , secured by a deed of trust on the purchased property executed by cui properties , llc and guaranteed by cui global , inc. in conjunction with the purchase and promissory note , wells fargo and the company entered into a swap transaction confirmation agreement effective october 1 , 2013 that effectively maximizes the annual interest rate at 6.27 % . 35 the company 's wholly owned subsidiary , cui , inc. renewed its two-year revolving line of credit ( loc ) with wells fargo bank in the principal amount of $ 4.0 million line of credit , on october 1 , 2016 for an additional two years . the interest rate on any outstanding balance is 1.75 % above either the daily one month libor or the libor in effect on the first day of the applicable fixed rate term . the loc is secured through a security agreement on accounts receivable and equipment , as well as other miscellaneous personal property assets . the loc contains certain financial covenants , one of which the company was not in compliance with at december 31 , 2016. the company has obtained a waiver from wells fargo bank for the instance of non-compliance through march 31 , 2017 , the next measuring date . cui global , inc. , the parent company , is a payment guarantor of the loc . at december 31 , 2016 , there was no balance outstanding on the line of credit . wells fargo bank has waived the cross-default provision on the promissory note payable owed by cui properties for a period beyond one year from the date of this report as it relates to the loc covenant violation , therefore the note is not considered to be in default and continues to include a portion classified as long term . on october 5 , 2016 , orbital gas systems ltd. signed a five-year agreement with the london branch of wells fargo bank n.a . for a multi-currency variable rate overdraft facility with a facility limit of 1.5 million pounds sterling ( $ 1.9 million at december 31 , 2016 ) that expires on october 5 , 2021. the interest rate on the facility is

interest expense on corporate debt was $ 52.4 million , $ 48.0 million and $ 46.5 million in 2019 , 2018 and 2017 , respectively . our average corporate debt outstanding was $ 966.1 million in 2019 and $ 925.0 million in both 2018 and 2017 . the average interest rate on our debt was 5.1 percent , 4.8 percent and 4.8 percent in 2019 , 2018 and 2017 , respectively . average corporate debt outstanding and the average interest rate were impacted by the debt refinancing transaction completed in june 2019 ( as further discussed in the note to the consolidated financial statements entitled `` notes payable - direct corporate obligations '' ) along with the mix of interest rates on the related outstanding borrowings . net investment income on general investment portfolio fluctuates based on the amount and type of invested assets in the corporate operations segment . net investment income on other special-purpose portfolios includes the income ( loss ) from : ( i ) investments related to deferred compensation plans held in a rabbi trust ( which is offset by amounts included in other operating costs and expenses as the investment results are allocated to participants ' account balances ) ; ( ii ) trading account activities ; and ( iii ) income ( loss ) from company-owned life insurance ( `` coli '' ) equal to the difference between the return on these investments ( representing the change in value of the underlying investments ) and our overall portfolio yield . coli is utilized as an investment vehicle to fund bankers life 's agent deferred compensation plan .

our management believes that given current facts and circumstances , it is unlikely that applying any other reasonable judgments or estimate methodologies would have caused a material change in our results of operations , financial position or liquidity for the periods presented in this report . asset impairment the company reviews its long-lived assets including finite-lived intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable . in performing the review for recoverability , the company estimates the future cash flows expected to result from the use of the asset and its eventual disposition . if the sum of the expected future cash flows ( undiscounted and without interest charges ) is less than the carrying amount of the asset , an impairment loss is recognized as the excess of the carrying amount over the fair value . otherwise , an impairment loss is not recognized . management estimates the fair value and the estimated future cash flows expected . any changes in these estimates could impact whether there was impairment and the amount of the impairment . there were no impairments during the year ended december 31 , 2016. during the year ended december 31 , 2015 , management recorded a $ 2 thousand impairment for a patent within the power and electromechanical segment as the company chose not to continue pursuit of the related patent grants and a $ 2 thousand impairment of its capitalized website costs for its japan site after choosing to translate its u.s.-based website into japanese . during the year ended december 31 , 2014 , management identified an indefinite-lived intangible technology rights asset for which its expected life was reduced and an impairment of $ 32 thousand was recorded . indefinite-lived intangibles and goodwill assets the company accounts for business combinations under the acquisition method of accounting in accordance with asc 805 , `` business combinations , `` where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values . the purchase price is allocated using the information currently available , and may be adjusted , up to one year from acquisition date , after obtaining more information regarding , among other things , asset valuations , liabilities assumed and revisions to preliminary estimates . the purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill . the company tests for indefinite-lived intangibles and goodwill impairment in the second quarter of each year and whenever events or circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable . the company 's qualitative assessment of impairment for indefinite-lived assets at may 31 , 2016 , followed the guidance in asc 350-30-35-18a and 18b . the company performed a qualitative and quantitative analysis of goodwill and a qualitative analysis of its indefinite-lived intangibles at may 31 , 2016 , and determined there was no impairment of indefinite-lived intangibles and goodwill . 30 cui global has adopted asu 2011-08 , which simplifies how an entity is required to test goodwill for impairment . the asu allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test . under this asu , cui global is not required to calculate the fair value of a reporting unit unless the entity determines , based on a qualitative assessment , that it is more likely than not that its fair value is less than its carrying amount . the asu includes a number of factors to consider in conducting the qualitative assessment . we adopted asu 2011-08 during the year ended december 31 , 2013. the adoption of asu 2011-08 did not have an impact on our consolidated financial statements . the company tests for goodwill impairment in the second quarter of each year and whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable . as detailed in asc 350-20-35-3a , in performing its testing for goodwill , management completes a qualitative analysis to determine whether it was more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill . to complete this review , management follows the steps in asc 350-20-35-3c to evaluate the fair values of the intangibles and goodwill and considers all known events and circumstances that might trigger an impairment of goodwill . in 2016 , 2015 and 2014 , the analysis , determined that there was no impairment necessary to goodwill . through these reviews , management concluded that there were no events or circumstances that triggered an impairment ( and there was no expectation that a reporting unit or a significant portion of a reporting unit would be sold or otherwise disposed of in the following year ) , therefore , no further analysis was necessary to prepare for goodwill impairment beyond the steps in 350-20-35-3c in accordance with asu 2011-08. on a periodic basis , we will also perform a quantitative analysis of goodwill impairment and in 2016 , in addition to the qualitative analysis , we performed a quantitative analysis of goodwill impairment . no impairment of goodwill was required . stock-based compensation the company accounts for stock-based compensation using fasb accounting standards codification no . 718 ( ‘ ‘ fasb asc 718 `` ) , ‘ ‘ compensation – stock compensation . `` fasb codification no . 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related vesting period . story_separator_special_tag in addition , the agreement calls for an earn-out/royalty payment of two percent of the gross sales ( for specific , identified customers ) over a period of three years from the closing date , up to a maximum of $ 0.3 million that may or may not be paid to the seller within 90 days of each calendar year-end , depending on performance by the identified customer ( s ) . the final adjusted purchase price for the acquisition of tectrol was $ 4.5 million , which included the present value of $ 0.3 million of royalties to be paid on future sales , which was recorded as $ 0.2 million of contingent consideration and had a balance of $ 0.1 million at december 31 , 2016 . 34 financing activities see , above , the section entitled recent sales of unregistered securities for a complete listing of all securities transactions . during the year ended december 31 , 2016 , the company issued payments of $ 41 thousand against capital leases of motor vehicles and equipment and $ 85 thousand against the mortgage note payable . also in 2016 , the company issued payment of $ 59 thousand toward the contingent liability associated with the tectrol acquisition . during the year ended december 31 , 2015 , the company issued payments of $ 32 thousand against capital leases of motor vehicles and equipment and $ 81 thousand against the mortgage note payable . during the year ended december 31 , 2014 , the company issued payments of $ 0.1 million against capital leases of motor vehicles and equipment and $ 77 thousand against the mortgage note payable . cui global may raise additional capital needed to fund the further development and marketing of its products as well as payment of its debt obligations . financing activities – related party activity during 2016 , 2015 and 2014 , $ 0.3 million , $ 0.3 million , and $ 0.3 million , respectively in interest payments were made in relation to the promissory notes issued to related party , ied , inc. the promissory note terms include a due date of may 15 , 2020 and an interest rate of 5 % per annum , with interest payable monthly and the principal due as a balloon payment at maturity . please see note 9. notes payable and note 13. related party transactions for further discussion of these transactions . recap of liquidity and capital resources during the year ended december 31 , 2016 , the company continued to invest in orbital gas systems north america in houston while the cui-canada operation was more fully integrated into the company 's power and electromechanical segment . as expected in the year following two major additions , cash usage was still more than what it will be when the businesses are fully mature , but improved over the year ended december 31 , 2015 , when the company invested for future growth with the acquisition of its canada operations in the power and electromechanical segment , the startup of its orbital gas systems north america operations in the energy segment along with the investment in the new orbital u.k. facility . the net cash used in operating activities decreased to $ 0.8 million from $ 6.4 million in 2015 with much of that due to decreases in working capital requirements since integrating in and starting the two new operations during the prior year . the wells fargo mortgage promissory note has a balance at december 31 , 2016 of $ 3.4 million due , of which $ 89 thousand is the current portion . the wells fargo promissory note has an interest rate of 2 % above libor , payable over ten years , secured by a deed of trust on the purchased property executed by cui properties , llc and guaranteed by cui global , inc. in conjunction with the purchase and promissory note , wells fargo and the company entered into a swap transaction confirmation agreement effective october 1 , 2013 that effectively maximizes the annual interest rate at 6.27 % . 35 the company 's wholly owned subsidiary , cui , inc. renewed its two-year revolving line of credit ( loc ) with wells fargo bank in the principal amount of $ 4.0 million line of credit , on october 1 , 2016 for an additional two years . the interest rate on any outstanding balance is 1.75 % above either the daily one month libor or the libor in effect on the first day of the applicable fixed rate term . the loc is secured through a security agreement on accounts receivable and equipment , as well as other miscellaneous personal property assets . the loc contains certain financial covenants , one of which the company was not in compliance with at december 31 , 2016. the company has obtained a waiver from wells fargo bank for the instance of non-compliance through march 31 , 2017 , the next measuring date . cui global , inc. , the parent company , is a payment guarantor of the loc . at december 31 , 2016 , there was no balance outstanding on the line of credit . wells fargo bank has waived the cross-default provision on the promissory note payable owed by cui properties for a period beyond one year from the date of this report as it relates to the loc covenant violation , therefore the note is not considered to be in default and continues to include a portion classified as long term . on october 5 , 2016 , orbital gas systems ltd. signed a five-year agreement with the london branch of wells fargo bank n.a . for a multi-currency variable rate overdraft facility with a facility limit of 1.5 million pounds sterling ( $ 1.9 million at december 31 , 2016 ) that expires on october 5 , 2021. the interest rate on the facility is

bad debt replace_table_token_14_th bad debt expenses in 2016 , 2015 and 2014 represents less than ½ % of total revenues and relates to miscellaneous receivables , which the company has either recorded an allowance for doubtful collections of the receivable or for which the company has determined the balance to be uncollectible . 41 other income ( expense ) replace_table_token_15_th investment income the company recognized investment income on equity investment in an affiliate of $ 0 in 2016 , $ 53 thousand in the first 9 months of 2015 and , $ 49 thousand for the year ended december 31 , 2014. the company discontinued the equity method of accounting for its investment as of october 1 , 2015. during the three months ended march 31 , 2016 , the investment in tpi was exchanged for a note receivable from tpi of $ 0.4 million , which was the carrying value of the investment , earning interest at 5 % per annum , due june 30 , 2019. the company recorded $ 19 thousand of interest income from the note in the year ended december 31 , 2016. the interest receivable is settled on a quarterly basis via a non-cash offset against the finders-fee royalties earned by tpi on gaspt sales . any remaining finders-fee royalties balance is offset against the note receivable quarterly . cui global reviewed the note receivable for non-collectability as of december 31 , 2016 and concluded that no allowance was necessary . for more information on this investment , see note 2 , summary of significant accounting policies - investment and note receivable , to the consolidated financial statements under part ii , item 8 , ‘ ‘ financial statements and supplementary data . '' interest expense the company incurred $ 0.5 million , $ 0.4 million , and $ 0.5 million of interest expense during 2016 , 2015 and 2014 , respectively . interest expense is for interest on the secured note , secured promissory note , and bank working capital loans .

​ beginning in the first quarter of 2020 , we implemented a hiring freeze and expense reductions across the company , including the postponement and elimination of an estimated $ 150 million in capital expenditures . we furloughed 35 approximately 15,000 employees in april and may in various countries , though we returned most of those employees to work during the course of the year . we also reduced our workforce by approximately 3,300 employees or 12.4 % compared to december 31 , 2019. during 2020 , many of our employees who were not furloughed worked reduced hours and experienced pay cuts , including a six-month 100 % reduction in salary for our ceo and president and 25 % temporary reductions in salary for our other named executive officers . in addition , our board of directors waived six months of board service fees in 2020. the compensation levels for our executive officers and board of directors have since returned to their pre-covid-19 levels . ​ most of our manufacturer partners began suspending production beginning in late march 2020 , and production disruptions continued into the second quarter of 2020. these disruptions resulted in lower inventory levels , in particular for new vehicles and limited inventory of certain models . our manufacturer partners began providing us with additional incentive support in march 2020 , and our manufacturer and lending partners have provided support to retail customers , such as increased incentives , payment deferrals , as well as 0 % financing on certain vehicles and term lengths . while production has improved , the level of new vehicle inventory remains well below historical levels , which has contributed to increased gross profit on vehicles sold . ​ united states – beginning in march 2020 , shelter-in-place rules in many states either required we close dealerships or limit our automotive dealership operations to essential services . virtual/online sales of new and used vehicles remained available in all locations , while the service departments remained open to support critical transportation needs . in may 2020 , many shelter-in-place rules began to expire , and restrictions were slowly lifted in many states allowing us to reopen dealerships all of which remain open , subject in certain locations to personnel capacity limits . for the year ended december 31 , 2020 , new and used retail automotive gross profit per unit increased 19.5 % and 16.8 % , primarily due to inventory shortages and additional manufacturer incentives , while our automotive dealerships experienced a 14.4 % decrease in unit volume and a 12.5 % decrease in service and parts revenues compared to the prior year on a same-store basis . our u.s. used vehicle supercenters experienced a same-store used unit sales decline of 26.9 % in 2020 , largely attributable to lower inventory and the covid-19 pandemic . ​ commercial truck dealership sales and service operations were classified as essential businesses and remained open throughout 2020 in most locations around the u.s. and canada providing services to our customers . for the year ended december 31 , 2020 , the north american class 6-8 retail sales market declined 29.6 % , and our new same-store unit sales and revenue declined 10.0 % and 5.2 % , respectively , during the same period . ​ penske transportation solutions – we have a 28.9 % ownership interest in penske transportation solutions ( `` pts `` ) . as an integral part of the north american supply chain , pts has been generally classified as essential by governmental authorities which allowed pts to remain operating in much of its business , providing crucial supply chain and transportation services to its customers . while its full-service leasing and contract maintenance businesses remained consistent , commercial rental utilization slowed during the second quarter of 2020 but increased with the expirations of the shelter-in-place orders . in the third quarter of 2020 , pts began to experience increased levels of utilization and profitability as business conditions improved . in its logistics services business , throughout 2020 , pts experienced heavy volumes in the grocery sector which were offset by plant closings in automotive and manufacturing . in the third quarter of 2020 , most of pts ' logistics customers returned to normal operations , generating strong results . pts has also experienced improved remarketing results as truck prices improved in response to limited inventory . in response to the covid-19 pandemic , pts initially furloughed over 5,000 employees , most of which returned to work . pts also reduced executive salaries by up to 30 % , which reductions have been eliminated . ​ united kingdom – all dealerships closed on march 24 , 2020 , in accordance with government orders , though we provided service and parts operations on an emergency basis . over 90 % of the employees in the u.k. were placed on furlough beginning march 24 , 2020. however , we opened substantially all service and parts operations in mid-may 2020 and showrooms in early june 2020. during the fourth quarter of 2020 and continuing into 2021 , in response to increased incidence of the covid-19 pandemic , certain parts of the u.k. reinstated shelter-in-place orders which required our dealerships to close . we continue to conduct sales through our online “ click & collect ” program , which allows vehicle sales without showroom access . despite showroom closures in the u.k. during the fourth quarter of 2020 , our uk dealers experienced a 5.6 % increase in gross profit when compared to the fourth quarter of 2019 driven by an increase in gross profit per unit and sales through our e-commerce channels . story_separator_special_tag we record revenue for vehicle service and collision work over time as work is completed and when parts are delivered to our customers . sales promotions that we offer to customers are accounted for as a reduction of revenues at the time of sale . rebates and other incentives offered directly to us by manufacturers are recognized as a reduction of cost of sales . reimbursements of qualified advertising expenses are treated as a reduction of selling , general , and administrative expenses . the amounts received under certain manufacturer rebate and incentive programs are based on the attainment of program objectives , and such earnings are recognized either upon the sale of the vehicle for which the award was received or upon attainment of the particular program goals if not associated with individual vehicles . taxes collected from customers and remitted to governmental authorities are recorded on a net basis ( excluded from revenue ) . during 2020 , 2019 , and 2018 , we earned $ 588.7 million , $ 698.4 million , and $ 699.4 million , respectively , of rebates , incentives , and reimbursements from manufacturers , of which $ 575.4 million , $ 679.2 million , and $ 680.0 million , respectively , was recorded as a reduction of cost of sales . the remaining $ 13.3 million , $ 19.2 million , and $ 19.4 million was recorded as a reduction of selling , general , and administrative expenses during 2020 , 2019 , and 2018 , respectively . ​ dealership finance and insurance sales . subsequent to the sale of a vehicle to a customer , we sell installment sale contracts to various financial institutions on a non-recourse basis ( with specified exceptions ) to mitigate the risk of default . we receive a commission from the lender equal to either the difference between the interest rate charged to the customer and the interest rate set by the financing institution or a flat fee . we also receive commissions for facilitating the sale of various products to customers , including guaranteed vehicle protection insurance , vehicle theft protection , and extended service contracts . these commissions are recorded as revenue at a point in time when the customer enters into the contract . payment is typically due and collected within 30 days subsequent to the execution of the contract with the customer . in the case of finance contracts , a customer may prepay or fail to pay their contract , thereby terminating the contract . customers may also terminate extended service contracts and other insurance products , which are fully paid at purchase , and become eligible for refunds of unused premiums . in these circumstances , a portion of the commissions we received may be charged back based on the terms of the contracts . the revenue we record relating to these transactions is net of an estimate of the amount of chargebacks we will be required to pay . our estimate is based upon our historical experience with similar contracts , including the impact of refinance and default rates on retail finance contracts and 40 cancellation rates on extended service contracts and other insurance products . aggregate reserves relating to chargeback activity were $ 28.7 million and $ 26.6 million as of december 31 , 2020 , and december 31 , 2019 , respectively . ​ commercial vehicle distribution . we record revenue from the distribution of vehicles , engines , and other products at a point in time when delivered , which is when the transfer of title , risks , and rewards of ownership and control are considered passed to the customer . we record revenue for service or repair work over time as work is completed and when parts are delivered to our customers . for our long-term power generation contracts , we record revenue over time as services are provided in accordance with contract milestones . ​ refer to the disclosures provided in part ii , item 8 , note 2 of the notes to our consolidated financial statements for additional detail on revenue recognition . ​ impairment testing ​ other indefinite-lived intangible assets are assessed for impairment annually on october 1 and upon the occurrence of an indicator of impairment through a comparison of its carrying amount and estimated fair value . these indefinite-lived intangible assets relate to franchise agreements with vehicle manufacturers and distributors , which represent the estimated value of franchises acquired in business combinations , and distribution agreements with commercial vehicle manufacturers , which represent the estimated value for distribution rights acquired in business combinations . an indicator of impairment exists if the carrying value exceeds its estimated fair value , and an impairment loss may be recognized up to that excess . the fair value is determined using a discounted cash flow approach , which includes assumptions about revenue and profitability growth , profit margins , and the cost of capital . we also evaluate , in connection with the annual impairment testing , whether events and circumstances continue to support our assessment that the other indefinite-lived intangible assets continue to have an indefinite life . ​ goodwill impairment is assessed at the reporting unit level annually on october 1 and upon the occurrence of an indicator of impairment . our operations are organized by management into operating segments by line of business and geography . we have determined that we have four reportable segments as defined in generally accepted accounting principles for segment reporting : ( i ) retail automotive , consisting of our retail automotive dealership operations ; ( ii ) retail commercial truck , consisting of our retail commercial truck dealership operations in the u.s. and canada ; ( iii ) other , consisting of our commercial vehicle and power systems distribution operations and other non-automotive consolidated operations ; and ( iv ) non-automotive investments , consisting of our equity method investments in non-automotive operations which includes

bad debt replace_table_token_14_th bad debt expenses in 2016 , 2015 and 2014 represents less than ½ % of total revenues and relates to miscellaneous receivables , which the company has either recorded an allowance for doubtful collections of the receivable or for which the company has determined the balance to be uncollectible . 41 other income ( expense ) replace_table_token_15_th investment income the company recognized investment income on equity investment in an affiliate of $ 0 in 2016 , $ 53 thousand in the first 9 months of 2015 and , $ 49 thousand for the year ended december 31 , 2014. the company discontinued the equity method of accounting for its investment as of october 1 , 2015. during the three months ended march 31 , 2016 , the investment in tpi was exchanged for a note receivable from tpi of $ 0.4 million , which was the carrying value of the investment , earning interest at 5 % per annum , due june 30 , 2019. the company recorded $ 19 thousand of interest income from the note in the year ended december 31 , 2016. the interest receivable is settled on a quarterly basis via a non-cash offset against the finders-fee royalties earned by tpi on gaspt sales . any remaining finders-fee royalties balance is offset against the note receivable quarterly . cui global reviewed the note receivable for non-collectability as of december 31 , 2016 and concluded that no allowance was necessary . for more information on this investment , see note 2 , summary of significant accounting policies - investment and note receivable , to the consolidated financial statements under part ii , item 8 , ‘ ‘ financial statements and supplementary data . '' interest expense the company incurred $ 0.5 million , $ 0.4 million , and $ 0.5 million of interest expense during 2016 , 2015 and 2014 , respectively . interest expense is for interest on the secured note , secured promissory note , and bank working capital loans .

​ beginning in the first quarter of 2020 , we implemented a hiring freeze and expense reductions across the company , including the postponement and elimination of an estimated $ 150 million in capital expenditures . we furloughed 35 approximately 15,000 employees in april and may in various countries , though we returned most of those employees to work during the course of the year . we also reduced our workforce by approximately 3,300 employees or 12.4 % compared to december 31 , 2019. during 2020 , many of our employees who were not furloughed worked reduced hours and experienced pay cuts , including a six-month 100 % reduction in salary for our ceo and president and 25 % temporary reductions in salary for our other named executive officers . in addition , our board of directors waived six months of board service fees in 2020. the compensation levels for our executive officers and board of directors have since returned to their pre-covid-19 levels . ​ most of our manufacturer partners began suspending production beginning in late march 2020 , and production disruptions continued into the second quarter of 2020. these disruptions resulted in lower inventory levels , in particular for new vehicles and limited inventory of certain models . our manufacturer partners began providing us with additional incentive support in march 2020 , and our manufacturer and lending partners have provided support to retail customers , such as increased incentives , payment deferrals , as well as 0 % financing on certain vehicles and term lengths . while production has improved , the level of new vehicle inventory remains well below historical levels , which has contributed to increased gross profit on vehicles sold . ​ united states – beginning in march 2020 , shelter-in-place rules in many states either required we close dealerships or limit our automotive dealership operations to essential services . virtual/online sales of new and used vehicles remained available in all locations , while the service departments remained open to support critical transportation needs . in may 2020 , many shelter-in-place rules began to expire , and restrictions were slowly lifted in many states allowing us to reopen dealerships all of which remain open , subject in certain locations to personnel capacity limits . for the year ended december 31 , 2020 , new and used retail automotive gross profit per unit increased 19.5 % and 16.8 % , primarily due to inventory shortages and additional manufacturer incentives , while our automotive dealerships experienced a 14.4 % decrease in unit volume and a 12.5 % decrease in service and parts revenues compared to the prior year on a same-store basis . our u.s. used vehicle supercenters experienced a same-store used unit sales decline of 26.9 % in 2020 , largely attributable to lower inventory and the covid-19 pandemic . ​ commercial truck dealership sales and service operations were classified as essential businesses and remained open throughout 2020 in most locations around the u.s. and canada providing services to our customers . for the year ended december 31 , 2020 , the north american class 6-8 retail sales market declined 29.6 % , and our new same-store unit sales and revenue declined 10.0 % and 5.2 % , respectively , during the same period . ​ penske transportation solutions – we have a 28.9 % ownership interest in penske transportation solutions ( `` pts `` ) . as an integral part of the north american supply chain , pts has been generally classified as essential by governmental authorities which allowed pts to remain operating in much of its business , providing crucial supply chain and transportation services to its customers . while its full-service leasing and contract maintenance businesses remained consistent , commercial rental utilization slowed during the second quarter of 2020 but increased with the expirations of the shelter-in-place orders . in the third quarter of 2020 , pts began to experience increased levels of utilization and profitability as business conditions improved . in its logistics services business , throughout 2020 , pts experienced heavy volumes in the grocery sector which were offset by plant closings in automotive and manufacturing . in the third quarter of 2020 , most of pts ' logistics customers returned to normal operations , generating strong results . pts has also experienced improved remarketing results as truck prices improved in response to limited inventory . in response to the covid-19 pandemic , pts initially furloughed over 5,000 employees , most of which returned to work . pts also reduced executive salaries by up to 30 % , which reductions have been eliminated . ​ united kingdom – all dealerships closed on march 24 , 2020 , in accordance with government orders , though we provided service and parts operations on an emergency basis . over 90 % of the employees in the u.k. were placed on furlough beginning march 24 , 2020. however , we opened substantially all service and parts operations in mid-may 2020 and showrooms in early june 2020. during the fourth quarter of 2020 and continuing into 2021 , in response to increased incidence of the covid-19 pandemic , certain parts of the u.k. reinstated shelter-in-place orders which required our dealerships to close . we continue to conduct sales through our online “ click & collect ” program , which allows vehicle sales without showroom access . despite showroom closures in the u.k. during the fourth quarter of 2020 , our uk dealers experienced a 5.6 % increase in gross profit when compared to the fourth quarter of 2019 driven by an increase in gross profit per unit and sales through our e-commerce channels . story_separator_special_tag we record revenue for vehicle service and collision work over time as work is completed and when parts are delivered to our customers . sales promotions that we offer to customers are accounted for as a reduction of revenues at the time of sale . rebates and other incentives offered directly to us by manufacturers are recognized as a reduction of cost of sales . reimbursements of qualified advertising expenses are treated as a reduction of selling , general , and administrative expenses . the amounts received under certain manufacturer rebate and incentive programs are based on the attainment of program objectives , and such earnings are recognized either upon the sale of the vehicle for which the award was received or upon attainment of the particular program goals if not associated with individual vehicles . taxes collected from customers and remitted to governmental authorities are recorded on a net basis ( excluded from revenue ) . during 2020 , 2019 , and 2018 , we earned $ 588.7 million , $ 698.4 million , and $ 699.4 million , respectively , of rebates , incentives , and reimbursements from manufacturers , of which $ 575.4 million , $ 679.2 million , and $ 680.0 million , respectively , was recorded as a reduction of cost of sales . the remaining $ 13.3 million , $ 19.2 million , and $ 19.4 million was recorded as a reduction of selling , general , and administrative expenses during 2020 , 2019 , and 2018 , respectively . ​ dealership finance and insurance sales . subsequent to the sale of a vehicle to a customer , we sell installment sale contracts to various financial institutions on a non-recourse basis ( with specified exceptions ) to mitigate the risk of default . we receive a commission from the lender equal to either the difference between the interest rate charged to the customer and the interest rate set by the financing institution or a flat fee . we also receive commissions for facilitating the sale of various products to customers , including guaranteed vehicle protection insurance , vehicle theft protection , and extended service contracts . these commissions are recorded as revenue at a point in time when the customer enters into the contract . payment is typically due and collected within 30 days subsequent to the execution of the contract with the customer . in the case of finance contracts , a customer may prepay or fail to pay their contract , thereby terminating the contract . customers may also terminate extended service contracts and other insurance products , which are fully paid at purchase , and become eligible for refunds of unused premiums . in these circumstances , a portion of the commissions we received may be charged back based on the terms of the contracts . the revenue we record relating to these transactions is net of an estimate of the amount of chargebacks we will be required to pay . our estimate is based upon our historical experience with similar contracts , including the impact of refinance and default rates on retail finance contracts and 40 cancellation rates on extended service contracts and other insurance products . aggregate reserves relating to chargeback activity were $ 28.7 million and $ 26.6 million as of december 31 , 2020 , and december 31 , 2019 , respectively . ​ commercial vehicle distribution . we record revenue from the distribution of vehicles , engines , and other products at a point in time when delivered , which is when the transfer of title , risks , and rewards of ownership and control are considered passed to the customer . we record revenue for service or repair work over time as work is completed and when parts are delivered to our customers . for our long-term power generation contracts , we record revenue over time as services are provided in accordance with contract milestones . ​ refer to the disclosures provided in part ii , item 8 , note 2 of the notes to our consolidated financial statements for additional detail on revenue recognition . ​ impairment testing ​ other indefinite-lived intangible assets are assessed for impairment annually on october 1 and upon the occurrence of an indicator of impairment through a comparison of its carrying amount and estimated fair value . these indefinite-lived intangible assets relate to franchise agreements with vehicle manufacturers and distributors , which represent the estimated value of franchises acquired in business combinations , and distribution agreements with commercial vehicle manufacturers , which represent the estimated value for distribution rights acquired in business combinations . an indicator of impairment exists if the carrying value exceeds its estimated fair value , and an impairment loss may be recognized up to that excess . the fair value is determined using a discounted cash flow approach , which includes assumptions about revenue and profitability growth , profit margins , and the cost of capital . we also evaluate , in connection with the annual impairment testing , whether events and circumstances continue to support our assessment that the other indefinite-lived intangible assets continue to have an indefinite life . ​ goodwill impairment is assessed at the reporting unit level annually on october 1 and upon the occurrence of an indicator of impairment . our operations are organized by management into operating segments by line of business and geography . we have determined that we have four reportable segments as defined in generally accepted accounting principles for segment reporting : ( i ) retail automotive , consisting of our retail automotive dealership operations ; ( ii ) retail commercial truck , consisting of our retail commercial truck dealership operations in the u.s. and canada ; ( iii ) other , consisting of our commercial vehicle and power systems distribution operations and other non-automotive consolidated operations ; and ( iv ) non-automotive investments , consisting of our equity method investments in non-automotive operations which includes

cash flows ​ the following table summarizes the changes in our cash provided by ( used in ) operating , investing , and financing activities . the major components of these changes are discussed below . ​ replace_table_token_23_th ​ cash flows from continuing operating activities ​ cash flows from continuing operating activities includes net income , as adjusted for non-cash items and the effects of changes in working capital . our cash flows from continuing operating activities were positively impacted during the year ended december 31 , 2020 , due to deferrals of floorplan interest , sales and use tax , and mortgage interest resulting from covid-19-related relief provided by our lenders and government jurisdictions . ​ we finance substantially all of the commercial vehicles we purchase for distribution , new vehicles for retail sale , and a portion of our used vehicle inventories for retail sale under floor plan and other revolving arrangements with various 55 lenders , including the captive finance companies associated with automotive manufacturers . we retain the right to select which , if any , financing source to utilize in connection with the procurement of vehicle inventories . many vehicle manufacturers provide vehicle financing for the dealers representing their brands ; however , it is not a requirement that we utilize this financing . historically , our floor plan finance source has been based on aggregate pricing considerations . ​ in accordance with generally accepted accounting principles relating to the statement of cash flows , we report all cash flows arising in connection with floor plan notes payable with the manufacturer of a particular new vehicle as an operating activity in our statement of cash flows , and we report all cash flows arising in connection with floor plan notes payable to a party other than the manufacturer of a particular new vehicle , all floor plan notes payable relating to pre-owned vehicles , and all floor plan notes payable related to our commercial vehicles in australia and new zealand as a financing activity in our statement of cash flows . currently , the majority of our non-trade vehicle financing is with other manufacturer captive lenders .

we believe our credit facility , described below , together with internally generated cash flows , including cash flows from hosted payloads and proceeds from our recent sale of 7.00 % series a cumulative convertible preferred stock , or the series a preferred stock , will be sufficient to fully fund the aggregate costs associated with the design , build and launch of iridium next and related ground infrastructure upgrades through 2017. for more information about our sources of funding , see “ liquidity and capital resources . ” full scale development and launch services agreements in june 2010 , we executed a primarily fixed price full scale development contract , or fsd , with thales alenia space france , or thales , for the design and manufacture of satellites for iridium next . the total price under the fsd will be approximately $ 2.2 billion , and we expect our payment obligations under the fsd to extend into the third quarter of 2017. as of december 31 , 2012 , we had made total payments of $ 682.9 million to thales , which are classified within property and equipment , net , in the accompanying consolidated balance sheet . 39 in march 2010 , we entered into an agreement with space exploration technologies corp. , or spacex , to secure spacex as the primary launch services provider for iridium next . in august 2012 , we entered into an amendment to our launch services agreement with spacex . the amendment reduced the number of contracted launches from eight to seven and increased the number of satellites to be carried on each launch vehicle from nine to ten . the amendment also reduced the maximum price under the original spacex agreement from $ 492.0 million to $ 453.1 million . as of december 31 , 2012 , we had made total payments of $ 65.1 million to spacex , which are classified within property and equipment , net , in the accompanying consolidated balance sheet . in june 2011 , we entered into an agreement with international space company kosmotras , or kosmotras , as a supplemental launch services provider for iridium next . the agreement provides for the purchase of up to six launches and six additional launch options . each launch can carry two satellites . if we purchase all six launches , we will pay kosmotras a total of approximately $ 184.3 million . we expect to exercise an option to purchase one launch under the agreement which we plan to use for the first two iridium next satellites . our payments to kosmotras for the single launch would be approximately $ 51.8 million . if we do not purchase any additional launches by march 31 , 2013 , the remaining options will expire . as of december 31 , 2012 , we had made aggregate payments of $ 11.2 million to kosmotras which are capitalized as construction in progress within property and equipment , net in the accompanying consolidated balance sheet . credit facility on october 4 , 2010 , we entered into a $ 1.8 billion loan facility , or the credit facility , with a syndicate of bank lenders . ninety-five percent of our obligations under the credit facility are insured by compagnie française d'assurance pour le commerce extérieur , or coface . the credit facility consists of two tranches , with draws and repayments applied pro rata in respect of each tranche : tranche a – $ 1,537,500,000 at a fixed rate of 4.96 % ; and tranche b – $ 262,500,000 at a floating rate equal to the london interbank offer rate , or libor , plus 1.95 % . in connection with each draw made under the credit facility , we borrow an additional amount equal to 6.49 % of such draw to cover the premium for the coface insurance . we also pay a commitment fee of 0.80 % per year , in semi-annual installments , on any undrawn portion of the credit facility . funds drawn under the credit facility will be used for 85 % of the costs under the fsd for the design and manufacture of iridium next , the premium for the coface insurance and the payment of a portion of interest during a portion of the construction and launch phase of iridium next . scheduled semi-annual principal repayments will begin six months after the earlier of ( i ) the successful deployment of a specified number of iridium next satellites or ( ii ) september 30 , 2017. during this repayment period , we will pay interest on the same date as the principal repayments . prior to the repayment period , interest payments are due on a semi-annual basis in april and october . interest expense incurred during the year ended december 31 , 2012 was $ 25.5 million . we capitalize all interest costs incurred related to the credit facility during the construction period of the assets ; accordingly we capitalized $ 25.5 million related to interest incurred in 2012. we pay interest on each semi-annual due date through a combination of a cash payment and a deemed additional loan . the $ 25.5 million in interest incurred during the year ended december 31 , 2012 consisted of $ 7.7 million payable in cash , of which $ 6.1 million was paid during the year and $ 1.6 million was accrued at year end , and $ 17.8 million payable by deemed loans , of which $ 14.1 million was paid during the year and $ 3.7 million was accrued at year end . the credit facility will mature seven years after the start of the principal repayment period . in addition , we are required to maintain minimum cash reserve levels for debt service , which are classified as restricted cash on the accompanying consolidated balance sheets . story_separator_special_tag we recognize revenue from the prepaid services ( i ) upon the use of the e-voucher or prepaid card by the customer ; ( ii ) upon the expiration of the right to access the prepaid service ; or ( iii ) when it is determined that the likelihood of the prepaid card being redeemed by the customer is remote . the likelihood of redemption is based on historical redemption patterns . if future results are not consistent with these historical patterns , and therefore actual usage results are not consistent with our estimates or assumptions , we may be exposed to changes to earned and unearned revenue that could be material . we do not offer refund privileges for unused prepaid services . revenue associated with some of our fixed-price engineering services arrangements is recognized when the services are rendered , typically on a proportional performance method of accounting based on our estimate of total costs expected to complete the contract , and the related costs are expensed as incurred . we recognize revenue on cost-plus-fixed-fee arrangements to the extent of actual costs incurred plus an estimate of the applicable fees earned , where such estimated fees are determined using a proportional performance method calculation . if actual results are not consistent with our estimates or assumptions , we may be exposed to changes to earned and unearned revenue that could be material to our results of operations . stock-based compensation we account for stock-based compensation , which consists of stock options and restricted stock units , based on the grant date estimated fair value . in the case of restricted stock units , grant date fair value is equal to the closing price of our common stock on the date of grant . in the case of stock options , grant date fair value is calculated using the black-scholes option pricing model . we recognize stock-based compensation on a straight-line basis over the requisite service period . the black-scholes option pricing model requires us to make several assumptions , including expected volatility and expected term of the options . if any of the assumptions we use in the black-scholes option pricing model were to change significantly , stock-based compensation expense may differ materially in the future from that recorded in the current period . in addition , we are required to estimate the expected forfeiture rate and only recognize expense for those awards expected to vest . we estimate the forfeiture rate based on historical experience . to the extent our actual forfeiture rate is different from our estimate , stock-based compensation expense is adjusted accordingly . warranty expenses we estimate a provision for product returns under our standard warranty policies when it is probable that a loss has been incurred . a warranty liability is maintained based on historical experience of warranty costs and expected occurrences of warranty claims on equipment . if actual results are not consistent with our estimates or assumptions , we may be exposed to changes to cost of subscriber equipment sales that could be material to our results of operations . income taxes we account for income taxes using the asset and liability approach . this approach requires that we recognize deferred tax assets and liabilities based on differences between the financial statement bases and tax bases of our assets and liabilities . deferred tax assets and liabilities are recorded based upon enacted tax rates for the period in which the deferred tax items are expected to reverse . changes in tax laws or tax rates in various jurisdictions are reflected in the period of change . significant judgment is required in the calculation of our tax provision and the resulting tax liabilities as well as our ability to realize our deferred tax assets . our estimates of future taxable income and any changes to such estimates can significantly impact our tax provision in a given period . significant judgment is required in determining our ability to realize our deferred tax assets related to federal , state and foreign tax attributes within their carryforward periods including estimating the amount and timing of the future reversal of deferred tax items in our projections of future taxable income . a valuation allowance is established to reduce deferred tax assets to the amounts we expect to realize in the future . we also recognize tax benefits related to uncertain tax positions only when we estimate that it is “ more likely than not ” that the position will be sustainable based on its technical merits . if actual results are not consistent with our estimates and assumptions , this may result in material changes to our income tax provision . 44 recoverability of long-lived assets we assess the recoverability of long-lived assets when indicators of impairment exist . we assess the possibility of impairment by comparing the carrying amounts of the assets to the estimated undiscounted future cash flows expected to be generated by those assets . if we determine that an asset is impaired , we estimate the impairment loss by determining the excess of the assets ' carrying amount over their estimated fair value . estimated fair value is based on market prices , when available , or various other valuation techniques . these techniques often include estimates and assumptions with respect to future cash flows and incremental borrowing rates . if actual results are not consistent with our estimates and assumptions , we may be exposed to impairment losses that could be material to our results of operations . property and equipment and intangible assets with finite lives are depreciated or amortized over their estimated useful lives . we apply judgment in determining the useful lives based on factors such as engineering data , our long-term strategy for using the assets , contractual terms related to the assets , laws or regulations that could impact the useful life of the assets and other economic factors . if actual results are not consistent

cash flows ​ the following table summarizes the changes in our cash provided by ( used in ) operating , investing , and financing activities . the major components of these changes are discussed below . ​ replace_table_token_23_th ​ cash flows from continuing operating activities ​ cash flows from continuing operating activities includes net income , as adjusted for non-cash items and the effects of changes in working capital . our cash flows from continuing operating activities were positively impacted during the year ended december 31 , 2020 , due to deferrals of floorplan interest , sales and use tax , and mortgage interest resulting from covid-19-related relief provided by our lenders and government jurisdictions . ​ we finance substantially all of the commercial vehicles we purchase for distribution , new vehicles for retail sale , and a portion of our used vehicle inventories for retail sale under floor plan and other revolving arrangements with various 55 lenders , including the captive finance companies associated with automotive manufacturers . we retain the right to select which , if any , financing source to utilize in connection with the procurement of vehicle inventories . many vehicle manufacturers provide vehicle financing for the dealers representing their brands ; however , it is not a requirement that we utilize this financing . historically , our floor plan finance source has been based on aggregate pricing considerations . ​ in accordance with generally accepted accounting principles relating to the statement of cash flows , we report all cash flows arising in connection with floor plan notes payable with the manufacturer of a particular new vehicle as an operating activity in our statement of cash flows , and we report all cash flows arising in connection with floor plan notes payable to a party other than the manufacturer of a particular new vehicle , all floor plan notes payable relating to pre-owned vehicles , and all floor plan notes payable related to our commercial vehicles in australia and new zealand as a financing activity in our statement of cash flows . currently , the majority of our non-trade vehicle financing is with other manufacturer captive lenders .

we believe our credit facility , described below , together with internally generated cash flows , including cash flows from hosted payloads and proceeds from our recent sale of 7.00 % series a cumulative convertible preferred stock , or the series a preferred stock , will be sufficient to fully fund the aggregate costs associated with the design , build and launch of iridium next and related ground infrastructure upgrades through 2017. for more information about our sources of funding , see “ liquidity and capital resources . ” full scale development and launch services agreements in june 2010 , we executed a primarily fixed price full scale development contract , or fsd , with thales alenia space france , or thales , for the design and manufacture of satellites for iridium next . the total price under the fsd will be approximately $ 2.2 billion , and we expect our payment obligations under the fsd to extend into the third quarter of 2017. as of december 31 , 2012 , we had made total payments of $ 682.9 million to thales , which are classified within property and equipment , net , in the accompanying consolidated balance sheet . 39 in march 2010 , we entered into an agreement with space exploration technologies corp. , or spacex , to secure spacex as the primary launch services provider for iridium next . in august 2012 , we entered into an amendment to our launch services agreement with spacex . the amendment reduced the number of contracted launches from eight to seven and increased the number of satellites to be carried on each launch vehicle from nine to ten . the amendment also reduced the maximum price under the original spacex agreement from $ 492.0 million to $ 453.1 million . as of december 31 , 2012 , we had made total payments of $ 65.1 million to spacex , which are classified within property and equipment , net , in the accompanying consolidated balance sheet . in june 2011 , we entered into an agreement with international space company kosmotras , or kosmotras , as a supplemental launch services provider for iridium next . the agreement provides for the purchase of up to six launches and six additional launch options . each launch can carry two satellites . if we purchase all six launches , we will pay kosmotras a total of approximately $ 184.3 million . we expect to exercise an option to purchase one launch under the agreement which we plan to use for the first two iridium next satellites . our payments to kosmotras for the single launch would be approximately $ 51.8 million . if we do not purchase any additional launches by march 31 , 2013 , the remaining options will expire . as of december 31 , 2012 , we had made aggregate payments of $ 11.2 million to kosmotras which are capitalized as construction in progress within property and equipment , net in the accompanying consolidated balance sheet . credit facility on october 4 , 2010 , we entered into a $ 1.8 billion loan facility , or the credit facility , with a syndicate of bank lenders . ninety-five percent of our obligations under the credit facility are insured by compagnie française d'assurance pour le commerce extérieur , or coface . the credit facility consists of two tranches , with draws and repayments applied pro rata in respect of each tranche : tranche a – $ 1,537,500,000 at a fixed rate of 4.96 % ; and tranche b – $ 262,500,000 at a floating rate equal to the london interbank offer rate , or libor , plus 1.95 % . in connection with each draw made under the credit facility , we borrow an additional amount equal to 6.49 % of such draw to cover the premium for the coface insurance . we also pay a commitment fee of 0.80 % per year , in semi-annual installments , on any undrawn portion of the credit facility . funds drawn under the credit facility will be used for 85 % of the costs under the fsd for the design and manufacture of iridium next , the premium for the coface insurance and the payment of a portion of interest during a portion of the construction and launch phase of iridium next . scheduled semi-annual principal repayments will begin six months after the earlier of ( i ) the successful deployment of a specified number of iridium next satellites or ( ii ) september 30 , 2017. during this repayment period , we will pay interest on the same date as the principal repayments . prior to the repayment period , interest payments are due on a semi-annual basis in april and october . interest expense incurred during the year ended december 31 , 2012 was $ 25.5 million . we capitalize all interest costs incurred related to the credit facility during the construction period of the assets ; accordingly we capitalized $ 25.5 million related to interest incurred in 2012. we pay interest on each semi-annual due date through a combination of a cash payment and a deemed additional loan . the $ 25.5 million in interest incurred during the year ended december 31 , 2012 consisted of $ 7.7 million payable in cash , of which $ 6.1 million was paid during the year and $ 1.6 million was accrued at year end , and $ 17.8 million payable by deemed loans , of which $ 14.1 million was paid during the year and $ 3.7 million was accrued at year end . the credit facility will mature seven years after the start of the principal repayment period . in addition , we are required to maintain minimum cash reserve levels for debt service , which are classified as restricted cash on the accompanying consolidated balance sheets . story_separator_special_tag we recognize revenue from the prepaid services ( i ) upon the use of the e-voucher or prepaid card by the customer ; ( ii ) upon the expiration of the right to access the prepaid service ; or ( iii ) when it is determined that the likelihood of the prepaid card being redeemed by the customer is remote . the likelihood of redemption is based on historical redemption patterns . if future results are not consistent with these historical patterns , and therefore actual usage results are not consistent with our estimates or assumptions , we may be exposed to changes to earned and unearned revenue that could be material . we do not offer refund privileges for unused prepaid services . revenue associated with some of our fixed-price engineering services arrangements is recognized when the services are rendered , typically on a proportional performance method of accounting based on our estimate of total costs expected to complete the contract , and the related costs are expensed as incurred . we recognize revenue on cost-plus-fixed-fee arrangements to the extent of actual costs incurred plus an estimate of the applicable fees earned , where such estimated fees are determined using a proportional performance method calculation . if actual results are not consistent with our estimates or assumptions , we may be exposed to changes to earned and unearned revenue that could be material to our results of operations . stock-based compensation we account for stock-based compensation , which consists of stock options and restricted stock units , based on the grant date estimated fair value . in the case of restricted stock units , grant date fair value is equal to the closing price of our common stock on the date of grant . in the case of stock options , grant date fair value is calculated using the black-scholes option pricing model . we recognize stock-based compensation on a straight-line basis over the requisite service period . the black-scholes option pricing model requires us to make several assumptions , including expected volatility and expected term of the options . if any of the assumptions we use in the black-scholes option pricing model were to change significantly , stock-based compensation expense may differ materially in the future from that recorded in the current period . in addition , we are required to estimate the expected forfeiture rate and only recognize expense for those awards expected to vest . we estimate the forfeiture rate based on historical experience . to the extent our actual forfeiture rate is different from our estimate , stock-based compensation expense is adjusted accordingly . warranty expenses we estimate a provision for product returns under our standard warranty policies when it is probable that a loss has been incurred . a warranty liability is maintained based on historical experience of warranty costs and expected occurrences of warranty claims on equipment . if actual results are not consistent with our estimates or assumptions , we may be exposed to changes to cost of subscriber equipment sales that could be material to our results of operations . income taxes we account for income taxes using the asset and liability approach . this approach requires that we recognize deferred tax assets and liabilities based on differences between the financial statement bases and tax bases of our assets and liabilities . deferred tax assets and liabilities are recorded based upon enacted tax rates for the period in which the deferred tax items are expected to reverse . changes in tax laws or tax rates in various jurisdictions are reflected in the period of change . significant judgment is required in the calculation of our tax provision and the resulting tax liabilities as well as our ability to realize our deferred tax assets . our estimates of future taxable income and any changes to such estimates can significantly impact our tax provision in a given period . significant judgment is required in determining our ability to realize our deferred tax assets related to federal , state and foreign tax attributes within their carryforward periods including estimating the amount and timing of the future reversal of deferred tax items in our projections of future taxable income . a valuation allowance is established to reduce deferred tax assets to the amounts we expect to realize in the future . we also recognize tax benefits related to uncertain tax positions only when we estimate that it is “ more likely than not ” that the position will be sustainable based on its technical merits . if actual results are not consistent with our estimates and assumptions , this may result in material changes to our income tax provision . 44 recoverability of long-lived assets we assess the recoverability of long-lived assets when indicators of impairment exist . we assess the possibility of impairment by comparing the carrying amounts of the assets to the estimated undiscounted future cash flows expected to be generated by those assets . if we determine that an asset is impaired , we estimate the impairment loss by determining the excess of the assets ' carrying amount over their estimated fair value . estimated fair value is based on market prices , when available , or various other valuation techniques . these techniques often include estimates and assumptions with respect to future cash flows and incremental borrowing rates . if actual results are not consistent with our estimates and assumptions , we may be exposed to impairment losses that could be material to our results of operations . property and equipment and intangible assets with finite lives are depreciated or amortized over their estimated useful lives . we apply judgment in determining the useful lives based on factors such as engineering data , our long-term strategy for using the assets , contractual terms related to the assets , laws or regulations that could impact the useful life of the assets and other economic factors . if actual results are not consistent

cash and indebtedness at december 31 , 2012 , our total cash and cash equivalents was $ 254.4 million , and we had an aggregate of $ 751.8 million of external indebtedness related to borrowings under the credit facility . cash flows - comparison of the year ended december 31 , 2012 and the year ended december 31 , 2011 the following table shows our consolidated cash flows from operating , investing and financing activities for the years ended december 31 , ( in millions ) : replace_table_token_14_th cash flows from operating activities net cash provided by operating activities for the year ended december 31 , 2012 decreased by $ 9.5 million from the prior year period . this decline was primarily due to an $ 11.2 million strategic build-up of inventory in 2012 in order to mitigate the risk inherent with our limited number of manufacturers and a $ 10 million increase in other liabilities from 2010 to 2011 that did not recur in 2012 related to a customer deposit still held as of december 31 , 2012. these declines were partially offset by a $ 10.2 million operating cash inflow resulting from improved service revenue margins and a $ 3.2 million decline in research and development costs . cash flows from investing activities net cash used in investing activities for the year ended december 31 , 2012 increased primarily due to $ 82.3 million of increased capital expenditures related to iridium next , including payments related to the purchase of equipment and software for our satellite , network and gateway operations .

22 back to top at present , our water development efforts are primarily focused on the cadiz valley water conservation , recovery and storage project ( “ water project ” or “ project ” ) , which will capture and conserve millions of acre-feet of native groundwater currently being lost to evaporation from the aquifer system beneath our cadiz valley property and deliver it to water providers throughout southern california ( see “ water resource development ” ) . we believe that the ultimate implementation of this water project will create the primary source of our future cash flow and , accordingly , our working capital requirements relate largely to the development activities associated with this water project . we also continue to explore additional uses of our land and water resource assets , including additional agricultural opportunities , the development of a land conservation bank on our properties outside the water project area and other long-term legacy uses of our properties , such as habitat conservation and cultural uses . in addition to these development efforts , we will also pursue strategic investments in complementary business or infrastructure to meet our objectives . we can not predict with certainty when or if these objectives will be realized . w ater resource development the water project is designed to supply , capture and conserve billions of gallons of renewable native groundwater currently being lost annually to evaporation from the aquifer system underlying our cadiz/fenner property , and provide a reliable water supply to water users in southern california . by implementing established groundwater management practices , the water project will create a new , sustainable water supply for project participants without adversely impacting the aquifer system or the desert environment . the total quantity of groundwater to be recovered and conveyed to water project participants will not exceed a long-term annual average of 50,000 acre-feet per year for 50 years . the project also offers participants the ability to carry-over their annual supply and store it in the groundwater basin from year to year . a second phase of the water project , phase ii , will offer approximately one million acre-feet of storage capacity that can be used to store imported water supplies at the water project area . water project facilities required for phase i primarily include , among other things : · high yield wells designed to efficiently recover available native groundwater from beneath the water project area ; · a water conveyance pipeline to deliver water from the well field to the cra ; and · an energy source to provide power to the well-field , pipeline and pumping plant . if an imported water storage component of the project is ultimately implemented in phase ii , the following additional facilities would be required , among other things : · a pumping plant to pump water through the conveyance pipeline from the cra to the project well-field ; and 23 back to top · spreading basins , which are shallow settling ponds that will be configured to efficiently percolate water from the ground surface down to the water table using subsurface storage capacity for the storage of water . in general , several elements are needed to implement such a project : ( 1 ) a water conveyance pipeline right-of-way from the water project area to a delivery system ; ( 2 ) storage and supply purchase agreements with one or more public water agencies or private water utilities ; ( 3 ) environmental/regulatory permits ; and ( 4 ) construction and working capital . as described below , the first three elements have been progressed on a concurrent basis . the fourth is dependent on actions arising from the completion of the first three . ( 1 ) a water conveyance pipeline right-of-way from the water project area to a delivery system in september 2008 , we secured a right-of-way for the water project 's water conveyance pipeline by entering into a lease agreement with the arizona & california railroad company ( “ arzc ” ) , which operated an active shortline railroad extending from cadiz to matthie , arizona . the agreement allows for the use of a portion of the railroad 's right-of-way to construct and operate a water conveyance pipeline for a period up to 99 years . the buried pipeline would be constructed parallel to the railroad tracks and be used to convey water between our cadiz valley property and the cra in rice , california . the arzc is also a project participant and would receive water from the project to serve a variety of railroad purposes , including fire suppression and other safety and maintenance uses . in addition , in september 2013 , we entered into a trackage rights agreement with the arzc that would enable the operation of steam-powered , passenger excursion trains on the line powered by water made available from the pipeline . the arzc route was fully analyzed in the water project 's final environmental impact report ( “ feir ” ) as part of the california environmental quality act ( “ ceqa ” ) environmental review process completed in 2012. pursuant to our lease agreement with arzc , we made a payment in the amount of $ 3.3 million on march 6 , 2013 , marking the completion of the environmental review period and the commencement of the construction and operation term of the agreement . we are also exploring the potential to utilize an unused natural gas pipeline ( as described “ existing pipeline asset ” below ) that exists in the project area , to which we hold an ownership right , as a means to access additional distribution systems . initial feasibility studies indicate that this pipeline could be used as a component of the project to distribute water to project participants or import water for storage at the project area in phase ii . story_separator_special_tag for example , this bank could potentially service the mitigation requirements of numerous utility-scale solar development projects being considered throughout riverside and san bernardino counties , including projects within the recently approved federal riverside-east solar energy zone . 29 back to top other opportunities over the longer-term , we believe the population of southern california , nevada and arizona will continue to grow , and that , in time , the economics of commercial and residential development at our properties may become attractive . moreover , other opportunities in business or infrastructure complementary to our current objectives could provide new opportunities for our business . we remain committed to the sustainable use of our land and water assets , and will continue to explore all opportunities for environmentally responsible development of these assets . we can not predict with certainty which of these various opportunities will ultimately be utilized . results of operations ( a ) year ended december 31 , 2013 compared to year ended december 31 , 2012 we have not received significant revenues from our water resource and real estate development activity to date . our revenues have been limited to our agricultural operations . as a result , we continue to incur a net loss from operations . we had revenues of $ 301 thousand for the year ended december 31 , 2013 , and $ 362 thousand for the year ended december 31 , 2012. the net loss totaled $ 22.7 million for the year ended december 31 , 2013 , compared with a net loss of $ 19.6 million for the year ended december 31 , 2012. our primary expenses are our ongoing overhead costs associated with the development of the water project ( i.e . general and administrative expense ) and our interest expense . we will continue to incur non-cash expense in connection with our management and director equity incentive plans . revenues . revenue totaled $ 301 thousand during the year ended december 31 , 2013 , compared to $ 362 thousand during the year ended december 31 , 2012. cost of sales . cost of sales totaled $ 555 thousand during the year ended december 31 , 2013 , compared with $ 521 thousand during the year ended december 31 , 2012. general and administrative expenses . general and administrative expenses during the year ended december 31 , 2013 , totaled $ 13.5 million compared with $ 12.6 million for the year ended december 31 , 2012. non-cash compensation costs related to stock and option awards are included in general and administrative expenses . general and administrative expenses , exclusive of stock-based compensation costs , totaled $ 13.0 million in the year ended december 31 , 2013 , compared with $ 12.2 million for the year ended december 31 , 2012. the increase in general and administrative expense in 2013 was primarily due to litigation costs related to the water project . 30 back to top compensation costs from stock and option awards for the year ended december 31 , 2013 , totaled $ 516 thousand compared with $ 383 thousand for the year ended december 31 , 2012. the expense reflects the vesting schedules of the stock and option awards under the 2009 equity incentive plan . the higher 2013 expense was primarily due to higher stock non-cash compensation costs related to shares awarded to the brownstein law firm for certain legal and advisory services to the company ( see note 9 to the consolidated financial statements , “ common stock ” ) , partially offset by a decrease in stock based non-cash compensation costs related to stock and options issued in 2011 under the 2009 equity incentive plan . depreciation . depreciation expenses totaled $ 254 thousand for the year ended december 31 , 2013 , compared to $ 350 thousand for the year ended december 31 , 2012. interest expense , net . net interest expense totaled $ 7.6 million during the year ended december 31 , 2013 , compared to $ 6.8 million during 2012. the following table summarizes the components of net interest expense for the two periods ( in thousands ) : replace_table_token_3_th the interest on outstanding debt increased from $ 3.6 million to $ 6.1 million due to the increase in interest rate on a larger credit facility associated with our march 2013 debt refinancing and our expanded working capital facility in october 2013. see note 6 to the consolidated financial statements , “ long-term debt ” . prior debt refinancings . deferred loan costs , which are primarily legal fees , are amortized over the life of each loan agreement . in june 2006 , we refinanced our term loan with ing capital llc ( “ ing ” ) with a new senior secured convertible term loan with a different lender . as a result , $ 408 thousand of legal fees was capitalized and amortized over the 7-year life of the loan agreement . an additional $ 73.5 thousand of lender fees was capitalized when the term loan was modified in october 2010. these fees were amortized over the remaining life of the term loan . in june 2009 and october 2010 , the term loan was modified as to certain of its conversion features . as a result of these convertible debt arrangements , the change in conversion value between the original and modified instrument totaled approximately $ 3.2 million , which was recorded as additional debt discount with a corresponding amount recorded as additional paid-in capital . such debt discount was accreted to the redemption value of the instrument over the remaining term of the loan as additional interest expense . on march 5 , 2013 , we completed arrangements with our senior lenders to refinance our existing $ 66 million corporate term debt . as a result , we recorded a loss on extinguishment of debt in the amount of $ 1.06 million which consisted of the write-off

cash and indebtedness at december 31 , 2012 , our total cash and cash equivalents was $ 254.4 million , and we had an aggregate of $ 751.8 million of external indebtedness related to borrowings under the credit facility . cash flows - comparison of the year ended december 31 , 2012 and the year ended december 31 , 2011 the following table shows our consolidated cash flows from operating , investing and financing activities for the years ended december 31 , ( in millions ) : replace_table_token_14_th cash flows from operating activities net cash provided by operating activities for the year ended december 31 , 2012 decreased by $ 9.5 million from the prior year period . this decline was primarily due to an $ 11.2 million strategic build-up of inventory in 2012 in order to mitigate the risk inherent with our limited number of manufacturers and a $ 10 million increase in other liabilities from 2010 to 2011 that did not recur in 2012 related to a customer deposit still held as of december 31 , 2012. these declines were partially offset by a $ 10.2 million operating cash inflow resulting from improved service revenue margins and a $ 3.2 million decline in research and development costs . cash flows from investing activities net cash used in investing activities for the year ended december 31 , 2012 increased primarily due to $ 82.3 million of increased capital expenditures related to iridium next , including payments related to the purchase of equipment and software for our satellite , network and gateway operations .

22 back to top at present , our water development efforts are primarily focused on the cadiz valley water conservation , recovery and storage project ( “ water project ” or “ project ” ) , which will capture and conserve millions of acre-feet of native groundwater currently being lost to evaporation from the aquifer system beneath our cadiz valley property and deliver it to water providers throughout southern california ( see “ water resource development ” ) . we believe that the ultimate implementation of this water project will create the primary source of our future cash flow and , accordingly , our working capital requirements relate largely to the development activities associated with this water project . we also continue to explore additional uses of our land and water resource assets , including additional agricultural opportunities , the development of a land conservation bank on our properties outside the water project area and other long-term legacy uses of our properties , such as habitat conservation and cultural uses . in addition to these development efforts , we will also pursue strategic investments in complementary business or infrastructure to meet our objectives . we can not predict with certainty when or if these objectives will be realized . w ater resource development the water project is designed to supply , capture and conserve billions of gallons of renewable native groundwater currently being lost annually to evaporation from the aquifer system underlying our cadiz/fenner property , and provide a reliable water supply to water users in southern california . by implementing established groundwater management practices , the water project will create a new , sustainable water supply for project participants without adversely impacting the aquifer system or the desert environment . the total quantity of groundwater to be recovered and conveyed to water project participants will not exceed a long-term annual average of 50,000 acre-feet per year for 50 years . the project also offers participants the ability to carry-over their annual supply and store it in the groundwater basin from year to year . a second phase of the water project , phase ii , will offer approximately one million acre-feet of storage capacity that can be used to store imported water supplies at the water project area . water project facilities required for phase i primarily include , among other things : · high yield wells designed to efficiently recover available native groundwater from beneath the water project area ; · a water conveyance pipeline to deliver water from the well field to the cra ; and · an energy source to provide power to the well-field , pipeline and pumping plant . if an imported water storage component of the project is ultimately implemented in phase ii , the following additional facilities would be required , among other things : · a pumping plant to pump water through the conveyance pipeline from the cra to the project well-field ; and 23 back to top · spreading basins , which are shallow settling ponds that will be configured to efficiently percolate water from the ground surface down to the water table using subsurface storage capacity for the storage of water . in general , several elements are needed to implement such a project : ( 1 ) a water conveyance pipeline right-of-way from the water project area to a delivery system ; ( 2 ) storage and supply purchase agreements with one or more public water agencies or private water utilities ; ( 3 ) environmental/regulatory permits ; and ( 4 ) construction and working capital . as described below , the first three elements have been progressed on a concurrent basis . the fourth is dependent on actions arising from the completion of the first three . ( 1 ) a water conveyance pipeline right-of-way from the water project area to a delivery system in september 2008 , we secured a right-of-way for the water project 's water conveyance pipeline by entering into a lease agreement with the arizona & california railroad company ( “ arzc ” ) , which operated an active shortline railroad extending from cadiz to matthie , arizona . the agreement allows for the use of a portion of the railroad 's right-of-way to construct and operate a water conveyance pipeline for a period up to 99 years . the buried pipeline would be constructed parallel to the railroad tracks and be used to convey water between our cadiz valley property and the cra in rice , california . the arzc is also a project participant and would receive water from the project to serve a variety of railroad purposes , including fire suppression and other safety and maintenance uses . in addition , in september 2013 , we entered into a trackage rights agreement with the arzc that would enable the operation of steam-powered , passenger excursion trains on the line powered by water made available from the pipeline . the arzc route was fully analyzed in the water project 's final environmental impact report ( “ feir ” ) as part of the california environmental quality act ( “ ceqa ” ) environmental review process completed in 2012. pursuant to our lease agreement with arzc , we made a payment in the amount of $ 3.3 million on march 6 , 2013 , marking the completion of the environmental review period and the commencement of the construction and operation term of the agreement . we are also exploring the potential to utilize an unused natural gas pipeline ( as described “ existing pipeline asset ” below ) that exists in the project area , to which we hold an ownership right , as a means to access additional distribution systems . initial feasibility studies indicate that this pipeline could be used as a component of the project to distribute water to project participants or import water for storage at the project area in phase ii . story_separator_special_tag for example , this bank could potentially service the mitigation requirements of numerous utility-scale solar development projects being considered throughout riverside and san bernardino counties , including projects within the recently approved federal riverside-east solar energy zone . 29 back to top other opportunities over the longer-term , we believe the population of southern california , nevada and arizona will continue to grow , and that , in time , the economics of commercial and residential development at our properties may become attractive . moreover , other opportunities in business or infrastructure complementary to our current objectives could provide new opportunities for our business . we remain committed to the sustainable use of our land and water assets , and will continue to explore all opportunities for environmentally responsible development of these assets . we can not predict with certainty which of these various opportunities will ultimately be utilized . results of operations ( a ) year ended december 31 , 2013 compared to year ended december 31 , 2012 we have not received significant revenues from our water resource and real estate development activity to date . our revenues have been limited to our agricultural operations . as a result , we continue to incur a net loss from operations . we had revenues of $ 301 thousand for the year ended december 31 , 2013 , and $ 362 thousand for the year ended december 31 , 2012. the net loss totaled $ 22.7 million for the year ended december 31 , 2013 , compared with a net loss of $ 19.6 million for the year ended december 31 , 2012. our primary expenses are our ongoing overhead costs associated with the development of the water project ( i.e . general and administrative expense ) and our interest expense . we will continue to incur non-cash expense in connection with our management and director equity incentive plans . revenues . revenue totaled $ 301 thousand during the year ended december 31 , 2013 , compared to $ 362 thousand during the year ended december 31 , 2012. cost of sales . cost of sales totaled $ 555 thousand during the year ended december 31 , 2013 , compared with $ 521 thousand during the year ended december 31 , 2012. general and administrative expenses . general and administrative expenses during the year ended december 31 , 2013 , totaled $ 13.5 million compared with $ 12.6 million for the year ended december 31 , 2012. non-cash compensation costs related to stock and option awards are included in general and administrative expenses . general and administrative expenses , exclusive of stock-based compensation costs , totaled $ 13.0 million in the year ended december 31 , 2013 , compared with $ 12.2 million for the year ended december 31 , 2012. the increase in general and administrative expense in 2013 was primarily due to litigation costs related to the water project . 30 back to top compensation costs from stock and option awards for the year ended december 31 , 2013 , totaled $ 516 thousand compared with $ 383 thousand for the year ended december 31 , 2012. the expense reflects the vesting schedules of the stock and option awards under the 2009 equity incentive plan . the higher 2013 expense was primarily due to higher stock non-cash compensation costs related to shares awarded to the brownstein law firm for certain legal and advisory services to the company ( see note 9 to the consolidated financial statements , “ common stock ” ) , partially offset by a decrease in stock based non-cash compensation costs related to stock and options issued in 2011 under the 2009 equity incentive plan . depreciation . depreciation expenses totaled $ 254 thousand for the year ended december 31 , 2013 , compared to $ 350 thousand for the year ended december 31 , 2012. interest expense , net . net interest expense totaled $ 7.6 million during the year ended december 31 , 2013 , compared to $ 6.8 million during 2012. the following table summarizes the components of net interest expense for the two periods ( in thousands ) : replace_table_token_3_th the interest on outstanding debt increased from $ 3.6 million to $ 6.1 million due to the increase in interest rate on a larger credit facility associated with our march 2013 debt refinancing and our expanded working capital facility in october 2013. see note 6 to the consolidated financial statements , “ long-term debt ” . prior debt refinancings . deferred loan costs , which are primarily legal fees , are amortized over the life of each loan agreement . in june 2006 , we refinanced our term loan with ing capital llc ( “ ing ” ) with a new senior secured convertible term loan with a different lender . as a result , $ 408 thousand of legal fees was capitalized and amortized over the 7-year life of the loan agreement . an additional $ 73.5 thousand of lender fees was capitalized when the term loan was modified in october 2010. these fees were amortized over the remaining life of the term loan . in june 2009 and october 2010 , the term loan was modified as to certain of its conversion features . as a result of these convertible debt arrangements , the change in conversion value between the original and modified instrument totaled approximately $ 3.2 million , which was recorded as additional debt discount with a corresponding amount recorded as additional paid-in capital . such debt discount was accreted to the redemption value of the instrument over the remaining term of the loan as additional interest expense . on march 5 , 2013 , we completed arrangements with our senior lenders to refinance our existing $ 66 million corporate term debt . as a result , we recorded a loss on extinguishment of debt in the amount of $ 1.06 million which consisted of the write-off

cash used for operating activities . cash used for operating activities totaled $ 15.8 million for the year ended december 31 , 2013 , $ 11.4 million for the year ended december 31 , 2012 , and $ 7.5 million for the year ended december 31 , 2011. the cash was primarily used to fund : ( i ) general and administrative expenses related to our water development efforts ; ( ii ) litigation costs ; and ( iii ) a $ 3.3 million cash payment in march 2013 related to the lease agreement with the arizona & california railroad company to use a portion of the railroad 's right-of-way to construct and operate a water conveyance pipeline which is reflected in the increase in other assets in the consolidated statement of cash flows . 35 back to top cash used for investing activities . cash used for investing activities in the year ended december 31 , 2013 , was $ 167 thousand , compared with $ 3.3 million for the year ended december 31 , 2012 , and $ 4.1 million for the year ended december 31 , 2011. the 2012 and 2011 periods included additional investments in environmental work related to the water project . . cash provided by financing activities . cash provided by financing activities totaled $ 26.1 million for the year ended december 31 , 2013 , compared with $ 5.0 million for the year ended december 31 , 2012 , and $ 17.1 million for the year ended december 31 , 2011. the 2013 results include $ 27.4 million of proceeds as part of the issuance of long-term debt , offset by $ 1.3 million in financing costs related to debt refinancing .

our deep water port facilities on both the east and west coasts of the u.s. ( in everett , massachusetts ; providence , rhode island ; oakland , california ; portland , oregon ; and tacoma , washington ) and access to public deep water port facilities ( in kapolei , hawaii ; and salinas , puerto rico ) allow us to efficiently meet the global demand for recycled ferrous metal by shipping bulk cargoes to steel manufacturers located in asia , europe , africa , the middle east ( “ eame ” ) , and central america . our exports of nonferrous recycled metal are shipped in containers through various public docks to specialty steelmakers , foundries , aluminum sheet and ingot manufacturers , copper refineries and smelters , brass and bronze ingot manufacturers and wire and cable producers globally . we also transport both ferrous and nonferrous metals by truck , rail and barge in order to transfer scrap metal between our facilities for further processing , to load shipments at our export facilities and to meet regional domestic demand . key economic factors and trends affecting the industries in which we operate we sell recycled metals to the global steel industry for the production of finished steel . our financial results largely depend on supply of raw materials in the u.s. and western canada and demand for recycled metal in foreign and domestic markets and for finished steel products in the western u.s. and canada . changes in supply and demand conditions affect market prices for and volumes of recycled ferrous and nonferrous metal in global markets and for steel products in the western u.s. and canada and can have a significant impact on the results of operations for all three reporting segments . weak export demand and limited availability of raw materials has contributed to lower sales volumes for recycled metals in recent years . beginning in early fiscal 2012 , our markets were impacted by a slowdown of economic activity globally . macroeconomic uncertainty resulted in deteriorating market conditions for global steel manufacturers and volatile pricing swings with an overall downward trend in commodity prices and export selling prices of recycled materials . the persistently low economic growth in the u.s. contributed to constrained scrap flows in our mrb and apb domestic supply markets which , combined with increased 24 / schnitzer steel industries , inc. form 10-k 2014 schnitzer steel industries , inc. scrap recycling capacity and competition in certain regional markets , led to margin compression . in addition , a relatively stronger u.s. dollar value increased competitive pressure on mrb 's export activity . strategic factors as we continue to closely monitor economic conditions , we remain focused on the following core strategies to meet our business objectives : use of our seven deep water ports and ground-based transportation to directly access customers around the world and to meet demand wherever it is greatest ; synergistic growth and continuous productivity improvement and cost reduction initiatives which further integrate our operations and drive significant cost savings and efficiencies ; growth through acquisitions and greenfield development in existing and new geographic regions that generate attractive returns ; and continued investment in and benefit from technologies and process improvements which increase the separation and recovery of recycled materials from our shredding process . our strategy is focused on enhancing the inherent synergies within our integrated operations while continuing to improve productivity and grow our operations in core regions where we have a significant market presence and competitively advantageous port access . apb is a key supplier to mrb , and we opportunistically look to enhance the geographic proximity of operations within the two businesses . mrb and apb historically have had an integrated presence in the northwestern u.s. and in northern california , near mrb 's export facilities in tacoma , washington , portland , oregon and oakland , california , which benefit from the synergies of this enhanced access to supply . in early fiscal 2014 , we completed multi-year strategic investments in western canada , which enabled mrb and apb 's synergistic expansion into british columbia and alberta with seven metals collection and processing facilities , including a new shredder , as well as eight auto parts stores . apb 's facilities in western canada provide crushed autobodies to mrb 's new franchise in western canada in addition to shipping to its tacoma , washington facility . in fiscal 2014 , we opened our first greenfield auto parts store in johnston , rhode island , which , combined with three stores in massachusetts and rhode island acquired in fiscal 2013 , expands apb 's presence in the northeastern u.s. and enables a new source of supply for mrb 's northeastern regional operations which include 13 metals recycling and processing facilities . during fiscal 2014 we continued to implement enhancements to the synergies between these businesses by integrating certain operational processes . executive overview of financial results we generated consolidated revenues of $ 2.5 billion in fiscal 2014 , a decrease of 3 % from the $ 2.6 billion of consolidated revenues in the prior year . overall consolidated revenues decreased primarily due to lower average net selling prices for ferrous and nonferrous metal and reduced sales volumes of export ferrous metal as a result of continued weak economic conditions globally that adversely impacted export demand for recycled metal , which was only partially offset by higher volumes for domestic sales of recycled ferrous metal , nonferrous metal , and finished steel products . story_separator_special_tag fiscal 2013 also included $ 5 million of operating losses at apb , including transaction , integration and startup costs , related to the eleven store locations acquired or opened during fiscal 2013. these decreases were offset by an increase in operating income at smb of $ 9 million compared to fiscal 2012 primarily as a result of slightly improved demand leading to higher sales volumes and increased utilization levels . operating results in fiscal 2013 benefited from a reduction in sg & a expense of $ 12 million , or 6 % , from fiscal 2012 , primarily as a result of the restructuring initiatives and other operating efficiencies announced in the fourth quarter of fiscal 2012 and implemented in fiscal 2013. the decrease compared to fiscal 2012 was driven primarily by a reduction of $ 5 million in employee compensation expense and $ 4 million in professional and outside services . the reduction in consolidated sg & a expense was achieved despite the incremental expense attributable to the eleven store locations acquired or opened by apb during fiscal 2013. in the fourth quarter of fiscal 2013 , we identified the combination of the continued challenging market conditions , the constrained supply of raw materials , our recent financial performance and the lack of recovery of our market capitalization as a triggering event requiring an interim impairment test of goodwill allocated to our reporting units . for the apb reporting unit , the calculated fair value using the income approach substantially exceeded its carrying value . for the mrb reporting unit , the first step of the impairment test showed that the reporting unit 's fair value was less than its carrying amount , indicating a potential impairment . based on the second step of the impairment test , we recorded a non-cash goodwill impairment charge of $ 321 million at mrb . see critical accounting policies and estimates in part ii , item 7 of this report . during the fourth quarter of fiscal 2013 , we also recorded impairment charges of $ 13 million on various other assets at mrb , including the impairment of a contractual receivable of $ 8 million as a result of the debtor 's inability to repay the amount owed under agreements entered into for the extraction of scrap metal through demolition activities . we also identified impairments of $ 5 million on a combination of assets held for sale , a joint venture investment and other long-lived assets . interest expense interest expense was $ 11 million , $ 10 million and $ 12 million for fiscal 2014 , 2013 and 2012 , respectively . the decrease from fiscal 2012 to fiscal 2013 was primarily due to decreased average borrowings and lower average interest rates under our bank credit facilities compared to the prior year period . for more information about our outstanding debt balances , see note 9 – long-term debt in the notes to the consolidated financial statements in part ii , item 8 of this report . income tax expense ( benefit ) income tax expense ( benefit ) was $ 2 million , $ ( 57 ) million and $ 14 million for fiscal 2014 , 2013 and 2012 , respectively . our effective tax rate in fiscal 2014 was an expense of 19 % and was lower than the u.s. federal statutory rate of 35 % . the effective tax rate benefited from a fixed asset tax basis study performed during fiscal 2014 which resulted in the recognition of a tax benefit of $ 2 million , as well as the aggregate impact of excluding income associated with noncontrolling interests , foreign income taxed at different rates , and certain deductions and credits . other significant items impacting the effective tax rate included the recognition of a valuation allowance against certain foreign and state deferred tax assets and the recognition of a liability for unrecognized tax benefits of $ 2 million . the valuation allowance on deferred tax assets of certain foreign and state tax jurisdictions increased by $ 2 million compared to the prior year and was recognized as a result of negative evidence , including recent losses in certain foreign and state jurisdictions , outweighing the more subjective positive evidence , indicating that it is more likely than not that the associated tax benefit will not be realized . realization of the foreign subsidiaries ' deferred tax assets is dependent upon generating sufficient taxable income in the foreign tax jurisdiction in future years to benefit from the reversal of net deductible temporary differences and from the utilization of net operating losses . our effective tax rate for fiscal 2013 was a benefit of 17 % and differed from the u.s. federal statutory rate of 35 % primarily due to the recognition of an expense of $ 29 million to record a valuation allowance on deferred tax assets mainly related to a foreign subsidiary , the impact of the non-deductible portion of the goodwill impairment charge and the impact of the foreign tax rate differential on operating losses recorded by our foreign subsidiaries . the deferred tax assets at the foreign subsidiary for which a valuation allowance was recorded were related primarily to deductible temporary differences created in fiscal 2013 by the goodwill impairment charge and by net operating losses at the subsidiary . 30 / schnitzer steel industries , inc. form 10-k 2014 schnitzer steel industries , inc. in fiscal 2012 the effective tax rate was an expense of 33 % and differed from the u.s. federal statutory rate of 35 % primarily due to state tax benefits and research and development credits , partially offset by the adverse impact of foreign subsidiaries ' results taxed at different tax rates . we will continue to regularly assess the realizability of deferred tax assets . changes in historical earnings performance and future earnings projections , among other factors , may cause us to adjust our

cash used for operating activities . cash used for operating activities totaled $ 15.8 million for the year ended december 31 , 2013 , $ 11.4 million for the year ended december 31 , 2012 , and $ 7.5 million for the year ended december 31 , 2011. the cash was primarily used to fund : ( i ) general and administrative expenses related to our water development efforts ; ( ii ) litigation costs ; and ( iii ) a $ 3.3 million cash payment in march 2013 related to the lease agreement with the arizona & california railroad company to use a portion of the railroad 's right-of-way to construct and operate a water conveyance pipeline which is reflected in the increase in other assets in the consolidated statement of cash flows . 35 back to top cash used for investing activities . cash used for investing activities in the year ended december 31 , 2013 , was $ 167 thousand , compared with $ 3.3 million for the year ended december 31 , 2012 , and $ 4.1 million for the year ended december 31 , 2011. the 2012 and 2011 periods included additional investments in environmental work related to the water project . . cash provided by financing activities . cash provided by financing activities totaled $ 26.1 million for the year ended december 31 , 2013 , compared with $ 5.0 million for the year ended december 31 , 2012 , and $ 17.1 million for the year ended december 31 , 2011. the 2013 results include $ 27.4 million of proceeds as part of the issuance of long-term debt , offset by $ 1.3 million in financing costs related to debt refinancing .

our deep water port facilities on both the east and west coasts of the u.s. ( in everett , massachusetts ; providence , rhode island ; oakland , california ; portland , oregon ; and tacoma , washington ) and access to public deep water port facilities ( in kapolei , hawaii ; and salinas , puerto rico ) allow us to efficiently meet the global demand for recycled ferrous metal by shipping bulk cargoes to steel manufacturers located in asia , europe , africa , the middle east ( “ eame ” ) , and central america . our exports of nonferrous recycled metal are shipped in containers through various public docks to specialty steelmakers , foundries , aluminum sheet and ingot manufacturers , copper refineries and smelters , brass and bronze ingot manufacturers and wire and cable producers globally . we also transport both ferrous and nonferrous metals by truck , rail and barge in order to transfer scrap metal between our facilities for further processing , to load shipments at our export facilities and to meet regional domestic demand . key economic factors and trends affecting the industries in which we operate we sell recycled metals to the global steel industry for the production of finished steel . our financial results largely depend on supply of raw materials in the u.s. and western canada and demand for recycled metal in foreign and domestic markets and for finished steel products in the western u.s. and canada . changes in supply and demand conditions affect market prices for and volumes of recycled ferrous and nonferrous metal in global markets and for steel products in the western u.s. and canada and can have a significant impact on the results of operations for all three reporting segments . weak export demand and limited availability of raw materials has contributed to lower sales volumes for recycled metals in recent years . beginning in early fiscal 2012 , our markets were impacted by a slowdown of economic activity globally . macroeconomic uncertainty resulted in deteriorating market conditions for global steel manufacturers and volatile pricing swings with an overall downward trend in commodity prices and export selling prices of recycled materials . the persistently low economic growth in the u.s. contributed to constrained scrap flows in our mrb and apb domestic supply markets which , combined with increased 24 / schnitzer steel industries , inc. form 10-k 2014 schnitzer steel industries , inc. scrap recycling capacity and competition in certain regional markets , led to margin compression . in addition , a relatively stronger u.s. dollar value increased competitive pressure on mrb 's export activity . strategic factors as we continue to closely monitor economic conditions , we remain focused on the following core strategies to meet our business objectives : use of our seven deep water ports and ground-based transportation to directly access customers around the world and to meet demand wherever it is greatest ; synergistic growth and continuous productivity improvement and cost reduction initiatives which further integrate our operations and drive significant cost savings and efficiencies ; growth through acquisitions and greenfield development in existing and new geographic regions that generate attractive returns ; and continued investment in and benefit from technologies and process improvements which increase the separation and recovery of recycled materials from our shredding process . our strategy is focused on enhancing the inherent synergies within our integrated operations while continuing to improve productivity and grow our operations in core regions where we have a significant market presence and competitively advantageous port access . apb is a key supplier to mrb , and we opportunistically look to enhance the geographic proximity of operations within the two businesses . mrb and apb historically have had an integrated presence in the northwestern u.s. and in northern california , near mrb 's export facilities in tacoma , washington , portland , oregon and oakland , california , which benefit from the synergies of this enhanced access to supply . in early fiscal 2014 , we completed multi-year strategic investments in western canada , which enabled mrb and apb 's synergistic expansion into british columbia and alberta with seven metals collection and processing facilities , including a new shredder , as well as eight auto parts stores . apb 's facilities in western canada provide crushed autobodies to mrb 's new franchise in western canada in addition to shipping to its tacoma , washington facility . in fiscal 2014 , we opened our first greenfield auto parts store in johnston , rhode island , which , combined with three stores in massachusetts and rhode island acquired in fiscal 2013 , expands apb 's presence in the northeastern u.s. and enables a new source of supply for mrb 's northeastern regional operations which include 13 metals recycling and processing facilities . during fiscal 2014 we continued to implement enhancements to the synergies between these businesses by integrating certain operational processes . executive overview of financial results we generated consolidated revenues of $ 2.5 billion in fiscal 2014 , a decrease of 3 % from the $ 2.6 billion of consolidated revenues in the prior year . overall consolidated revenues decreased primarily due to lower average net selling prices for ferrous and nonferrous metal and reduced sales volumes of export ferrous metal as a result of continued weak economic conditions globally that adversely impacted export demand for recycled metal , which was only partially offset by higher volumes for domestic sales of recycled ferrous metal , nonferrous metal , and finished steel products . story_separator_special_tag fiscal 2013 also included $ 5 million of operating losses at apb , including transaction , integration and startup costs , related to the eleven store locations acquired or opened during fiscal 2013. these decreases were offset by an increase in operating income at smb of $ 9 million compared to fiscal 2012 primarily as a result of slightly improved demand leading to higher sales volumes and increased utilization levels . operating results in fiscal 2013 benefited from a reduction in sg & a expense of $ 12 million , or 6 % , from fiscal 2012 , primarily as a result of the restructuring initiatives and other operating efficiencies announced in the fourth quarter of fiscal 2012 and implemented in fiscal 2013. the decrease compared to fiscal 2012 was driven primarily by a reduction of $ 5 million in employee compensation expense and $ 4 million in professional and outside services . the reduction in consolidated sg & a expense was achieved despite the incremental expense attributable to the eleven store locations acquired or opened by apb during fiscal 2013. in the fourth quarter of fiscal 2013 , we identified the combination of the continued challenging market conditions , the constrained supply of raw materials , our recent financial performance and the lack of recovery of our market capitalization as a triggering event requiring an interim impairment test of goodwill allocated to our reporting units . for the apb reporting unit , the calculated fair value using the income approach substantially exceeded its carrying value . for the mrb reporting unit , the first step of the impairment test showed that the reporting unit 's fair value was less than its carrying amount , indicating a potential impairment . based on the second step of the impairment test , we recorded a non-cash goodwill impairment charge of $ 321 million at mrb . see critical accounting policies and estimates in part ii , item 7 of this report . during the fourth quarter of fiscal 2013 , we also recorded impairment charges of $ 13 million on various other assets at mrb , including the impairment of a contractual receivable of $ 8 million as a result of the debtor 's inability to repay the amount owed under agreements entered into for the extraction of scrap metal through demolition activities . we also identified impairments of $ 5 million on a combination of assets held for sale , a joint venture investment and other long-lived assets . interest expense interest expense was $ 11 million , $ 10 million and $ 12 million for fiscal 2014 , 2013 and 2012 , respectively . the decrease from fiscal 2012 to fiscal 2013 was primarily due to decreased average borrowings and lower average interest rates under our bank credit facilities compared to the prior year period . for more information about our outstanding debt balances , see note 9 – long-term debt in the notes to the consolidated financial statements in part ii , item 8 of this report . income tax expense ( benefit ) income tax expense ( benefit ) was $ 2 million , $ ( 57 ) million and $ 14 million for fiscal 2014 , 2013 and 2012 , respectively . our effective tax rate in fiscal 2014 was an expense of 19 % and was lower than the u.s. federal statutory rate of 35 % . the effective tax rate benefited from a fixed asset tax basis study performed during fiscal 2014 which resulted in the recognition of a tax benefit of $ 2 million , as well as the aggregate impact of excluding income associated with noncontrolling interests , foreign income taxed at different rates , and certain deductions and credits . other significant items impacting the effective tax rate included the recognition of a valuation allowance against certain foreign and state deferred tax assets and the recognition of a liability for unrecognized tax benefits of $ 2 million . the valuation allowance on deferred tax assets of certain foreign and state tax jurisdictions increased by $ 2 million compared to the prior year and was recognized as a result of negative evidence , including recent losses in certain foreign and state jurisdictions , outweighing the more subjective positive evidence , indicating that it is more likely than not that the associated tax benefit will not be realized . realization of the foreign subsidiaries ' deferred tax assets is dependent upon generating sufficient taxable income in the foreign tax jurisdiction in future years to benefit from the reversal of net deductible temporary differences and from the utilization of net operating losses . our effective tax rate for fiscal 2013 was a benefit of 17 % and differed from the u.s. federal statutory rate of 35 % primarily due to the recognition of an expense of $ 29 million to record a valuation allowance on deferred tax assets mainly related to a foreign subsidiary , the impact of the non-deductible portion of the goodwill impairment charge and the impact of the foreign tax rate differential on operating losses recorded by our foreign subsidiaries . the deferred tax assets at the foreign subsidiary for which a valuation allowance was recorded were related primarily to deductible temporary differences created in fiscal 2013 by the goodwill impairment charge and by net operating losses at the subsidiary . 30 / schnitzer steel industries , inc. form 10-k 2014 schnitzer steel industries , inc. in fiscal 2012 the effective tax rate was an expense of 33 % and differed from the u.s. federal statutory rate of 35 % primarily due to state tax benefits and research and development credits , partially offset by the adverse impact of foreign subsidiaries ' results taxed at different tax rates . we will continue to regularly assess the realizability of deferred tax assets . changes in historical earnings performance and future earnings projections , among other factors , may cause us to adjust our

sources and uses of cash we had cash balances of $ 26 million and $ 13 million as of august 31 , 2014 and 2013 , respectively . cash balances are intended to be used primarily for working capital , capital expenditures , acquisitions , dividends and share repurchases . we also use excess cash on hand to reduce amounts outstanding under our credit facilities . as of august 31 , 2014 , debt , net of cash , was $ 294 million compared to $ 368 million as of august 31 , 2013 ( refer to non-gaap financial measures below ) , a decrease of $ 75 million primarily as a result of the positive cash flows generated by operating activities . our cash balances as of august 31 , 2014 and 2013 include $ 4 million and $ 7 million , respectively , which are indefinitely reinvested in puerto rico and canada . operating activities net cash provided by operating activities in fiscal 2014 was $ 141 million , compared to $ 39 million in fiscal 2013 and $ 245 million in fiscal 2012 . cash provided by operating activities in fiscal 2014 included a decrease in inventories of $ 36 million due to the timing of shipments . uses of cash included an increase of $ 16 million in accounts receivable due to the timing of shipments and collections . cash provided by operating activities in fiscal 2013 included a decrease in inventories of $ 47 million due to lower volumes of material purchases . uses of cash included an increase of $ 79 million in accounts receivable due to the timing of shipments and collections and a decrease in accounts payable of $ 11 million due to lower levels of material purchases and timing of payments . cash provided by operating activities in fiscal 2012 included a decrease in inventories of $ 94 million due to lower volumes of material purchases and a decrease of $ 82 million in accounts receivable due to lower sales volumes and the timing of collections .

in january , 2021 , we submitted a protocol amendment to the fda to shorten the duration of the determine study from 52 weeks to 28 weeks . subjects in the determine study are randomized to receive lenabasum 20 mg twice per day , lenabasum 5 mg twice per day , or placebo twice per day in a 2:1:2 ratio . the primary efficacy outcome , which will be measured at week 28 , is the american college of rheumatology/european league against rheumatism 2016 total improvement score , which is a weighted composite measure of improvement from baseline in six endpoints , including physician global assessment of disease activity , physician global assessment of extramuscular disease activity , patient global assessment of disease activity , health assessment questionnaire ( patient-reported disability ) , manual muscle testing , and muscle enzymes . change from baseline in the cutaneous dermatomyositis activity and severity index activity ( cdasi ) score is one of several secondary efficacy outcomes in the phase 3 study . last subject , last dose in the placebo-controlled part of the determine study has been completed in the first fiscal quarter of 2021 , with topline data expected in the second fiscal quarter of 2021. since our inception , we have devoted substantially all of our efforts to business planning , research and development , recruiting management and technical staff , acquiring operating assets and raising capital . our research and development activities have included conducting pre-clinical studies , developing manufacturing methods and the manufacturing of our drug lenabasum for clinical trials and conducting clinical studies in patients . in september 2018 , pursuant to a license agreement ( the ‘ jenrin agreement ” ) with jenrin discovery llc ( “ jenrin ” ) we acquired an exclusive worldwide license to develop , manufacture and market drug candidates from more than 600 compounds targeting the endocannabinoid system . the portfolio of compounds includes cannabinoid candidates targeting liver , lung , heart and kidney fibrotic diseases . on january 3 , 2019 , we entered into a strategic collaboration with kaken pharmaceutical co. , ltd. ( “ kaken ” ) for the development and commercialization in japan of our investigational drug lenabasum for the treatment of systemic sclerosis and dermatomyositis . under the terms of the agreement , kaken receives an exclusive license to commercialize and market lenabasum in japan for systemic sclerosis and dermatomyositis . in march 2019 , kaken made an upfront payment to us of $ 27 million . we are also eligible to receive up to $ 173 million upon achievement of certain regulatory , development and sales milestones as well as double- digit royalties from kaken . on january 30 , 2019 , we consummated an underwritten public offering of shares of our common stock pursuant to which we sold an aggregate of 6,198,500 shares of our common stock at a purchase price of $ 6.50 per share with gross proceeds to us totaling approximately $ 40.3 million , less estimated issuance costs incurred of approximately $ 2.6 million . 52 on february 11 , 2020 , we consummated an underwritten public offering of shares of our common stock pursuant to which we sold an aggregate of 7,666,667 shares of our common stock at a purchase price of $ 6.00 per share with gross proceeds to us totaling approximately $ 46.0 million , less estimated issuance costs incurred of approximately $ 3.0 million . on april 7 , 2020 , we entered into an open market sale agreement sm ( “ april 2020 sale agreement ” ) with jefferies llc ( “ jefferies ” ) pursuant to which jefferies is serving as our sales agent to sell up to $ 75,000,000 of shares of the company 's common stock through an “ at the market offering ” . as of december 31 , 2020 we sold 10,539,374 shares of our common stock under the april 2020 sale agreement for gross proceeds to us totaling $ 75,000,000 , less issuance costs incurred of approximately $ 2,250,000. on july 28 , 2020 , we entered into the loan agreement with our subsidiary , corbus pharmaceuticals , inc. , as borrower , us , as guarantor , each lender party thereto ( the “ lenders ” ) , k2 healthventures llc ( “ k2hv ” ) , an unrelated third party , as administrative agent for the lenders , and ankura trust company , llc , an unrelated third party , as collateral agent for the lenders , pursuant to which k2hv may provide us with term loans in an aggregate principal amount of up to a $ 50,000,000. on august 7 , 2020 , we entered into an open market sale agreement sm ( the “ august 2020 sale agreement ” ) with jefferies , as sales agent , pursuant to which we may issue and sell , from time to time , through jefferies , shares of our common stock . as of august 7 , 2020 , we are authorized to offer and sell up to $ 150 million of our common stock pursuant to the august 2020 sale agreement . as of december 31 , 2020 we have sold 15,546,151 shares of our common stock under the august 2020 sale agreement for gross proceeds totaling $ 21,404,000 , less issuance costs incurred of approximately $ 642,000. we expect the cash and cash equivalents of approximately $ 85.4 million at december 31 , 2020 , $ 58.9 million of proceeds raised from the august 2020 sale agreement from january 1 , 2021 through march 15 , 2021 , and the remaining $ 2.5 million of proceeds that we expect to receive under the 2018 cff award before the end of the first half of 2021 to be sufficient to meet our operating and capital requirements into 2024 , based on planned expenditures . story_separator_special_tag the $ 2,500,000 remainder of the 2018 cff award is payable to us incrementally upon the achievement of the remaining milestones related to the progress of the phase 2b clinical trial , as set forth in the investment agreement and we expect to receive the remainder before the end of the first half of 2021. revenue for the year ended december 31 , 2019 also included the recognition of revenue from licenses for the $ 27,000,000 upfront payment received from kaken in march 2019 for which we satisfied the combined performance obligation by june 30 , 2019 , upon which we recognized the $ 27,000,000 as revenue in the second quarter of 2019 . 57 we assessed the 2018 cff award and the kaken collaboration agreement for accounting under asc 606. to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , the entity performs the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . research and development . research and development expenses for the year ended december 31 , 2020 totaled approximately $ 98,267,000 , an increase of $ 8,662,000 over the $ 89,605,000 recorded for the year ended december 31 , 2019. the increase in fiscal 2020 as compared to fiscal 2019 was primarily attributable to increases of approximately $ 3,561,000 in clinical trial costs and $ 5,638,000 in compensation costs . these increases were partially offset by an approximate $ 537,000 decrease in stock-based compensation expense . during 2018 , the company formed a subsidiary in each of the united kingdom and australia and approximately 44 % and 46 % of research and development expenses recorded for the year ended december 31 , 2020 and december 31 , 2019 respectively was recorded in these entities . general and administrative . general and administrative expense for the year ended december 31 , 2020 totaled approximately $ 28,480,000 , an increase of $ 4,837,000 over the $ 23,643,000 recorded for the year ended december 31 , 2019. the increase in fiscal 2020 as compared to fiscal 2019 was primarily attributable to increases of approximately $ 3,119,000 in compensation costs , $ 1,014,000 stock-based compensation , $ 473,000 in insurance costs , and $ 376,000 in temporary help and recruiting costs . other income , net . other income , net for 2020 was approximately $ 11,541,000 as compared to approximately $ 5,651,000 recorded for 2019. the increase of $ 5,890,000 in 2020 as compared to 2019 was primarily attributable to approximately $ 9,574,000 increase in cash paid to us in 2020 from taxing authorities for refundable research and development tax credits that were earned on certain research and development expenses we incurred primarily outside of the united states , offset by $ 251,000 related to the derivative liability valuation associated with the loan agreement with k2hv and $ 850,000 related to a return of a state of massachusetts research and development tax credit . in prior year we received approximately $ 472,000 for a refundable research and development tax credit and in 2020 approximately $ 378,000 became due back to the state of massachusetts . the net increase was also offset by a $ 2,256,000 decrease to interest income . this was the result of approximately $ 1,100,000 lower interest income on excess cash and cash equivalents and $ 1,127,000 higher interest expense in 2020 as a result of entering into k2hv security and loan agreement . story_separator_special_tag or discontinuing certain clinical activities . we may seek to sell common stock , preferred stock or convertible debt securities , enter into a credit facility or another form of third-party funding or seek other debt financing . in addition , we may seek to raise cash through collaborative agreements or from government grants . the sale of equity and convertible debt securities may result in dilution to our stockholders and certain of those securities may have rights senior to those of our common shares . if we raise additional funds through the issuance of preferred stock , convertible debt securities or other debt financing , these securities or other debt could contain covenants that would restrict our operations . any other third-party funding arrangement could require us to relinquish valuable rights . the source , timing and availability of any future financing will depend principally upon market conditions , and , more specifically , on the progress of our clinical development programs . funding may not be available when needed , at all , or on terms acceptable to us . lack of necessary funds may require us , among other things , to delay , scale back or eliminate expenses including some or all of our planned clinical trials . 59 contractual obligations and commitments the following table presents information about our known contractual obligations as of december 31 , 2020. it does not reflect contractual obligations that may have arisen or may arise after that date . except for historical facts , the information in this section is forward-looking information . replace_table_token_2_th on february 26 , 2019 , we amended our lease ( “ february 2019 lease agreement ” ) pursuant to which an additional 30,023 square feet of office space ( “ new premises ” ) will be leased by us in the same building for an aggregate total of 62,756 square feet of leased office space ( “ total premises ” ) . the february 2019 lease agreement constitutes a modification as it extends the original lease term and increases the scope of the lease ( additional space provided under the amendment ) , which requires evaluation of the

sources and uses of cash we had cash balances of $ 26 million and $ 13 million as of august 31 , 2014 and 2013 , respectively . cash balances are intended to be used primarily for working capital , capital expenditures , acquisitions , dividends and share repurchases . we also use excess cash on hand to reduce amounts outstanding under our credit facilities . as of august 31 , 2014 , debt , net of cash , was $ 294 million compared to $ 368 million as of august 31 , 2013 ( refer to non-gaap financial measures below ) , a decrease of $ 75 million primarily as a result of the positive cash flows generated by operating activities . our cash balances as of august 31 , 2014 and 2013 include $ 4 million and $ 7 million , respectively , which are indefinitely reinvested in puerto rico and canada . operating activities net cash provided by operating activities in fiscal 2014 was $ 141 million , compared to $ 39 million in fiscal 2013 and $ 245 million in fiscal 2012 . cash provided by operating activities in fiscal 2014 included a decrease in inventories of $ 36 million due to the timing of shipments . uses of cash included an increase of $ 16 million in accounts receivable due to the timing of shipments and collections . cash provided by operating activities in fiscal 2013 included a decrease in inventories of $ 47 million due to lower volumes of material purchases . uses of cash included an increase of $ 79 million in accounts receivable due to the timing of shipments and collections and a decrease in accounts payable of $ 11 million due to lower levels of material purchases and timing of payments . cash provided by operating activities in fiscal 2012 included a decrease in inventories of $ 94 million due to lower volumes of material purchases and a decrease of $ 82 million in accounts receivable due to lower sales volumes and the timing of collections .

in january , 2021 , we submitted a protocol amendment to the fda to shorten the duration of the determine study from 52 weeks to 28 weeks . subjects in the determine study are randomized to receive lenabasum 20 mg twice per day , lenabasum 5 mg twice per day , or placebo twice per day in a 2:1:2 ratio . the primary efficacy outcome , which will be measured at week 28 , is the american college of rheumatology/european league against rheumatism 2016 total improvement score , which is a weighted composite measure of improvement from baseline in six endpoints , including physician global assessment of disease activity , physician global assessment of extramuscular disease activity , patient global assessment of disease activity , health assessment questionnaire ( patient-reported disability ) , manual muscle testing , and muscle enzymes . change from baseline in the cutaneous dermatomyositis activity and severity index activity ( cdasi ) score is one of several secondary efficacy outcomes in the phase 3 study . last subject , last dose in the placebo-controlled part of the determine study has been completed in the first fiscal quarter of 2021 , with topline data expected in the second fiscal quarter of 2021. since our inception , we have devoted substantially all of our efforts to business planning , research and development , recruiting management and technical staff , acquiring operating assets and raising capital . our research and development activities have included conducting pre-clinical studies , developing manufacturing methods and the manufacturing of our drug lenabasum for clinical trials and conducting clinical studies in patients . in september 2018 , pursuant to a license agreement ( the ‘ jenrin agreement ” ) with jenrin discovery llc ( “ jenrin ” ) we acquired an exclusive worldwide license to develop , manufacture and market drug candidates from more than 600 compounds targeting the endocannabinoid system . the portfolio of compounds includes cannabinoid candidates targeting liver , lung , heart and kidney fibrotic diseases . on january 3 , 2019 , we entered into a strategic collaboration with kaken pharmaceutical co. , ltd. ( “ kaken ” ) for the development and commercialization in japan of our investigational drug lenabasum for the treatment of systemic sclerosis and dermatomyositis . under the terms of the agreement , kaken receives an exclusive license to commercialize and market lenabasum in japan for systemic sclerosis and dermatomyositis . in march 2019 , kaken made an upfront payment to us of $ 27 million . we are also eligible to receive up to $ 173 million upon achievement of certain regulatory , development and sales milestones as well as double- digit royalties from kaken . on january 30 , 2019 , we consummated an underwritten public offering of shares of our common stock pursuant to which we sold an aggregate of 6,198,500 shares of our common stock at a purchase price of $ 6.50 per share with gross proceeds to us totaling approximately $ 40.3 million , less estimated issuance costs incurred of approximately $ 2.6 million . 52 on february 11 , 2020 , we consummated an underwritten public offering of shares of our common stock pursuant to which we sold an aggregate of 7,666,667 shares of our common stock at a purchase price of $ 6.00 per share with gross proceeds to us totaling approximately $ 46.0 million , less estimated issuance costs incurred of approximately $ 3.0 million . on april 7 , 2020 , we entered into an open market sale agreement sm ( “ april 2020 sale agreement ” ) with jefferies llc ( “ jefferies ” ) pursuant to which jefferies is serving as our sales agent to sell up to $ 75,000,000 of shares of the company 's common stock through an “ at the market offering ” . as of december 31 , 2020 we sold 10,539,374 shares of our common stock under the april 2020 sale agreement for gross proceeds to us totaling $ 75,000,000 , less issuance costs incurred of approximately $ 2,250,000. on july 28 , 2020 , we entered into the loan agreement with our subsidiary , corbus pharmaceuticals , inc. , as borrower , us , as guarantor , each lender party thereto ( the “ lenders ” ) , k2 healthventures llc ( “ k2hv ” ) , an unrelated third party , as administrative agent for the lenders , and ankura trust company , llc , an unrelated third party , as collateral agent for the lenders , pursuant to which k2hv may provide us with term loans in an aggregate principal amount of up to a $ 50,000,000. on august 7 , 2020 , we entered into an open market sale agreement sm ( the “ august 2020 sale agreement ” ) with jefferies , as sales agent , pursuant to which we may issue and sell , from time to time , through jefferies , shares of our common stock . as of august 7 , 2020 , we are authorized to offer and sell up to $ 150 million of our common stock pursuant to the august 2020 sale agreement . as of december 31 , 2020 we have sold 15,546,151 shares of our common stock under the august 2020 sale agreement for gross proceeds totaling $ 21,404,000 , less issuance costs incurred of approximately $ 642,000. we expect the cash and cash equivalents of approximately $ 85.4 million at december 31 , 2020 , $ 58.9 million of proceeds raised from the august 2020 sale agreement from january 1 , 2021 through march 15 , 2021 , and the remaining $ 2.5 million of proceeds that we expect to receive under the 2018 cff award before the end of the first half of 2021 to be sufficient to meet our operating and capital requirements into 2024 , based on planned expenditures . story_separator_special_tag the $ 2,500,000 remainder of the 2018 cff award is payable to us incrementally upon the achievement of the remaining milestones related to the progress of the phase 2b clinical trial , as set forth in the investment agreement and we expect to receive the remainder before the end of the first half of 2021. revenue for the year ended december 31 , 2019 also included the recognition of revenue from licenses for the $ 27,000,000 upfront payment received from kaken in march 2019 for which we satisfied the combined performance obligation by june 30 , 2019 , upon which we recognized the $ 27,000,000 as revenue in the second quarter of 2019 . 57 we assessed the 2018 cff award and the kaken collaboration agreement for accounting under asc 606. to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , the entity performs the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . research and development . research and development expenses for the year ended december 31 , 2020 totaled approximately $ 98,267,000 , an increase of $ 8,662,000 over the $ 89,605,000 recorded for the year ended december 31 , 2019. the increase in fiscal 2020 as compared to fiscal 2019 was primarily attributable to increases of approximately $ 3,561,000 in clinical trial costs and $ 5,638,000 in compensation costs . these increases were partially offset by an approximate $ 537,000 decrease in stock-based compensation expense . during 2018 , the company formed a subsidiary in each of the united kingdom and australia and approximately 44 % and 46 % of research and development expenses recorded for the year ended december 31 , 2020 and december 31 , 2019 respectively was recorded in these entities . general and administrative . general and administrative expense for the year ended december 31 , 2020 totaled approximately $ 28,480,000 , an increase of $ 4,837,000 over the $ 23,643,000 recorded for the year ended december 31 , 2019. the increase in fiscal 2020 as compared to fiscal 2019 was primarily attributable to increases of approximately $ 3,119,000 in compensation costs , $ 1,014,000 stock-based compensation , $ 473,000 in insurance costs , and $ 376,000 in temporary help and recruiting costs . other income , net . other income , net for 2020 was approximately $ 11,541,000 as compared to approximately $ 5,651,000 recorded for 2019. the increase of $ 5,890,000 in 2020 as compared to 2019 was primarily attributable to approximately $ 9,574,000 increase in cash paid to us in 2020 from taxing authorities for refundable research and development tax credits that were earned on certain research and development expenses we incurred primarily outside of the united states , offset by $ 251,000 related to the derivative liability valuation associated with the loan agreement with k2hv and $ 850,000 related to a return of a state of massachusetts research and development tax credit . in prior year we received approximately $ 472,000 for a refundable research and development tax credit and in 2020 approximately $ 378,000 became due back to the state of massachusetts . the net increase was also offset by a $ 2,256,000 decrease to interest income . this was the result of approximately $ 1,100,000 lower interest income on excess cash and cash equivalents and $ 1,127,000 higher interest expense in 2020 as a result of entering into k2hv security and loan agreement . story_separator_special_tag or discontinuing certain clinical activities . we may seek to sell common stock , preferred stock or convertible debt securities , enter into a credit facility or another form of third-party funding or seek other debt financing . in addition , we may seek to raise cash through collaborative agreements or from government grants . the sale of equity and convertible debt securities may result in dilution to our stockholders and certain of those securities may have rights senior to those of our common shares . if we raise additional funds through the issuance of preferred stock , convertible debt securities or other debt financing , these securities or other debt could contain covenants that would restrict our operations . any other third-party funding arrangement could require us to relinquish valuable rights . the source , timing and availability of any future financing will depend principally upon market conditions , and , more specifically , on the progress of our clinical development programs . funding may not be available when needed , at all , or on terms acceptable to us . lack of necessary funds may require us , among other things , to delay , scale back or eliminate expenses including some or all of our planned clinical trials . 59 contractual obligations and commitments the following table presents information about our known contractual obligations as of december 31 , 2020. it does not reflect contractual obligations that may have arisen or may arise after that date . except for historical facts , the information in this section is forward-looking information . replace_table_token_2_th on february 26 , 2019 , we amended our lease ( “ february 2019 lease agreement ” ) pursuant to which an additional 30,023 square feet of office space ( “ new premises ” ) will be leased by us in the same building for an aggregate total of 62,756 square feet of leased office space ( “ total premises ” ) . the february 2019 lease agreement constitutes a modification as it extends the original lease term and increases the scope of the lease ( additional space provided under the amendment ) , which requires evaluation of the

liquidity and capital resources since inception , we have experienced negative cash flows from operations . we have financed our operations primarily through sales of equity-related securities . in addition , the majority of the costs of the sle clinical trial has been or is expected to be funded by nih grants , and our phase 2b cystic fibrosis trial was supported by the 2018 cff award . at december 31 , 2020 , our accumulated deficit since inception was approximately $ 304,093,000. at december 31 , 2020 , we had total current assets of approximately $ 92,075,000 and current liabilities of approximately $ 31,898,000 resulting in working capital of approximately $ 60,177,000. of our total cash and cash equivalents of $ 85.4 million at december 31 , 2020 , $ 84.4 million was held within the united states . net cash used in operating activities for the year ended december 31 , 2020 was approximately $ 99,686,000 which includes a net loss of approximately $ 111,269,000 , adjusted for non-cash expenses of approximately $ 14,789,000 , principally related to stock-based compensation expense of $ 12,458,000 , depreciation and amortization expense of $ 1,124,000 and operating lease right of use asset amortization of $ 570,000 , and approximately $ 3,205,000 of cash used by net working capital items , principally related to the decrease in accounts payable . cash used in investing activities for the year ended december 31 , 2020 totaled approximately $ 484,000 , which was largely related to payments for furniture and fixtures utilized in the build out of our office space in 2019 .

we determine an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed . revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions . the estimated sales return reserve is based on projected merchandise returns determined through the use of historical average return percentages . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our sales return reserve . however , if the actual rate of sales returns increases significantly , our operating results could be adversely affected . we recognize royalty revenue generated from our license or franchise agreements based upon a percentage of merchandise sales by the licensee/franchisee . this revenue is recorded as a component of total net revenue when earned . merchandise inventory . merchandise inventory is valued at the lower of average cost or market , utilizing the retail method . average cost includes merchandise design and sourcing costs and related expenses . we record merchandise receipts at the time which both title and risk of loss for the merchandise transfers to us . we review our inventory in order to identify slow-moving merchandise and generally use markdowns to clear merchandise . additionally , we estimate a markdown reserve for future planned markdowns related to current inventory . if inventory exceeds customer demand for reasons of style , seasonal adaptation , changes in customer preference , lack of consumer acceptance of fashion items , competition , or if it is determined that the inventory in stock will not sell at its currently ticketed price , additional markdowns may be necessary . these markdowns may have a material adverse impact on earnings , depending on the extent and amount of inventory affected . we estimate an inventory shrinkage reserve for anticipated losses for the period between the last physical count and the balance sheet date . the estimate for the shrinkage reserve is calculated based on historical percentages and can be affected by changes in merchandise mix and changes in actual shrinkage trends . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our inventory shrinkage reserve . however , if actual physical inventory losses differ significantly from our estimate , our operating results could be adversely affected . asset impairment . in accordance with financial accounting standards board ( “ fasb ” ) accounting standard codification ( “ asc ” ) 360 , property , plant , and equipment ( “ asc 360 ” ) , we evaluate long-lived assets for impairment at the individual store level , which is the lowest level at which individual cash flows can be identified . impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of the assets . when events such as these occur , the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded separately as a component of operating income under loss on impairment of assets . our impairment loss calculations require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values , including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses . however , if actual results are not consistent with our estimates and assumptions , our operating results could be adversely affected . share-based payments . we account for share-based payments in accordance with the provisions of asc 718 , compensation – stock compensation ( “ asc 718 ” ) . to determine the fair value of our stock option awards , we use the black-scholes option pricing model , which requires management to apply judgment and make assumptions to determine the fair value of our awards . these assumptions include estimating the length of time employees will retain their vested stock options before exercising them ( the “ expected term ” ) and the estimated volatility of the price of our common stock over the expected term . 17 we calculate a weighted-average expected term based on historical experience . e xpected stock price volatility is based on a combination of historical volatility of our common stock and implied volatility . we choose to use a combination of historical and implied volatility as we believe that this combination is more representative of future stock price trends than historical volatility alone . changes in these assumptions can materially affect the estimate of the fair value of our share-based payments and the related amount recognized in our consolidated financial statements . income taxes . we calculate income taxes in accordance with asc 740 , income taxes ( “ asc 740 ” ) , which requires the use of the asset and liability method . under this method , deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to asc 740. deferred tax assets and liabilities are measured using the tax rates , based on certain judgments regarding enacted tax laws and published guidance , in effect in the years when those temporary differences are expected to reverse . story_separator_special_tag fair value is defined under asc 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date : 24 financial instruments valuation techniques used to measure fair value under asc 820 must maximize the use of observable inputs and minimize the use of unobservable inputs . in addition , asc 820 establishes this three-tier fair value hierarchy , which prioritizes the inputs used in measuring fair value . these tiers include : · level 1 — quoted prices in active markets for identical assets or liabilities . · level 2 — inputs 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 . · level 3 — unobservable inputs ( i.e . , projections , estimates , interpretations , etc . ) that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . as of january 30 , 2016 and january 31 , 2015 , we held certain assets that are required to be measured at fair value on a recurring basis . these include cash equivalents and investments . in accordance with asc 820 , the following tables represent the fair value hierarchy for our financial assets ( cash equivalents and investments ) measured at fair value on a recurring basis as of january 30 , 2016 : replace_table_token_7_th in the event we hold level 3 investments , a discounted cash flow model is used to value those investments . there were no level 3 investments at january 30 , 2016. liquidity and capital resources our uses of cash are generally for working capital , the construction of new stores and remodeling of existing stores , information technology upgrades , distribution center improvements and expansion and the return of value to shareholders through the repurchase of common stock and the payment of dividends . historically , these uses of cash have been funded with cash flow from operations and existing cash on hand . also , we hold a five-year asset-based revolving credit facility that allows us to borrow up to $ 400 million . additionally , our uses of cash include the development of the aerie brand and our international expansion efforts . we expect to be able to fund our future cash requirements in north america through current cash holdings as well as cash generated from operations . in the future , we expect that our uses of cash will also include further expansion of our brands internationally . our growth strategy includes fortifying our brands and further international expansion or acquisitions . we periodically consider and evaluate these options to support future growth . in the event we do pursue such options , we could require additional equity or debt financing . there can be no assurance that we would be successful in closing any potential transaction , or that any endeavor we undertake would increase our profitability . the following sets forth certain measures of our liquidity : replace_table_token_8_th 25 the $ 109.3 million decrease in our working capital and corresponding decrease in the current ratio as of january 30 , 2016 compared to january 31 , 2015 , related primarily to our use of cash for investing and financing activities , offset by net income , net of non-cash adjustments . investing and financing activities primarily include capital expenditures , share repurchases , and the payment of dividends . in fiscal 2015 , we repurchased 15.6 million shares for $ 227.1 million and paid $ 0.50 per shar e of dividends for a total of $ 97.2 million . cash flows from operating activities of continuing operations net cash provided by operating activities totaled $ 341.9 million during fiscal 2015 , compared to $ 338.4 million during fiscal 2014 and $ 229.9 during fiscal 2013. our major source of cash from operations was merchandise sales . our primary outflows of cash from operations were for the payment of operational costs . the year-over-year increase in cash flows from operations this year was primarily driven by the increase in income from continuing operations , net of non-cash adjustments . cash flows from investing activities of continuing operations investing activities for fiscal 2015 included $ 153.3 million in capital expenditures for property and equipment , cash paid for our acquisition of tailgate clothing company of $ 10.4 million , and the purchase of intangible assets of $ 2.4 million , partially offset by $ 12.6 million of proceeds from the sale of the warrendale distribution center . investing activities for fiscal 2014 included $ 245.0 million in capital expenditures for property and equipment , partially offset by $ 10.0 million of proceeds from the sale of investments classified as available-for-sale . investing activities for fiscal 2013 included $ 278.5 million in capital expenditures for property and equipment , $ 20.8 million for the purchase of assets related to our international expansion strategy and $ 52.1 million of investment purchases partially offset by $ 162.8 million of proceeds from the sale of investments classified as available-for-sale . for further information on capital expenditures , refer to the capital expenditures for property and equipment caption below . cash flows from financing activities of continuing operations during fiscal 2015 , cash used for financing activities resulted primarily from $ 227.1 million for the repurchase of shares as part of our publicly announced repurchase program , $ 97.2 million for the payment of dividends and $ 5.2 million for the repurchase of common stock from employees for the payment of taxes in connection with the vesting of share-based payments . during fiscal 2014 , cash

liquidity and capital resources since inception , we have experienced negative cash flows from operations . we have financed our operations primarily through sales of equity-related securities . in addition , the majority of the costs of the sle clinical trial has been or is expected to be funded by nih grants , and our phase 2b cystic fibrosis trial was supported by the 2018 cff award . at december 31 , 2020 , our accumulated deficit since inception was approximately $ 304,093,000. at december 31 , 2020 , we had total current assets of approximately $ 92,075,000 and current liabilities of approximately $ 31,898,000 resulting in working capital of approximately $ 60,177,000. of our total cash and cash equivalents of $ 85.4 million at december 31 , 2020 , $ 84.4 million was held within the united states . net cash used in operating activities for the year ended december 31 , 2020 was approximately $ 99,686,000 which includes a net loss of approximately $ 111,269,000 , adjusted for non-cash expenses of approximately $ 14,789,000 , principally related to stock-based compensation expense of $ 12,458,000 , depreciation and amortization expense of $ 1,124,000 and operating lease right of use asset amortization of $ 570,000 , and approximately $ 3,205,000 of cash used by net working capital items , principally related to the decrease in accounts payable . cash used in investing activities for the year ended december 31 , 2020 totaled approximately $ 484,000 , which was largely related to payments for furniture and fixtures utilized in the build out of our office space in 2019 .

we determine an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed . revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions . the estimated sales return reserve is based on projected merchandise returns determined through the use of historical average return percentages . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our sales return reserve . however , if the actual rate of sales returns increases significantly , our operating results could be adversely affected . we recognize royalty revenue generated from our license or franchise agreements based upon a percentage of merchandise sales by the licensee/franchisee . this revenue is recorded as a component of total net revenue when earned . merchandise inventory . merchandise inventory is valued at the lower of average cost or market , utilizing the retail method . average cost includes merchandise design and sourcing costs and related expenses . we record merchandise receipts at the time which both title and risk of loss for the merchandise transfers to us . we review our inventory in order to identify slow-moving merchandise and generally use markdowns to clear merchandise . additionally , we estimate a markdown reserve for future planned markdowns related to current inventory . if inventory exceeds customer demand for reasons of style , seasonal adaptation , changes in customer preference , lack of consumer acceptance of fashion items , competition , or if it is determined that the inventory in stock will not sell at its currently ticketed price , additional markdowns may be necessary . these markdowns may have a material adverse impact on earnings , depending on the extent and amount of inventory affected . we estimate an inventory shrinkage reserve for anticipated losses for the period between the last physical count and the balance sheet date . the estimate for the shrinkage reserve is calculated based on historical percentages and can be affected by changes in merchandise mix and changes in actual shrinkage trends . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our inventory shrinkage reserve . however , if actual physical inventory losses differ significantly from our estimate , our operating results could be adversely affected . asset impairment . in accordance with financial accounting standards board ( “ fasb ” ) accounting standard codification ( “ asc ” ) 360 , property , plant , and equipment ( “ asc 360 ” ) , we evaluate long-lived assets for impairment at the individual store level , which is the lowest level at which individual cash flows can be identified . impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of the assets . when events such as these occur , the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded separately as a component of operating income under loss on impairment of assets . our impairment loss calculations require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values , including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses . however , if actual results are not consistent with our estimates and assumptions , our operating results could be adversely affected . share-based payments . we account for share-based payments in accordance with the provisions of asc 718 , compensation – stock compensation ( “ asc 718 ” ) . to determine the fair value of our stock option awards , we use the black-scholes option pricing model , which requires management to apply judgment and make assumptions to determine the fair value of our awards . these assumptions include estimating the length of time employees will retain their vested stock options before exercising them ( the “ expected term ” ) and the estimated volatility of the price of our common stock over the expected term . 17 we calculate a weighted-average expected term based on historical experience . e xpected stock price volatility is based on a combination of historical volatility of our common stock and implied volatility . we choose to use a combination of historical and implied volatility as we believe that this combination is more representative of future stock price trends than historical volatility alone . changes in these assumptions can materially affect the estimate of the fair value of our share-based payments and the related amount recognized in our consolidated financial statements . income taxes . we calculate income taxes in accordance with asc 740 , income taxes ( “ asc 740 ” ) , which requires the use of the asset and liability method . under this method , deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to asc 740. deferred tax assets and liabilities are measured using the tax rates , based on certain judgments regarding enacted tax laws and published guidance , in effect in the years when those temporary differences are expected to reverse . story_separator_special_tag fair value is defined under asc 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date : 24 financial instruments valuation techniques used to measure fair value under asc 820 must maximize the use of observable inputs and minimize the use of unobservable inputs . in addition , asc 820 establishes this three-tier fair value hierarchy , which prioritizes the inputs used in measuring fair value . these tiers include : · level 1 — quoted prices in active markets for identical assets or liabilities . · level 2 — inputs 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 . · level 3 — unobservable inputs ( i.e . , projections , estimates , interpretations , etc . ) that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . as of january 30 , 2016 and january 31 , 2015 , we held certain assets that are required to be measured at fair value on a recurring basis . these include cash equivalents and investments . in accordance with asc 820 , the following tables represent the fair value hierarchy for our financial assets ( cash equivalents and investments ) measured at fair value on a recurring basis as of january 30 , 2016 : replace_table_token_7_th in the event we hold level 3 investments , a discounted cash flow model is used to value those investments . there were no level 3 investments at january 30 , 2016. liquidity and capital resources our uses of cash are generally for working capital , the construction of new stores and remodeling of existing stores , information technology upgrades , distribution center improvements and expansion and the return of value to shareholders through the repurchase of common stock and the payment of dividends . historically , these uses of cash have been funded with cash flow from operations and existing cash on hand . also , we hold a five-year asset-based revolving credit facility that allows us to borrow up to $ 400 million . additionally , our uses of cash include the development of the aerie brand and our international expansion efforts . we expect to be able to fund our future cash requirements in north america through current cash holdings as well as cash generated from operations . in the future , we expect that our uses of cash will also include further expansion of our brands internationally . our growth strategy includes fortifying our brands and further international expansion or acquisitions . we periodically consider and evaluate these options to support future growth . in the event we do pursue such options , we could require additional equity or debt financing . there can be no assurance that we would be successful in closing any potential transaction , or that any endeavor we undertake would increase our profitability . the following sets forth certain measures of our liquidity : replace_table_token_8_th 25 the $ 109.3 million decrease in our working capital and corresponding decrease in the current ratio as of january 30 , 2016 compared to january 31 , 2015 , related primarily to our use of cash for investing and financing activities , offset by net income , net of non-cash adjustments . investing and financing activities primarily include capital expenditures , share repurchases , and the payment of dividends . in fiscal 2015 , we repurchased 15.6 million shares for $ 227.1 million and paid $ 0.50 per shar e of dividends for a total of $ 97.2 million . cash flows from operating activities of continuing operations net cash provided by operating activities totaled $ 341.9 million during fiscal 2015 , compared to $ 338.4 million during fiscal 2014 and $ 229.9 during fiscal 2013. our major source of cash from operations was merchandise sales . our primary outflows of cash from operations were for the payment of operational costs . the year-over-year increase in cash flows from operations this year was primarily driven by the increase in income from continuing operations , net of non-cash adjustments . cash flows from investing activities of continuing operations investing activities for fiscal 2015 included $ 153.3 million in capital expenditures for property and equipment , cash paid for our acquisition of tailgate clothing company of $ 10.4 million , and the purchase of intangible assets of $ 2.4 million , partially offset by $ 12.6 million of proceeds from the sale of the warrendale distribution center . investing activities for fiscal 2014 included $ 245.0 million in capital expenditures for property and equipment , partially offset by $ 10.0 million of proceeds from the sale of investments classified as available-for-sale . investing activities for fiscal 2013 included $ 278.5 million in capital expenditures for property and equipment , $ 20.8 million for the purchase of assets related to our international expansion strategy and $ 52.1 million of investment purchases partially offset by $ 162.8 million of proceeds from the sale of investments classified as available-for-sale . for further information on capital expenditures , refer to the capital expenditures for property and equipment caption below . cash flows from financing activities of continuing operations during fiscal 2015 , cash used for financing activities resulted primarily from $ 227.1 million for the repurchase of shares as part of our publicly announced repurchase program , $ 97.2 million for the payment of dividends and $ 5.2 million for the repurchase of common stock from employees for the payment of taxes in connection with the vesting of share-based payments . during fiscal 2014 , cash

cash flow and liquidity — our management evaluates cash flow from operations , investing and financing in determining the sufficiency of our cash position . cash flow from operations has historically been sufficient to cover our uses of cash . our management believes that cash flow from operations will be sufficient to fund anticipated capital expenditures and working capital requirements . our goals are to drive improvements to our gross profit performance , bring greater consistency to our results and deliver profitable growth over the long term . results of operations overview our fiscal 2015 performance was strong , in a challenging retail environment . we executed on our key priorities aimed at achieving sales and earnings growth . specifically , we made improvements to the merchandise by refocusing on innovation , quality and more compelling styles . both american eagle and aerie delivered increases in sales and profitability . we achieved higher average selling prices and fewer markdowns . aeo 's digital business was particularly strong and the business benefited from the utilization of advances in omni-channel tools . inventories and expenses were well managed throughout the year . we ended the year with $ 260.1 million in cash and no long-term debt . cash flow from operations for the year was strong and allowed for the repurchase of 15.6 million shares for $ 227.1 million . total net revenue for the year increased 7 % to $ 3.522 billion , compared to $ 3.283 billion last year . total comparable sales increased 7 % . by brand , american eagle outfitters ' comparable sales rose 7 % and aerie increased 20 % . consolidated gross margin increased 180 basis points to 37.0 % , compared to 35.2 % last year . income from continuing operations was $ 1.09 per diluted share this year , compared to $ 0.46 per diluted share last year . on an adjusted basis , income from continuing operations last year was $ 0.63 per diluted share , which excludes a ( $ 0.17 ) per diluted share impact from impairment and restructuring charges .

spectrum brands manufactures and markets alkaline , zinc carbon and hearing aid batteries , herbicides , insecticides and repellents and specialty pet supplies . spectrum brands also designs and markets rechargeable batteries , battery-powered lighting products , electric shavers and accessories , grooming products and hair care appliances . in addition , spectrum brands designs , markets and distributes a broad range of branded small appliances and personal care products . spectrum brands ' operations utilize manufacturing and product development facilities located in the united states , europe , latin america and asia . substantially , all of spectrum brands ' rechargeable batteries and chargers , shaving and grooming products , small household appliances , personal care products and portable lighting products are manufactured by third-party suppliers , primarily located in asia . spectrum brands sells products in approximately 140 countries through a variety of trade channels , including retailers , wholesalers and distributors , hearing aid professionals , industrial distributors and original equipment manufacturers ( “oems” ) and enjoys strong name recognition in these markets under the rayovac , varta and remington brands , each of which has been in existence for more than 80 years , and under the tetra , 8-in-1 , dingo , nature 's miracle , spectracide , cutter , hot shot , black & decker , george foreman , russell hobbs , farberware , black flag , furminator and various other brands . on october 8 , 2012 , spectrum brands entered into an agreement with stanley black & decker , inc. ( “stanley black and decker” ) to acquire the residential hardware and home improvement business ( the “hhi business” ) currently operated by stanley black & decker and certain of its subsidiaries for $ 1.4 billion , consisting of ( i ) the equity interests of certain subsidiaries of stanley black & decker engaged in the hhi business and ( ii ) certain assets of stanley black & decker used or held for use in connection with the hhi business ( the “hardware acquisition” ) . the hardware acquisition will also include the purchase of shares and assets of certain subsidiaries of stanley black & decker involved in the hhi business . furthermore , the hardware acquisition will also include the purchase of certain assets of tong lung metal industry co. ltd. , a taiwan corporation ( “tlm taiwan” ) , which is involved in the production of residential locksets ( the “tlm residential business” ) . the “spectrum value model” is at the heart of spectrum brands ' operating approach . this model emphasizes providing value to the consumer with products that work as well as or better than competitive products for a lower cost , while also delivering higher retailer margins . efforts are concentrated on winning at point of sale and on creating and maintaining a low-cost , efficient operating structure . spectrum brands ' operating performance is influenced by a number of factors including : general economic conditions ; foreign exchange fluctuations ; trends in consumer markets ; consumer confidence and preferences ; overall product line mix , including pricing and gross margin , which vary by product line and geographic market ; pricing of certain raw materials and commodities ; energy and fuel prices ; and general competitive positioning , especially as impacted by competitors ' advertising and promotional activities and pricing strategies . 94 insurance segment through fgl , we are a provider of annuity and life insurance products to the middle and upper-middle income markets in the united states . based in baltimore , maryland , fgl operates in the united states through its subsidiaries fidelity & guaranty life insurance company ( “fgl insurance” ) and fidelity & guaranty life insurance company of new york ( “fgl ny insurance” ) . fgl 's principal products are deferred annuities ( including fixed indexed annuity ( “fia” ) contracts , immediate annuities , and life insurance products , which are sold through a network of approximately 200 independent marketing organizations ( “imos” ) representing approximately 19,000 independent agents and managing general agents . as of september 30 , 2012 , fgl had over 713,000 policyholders nationwide and distributes its products throughout the united states . fgl 's most important imos are referred to as “power partners.” fgl 's power partners are currently comprised of 23 annuity imos and 14 life insurance imos . during fiscal 2012 , these power partners accounted for approximately 83 % of fgl 's sales volume . fgl believes that its relationships with these imos are strong . the average tenure of the top ten power partners is approximately 7 years . under accounting principles generally accepted in the united states of america ( “us gaap” ) , premium collections for fias and fixed rate annuities and immediate annuities without life contingency are reported as deposit liabilities ( i.e . , contractholder funds ) instead of as revenues . similarly , cash payments to policyholders are reported as decreases in the liability for contractholder funds and not as expenses . sources of revenues for products accounted for as deposit liabilities are net investment income , surrender and other charges deducted from contractholder funds , and net recognized gains ( losses ) on investments . components of expenses for products accounted for as deposit liabilities are interest sensitive and index product benefits ( primarily interest credited to account balances or the cost of providing index credits to the policyholder ) , amortization of intangibles including value of business acquired ( “voba” ) and deferred policy acquisition costs ( “dac” ) , other operating costs and expenses and income taxes . earnings from products accounted for as deposit liabilities are primarily generated from the excess of net investment income earned over the interest credited or the cost of providing index credits to the policyholder , known as the net investment spread . story_separator_special_tag during the first quarter of fiscal 2012 , fgl executed the second acquisition-related reinsurance amendment with wilton re , in which it ceded the majority of its indexed universal life insurance block of business to wilton re . as a result , the cost of insurance and surrender fees associated with this line of business are now ceded to wilton re thus reducing the total amount retained by fgl in fiscal 2012. operating costs and expenses consumer products and other costs of goods sold/gross profit . gross profit , representing net sales minus cost of goods sold , for fiscal 2012 was $ 1,115 million compared to $ 1,129 million during fiscal 2011 , representing a $ 14 million decrease . our gross profit margin , representing gross profit as a percentage of net sales , for fiscal 2012 decreased to 34.3 % from 35.4 % in fiscal 2011. the decrease in gross profit and gross profit margin for fiscal 2012 was driven by $ 36 million of negative foreign exchange impacts , a $ 17 million increase in commodity prices and higher costs for sourced goods , primarily from asia , a $ 12 million increase in costs due to changes in product mix and a $ 2 million increase in restructuring and related charges . these factors contributing to the decline in gross profit were tempered by increased organic sales which contributed $ 31 million of gross profit and fiscal 2012 acquisitions which contributed $ 23 million of gross profit . selling , general & administrative expenses . selling , general and administrative expenses ( “sg & a” ) decreased $ 77 million , or 8 % , to $ 870 million in fiscal 2012 from $ 947 million in fiscal 2011. the decrease is primarily due to synergies recognized subsequent to the sb/rh merger of $ 25 million , decreased asset impairment charges of $ 32 million , decreased acquisition and integration charges of $ 29 million , positive foreign exchange impacts of $ 20 million and savings from spectrum brands ' cost reduction initiatives . these decreases were partially offset by a $ 34 million increase in hgi 's general corporate expenses primarily due to the hiring of new personnel , bonus compensation accruals based on the increase in hgi 's net asset value ( “compensation nav” ) determined in accordance with the criteria established by hgi 's compensation committee ( as discussed further under “consolidated” below ) and an allocation of overhead costs from harbinger capital partners llc , an affiliate of hgi and the principal stockholders . adjusted ebitda . spectrum brands believes that certain non-us gaap financial measures may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior operating periods . adjusted earnings before interest , taxes , depreciation and amortization ( “adjusted ebitda” ) is a metric used by management and frequently used by the financial community . adjusted ebitda provides insight into an organization 's operating trends and facilitates comparisons between peer companies , since interest , taxes , depreciation and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies . adjusted ebitda can also be a useful measure of a company 's ability to service debt and is one of the measures used for determining spectrum brands ' debt covenant compliance . adjusted ebitda excludes certain items that are unusual in nature or not comparable from period to period . while management believes that non-us gaap measurements are useful supplemental information , such adjusted results are not intended to replace the company 's us gaap financial results . adjusted ebitda increased $ 28 million , or 6 % , to $ 485 million for fiscal 2012 from $ 457 million for fiscal 2011. the increase in adjusted ebitda was primarily a result of reductions in sg & a expenses at spectrum 101 brands , attributable to cost synergies and positive foreign exchange impacts , partially offset by the slight decrease in gross profit resulting from commodity prices and increased costs from sourced goods . the table below shows the adjustments made to the reported operating income of the consumer products segment to calculate its adjusted ebitda : replace_table_token_13_th insurance benefits and other changes in policy reserves . benefits and other changes in policy reserves of $ 777 million and $ 248 million for fiscal 2012 and 2011 , respectively , include the change in the fia embedded derivative liability which includes the market value option liability change and the present value of future credits and guarantee liability change . the market value option liability increased $ 178 million and decreased $ 264 million for fiscal 2012 and 2011 , respectively , primarily due to changes in the equity markets during those periods . the present value of future credits and guarantee liability increased $ 7 million and $ 121 million for fiscal 2012 and 2011 , respectively . the increase in fiscal 2012 was primarily due to lower risk free rates during the year . fair value accounting for derivative instruments and the embedded derivatives in the fia contracts creates differences in the recognition of revenues and expenses from derivative instruments including the embedded derivative liability in our fixed index annuity contracts . the change in fair value of the embedded derivatives will not correspond to the change in fair value of the derivatives ( purchased call options and futures contracts ) because the purchased derivatives cover the next annual index period while the embedded derivative liability covers estimated credits over the expected life of the fia contracts . additionally , there were index credits , interest credits and bonuses of $ 382 million and $ 292 million , annuity payments of $ 242 million and $ 127 million and policy benefits and other reserve movements of $ 32 million and $ 28 million during fiscal 2012 and 2011 , respectively . changes in index

cash flow and liquidity — our management evaluates cash flow from operations , investing and financing in determining the sufficiency of our cash position . cash flow from operations has historically been sufficient to cover our uses of cash . our management believes that cash flow from operations will be sufficient to fund anticipated capital expenditures and working capital requirements . our goals are to drive improvements to our gross profit performance , bring greater consistency to our results and deliver profitable growth over the long term . results of operations overview our fiscal 2015 performance was strong , in a challenging retail environment . we executed on our key priorities aimed at achieving sales and earnings growth . specifically , we made improvements to the merchandise by refocusing on innovation , quality and more compelling styles . both american eagle and aerie delivered increases in sales and profitability . we achieved higher average selling prices and fewer markdowns . aeo 's digital business was particularly strong and the business benefited from the utilization of advances in omni-channel tools . inventories and expenses were well managed throughout the year . we ended the year with $ 260.1 million in cash and no long-term debt . cash flow from operations for the year was strong and allowed for the repurchase of 15.6 million shares for $ 227.1 million . total net revenue for the year increased 7 % to $ 3.522 billion , compared to $ 3.283 billion last year . total comparable sales increased 7 % . by brand , american eagle outfitters ' comparable sales rose 7 % and aerie increased 20 % . consolidated gross margin increased 180 basis points to 37.0 % , compared to 35.2 % last year . income from continuing operations was $ 1.09 per diluted share this year , compared to $ 0.46 per diluted share last year . on an adjusted basis , income from continuing operations last year was $ 0.63 per diluted share , which excludes a ( $ 0.17 ) per diluted share impact from impairment and restructuring charges .

spectrum brands manufactures and markets alkaline , zinc carbon and hearing aid batteries , herbicides , insecticides and repellents and specialty pet supplies . spectrum brands also designs and markets rechargeable batteries , battery-powered lighting products , electric shavers and accessories , grooming products and hair care appliances . in addition , spectrum brands designs , markets and distributes a broad range of branded small appliances and personal care products . spectrum brands ' operations utilize manufacturing and product development facilities located in the united states , europe , latin america and asia . substantially , all of spectrum brands ' rechargeable batteries and chargers , shaving and grooming products , small household appliances , personal care products and portable lighting products are manufactured by third-party suppliers , primarily located in asia . spectrum brands sells products in approximately 140 countries through a variety of trade channels , including retailers , wholesalers and distributors , hearing aid professionals , industrial distributors and original equipment manufacturers ( “oems” ) and enjoys strong name recognition in these markets under the rayovac , varta and remington brands , each of which has been in existence for more than 80 years , and under the tetra , 8-in-1 , dingo , nature 's miracle , spectracide , cutter , hot shot , black & decker , george foreman , russell hobbs , farberware , black flag , furminator and various other brands . on october 8 , 2012 , spectrum brands entered into an agreement with stanley black & decker , inc. ( “stanley black and decker” ) to acquire the residential hardware and home improvement business ( the “hhi business” ) currently operated by stanley black & decker and certain of its subsidiaries for $ 1.4 billion , consisting of ( i ) the equity interests of certain subsidiaries of stanley black & decker engaged in the hhi business and ( ii ) certain assets of stanley black & decker used or held for use in connection with the hhi business ( the “hardware acquisition” ) . the hardware acquisition will also include the purchase of shares and assets of certain subsidiaries of stanley black & decker involved in the hhi business . furthermore , the hardware acquisition will also include the purchase of certain assets of tong lung metal industry co. ltd. , a taiwan corporation ( “tlm taiwan” ) , which is involved in the production of residential locksets ( the “tlm residential business” ) . the “spectrum value model” is at the heart of spectrum brands ' operating approach . this model emphasizes providing value to the consumer with products that work as well as or better than competitive products for a lower cost , while also delivering higher retailer margins . efforts are concentrated on winning at point of sale and on creating and maintaining a low-cost , efficient operating structure . spectrum brands ' operating performance is influenced by a number of factors including : general economic conditions ; foreign exchange fluctuations ; trends in consumer markets ; consumer confidence and preferences ; overall product line mix , including pricing and gross margin , which vary by product line and geographic market ; pricing of certain raw materials and commodities ; energy and fuel prices ; and general competitive positioning , especially as impacted by competitors ' advertising and promotional activities and pricing strategies . 94 insurance segment through fgl , we are a provider of annuity and life insurance products to the middle and upper-middle income markets in the united states . based in baltimore , maryland , fgl operates in the united states through its subsidiaries fidelity & guaranty life insurance company ( “fgl insurance” ) and fidelity & guaranty life insurance company of new york ( “fgl ny insurance” ) . fgl 's principal products are deferred annuities ( including fixed indexed annuity ( “fia” ) contracts , immediate annuities , and life insurance products , which are sold through a network of approximately 200 independent marketing organizations ( “imos” ) representing approximately 19,000 independent agents and managing general agents . as of september 30 , 2012 , fgl had over 713,000 policyholders nationwide and distributes its products throughout the united states . fgl 's most important imos are referred to as “power partners.” fgl 's power partners are currently comprised of 23 annuity imos and 14 life insurance imos . during fiscal 2012 , these power partners accounted for approximately 83 % of fgl 's sales volume . fgl believes that its relationships with these imos are strong . the average tenure of the top ten power partners is approximately 7 years . under accounting principles generally accepted in the united states of america ( “us gaap” ) , premium collections for fias and fixed rate annuities and immediate annuities without life contingency are reported as deposit liabilities ( i.e . , contractholder funds ) instead of as revenues . similarly , cash payments to policyholders are reported as decreases in the liability for contractholder funds and not as expenses . sources of revenues for products accounted for as deposit liabilities are net investment income , surrender and other charges deducted from contractholder funds , and net recognized gains ( losses ) on investments . components of expenses for products accounted for as deposit liabilities are interest sensitive and index product benefits ( primarily interest credited to account balances or the cost of providing index credits to the policyholder ) , amortization of intangibles including value of business acquired ( “voba” ) and deferred policy acquisition costs ( “dac” ) , other operating costs and expenses and income taxes . earnings from products accounted for as deposit liabilities are primarily generated from the excess of net investment income earned over the interest credited or the cost of providing index credits to the policyholder , known as the net investment spread . story_separator_special_tag during the first quarter of fiscal 2012 , fgl executed the second acquisition-related reinsurance amendment with wilton re , in which it ceded the majority of its indexed universal life insurance block of business to wilton re . as a result , the cost of insurance and surrender fees associated with this line of business are now ceded to wilton re thus reducing the total amount retained by fgl in fiscal 2012. operating costs and expenses consumer products and other costs of goods sold/gross profit . gross profit , representing net sales minus cost of goods sold , for fiscal 2012 was $ 1,115 million compared to $ 1,129 million during fiscal 2011 , representing a $ 14 million decrease . our gross profit margin , representing gross profit as a percentage of net sales , for fiscal 2012 decreased to 34.3 % from 35.4 % in fiscal 2011. the decrease in gross profit and gross profit margin for fiscal 2012 was driven by $ 36 million of negative foreign exchange impacts , a $ 17 million increase in commodity prices and higher costs for sourced goods , primarily from asia , a $ 12 million increase in costs due to changes in product mix and a $ 2 million increase in restructuring and related charges . these factors contributing to the decline in gross profit were tempered by increased organic sales which contributed $ 31 million of gross profit and fiscal 2012 acquisitions which contributed $ 23 million of gross profit . selling , general & administrative expenses . selling , general and administrative expenses ( “sg & a” ) decreased $ 77 million , or 8 % , to $ 870 million in fiscal 2012 from $ 947 million in fiscal 2011. the decrease is primarily due to synergies recognized subsequent to the sb/rh merger of $ 25 million , decreased asset impairment charges of $ 32 million , decreased acquisition and integration charges of $ 29 million , positive foreign exchange impacts of $ 20 million and savings from spectrum brands ' cost reduction initiatives . these decreases were partially offset by a $ 34 million increase in hgi 's general corporate expenses primarily due to the hiring of new personnel , bonus compensation accruals based on the increase in hgi 's net asset value ( “compensation nav” ) determined in accordance with the criteria established by hgi 's compensation committee ( as discussed further under “consolidated” below ) and an allocation of overhead costs from harbinger capital partners llc , an affiliate of hgi and the principal stockholders . adjusted ebitda . spectrum brands believes that certain non-us gaap financial measures may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior operating periods . adjusted earnings before interest , taxes , depreciation and amortization ( “adjusted ebitda” ) is a metric used by management and frequently used by the financial community . adjusted ebitda provides insight into an organization 's operating trends and facilitates comparisons between peer companies , since interest , taxes , depreciation and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies . adjusted ebitda can also be a useful measure of a company 's ability to service debt and is one of the measures used for determining spectrum brands ' debt covenant compliance . adjusted ebitda excludes certain items that are unusual in nature or not comparable from period to period . while management believes that non-us gaap measurements are useful supplemental information , such adjusted results are not intended to replace the company 's us gaap financial results . adjusted ebitda increased $ 28 million , or 6 % , to $ 485 million for fiscal 2012 from $ 457 million for fiscal 2011. the increase in adjusted ebitda was primarily a result of reductions in sg & a expenses at spectrum 101 brands , attributable to cost synergies and positive foreign exchange impacts , partially offset by the slight decrease in gross profit resulting from commodity prices and increased costs from sourced goods . the table below shows the adjustments made to the reported operating income of the consumer products segment to calculate its adjusted ebitda : replace_table_token_13_th insurance benefits and other changes in policy reserves . benefits and other changes in policy reserves of $ 777 million and $ 248 million for fiscal 2012 and 2011 , respectively , include the change in the fia embedded derivative liability which includes the market value option liability change and the present value of future credits and guarantee liability change . the market value option liability increased $ 178 million and decreased $ 264 million for fiscal 2012 and 2011 , respectively , primarily due to changes in the equity markets during those periods . the present value of future credits and guarantee liability increased $ 7 million and $ 121 million for fiscal 2012 and 2011 , respectively . the increase in fiscal 2012 was primarily due to lower risk free rates during the year . fair value accounting for derivative instruments and the embedded derivatives in the fia contracts creates differences in the recognition of revenues and expenses from derivative instruments including the embedded derivative liability in our fixed index annuity contracts . the change in fair value of the embedded derivatives will not correspond to the change in fair value of the derivatives ( purchased call options and futures contracts ) because the purchased derivatives cover the next annual index period while the embedded derivative liability covers estimated credits over the expected life of the fia contracts . additionally , there were index credits , interest credits and bonuses of $ 382 million and $ 292 million , annuity payments of $ 242 million and $ 127 million and policy benefits and other reserve movements of $ 32 million and $ 28 million during fiscal 2012 and 2011 , respectively . changes in index

debt financing activities hgi on november 15 , 2010 and june 28 , 2011 , we issued $ 350 million and $ 150 million , respectively , or $ 500 million aggregate principal amount of the 10.625 % notes . the 10.625 % notes were sold only to qualified institutional buyers pursuant to rule 144a under the securities act of 1933 ( “securities act” ) and to certain persons in offshore transactions in reliance on regulation s , but were subsequently registered under the securities act . the 10.625 % notes were issued at an aggregate price equal to 99.31 % of the principal amount thereof , with a net original issue discount of $ 3.4 million . interest on the 10.625 % notes is payable semi-annually through november 15 , 2015. the 10.625 % notes are collateralized with a first priority lien on substantially all of the assets directly held by us , including stock in our subsidiaries ( with the exception of zap.com corporation , but including spectrum brands , harbinger f & g llc ( “hfg” ) , hgi funding llc and the securities of other subsidiaries formed since the issuance dates ) and our directly held cash and investment securities . we have the option to redeem the 10.625 % notes prior to may 15 , 2013 at a redemption price equal to 100 % of the principal amount plus a make-whole premium and accrued and unpaid interest to the date of redemption . at any time on or after may 15 , 2013 , we may redeem some or all of the 10.625 % notes at certain fixed redemption prices expressed as percentages of the principal amount , plus accrued and unpaid interest .

in certain instances qualification may be achieved and delivery of production units may commence however our customer may have either identified new issues to be resolved or wish to incorporate a newer display technology . in these circumstances new units delivered will continue to be accounted for under the criteria established for sale of products . under certain of our research and development contracts , we recognize revenue using a milestone methodology . this revenue is recognized when we achieve specified milestones based on our past performance . we classify amounts earned on contracts in progress that are in excess of amounts billed as unbilled receivables and we classify amounts received in excess of amounts earned as billings in excess of revenues earned . we invoice based on dates specified in the related agreement or in periodic installments based upon our invoicing cycle . we recognize the entire amount of an estimated ultimate loss in our financial statements at the time the loss on a contract becomes known . accounting for design , development and production contracts requires judgment relative to assessing risks , estimating contract revenues and costs , and making assumptions for schedule and technical issues . due to the size and nature of the work 25 required to be performed on many of our contracts , the estimation of total revenue and cost at completion is complicated and subject to many variables . contract costs include material , labor and subcontracting costs , as well as an allocation of indirect costs . we have to make assumptions regarding the number of labor hours required to complete a task , the complexity of the work to be performed , the availability and cost of materials , and performance by our subcontractors . for contract change orders , claims or similar items , we apply judgment in estimating the amounts and assessing the potential for realization . these amounts are only included in contract value when they can be reliably estimated and realization is considered probable . we have accounting policies in place to address these as well as other contractual and business arrangements to properly account for long-term contracts . if our estimate of total contract costs or our determination of whether the customer agrees that a milestone is achieved is incorrect , our revenue could be overstated and profits would be negatively impacted . bad debt we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . this estimate is based on an analysis of specific customer creditworthiness and historical bad debts experience . if the financial condition of our customers were to deteriorate , resulting in their inability to make future payments , additional allowances may be required . inventory we provide a reserve for estimated obsolete or unmarketable inventory based on assumptions about future demand and market conditions and our production plans . inventories that are obsolete or slow moving are generally fully reserved ( representing the estimated net realizable value ) as such information becomes available . our display products are manufactured based upon production plans whose critical assumptions include non-binding demand forecasts provided by our customers , lead times for raw materials , lead times for wafer foundries to perform circuit processing and yields . if a customer were to cancel an order or actual demand was lower than forecasted demand , we may not be able to sell the excess display inventory and additional reserves would be required . if we were unable to sell the excess inventory , we would establish reserves to reduce the inventory to its estimated realizable value ( generally zero ) . investment valuation we periodically make equity investments in private companies , accounted for on the cost or equity method , whose values are difficult to determine . when assessing investments in private companies for an other-than-temporary decline in value , we consider such factors as , among other things , the share price from the investee 's latest financing round , the performance of the investee in relation to its own operating targets and its business plan , the investee 's revenue and cost trends , the liquidity and cash position , including its cash burn rate and market acceptance of the investee 's products and services . because these are private companies which we do not control we may not be able to obtain all of the information we would want in order to make a complete assessment of the investment on a timely basis . accordingly , our estimates may be revised if other information becomes available at a later date . in addition to the above we make investments in government and agency-backed securities and corporate debt securities . for all of our investments we provide for an impairment valuation if we believe a decline in the value of an investment is other-than-temporary , which may have an adverse impact on our results of operations . the determination of whether a decline in value is other-than-temporary requires that we estimate the cash flows we expect to receive from the security . we use publicly available information such as credit ratings and financial information of the entity that issued the security in the development of our expectation of the cash flows to be received . historically , we have periodically recorded other than temporary impairment losses . product warranty we generally sell products with a limited warranty of product quality and a limited indemnification of customers against intellectual property infringement claims related to our products . we accrue for known warranty and indemnification issues if a loss is probable and can be reasonably estimated . as of december 27 , 2014 , we had a warranty reserve of $ 0.7 million , which represents the estimated liabilities for warranty claims in process , potential warranty issues customers have notified us about and an estimate based on historical failure rates . story_separator_special_tag the benefit for income taxes for the fiscal year ended 2014 of $ 0.2 million represents the net of state tax and foreign withholding tax related to closing our korean facilities . for 2015 we expect to have movement in the foreign withholding tax relating to conversion rate changes . we also expect to have a state tax provision in 2015. net ( income ) loss attributable to noncontrolling interest . we own approximately 93 % of the equity of kowon , 58 % of the equity of intoware , and 80 % of the equity of emdt . net loss attributable to noncontrolling interest on our consolidated statement of operations represents the portion of the results of operations of our majority owned subsidiaries which is allocated to the shareholders of the equity interests not owned by us . the change in net loss attributable to noncontrolling interest is the result of the change in the results of operations of kowon , intoware and emdt for the twelve month period ended december 27 , 2014 . 30 replace_table_token_13_th fiscal year 2013 compared to fiscal year 2012 revenues . our revenues , which include product sales and amounts earned from research and development contracts , for fiscal years 2013 and 2012 , by category , were as follows : replace_table_token_14_th sales of our products for military applications declined in 2013 because of reduced demand from the u.s. government . the u.s. government is projected to incur large budget deficits for the near future and is expected to reduce spending on military programs as part of the solution to decrease these deficits . the decrease in the consumer electronic applications and other category is the result of a decrease in sales of our products for digital still cameras . the decrease in research and development revenues is the result of a decrease in funding from the u.s. government . we are unable to predict the amount of funding for research and development by the u.s. government as it addresses its fiscal deficit issues . international sales represented 48 % and 27 % of product revenues for fiscal years 2013 and 2012 , respectively . our international sales are primarily denominated in u.s. currency . consequently , a strengthening of the u.s. dollar could increase the price in local currencies of our products in foreign markets and make our products relatively more expensive than competitors ' products that are denominated in local currencies , leading to a reduction in sales or profitability in those foreign markets . in addition , our korean subsidiary , kowon , holds u.s. dollars in order to pay various expenses . as a result , our financial position and results of operations are subject to exchange rate fluctuation in transactional and functional currency . we have not taken any protective measures against exchange rate fluctuations , such as purchasing hedging instruments with respect to such fluctuations , because of the historically stable exchange rate between the japanese yen , korean won and the u.s. dollar . cost of product revenues . replace_table_token_15_th cost of product revenues , which is comprised of materials , labor and manufacturing overhead related to the production of our products increased as a percentage of revenues in 2013 as compared to 2012 due to a decrease in the sale of our display products for military applications , normal price declines and lower unit sales of our display products . military products historically have higher gross margins than commercial products . the reduced volume of sales resulted in an increase in fixed cost per display which reduced the gross margin per display sale . research and development . research and development ( r & d ) expenses are incurred in support of internal display development programs or programs funded by agencies or prime contractors of the u.s. government and commercial partners . for fiscal years 2013 and 2012 r & d expense was as follows ( in millions ) : replace_table_token_16_th 31 r & d expense increased in 2013 as compared to the prior year primarily because of investments made to develop wearable reference designs , including display development and software costs , partially offset by a decrease in government funded product development . selling , general and administrative . selling , general and administrative ( s , g & a ) expenses consist of the expenses incurred by our sales and marketing personnel and related expenses , and administrative and general corporate expenses . replace_table_token_17_th the increase in s , g & a expenses in 2013 as compared to 2012 is primarily attributable to additional stock compensation expense . impairment . in 2013 , we performed an impairment analysis of our finite-lived intangible assets related to fdd and ikanos . we performed our analysis of our finite-lived intangible assets based on the income approach . as a result , we recorded a non-cash charge of $ 1.5 million to write down the finite-lived intangible assets . in 2012 , we performed an impairment analysis of our finite-lived intangible assets and goodwill balance related to fdd , as fdd 's actual results were less than originally forecast . we performed our analysis of our finite-lived intangible assets based on a comparison of the undiscounted cash flows to the recorded carrying value of the intangible assets . as a result , there was no change in the carrying values of the finite-lived intangible assets , however , we recorded a non-cash charge of $ 1.7 million to write down the remaining carrying value of the goodwill to zero . ( in millions ) intangible assets assets acquired with acquisition of fdd at jan. 11 , 2011 $ 4.6 amortization ( 0.7 ) impairment ( 2.0 ) foreign currency translation — as of december 31 , 2011 $ 1.9 amortization ( 0.3 ) impairment of goodwill — foreign currency translation 0.1 as of december 29 , 2012 $ 1.7 amortization ( 0.4 ) impairment of goodwill (

debt financing activities hgi on november 15 , 2010 and june 28 , 2011 , we issued $ 350 million and $ 150 million , respectively , or $ 500 million aggregate principal amount of the 10.625 % notes . the 10.625 % notes were sold only to qualified institutional buyers pursuant to rule 144a under the securities act of 1933 ( “securities act” ) and to certain persons in offshore transactions in reliance on regulation s , but were subsequently registered under the securities act . the 10.625 % notes were issued at an aggregate price equal to 99.31 % of the principal amount thereof , with a net original issue discount of $ 3.4 million . interest on the 10.625 % notes is payable semi-annually through november 15 , 2015. the 10.625 % notes are collateralized with a first priority lien on substantially all of the assets directly held by us , including stock in our subsidiaries ( with the exception of zap.com corporation , but including spectrum brands , harbinger f & g llc ( “hfg” ) , hgi funding llc and the securities of other subsidiaries formed since the issuance dates ) and our directly held cash and investment securities . we have the option to redeem the 10.625 % notes prior to may 15 , 2013 at a redemption price equal to 100 % of the principal amount plus a make-whole premium and accrued and unpaid interest to the date of redemption . at any time on or after may 15 , 2013 , we may redeem some or all of the 10.625 % notes at certain fixed redemption prices expressed as percentages of the principal amount , plus accrued and unpaid interest .

in certain instances qualification may be achieved and delivery of production units may commence however our customer may have either identified new issues to be resolved or wish to incorporate a newer display technology . in these circumstances new units delivered will continue to be accounted for under the criteria established for sale of products . under certain of our research and development contracts , we recognize revenue using a milestone methodology . this revenue is recognized when we achieve specified milestones based on our past performance . we classify amounts earned on contracts in progress that are in excess of amounts billed as unbilled receivables and we classify amounts received in excess of amounts earned as billings in excess of revenues earned . we invoice based on dates specified in the related agreement or in periodic installments based upon our invoicing cycle . we recognize the entire amount of an estimated ultimate loss in our financial statements at the time the loss on a contract becomes known . accounting for design , development and production contracts requires judgment relative to assessing risks , estimating contract revenues and costs , and making assumptions for schedule and technical issues . due to the size and nature of the work 25 required to be performed on many of our contracts , the estimation of total revenue and cost at completion is complicated and subject to many variables . contract costs include material , labor and subcontracting costs , as well as an allocation of indirect costs . we have to make assumptions regarding the number of labor hours required to complete a task , the complexity of the work to be performed , the availability and cost of materials , and performance by our subcontractors . for contract change orders , claims or similar items , we apply judgment in estimating the amounts and assessing the potential for realization . these amounts are only included in contract value when they can be reliably estimated and realization is considered probable . we have accounting policies in place to address these as well as other contractual and business arrangements to properly account for long-term contracts . if our estimate of total contract costs or our determination of whether the customer agrees that a milestone is achieved is incorrect , our revenue could be overstated and profits would be negatively impacted . bad debt we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . this estimate is based on an analysis of specific customer creditworthiness and historical bad debts experience . if the financial condition of our customers were to deteriorate , resulting in their inability to make future payments , additional allowances may be required . inventory we provide a reserve for estimated obsolete or unmarketable inventory based on assumptions about future demand and market conditions and our production plans . inventories that are obsolete or slow moving are generally fully reserved ( representing the estimated net realizable value ) as such information becomes available . our display products are manufactured based upon production plans whose critical assumptions include non-binding demand forecasts provided by our customers , lead times for raw materials , lead times for wafer foundries to perform circuit processing and yields . if a customer were to cancel an order or actual demand was lower than forecasted demand , we may not be able to sell the excess display inventory and additional reserves would be required . if we were unable to sell the excess inventory , we would establish reserves to reduce the inventory to its estimated realizable value ( generally zero ) . investment valuation we periodically make equity investments in private companies , accounted for on the cost or equity method , whose values are difficult to determine . when assessing investments in private companies for an other-than-temporary decline in value , we consider such factors as , among other things , the share price from the investee 's latest financing round , the performance of the investee in relation to its own operating targets and its business plan , the investee 's revenue and cost trends , the liquidity and cash position , including its cash burn rate and market acceptance of the investee 's products and services . because these are private companies which we do not control we may not be able to obtain all of the information we would want in order to make a complete assessment of the investment on a timely basis . accordingly , our estimates may be revised if other information becomes available at a later date . in addition to the above we make investments in government and agency-backed securities and corporate debt securities . for all of our investments we provide for an impairment valuation if we believe a decline in the value of an investment is other-than-temporary , which may have an adverse impact on our results of operations . the determination of whether a decline in value is other-than-temporary requires that we estimate the cash flows we expect to receive from the security . we use publicly available information such as credit ratings and financial information of the entity that issued the security in the development of our expectation of the cash flows to be received . historically , we have periodically recorded other than temporary impairment losses . product warranty we generally sell products with a limited warranty of product quality and a limited indemnification of customers against intellectual property infringement claims related to our products . we accrue for known warranty and indemnification issues if a loss is probable and can be reasonably estimated . as of december 27 , 2014 , we had a warranty reserve of $ 0.7 million , which represents the estimated liabilities for warranty claims in process , potential warranty issues customers have notified us about and an estimate based on historical failure rates . story_separator_special_tag the benefit for income taxes for the fiscal year ended 2014 of $ 0.2 million represents the net of state tax and foreign withholding tax related to closing our korean facilities . for 2015 we expect to have movement in the foreign withholding tax relating to conversion rate changes . we also expect to have a state tax provision in 2015. net ( income ) loss attributable to noncontrolling interest . we own approximately 93 % of the equity of kowon , 58 % of the equity of intoware , and 80 % of the equity of emdt . net loss attributable to noncontrolling interest on our consolidated statement of operations represents the portion of the results of operations of our majority owned subsidiaries which is allocated to the shareholders of the equity interests not owned by us . the change in net loss attributable to noncontrolling interest is the result of the change in the results of operations of kowon , intoware and emdt for the twelve month period ended december 27 , 2014 . 30 replace_table_token_13_th fiscal year 2013 compared to fiscal year 2012 revenues . our revenues , which include product sales and amounts earned from research and development contracts , for fiscal years 2013 and 2012 , by category , were as follows : replace_table_token_14_th sales of our products for military applications declined in 2013 because of reduced demand from the u.s. government . the u.s. government is projected to incur large budget deficits for the near future and is expected to reduce spending on military programs as part of the solution to decrease these deficits . the decrease in the consumer electronic applications and other category is the result of a decrease in sales of our products for digital still cameras . the decrease in research and development revenues is the result of a decrease in funding from the u.s. government . we are unable to predict the amount of funding for research and development by the u.s. government as it addresses its fiscal deficit issues . international sales represented 48 % and 27 % of product revenues for fiscal years 2013 and 2012 , respectively . our international sales are primarily denominated in u.s. currency . consequently , a strengthening of the u.s. dollar could increase the price in local currencies of our products in foreign markets and make our products relatively more expensive than competitors ' products that are denominated in local currencies , leading to a reduction in sales or profitability in those foreign markets . in addition , our korean subsidiary , kowon , holds u.s. dollars in order to pay various expenses . as a result , our financial position and results of operations are subject to exchange rate fluctuation in transactional and functional currency . we have not taken any protective measures against exchange rate fluctuations , such as purchasing hedging instruments with respect to such fluctuations , because of the historically stable exchange rate between the japanese yen , korean won and the u.s. dollar . cost of product revenues . replace_table_token_15_th cost of product revenues , which is comprised of materials , labor and manufacturing overhead related to the production of our products increased as a percentage of revenues in 2013 as compared to 2012 due to a decrease in the sale of our display products for military applications , normal price declines and lower unit sales of our display products . military products historically have higher gross margins than commercial products . the reduced volume of sales resulted in an increase in fixed cost per display which reduced the gross margin per display sale . research and development . research and development ( r & d ) expenses are incurred in support of internal display development programs or programs funded by agencies or prime contractors of the u.s. government and commercial partners . for fiscal years 2013 and 2012 r & d expense was as follows ( in millions ) : replace_table_token_16_th 31 r & d expense increased in 2013 as compared to the prior year primarily because of investments made to develop wearable reference designs , including display development and software costs , partially offset by a decrease in government funded product development . selling , general and administrative . selling , general and administrative ( s , g & a ) expenses consist of the expenses incurred by our sales and marketing personnel and related expenses , and administrative and general corporate expenses . replace_table_token_17_th the increase in s , g & a expenses in 2013 as compared to 2012 is primarily attributable to additional stock compensation expense . impairment . in 2013 , we performed an impairment analysis of our finite-lived intangible assets related to fdd and ikanos . we performed our analysis of our finite-lived intangible assets based on the income approach . as a result , we recorded a non-cash charge of $ 1.5 million to write down the finite-lived intangible assets . in 2012 , we performed an impairment analysis of our finite-lived intangible assets and goodwill balance related to fdd , as fdd 's actual results were less than originally forecast . we performed our analysis of our finite-lived intangible assets based on a comparison of the undiscounted cash flows to the recorded carrying value of the intangible assets . as a result , there was no change in the carrying values of the finite-lived intangible assets , however , we recorded a non-cash charge of $ 1.7 million to write down the remaining carrying value of the goodwill to zero . ( in millions ) intangible assets assets acquired with acquisition of fdd at jan. 11 , 2011 $ 4.6 amortization ( 0.7 ) impairment ( 2.0 ) foreign currency translation — as of december 31 , 2011 $ 1.9 amortization ( 0.3 ) impairment of goodwill — foreign currency translation 0.1 as of december 29 , 2012 $ 1.7 amortization ( 0.4 ) impairment of goodwill (

liquidity and capital resources as of december 27 , 2014 , we had cash and equivalents and marketable debt securities of $ 90.9 million and working capital of $ 86.7 million compared to $ 112.7 million and $ 108.4 million , respectively , as of december 28 , 2013. the change in cash and equivalents and marketable securities was primarily due to cash used in operating activities of $ 19.6 million and the repurchase of our common stock of $ 0.3 million . as of december 28 , 2013 , we had cash and equivalents and marketable debt securities of $ 112.7 million and working capital of $ 108.4 million compared to $ 92.5 million and $ 106.8 million , respectively , as of december 29 , 2012 . the increase in cash and equivalents and marketable securities was primarily due to cash from the sale of the iii-v product line of $ 55.2 million , proceeds from sales of investments of $ 2.6 million , offset by the net of cash used in operating activities of $ 19.0 million , capital expenditures of $ 0.7 million , the acquisition of certain cost based investments for $ 3.5 million , repurchase of ourcommon stock for $ 8.0 million and the purchase of incremental investment in kowon of $ 3.7 million .

24 our total revenue for 2014 was $ 556.8 million , which represents a 14 % increase from 2013 revenue of $ 487.4 million . this increase in revenue was largely attributable to a $ 79.6 million increase in revenue in our home robots business as a direct result of growth in both domestic and international markets , which was primarily driven by expanded distribution of our roomba 800 series robot worldwide , growth in china and the replacement of the roomba 500 series robot with the higher-priced roomba 600 series in club stores . the increase in home robots revenue was partially offset by a decrease in revenue of $ 4.5 million in our defense and security business related to continued budget reductions within the u.s. government in 2014. we began selling our remote presence robots into the healthcare market and the enterprise market in 2013 and 2014 , respectively . however , these sales did not generate meaningful revenue in 2014 or 2013. our home robots revenue represented 91 % of our total 2014 revenue compared to 88 % in 2013. we anticipate that our revenue for the next few years will be primarily driven by our rapidly growing home technology business and that our home robots revenue will comprise approximately 90 % of our total revenue in the near term . our total revenue for 2013 was $ 487.4 million , which represents a 12 % increase from 2012 revenue of $ 436.2 million . this increase in revenue was largely attributable to a $ 71.0 million increase in revenue in our home robots business as a direct result of growth in both domestic and international markets . the increase in home robots revenue was partially offset by a decrease in revenue of $ 20.9 million in our defense and security business related to reductions in new unmanned ground vehicle robots , associated with ongoing budget reductions within the u.s. government . our home robots revenue represented 88 % of our total 2013 revenue compared to 82 % in 2012. revenue we currently derive revenue from product sales , government research and development contracts , and commercial research and development contracts . product revenue is derived from the sale of our various home cleaning robots , defense and security robots and remote presence robots and related accessories . research and development revenue is derived from the execution of contracts awarded by the u.s. federal government , other governments and a small number of other partners . in the future , we expect to derive increasing revenue from product maintenance and support services due to a focused effort to market these services to the expanding installed base of our robots . we currently derive a majority of our product revenue from the sale of our home cleaning robots , and to a lesser extent , our packbot , firstlook , sugv and kobra defense and security robots , and product life cycle revenue related to these robots . for the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , product revenues accounted for 99.2 % , 98.0 % and 95.9 % of total revenue , respectively . for the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , our funded research and development contracts accounted for approximately 0.8 % , 2.0 % and 4.1 % of our total revenue , respectively . for the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , approximately 75.7 % , 75.3 % and 75.4 % , respectively , of our home robot product revenue resulted from sales to 15 customers , which were comprised of both domestic retailers and international distributors . direct-to-consumer revenue generated through our domestic and international on-line stores accounted for 6.1 % , 5.9 % and 6.3 % of our home robot product revenue for the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , respectively . we typically sell our recently launched products direct on-line , and then subsequently offer these products through other channels of distribution . for the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , sales to non-u.s. customers accounted for 60.9 % , 59.5 % and 57.3 % of total revenue , respectively . our revenue from product sales is generated through sales to our retail distribution channels , our distributor network and to certain u.s. and foreign governments . we recognize revenue from sales of robots under the terms of the customer agreement upon transfer of title and risk of loss to the customer , net of estimated returns , provided that collection is determined to be reasonably assured and no significant obligations remain . during 2014 , we recorded a net benefit to revenue and income before income taxes of $ 4.3 million and $ 5.7 million , respectively , related to adjustments to our product returns reserves , compared to a net benefit to both revenue and income before income taxes of $ 7.9 million and $ 11.0 million related to adjustments to our product returns reserves during fiscal 2013 and 2012 , respectively . the net adjustments recorded in 2014 and 2013 resulted from lower product returns experience as compared to estimates used to establish reserves in prior periods , and the favorable adjustments in 2012 were directly attributable to contractual modifications limiting our defective returns liability with certain customers , as well as overall lower defective returns experience . revenue from our defense and security robots business are occasionally influenced by the september 30 fiscal year-end of the u.s. federal government . story_separator_special_tag million , or 18.6 % , in our home robots business unit , and decreased $ 4.5 million , or 9.0 % , in our defense and security business unit . the $ 79.6 million increase in revenue from our home robots business unit was driven by a 12.5 % increase in units shipped and a 6.1 % increase in net average selling price . in fiscal 2014 , international home robots revenue increased $ 46.0 million , or 16.8 % , and domestic home robots revenue increased $ 33.5 million , or 21.8 % , compared to fiscal 2013. total home robots shipped in fiscal 2014 were 2,174,000 units compared to 1,933,000 units in fiscal 2013. the increase in both domestic and international home robots revenue was primarily driven by expanded distribution of our roomba 800 series robot worldwide , and the replacement of the roomba 500 series robot with the higher-priced roomba 600 series in club stores . international home robots revenue growth was further supported by strong demand in china , where revenue increased over 200 % in fiscal 2014 compared to fiscal 2013. the $ 4.5 million decrease in revenue from our defense and security robots business unit was driven by a $ 4.7 million decrease in defense and security robot revenue and a $ 1.2 million decrease in recurring contract development revenue generated under research and development contracts , partially offset by a $ 1.4 million increase in product life cycle revenue ( spare parts , accessories ) . total defense and security robots shipped in fiscal 2014 were 265 units compared to 534 units in fiscal 2013 , while the net average selling price of our defense and security robots increased from approximately $ 36 thousand in fiscal 2013 to approximately $ 56 thousand in fiscal 2014. the decrease in the number of units shipped and the increase in average selling price resulted from decreased sales of our lower-priced firstlook robot in fiscal 2014 as compared to fiscal 2013. the $ 1.2 million decrease in contract revenue was primarily due to a decrease in revenue related to the u.s. army 's brigade combat team modernization program , for which efforts were completed during the first half of fiscal 2013. the $ 1.4 million increase in product life cycle revenue was due to an increase in packbot upgrades , partially offset by decreases in firstlook and sugv spares . continued funding delays for government contracts have reduced our near-term visibility in our defense and security robots business unit and contributed to the decrease in period-over-period revenue in this business unit . we can not predict with any certainty the extent to which these funding delays will continue . 30 cost of revenue replace_table_token_7_th total cost of revenue increased $ 32.5 million , or 12.2 % to $ 298.8 million in fiscal 2014 , compared to $ 266.2 million in fiscal 2013. the increase is primarily due to the 12.5 % increase in home robot units shipped , as well as the increase in per unit costs of defense and security robots driven by a lower mix of the lower-cost firstlook robot in fiscal 2014 compared to fiscal 2013. these increases are partially offset by the 50.4 % decrease in defense and security units shipped in fiscal 2014 as compared to fiscal 2013. gross margin replace_table_token_8_th gross margin increased $ 36.9 million , or 16.7 % , to $ 258.1 million ( 46.3 % of revenue ) in fiscal 2014 from $ 221.2 million ( 45.4 % of revenue ) in fiscal 2013. the increase in gross margin as a percentage of revenue was the result of the home robots business unit gross margin increasing 1.2 percentage points , partially offset by the defense and security business unit gross margin decreasing 3.7 percentage points . the 1.2 percentage point increase in the home robots business unit was primarily driven by favorable product and customer mix , with increased volume of higher margin roomba 800 and 600 series robots in fiscal 2014 compared to fiscal 2013. during 2014 , we recorded a net benefit to revenue and gross margin of $ 4.3 million and $ 5.7 million , respectively , related to adjustments to our product returns reserves , compared to a net benefit to both revenue and gross margin of $ 7.9 million related to adjustments to our product returns reserves during fiscal 2013. the net adjustments recorded in each period resulted from lower product returns experience as compared to estimates used to establish reserves in prior periods . the favorable product and customer mix was partially offset by the decrease in favorable adjustments to our product returns reserve in fiscal 2014 compared to fiscal 2013. the 3.7 percentage point decrease in the defense and security robots business unit is attributable to unfavorable overhead leverage associated with the 9.0 % decrease in the defense and security robots business unit revenue . research and development replace_table_token_9_th research and development expenses increased $ 5.8 million , or 9.0 % , to $ 69.4 million ( 12.5 % of revenue ) in fiscal 2014 from $ 63.6 million ( 13.1 % of revenue ) in fiscal 2013. this increase is attributable to increased efforts in product development and continued product enhancements , including increases in consultant and other people-related costs of $ 3.5 million in 2014 compared to 2013. selling and marketing replace_table_token_10_th 31 selling and marketing expenses increased by $ 14.6 million , or 20.4 % , to $ 86.1 million ( 15.5 % of revenue ) in fiscal 2014 from $ 71.5 million ( 14.7 % of revenue ) in fiscal 2013. this increase is primarily attributable to $ 11.6 million in promotions , marketing displays , on-line media and other selling and marketing costs incurred to support the retail launch of the roomba 800 series and scooba 450 robots and our continued global marketing and branding efforts , as well as increases in people-related costs of

liquidity and capital resources as of december 27 , 2014 , we had cash and equivalents and marketable debt securities of $ 90.9 million and working capital of $ 86.7 million compared to $ 112.7 million and $ 108.4 million , respectively , as of december 28 , 2013. the change in cash and equivalents and marketable securities was primarily due to cash used in operating activities of $ 19.6 million and the repurchase of our common stock of $ 0.3 million . as of december 28 , 2013 , we had cash and equivalents and marketable debt securities of $ 112.7 million and working capital of $ 108.4 million compared to $ 92.5 million and $ 106.8 million , respectively , as of december 29 , 2012 . the increase in cash and equivalents and marketable securities was primarily due to cash from the sale of the iii-v product line of $ 55.2 million , proceeds from sales of investments of $ 2.6 million , offset by the net of cash used in operating activities of $ 19.0 million , capital expenditures of $ 0.7 million , the acquisition of certain cost based investments for $ 3.5 million , repurchase of ourcommon stock for $ 8.0 million and the purchase of incremental investment in kowon of $ 3.7 million .

24 our total revenue for 2014 was $ 556.8 million , which represents a 14 % increase from 2013 revenue of $ 487.4 million . this increase in revenue was largely attributable to a $ 79.6 million increase in revenue in our home robots business as a direct result of growth in both domestic and international markets , which was primarily driven by expanded distribution of our roomba 800 series robot worldwide , growth in china and the replacement of the roomba 500 series robot with the higher-priced roomba 600 series in club stores . the increase in home robots revenue was partially offset by a decrease in revenue of $ 4.5 million in our defense and security business related to continued budget reductions within the u.s. government in 2014. we began selling our remote presence robots into the healthcare market and the enterprise market in 2013 and 2014 , respectively . however , these sales did not generate meaningful revenue in 2014 or 2013. our home robots revenue represented 91 % of our total 2014 revenue compared to 88 % in 2013. we anticipate that our revenue for the next few years will be primarily driven by our rapidly growing home technology business and that our home robots revenue will comprise approximately 90 % of our total revenue in the near term . our total revenue for 2013 was $ 487.4 million , which represents a 12 % increase from 2012 revenue of $ 436.2 million . this increase in revenue was largely attributable to a $ 71.0 million increase in revenue in our home robots business as a direct result of growth in both domestic and international markets . the increase in home robots revenue was partially offset by a decrease in revenue of $ 20.9 million in our defense and security business related to reductions in new unmanned ground vehicle robots , associated with ongoing budget reductions within the u.s. government . our home robots revenue represented 88 % of our total 2013 revenue compared to 82 % in 2012. revenue we currently derive revenue from product sales , government research and development contracts , and commercial research and development contracts . product revenue is derived from the sale of our various home cleaning robots , defense and security robots and remote presence robots and related accessories . research and development revenue is derived from the execution of contracts awarded by the u.s. federal government , other governments and a small number of other partners . in the future , we expect to derive increasing revenue from product maintenance and support services due to a focused effort to market these services to the expanding installed base of our robots . we currently derive a majority of our product revenue from the sale of our home cleaning robots , and to a lesser extent , our packbot , firstlook , sugv and kobra defense and security robots , and product life cycle revenue related to these robots . for the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , product revenues accounted for 99.2 % , 98.0 % and 95.9 % of total revenue , respectively . for the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , our funded research and development contracts accounted for approximately 0.8 % , 2.0 % and 4.1 % of our total revenue , respectively . for the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , approximately 75.7 % , 75.3 % and 75.4 % , respectively , of our home robot product revenue resulted from sales to 15 customers , which were comprised of both domestic retailers and international distributors . direct-to-consumer revenue generated through our domestic and international on-line stores accounted for 6.1 % , 5.9 % and 6.3 % of our home robot product revenue for the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , respectively . we typically sell our recently launched products direct on-line , and then subsequently offer these products through other channels of distribution . for the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , sales to non-u.s. customers accounted for 60.9 % , 59.5 % and 57.3 % of total revenue , respectively . our revenue from product sales is generated through sales to our retail distribution channels , our distributor network and to certain u.s. and foreign governments . we recognize revenue from sales of robots under the terms of the customer agreement upon transfer of title and risk of loss to the customer , net of estimated returns , provided that collection is determined to be reasonably assured and no significant obligations remain . during 2014 , we recorded a net benefit to revenue and income before income taxes of $ 4.3 million and $ 5.7 million , respectively , related to adjustments to our product returns reserves , compared to a net benefit to both revenue and income before income taxes of $ 7.9 million and $ 11.0 million related to adjustments to our product returns reserves during fiscal 2013 and 2012 , respectively . the net adjustments recorded in 2014 and 2013 resulted from lower product returns experience as compared to estimates used to establish reserves in prior periods , and the favorable adjustments in 2012 were directly attributable to contractual modifications limiting our defective returns liability with certain customers , as well as overall lower defective returns experience . revenue from our defense and security robots business are occasionally influenced by the september 30 fiscal year-end of the u.s. federal government . story_separator_special_tag million , or 18.6 % , in our home robots business unit , and decreased $ 4.5 million , or 9.0 % , in our defense and security business unit . the $ 79.6 million increase in revenue from our home robots business unit was driven by a 12.5 % increase in units shipped and a 6.1 % increase in net average selling price . in fiscal 2014 , international home robots revenue increased $ 46.0 million , or 16.8 % , and domestic home robots revenue increased $ 33.5 million , or 21.8 % , compared to fiscal 2013. total home robots shipped in fiscal 2014 were 2,174,000 units compared to 1,933,000 units in fiscal 2013. the increase in both domestic and international home robots revenue was primarily driven by expanded distribution of our roomba 800 series robot worldwide , and the replacement of the roomba 500 series robot with the higher-priced roomba 600 series in club stores . international home robots revenue growth was further supported by strong demand in china , where revenue increased over 200 % in fiscal 2014 compared to fiscal 2013. the $ 4.5 million decrease in revenue from our defense and security robots business unit was driven by a $ 4.7 million decrease in defense and security robot revenue and a $ 1.2 million decrease in recurring contract development revenue generated under research and development contracts , partially offset by a $ 1.4 million increase in product life cycle revenue ( spare parts , accessories ) . total defense and security robots shipped in fiscal 2014 were 265 units compared to 534 units in fiscal 2013 , while the net average selling price of our defense and security robots increased from approximately $ 36 thousand in fiscal 2013 to approximately $ 56 thousand in fiscal 2014. the decrease in the number of units shipped and the increase in average selling price resulted from decreased sales of our lower-priced firstlook robot in fiscal 2014 as compared to fiscal 2013. the $ 1.2 million decrease in contract revenue was primarily due to a decrease in revenue related to the u.s. army 's brigade combat team modernization program , for which efforts were completed during the first half of fiscal 2013. the $ 1.4 million increase in product life cycle revenue was due to an increase in packbot upgrades , partially offset by decreases in firstlook and sugv spares . continued funding delays for government contracts have reduced our near-term visibility in our defense and security robots business unit and contributed to the decrease in period-over-period revenue in this business unit . we can not predict with any certainty the extent to which these funding delays will continue . 30 cost of revenue replace_table_token_7_th total cost of revenue increased $ 32.5 million , or 12.2 % to $ 298.8 million in fiscal 2014 , compared to $ 266.2 million in fiscal 2013. the increase is primarily due to the 12.5 % increase in home robot units shipped , as well as the increase in per unit costs of defense and security robots driven by a lower mix of the lower-cost firstlook robot in fiscal 2014 compared to fiscal 2013. these increases are partially offset by the 50.4 % decrease in defense and security units shipped in fiscal 2014 as compared to fiscal 2013. gross margin replace_table_token_8_th gross margin increased $ 36.9 million , or 16.7 % , to $ 258.1 million ( 46.3 % of revenue ) in fiscal 2014 from $ 221.2 million ( 45.4 % of revenue ) in fiscal 2013. the increase in gross margin as a percentage of revenue was the result of the home robots business unit gross margin increasing 1.2 percentage points , partially offset by the defense and security business unit gross margin decreasing 3.7 percentage points . the 1.2 percentage point increase in the home robots business unit was primarily driven by favorable product and customer mix , with increased volume of higher margin roomba 800 and 600 series robots in fiscal 2014 compared to fiscal 2013. during 2014 , we recorded a net benefit to revenue and gross margin of $ 4.3 million and $ 5.7 million , respectively , related to adjustments to our product returns reserves , compared to a net benefit to both revenue and gross margin of $ 7.9 million related to adjustments to our product returns reserves during fiscal 2013. the net adjustments recorded in each period resulted from lower product returns experience as compared to estimates used to establish reserves in prior periods . the favorable product and customer mix was partially offset by the decrease in favorable adjustments to our product returns reserve in fiscal 2014 compared to fiscal 2013. the 3.7 percentage point decrease in the defense and security robots business unit is attributable to unfavorable overhead leverage associated with the 9.0 % decrease in the defense and security robots business unit revenue . research and development replace_table_token_9_th research and development expenses increased $ 5.8 million , or 9.0 % , to $ 69.4 million ( 12.5 % of revenue ) in fiscal 2014 from $ 63.6 million ( 13.1 % of revenue ) in fiscal 2013. this increase is attributable to increased efforts in product development and continued product enhancements , including increases in consultant and other people-related costs of $ 3.5 million in 2014 compared to 2013. selling and marketing replace_table_token_10_th 31 selling and marketing expenses increased by $ 14.6 million , or 20.4 % , to $ 86.1 million ( 15.5 % of revenue ) in fiscal 2014 from $ 71.5 million ( 14.7 % of revenue ) in fiscal 2013. this increase is primarily attributable to $ 11.6 million in promotions , marketing displays , on-line media and other selling and marketing costs incurred to support the retail launch of the roomba 800 series and scooba 450 robots and our continued global marketing and branding efforts , as well as increases in people-related costs of

liquidity and capital resources at december 27 , 2014 , our principal sources of liquidity were cash and cash equivalents totaling $ 186.0 million , short-term investments of $ 36.2 million and accounts receivable of $ 71.1 million . we manufacture and distribute our products through contract manufacturers and third-party logistics providers . we believe that this approach gives us the advantages of relatively low capital investment and significant flexibility in scheduling production and managing inventory levels . by leasing our office facilities , we also minimize the cash needed for expansion . accordingly , our capital spending is generally limited to leasehold improvements , computers , office furniture , product-specific production tooling , internal use software and test equipment . in the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , we spent $ 13.8 million , $ 6.8 million and $ 6.8 million respectively , on capital equipment . our strategy for delivering home robots products to our distributors and retail customers gives us the flexibility to provide container shipments directly to the retailer from china and , alternatively , allows our distributors and retail partners to take possession of product on a domestic basis . accordingly , our home robots product inventory consists of goods shipped to our third-party logistics providers for the fulfillment of distributor , retail and direct-to-consumer sales . our inventory of defense and security products consists mostly of components , as well as carefully-managed levels of sub-assemblies . our contract manufacturers are also responsible for purchasing and stocking components required for the production of our products , and they typically invoice us when the finished goods are shipped . 35 the balance of cash , cash equivalents and short-term investments of $ 222.1 million at december 27 , 2014 is primarily the result of our increased profitability , as well as our on-going focus on managing working capital . in 2014 , we generated $ 40.6 million of cash from operations .

in december 2013 , the board of directors of the zhejiang sunmy agreed to amend the joint venture agreement to allow for the departure of zhejiang medicine co. , ltd. subject to the approval of the government of the people 's republic of china . in august 2014 , the chinese government approved the amendment to the joint venture agreement to allow for the departure of zhejiang medicine co. , ltd. as of december 31 , 2015 , beijing medfron medical technologies co. , ltd. and medicinova each have a 50 % interest in zhejiang sunmy . no additional capital was contributed by either remaining party . we have not entered into the sublicense of mn-221 with zhejiang sunmy . there is no assurance the sublicense will be executed and there is no assurance that zhejiang sunmy will be able to proceed with the development of mn-221 in china . zhejiang sunmy is a variable interest entity for which we are not the primary beneficiary as we do not have a majority of the board seats and we will not have power to direct or significantly influence the actions of the entity . we therefore account for the activities of zhejiang sunmy under the equity method whereby we absorb any loss or income generated by zhejiang sunmy according to our percentage ownership . at december 31 , 2015 we reflect a long-term asset on our consolidated balance sheet which represents our investment in zhejiang sunmy , net of our portion of any generated loss or income . upon completion of proof-of-concept phase 2 clinical trials , we intend to enter into strategic alliances with leading pharmaceutical or biotech companies who seek late stage product candidates to support further clinical development and product commercialization . depending on decisions we may make as to further clinical development , we may seek to raise additional capital . we may also pursue potential partnerships and potential acquirers of license rights to our programs in markets outside the u.s. revenues and cost of revenues we did not recognize any revenue for the years ending december 31 , 2015 and 2014. in october 2011 we entered into an agreement with kissei to perform research and development services relating to mn-221 in exchange for a non-refundable upfront payment of $ 2.5 million . under the terms of the agreement , we are responsible for all costs incurred and to be incurred in the performance of these services . certain of the development services were completed in 2013 and 2012 , and the remaining services are expected to be delivered and completed at a future date . we assessed the deliverables in accordance with the authoritative guidance and concluded the existence of one deliverable , which was research and development 38 services . the $ 2.5 million was initially recorded as deferred revenue of which $ 0.8 million has been recognized through december 31 , 2015 . no r evenue was recorded in 2015 and 2014 associated with the kissei agreement . research , development and patent expenses our research , development and patent expenses consist primarily of the license fees related to our product candidates , salaries and related employee benefits , costs associated with the preclinical and clinical development of our product development programs , costs associated with non-clinical activities , such as regulatory expenses , and pre-commercialization manufacturing development activities . we use external service providers to manufacture our compounds to be used in clinical trials and for the majority of the services performed in connection with the preclinical and clinical development of our product candidates . research , development and patent expenses include fees paid to consultants , contract research organizations , contract manufacturers and other external service providers , including professional fees and costs associated with legal services , patents and patent applications for our intellectual property . internal research and development expenses include costs of compensation and other expenses for research and development personnel , supplies , facility costs and depreciation . research , development and patent costs are expensed as incurred , and we expect to increase such costs in 2016 as our development programs progress . the following table summarizes our research , development and patent expenses for the periods indicated for each of our product development programs . to the extent that costs , including personnel costs , are not tracked to a specific product development program , such costs are included in the “ other r & d expense ” category ( in thousands ) : replace_table_token_3_th our goal is to build a sustainable biopharmaceutical business through the successful development of differentiated products for the treatment of serious diseases with unmet medical needs in high-value therapeutic areas . our focus is on the u.s. market . key elements of our strategy are as follows : · pursue the development of mn-166 ( ibudilast ) for multiple potential indications primarily through non-dilutive financings . we intend to advance our diverse mn-166 ( ibudilast ) program through a combination of investigator-sponsored trials and trials funded through government grants or other grants . in addition to providing drug supply and regulatory support , we are funding portions of the consortium-sponsored trials . for example , we have contributed financially to the secondary and primary progressive ibudilast neuronext trial in multiple sclerosis ( sprint-ms ) phase 2 clinical trial of mn-166 ( ibudilast ) for the treatment of progressive ms , which is primarily funded by the national institutes of health ( nih ) , and are contributing financially to the carolinas neuromuscular als-mda center clinical trial of mn-166 ( ibudilast ) for the treatment of als . we intend to enter into additional strategic alliances to support further clinical development of mn-166 ( ibudilast ) . · pursue the development of mn-001 ( tipelukast ) for fibrotic diseases including nash and ipf . story_separator_special_tag 40 goodwill and purchased intangibles goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of the identified net tangible and intangible assets of acquired businesses . the allocation of purchase price for acquisitions require extensive use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values . additionally , we must determine whether an acquired entity is considered to be a business or a set of net assets as a portion of the purchase price can only be allocated to goodwill in a business combination . goodwill and intangible assets deemed to have indefinite lives are not amortized , but are subject to annual impairment tests . the amounts and useful lives assigned to intangible assets that have finite useful lives require the use of estimates and the exercise of judgment . these judgments can significantly affect our net operating results . we recorded goodwill and in-process research and development , or ipr & d , of $ 9.6 million and $ 4.8 million , respectively , as of december 31 , 2015 and 2014. at least annually in the fourth quarter , or more frequently if indicators of impairment exist , we complete an impairment test for goodwill and purchased indefinite life intangibles . we periodically re-evaluate the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of our long-lived assets . the criteria used for these evaluations include management 's estimate of the asset 's continuing ability to generate income from operations and positive cash flows in future periods as well as the strategic significance of any intangible assets in our business objectives . if assets are considered to be impaired , the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets . recent accounting pronouncements the impact of recent accounting pronouncements is more fully described in note 1 of our consolidated financial statements included elsewhere in this annual report on form 10-k. results of operations comparison of the years ended december 31 , 2015 and 2014 revenues we did not recognize any revenue for the years ended december 31 , 2015 and 2014. research , development and patent expenses research , development and patent expenses for the year ended december 31 , 2015 were $ 3.0 million , a decrease of $ 0.3 million compared to $ 3.3 million for the year ended december 31 , 2014. this decrease in research , development and patent expenses primarily relates to a decrease in patent expenses and external development costs associated with mn-166 and mn-001 of $ 0.5 million in 2015 as compared to 2014 , partially offset by an increase in personnel costs of $ 0.2 million driven by increased share-based compensation expense in 2015. general and administrative general and administrative expenses for the year ended december 31 , 2015 were $ 5.8 million , a decrease of $ 0.2 million compared to $ 6.0 million for the year ended december 31 , 2014. the decrease in general and administrative expenses relates to a decrease in professional fees of $ 0.1 million for 2015 as compared to 2014 along with a $ 100,000 payment received from a vendor to offset the cost of manufactured drug product that was inadvertently destroyed by the vendor , which was offset against general and administrative expenses . other expense other expense for the year ended december 31 , 2015 was approximately $ 54,000 , as compared to approximately $ 13,000 for the year ended december 31 , 2014. in 2015 and 2014 , other expense consisted of losses from the joint venture accounted for under the equity method according to our percentage ownership , and net transaction losses related to vendor invoices denominated in foreign currencies . the increase in other expense is primarily due to the fluctuation of the exchange rate for the chinese yuan renminbi resulting in additional loss in the joint venture translation for 2015. other income other income for the year ended december 31 , 2015 was approximately $ 39,000 , as compared to approximately $ 37,000 for the year ended december 31 , 2014. other income consisted of interest income on our cash and cash equivalents in both 2015 and 2014 . 41 story_separator_special_tag report , we believe we have working capital sufficient to fund operations into the second half of 2017. our future funding requirements will depend on many factors , including , but not limited to : · progress in , and the costs of , future planned clinical trials and other research and development activities ; · the scope , prioritization and number of our product development programs ; · our obligations under our license agreements , pursuant to which we may be required to make future milestone payments upon the achievement of various milestones related to clinical , regulatory or commercial events ; 42 · our ability to establish and maintain strategic collaborations , including licensing and other arrangements , and to complete acquisitions of additional product candidates ; · the time and costs involved in obtaining regulatory approvals ; · the costs of securing manufacturing arrangements for clinical or commercial production of our product candidates ; · the costs associated with expanding our management , personnel , systems and facilities ; · the costs associated with any litigation ; · the costs associated with the operations or wind-down of any business we may acquire ; · the costs involved in filing , prosecuting , enforcing and defending patent claims and other intellectual property rights ; and · the costs of establishing or contracting for sales and marketing capabilities and commercialization activities if we obtain regulatory approval to market our product candidates . other significant contractual obligations the following summarizes our scheduled long-term contractual obligations that may affect our future liquidity as of december

liquidity and capital resources at december 27 , 2014 , our principal sources of liquidity were cash and cash equivalents totaling $ 186.0 million , short-term investments of $ 36.2 million and accounts receivable of $ 71.1 million . we manufacture and distribute our products through contract manufacturers and third-party logistics providers . we believe that this approach gives us the advantages of relatively low capital investment and significant flexibility in scheduling production and managing inventory levels . by leasing our office facilities , we also minimize the cash needed for expansion . accordingly , our capital spending is generally limited to leasehold improvements , computers , office furniture , product-specific production tooling , internal use software and test equipment . in the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , we spent $ 13.8 million , $ 6.8 million and $ 6.8 million respectively , on capital equipment . our strategy for delivering home robots products to our distributors and retail customers gives us the flexibility to provide container shipments directly to the retailer from china and , alternatively , allows our distributors and retail partners to take possession of product on a domestic basis . accordingly , our home robots product inventory consists of goods shipped to our third-party logistics providers for the fulfillment of distributor , retail and direct-to-consumer sales . our inventory of defense and security products consists mostly of components , as well as carefully-managed levels of sub-assemblies . our contract manufacturers are also responsible for purchasing and stocking components required for the production of our products , and they typically invoice us when the finished goods are shipped . 35 the balance of cash , cash equivalents and short-term investments of $ 222.1 million at december 27 , 2014 is primarily the result of our increased profitability , as well as our on-going focus on managing working capital . in 2014 , we generated $ 40.6 million of cash from operations .

in december 2013 , the board of directors of the zhejiang sunmy agreed to amend the joint venture agreement to allow for the departure of zhejiang medicine co. , ltd. subject to the approval of the government of the people 's republic of china . in august 2014 , the chinese government approved the amendment to the joint venture agreement to allow for the departure of zhejiang medicine co. , ltd. as of december 31 , 2015 , beijing medfron medical technologies co. , ltd. and medicinova each have a 50 % interest in zhejiang sunmy . no additional capital was contributed by either remaining party . we have not entered into the sublicense of mn-221 with zhejiang sunmy . there is no assurance the sublicense will be executed and there is no assurance that zhejiang sunmy will be able to proceed with the development of mn-221 in china . zhejiang sunmy is a variable interest entity for which we are not the primary beneficiary as we do not have a majority of the board seats and we will not have power to direct or significantly influence the actions of the entity . we therefore account for the activities of zhejiang sunmy under the equity method whereby we absorb any loss or income generated by zhejiang sunmy according to our percentage ownership . at december 31 , 2015 we reflect a long-term asset on our consolidated balance sheet which represents our investment in zhejiang sunmy , net of our portion of any generated loss or income . upon completion of proof-of-concept phase 2 clinical trials , we intend to enter into strategic alliances with leading pharmaceutical or biotech companies who seek late stage product candidates to support further clinical development and product commercialization . depending on decisions we may make as to further clinical development , we may seek to raise additional capital . we may also pursue potential partnerships and potential acquirers of license rights to our programs in markets outside the u.s. revenues and cost of revenues we did not recognize any revenue for the years ending december 31 , 2015 and 2014. in october 2011 we entered into an agreement with kissei to perform research and development services relating to mn-221 in exchange for a non-refundable upfront payment of $ 2.5 million . under the terms of the agreement , we are responsible for all costs incurred and to be incurred in the performance of these services . certain of the development services were completed in 2013 and 2012 , and the remaining services are expected to be delivered and completed at a future date . we assessed the deliverables in accordance with the authoritative guidance and concluded the existence of one deliverable , which was research and development 38 services . the $ 2.5 million was initially recorded as deferred revenue of which $ 0.8 million has been recognized through december 31 , 2015 . no r evenue was recorded in 2015 and 2014 associated with the kissei agreement . research , development and patent expenses our research , development and patent expenses consist primarily of the license fees related to our product candidates , salaries and related employee benefits , costs associated with the preclinical and clinical development of our product development programs , costs associated with non-clinical activities , such as regulatory expenses , and pre-commercialization manufacturing development activities . we use external service providers to manufacture our compounds to be used in clinical trials and for the majority of the services performed in connection with the preclinical and clinical development of our product candidates . research , development and patent expenses include fees paid to consultants , contract research organizations , contract manufacturers and other external service providers , including professional fees and costs associated with legal services , patents and patent applications for our intellectual property . internal research and development expenses include costs of compensation and other expenses for research and development personnel , supplies , facility costs and depreciation . research , development and patent costs are expensed as incurred , and we expect to increase such costs in 2016 as our development programs progress . the following table summarizes our research , development and patent expenses for the periods indicated for each of our product development programs . to the extent that costs , including personnel costs , are not tracked to a specific product development program , such costs are included in the “ other r & d expense ” category ( in thousands ) : replace_table_token_3_th our goal is to build a sustainable biopharmaceutical business through the successful development of differentiated products for the treatment of serious diseases with unmet medical needs in high-value therapeutic areas . our focus is on the u.s. market . key elements of our strategy are as follows : · pursue the development of mn-166 ( ibudilast ) for multiple potential indications primarily through non-dilutive financings . we intend to advance our diverse mn-166 ( ibudilast ) program through a combination of investigator-sponsored trials and trials funded through government grants or other grants . in addition to providing drug supply and regulatory support , we are funding portions of the consortium-sponsored trials . for example , we have contributed financially to the secondary and primary progressive ibudilast neuronext trial in multiple sclerosis ( sprint-ms ) phase 2 clinical trial of mn-166 ( ibudilast ) for the treatment of progressive ms , which is primarily funded by the national institutes of health ( nih ) , and are contributing financially to the carolinas neuromuscular als-mda center clinical trial of mn-166 ( ibudilast ) for the treatment of als . we intend to enter into additional strategic alliances to support further clinical development of mn-166 ( ibudilast ) . · pursue the development of mn-001 ( tipelukast ) for fibrotic diseases including nash and ipf . story_separator_special_tag 40 goodwill and purchased intangibles goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of the identified net tangible and intangible assets of acquired businesses . the allocation of purchase price for acquisitions require extensive use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values . additionally , we must determine whether an acquired entity is considered to be a business or a set of net assets as a portion of the purchase price can only be allocated to goodwill in a business combination . goodwill and intangible assets deemed to have indefinite lives are not amortized , but are subject to annual impairment tests . the amounts and useful lives assigned to intangible assets that have finite useful lives require the use of estimates and the exercise of judgment . these judgments can significantly affect our net operating results . we recorded goodwill and in-process research and development , or ipr & d , of $ 9.6 million and $ 4.8 million , respectively , as of december 31 , 2015 and 2014. at least annually in the fourth quarter , or more frequently if indicators of impairment exist , we complete an impairment test for goodwill and purchased indefinite life intangibles . we periodically re-evaluate the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of our long-lived assets . the criteria used for these evaluations include management 's estimate of the asset 's continuing ability to generate income from operations and positive cash flows in future periods as well as the strategic significance of any intangible assets in our business objectives . if assets are considered to be impaired , the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets . recent accounting pronouncements the impact of recent accounting pronouncements is more fully described in note 1 of our consolidated financial statements included elsewhere in this annual report on form 10-k. results of operations comparison of the years ended december 31 , 2015 and 2014 revenues we did not recognize any revenue for the years ended december 31 , 2015 and 2014. research , development and patent expenses research , development and patent expenses for the year ended december 31 , 2015 were $ 3.0 million , a decrease of $ 0.3 million compared to $ 3.3 million for the year ended december 31 , 2014. this decrease in research , development and patent expenses primarily relates to a decrease in patent expenses and external development costs associated with mn-166 and mn-001 of $ 0.5 million in 2015 as compared to 2014 , partially offset by an increase in personnel costs of $ 0.2 million driven by increased share-based compensation expense in 2015. general and administrative general and administrative expenses for the year ended december 31 , 2015 were $ 5.8 million , a decrease of $ 0.2 million compared to $ 6.0 million for the year ended december 31 , 2014. the decrease in general and administrative expenses relates to a decrease in professional fees of $ 0.1 million for 2015 as compared to 2014 along with a $ 100,000 payment received from a vendor to offset the cost of manufactured drug product that was inadvertently destroyed by the vendor , which was offset against general and administrative expenses . other expense other expense for the year ended december 31 , 2015 was approximately $ 54,000 , as compared to approximately $ 13,000 for the year ended december 31 , 2014. in 2015 and 2014 , other expense consisted of losses from the joint venture accounted for under the equity method according to our percentage ownership , and net transaction losses related to vendor invoices denominated in foreign currencies . the increase in other expense is primarily due to the fluctuation of the exchange rate for the chinese yuan renminbi resulting in additional loss in the joint venture translation for 2015. other income other income for the year ended december 31 , 2015 was approximately $ 39,000 , as compared to approximately $ 37,000 for the year ended december 31 , 2014. other income consisted of interest income on our cash and cash equivalents in both 2015 and 2014 . 41 story_separator_special_tag report , we believe we have working capital sufficient to fund operations into the second half of 2017. our future funding requirements will depend on many factors , including , but not limited to : · progress in , and the costs of , future planned clinical trials and other research and development activities ; · the scope , prioritization and number of our product development programs ; · our obligations under our license agreements , pursuant to which we may be required to make future milestone payments upon the achievement of various milestones related to clinical , regulatory or commercial events ; 42 · our ability to establish and maintain strategic collaborations , including licensing and other arrangements , and to complete acquisitions of additional product candidates ; · the time and costs involved in obtaining regulatory approvals ; · the costs of securing manufacturing arrangements for clinical or commercial production of our product candidates ; · the costs associated with expanding our management , personnel , systems and facilities ; · the costs associated with any litigation ; · the costs associated with the operations or wind-down of any business we may acquire ; · the costs involved in filing , prosecuting , enforcing and defending patent claims and other intellectual property rights ; and · the costs of establishing or contracting for sales and marketing capabilities and commercialization activities if we obtain regulatory approval to market our product candidates . other significant contractual obligations the following summarizes our scheduled long-term contractual obligations that may affect our future liquidity as of december

liquidity and capital resources we incurred losses of $ 8.8 million and $ 9.2 million for the years ended december 31 , 2015 , and 2014 , respectively . at december 31 , 2015 , our accumulated deficit was $ 319.4 million . for the year ended december 31 , 2015 , we used net cash of $ 7.2 million to fund operating activities . for the year ended december 31 , 2014 , net cash of $ 0.8 million was provided by operating activities . our operating losses to date have been funded primarily through the private placement of our equity securities , the public sale of our common stock , long-term debt , development agreements with partners and the exercise of founders ' warrants , net of treasury stock repurchases . equity financing on october 16 , 2013 , we entered into an at-the-market equity distribution agreement with macquarie capital ( usa ) inc. , or mcusa , pursuant to which we could sell our common stock through mcusa from time to time up to an aggregate offering price of $ 10.0 million . the at-the-market equity distribution agreement with mcusa was terminated on may 22 , 2015 , and as of such date , we had completed sales to mcusa totaling 2,127,500 shares of common stock at prices ranging from $ 2.01 to $ 4.45 per share , generating gross and net proceeds of $ 5.3 million and $ 4.5 million , respectively .

we estimate that clinical trials of the type we generally conduct are typically completed over the following timelines : clinical phase estimated completion period phase 1 1 - 2 years phase 2 1 - 5 years phase 3 1 - 5 years the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol , including , among others , the following : the number of patients that ultimately participate in the trial ; the duration of patient follow-up that seems appropriate in view of results ; the number of clinical sites included in the trials ; the length of time required to enroll suitable patient subjects ; and the efficacy and safety profile of the product candidate . we test potential product candidates in numerous preclinical studies for safety , toxicology and immunogenicity . we may then conduct multiple clinical trials for each product candidate . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain product candidates in order to focus our resources on more promising product candidates . an element of our business strategy is to pursue the research and development of a broad portfolio of product candidates . this is intended to allow us to diversify the risks associated with our research and development expenditures . to the extent we are unable to maintain a broad range of product candidates , our dependence on the success of one or a few product candidates increases . regulatory approval is required before we can market our product candidates as therapeutic products . in order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval , the regulatory agency must conclude that our clinical data is safe and effective . historically , the results from preclinical testing and early clinical trials ( through phase 2 ) have often not been predictive of results obtained in later clinical trials . a number of new drugs and biologics have shown 63 promising results in early clinical trials , but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals . furthermore , our business strategy includes the option of entering into collaborative arrangements with third parties to complete the development and commercialization of our product candidates . in the event that third parties take over the clinical trial process for one of our product candidates , the estimated completion date would largely be under control of that third party rather than us . we can not forecast with any degree of certainty which proprietary products , if any , will be subject to future collaborative arrangements , in whole or in part , and how such arrangements would affect our development plan or capital requirements . our programs may also benefit from subsidies , grants , contracts or government or agency-sponsored studies that could reduce our development costs . as a result of the uncertainties discussed above , among others , it is difficult to accurately estimate the duration and completion costs of our research and development projects or when , if ever , and to what extent we will receive cash inflows from the commercialization and sale of a product . our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements , when appropriate , could significantly increase our capital requirements and could adversely impact our liquidity . these uncertainties could force us to seek additional , external sources of financing from time to time in order to continue with our business strategy . our inability to raise additional capital , or to do so on terms reasonably acceptable to us , would jeopardize the future success of our business . during the past five years through december 31 , 2015 , we incurred an aggregate of $ 351.8 million in research and development expenses . the following table indicates the amount incurred for each of our significant research programs and for other identified research and development activities during the years ended december 31 , 2015 , 2014 and 2013. the amounts disclosed in the following table reflect direct research and development costs , license fees associated with the underlying technology and an allocation of indirect research and development costs to each program . replace_table_token_13_th clinical development programs rintega rintega is an epidermal growth factor receptor variant iii , or egfrviii , specific vaccine for glioblastoma , or gbm . egfrviii is a mutated form of the epidermal growth factor receptor , or egfr , that is only expressed in cancer cells and not in normal tissue and can directly contribute to cancer cell growth . egfrviii is expressed in approximately 30 % of gbm tumors , the most common and aggressive form of brain cancer . rintega is composed of the egfrviii peptide linked to a carrier protein called keyhole limpet hemocyanin , or klh , and administered together with the adjuvant gm-csf . the fda and the european medicines agency , or ema , have both granted orphan drug designation for rintega for the treatment of egfrviii expressing gbm . the fda has also granted 64 fast track designation . in february 2015 , the fda granted rintega breakthrough therapy designation for the treatment of adult patients with egfrviii-positive glioblastoma . the phase 2a study of rintega referred to as activate was led by collaborating investigators at the brain tumor center at duke cancer institute in durham , north carolina and at m.d . anderson cancer center in houston , texas and enrolled 18 evaluable gbm patients . an extension of the phase 2a study referred to as act ii evaluated 22 additional gbm patients treated in combination with the current standard of care , maintenance temozolomide , or tmz , at the same two institutions . story_separator_special_tag based on current projections , we believe enrollment will be completed in the second half of 2016. treatment of metastatic melanoma : the phase 1/2 open-label , multi-center , dose escalation study evaluated the safety , tolerability and pharmacokinetics of glembatumumab vedotin in 117 patients with 69 un-resectable stage iii or stage iv melanoma who had failed no more than one prior line of cytotoxic therapy . the mtd was determined to be 1.88 mg/kg administered intravenously once every three weeks . the study achieved its primary activity objective with an orr in the phase 2 cohort of 15 % ( 5/34 ) . median pfs was 3.9 months . glembatumumab vedotin was generally well tolerated , with the most frequent treatment-related adverse events being rash , fatigue , hair loss , pruritus , diarrhea and neuropathy . in the subset of patients with tumor biopsies , high levels of tumor expression of gpnmb appeared to correlate with favorable outcome . in the seven patients whose tumors were found to express high amounts of gpnmb , and who were treated at the maximum tolerated doses across all dosing schedules , median pfs was 4.9 months . the development of rash , which may be associated with the presence of gpnmb in the skin , also seemed to correlate with greater pfs . in december 2014 , we initiated a single arm , open-label phase 2 study of glembatumumab vedotin in patients with unresectable stage iii or iv melanoma . the study includes approximately 10 sites in the united states and will enroll approximately 60 patients . the primary objective is to evaluate the anticancer activity of glembatumumab vedotin in advanced melanoma as measured by the orr . secondary endpoints include analyses of pfs , duration of response , os , retrospective investigation of whether the anticancer activity of glembatumumab vedotin is dependent upon the degree of gpnmb expression in tumor tissue and safety . based on current projections , we believe enrollment will be completed in the second quarter of 2016. we have entered into a collaborative relationship with precog under which they will conduct a phase 2 study in squamous cell lung cancer . this study is expected to open to enrollment in the first half of 2016. we have also entered into a cooperative research and development agreement , or crada , with the national cancer institute , or nci , under which nci is sponsoring two studies of glembatumumab vedotin—one in uveal melanoma and one in pediatric osteosarcoma . both studies are currently open to enrollment . the uveal melanoma study is a single arm , open label study in patients with locally recurrent or metastatic uveal melanoma . the primary outcome measure is orr . secondary outcome measures include change in gpnmb expression on tumor tissue via immunohistochemistry , safety , os and pfs . the osteosarcoma study is a single arm , open label , evaluation of adolescent and adult patients with recurrent or refractory osteosarcoma . the co-primary objectives are to determine whether glembatumumab vedotin therapy either increases the disease control rate at 4 months in patients with recurrent measurable osteosarcoma as compared to historical experience and or whether glembatumumab vedotin therapy produces an objective response rate greater than 20 % in patients without previous eribulin ( eribulin mesylate ) treatment . secondary outcome measures include safety , pharmacokinetics and the relation of gpnmb expression as measured by immunohistochemistry to clinical response . varlilumab varlilumab , a fully human monoclonal agonist antibody , binds and activates cd27 , a critical co-stimulatory molecule in the immune activation cascade , primarily by stimulating t cells to attack cancer cells . restricted expression and regulation of cd27 enables varlilumab specifically to activate t cells , resulting in an enhanced immune response with a favorable safety profile . varlilumab has also been shown to directly kill or inhibit the growth of cd27 expressing lymphomas and leukemias in vitro and in vivo . we have entered into license agreements with the university of southampton , uk for intellectual property to use anti-cd27 antibodies and with medarex ( now a subsidiary of the bristol-myers squibb company , or bms ) for access to the ultimab technology to develop and commercialize human antibodies to cd27 . patient treatment is complete in the open label phase 1 study of varlilumab in patients with selected malignant solid tumors or hematologic cancers at multiple clinical sites in the u.s. initial dose escalation cohorts were conducted to determine an optimal dose for future study , and no maximum tolerated dose was reached . the lymphoid malignancies dose escalation arm completed enrollment 70 ( n=24 ) , and a new cohort was added to include evaluation of t cell malignancies . an expansion cohort was also added at 0.3 mg/kg dosed once every three weeks in patients with hodgkin lymphoma ( n= up to 15 ) . the solid tumor arm , which included patients with various solid tumors , completed dose escalation in 2013. two expansion cohorts were subsequently added at 3 mg/kg dosed weekly in metastatic melanoma ( n=16 ) and rcc ( n=15 ) to better characterize clinical activity and further define the safety profile in preparation for combination studies . we presented updated data from this phase 1 study in november 2014. varlilumab was very well tolerated and induced immunologic activity in patients that is consistent with both its mechanism of action and preclinical models . a total of 86 patients have been dosed in the study . 55 patients have been dosed in dose escalation cohorts ( various solid and hematologic b-cell tumors ) , and 31 patients have been dosed in the expansion cohorts ( melanoma and rcc ) at 3 mg/kg . in both the solid tumor and hematologic dose-escalations , the pre-specified maximum dose level ( 10 mg/kg ) was reached without identification of a maximum tolerated dose . the majority of adverse events , or aes ,

liquidity and capital resources we incurred losses of $ 8.8 million and $ 9.2 million for the years ended december 31 , 2015 , and 2014 , respectively . at december 31 , 2015 , our accumulated deficit was $ 319.4 million . for the year ended december 31 , 2015 , we used net cash of $ 7.2 million to fund operating activities . for the year ended december 31 , 2014 , net cash of $ 0.8 million was provided by operating activities . our operating losses to date have been funded primarily through the private placement of our equity securities , the public sale of our common stock , long-term debt , development agreements with partners and the exercise of founders ' warrants , net of treasury stock repurchases . equity financing on october 16 , 2013 , we entered into an at-the-market equity distribution agreement with macquarie capital ( usa ) inc. , or mcusa , pursuant to which we could sell our common stock through mcusa from time to time up to an aggregate offering price of $ 10.0 million . the at-the-market equity distribution agreement with mcusa was terminated on may 22 , 2015 , and as of such date , we had completed sales to mcusa totaling 2,127,500 shares of common stock at prices ranging from $ 2.01 to $ 4.45 per share , generating gross and net proceeds of $ 5.3 million and $ 4.5 million , respectively .

we estimate that clinical trials of the type we generally conduct are typically completed over the following timelines : clinical phase estimated completion period phase 1 1 - 2 years phase 2 1 - 5 years phase 3 1 - 5 years the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol , including , among others , the following : the number of patients that ultimately participate in the trial ; the duration of patient follow-up that seems appropriate in view of results ; the number of clinical sites included in the trials ; the length of time required to enroll suitable patient subjects ; and the efficacy and safety profile of the product candidate . we test potential product candidates in numerous preclinical studies for safety , toxicology and immunogenicity . we may then conduct multiple clinical trials for each product candidate . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain product candidates in order to focus our resources on more promising product candidates . an element of our business strategy is to pursue the research and development of a broad portfolio of product candidates . this is intended to allow us to diversify the risks associated with our research and development expenditures . to the extent we are unable to maintain a broad range of product candidates , our dependence on the success of one or a few product candidates increases . regulatory approval is required before we can market our product candidates as therapeutic products . in order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval , the regulatory agency must conclude that our clinical data is safe and effective . historically , the results from preclinical testing and early clinical trials ( through phase 2 ) have often not been predictive of results obtained in later clinical trials . a number of new drugs and biologics have shown 63 promising results in early clinical trials , but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals . furthermore , our business strategy includes the option of entering into collaborative arrangements with third parties to complete the development and commercialization of our product candidates . in the event that third parties take over the clinical trial process for one of our product candidates , the estimated completion date would largely be under control of that third party rather than us . we can not forecast with any degree of certainty which proprietary products , if any , will be subject to future collaborative arrangements , in whole or in part , and how such arrangements would affect our development plan or capital requirements . our programs may also benefit from subsidies , grants , contracts or government or agency-sponsored studies that could reduce our development costs . as a result of the uncertainties discussed above , among others , it is difficult to accurately estimate the duration and completion costs of our research and development projects or when , if ever , and to what extent we will receive cash inflows from the commercialization and sale of a product . our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements , when appropriate , could significantly increase our capital requirements and could adversely impact our liquidity . these uncertainties could force us to seek additional , external sources of financing from time to time in order to continue with our business strategy . our inability to raise additional capital , or to do so on terms reasonably acceptable to us , would jeopardize the future success of our business . during the past five years through december 31 , 2015 , we incurred an aggregate of $ 351.8 million in research and development expenses . the following table indicates the amount incurred for each of our significant research programs and for other identified research and development activities during the years ended december 31 , 2015 , 2014 and 2013. the amounts disclosed in the following table reflect direct research and development costs , license fees associated with the underlying technology and an allocation of indirect research and development costs to each program . replace_table_token_13_th clinical development programs rintega rintega is an epidermal growth factor receptor variant iii , or egfrviii , specific vaccine for glioblastoma , or gbm . egfrviii is a mutated form of the epidermal growth factor receptor , or egfr , that is only expressed in cancer cells and not in normal tissue and can directly contribute to cancer cell growth . egfrviii is expressed in approximately 30 % of gbm tumors , the most common and aggressive form of brain cancer . rintega is composed of the egfrviii peptide linked to a carrier protein called keyhole limpet hemocyanin , or klh , and administered together with the adjuvant gm-csf . the fda and the european medicines agency , or ema , have both granted orphan drug designation for rintega for the treatment of egfrviii expressing gbm . the fda has also granted 64 fast track designation . in february 2015 , the fda granted rintega breakthrough therapy designation for the treatment of adult patients with egfrviii-positive glioblastoma . the phase 2a study of rintega referred to as activate was led by collaborating investigators at the brain tumor center at duke cancer institute in durham , north carolina and at m.d . anderson cancer center in houston , texas and enrolled 18 evaluable gbm patients . an extension of the phase 2a study referred to as act ii evaluated 22 additional gbm patients treated in combination with the current standard of care , maintenance temozolomide , or tmz , at the same two institutions . story_separator_special_tag based on current projections , we believe enrollment will be completed in the second half of 2016. treatment of metastatic melanoma : the phase 1/2 open-label , multi-center , dose escalation study evaluated the safety , tolerability and pharmacokinetics of glembatumumab vedotin in 117 patients with 69 un-resectable stage iii or stage iv melanoma who had failed no more than one prior line of cytotoxic therapy . the mtd was determined to be 1.88 mg/kg administered intravenously once every three weeks . the study achieved its primary activity objective with an orr in the phase 2 cohort of 15 % ( 5/34 ) . median pfs was 3.9 months . glembatumumab vedotin was generally well tolerated , with the most frequent treatment-related adverse events being rash , fatigue , hair loss , pruritus , diarrhea and neuropathy . in the subset of patients with tumor biopsies , high levels of tumor expression of gpnmb appeared to correlate with favorable outcome . in the seven patients whose tumors were found to express high amounts of gpnmb , and who were treated at the maximum tolerated doses across all dosing schedules , median pfs was 4.9 months . the development of rash , which may be associated with the presence of gpnmb in the skin , also seemed to correlate with greater pfs . in december 2014 , we initiated a single arm , open-label phase 2 study of glembatumumab vedotin in patients with unresectable stage iii or iv melanoma . the study includes approximately 10 sites in the united states and will enroll approximately 60 patients . the primary objective is to evaluate the anticancer activity of glembatumumab vedotin in advanced melanoma as measured by the orr . secondary endpoints include analyses of pfs , duration of response , os , retrospective investigation of whether the anticancer activity of glembatumumab vedotin is dependent upon the degree of gpnmb expression in tumor tissue and safety . based on current projections , we believe enrollment will be completed in the second quarter of 2016. we have entered into a collaborative relationship with precog under which they will conduct a phase 2 study in squamous cell lung cancer . this study is expected to open to enrollment in the first half of 2016. we have also entered into a cooperative research and development agreement , or crada , with the national cancer institute , or nci , under which nci is sponsoring two studies of glembatumumab vedotin—one in uveal melanoma and one in pediatric osteosarcoma . both studies are currently open to enrollment . the uveal melanoma study is a single arm , open label study in patients with locally recurrent or metastatic uveal melanoma . the primary outcome measure is orr . secondary outcome measures include change in gpnmb expression on tumor tissue via immunohistochemistry , safety , os and pfs . the osteosarcoma study is a single arm , open label , evaluation of adolescent and adult patients with recurrent or refractory osteosarcoma . the co-primary objectives are to determine whether glembatumumab vedotin therapy either increases the disease control rate at 4 months in patients with recurrent measurable osteosarcoma as compared to historical experience and or whether glembatumumab vedotin therapy produces an objective response rate greater than 20 % in patients without previous eribulin ( eribulin mesylate ) treatment . secondary outcome measures include safety , pharmacokinetics and the relation of gpnmb expression as measured by immunohistochemistry to clinical response . varlilumab varlilumab , a fully human monoclonal agonist antibody , binds and activates cd27 , a critical co-stimulatory molecule in the immune activation cascade , primarily by stimulating t cells to attack cancer cells . restricted expression and regulation of cd27 enables varlilumab specifically to activate t cells , resulting in an enhanced immune response with a favorable safety profile . varlilumab has also been shown to directly kill or inhibit the growth of cd27 expressing lymphomas and leukemias in vitro and in vivo . we have entered into license agreements with the university of southampton , uk for intellectual property to use anti-cd27 antibodies and with medarex ( now a subsidiary of the bristol-myers squibb company , or bms ) for access to the ultimab technology to develop and commercialize human antibodies to cd27 . patient treatment is complete in the open label phase 1 study of varlilumab in patients with selected malignant solid tumors or hematologic cancers at multiple clinical sites in the u.s. initial dose escalation cohorts were conducted to determine an optimal dose for future study , and no maximum tolerated dose was reached . the lymphoid malignancies dose escalation arm completed enrollment 70 ( n=24 ) , and a new cohort was added to include evaluation of t cell malignancies . an expansion cohort was also added at 0.3 mg/kg dosed once every three weeks in patients with hodgkin lymphoma ( n= up to 15 ) . the solid tumor arm , which included patients with various solid tumors , completed dose escalation in 2013. two expansion cohorts were subsequently added at 3 mg/kg dosed weekly in metastatic melanoma ( n=16 ) and rcc ( n=15 ) to better characterize clinical activity and further define the safety profile in preparation for combination studies . we presented updated data from this phase 1 study in november 2014. varlilumab was very well tolerated and induced immunologic activity in patients that is consistent with both its mechanism of action and preclinical models . a total of 86 patients have been dosed in the study . 55 patients have been dosed in dose escalation cohorts ( various solid and hematologic b-cell tumors ) , and 31 patients have been dosed in the expansion cohorts ( melanoma and rcc ) at 3 mg/kg . in both the solid tumor and hematologic dose-escalations , the pre-specified maximum dose level ( 10 mg/kg ) was reached without identification of a maximum tolerated dose . the majority of adverse events , or aes ,

liquidity and capital resources our cash equivalents are highly liquid investments with a maturity of three months or less at the date of purchase and consist primarily of investments in money market mutual funds with commercial banks and financial institutions . we maintain cash balances with financial institutions in excess of insured limits . we do not anticipate any losses with respect to such cash balances . we invest our excess cash balances in marketable securities including municipal bond securities , u.s. government agency securities , and high-grade corporate bonds that meet high credit quality standards , as specified in our investment policy . our investment policy seeks to manage these assets to achieve our goals of preserving principal and maintaining adequate liquidity . the use of our cash flows for operations has primarily consisted of salaries and wages for our employees , facility and facility-related costs for our offices , laboratories and manufacturing facility , fees paid in connection with preclinical studies , clinical studies , contract manufacturing , laboratory supplies and services , consulting , legal and other professional fees . to date , the primary sources of cash flows from operations have been payments received from our collaborative partners and from government entities . the timing of any new collaboration agreements , government contracts or grants and any payments under these agreements , contracts or grants can not be easily predicted and may vary significantly from quarter to quarter . 81 at december 31 , 2015 , our principal sources of liquidity consisted of cash , cash equivalents and marketable securities of $ 289.9 million . we incurred a loss of $ 127.2 million for the year ended december 31 , 2015. net cash used in operations for the year ended december 31 , 2015 was $ 98.9 million .

given the fixed price nature of much of our project work , if our initial estimate of project costs is wrong or we incur cost overruns that can not be recovered in change orders , we can experience reduced profits or even significant losses on fixed price project work . we also perform some project work on a cost‑plus or a time and materials basis , under which we are paid our costs incurred plus an agreed‑upon profit margin , and such projects are sometimes subject to a guaranteed maximum cost . these margins are frequently less than fixed‑price contract margins because there is less risk of unrecoverable cost overruns in cost‑plus or time and materials work . as of december 31 , 2018 , we had 5,208 projects in process . our average project takes six to nine months to complete , with an average contract price of approximately $ 597,000. our projects generally require working capital funding of equipment and labor costs . customer payments on periodic billings generally do not recover these costs until late in the job . our average project duration together with typical retention terms as discussed above generally allow us to complete the realization of revenue and earnings in cash within one year . we have what we believe is a well‑diversified distribution of revenue across end‑use sectors that we believe reduces our exposure to negative developments in any given sector . because of the integral nature of hvac and related controls systems to most buildings , we have the legal right in almost all cases to attach liens to buildings or related funding sources when we have not been fully paid for installing systems , except with respect to some government buildings . the service work that we do , which is discussed further below , usually does not give rise to lien rights . we also perform larger projects . taken together , projects with contract prices of $ 1 million or more totaled $ 2.51 billion of aggregate contract value as of december 31 , 2018 , or approximately 80 % , out of a total contract value for all projects in progress of $ 3.11 billion . generally , projects closer in size to $ 1 million will be completed in one year or less . it is unusual for us to work on a project that exceeds two years in length . a stratification of projects in progress as of december 31 , 2018 , by contract price , is as follows : replace_table_token_6_th 25 in addition to project work , approximately 16.0 % of our revenue represents maintenance and repair service on already installed hvac and controls systems . this kind of work usually takes from a few hours to a few days to perform . prices to the customer are based on the equipment and materials used in the service as well as technician labor time . we usually bill the customer for service work when it is complete , typically with payment terms of up to thirty days . we also provide maintenance and repair service under ongoing contracts . under these contracts , we are paid regular monthly or quarterly amounts and provide specified service based on customer requirements . these agreements typically are for one or more years and frequently contain thirty‑ to sixty‑day cancellation notice periods . a relatively small portion of our revenue comes from national and regional account customers . these customers typically have multiple sites , and contract with us to perform maintenance and repair service . these contracts may also provide for us to perform new or replacement systems installation . we operate a national call center to dispatch technicians to sites requiring service . we perform the majority of this work with our own employees , with the balance being subcontracted to third parties that meet our performance qualifications . profile and management of our operations we manage our 36 operating units based on a variety of factors . financial measures we emphasize include profitability , and use of capital as indicated by cash flow and by other measures of working capital principally involving project cost , billings and receivables . we also monitor selling , general , administrative and indirect project support expense , backlog , workforce size and mix , growth in revenue and profits , variation of actual project cost from original estimate , and overall financial performance in comparison to budget and updated forecasts . operational factors we emphasize include project selection , estimating , pricing , management and execution practices , labor utilization , safety , training , and the make‑up of both existing backlog as well as new business being pursued , in terms of project size , technical application and facility type , end‑use customers and industries , and location of the work . most of our operations compete on a local or regional basis . attracting and retaining effective operating unit managers is an important factor in our business , particularly in view of the relative uniqueness of each market and operation , the importance of relationships with customers and other market participants such as architects and consulting engineers , and the high degree of competition and low barriers to entry in most of our markets . accordingly , we devote considerable attention to operating unit management quality , stability , and contingency planning , including related considerations of compensation , and non‑competition protection where applicable . economic and industry factors as a mechanical and building controls services provider , we operate in the broader nonresidential construction services industry and are affected by trends in this sector . while we do not have operations in all major cities of the united states , we believe our national presence is sufficiently large that we experience trends in demand for and pricing of our services that are consistent with trends in the national nonresidential construction sector . story_separator_special_tag if we conclude otherwise , then we perform the first step of a two‑step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying value of the reporting unit . we estimate the fair value of the reporting unit based on a market approach and an income approach , which utilizes discounted future cash flows . assumptions critical to the fair value estimates under the discounted cash flow model include discount rates , cash flow projections , projected long‑term growth rates and the determination of terminal values . the market approach utilized market multiples of invested capital from comparable publicly traded companies ( “ public company approach ” ) . the market multiples from invested capital include revenue , book equity plus debt and earnings before interest , provision for income taxes , depreciation and amortization ( “ ebitda ” ) . there are significant inherent uncertainties and management judgment involved in estimating the fair value of each reporting unit . while we believe we have made reasonable estimates and assumptions to estimate the fair value of our reporting units , it is possible that a material change could occur . if actual results are not consistent with our current estimates and assumptions , or the current economic outlook worsens , goodwill impairment charges may be recorded in future periods . we amortize identifiable intangible assets with finite lives over their useful lives . changes in strategy and or market condition , may result in adjustments to recorded intangible asset balances or their useful lives . results of operations ( in thousands ) : replace_table_token_7_th 2018 compared to 2017 we had 36 operating locations as of december 31 , 2017. in the third quarter of 2018 , we completed one acquisition of a company that reports as a separate operating location in indiana ( the “ indiana acquisition ” ) . furthermore , in the fourth quarter of 2018 , we combined two operating locations into one . as of december 31 , 2018 , we had 36 operating locations . acquisitions are included in our results of operations from the respective acquisition date . the same‑store comparison from 2018 to 2017 , as described below , excludes six months of results for the indiana acquisition , which was acquired in july 2018 , as well as the first three months of 2018 for bch , which was acquired in april 2017. an operating location is included in the same‑store comparison on the first day it has comparable prior year operating data , except for immaterial acquisitions that were absorbed and integrated , or “ tucked-in , ” with existing operations . 30 revenue —revenue increased $ 395.0 million , or 22.1 % to $ 2.18 billion in 2018 compared to 2017. the increase included a 5.1 % increase related to the indiana and bch acquisitions and a 17.0 % increase in revenue related to same‑store activity . the same‑store revenue increase was broad-based , including an increase in activity at our north carolina operation ( $ 123.6 million ) , one of our virginia operations ( $ 25.4 million ) and our wisconsin operation ( $ 23.0 million ) . backlog reflects revenue still to be recognized under contracted or committed installation and replacement project work . project work generally lasts less than one year . service agreement revenue , service work and short duration projects , which are generally billed as performed , do not flow through backlog . accordingly , backlog represents only a portion of our revenue for any given future period , and it represents revenue that is likely to be reflected in our operating results over the next six to twelve months . as a result , we believe the predictive value of backlog information is limited to indications of general revenue direction over the near term and should not be interpreted as indicative of ongoing revenue performance over several quarters . backlog as of december 31 , 2018 was $ 1.17 billion , a 7.1 % decrease from september 30 , 2018 backlog of $ 1.25 billion and a 23.0 % increase from december 31 , 2017 backlog of $ 948.4 million . sequential backlog decreased primarily due to completion of project work at our wisconsin operation ( $ 25.5 million ) , our north carolina operation ( $ 25.1 million ) and one of our virginia operations ( $ 17.0 million ) . the year‑over‑year backlog increase included the indiana acquisition ( $ 27.2 million or 2.9 % ) . same-store backlog increased 20.1 % primarily due to increased project bookings at bch ( $ 68.5 million ) , one of our virginia operations ( $ 61.1 million ) and our alabama operation ( $ 33.9 million ) . gross profit —gross profit increased $ 80.0 million , or 21.8 % , to $ 446.3 million in 2018 as compared to 2017. the increase included a $ 12.0 million , or 3.3 % , increase related to the indiana and bch acquisitions and a $ 68.0 million , or 18.5 % , increase on a same‑store basis . the same‑store increase in gross profit was primarily due to increased volumes and improvement in project execution at our north carolina operation ( $ 23.3 million ) , bch ( $ 9.1 million ) and our wisconsin operation ( $ 6.8 million ) . as a percentage of revenue , gross profit remained relatively consistent at 20.4 % in 2018 as compared to 20.5 % in 2017 due to the improvement in project execution at our north carolina operation , offset by job underperformance at our california operation ( $ 3.7 million ) . selling , general and administrative expenses ( “ sg & a ” ) —sg & a increased $ 30.4 million , or 11.4 % , to $ 297.0 million for 2018 as compared to 2017. on a same‑store basis , excluding

liquidity and capital resources our cash equivalents are highly liquid investments with a maturity of three months or less at the date of purchase and consist primarily of investments in money market mutual funds with commercial banks and financial institutions . we maintain cash balances with financial institutions in excess of insured limits . we do not anticipate any losses with respect to such cash balances . we invest our excess cash balances in marketable securities including municipal bond securities , u.s. government agency securities , and high-grade corporate bonds that meet high credit quality standards , as specified in our investment policy . our investment policy seeks to manage these assets to achieve our goals of preserving principal and maintaining adequate liquidity . the use of our cash flows for operations has primarily consisted of salaries and wages for our employees , facility and facility-related costs for our offices , laboratories and manufacturing facility , fees paid in connection with preclinical studies , clinical studies , contract manufacturing , laboratory supplies and services , consulting , legal and other professional fees . to date , the primary sources of cash flows from operations have been payments received from our collaborative partners and from government entities . the timing of any new collaboration agreements , government contracts or grants and any payments under these agreements , contracts or grants can not be easily predicted and may vary significantly from quarter to quarter . 81 at december 31 , 2015 , our principal sources of liquidity consisted of cash , cash equivalents and marketable securities of $ 289.9 million . we incurred a loss of $ 127.2 million for the year ended december 31 , 2015. net cash used in operations for the year ended december 31 , 2015 was $ 98.9 million .